The Multinational Monitor



U.S. Drug Trafficking in South America

DRUG LORDS PERSONIFY South America in North American media, which pay scant attention to a group of North American drug traffickers collectively known as pharmaceutical companies. Like the illegal drug lords, these multinationals carve out turf that yields fabulous profits at a heavy cost to public health.

One reason that drug-trafficking by multinationals has attracted little notice in the North is because it is conducted through arcane patent law revisions that act as media sedatives, even when they take billions of dollars from consumers (see "GATT Rx: Profit Overdose," Multinational Monitor, May 1995). Patents are intended to encourage innovation by granting inventors of a novel product a period of monopoly profits on the invention. Competing interests must be weighed in structuring these laws. If the patent period is too short, there could be a chilling effect on future innovations. If it is too long, new products could be priced beyond the reach of too many consumers for too long.

Patent laws often recognize a stronger public interest in some new products, such as life-saving drugs. Under U.S. pressure in conjunction with the U.S.-Canada Free Trade Agreement, Canada has changed its patent laws twice since 1987, each time moving further away from affordable drug policies toward greater multinational profits. As Chile seeks to join NAFTA, the United States is pressing it to tighten the screws on its patent laws. But Chileans are much more vulnerable to monopoly drug pricing than citizens of the United States, where the per capita gross domestic product is more than 10 times Chile's.

Just as inventors and consumers have different patent interests, so do developing and developed countries. With the world's leading research centers and massive government funding, developed countries -- especially the United States -- account for the vast majority of patents and demand the strictest intellectual property laws. By contrast, developing countries have a stronger interest in enhancing domestic production of, and access to, low-cost pharmaceuticals. Developing countries often endorse: shorter patent terms; rules that encourage North-to-South technology transfers; and compulsory licensing (which forces multinationals to license production rights to local producers to encourage competition and lower prices).

Although diverse interests shape differences in national patent laws, U.S. drug traffickers act as if Moses came down the mountain with U.S.-style patent laws divinely inscribed on pharmaceutical tablets. When governments tailor their patent laws to the interests of their citizens, Washington brands them as "pirates" and threatens retaliatory trade measures. The U.S. Trade Representative (USTR) has so threatened South America's two largest economies. Bowing to U.S. pressure, the executive branches in Brazil and Argentina are pushing new patent laws that are more acceptable to multinationals. But Brazilian President Fernando Henrique Cardoso and Argentine President Carlos Saúl Menem have met resistance from their legislatures, consumers, and, especially, domestic drug makers.

These proposed patent law changes would hurt the continent; Brazil and Argentina supply the whole region with low-cost drugs. In Argentina, opponents estimate that proposed changes would triple drug prices. Union and public health officials in Brazil predict that the proposal there would price many drugs out of the reach of 30 million of the country's poorest citizens. In advertisements that said that locally produced generic drugs cost a fraction of the cost of name-brand imported equivalents, ALANAC, a Brazilian drug trade group, asked, "Who are the real pirates?"

The USTR threatened to impose trade sanctions on Brazil in October 1995 if it had not adopted a U.S.-approved patent law. Brazil's patent bill has passed the House and key Senate committees. For now, the USTR seems to be sufficiently satisfied with these steps to postpone its threat. Frictions are hotter with Argentina.

When the Argentine Parliament passed a patent bill in March 1995 that reflected some interests of domestic producers and consumers, U.S. Ambassador James Cheek denounced the bill as fit "only for countries like Suriname or Burundi." Menem vetoed provisions of the bill that most offended the United States, but the Parliament overrode his veto. In September, the Parliament passed a "corrective law" that hastens the new patent law's effective date from the year 2003 to 2000. U.S. officials protested some corrective law provisions, such as a "transition period" that postpones patent royalty payments for five years and the law's refusal to retroactively subject "pipeline" drugs (that already have patent applications pending) to the new patent rules. In mid-October, an unusual Menem decree established a regulatory framework for the corrective law that eviscerates the transition period. The main opposition party denounced this move as "unconstitutional" and legislators vowed to pass another law to overrule Menem's decree.

Some proponents of the new NAFTA-GATT trade regime acknowledged that it would involve some sacrifices of national sovereignty. They argued, however, that this cost would be outweighed by the consumer benefits of expanded trade. But South American patent laws demonstrate how the new trade regimen can corrode self-determination and crowd out equity, even where important policy goals such as access to health care are concerned. Multinationals will reap the benefits of expanded patent drug trafficking, as wealth shifts from South American consumers to North American pharmaceutical giants and as monopoly drug prices rise beyond the reach of the poor.

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