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In the name of ‘free trade’ our public health care system is forced to swallow another poison pill

There has been a substantial amount of discussion surrounding the Comprehensive Economic Trade Agreement (CETA) with the European Union (EU), but when it comes to the media one thing that seems to have slipped under the radar is the hugely detrimental affects this deal could have on our public health care system.

Last week we saw two leaks of full text for the Comprehensive Economic and Trade Agreement (CETA) the Harper government has secretly been negotiating.  First on Wednesday, we saw over 500 pages of the capricious deal, and then yesterday another 1000 frightening pages of important annexes and reservations (or the lack there of in some cases from Canada).  Reading through the text it is apparent that Harper acquiesced to the EU’s most dangerous demands without putting up any fight for Canadians.

After receiving numerous phone calls and messages regarding the impacts of CETA on our public health care system (if it is ratified by the EU) it is clear there is a lot of confusion.  To clear this up and better understand the implications, the article below highlights some of the important issues: how trade deals are used as a Trojan to weaken our health care, what CETA will end up costing our health care system, the implications of ‘patent term restoration’ and ‘data protection’ in changes CETA will have for our drug costs and generic pharmaceuticals, and the threat the ‘investor state dispute settlement’ mechanism in CETA will have for our public health policy.  

It is understandable that most people are unsure of what CETA will do to our public health care system. Maude Barlow went on the record to highlight that, “Throughout the process, this agreement and its devastating impacts have been kept locked away from legislators and the public, shielded from a democratic process.”

Brent Patterson (Political Director of the Council of Canadians) pointed out that the leak “is really a first chance for the public to be able to scrutinize the deal the way we should have been given the right to do months or years ago… I think this final text shows us that we’ve had every reason to be concerned about procurement and investor-state and certainly other provisions of the deal.”

After years of secret horse trading and back room deals this leak confirms what a lot of us were suspecting, Harper is selling out Canada.  With this we see the hyperbole, propaganda, semantics and outright lies coming out of Ottawa reaching a new high water mark.  Despite the fact Canadians are the big losers in CETA, the deal is about the optics of ‘economic leadership’ and ‘action plans’ for the conservatives, not sound economic policy. 

While there are many aspects to how CETA –if ratified- could negatively affect all Canadians, one of the more concerning aspects is regarding our public health care.  Putting aside the free trade proselytizing that comes out of parliament hill so often, after unpacking the details of this agreement it is clear our public health care is being forced to swallow a poison pill.

While much of the language and legal framework surrounding these types of deals is at best complicated and at worst completely opaque jargon, there are some important points that can be simplified and sussed out.

To understand CETA implications on health it needs to be put in a larger trade context.  This deal is a part of a new aggressive wave of trade deals being pushed (like NAFTA on steroids).  We see global capital and the government backers of predacious capitalism taking the opportunity to lay waste to the right of national governments to right to legislate public policy for its citizens in favour of ‘corporate rights’. Under the guise of economic action, cutting the red tape, or whatever propaganda is in vague, these deals are not about simply trade but are about eroding democratic sovereignty.   Or as economist Jim Stanford explains, “The more troubled the global economy becomes, despite (or because of) decades of free trade medicine, the more rose-coloured are the predictions of the gains expected from the next free trade deal.  The promised gains from trade are always just around the corner, to be unlocked by new twists in trade negotiations (and proselytized with the help of new twists in quantitative economic modeling).”

As Paul Moist and Maude Barlow accurately predicted last year, “Canada has tied a single issue – market access for agricultural goods like beef and pork – to the EU’s most important demands, including patent extensions for pharmaceuticals (contained in a broader intellectual property chapter)… The EU is asking Canada to change its pharmaceutical patent regime to extend protections to brand name drug companies at the expense of generic competition. Delaying generic drugs by even a year or two will have huge financial consequences for our public health care system, and Canadians in need of affordable prescription drugs. Wondering why Canada would be talking about pharmaceutical policy at all in what is supposed to be a trade deal? You are not alone.” 

In these types of trade agreements we see health impact assessments made by trade departments who lack the understanding of health policy needs and requirements.  This is like having Kevin O’Leary write a report on the need for universal Medicare.  What excluding health from CETA would have done is “merely safeguards the right of democratically elected governments to maintain policy space for regulation, licensing, cost-containment and limiting or reversing commercialization, where this is in the public interest.”

