Public Hearing on U.S.-Korea FTA
Today, a Public Hearing on the planned FTA between the United States and Korea was held before the Trade Policy Staff Committee (TPSC).
Witnesses included Seok-young Choi, (Economic minister at the Embassy of the Republic of Korea), as well as a good number of American trade association representatives. Panel members and visitors included members of different US administrative bodies: USTR, Agriculture, Commerce, Labor, State, Treasury and USITC.
Assistant US Trade Representative Wendy Cutler welcomed the multitudinous audience as a symbol for the strong interest of both countries in fruitful negotiations. She said the outcome of the negotiations will rely on contributions from many different parties. She welcomed the fact that great progress had been made already, due largely to Korean efforts. During the currently ongoing phase of consultations, all efforts would be made to let stakeholders express their views.
Seok-young Choi of the Korean Embassy highlighted the enourmous political and economic importance the reaching of an FTA would have for both Korea and the US. He mentioned that the trade volume between the US and Korea has already reached 72 billion USD by now, and referred to impressive Korean growth figures over the last decades. He regarded the positive dynamic effects an FTA would have as a vital step towards a comprehensive long-term partnership between both countries.
Choi emphasized the fact that the timely completion of procedures leading to an FTA was one of the highest priorities of the current Korean government. However, negotiations would be carried out mindful of the well-being and interest of Korean citizens. Choi concluded his statement in saying he was confident that a high-quality agreement would be reached.
When asked about whether Korea actually had the resources to carry out several negotiations about different trade agreements and play an important role in Doha negotiations at the same time, Choi answered that Korea had deliberately decided to negotiate several FTAs at the same time. He said that this was not an overload and that Korea was seeking to complete high-quality, WTO-consistent agreements while ensuring extensive participation of Korean stakeholders. He reported that FTAs with Chile, Singapore and the EFTA had been completed, and FTAs with Canada, ASEAN and Mexico were hoped to be completed this year. While negotiations with Japan had stalled, China had expressed high interest of entering negotiations. There would soon be a decision on whether to enter negotiations with China.
When asked about whether Korea has commissioned studies as to the effect of an FTA on the Korean economy, Choi said that studies have been done and are promising. Outcomes of the studies were positive, estimating a GDP increase of about 2%, double-digit increases in exports to the US and 0,63% increase in employment rates (about 100,000 jobs). Yet another study, done by Korean Rural Economy Institute showed that for the agricultural sector, outcomes would be quite negative for Korean agriculture, with losses of 1 billion USD.
Ambassador Richard Holwill, speaking on behalf of the US-Korea Business Council, said he believes that the the FTA will have tangible benefits for both countries. He highlighted the fact that US businesses have huge stakes in these negotiations. As to the interest of US pharmaceutical companies, he stated that US companies have encountered intransparencies in the past and that this was an issue to be talked about. The FTA should contain measures to ensure fair compensation for production and research costs of innovative companies. In negotiating the agreement, international regimes like TRIPS or the WIPO internet treaty should be respected. Also, there should be better enforcement of penalties for copyright infringement and enforcement of provisions concerning data exclusivity.
One comment to Ambassador Holwill's testimony stated it was a well known fact that the US-Korea Business Council had established close ties to Korean counterparts. It would thus be interesting to hear an insight opinion on whether Korean businesses have an equally strong appreciation of the planned FTA.
Holwill responded that although there was anxiety in the agricultural and broadcasting sector, there still was broad support and a widely shared understanding that Korean businesses in the US will profit from the FTA.
William Primosch, Senior Director of the International Business Policy department of the National Association of Manufacturers (NAM), stated that he sees great potential in the FTA with Korea. Yet to reach full potential, both tariff as well as non-tariff trade barriers had to be regarded. Of the two, the non-tariff barriers were surely the ones more tricky to tackle. Primosch stated that two areas had been of particular difficulty. If both concerns were addressed, the FTA was to become a success.
Firstly, he considered the lack of transparency in the Korean regulatory system to be a serious problem. In this regard, he welcomed Korea's recommitment to the WTO Technical Barriers to Trade (TBT) agreement, but said this was not enough. American manufacturers wanted to see genuine openness in Korean regulatory procedures, similar to transparency measures at the American Federal Register. Primosch called for mechanisms to appeal regulatory decisions and called for independent review bodies. He said standard solutions would clearly not be sufficient here, approaches would have to be made “outside the box”.
