Trade & Investments

Transparency for Healthcare Annex

The Annex for Pharmaceutical Products and Medical Devices accompanies a yet-to-be-released Chapter on Transparency and Procedural Fairness. The Annex is concerned with regulating how national agencies, such as Australia’s Pharmaceutical Benefits Advisory Committee (PBAC) and New Zealand’s Pharmaceutical Management Agency (PHARMAC), determine which medicines and medical devices are eligible for government subsidies through healthcare access programmes. It is important to note that not all member countries have these types of programmes in place, and that the Annex does not apply to government procurement of medicines or medical devices.

Two drafts of the Annex have so far been released. The first dates back to 2011, while the second is a revised version by Australia, Japan and the United States. When compared, the documents give a good sense of the evolving nature of TPP negotiations, with a lot of the clauses objected to in the Annex’s earlier iteration having been completely removed by 2014. While the latest version of the Annex will likely be subject to further change, the information so far released provides an indication of what negotiators are trying to achieve.

As the title of the overarching Chapter implies, the driving force of the Annex is to improve transparency and ensure procedural fairness during the course of determinations. To this end, the Annex outlines specific procedural standards for relevant authorities, such as setting timeframes for considerations of listing pharmaceutical products or devices; allowing applicants and the public to make comment during the process; providing applicants with information regarding the reason for determinations; and distributing written information to the public regarding decisions.

Commentators have pointed out that these standards would have a bearing on the way New Zealand’s PHARMAC currently administers its determination process, as it does not work against designated timeframes, nor does it publicise the methodology it uses to arrive at a certain outcome. By increasing transparency around how agencies make decisions, it is expected that producers will be better able to customise their applications and benefit from greater certainty as to whether a product is likely to be listed.

Intellectual Property

The Intellectual Property (IP) Chapter is among the most contentious in the TPP. Attempting to codify the highest standards for the protection of IP, the Chapter builds upon existing international agreements, such as the Anti-Counterfeiting Trade Agreement (ACTA) and the Agreement on Trade-Related Intellectual Property Rights (TRIPS), as well as domestic regulations. In many instances, however, it exceeds these prevailing requirements. The most comparable FTA in terms of scope is the United States-Korea Free Trade Agreement (KORUS). Leaked drafts of the text reveal that the US is pushing hard for comprehensive IP provisions as part of the TPP, while the myriad of bracketed text in the Chapter shows that it faces strong resistance from some other member countries.

The Chapter outlines a number of new provisions in relation to trademarks, which effectively expands the scope of trademark protections. For example, while the existing World Trade Organisation agreement on IP – TRIPS - explicitly limits trademarks to signs which are visually perceptible, the Chapter extends trademark rights to include sounds and scents. It also devolves trademark protection status to goods which, while not officially registered, are sufficiently “well known” that any use of a “similar” sign for the promotion of a similar good would likely cause confusion. This affords parties exclusive rights for the use of such signage, and the ability to prohibit third-party usage. The Chapter also provides greater clarity around the use of geographical indicators (GIs) on packaging, seeking to curb the practice of including symbols intentionally designed to give a false impression of a good’s provenance.

Patent protections are also bolstered through the Chapter. One of the more controversial instances of this is in relation to eligibility for the granting of a patent. Most existing agreements stipulate that a patent only be granted if the product or process is “new”, included an “inventive step” and is “capable of industrial application.” While the TPP retains this language, it also inserts a clause which states that any new forms, uses or methods of using a product will be eligible, “even if such invention does not result in the enhancement of the known efficacy of that product.” Such wording has not appeared in other FTAs. This will likely result in an increase in the issuance of patents, and provide the ability for companies to re-patent a core product or method through minor modifications.

The Chapter also widens the scope of what inventions can be patented, specifying that animal and plant inventions are eligible. Another notable IP clause is the strengthening of data protections. Pharmaceutical companies, for example, are granted exclusivity for any data they submitted as part of the approvals process for a new product. Biopharmaceutical companies that have invented a product will be granted data exclusivity for a period of 12 years. The intended effect of this clause is to disallow bio-similar or generic producers from accessing the clinical data needed to secure approval. On a domestic level, there is no such requirement in some member countries, while a 5-year period applies in Australia, and a 12-year one in the United States. The extension of data exclusivity is seen as acknowledging the time, capital and risk associated with the development of bio-products.

Copyright laws will also be expanded under the Agreement, with the introduction of 70 years protection for a piece of work after the life of the author. A minimum period of 90 years from first publication is also set. While most existing FTAs with the United States already mandate this term of copyright, some such as NAFTA only required protection for 50 years after the life of an author.

