Divide And Conquer: The New US Strategy To Disentangle The TPP Negotiations

By Burcu Kilic & Pablo Viollier, Public Citizen’s Global Access to Medicines Program

Spanish version (http://www.elmostradormercados.cl/destacados/opinion-divide-y-venceras-la-nueva-estrategia-de-estados-unidos-para-destrabar-las-negociaciones-del-tpp/)

Political leaders in Washington and other Trans-Pacific Partnership (TPP) negotiating countries have set the end of May as the latest deadline for completion of the talks.

The negotiations have already missed several such deadlines, so who really knows? No one.

But there is something we all know: TPP raises significant concerns because negotiations are being held behind closed doors with details kept secret even from the legislatures in TPP countries. The final document will set rules for the Asia-Pacific Region and affect millions of people in the Pacific Rim. The TPP is a “trade” deal that mostly does not deal with trade. Of the TPP’s 29 draft chapters, only five deal with traditional trade issues. The rest deal with intellectual property rights, access to affordable medicines, internet freedom, regulation of financial markets, state owned enterprises, and an investor-biased dispute resolution system. As the negotiations reach their final phase, the public has a right to know the contents of this agreement and needs to play a role in the process.

While negotiations took place in Hawaii last month, media outlets reported the US proposal to use secret bilateral “side letters”. Side letters have been used in previous bilateral US free trade agreements (FTAs) but they are not highly regarded. A side letter typically reflects an understanding regarding one issue between two parties to the agreement. The legal status of a bilateral side letter is dubious. It is not considered a part of the official text, and does not offer the same terms to the other signatories. It removes a topic of controversy from the negotiation, to make a negotiation easier to conclude. But it does not so much change the controversial standard as it provides a sort of limited exception for one country.

Inside US Trade, a subscription-based news service, reported that the US has proposed a side letter to Chile, which would enable the US-Chile Free Trade Agreement (FTA) provisions to prevail over those contained in the TPP with regard to the implementation of a patent linkage system. More recently, Politico Pro, another subscription-based news service, reported that Chilean Vice Minister of Trade Andrés Rebolledo stressed that Chile’s level of development makes the patent rules it agreed to under its US FTA already enough to bear. “The way to deal with that we are flexible,” he said. “There are different kind[s] of elements you could introduce in a free-trade [negotiation] like side letters and other declarations, but we are flexible.”

This is quite important because the US-Chile FTA did not include a certification process in which the US Trade Representative (USTR) officials become directly involved in drafting that country’s relevant law and regulations, demand to review and approve proposed laws before they are presented to the other country’s legislature and delay certification until the US is satisfied the new laws meet its requirements. The TPP, on the other hand, is subject to a certification process, in which the USTR individually approves the implementing legislation of every other party before the US fulfils its TPP obligations for those countries.

US-style patent linkage refers to a system that establishes that the health regulatory agency in a country, in this particular case, the Instituto de Salud Publica ( Chilean Food and Drug Administration), must refrain from granting marketing approval to a drug until any patents claimed to protect the product have expired. In practice, this means a substantial delay in the market entry of some generic drugs, crippling the capacity of consumers to access affordable versions of these medicines. Under patent linkage, even spurious patents that should never have been granted can block competition.

The US has included Chile in a “Priority Watch List” for several years, as a way of pressuring Chile to implement a patent linkage system that resembles its own. Chile’s position is that the Special 301 Report is a unilateral measure outside the margins of the FTA and doesn’t constitute a valid qualification instrument.

Nevertheless, there may be reason for concern that Chile would not be able to pass the TPP’s certification process without bowing to this particular patent linkage the US demands. Agreeing to this side-letter would allow Chile to implement the TPP without changing the status quo on linkage.

The implementation of patent linkage has been a source of constant controversy between both countries since FTA implementation in 2004. Chilean implementation has been subject to fierce criticism from the US side. Academics in Chile argue that the FTA does not force the implementation of a system that follows the US approach, and only states that each party shall “not grant marketing approval to any third party prior to the expiration of the patent term, unless by consent or acquiescence of the patent owner”. Chile’s system allows patent holders to oppose the granting of marketing approval to a product that is found to infringe a valid patent. In addition, patent holders may request the decree of any of the injunction mechanisms available in the Civil Procedure Code. These are known as prejudicial precautionary measures and can be used to prevent the granting of marketing approval until the product’s patent has expired. When patent holders do not act, they can be reasonably said to have acquiesced.

In this sense, a side letter confirming Chilean implementation of a ‘patent linkage’ system seems to be in Chile’s best interest. But the patent linkage controversy reflects a much broader, problematic dynamic. The TPP countries do not want the US-proposed intellectual property rules, or many of the other rules proposed for the other approximately 24 non-trade chapters. It is important that TPP countries do not merely agree to the US demands.

The leaked drafts of the intellectual property chapter from November 2013 and October 2014 – the only documents providing citizens and legislatures access to the details of the negotiation – reveal that Chile and many other countries oppose highly controversial US-proposed provisions dictated by multinational pharmaceutical companies.

Chile’s active negotiating position might be motivated by the fact that it doesn’t have much to gain (and plenty to lose) from the TPP; in fact, it has been tremendously effective opposing controversial US proposals. In private settings, multiple US industry lobbyists have complained, not without a slight admiration, that the Chilean negotiators have been “painfully competent”. In this matter, Chile has been a unifying player which has allowed the formation of a sort of common front for developing countries, challenging the intellectual property maximalism imposed by countries with gigantic pharmaceutical and content industries.

The side letters undercut the multinational nature of the TPP. And in this way, if the side letter serves to facilitate agreement where no real consensus exists, it will come at a cost to Chile and all TPP countries – because, in exchange for the side letter, Chile and other countries are likely to accept many harmful rules. This US “divide and conquer” strategy hampers IP negotiations and makes it less likely that countries will reach a well-balanced agreement which takes into account all concerns and challenges.

Politically, a side letter with the US may not relieve Chile of its obligations under the TPP with other TPP negotiating countries. This is particularly relevant in regard to Japan, which also has a sizeable brand-name pharmaceutical industry.

Legally, side letters are not recognized as an internal part of the agreement, a status which is given to annexes, appendices and footnotes. Every FTA that the US has signed recently, with the exception of NAFTA, has been completed with the use of side letters. None have recognized the side letters as integral parts of the agreements. In other words, side letters constitute a secret and informal agreement of a bilateral nature, which are part of a multilateral negotiation that should be transparent and open to democratic accountability.

Chile is in good company in the negotiations, sharing many positions with other TPP countries and leading the opposition to IP maximalism. Chile should not trade away its negotiating positions for side letters, the legal and political nature of which is highly ambiguous. Chile benefits most by staying strong against monopolistic rules dictated by the pharmaceutical industry.