Amendment puts free-trade deal at risk

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SYDNEY, Australia -- A recently completed free-trade deal between the United States and Australia is at risk because the Australian Parliament forced a unilateral amendment to hold down the cost of prescription drugs.

The deal, which was signed last month by President Bush, is expected to create 30,000 jobs in Australia and spur economic growth in this country by $4.3 billion a year.

But Washington has not said whether it will accept the prescription-drug amendment forced on the government by the opposition Labor Party, which could cost American pharmaceutical companies millions of dollars. If ratified by both sides, the deal would go into effect Jan. 1.

If the deal is rejected in Washington, "then it would be entirely the fault of the Labor Party," charged Prime Minister John Howard, who faces a tough campaign for re-election next month.

As originally drafted, the free-trade treaty, for the first time, required manufacturers of generic prescription drugs to notify existing patent holders when they are applying to enter the market.

This raised concerns that drug companies could use the notification to make small changes to their drugs in order to extend the patents -- a practice known as "evergreening." The amendment pushed through Parliament seeks to make that practice more difficult.

The Bush administration has said it is troubled by the change.

"The concern we have about the amendment is that ... for patent law there is an attempt to carve out a special exception with regard to pharmaceuticals," said U.S. Ambassador to Australia J. Thomas Schieffer.

Even before the amendment, American drug makers had been critical of Australia's state-run Pharmaceuticals Benefits Scheme (PBS), which provides prescription drugs to Australians at a fraction of the prices paid in the United States.

Under the program, which has been hailed by the World Health Organization as a model for other countries, a committee negotiates with drug manufacturers to purchase pharmaceuticals for the whole country at the lowest possible price. Spending last year for all Australians was $3.7 billion in a population of 20 million people.

Where no deal is struck by the Pharmaceuticals Benefits Advisory Committee (PBAC), the manufacturer is free to sell the product on the open market, but buyers often will turn to a cheaper alternative.

Under the free-trade agreement, American firms are given a review mechanism to challenge a decision not to purchase any particular drug.

David Henry, a former PBAC official who teaches pharmacology at the University of Newcastle, said manufacturers are often eager to sell their products, even if there are no obvious benefits.

"Saying 'no' to a drug is tough, because the manufacturers will bring in medical specialists and groups who often side with the industry," he said.

Drug companies also are concerned that the free-trade agreement will make it easier to re-import cheap drugs back into the United States -- an issue that has become a problem with Canada.

Sen. Jon Kyl, Arizona Republican, said during a visit earlier this year that Australians cannot have it both ways.

"There is no such thing as a free lunch. Somebody has to pay for the research and development of these miracle drugs, and if we are all paying only the marginal cost -- the cost of producing the one- millionth pill -- then there isn't going to be sufficient return for the companies to do the investment," Mr. Kyl told the Australian Broadcasting Corp.

But Australians are protective of the PBS, and even the conservative prime minister has promised to protect the system.

"Our prime minister has given assurances that prices are not going to rise," said Brendan Grabau, consultant pharmacologist at Deaken University in Melbourne. He said any price increase has to be approved by the health minister, who decides on a PBAC recommendation, and the decision must be passed by both houses of Parliament.