Remember how the Key government has justified being so very, very secretive about the Trans Pacific Partnership (TPP) because goodness me, you don’t negotiate these things in public? Well, guess who has just been negotiating the TPP in public? Trade Minister Tim Groser, that’s who. In an interview published yesterday in the influential Inside US Trade publication, Groser “signalled” to the Americans that he is “willing to be flexible on two key issues in the Trans-Pacific Partnership (TPP) negotiations: new disciplines for New Zealand’s pharmaceutical pricing agency and protections for geographical indications (or GIs).” (GIs are a system of quality assurance in dairy products.)
Groser seemed pretty confident in his Inside US Trade interview that he can both please the Americans, and manage any outcry that might break out here at home: “I am confident we can find ways that advance U.S. interests [on these two issues] without causing projectile political vomiting in New Zealand, and many of the other countries of the TPP,” Groser said. Plainly, by being seen to be seeking to “advance US interests” and by casting himself as a deal broker within the TPP, Groser would also be doing no harm at all to his bid to become the next head of the World Trade Organisation. Let’s just hope and pray that Groser’s personal ambition and New Zealand’s best interests manage to intersect at some point.
As Inside US Trade points out: “The U.S. is pressing New Zealand to agree to new disciplines that could make it easier for U.S. pharmaceutical companies to sell their products and protections for geographical indications (GIs)…The fact that Groser is willing to be somewhat flexible on this issue could be good news for U.S. negotiators.” Yep, that seems like a sound negotiating tactic. Give away Pharmac, one of your key bargaining chips – publicly – just as the next round of the negotiations begin. And in order to help out the Americans, at home and abroad : “According to Groser, the pharmaceutical pricing issue is important for the U.S. both for economic reasons and political reasons, as a satisfactory outcome in this area will help get a TPP deal through the U.S. Congress. Partly for those reasons, New Zealand is willing to “sit down and try to find ways to move forward and meet U.S. concerns within the parameters of political possibility,” he said. Furthermore:
Groser stressed that New Zealand would not “abandon” PHARMAC — although he doubted that U.S. companies were even aiming for or expecting such an outcome anyway — and also hinted that an acceptable outcome should not increase drug prices in New Zealand. “What our public is worried about is being forced by these large U.S. companies to pay more for their pharmaceutical products,” he said.
Right. Yet the way that these very same large US drug companies are proposing to attack Pharmac and thus make us all pay more for our pharmaceutical products is explained in my article “ The Neutering of Pharmac” in this month’s edition of Werewolf. Essentially, the drug companies plan to use the TPP to expose Pharmac’s decision-making processes to challenge by other clinicians, and to create a subsequent route of appeal. First, to question the clinical evaluations being made by Pharmac’s PTAC committee beforehand, and then to legally challenge Pharmac’s subsequent pricing and subsidy decisions. This is what the drug companies mean when they use the cheery-sounding euphemism “transparency” – a process that Labour’s trade spokesperson Clayton Cosgrove has told Werewolf he supports.
Inside US Trade puts it in similar terms: the TPP would “establish certain requirements on re-imbursement procedures for entities like PHARMAC, such as requiring them to complete such procedures within a specified period; to disclose rules, criteria and guidelines for re-imbursement procedures; and to provide companies opportunities to comment during the decision-making process.” (This would be in addition to the drug lobby-driven moves within the TPP to extend drug patents, and to include data protection provisions that would delay the entry of cheaper generics to the market.)
What would be the budgetary outcome of this “ transparency” that Groser is willing to be so flexible about? Well, Kevin Sheehy of Medicines NZ (the US pharmaceutical industry’s local lobby group) made it clear that the result would not be cost neutral for our health budget. Here’s how the Werewolf exchange went:
Given that the EU/Canada trade talks have thrown up such scarifying figures on how much the changes could cost Canada [$600 million to $3 billion can Sheehy provide any assurance that the changes he is seeking to Pharmac through the TPP would be cost-neutral for New Zealand? No, not really. “If you look at the cost per product, its very unlikely to make any difference at all. So again it gets back to not the price of pharmaceuticals, but the new volumes that should come onstream. So, if you look at the overall budgets spent on pharmaceuticals, that may grow. But its because you would fund more products.”
So that’s official. If what the pharmaceutical firms are asking for in the TPP came to pass, more money would need to be spent by government on drugs, and on a wider range of them – apparently because the grounds for rejection would be exposed to challenge potentially in court, with all the real and peripheral chilling effects on decision-making that this would entail.
The Americans have been here once before at least, as Inside US Trade also pointed out:
The U.S. established transparency disciplines for Australia’s Pharmaceutical Benefits Scheme (PBS) in its 2005 bilateral trade agreement with that country, which, among other things, allowed U.S. companies to appeal a determination by the PBS that a product should not be included on the list of drugs whose price is subsidized by the government.