Secondly, he criticized widespread anticompetitive practices in Korea.
Questions posed to Mr. Primosch started out with an inquiry of why the NAM considered the Korean FTA to be so very important. Primosch answered that this was due to economic assessments carried out by the NAM, with analyses showing that Korea was on the top of the list regarding trade potential. Asked about NAM's critical stand towards current Korean competition practice, he said that from what he has heard, problems lie in implementation of laws rather than in the actual legislation.
Primosch was then asked about whether previous FTAs would be good precedence for the tackling of problems like those he mentioned in his testimony. He answered that the Peruvian and the Australian FTAs offered good approaches as to TBTs, but that these approaches were not sufficient for a Korean FTA. He again pressed for the provision of independent appeals bodies, notably in the context of pharma regulation.
Robert Vastine, President of the Coalition of Service Industries, equally welcomed FTA negotiations with Korea and said this was one of the most important FTAs in terms of market potential.
He commented on the “negative list” approach as an efficient tool in negotiations, excluding from negotiations certain sectors that are marked down on a “negative list”. He welcomed that compared to the GATTS, the negative list in US-Korean negotiations was relatively short.
Mr. Vastine highlighted the fact that transparency commitments in regulation would be a very important element in reaching this FTA.
When asked to comment on Korean anxieties about opening up service markets, he judged the FTA a “win/win situation”. He said that liberalization was in itself highly desirable and in the best interest of any country.
Steven J. Metalitz, Senior Vice President of the International Intellectual Property Alliance, applauded plans for a FTA with Korea as being laden with benefits for all parties.
He said a successful agreement should specify what to do in terms of the protection of temporary copies, about broad exclusive rights for broadcasting and about the extension of copyrights to various matters. He also called for an upgrade of enforcement practices and said Korea needs to develop new tools to crack down on pirates and punish infringement. He lamented that all sectors of American industry suffer from piracy in Korea, even though admittedly there were improvements in the last years. He said it was hard to speculate as to what was causing these improvements. Piracy hotspots should be kept in view and provisions to address piracy should be included in the FTA. Metalitz said he hoped for Korean cooperation, as copyright issues have importance for high-potential Korean game and music industries. Metalitz stated that there might even be the chance of building coalitions with local industries to call for better copyright enforcement policy.
Shawn Brown of the Generic Pharmaceutical Association very outspokenly emphasized that the strenth of the pharmaceutical market depends not only on intellectual property (IP) protection, but also on a robust generic industry. FTA provisions should therefore not only take into account IP interests, but also interests regarding access to medicine.
Brown called for the revisions in several fields. He said that the proposed FTA with Korea included many provisions that would exceed American domestic IP rules by far, these provisions regarding patent extensions, market exclusivity terms, bolar provisions, best mode, and patent linkage among others.
When asked to describe specific access constraints generics companies are facing at this moment, Brown answered that his major concern was rather about the fact that the FTA would lopsidedly enhance IP protection while omitting access provisions.
He was then asked whether any US generic companies were operating in Korea. He said he did not know.
Concerning tariffs, he said he was definitely supportive of reducing non-tariff barriers and about opening market because this was just always a positive thing to do.
Joe Damond of PhARMA started out his statement by mentioning that in 2005, American pharmaceutical and life sciences companies invested 39,4 billion USD in Research and Development. His testimony had quite theatrical quality to it, including a statement like “We are businesses, but our broader mission is enabling patients around the world to live longer, healthier and more productive lives” (“...if they are able to pay well”, one is tempted to add).
He said Korean patients wanted access to new and leading technologies and innovative medicines. In order to bring such innovations to the Korean population, PhARMA had directed attention to several issues in the past and would keep on addressing those issues. He said a major concern has been that imported drugs were kept off the National Reimbursement List (NRL). Also, distorted medical prescribing practices and an intransparent decision-making process at Korea's National Health Insurance (NHI) would have to be addressed during FTA negotiations.
Damond said that while PhARMA respected the choices made by NHI about health care for the Korean Nation, some challenges needed to be tackled in order to improve PhARMA member companies' operating environment in Korea.
