A trade war between the United States and Canada is brewing. Pharmaceuticals, of all things, are at the heart of the battle. The 1988 Canada-U.S. Free Trade Agreement, which later became the foundation for the North American Free Trade Agreement (NAFTA), put a stop to the expropriation of American pharmaceutical patents by Canada that had run rampant during the 1970s and 1980s. In the years since NAFTA, developments in international law have made it easier and less risky than ever to expropriate patents.
For example, during the HIV/AIDS crisis, the World Trade Organization made special rules that made “compulsory licensing” lawful, allowing Canada to authorize pharmaceutical companies in that country to copy drugs patented and controlled by American companies. In the time since, as there is no lingering AIDS-like health emergency, it has remained legal as long as certain procedures are followed.
Once a Canadian company has its government’s approval to copy a drug patented in the United States, it gains the right to also manufacture, sell, and even potentially export the drug. The American company who owns the patent pays the expense, as it is compensated only pennies on the dollar. What can be done about decisions such as this? Nothing. There is no legal recourse for the U.S. to take.
There would be several advantages for Canada when this compulsory licensing happens. The country’s pharmaceutical industry would grow, while the U.S. pharmaceutical industry would decline. Canadians would enjoy cheaper medications once the monopolies for patents of the American companies were broken. Canada’s publicly-funded Medicare system would also save billions of dollars.
Six of the world’s top ten pharmaceutical companies are American, and the industry contributes more lobbying dollars to Washington than the defense, automobile, and banking industries combined. Pharmaceutical patents are very valuable, and with drug prices increasing an average of 12% each year, having control over these patents is like owning gold mines. Any trade retaliation, especially one involving pharmaceuticals, will be felt not just on Wall Street, but also at the White House.
While many people normally wouldn’t advocate for compulsory licensing of anything, many others seem to be soft in opinion when it comes to pharmaceuticals – there are almost always better ways to obtain items rather than “borrowing” patents. However, that is exactly what a trade war is; it means using political power, loopholes, and economic power to make gains over your opponent while remaining legal.
Canada choosing to expropriate pharmaceutical patents of U.S. companies poses a real threat to the $1.3 billion American pharmaceutical industry – once Canada dismantles the U.S. patents, other countries will follow suit. The White House’s trade agenda includes calling for stronger patent protection from Canada in addition to other countries, including China, Japan, India, and Mexico.
Canada has threatened a pharmaceutical trade war with the U.S. in the past; in 2001 it involved anthrax drugs. Free global trade has kept peace for many years between the two countries, and many feel that neither side can afford to get wrapped up in a political pharmaceutical game of hard ball when it comes to patents.