After reading through the leaked CETA document it is now even clearer that Harper sold out Canada and the EU walks away like thieves from the deal. First, on the surface level Canada’s trade deficit with the EU will increase further.  Canada is expected to export goods and services to the EU by $12.5 billion while the EU would be able to increase its exports to Canada by $25 billion.  But the larger issue is how the deal will open up procurement policies, patent laws, and public policy to European standards. In most cases, but especially with regard to health care, it is clear there will be severe negative implications.

It is estimated the changes to patent protection for pharmaceutical drugs will cost our public health care system anywhere between $800 million to $1.7 billion annually.  This is up to 13% of the total drug costs Canadians pay annually (paying directly, through insurance plans, or by provinces). Internal documents from the federal government also estimated that the additional costs for patented drugs could be up to $2 billion, how they arrived at this figure and what it foreshadows is unknown.

On the other hand, Canadian exporters predicted to gain only about $226 million from the elimination of virtually all industrial tariffs once the deal comes into place.  It doesn’t take an accountant to figure out this is an appalling deal for Canadians and it is little wonder Harper wanted to keep it secret.

So what is going on with CETA and pharmaceuticals to create such an astronomic cost?

As an excellent report last year showed at $900 per person, “On a per capita basis, Canadian drug costs are already the second highest in the world, after the United States. Canada also has one of the fastest rising drug costs per capita among OECD countries. This unwelcome situation is partly due to Canada’s industry-friendly intellectual property policies, which include a generous pricing system and broad protection of brand-name pharmaceuticals.”  CETA will only further tilt, “the balance towards the protection of brand-name drug manufacturers and their profits and away from Canadian consumers.”

The CETA agreement does a number of things which we should all be concerned about.  First, it commits Canada to creating a new system of ‘patent term restoration’ which will end up significantly delaying the entry of generic medicines onto the market by two years. Under the World Trade Organization’s TRIPs agreements patents on pharmaceuticals run for 20 years from the time the application is filed.  With the CETA there will be an extra two years tagged onto the length of patents under ‘patent term restoration’ to supposedly account for the time between when the original patent was filed and when it got to market.  There is a continuing myth that approvals of new drugs are slower in Canada, yet this has been shown to be complete fabrication.  The real impetus is that in the world of pharmaceutical companies this hand out in CETA means many millions of dollars extra for the patent holders and additional costs for Canadians who need these drugs.  More so, for better or worse intellectual property rights already subject to extensive rules under TRIPs, they have no place in investment protection and trade provisions or be subject to ISDS (more on that later).  This erosion sovereignty in CETA is an unneeded interference of the Canadian courts’ thoughtful interpretation of the internationally accepted ‘utility doctrine’ (which means an invention needs to be applicable and useful, not hypothetical or unproven).

CETA also locks Canada into terms of ‘data protection/exclusivity’, which makes it incredibly difficult for future Canadian governments to change limits on the length of time a drug has exclusivity to the market place.  More specifically ‘data’, relates to the safety and efficacy information brand-name companies generate through their clinical trials to get their drugs approved.  During this period the brand company has a monopoly on the sale of what is called ‘innovative’ drugs (i.e. new). Generic drug manufacturers tend to rely on this data when they seek approval for their generic version to get to the Canadian market.  CETA will fortify the current 5 year period where the brand data is protected, and importantly make it impossible for a future government to shorten this arbitrary wait time. Studies predict that with CETA this could this could mean that, the percentage of drugs having extended market exclusivity jumps from 24% to at least 45%, and likely higher.”  Lastly, “An extension of data protection would therefore extend the total market exclusivity period not only for drugs not having overlapping patent protection but also for drugs poised to lose patent protection following a successful patent challenge. Extending data protection would delay the time until a generic company could even begin to challenge weak patents.”

Outside of these big two points (patent term restoration and data protection), CETA will also allow a new right of appeal under the patent linkage system and further delay cheaper generic drugs for Canadians and our health care system.  As for the Europeans they don’t have to change anything with regards to their IP rights and legislation, only Canada is being affected in this way by this deal.

