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The Philippines: To TPP or not to TPP?

23 March 2015 Jing Zhang

Following the recent addition of the Philippines to IHS's Healthcare Forecast, I think it's worth examining the outlook for the country and the pros and cons of joining the Trans-Pacific Partnership (TPP).

At present, the Asia-Pacific region is making the strongest contribution to global economic growth, with the Philippines among the front runners. In 2014, the Philippines' GDP growth was 6.1%, making it one of the fastest growing economies in the world. Going forward, the country's young demographic profile, agricultural self-sufficiency, high literacy rate and universal health care will converge to set the Philippines on a sustainable long-term growth path.

TPP is an option to consider
While the Philippines is internally making efforts to improve access to healthcare, the country is also considering joining the Trans-Pacific Partnership (TPP). Originated as a limited deal among Pacific countries, the TPP has evolved into a plurilateral free trade agreement across a score of regulatory fields-including investment, intellectual property, the environment, and healthcare. The twelve currently confirmed members of the TPP are Australia, Brunei, Canada, Chile, Malaysia, Mexico, New Zealand, Japan, Peru, Singapore, the United States and Vietnam.

According to According to the Asia Development Bank (ADB) Institute, the TPP contains three key components: "First, it covers new areas and issues, such as the internet and electronic commerce, integrated global supply chains, and the rise of emerging markets. Second, it seeks an agreement that's good for both developing and developed countries. Third, the TPP attempts to streamline behind-the-border regulatory approaches, which is increasingly necessary for economic exchange among highly integrated economies.

Emerging markets are attracted to the Pacific Rim trade bloc, viewing it as a gateway to greater economic growth and prosperity. According to the ADB Institute, the world would stand to gain 223 billion USD from TPP by 2025. On top of that, the United States has sweetened the deal for low income countries, such as Vietnam, so that some provisions wouldn't be implemented until a certain date or conditions are met.

This treaty is about trade, as Obama seeks to double US exports, but it is more than that. In the words of a US congressman, the TPP will be a "high-standard, broad-based regional pact." Promoting TPP is part and parcel of President Obama's "Asia Pivot."Precisely for that reason, if China seeks to join the club, its membership will be conditional on the approval of the US Congress. Hence, it is hard to envision China being admitted to TPP any time soon, in my view. The Philippines, being a long-term US strategic ally, is not expected to have such an entry barrier.

The Philippines expressed interest in joining the TPP in 2014. The approach that the Philippines is taking of preparing for the potential joining the TPP was praised by New Zealand last year. A press release from the Office of the President of the Philippines indicated that "the government is studying the benefits of joining the TPP before it makes a decision." The press release from the Office of the President of the Philippines quoted President Aquino in November last year as saying that, "We are continuing the studies and we think we would want to join all of the trade agreements and expand our markets," noting that the Philippines is working with several countries, particularly the United States, Japan, and Malaysia, to address some of the concerns of joining the trade arrangement.

One of the concerns is US pharmaceutical companies' insistence on twelve years of data exclusivity protection in relation to biological products, while US negotiators are also arguing for 20-year patent terms for modifications to existing medicines (known as "ever-greening"). Columbia University Professor Jagdish Bhagwati, a leading free-trade economist, objects to TPP for being "a threat to Asia Pacific trade." Critics of the TPP (including Medecins sans Frontieres) argue that lower income countries will be strong-armed into accepting relatively high IP standards in return for access to the free-trade area, at the expense of public health and access to medicines.

A case in point is the issue of access to generic medicines in Mexico, which the Philippines is expected to watch closely. According to a report by El Financiero, the proposed modifications to the Industrial Property Law under the TPP negotiations could delay the introduction of 5,000 generic drugs in Mexico by extending the 20-year patent rights of pharmaceutical drugs to 25 years.

To conclude, if the Philippines chooses to join the TTP, it has to weigh the potential of greater economic growth and prosperity against the potential delays in access to cheaper medicines in relation to extended periods of data exclusivity protection and patent protection. Furthermore, the payoffs from TPP could also be limited for the Philippines, as it has already concluded free trade agreements with all but four members (Canada, Chile, Mexico and Peru) of the trading bloc, plus two potential members of TPP (South Korea and Taiwan). However, in the pharmaceutical arena, the Philippines typically comes very late in the launch sequence for new and innovative medicines, and the TPP provides the ideal framework to speed this up.

Jing Zhang is a life sciences economist for IHS
Posted March 2015

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