[Ip-health] Dean Baker: Thailand takes the lead in promoting free trade

[Dan Beeton]

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http://english.hani.co.kr/arti/english_edition/e_editorial/198793.html
[1]The Hankyoreh
[Column] Thailand takes the lead in promoting free trade
By Dean Baker, co-director of the Center for Economic and Policy Research
Thailand's government has taken the unusual step of challenging one of the
world's most powerful industries in order to better the health of its
population. Thailand's government issued compulsory licenses on several
important AIDS and heart drugs, reducing the price of these medicines by close
to 70 percent. This step will allow the Thai government to provide health care
to a much larger share of its population.
The Thai government's policy also creates the hope for a future with free
trade in pharmaceuticals and a 21st century approach to financing prescription
drug research. For this reason, it is an extremely important example that
deserves the support of people concerned with both public health and economic
growth. If Thailand's model is followed elsewhere, the antiquated system of
patent-financed pharmaceutical research may finally be replaced by a modern
system of open source research.
While there has been a worldwide movement to reduce barriers to trade for a
wide variety of manufactured and agricultural goods, trade in pharmaceuticals
has gone the opposite route. Responding to pressure from the pharmaceutical
industry, the U.S. government has imposed rules that extend and tighten patent
monopolies in a long set of trade agreements, most importantly in the TRIPS
provisions of the 1994 WTO agreement.
In the absence of patent protection, virtually all drugs would sell for low
prices. With few exceptions, drugs can be manufactured and marketed at very
low cost. Drugs are only expensive when pharmaceutical companies are granted
patent monopolies on drugs that are essential for people's health or life.
Because they have patent monopolies, companies can demand, and people will
pay, very high prices for drugs.
The compulsory licenses granted by the Thai government circumvent patent
monopolies. They require the patent holders to license the patent to generic
drug producers for a nominal fee, usually around 5 percent of the sale price.
By allowing generic competitors to produce the drug, the market price will
fall much closer to the actual cost of production.
The U.S. and European pharmaceutical industries are furious at the Thai
government. They worry that other countries may follow Thailand's lead, which
could sharply reduce their profits. Ultimately, they claim that it could take
away their ability to finance research into new drugs.
Of course, if all countries followed Thailand's model, including the United
States, it probably would destroy the industry's current research model, which
would be a very good thing. Patent support is an incredibly inefficient way of
financing pharmaceutical research. According to studies from Tufts University
in the United States, the real cost of researching new drugs has been rising
by more than 7 percent a year, even as research costs in other areas are
plummeting due to the explosion of computer power and the expanding research
capabilities of developing countries.
Patent supported research also encourages corruption in the research process.
The promise of large patent rents gives drug companies enormous incentives to
conceal unfavorable research findings or even to lie about their results.
Patent rents also encourage marketing efforts to doctors and patients to
promote the use of drugs in cases where they may not be beneficial to
patients' health.
More inefficiency results from the fact that the pursuit of patent rents leads
to excessive secrecy in the research process. Drug companies want to make sure
that they will be the ones to profit from their research, so they only
disclose information necessary to get patents and/or drug approvals.
Patent monopolies also cause a large portion of research spending to be
diverted to developing copycat drugs that largely replicate the function of
existing drugs. According to the pharmaceutical industries own data, close to
70 percent of its research spending is used to finance the development of
copycat drugs, rather than breakthrough drugs that offer qualitative
improvements over existing drugs.
There are alternative methods for financing drug research. The United States
government already spends close to $30 billion a year supporting biomedical
research through its National Institutes of Health. This is almost as much as
the $40 billion that the industry claims to spend each year on research. There
is no obvious reason that the United States, and other governments, could not
increase research funding by enough to offset the loss of funding by the
pharmaceutical industry.
If research were publicly funded, then all the patents could be placed in the
public domain so that the new drugs could be sold as generics. This would save
consumers worldwide more than $US300 billion a year compared to what they pay
under the current patent system. It would also mean that far fewer people
would ever be denied life-saving drugs because of their price.
The developing world will have to take the lead in any effort to bring the
pharmaceutical industry into the 21st century. While it is easy to show that
the patents are an archaic and inefficient method of financing drug research,
the pharmaceutical industry is incredibly powerful in the United States and
Western Europe. Few politicians would dare challenge its fundamental
interests.
However, if other countries follow the lead of Thailand, the patent system for
prescription drugs may go the way of central planning in the Soviet Union. The
market is a powerful force, and even the pharmaceutical industry will not be
able to hold it back forever.
Please direct questions or comments to [englishhani@hani.co.kr]

Dan Beeton
Center for Economic and Policy Research
1611 Connecticut Avenue, NW, Suite 400
Washington, DC 20009
Phone: 202 293 5380 x104
Fax: 202 588 1356
E-mail: beeton@cepr.net / www.cepr.net[2]

===References:===
  1. http://english.hani.co.kr/arti/english_edition/e_editorial/198793.html
  2. http://www.cepr.net/