The Harper government’s lie is that all of this will create incentive for brand-name manufacturers in Canada and in Research & Development (R&D).  Yet, if we look to our past these types of Faustian bargains have been struck with the pharmaceutical industry before.  In 1987 brand name pharmaceutical companies were given greater market exclusivity in Canada in exchange for the promise that they would invest 10% of their sales into R&D.  Yet, in the last 10 years these brand name pharmaceutical companies have failed to meet their end of the deal.  Well CETA will raise the patented drug cost by around 13%, analysts have shown that, “according to the latest data, in 2012 the R&D-to-sales ratio fell to 6.6 percent. It is thus expected that the R&D-to-sales ratio will decline even more, since CETA will artificially inflate sales due to higher costs without increasing R&D expenditures… Instead of penalizing the brand-name drug industry for not respecting its commitment, the clauses about patented drugs in CETA mean that Canada has chosen to further extend market exclusivity for brand-name drugs, without requiring any commitment in terms of R&D investment from the brand-name pharmaceutical companies.”

The last point worth highlighting is with regard to the much maligned Investor State Dispute Settlement (ISDS) mechanism. As a background, ISDS is “a parallel quasi-judicial arbitration system which allows foreign companies to sue national governments for measures which are deemed to unfairly undermine the profitability of their investments in that host country. Canadians are well familiar with this corporate kangaroo court because, unfortunately, we helped to invent it [in NAFTA].”  These systems effectively elevates foreign companies to the level of sovereign governments while allowing them to side step domestic laws and challenge a governments public interest policies before foreign tribunals.  The tribunals themselves are comprised of, “three private sector attorneys, unaccountable to any electorate. Many of the tribunalists rotate between serving as “judges” and bringing cases for corporations against governments. Such dual roles would be deemed unethical in most legal systems. In this “club” of international investment arbitrators, there are fifteen lawyers who have been involved in 55 percent of the total international investment cases… The tribunals operate behind closed doors, and there are no meaningful conflict of interest rules with respect to arbitrators’ relationships with, or investments in, the corporations whose cases they are deciding… Tribunalists are paid by the hour, creating an incentive for cases to drag out endlessly. Governments are often ordered to pay for a share of tribunal costs even when cases are dismissed. Given that the average costs for such procedures total $8 million, the mere filing of a case can create a chilling effect on government policy, even if the government expects to win.”

Researcher Scott Sinclair has pointed out in an excellent report that, “Canada has been sued far more under NAFTA’s Chapter 11 than its North American neighbours: some 35 times in total, with claims totalling many billions of dollars.  Indeed, Canada may be the nation most targeted by ISDS actions.  The docket of cases against Canada under Chapter 11 constitutes an offensive grab-bag of corporations’ willingness to put their own profits ahead of the public interest.  On topics as diverse as regulations on harmful gasoline additives, to generic drugs, to handling of toxic substances, to Quebec’s recent ban on gas fracking — in every case, the ISDS system is another potent club with which business can intimidate governments into accepting their economic and political dominance — and punish those which do not.” 

Public Citizen noted that, “more than $430 million in compensation has already been paid out to corporations in a series of investor-state cases under NAFTA-style deals… In fact, of the more than $38 billion in the 17 pending claims under NAFTA-style deals, all relate to environmental, energy, financial regulation, public health, land use and transportation policies – not traditional trade issues.”

Indeed, well fewer than 50 cases were filed in the first 40 years of the investor-state system, corporations have launched more than 50 cases in each of the last 3 years.  Using statistics provided by the United Nations Conference on Trade and Development, US and EU investors are most active users of the ISDS mechanism and together they account for 75% of the global number of known ISDS claims.  This is what the Harper government has opened our public health system up to with no regard for the on the ground effects it will have on ordinary Canadians.

There is no legitimate justification for ISDS in either the CETA or the TTIP.  Under the proposed CETA text it been highlighted that, “arbitration can still be invoked unilaterally by investors. Investors do not need to seek consent from their home governments and are not obliged to try to resolve a complaint through the domestic court system before launching an investor-state claim. Governments give their “unconditional, prior consent” to submit investor claims to binding arbitration, allowing investors to simply bypass the domestic courts. In effect, this establishes a private justice system exclusively for foreign investors, including the world’s largest and most powerful multi­national corporations.”

Trade Justice Network has pointed out that, “the proposed Fair and Equitable Treatment (FET) provisions in CETA and TTIP are amongst the most concerning. Again, we urge Europeans to consider the more than two decades of experience under NAFTA. As the TIRP/CCPA submission points out fully 88% of investor-state claims under NAFTA have invoked the minimum standards of treatment clause 1105. Incredibly, the Parties to CETA and the TTIP propose to significantly strengthen investor protections beyond what has already been problematic in NAFTA.”

