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Executive Summary

Brazil's denial of patent protection to PMA firms from 1979 to 1986 cost those pharmaceutical companies at least $160 mil., Squibb Chairman Richard Furlaud maintained in remarks prepared for a hearing before the U.S. Trade Representative on Sept. 14 in Washington. Furthermore, "on a conservative basis, the PMA projects that their losses will from today through the year 2000 total at least $280 mil.," Furlaud said. The Squibb chairman testified as head of the association's Ad Hoc Committee on Trade & Taxation. USTR official Christina Lund chaired the hearing and announced the schedule for the claim against Brazil. The next step will be a USTR request for "consultations" with Brazil in the fall, "probably November." The Reagan Administration reportedly feels it has exhausted the consultation approach with Brazil, having made no progress in two negotiation sessions this year and one last year. If Brazil rejects further consultations, or if it agrees to meet but makes no concessions, the Trade Representative can proceed to make a determination on whether Brazil's refusal to recognize product or process patents for pharmaceuticals is "unreasonable" under the Trade Act. After such a determination, the USTR can recommend action for the President. The options available range from suspension of action (if Brazil indicates a willingness to alter its policy) to retaliation. A recommendation will likely be made by March 1988. The President is required to take action by July 1988, one year from the date the USTR accepted PMA's petition. The President is not required to follow a recommendation for retaliation if it is believed that retaliation will destabilize the foreign nation's economy. However, in light of the strength of Brazil's economy, the broad support for stronger U.S. trade legislation, and the proximity of an election year, it is unlikely that a retaliation recommendation would not be followed. Squibb's Furlaud contended that "denial of patent protection hurts not only foreign investment, which we represent today; it also hampers the development of Brazilian R&D." Furlaud maintained that Brazil's metallurgical industry, which unlike Brazil's pharmaceutical industry is protected by patent legislation, "has had far more significant development than has the pharmaceutical sector." Patent protection, can spur investment, "encourage the transfer of technology, and otherwise benefit a developing nation," Furlaud said. PMA member companies represent direct investments of $700 mil. in Brazil. U.S affiliates employ 18,000 Brazilians, and sales there represent about 36% of Brazil's total pharmaceutical market, the association said. PMA President Mossinghoff said the association is "concerned over the potential for Brazil to become a market for and an exporter of infringing products. As a newly industrialized nation, it is time for Brazil, the eighth largest economy in the West, to start playing by the rules of the international trading system." Mossinghoff said "the absence of effective intellectual property protection was less intolerable" in past years, when countries like Brazil "had only the beginnings of an industrial economy." However, "many of these countries now host growing national pharmaceutical industries that are currently or are becoming fully capable of exploiting the lack of protection against the patent holder. We are now facing situations worldwide where the annual loss of revenue runs into the hundreds of millions of dollars," he maintained. Lederle International President Rolf Henel, who chairs PMA's International Section, pointed out that his company withdrew operations from the Brazilian market "several years ago," when Lederle was "rapidly expanding in others." When new medications are pirated, they do not come more freely available; instead, "newer products developed outside of Brazil often never get introduced at all." Henel called Brazil's policy "a very effective nontariff trade barrier." Mossinghoff pointed out that PMA is seeking prospective protection. The intellectual property rights "we seek would not affect any product presently on the market in Brazil," Mossinghoff said. "We seek protection for the new therapies which would be marketed in Brazil subsequent to the amendment of their patent law." The PMA petition was filed on behalf of 18 member companies with investments in Brazil.

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