The initial U.S. proposal in TPP, however, goes further because it allows drug companies to also mount an appeal of the reimbursement price that a drug-pricing agency has set.
In other words, and with Groser’s blessing, New Zealand stands to import via the TPP one of the worst aspects of the 2005 Australia/US FTA. And with extra bells on it this time, in that Groser is willing to be ‘flexible’ about (a) letting the drug companies appeal against Pharmac’s decision whether or not to put Drug X on the schedule of drugs that qualify for government subsidy whole also (b) allowing the price evaluation by Pharmac to be laid open to challenge if the drug companies decide they want more. This is suicidal stuff. Just as New Zealand begins to face all of the health costs of its ageing population, it also appears willing to compromise its health budget for decades to come, via the kind of concessions that are being offered to the drug companies within the TPP.
In Australia, some of the FTA downsides were avoided by dint of a clause that the Australians cannily insisted on inserting into the text to protect their discretion. That same wording has been relegated within the leaked texts, to the draft TPP Annex. Dr Deborah Gleeson of La Trobe University in Melbourne explained the gambit involved to Werewolf:
The contrast in wording between the TPP draft text and the 2005 Australia /US Free Trade Agreement is instructive. Gleeson: “There were some really important words put into the FTA – about re-imbursement being based on ‘objectively demonstrated therapeutic significance.’ That enabled Australia to retain the ability to use reference pricing…. That [same] wording does appear in the TPP Annex, but not in the part of the text that’s about how the re-imbursement amount is determined. [Instead] there is some wording in the text about how the amount should be determined on the basis of ‘competitively derived market prices’, or alternative benchmarks that ‘appropriately recognize the value of patented or generic pharmaceutical products.’ But there’s no mention of therapeutic significance in that [re-imbursement] part of the text.”
What Groser needs to do – if his pledges to defend Pharmac are anything more than weasel words – is to guarantee that the wording on “objectively demonstrated therapeutic significance” is situated not merely in the Annex, but within the main body of the text, and right where the re-imbursement mechanisms are set out. That seems the only way that Pharmac can safeguard its use of therapeutic reference pricing – which is the method whereby it bases the price the government pays for a drug on its objectively proven therapeutic benefits, and not on whatever “competitively derived market prices” the drug companies think they can get away with charging. Yet what we seem to be seeing from Groser and Co. and with the tacit support of the Labour Party – is a quiet collusion in the gutting of Pharmac, even as they claim to be defending it.
And the quid pro quo? Some of the trade-offs have to do with Geographical Indications (GIs) which are a dairy industry quality assurance system, akin to rules of origin. Inside US Trade says:
On GIs, by contrast, the U.S. and New Zealand are on the same side of the issue. Both countries are large dairy exporters, and companies in both are threatened by the European Union’s efforts to convince third countries — including some TPP partners — to agree to strong GI protections for dairy products, especially cheeses. If these third countries agree to protect certain GIs, that could threaten the ability of U.S. and New Zealand dairy companies to export to those countries using certain labels, such as “Parmesan” cheese. The need to affix a different, potentially more confusing label to their products could drive down sales abroad, U.S. dairy companies fear.
Clearly, Groser is positioning himself to play a deal-brokering role, as the cooling voice of moderation on such issues:
Despite the fact that he does not favor strong GI protections, Groser argued that it is “dangerous and slightly naive” to insist on provisions that would essentially lock out the use of GIs among TPP members. He noted that GI protections are a priority for the EU, which is working through bilateral agreements with four TPP members — Canada, Malaysia, Brunei and Singapore — to establish GI rights.
“The European Union has enough political power to get other countries, which don’t feel nearly as concerned as Australia, the United States and New Zealand do about GIs, to agree to things that have dramatic impact on market access for our exporters,” he conceded. For that reason, Groser signaled that the best outcome in TPP may be one that is somewhat less than what businesses in the U.S. and New Zealand would ideally like… Similarly, New Zealand’s ambassador in Washington has said that TPP members were unlikely to reach key breakthroughs on sensitive products in Auckland. (Emphasis mine.)
Finally, the politics of the TPP are unfeasible at this point in its evolution, apparently, in Groser’s estimation:
The TPP is currently at the stage of a “mature negotiation” but is not yet at a level where political-level decisions can be made, he said. For example, the New Zealand is demanding market access in the U.S. for its dairy exports, a sensitive topic for the U.S. domestic producers, but coming to grips with that political issue at this round is not realistic, Groser said.
Groser also said the U.S. recognizes that “there’s no deal at all” unless market access for dairy is taken up, but that New Zealand is looking for leadership from the U.S. on moving forward with this issue.
Right. Feel better about the TPP now? Feel absolutely sure that Tiger Tim is treating New Zealand’s interests as uppermost, whatever the Americans may think and want? Or do you feel another round of “political projectile vomiting” coming on?
Footnote: while Inside US Trade has a paywall, taking out a free one month trial of their excellent publication will get you through the TPP talks in Auckland, at least.