This piece is a continuation of The Huffington Post's collaboration on trade issues with The Dylan Ratigan Show, called Trading Our Future.
WASHINGTON -- As commerce secretary under Bill Clinton, William Daley worked with U.S. pharmaceutical giants to curb the use of cheaper generic drugs abroad. As a board member for Abbott Laboratories, he had a front-row seat on a brutal clash between a major drug company and a developing nation over access to life-saving medication. And as White House chief of staff today, Daley has President Barack Obama’s ear.
Add up Daley’s power and experience, and experts who follow public health policy suspect his influence in the U.S. stance in negotiations over a major international trade deal -- a stance with hugely profitable implications for giant American drugmakers.
The United States is in talks with eight other Pacific nations to establish the Trans-Pacific Partnership, which the administration hopes will serve as a template for other trade pacts. According to leaked documents from the negotiations, the Obama administration is using the deal to push hard-line intellectual property standards that could drive up medicine prices overseas, boosting the bottom line for U.S. drugmakers like Abbott Labs at the expense of public health.
Public health advocates are worried. "If the point of the trade policy is not just to protect the interests of our companies, but the public health benefit and burden of research, then [the United States] is doing this all wrong," said James Love, director of Knowledge Ecology International, a nonprofit that focuses on how patent laws affect the poor.
A White House spokesman said only that the negotiations -- which are being conducted behind closed doors with input from corporate lobbyists -- are being "ably led" by the United States Trade Representative (USTR) and that Daley is "not directing or participating in those negotiations."
The USTR always has formal responsibility for negotiating trade deals -- that's the agency's primary purpose. But trade issues often involve much indirect lobbying and policy-making through informal channels. When the Chinese search engine Baidu wanted to be removed from the USTR's "notorious markets" list, the company hired lobbyists to work the Office of Management and Budget, for example.
Daley, who previously lobbied for JPMorgan Chase, is a prominent examplar of a bipartisan phenomenon in American government in which corporate insiders, and the profit-driven perspective of the boardroom, have come to dominate formal and informal debate over public policy.
And key players don’t think he’s out of the loop this time. Earlier this year, both the U.S. Chamber of Commerce -- the top lobbying group for large American corporations -- and Senate Majority Leader Harry Reid (D-Nev.) wrote directly to Daley, urging him to secure strict intellectual property terms in Trans-Pacific Partnership deals. The White House declined to comment on Daley's response to those letters.
ABBOTT'S HARSH LINE
The U.S. has made several efforts to expand the cadre of countries participating in the Trans-Pacific talks, including multiple overtures to Thailand. So far, Thailand has chosen not to join.
It has good reason to be wary. In 2007, the country found itself in a vitriolic feud with Abbott Laboratories, on whose board Daley then served, over a key HIV treatment known as Kaletra.
The primary driver of drug prices is often not direct research costs or production expenses. Kaletra costs more than $10,000 a year for a patient living in the United States, a price that is reflective of the highly protective American patent system. The U.S. is the only country that grants long-term monopolies on life-saving medicine without regulating the price of monopolized drugs.
"Drugs are cheap to produce. Economic theory says that they should be cheap for the people who need them," said economist Dean Baker, co-director of the Center for Economic and Policy Research. "We can find better mechanisms to finance research than patent monopolies, which give incentives for secrecy, deception and outright fraud."
In countries that negotiate with companies on drug prices, the cost of medicine is often far lower. But though American pharmaceutical companies do supply drugs to developing nations at rates below those charged in the U.S., those discounted prices are still too high for many poor or hard-hit nations to afford.
"In many developing countries, it's a death sentence," said Nobel Prize-winning economist Joseph Stiglitz, referring to high drug prices.
In 2007 negotiations with the Thai government, Abbott Labs wouldn't budge below a price of $2,200 per person, per year for Kaletra. At the time, Thailand was classified as a "lower-middle income" country by the World Bank -- the second lowest of four categories. With more than a half-million citizens living with HIV, Thailand considered that price beyond its budgetary capacity. So it declared a public health emergency and began importing a vastly cheaper generic version of Kaletra from India.
And then, by international trade standards, all hell broke loose.
"When countries declare the health emergency, they face a huge backlash, particularly from the USTR and the drug companies," said Tim Boyd, policy research coordinator with the AIDS Healthcare Foundation, a U.S. nonprofit dedicated to eradicating HIV.
Abbott responded by withdrawing pending applications to register drugs in Thailand, cutting its citizens off from other medications. The move was unprecedented: Never before had an American drug company attempted to punish a country during drug price negotiations by cutting off the supply of other medicines.
At the time, Brook Baker, a law professor at Northeastern University and a member of the board at the Health Global Access Project, called the move a "truly appalling example of corporate hubris" that "directly violates any conceivable norm of corporate responsibility."
