It's time for Latin America to close the IP rights gap

It's time for Latin America to close the IP rights gap
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Mexico’s trade minister expects key issues to be resolved with the U.S. as soon as this week. The two countries are then expected to continue talks with Canada at the ministerial level. This coincides with a tweet from the president last weekend in which he announced, in the present tense, that now “We have fair deals, we have really fair deals, and we have many deals in the works, other countries that took advantage of us are no longer taking advantage of us.”

Earlier in the year, observers thought any deal would be a long shot. President TrumpDonald John TrumpHannity urges Trump not to fire 'anybody' after Rosenstein report Ben Carson appears to tie allegation against Kavanaugh to socialist plot Five takeaways from Cruz, O'Rourke's fiery first debate MORE had invoked national security exemptions in order to levy tariffs on aluminum and steel from all trade partners without congressional approval.

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There are other exemptions in U.S. trade law, and in all international agreements, that allow greater powers to be used. Believe it or not, trade allies, not Trump, are threatening to use them. This indeed should be considered as “taking advantage” of U.S. innovators, especially when health or financial crises that might precipitate their use don’t exist.

 

 “Compulsory licenses for public health” is one such exemption. It allows any country to break any pharmaceutical patent in order to import or manufacture it and the patent owner has to accept whatever compensation that government chooses. Basically, it’s eminent domain for medicines. The original intention is to allow governments the necessary tools to combat health crises or provide needed medicines in times of turmoil.

However, in Latin America, several countries are trying to mainstream this loophole. They are considered mostly Upper-Middle-Income or High-Income countries by the World Bank, they are not facing health emergencies, and in some cases they already dictate prices of the proposed drug they plan to break off-patent.

Latin America has benefitted from global trade especially after joining the WTO. Over the last decade at least 50 million people have been able to escape poverty, many joining a middle-class of global consumers which grew from 23 percent in 2000 to 35 percent in 2016. Foreign investment has also shot up like a hockey stick. Last year the region took in $135 billion, more than 14 times what it received the year before the WTO began. Importantly, life expectancy has also increased from 56 years in 1960 to 76 years in 2016.

One gap has not closed. According to the International Property Rights Index Latin America, after Africa and former communist states, is the worst in the world for protecting intellectual property rights. Historically, and unsurprisingly, the leading IP country in the world has been the United States (this year it is #2). Strong protections for IP have allowed the U.S. to create 45.5 million high-paying knowledge-intensive jobs that are responsible for 38 percent of value-added GDP. The U.S. also holds the IP rights for most of the world’s medicines and funds 44 percent of world medical R&D.

As long as Latin America refuses to streamline regulatory processes and protect patents and copyrights it will continue to attract investment for commodity extraction and t-shirt manufacturing rather than knowledge-intensive services. Perhaps more egregious, policymakers in countries like Chile, Brazil, and Colombia that otherwise have the correct fundamentals are opting out of contributing to the next generation of life saving medicines and forcing their highly trained researchers to continue their work abroad. Latin America deserves better.

These costs might be worth the perceived benefit of lower prices and immediate access if a country is actually experiencing a health crises or other emergency. Except, when compulsory licenses have been tried the benefits hardly emerge. In reality, prices for antiretrovirals under compulsory license “exceeded the median international procurement prices in nineteen of thirty case studies, often with a price gap of more than 25 percent,” according to a comprehensive study. In addition, in cases like Brazil’s, when the benefitting country insists on producing the treatment itself, the local manufacturer years to be ready.

The proven mechanism to increase access and lower costs for medicines is with increased competition. For instance, Gilead faced criticism after it priced its breakthrough Hepatitis C treatment at $1,000 a pill. The United States refused to enact price controls, like compulsory licensing. Instead buyers fought to negotiate prices and then competitor products were approved by the FDA. A year later the “cost for Hepatitis C drugs became less expensive than in Europe,” according to the largest U.S. pharmacy benefit manager.

On average, patent registrations can take up to ten years in Brazil and six in Argentina, seriously limiting price competition. These regulatory hurdles are real barriers to patients trying to access new medicines. In Colombia, only 21 of 220 new medicines approved in OECD countries between 2011 and 2017 are available on the market there. 

President Trump’s recent dispute with China should serve as another incentive for Latin America to close the IP rights gap and end discussion of compulsory licensing. It would not be unheard of for a president to threaten a trade remedy action in such a scenario.

Before compelling other countries to sign the Trade Related Aspects of Intellectual Property Rights (TRIPS) agreement Reagan created the 301 Watch List of countries that failed to adequately protect IP rights, and threatened unilateral action on Brazil and Korea for violating IP commitments.

Trump has made due on his word to protect U.S. intellectual property. He has also proven himself to be a seasoned negotiator that likes making good deals. Latin America, has much more to gain by dealing with the latter.

Philip Thompson is policy analyst for IP and trade at the Property Rights Alliance, a project of Americans for Tax Reform.