Firstly, NHI proceedings would have to be more transparent and “fair”. Damond criticized the fact that generic products are typically reimbursed at very high rates (70% of originator products), directing scarce NHI resources from truly innovative, newer products (and thus cheating Korean patients of the best and most innovative treatment).
He said these practices were nothing but disguised industrial policy, granting high rates of return to those who merely imitate. Damond suggested that such practices were inconsistent with Korea's ambitions to become a high-tech hub in the 21st century. Korean patients could only benefit from a more transparent, science-based and participatory reimbursement procedure. “We view the FTA as a potential breakthrough for Korean patients”, he said.
Secondly, Damond called for reform in reimbursement guidelines. He said reimbursement decisions should be driven by science, not by local protectionism.
Thirdly, he called for more transparency and “meaningful consultation” in the course of NHI decision-making on reimbursement.
By “meaningful consultation” he might have meant that foreign companies have the opportunity to present the advantages of their products, thus guaranteeing Koreans' access to “breakthrough US medicines”.
Fourthly, fostering ethical business practices would have to be addressed in the FTA, even though this would be an FTA-novelty. He said unethical business practices (such as doctors accepting money if they prescribe certain drugs) were a major commercial issue in that they were robbing American companies of significant market shares.
Lastly, Damond lauded the Korean IP protection regime. However, he called for a clarification and strengthening of data exclusivity and patent linkage.
Above all, he said that the reforms PhARMA suggests will be beneficial to Korean patients and to Korea's efforts to build up its own innovative pharma industry. He left open why helping Korea build up a competitive pharma industry would be used as a PRO-FTA argument by American PhARMA.
He said that PhARMA would have to spend more efforts on convincing the Korean public that protection wasn't simply good for foreign multinationals. “IP protection is the lifeblood of [the pharmaceutical] sector”, he stated, and Korea had the potential to be a leader in this market by implementing more intellectual protection.
Last witness before the first panel was Ralph Ives of the Advanced Medical Technology Association (AdvaMed). He spoke very brief and mainly harped on the issue of opaque reimbursement procedures. He said for pharmaceutical companies, market access was not a problem but addressing the issue of reimbursement decisions was essential.
Witnesses included Seok-young Choi, (Economic minister at the Embassy of the Republic of Korea), as well as a good number of American trade association representatives. Panel members and visitors included members of different US administrative bodies: USTR, Agriculture, Commerce, Labor, State, Treasury and USITC.
Assistant US Trade Representative Wendy Cutler welcomed the multitudinous audience as a symbol for the strong interest of both countries in fruitful negotiations. She said the outcome of the negotiations will rely on contributions from many different parties. She welcomed the fact that great progress had been made already, due largely to Korean efforts. During the currently ongoing phase of consultations, all efforts would be made to let stakeholders express their views.
Seok-young Choi of the Korean Embassy highlighted the enourmous political and economic importance the reaching of an FTA would have for both Korea and the US. He mentioned that the trade volume between the US and Korea has already reached 72 billion USD by now, and referred to impressive Korean growth figures over the last decades. He regarded the positive dynamic effects an FTA would have as a vital step towards a comprehensive long-term partnership between both countries.
Choi emphasized the fact that the timely completion of procedures leading to an FTA was one of the highest priorities of the current Korean government. However, negotiations would be carried out mindful of the well-being and interest of Korean citizens. Choi concluded his statement in saying he was confident that a high-quality agreement would be reached.
When asked about whether Korea actually had the resources to carry out several negotiations about different trade agreements and play an important role in Doha negotiations at the same time, Choi answered that Korea had deliberately decided to negotiate several FTAs at the same time. He said that this was not an overload and that Korea was seeking to complete high-quality, WTO-consistent agreements while ensuring extensive participation of Korean stakeholders. He reported that FTAs with Chile, Singapore and the EFTA had been completed, and FTAs with Canada, ASEAN and Mexico were hoped to be completed this year. While negotiations with Japan had stalled, China had expressed high interest of entering negotiations. There would soon be a decision on whether to enter negotiations with China.
When asked about whether Korea has commissioned studies as to the effect of an FTA on the Korean economy, Choi said that studies have been done and are promising. Outcomes of the studies were positive, estimating a GDP increase of about 2%, double-digit increases in exports to the US and 0,63% increase in employment rates (about 100,000 jobs). Yet another study, done by Korean Rural Economy Institute showed that for the agricultural sector, outcomes would be quite negative for Korean agriculture, with losses of 1 billion USD.
Ambassador Richard Holwill, speaking on behalf of the US-Korea Business Council, said he believes that the the FTA will have tangible benefits for both countries. He highlighted the fact that US businesses have huge stakes in these negotiations. As to the interest of US pharmaceutical companies, he stated that US companies have encountered intransparencies in the past and that this was an issue to be talked about. The FTA should contain measures to ensure fair compensation for production and research costs of innovative companies. In negotiating the agreement, international regimes like TRIPS or the WIPO internet treaty should be respected. Also, there should be better enforcement of penalties for copyright infringement and enforcement of provisions concerning data exclusivity.
One comment to Ambassador Holwill's testimony stated it was a well known fact that the US-Korea Business Council had established close ties to Korean counterparts. It would thus be interesting to hear an insight opinion on whether Korean businesses have an equally strong appreciation of the planned FTA.
Holwill responded that although there was anxiety in the agricultural and broadcasting sector, there still was broad support and a widely shared understanding that Korean businesses in the US will profit from the FTA.
William Primosch, Senior Director of the International Business Policy department of the National Association of Manufacturers (NAM), stated that he sees great potential in the FTA with Korea. Yet to reach full potential, both tariff as well as non-tariff trade barriers had to be regarded. Of the two, the non-tariff barriers were surely the ones more tricky to tackle. Primosch stated that two areas had been of particular difficulty. If both concerns were addressed, the FTA was to become a success.
Firstly, he considered the lack of transparency in the Korean regulatory system to be a serious problem. In this regard, he welcomed Korea's recommitment to the WTO Technical Barriers to Trade (TBT) agreement, but said this was not enough. American manufacturers wanted to see genuine openness in Korean regulatory procedures, similar to transparency measures at the American Federal Register. Primosch called for mechanisms to appeal regulatory decisions and called for independent review bodies. He said standard solutions would clearly not be sufficient here, approaches would have to be made “outside the box”.
Secondly, he criticized widespread anticompetitive practices in Korea.
Questions posed to Mr. Primosch started out with an inquiry of why the NAM considered the Korean FTA to be so very important. Primosch answered that this was due to economic assessments carried out by the NAM, with analyses showing that Korea was on the top of the list regarding trade potential. Asked about NAM's critical stand towards current Korean competition practice, he said that from what he has heard, problems lie in implementation of laws rather than in the actual legislation.
Primosch was then asked about whether previous FTAs would be good precedence for the tackling of problems like those he mentioned in his testimony. He answered that the Peruvian and the Australian FTAs offered good approaches as to TBTs, but that these approaches were not sufficient for a Korean FTA. He again pressed for the provision of independent appeals bodies, notably in the context of pharma regulation.
Robert Vastine, President of the Coalition of Service Industries, equally welcomed FTA negotiations with Korea and said this was one of the most important FTAs in terms of market potential.
He commented on the “negative list” approach as an efficient tool in negotiations, excluding from negotiations certain sectors that are marked down on a “negative list”. He welcomed that compared to the GATTS, the negative list in US-Korean negotiations was relatively short.
Mr. Vastine highlighted the fact that transparency commitments in regulation would be a very important element in reaching this FTA.
When asked to comment on Korean anxieties about opening up service markets, he judged the FTA a “win/win situation”. He said that liberalization was in itself highly desirable and in the best interest of any country.
Steven J. Metalitz, Senior Vice President of the International Intellectual Property Alliance, applauded plans for a FTA with Korea as being laden with benefits for all parties.
He said a successful agreement should specify what to do in terms of the protection of temporary copies, about broad exclusive rights for broadcasting and about the extension of copyrights to various matters. He also called for an upgrade of enforcement practices and said Korea needs to develop new tools to crack down on pirates and punish infringement. He lamented that all sectors of American industry suffer from piracy in Korea, even though admittedly there were improvements in the last years. He said it was hard to speculate as to what was causing these improvements. Piracy hotspots should be kept in view and provisions to address piracy should be included in the FTA. Metalitz said he hoped for Korean cooperation, as copyright issues have importance for high-potential Korean game and music industries. Metalitz stated that there might even be the chance of building coalitions with local industries to call for better copyright enforcement policy.
Shawn Brown of the Generic Pharmaceutical Association very outspokenly emphasized that the strenth of the pharmaceutical market depends not only on intellectual property (IP) protection, but also on a robust generic industry. FTA provisions should therefore not only take into account IP interests, but also interests regarding access to medicine.
Brown called for the revisions in several fields. He said that the proposed FTA with Korea included many provisions that would exceed American domestic IP rules by far, these provisions regarding patent extensions, market exclusivity terms, bolar provisions, best mode, and patent linkage among others.
When asked to describe specific access constraints generics companies are facing at this moment, Brown answered that his major concern was rather about the fact that the FTA would lopsidedly enhance IP protection while omitting access provisions.
He was then asked whether any US generic companies were operating in Korea. He said he did not know.
Concerning tariffs, he said he was definitely supportive of reducing non-tariff barriers and about opening market because this was just always a positive thing to do.
Joe Damond of PhARMA started out his statement by mentioning that in 2005, American pharmaceutical and life sciences companies invested 39,4 billion USD in Research and Development. His testimony had quite theatrical quality to it, including a statement like “We are businesses, but our broader mission is enabling patients around the world to live longer, healthier and more productive lives” (“...if they are able to pay well”, one is tempted to add).
He said Korean patients wanted access to new and leading technologies and innovative medicines. In order to bring such innovations to the Korean population, PhARMA had directed attention to several issues in the past and would keep on addressing those issues. He said a major concern has been that imported drugs were kept off the National Reimbursement List (NRL). Also, distorted medical prescribing practices and an intransparent decision-making process at Korea's National Health Insurance (NHI) would have to be addressed during FTA negotiations.
Damond said that while PhARMA respected the choices made by NHI about health care for the Korean Nation, some challenges needed to be tackled in order to improve PhARMA member companies' operating environment in Korea.
Firstly, NHI proceedings would have to be more transparent and “fair”. Damond criticized the fact that generic products are typically reimbursed at very high rates (70% of originator products), directing scarce NHI resources from truly innovative, newer products (and thus cheating Korean patients of the best and most innovative treatment).
He said these practices were nothing but disguised industrial policy, granting high rates of return to those who merely imitate. Damond suggested that such practices were inconsistent with Korea's ambitions to become a high-tech hub in the 21st century. Korean patients could only benefit from a more transparent, science-based and participatory reimbursement procedure. “We view the FTA as a potential breakthrough for Korean patients”, he said.
Secondly, Damond called for reform in reimbursement guidelines. He said reimbursement decisions should be driven by science, not by local protectionism.
Thirdly, he called for more transparency and “meaningful consultation” in the course of NHI decision-making on reimbursement.
By “meaningful consultation” he might have meant that foreign companies have the opportunity to present the advantages of their products, thus guaranteeing Koreans' access to “breakthrough US medicines”.
Fourthly, fostering ethical business practices would have to be addressed in the FTA, even though this would be an FTA-novelty. He said unethical business practices (such as doctors accepting money if they prescribe certain drugs) were a major commercial issue in that they were robbing American companies of significant market shares.
Lastly, Damond lauded the Korean IP protection regime. However, he called for a clarification and strengthening of data exclusivity and patent linkage.
Above all, he said that the reforms PhARMA suggests will be beneficial to Korean patients and to Korea's efforts to build up its own innovative pharma industry. He left open why helping Korea build up a competitive pharma industry would be used as a PRO-FTA argument by American PhARMA.
He said that PhARMA would have to spend more efforts on convincing the Korean public that protection wasn't simply good for foreign multinationals. “IP protection is the lifeblood of [the pharmaceutical] sector”, he stated, and Korea had the potential to be a leader in this market by implementing more intellectual protection.
Last witness before the first panel was Ralph Ives of the Advanced Medical Technology Association (AdvaMed). He spoke very brief and mainly harped on the issue of opaque reimbursement procedures. He said for pharmaceutical companies, market access was not a problem but addressing the issue of reimbursement decisions was essential.
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