[Ip-health] Oxfam testimony on Bilatteral FTAs before the House Subcommittee on Trade of the Ways and Means Committee

[Mike Palmedo]

http://waysandmeans.house.gov/hearings.asp?formmode=3Dview&id=3D471

Statement of Gawain Kripke Senior Policy Advisor, Oxfam America

Testimony Before the Subcommittee on Trade
of the House Committee on Ways and Means

June 10, 2003

Mr. Chairman, Congressman Rangel, and Members of the subcommittee, thank
you for the opportunity to present the views of Oxfam America at this
hearing today. We appreciate the invitation and your interest in
gathering a variety of perspectives on the important issue raised by the
Chile and Singapore Free Trade Agreements.

Oxfam America believes that trade can be an important engine for
development and poverty reduction. Well-managed trade has the potential
to lift millions of people out of poverty. For this reason, Oxfam has
focused on global trade rules and trade agreements as an integral part
of our work to improve livelihoods and reduce poverty in developing
countries.

Trade agreements set the rules for ongoing trade relationships. They
present opportunities, but also risks for developing countries. That=92s
why we believe that it is very important to get the rules right; and why
Congress should look carefully at these FTAs to understand their
implications.

_Intellectual Property_

An important area of concern for Oxfam are the intellectual property
sections of the Chile and Singapore FTAs. Both FTAs include measures
that strengthen patent rights and enforcement around pharmaceutical
products. Both agreements go beyond the existing TRIPs agreement and
impose new requirements on our trading partners, implementing so-called
=93TRIPS-plus=94 provisions.

Many public health and intellectual property experts have warned that
=93TRIPS-plus=94 may undermine public health in poor countries. This concer=
n
has become a major issue at the WTO, and, in 2001, the primacy of public
health over patent rights was affirmed in the Doha Declaration by all
WTO members, including the United States. In 2002, Congress endorsed
this commitment as part of Trade Promotion Authority by instructing the
USTR to respect the Declaration in trade negotiations.

Unfortunately, Oxfam feels this commitment to public health is not being
upheld by the USTR. We are concerned about several =93TRIPS-plus=94
provisions included in the Chile and Singapore FTAs. At the root of
intellectual property rights systems is a balance between the interests
of patent holders and the public interest. The provisions of these FTAs
tip this balance inappropriately in favor of rights holders and, as a
consequence, may limit access to affordable medicines.

Most of these most are aimed at delaying the introduction of generic
competition, thereby prolonging the patent holder=92s monopoly. Generic
competition is crucial in bringing prices down to affordable levels, and
anything that delays the entry of generic products can have a grave
impact on access to affordable medicines.

Both the Chile and Singapore agreements contain =93TRIPS-plus=94 provisions=
.
However, there are more of them, and they are more extensive in the
Singapore agreement. The U.S.-Singapore Free Trade Agreement includes
provisions that:

* limit the use of =93compulsory licensing=94, an important mechanism for
governments to obtain affordable medicines. Compulsory licenses provide
an important safeguard to governments to counterbalance the monopoly
rights granted to patent holders. Compulsory licenses enable governments
to deal with public health problems or instances of abuse of patent
rights. The U.S.-Singapore FTA will make it more difficult for Singapore
to issue compulsory licenses in the public interest. The compulsory
licensing provisions of the FTA go beyond TRIPS, restricting the
circumstances under which this procedure can be used and expanding the
rights of patent holders at the expense of the government and the public
interest;

* delay or impede the introduction of generic competition by (a) linking
marketing approval to patent status, thereby preventing the immediate
introduction of generic competition upon patent expiry, (b) mandating
the protection of test data for five years, again delaying the
development of and marketing approval for bioequivalent generic drugs,
and (c) mandating the disclosure of applicants for generic marketing
approval;

* extend the term of patent protection to compensate for delays in
regulatory approval. This would also delay the introduction of generic
competition. Twenty years of patent protection is an adequate monopoly
for patent holders to recover investments and generate profit. Extending
this monopoly unfairly favors patent holders to the detriment of the
public interest in accessing affordable medicines;

* restrict parallel importation of medicines placed on a foreign market
at a lower price than in the home market. =93Parallel importation=94 is a
key means of obtaining affordable drugs and is not limited under the WTO
agreement on intellectual property (TRIPS). This provision may make
Singapore responsible for policing patent violations abroad, by
requiring Singapore to restrict parallel importation of certain drugs
based on the terms of licensing contracts in other countries. The WTO
TRIPS agreement leaves it to countries to decide whether or not to
provide for international exhaustion in their national IPR regimes, so
language in the Singapore FTA which limits parallel importation in any
way is =93TRIPS-plus=94.

In addition to the intellectual property concerns around access to
medicines, patent provisions of the Singapore-US Free Trade Agreement
restrict the flexibility accorded to governments under TRIPS to decide
the scope of what may be patented under their national laws. For
instance, both the Chile and Singapore FTAs require the patenting of
plants, which is a controversial issue among environmentalists and
indigenous communities. Under the WTO TRIPS agreement (Article 27.3 (b))
each country is free to decide how this issue will be regulated in
national laws.

Oxfam is particularly concerned that the IPR provisions of the Chile and
Singapore FTAs may serve as models for other trade agreements. The
pharmaceutical industry has lauded the recently Singapore FTA, noting
that =93it establishes key precedential provisions to be included in other
FTAs now being negotiated, including the FTAA=94 (p 1, IFAC report).

Experts have concluded that stringent IPR standards (a) do not lead to
increased innovation in developing countries, (b) may harm public
health, and (c) are not appropriate to countries of lower levels of
economic development. Using the Singapore and Chile FTAs as a template
for future trade agreements is dangerous and inappropriate. The FTAA,
for example, includes a number of poor countries facing health crises,
all of which are already subject to IPR protections provided under the
WTO TRIPS Agreement. Holding them to =93TRIPS-plus=94 standards of IPR
protection could undermine public health and the ability to deal with
crises such as AIDS. In addition, requiring the patenting of plants
should not be a priority for the USTR because it is a sensitive issue
that should be resolved in the context of a variety of development and
environmental considerations.

_Investment_

Oxfam is concerned that the investment rules in the Chile and Singapore
agreements serve as a poor template for future trade agreements, and
could undermine the ability developing country governments to assure
that foreign investment contributes to development goals. While the
investment provisions in the Chile and Singapore agreements are
problematic on their own, Oxfam is primarily concerned about the example
they set for future agreements with countries that desperately need
investment, but also need tools to make that investment serve human and
economic development.

Foreign direct investment (FDI) has the potential to stimulate economic
activity and create jobs in a manner that is consistent with local and
regional development strategies. However, for developing countries, the
quality of investment probably matters more than the overall quantity.
And the investment rules in the Chile and Singapore agreements restrict
the ability of governments to guarantee the quality of investment in
their countries. The Chile and Singapore agreements restrict the use of
performance requirements, an important tool to assure that investments
promote economic and social development. Through foreign investment,
developing countries hope to spur economic linkages up and down the
production chain. They often hope for technology transfer to allow
countries to develop their own production capacities and increase the
value added in country. But restrictions on performance requirements =96
such requiring use of local materials and technology transfers =96 means
that productive investments can be isolated from the rest of the
economy, offering little indirect benefit. In fact, the model often used
in developing countries often ensures that investments are confined to
enclave zones, with few, if any, backwards linkages to the domestic
economy. The case of Mexico under NAFTA is instructive. FDI flows to
Mexico between January 1994 and September 2002 reached an astonishing
$116 billion. However, nearly half of this has gone to manufacturing low
value-added goods in maquiladoras along the US-Mexico border.

Oxfam is troubled by the investor-to-state mechanism by which foreign
investors may bring complaints before international arbitral tribunals
when their business interests have been impaired by government actions
taken in the public interest. The potential use of this mechanism to
challenge regulations that are designed to protect public health,
safety, and the environment represents a serious threat to governments=92
ability to provide for the basic human rights of its citizens. Moreover,
Oxfam and many others are concerned that this investor-state dispute
settlement mechanism bypasses domestic judicial systems and does not
have an appellate process.