Back to health policy.

 ISDS lawsuits serve to ‘chill’ the willingness of governments to make regulatory decision and measures in the public interest. The resent NAFTA Chapter 11 challenge by US pharmaceutical giant Eli Lilly highlights the danger in these provisions and may be the tip of the iceberg as we deal like CETA. These ISDS mechanisms like Chapter 11 allows foreign investors to take government decisions before an arbitration panel appointed by NAFTA to settle disputes, overriding a county’s court system and public policy legislation.

Eli Lilly has launched a challenge against the government of Canada for $500 million in damages over its patent-law regime after the company lost court rulings for two of its patents at all three levels of court; these decisions would allow cheaper generic versions to hit the market in Canada. It is reported that, “Lilly claims Canada’s courts have set the bar too high. But Canada argues that its courts have merely been applying a long-established principle in patent law, meant to disallow companies from unfairly shutting out competing researchers by ‘shot-gun’ patenting large groups of drugs without knowing whether they actually work. In the case of these two Lilly drugs, the Canadian government says, the company was trying to secure new patents on compounds it had already patented by promising that the drugs could be used to do something new.” So, reading between the lines, a corporation that has seen its revenue drop due to major patents expiring and does not like that our courts ruled against is using the ISDS mechanism to sue for half a billion dollars  (for a great detailed fact sheet this report).  Another company pharmaceutical company (Apotex) recently had their patent claim denied by the SCC but were granted leave this year and the Supreme Court will consider the validity of the PLAVIX patent (the “777 Patent”) for the second time. If this doesn’t go their way, expect another ISDS challenge similar to the Eli Lilly case. Not surprisingly, American regulators have already put Canada on the ‘naughty list,’ for having too loose of a patent regime, i.e. not completely biases in the favour of ‘big pharma’.

Law professor and Canadian Research Chair Michael Geist warned with the powerful European pharmaceutical lobby there are billions and billions more at risk. With CETA , “If the pharmaceutical giant succeeds, it will have effectively found a mechanism to override the Supreme Court of Canada and hold Canadian taxpayers liable for hundreds of millions in damages in the process. The cost to the health care system could be enormous as the two Eli Lilly patents may be the proverbial tip of the iceberg and claims from other pharmaceutical companies could soon follow.”

Reading through the annexes of CETA it shows Harper chose not to insist on any ‘carving outs with regard to Intellectual Property (IP) and pharmaceutical patents. Geist points out that, “The EU proposal for a joint understanding was adopted with some clarifying language and no carve out. The only real addition was a three year review, which ironically is a favourite giveaway for the Conservatives to the opposition (reviews were added to C-13 and C-36 over the past two months) when it seeks to show a willingness to compromise but not actually change anything of substance… In other words, Canada caved.” With CETA possibly to be signed and numerous bi and multi-national trade schemes in the works, the bizarre circus of the Eli Lilly affair will likely become a much more common occurrence. Corporations will have an increased opportunity to sue Canada and challenge reasonable laws and public policy that dares stands in the way on exploiting people for massive profits.

It gets worse.  Stephen Harper has also signed us on to the International Centre for Settlement of Investment Disputes Convention (ICSID) on December 1st, 2013.  While there is sometimes a small chance our courts could refuse to pay ISDS that go against Canada, under the ICSID regime you have to pay no matter what.

In another ICSID case that may explain German’s nervousness with regards to CETA, “a Swedish company is using ICSID to sue the German state for more than $4.5 billion over its decision to phase-out nuclear power. Given that there are 150 signatories to ICSID, many of whom have signaled some form of trade agreement with Canada, international companies may be looking to expose cracks in the Canadian legal regime.”  The beach head for these types of cases against Canada will likely come from EU and American pharmaceutical companies.

Law Professor Tolga Yalkin has explained, “there is a legitimate reason to worry about ICSID: It could suddenly give teeth to a whole slew of investment deals and treaties that previously had no real enforcement mechanism, or that have caveats carved out. And there would be no domestic oversight. ICSID creates an automatic requirement to pay up the reward if the tribunal decides there has been a violation, the unique characteristic of ICSID is that it’s self-enforcing.”

Under ICSID, there is no exemption for matters relating to public policy in Canada, including our public health care system. If CETA is ratified, the list of companies who could take advantage of this new system grows exponentially.  While Canadian resource and mining companies working internationally will ‘benefit’ from the ICSID process, our domestic policies and legislation will suffer. On both sides of these cases we end up having corporations being subsidized by Canadian taxpayers.