Copyright provisions in the Chapter also seek to curb violations of copyright, criminalising the unauthorised sharing of copyrighted material on a commercial scale, even if the purpose was not for financial gain. This will likely precipitate crackdowns on the practice of file sharing. On a related matter, the Chapter clamps down, by making illegal, the circumvention of “digital locks” intended to protect copyrighted materials. These locks are typically put in place to regulate, for example, a user’s access to content specific to certain geographical areas, or restrict the amount of devices on which they can access content with restriction.

Investment Clauses

Investment Chapter

Drafts of the TPP investment chapter were leaked in 2012 and March 2015. Similar to the terms negotiated in previous FTAs involving the United States, the Chapter seeks to broaden the definition of investment beyond “real property” to include non-tangible assets, such as intellectual property, and introduce an Investor-State Dispute Settlement (ISDS) provision. It bears a strong resemblance to the United States’ Model Bilateral Investment Treaty (BIT). Leaked documents show that negotiations on this Chapter have been fraught with difficulty, with the profusion of square brackets in the text (denoting objections) suggesting several provisions still need to be finalised.

The Chapter takes a holistic view of what constitutes an investment, specifying that it “means every asset that an investor owns or controls, directly or indirectly, that has the characteristic of an investment, including such characteristics as the commitment of capital or other resources, the expectation of gain or profit, or the assumption of risk.”3 Reflecting the diverse nature of investments in today’s world of global trade, the broadening of the definition is important in ensuring that a majority of investments are protected by safeguards outlined in the Chapter.

One of these safeguards is the guarantee of National Treatment and Most Favoured Nation status, which provides that foreign entities should receive no less favourable treatment than domestic ones, and more generally, “fair and equitable” treatment.

Related to this is a clause protecting investors from the direct or indirect expropriation of assets.

As Annex II-B clarifies, indirect expropriation is “where an action or series of actions by a Party has an effect equivalent to direct expropriation without formal transfer of title or outright seizure.”4 While this implies that indirect expropriation occurs when an investment simply incurs a monetary loss by virtue of government behaviour, the Annex clarifies that an adverse effect on the economic value of an investment does not establish a sufficient burden of proof. Considered on a case-by-case basis, other factors that have to be considered include “the extent to which the government action interferes with distinct, reasonable investment-backed expectations.”5

Given the nebulous wording of this clause – leaving open to interpretation what constitutes “reasonable” expectations – a footnote has been inserted to clarify that this would include instances when a government has provided written assurances that a certain regulatory regime will apply. While critics of the clause have suggested that this could open the door to foreign investors suing governments on the basis of simply creating regulations, the preamble to the Chapter and the Annex attempt to assuage such fears by affirming the right of governments to create their own regulations, particularly those relating to public welfare objectives.

The Chapter also codifies the right of investors to repatriate capital to their own territory. This clause would have the effect of restricting a government’s ability to impose capital controls, except in situations where such measures would be required to prevent or counter a financial crisis.

A key component of the Chapter is its Investor-State Dispute Settlement (ISDS) provisions. Following on from the United States’ BIT, and other FTAs with ISDS clauses, such as the North American Free Trade Agreement (NAFTA) and KORUS, the TPP allows private parties to lodge complaints against a state to either the United Nations Commission on International Trade Law or the International Centre for Settlement of Investment Disputes, in instances where an investor’s rights have been violated. Qualified arbitrators preside over these cases, and will determine whether a violation has taken place, and if so, prescribe an appropriate level of compensation.

These institutions do not have the power, however, to rescind a regulation or law which was responsible for the violation to begin with. While ISDS provisions are now commonplace in most FTAs, this component of the Chapter is considered controversial. Some countries are seeking carve-outs for certain sectors and bodies, such as Canada for its cultural industries, and Malaysia for government procurement, while Australia has expressed a desire to be uniformly exempt, as it did in the Australia-United States Free Trade Agreement.

More in this category: « Conclusion Background and History »

Leave a comment

Make sure you enter all the required information, indicated by an asterisk (*). HTML code is not allowed.

Pacific Basin Economic Council

Unit 2803-06, 28/F, Harbour Centre, 25 Harbour Road Wanchai, Hong Kong
Tel +852 2815-6550  |  Fax +852 2545-0449  |  Email info@pbec.org

© 2017 Pacific Basin Economic Council. All Rights Reserved. Designed By PCG-Asia