Over the five years since the United States and South Korea entered into the U.S.-South Korea Free Trade Agreement, or KORUS, our ally has repeatedly backstabbed American biopharmaceutical firms and undercut their intellectual property rights. Thankfully, top U.S. officials could soon level the playing field and defend American job-creators.
South Korea’s efforts to weaken biopharmaceutical patents threaten our companies’ ability to develop breakthrough medicines. Biopharmaceutical firms face long, costly, arduous research-and-development paths. It takes more than a decade and $2 billion to bring just one drug to market. Companies can’t undertake the risk and expense of creating a viable new therapy without patents, which protect their drug design against copycats and thieves — including government thieves.
KORUS was supposed to protect American biopharmaceutical companies’ intellectual property. But the South Korean Ministry of Food and Drug Safety is now undermining the agreement.
The abuses are so severe that the U.S. pharmaceutical sector has asked the U.S. Trade Representative to place South Korea on its Special 301 watch list to pressure South Korea to comply with IP protections.
Here’s how the Korean ministry is failing to comply. It exercises overly broad discretion on whether to add a new drug product to its official “Green” list, which offers comparatively stronger patent protections or demote a patent to a lower listing that offers fewer protections. This amounts to government rationing of patient access to newer, better medications. South Korea only covers about two-fifths of new medicines for cancer, the deadliest disease in that country. In the United States, more than four out of five new cancer drugs are reimbursed.
Further, this Korean ministry gives American firms only nine months to stay the sale of potentially infringing versions of a patented pharmaceutical. That hardly allows sufficient time to resolve a patent dispute. Once the nine months pass, South Korea effectively enables patent infringers to enter the market and deprive U.S. patent-owning companies of injunctions and damages.
The United States, by contrast, halts generic entries for up to 30 months, which gives innovator companies sufficient time to pursue patent-infringement suits.
Making matters worse, South Korea uses a centralized government price-control system in healthcare. The health ministry depresses payments for cutting-edge medicines by reimbursing medicines at the average price of all products — including generics — in the same therapeutic class. That’s not exactly playing clean ball.
The same government price-control regime violates South Korea’s trade standards. Its “Plan of Improving Drug Pricing System” sets higher reimbursements for Korean-designed drugs compared to medicines made in America or other countries.
KORUS also supposedly provides an independent review process regarding pricing or reimbursement decisions.
However, the South Korean government denies this reasonable due process to American pharmaceutical firms. The reason? The government’s monopsony power to dictate health care prices is deemed a “negotiation” rather than a “determination.”
Perhaps most troublingly, the South Korean government has sought to impose its rules and restrictions on internationally competitive U.S. firms outside its own borders. This sort of disregard for American national sovereignty and market competition has grave implications if allowed to stand.
South Korea promised to abide by a rules-based system that would afford American competitors fair, transparent, predictable, and honest dealings with its government. It has broken that promise — and now its shenanigans threaten to slow the progress of the U.S. biopharmaceutical industry.
This matters to the average American. The biopharmaceutical industry supports 4.5 million American jobs. In 2015, we exported $55 billion of pharmaceuticals. If South Korea gets away with skirting KORUS and undermining these sales, Americans can kiss many of these jobs goodbye.
Fortunately, trade realists including President Trump, Commerce Secretary Wilbur Ross and White House trade advisor Peter Navarro may soon make the Koreans sorry they unsheathed their knives on the Ides of March.
James Edwards, CEO of ELITE Strategic Services LLC, consults on intellectual property and health policy for a variety of corporate, association, and conservative organizations.
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