Develop a Smart Trade agenda to promote investment
In the sixth blog in our series looking at the story behind the EFPIA Manifesto, Koen Berden, Executive Director for International Affairs at EFPIA highlights the importance of a smart trade agenda to promote investment. We believe such an agenda is vital to create the necessary framework conditions to support national health care systems under pressure from the prevalence of chronic diseases and ageing populations.
The often-heard critique with respect to trade policy is that it is very high-level and abstract with limited relevance for real-life challenges that patients face. So, let’s turn the starting point around and begin from the perspective of the patient. If you have blood cancer or hepatitis C, what you want is that your treatment will cure you or at least allows you to function as normally as possible in society. This applies to patients today and to patients tomorrow. What contribution can a smart trade agenda make to achieve this goal?
The EU trade policy toolkit
Two of the main tools that the EU has available to conduct trade policy are the multilateral trade agreements at the WTO (e.g. the General Agreement on Tariffs and Trade (GATT) and the Trade Related Aspects of Intellectual Property Rights (TRIPS)) and the bilateral/regional Free Trade Agreements (in different forms and shapes), like the EU-Canada CETA agreement, the EU-Mexico FTA, the EU-MENA DCFTAs, the EU-Singapore FTA, the EU-Japan FTA, etc. The most important export product of the EU is its ‘rules and regulations’ which the EU achieves through the very active use of these two policy tools. This engagement is the more important today when trade, openness and global investments are being challenged and at a time when – like never before – patients need global supply chains to work in order to keep on developing and producing new and innovative medicines.
Elements of a smart trade agenda
Foreign and domestic investments stimulate the economy, create jobs and production. But dynamically investment are even more important: investment in innovation and R&D will lead to new medicines and treatments for a healthier future for Europe. Using these agreements, we believe there are four ways in which a smart trade agenda promotes investment.
First, more traditionally, through making sure there is tariff-free trade for medicines and medicinal intermediate goods and raw materials. This allows medicines to be produced globally at the lowest cost – which is important for the entire pharmaceutical industry. Ensuring full tariff liberalisation in bilateral EU FTAs and updating the WTO zero-for-zero agreement would be the most important steps to take for the EU in support of this element of a trade agenda.
Second, through regulatory cooperation at sector-level for pharmaceuticals, the EU would be able to ensure that global regulatory alignment aims at the high standards in the EU for the production of medicines while at the same time allowing firms to reduce costs of regulatory compliance globally. Improving the quality of medicines is a particular challenge for the generic industry as the vaccines scandal in China has shown this year. Very important for patients (both adults and children) is also the fact that regulatory alignment in clinical trials would reduce the numbers of patients needed to test new medicines in clinical trial procedures. Because regulatory alignment would allow the same resources to be used more efficiently while at the same time reaching higher standards, this is the first smart element of the EU’s trade policy, applicable to the entire pharmaceutical industry. As such Global Regulatory Convergence could and should be greatly enhanced through the EU’s ‘Trade for All’ strategy.
Third, by driving an Intellectual Property (IP) framework that stimulates innovation and Research & Development (R&D) in its FTAs, the EU pursues the second smart element of the EU’s trade policy: a dynamic approach to innovation and economic development. ‘On the dynamic costs of trade restrictions’ (Journal of Development Economics, 2007) shows that it is exactly and only innovation and R&D that can drive long-term growth and industrial competitiveness for developing countries. For patients this means that new medicines and treatments and the cures for tomorrow continue to be researched as economic incentives for the large risks taken by the innovative pharmaceutical industry are provided. At this moment over 7.000 medicines are being researched in areas like cancer, neurological disorders, infectious diseases and immunological disorders. For patients with these conditions, this means that hope for a cure or a higher quality of life is real. As part of a smart trade agenda, we therefore call on the EU to make sure the IP framework in the EU is strengthened and FTAs are used to share this EU IP framework globally.
Fourth, smart trade stems from including horizontal chapters in EU FTAs that promote high standards in general. For example, the EU is able to support Small- and Medium Sized Enterprises (SMEs) that are particularly prevalent in biotechnology, via a specific chapter for SMEs. The EU supports sustainability via a ‘trade and sustainable development’ chapter in its FTAs, which includes elements related to labour and environmental standards. These provisions aim to ensure that the benefits generated by FTAs are shared more broadly and take into account social, environmental and human rights effects.
The pharmaceutical industry is the largest individual sector contributor to the EU trade surplus (with Euro 95 billion in 2017), creates over 750.000 direct jobs in Europe and countless more indirect ones. The industry has the highest R&D intensity with R&D accounting to 15% of net sales (2016) which amounts to Euro 33.4 billion in R&D expenditures in 2016. The EU’s global FTA strategy has responsibility and the potential of allowing this innovative model to spread and ensure the EU remains a global standard setting and leader in R&D which will continue to lead to new medicines and treatments reaching patients, not only in the EU but also elsewhere.