Elections hide growing US anger on FTA
September 29 2004, Australian Financial Review, By Brendan Pearson
Australia's landmark free-trade agreement with the United States may not be an election issue, but the pact is still far from a done deal.
The American copyright sector is furious with Canberra's implementation of the deal's anti-piracy measures on copyright. Relations between the two governments are tense, according to one US source, who adds that Australia's legislation fails to accurately reflect the deal signed by the two countries' trade ministers in February.
The American pharmaceutical industry is also angry at the last-minute patent-related amendments that Labor leader Mark Latham insisted on and Prime Minister John Howard grudgingly agreed to.
Those amendments probably breach Australia's obligations under World Trade Organisation rules, according to a legal opinion prepared by a top Washington trade-law firm.
But Big Pharma is lying low - for the moment.
"This industry has had quite enough of being in the middle of political squabbles between the two [Australian] parties," one source told The Australian Financial Review .
And there is discontent in the US Congress that Australia was able to amend its implementing legislation after the US had already passed its version of the same deal.
"I think if everyone starts amending their legislation, you're asking for nothing but trouble," says a spokesman for John Corzine, US senator and a member of the key trade sub-committee of the Senate's powerful Finance Committee.
But neither side wants a public spat before the twin elections, especially the Australian poll. On both sides of the Pacific, industry groups and government officials are holding their tongues.
But as soon as the Australian election is out of the way, the tough talking will start again.
While the issues are not regarded as deal-breakers, they could lead to a delay in the implementation of the FTA due to come into force on 1 January.
The surprise developments come just weeks before Canberra and Washington must exchange letters certifying that the other has faithfully implemented the free-trade deal signed in May.
The US concerns on copyright relate to the Howard government's alleged failure to reflect commitments reached during the negotiations, which finished earlier this year.
Industry and government officials in Washington believe that Canberra has failed to adequately introduce criminal penalties for end-use piracy of software.
It is a high-profile issue for the US sector, which claims to lose $US341 million ($479million) from piracy in the Australian market each year.
Washington also wants tougher criminal penalties for piracy of cable television, and feels Canberra's legislation fails to toughen rules holding internet service providers liable for piracy. It wants Canberra to amend its implementing legislation in all three areas.
A spokesman for Trade Minister Mark Vaile says that discussions are under way over "how our FTA commitments are reflected in our implementing legislation".
In other developments, Australia's legislation implementing this free-trade agreement may breach global trade rules, according to a legal assessment prepared for Washington's pharmaceutical industry by law firm Sidley Austin Brown & Wood.
Sources familiar with the advice say that Labor-inspired amendments creating penalties of up to $10 million for "vexatious or unreasonably pursued" patent protection claims appear to breach key provisions of the World Trade Organisation's Trade Related Intellectual Property Agreement, known as the TRIPs pact.
It is a view also shared by prominent Australian patent law experts.
The amendments are "ill-conceived", and not only breach Australia's WTO obligations and the free-trade agreement, but also Australia's constitution, says Simon Williams, a principal at patent law firm Spruson and Fergusons.
For its part, the Howard government has declined to defend the consistency of the revised legislation with global trade rules.
"It would be inappropriate at this stage for the government to make any comment on the WTO consistency of these amendments," a spokesman for Vaile says. This is not surprising given that the government warned Labor against proceeding with the changes.
But Labor's trade spokesman, Stephen Conroy, rejects the claims that the amendments are problematic.
"Labor has rock-solid legal advice that its amendments are not in conflict with Australia's obligations under the TRIPs agreement," he says.
"A patent owner acting in good faith has nothing to fear from Labor's amendments. Labor will fight all the way to ensure our amendments to protect the PBS [pharmaceutical benefits scheme] will remain in place."
US Trade Representative Robert Zoellick told a congressional oversight committee earlier this month that it was not the time for the administration to be making public comments about whether or not the amendments were consistent with either the FTA or WTO rules.
The legal opinion posits that Latham's changes may breach Article 27.1 of the WTO's intellectual property rules, which state that patent rights should be enjoyed without discrimination according to the "field of technology".
The problem with the Labor amendments is with the legislation creating penalties of up to $10 million for pharmaceutical patent holders, far in excess of penalties imposed in other areas of patented invention. The patent holders could also see a share of their gross profit distributed to the government, and to generic competitors.