This year, Abbott spokesman Dirk Van Eeten told The Huffington Post that the company firmly believes U.S.-style drug patents foster pharmaceutical innovation -- an argument disputed by many health care experts. Van Eeten also said that while Abbott pulled back a key HIV medication for adults from Thailand, it continued to provide that medication for children.
As for the USTR, it seemed to support the company, placing Thailand on its "Priority Watch List" of nations that do not respect U.S. intellectual property rights. "In late 2006 and early 2007, there were further indications of a weakening of respect for patents, as the Thai Government announced decisions to issue compulsory licenses for several patented pharmaceutical products," wrote the agency in its report announcing that Thailand had been added to the priority list.
Although the USTR blacklist is little known domestically, it is a major economic indicator abroad and can affect a country's ability to import everything from software to DVDs to automobiles. Thailand's new status as an international rogue sparked concern among the country's economic policy officials and corporate leaders. And 35 members of Congress wrote to the USTR to protest Thailand's blacklisting, noting, "The move is being interpreted in the public health community as a warning and a threat to other countries."
The man ultimately responsible for the USTR decision was Stanford McCoy, assistant U.S. trade representative for intellectual property and innovation. He continues to hold that job today, which includes serving as lead negotiator on all intellectual property terms in trade pacts, including the Trans-Pacific deal.
The American rebuke came despite the fact that Thailand was acting within its rights under World Trade Organization treaties. During the early years of the Clinton administration, the U.S. negotiated a host of intellectual property protections that now require every nation joining the WTO to grant 20-year patents on new drugs. But there is substantial flexibility over precisely which kind of medical innovation is patentable, and there are a variety of circumstances in which nations can allow production of a generic version of a patented drug, effectively overriding certain patent rights. (In intellectual property lingo, the latter process is called granting a "compulsory license.") During a public health emergency, government leeway is even broader.
The USTR says that strict patent rules help "incentivize" companies to develop new medicines, but there is little evidence to support the claim. Drug companies generally spend about twice as much money marketing their medicines as they do on research and development, and the cost of churning out the pills and vaccine doses themselves is usually negligible.
When the situation was finally resolved, the company agreed to a $1,000 price tag, less than half the price they initially stood behind, suggesting the company could get by on far less than the original $2,200 figure. Abbott's refusal to sell new medicine in Thailand -- and the USTR's blacklisting of the nation -- amounted to negotiating tactics to protect Abbott's revenues.
WHAT DALEY KNOWS
Abbott Labs declined to detail Daley's involvement in the Thailand episode, but as a member of the board, he should have been well informed about the strategy. And he had been embroiled in international disputes over HIV drug prices prior to the public- and private-sector fury over foreign Kaletra profits.
When Daley was commerce secretary in the later years of the Clinton administration, Brazil rankled U.S. drug companies by opting to provide its citizens with a generic version of another HIV drug. Like Thailand, Brazil declared a public health emergency in an effort to lower the cost of treating roughly a half-million HIV infections. The U.S. government responded by sending Daley to Brazil with executives from U.S. pharmaceutical giants Merck & Co. and Pfizer to try to pressure the Brazilian government into reversing its decision.
In a speech at Johns Hopkins University before leaving for Brazil, Daley encouraged students to enter the revolving door between big business and public policy-making. "Let me say this: As one of the only members of the president's Cabinet to come from business, it's good when you mix both government and business in your careers," he said. "It makes better public servants, and it makes better businesspeople."
It has certainly been good for Daley's career. His effort to twist arms in Brazil failed, but drug companies apparently took note. It was after leaving the Clinton administration that Daley was hired by Abbott, where he raked in more than $1.3 million as a board member from 2004 to 2010, according to Securities and Exchange Commission filings. Over the same period, he served on Boeing's board and was a top lobbyist for JPMorgan Chase.
And now Daley is an integral player in an administration advocating for an intellectual property system that would raise Abbott's profits still higher -- even as public health professionals from the AIDS Healthcare Foundation to Doctors Without Borders to Oxfam criticize that system as ruthless and inhumane.
"The idea that the patent system works well for pharmaceuticals is just wrong from every perspective except corporate profits," said Judit Rius Sanjuan, manager of Doctors Without Borders' Access to Essential Medicines campaign.
Daley's personal history with drug access is not unique among top-tier government officials with trade responsibilities. McCoy lobbied on intellectual property issues at the influential D.C. law firm Covington & Burling before moving to the USTR in 2006. His top deputy, Kira Alvarez, was a lobbyist for drugmaker Eli Lilly before joining the agency.
There is no evidence that any of these players, including Daley, have done anything illegal or explicitly corrupt during the Trans-Pacific trade negotiations. But public health doesn’t seem to be their first priority.
"The real concern is that the U.S. is using its international power and prestige to force poor countries to enforce our intellectual property standards, and the result of that is that access to medicine is denied and people are dying," said Joseph Stiglitz.
Earlier on HuffPost: