U.S.-Australia Free Trade Agreement -- Questions and Answers About Pharmaceuticals

What guidance has Congress given about pharmaceutical trade

For decades, Congress set trade negotiating objectives that called
for increased foreign market access for U.S. innovative medicines through tariff
cuts and strong protections for U.S. intellectual property. In the Trade Act of
2002, Congress provided additional guidance with negotiating objectives that
call for increased transparency in the pharmaceutical regulatory process,
consultative mechanisms, and addressing non-tariff market access issues such as
reference pricing.

How has the U.S. been dealing with international pharmaceutical
issues in trade agreements?

In earlier trade agreements, USTR worked to achieve congressional
negotiating objectives with provisions that eliminated or reduced duties on U.S.
pharmaceutical products, and with strong IPR provisions protecting patents for
pharmaceuticals and other innovative U.S. products. Over the past few decades,
market access and pricing issues also have been part of the U.S. trade dialogue
with Canada, Japan, Korea and China.

What are the key provisions regarding pharmaceuticals in the
U.S.-Australia FTA?

Based on new guidance from Congress in the Trade Act of 2002, the
Australia FTA was the first FTA to include specific provisions dealing with
non-tariff market access issues related to pharmaceuticals. The Australia FTA
achieves these objectives through provisions for increased transparency and
accountability and enhanced consultation in the operation of Australia’s
Pharmaceutical Benefits Scheme (PBS). These provisions are based in large part
on the Australian government’s own studies.

The PBS already has a process for determining which drugs it will
cover under its national health care program and the amount it will reimburse
for these drugs. In the agreement, Australia committed to the principle of
appropriately recognizing the value of innovative pharmaceuticals. The U.S. and
Australia also agreed to establish a Medicines Working Group to discuss emerging
health policy issues.

Does the U.S.-Australia FTA block imports of patented

The FTA imposes no new barriers to imports but reflects current
U.S. law, which gives any patent holder the right to control sales (including by
contract) of its product in the United States. This right, a core principle of
U.S. patent law for more than 100 years, applies to all U.S. patents, not just
pharmaceuticals. For example, toothbrushes, tape dispensers, semi-conductors,
printer cartridges, cameras, tools, and a vast assortment of other products
covered by U.S. patents have all benefited from these rights. The FTA does not
expand or diminish the current rights of U.S. patent holders. It simply reflects
long-standing U.S. law in this area.

Does the U.S.-Australia FTA prevent Congress from passing drug
re-importation legislation?

No. The FTA reflects current law in the United States. Nothing in
this FTA or any other trade agreement prevents Congress from changing U.S. law
in the future. Even if a dispute settlement panel found the

U.S. acted inconsistently with the FTA, it could not require
Congress to amend the law. Importantly, provisions in the FTA protecting patent
holders’ rights only apply to products under patent. This provision would have
no impact on importation of non-patented (generic) prescription drugs.

Does the U.S.-Australia FTA ban exports of pharmaceuticals from

No. Australian law, however, bans exports of pharmaceuticals if
such drugs are purchased under Australia’s Pharmaceutical Benefits Scheme (PBS).

Will the U.S.-Australia FTA raise the price of medicines in

The Government of Australia retains the right and authority to set
the prices of medicine under the PBS. The provisions of the pharmaceutical annex
to the Agreement will help improve market access for pharmaceuticals in
Australia by improving the transparency and accountability of Australia’s PBS

Are any existing or future U.S. health care programs subject to
the pharmaceutical provisions of the U.S.-Australia FTA?

USTR has worked closely with all relevant U.S. agencies to ensure
the FTA does not require any changes to U.S. health care programs. Procurement
of pharmaceutical products by the Veterans Administration (VA) and the
Department of Defense (DoD) is excluded from the Pharmaceutical Annex of the
agreement, and U.S. agencies already comply with other provisions of the FTA
dealing with government procurement, so no change to current practice will be

Procurement of pharmaceutical products by state Medicaid agencies
is excluded because coverage and reimbursement decisions are made by state
officials, not by federal health authorities.

The FTA’s transparency obligations may apply to certain
pharmaceutical reimbursement decisions under Medicare Part B, and current
Medicare practice is already consistent with the FTA. Medicare Part D, which
will take effect in 2006, will not be covered since coverage and payment
decisions are not directly made by Federal health authorities.