For over two decades, the North American Free Trade Agreement (NAFTA) has been at the center of heated debates over the effects of trade, economic integration, and globalization. However, the trilateral trade agreement, comprising Canada, the United States, and Mexico, may soon be replaced by a new agreement between the three states— the United States-Mexico-Canada Agreement (USMCA). Announced on October 1, 2018, the new (and more difficult to pronounce) trade agreement still needs to be ratified by each of the three nations before it is officially implemented. In the United States, this will require the signature of the president and the approval of the Senate.
Although USMCA does not appear to radically upend trade relations between the three countries, its ratification would usher in a variety of noteworthy changes. For instance, the Canadian trade negotiators made a significant concession in the deal, agreeing that the country would provide 10 years of patent protection for biological pharmaceuticals. Mexico agreed to the same provision in August of this year. Biological pharmaceuticals, more commonly referred to as biologics, are drugs that are manufactured inside of some living system, including plant and animal cells. Biologics thus differ from traditional pharmaceuticals, which are chemically synthesized. Biologics are considered to be innovative forms of medical treatment, and they are oftentimes the only available form of medicine for a variety of different maladies.
In the same way patents are important to entrepreneurs engaged in various business activities, patents are needed within the pharmaceutical industry in order to spur research, development, and innovation. However, critics maintain that the patent system in the United States is partially responsible for the exorbitant costs of many pharmaceuticals in the country. Indeed, drugs in the U.S. tend to be much more expensive than they are in other countries. This has created a system whereby American consumers functionally subsidize the pharmaceuticals of the rest of the world: the high prices paid by Americans provide the large cash flows that are needed to incentivize drug makers to development new medications. As a result, without the high prices paid by consumers in the U.S., the world might see significantly fewer new pharmaceuticals come to market—or so the argument proceeds.
In the United States, biologics are currently provided 12 years of patent protection. So in agreeing to USMCA, Canada was not forced to match the current American regulations. However, the agreement to provide 10 years of protection against biosimilars (the biologic equivalent of a generic drug) represents a two-year increase from previous Canadian regulations. As a result, the provision has sparked cost concerns in Canada, with analysts worrying that it will lead to higher drug prices; biologics are reportedly used in half of the 10 most expensive drug treatments in Canada and represent a steadily growing portion of the cost of public health plans in the country. This is a particularly notable concern because Canadian politicians are currently entertaining the idea of enacting a national pharmacare program. Meanwhile, American proponents of the deal see the agreement as a major win, arguing that the provision will ensure that Americans bear less of the burden of pharmaceutical research and development.
While the merits of the American insistence on heightened protections for biologics are debatable, it seems clear that the United States is committed to making increased patent protection of biologics a priority in trade negotiations. In fact, the USMCA provisions represent only the latest chapter in the seemingly bipartisan pursuit of such a policy. Before the U.S. ultimately withdrew from the Trans-Pacific Partnership (TPP), a major worry for the Obama Administration in the negotiations was the length of biologic patents. With the Trump Administration apparently committed to renegotiating America’s trade deals around the world, observers should continue to expect American trade negotiators to press this point with other countries. Perhaps such agreements will, in the long-run, help to reduce the cost of pharmaceuticals in America. But consumers should not hold their breath in the hopes that immediate relief is coming down the pike.*
*Luke Barbour is an articles editor on the Michigan Technology Law Review. He can be reached at barbourl@umich.edu.