It has been pointed out that, “The cost of securing the overseas investments falls on the taxpayer; it’s the Canadian and Swiss taxpayers that foot the bill when their respective governments take actions that violate investment treaties. Investment treaties, therefore, represent a transfer from taxpayers to big business.”  With ICSID, “the role of Canadian courts and public policy protection are eliminated entirely. If Canada doesn’t agree with an ICSID award, it can only appeal the matter to an ICSID review panel. The review panel can only review the arbitral decision on a limited set of grounds, which don’t include public policy protection. Once the ICSID panel reviews, Canadian taxpayers must cough up. There are no further routes of appeal.” Again, our health policies will be at the forefront of this attack.

So, the situation isn’t good. 

CETA will compound many of the challenges we are currently facing with our Medicare as it tries to survive the Harper government’s favourite tool, death by a thousand public spending cuts. Since 1998, “overall drug spending surpassed spending on physicians as the second largest health care expenditure in the country. Even if we just consider prescription drug spending in 2012, the two were almost even at $29.96 billion for doctors and $27.73 billion for drugs.  From 1985 to 2006, drug spending consistently grew faster than overall health spending.”

This needs to be put in context with the fact that our government refuses to sign a fair and equitable Health Accord which means that Canadians will see cut of $36 billion to our public health without the Canadian Health Transfer (CHT).  This is a strategic plan by this government and something all Canadians should be very worried about.

Listening to Minster of Health Rona Ambrose speak today to the Canadian Medical Association there was not a single mention of the CHT or CETA. What we got was more flowery talk and hypocrisy from the minister with statements like, “We all want the same thing – the best healthcare system in the world to provide the highest quality healthcare for Canadians… And today I want to reinforce that our Government is at the table and we want to make sure Canadians have the highest level of care.”  It is clear that the Harper government’s plan to reassure Canadians in public that they are not attacking our public health care as they know Canadians value it greatly.  Yet, hidden in dense legislation and complicated trade agreements they are actively undermining the viability of Canadian Medicare and the well being of Canadians.

As Harper callously underfunds our public health care in order to engineer the environment for two-tiered health system, he has also created the situation under the provision in CETA that reversing privatization (even failed privatization) becomes much more costly and difficult.

With drug costs growing, Canadians will likely see a restriction in medicines the provinces can offer and money being taken out of other important areas of our health care system diminishing the quality and viability of our Medicare.  This will often mean the burden of cost passed onto the elderly and sick in many cases (those least likely to be able to afford it). People with no drug coverage who have to pay out of pocket are often those with precarious employment or minimum-wage jobs, the people who are the least likely to be able to afford the increase in drug cost.  According to a survey by Statistics Canada, 24% of Canadians have no drug coverage, and 8% of Canadians admit they did not fill a prescription in the last 12 months due to the costs of drugs, in many cases preventing Canadians from receiving the quality of health care they need.

 On the other hand, Universal Pharmacare would “not only make access to medicines more equitable in Canada and improve health outcomes, but also generate savings for all Canadians of up to $10.7 billion in prescription drugs. Canadians cannot afford not to have universal Pharmacare.”

It has been documented how inefficient the drug plans by private insurers are compared to public plans and that the, “premiums for such plans soared by 15% annually between 2003 and 2005, while drug costs rose 8% a year.”  These private insurers and their drug plans are most often compensated in the form of a percentage of expenditures, so their financial incentive is not to increase them as they receive tax subsidies on the order of 10% of their expenditures. Every year, about $933 million in tax subsidies could be recovered through a Universal Pharmacare Program. 

Private drug insurance plans also lack the bargaining power (and will) to pay less for drugs (7% more for generic drugs and 10% more for non-patented brand-name drugs).  Also, these plans formulas prefer all new expensive drugs even if they are no more beneficial to patients than cheaper existing drugs. CETA will undoubtedly be a boon to these private drug insurance plans at the expense of Canadians getting equitable and humane access to important medications.

Overall, it just doesn’t add up. Hopefully, CETA will serve as a rallying call for Canadians to demand this government protects our sovereignty and be a catalyst for a long overdue National Pharmacies program which would save Canadians billions.  Now more than ever we need to protect, strengthen and expand our public healthcare.