The experience of such mechanisms under NAFTA is not encouraging. Since
NAFTA came into force in 1994, corporations in all three
member-countries have used the investor-state mechanism to file cases
challenging domestic law that were designed to protect health, safety,
and environment. One of the most noteworthy cases brought under the
NAFTA Chapter 11 investor provisions is a 1997 complaint filed by the
U.S.-based waste disposal company Metalclad against the Mexican
government. Metalclad claimed that the Mexican state of San Luis Potosi
had violated its NAFTA rights when it prevented the company from opening
a waste disposal plant after the company had taken over a facility with
a history of contaminating local groundwater. The local government
denied Metalclad a permit to reopen the facility and later declared the
site part of a 600,000-acre ecological zone. Mexico was ultimately
forced to pay Metalclad over $15 million in compensation due to these
decisions.

Congress was clear when providing the authority to negotiate new trade
agreements that the investment provisions of new trade agreements should
not provide substantive rights to foreign investors beyond those
provided domestic investor. However, it is our judgment that the Chile
and Singapore agreements do not comply with this mandate. The provisions
in the Chile and Singapore agreements go beyond the set of guidelines
for regulatory takings and due process that have been established in
U.S. jurisprudence by the U.S. Supreme Court. This failure to
appropriately constrain the investment rules not only risks the
authority of foreign governments to protect the public health and
environment, but also the United States. For example, by failing to
appropriately and clearly limit the way in which the rules apply to
different types of property and by failing to include the critical
=91parcel as a whole=92 principle, the investment rules could limit the
ability of developing country governments =96 or the U.S. =96 to establish
development moratoriums on projects that are socially or environmentally
harmful.

We are also concerned that the Chile and Singapore agreements limit the
use of important policy tools that developing countries need to reduce
their financial instability in times of crisis. The Chile and Singapore
agreements restrict any measure that would impede the free flow of
capital, even in cases of emergency balance of payments problems.
Economists and policy analysts from range of perspectives agree that
this is a very poor idea. Recently, Jagdish Bhagwati and Daniel Tarullo
have argued that the ban on capital controls constitutes =93bad financial
policy, bad trade policy, and bad foreign policy and constitute a bad
trade-off for increased trade and investment flows (Financial Times,
March 17, 2003). On April 1, 2003, Bhagwati, Joseph Stiglitz, and Nancy
Birdsall testified before the House Financial Services Committee on the
capital control provisions of the Chile and Singapore agreements, noting
that the restrictions on their use constitute a major source of concern.
Even /The/ /Economist/ (May 3, 2003) has made the case for maintaining
capital controls as a viable policy alternative to prevent financial
instability.

In summary, the investment provisions in the Chile and Singapore
agreements are important to consider in their own right. But as a model
for future trade agreements, particularly for less developed countries,
they are terrible. In many of the poorest countries where Oxfam is
active, in Latin America and Southern Africa, our partners are extremely
concerned about ensuring that their governments will continue to play
their legitimate role of regulating investment in order that it
contribute to, not undermine, sustainable development.

Finally, The investment provisions in the Chile and Singapore agreements
also fail to provide sufficient protections for internationally
recognized worker rights and environmental standards. The agreements lay
out weak language that each party =93strive to ensure that it does not
waive or otherwise derogate from=94 its existing labor and environmental
standards. However, this does not commit countries to harmonize upwards,
to ensure that their laws comply with core labor standards as defined by
the International Labor Organization, or international environmental
standards.

_Conclusion_

Oxfam America appreciates the opportunity to testify today and to share
our concerns about the Chile and Singapore FTAs. From our perspective as
a development and humanitarian organization, it is hard to identify how
these agreements will promote the goals of sustainable development and
poverty reduction. On the other hand, neither Chile nor Singapore are
examples of countries that suffer the extremes of poverty and
vulnerability. In that sense, they are more truly trading partners, with
relatively robust and diversified economies. Our primary message today
is that the IPR and investment provisions of these FTAs would be
unacceptable for countries that have fewer options and have populations
at greater risk. As you know, the USTR is currently engage in
negotiations for trade agreements with countries where we believe a
different standard should be set. In particular, we hope for a much
improved outcome to the negotiations around a Central America Free Trade
Agreement, the Free Trade Area of the Americas, and the FTA with the
Southern African Customs Union.

Thank you again for this chance to share Oxfam=92s perspective.