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 of industry comments. In addition, however, industries – and in particular the pharmaceutical industry – have focused attention on regulatory regimes that impede their ability to sustain the cycle of innovation. These types of regulatory barriers include, for example, non-transparent administrative regimes; decision-making that lacks a scientific basis; and cumbersome and lengthy drug listing and other administrative processes.

In the conference report accompanying the Medicare Prescription Drug, Improvement and Modernization Act of 2003, the Congress directs the Secretary of Commerce, in consultation with the International Trade Commission, the Secretary of Health and Human Services and the United States Trade Representative, to prepare a report designed in part to provide an "[e]stimate of the impact . . . price controls, intellectual property laws and other such measures have on fair pricing, innovation, generic competition, and research and development in the United States and each" OECD country identified Regarding price controls, the conference report directs the Administration to examine drug pricing practices of OECD countries and assess, among other things, whether "those practices utilize nontariff barriers with respect to trade in pharmaceuticals."

The conference report reflects a concern that the regulatory practices of many countries may be slowing the development of the next generation of life saving drugs. Implicit in this proposition is a concern that, by adopting such mechanisms, foreign countries have chosen to rely excessively on U.S. research and development for new life saving medicines.

The United States has, in the past, worked with countries such as Australia, Japan, and Korea to address these types of issues. The Administration is engaged in the process of preparing the report Congress mandated, and will examine other country practices including, for example, those of Canada and Germany.

Canada's Patented Medicine Prices Review Board (PMPRB) regulates patented pharmaceutical products but not generic products. The PMPRB sets the launch price for drugs and then limits further increases. Under the PMPRB's pricing system, the price for a new innovative drug cannot exceed the median of prices in seven developed countries that Canada uses as a basis for comparison (the United States, the United Kingdom, France, Germany, Sweden, Switzerland, and Italy).

Germany is in the process of developing a reference pricing system. For 2004, the government mandated a 16% rebate on pharmaceuticals – this is scheduled to be replaced by a reference pricing scheme, the details of which are being debated now. It currently appears that, under the reference pricing system, the government is considering setting pharmaceutical prices by category of pharmaceutical, which might also include both patented and generic drugs.

It is important to understand how these types of regulatory regimes affect patient welfare, research and development funding, and innovation. This analysis, coupled with the ongoing analysis of global IP protection through the Special 301 process, should provide a more complete picture of the impact of regulatory and IP regimes on innovation.

WTO Dispute Settlement

Dispute settlement efforts this year continue to focus on resolving disputes that were announced through previous Special 301 determinations, using the full range of tools available. These tools include informal consultations and settlement, which can be more efficient and are therefore the preferred manner of resolving disputes, or where those are unsuccessful, full utilization of the dispute settlement process. The