The current status of trade agreements

by Giuliana Miglierini

In a world undergoing a deep transformation, economic exchanges between different countries are fundamental to sustain the economic viability. Robust trade agreements are critical, for example, to ensure the continuity of supply of active ingredients (APIs) and excipients for the pharmaceutical sector. The opposite is also true, as many EU’s pharmaceutical productions are exported to the US and other countries.

While the European Union has a combined pool of about 130 trade agreements, the UK is negotiating a new free trade agreement (FTA) with India. EFPIA has published its data on the expected impact of a TRIPS waiver extension to Covid-19 therapeutics and diagnostics, a possibility under discussion at the World Trade Organisation (WTO).

The European Union is still well positioned

According to the European Parliament, in 2020 the EU positioned second for export of goods after China (15% vs 18%, respectively), and third for imports (13%, vs US 16% and China 14%). The EU’s trade balance increased from €192 billion in 2019 to €217 billion in 2020.

The EU has trade agreements in place with 77 countries. Some other 24 are pending and 5 under negotiation; some other 24 are waiting final adoption/ratification. Among the latest ones is the approval of the EU-UK trade and cooperation agreement in April 2021, and the adoption of the one with Vietnam in February 2020. The EU also signed the Comprehensive Economic Trade Agreement (Ceta) with Canada (still waiting for final ratification by some EU countries); the EUJapan Economic Partnership came into force on 1 February 2019. The free trade agreement with New Zealand (June 2022) is waiting final approval, as well as that with Latin America’s Mercosur countries.

The EU-US Trade and Technology Council launched in June 2021 is a forum for joint discussions on global trade, economic and technology issues. Negotiating mandates have been also approved by the EU Council to reach an agreement with the US on eliminating tariffs for industrial goods and mutual recognition of conformity assessment.

There is still no free trade agreement in place with China, while a comprehensive EU-China investment agreement is under discussion. Negotiations are ongoing with Australia and Mexico, in this last case to renew the EU-Mexico Global Agreement of June 2016.

Trade agreements are an important tool to ensure goods imported in the EU are manufactured using the same quality standards in force in Europe, thus acting to prevent some effects of competition from extra-EU countries. International trades greatly contribute also to the viability of the job market; data from the EU Parliament show that Germany leads this ranking with 6.8 million jobs supported by exports to non-EU countries, followed by France (2.8 mln) and Italy (2.7 mln).

There is not just one type of trade agreement, they can greatly differ by final objective and facilitating measures. Some examples are the reduction or elimination of import/export tariffs, the establishment of a customs union, or the setting of joint customs tariffs for imports. On the business side, other measures may support foreign investments as well as the resolution of disputes related to them. This is the typical case, for example, of the patent litigations often occurring in the pharmaceutical sector.

Negotiations ongoing between the UK and India

The new position of the United Kingdom as an independent country led the Government in January 2022 to start working to a free trade agreement with India. According to the document discussing the UK’s strategic approach to the deal, bilateral trading relationship with India amounted to £23.3 billion in 2019; the estimated impact for UK exports resulting from the FTA is to reach up to £16.7 billion by 2035.

The negotiations are focusing on the reduction of barriers to trade in goods; the removal of tariffs and the provision of a greater legal certainty are expected to benefit UK’s exporters, among which is also the pharmaceutical industry.

The interconnection of the respective financial markets may benefit from new opportunities of collaboration thanks to the easing of cross-border friction and a better regulatory alignment. India is also very advanced in digital innovation, a field where the FTA may support new models of commercial ventures in emerging techs, artificial intelligence, and cybersecurity. The Life Sciences and pharmaceutical sectors shall benefit of a higher quality interdisciplinary research, thanks to the establishment of joint processes.

This negotiation is one of the most important that Britain could strike for life sciences and would provide an opportunity to boost access to innovative medicines and vaccines for patients in India”, said Claire Machin, Executive Director, International Policy at ABPI. The UK imported medicinal and pharmaceutical products from India in 2021 for a total of £533.8 million (7.5% of all imports from India); exports to India were around £137.7 million.

The Association of the British Pharmaceutical Industry is also among the eleven major cross-sector business groups that in August 2022 wrote an open letter to the UK’s Secretary of State for International Trade to urge the Government “to hold out for a commercially meaningful and comprehensive deal”, as it is deemed important the negotiations shall lead to a balanced outcome.

EFPIA’s analysis of Covid-19 TRIPS waivers

Following the adoption of a TRIPS waiver on Covid-19 vaccines by WTO members in July 2022, discussions started also about the possibility to extend the waiver to Covid-19 therapeutics and diagnostics.

At the end of September, EFPIA published a factsheet to present data on the current access to Covid-19 therapeutics and the possible impact expected from the waiver extension. The recommendation for WTO members is to reject TRIPS waiver to “focus on removing trade and regulatory barriers, strengthen the health workforce, increase public awareness regarding treatments, improve logistics processes for treatments, and scale up innovation through voluntary licensing”.

According to EFPIA, data indicates there is no supply shortage of therapies to treat Covid-19; testing is also declining since January 2022, thus leading to a lower precision in the demand for treatments.

The pharmaceutical industry has signed 138 voluntary licensing agreements since 25 February 2020 (63 of which in 2022) to provide access to treatments in low- and lower-middle-income countries. TRIPS waiver leading to compulsory licensing (CL) may pose several issues compared to voluntary licensing (VL), according to EFPIA. This is the case, for example, of the obligation to report adverse events which is in place for VL but not always for CL products. Counterfeiting may also occur should the treatments not be included in the Medicines Patent Pool undergoing WHO pre-qualification, suggests the factsheet.

More than 135,000 patented technologies are still in the R&D phase and may be negatively impacted should a TRIPS waiver been approved, said EFPIA. This number includes not only medicinal products or diagnostics, but also other industrial sectors like chemicals and machinery. The impact on other therapeutic areas should be also considered, as many products are undergoing repurposing and parallel development for several indications, as well as multi-purpose manufacturing technologies development.

The estimated impact of a 3-year Covid-19 waiver on pharmaceutical R&D would be particularly significant for high income countries, which would suffer a -28% drop in value of patent protection and -25% drop in R&D of pharma/biotech products. The upper-middle-income countries would be also affected (-11% patents’ value, -10% drop in R&D, respectively); estimates for lower-medium-income countries are -3% for patents value and -2% drop in R&D. Only low-income countries would be not impacted by the waiver, according to EFPIA.