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SELECT COMMITTEE ON THE FREE TRADE AGREEMENT BETWEEN AUSTRALIA AND THE UNITED STATES OF AMERICA
Free Trade Agreement between Australia and the USA
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SELECT COMMITTEE ON THE FREE TRADE AGREEMENT BETWEEN AUSTRALIA AND THE UNITED STATES OF AMERICA
ACTING CHAIR (Senator O'Brien)
ACTING CHAIR (Senator Ferris)
Free Trade Agreement between Australia and the USA
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SELECT COMMITTEE ON THE FREE TRADE AGREEMENT BETWEEN AUSTRALIA AND THE UNITED STATES OF AMERICA
(SENATE-Tuesday, 22 June 2004)
- Committee front matter
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ACTING CHAIR (Senator Ferris)
ACTING CHAIR (Senator O'Brien)
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Content WindowSELECT COMMITTEE ON THE FREE TRADE AGREEMENT BETWEEN AUSTRALIA AND THE UNITED STATES OF AMERICA - 22/06/2004 - Free Trade Agreement between Australia and the USA
CHAIR —Welcome. Dr Brain, for the ACTU, AWU and AMWU in Melbourne the other day you began by making a presentation to us about the views and philosophies that underpin the study that you have undertaken. I know that you were pushed by me to bring that to a conclusion a little ahead of when you may have chosen to, so if there are any things that you want to add on reflection that you did not have a chance to then please include them now. There is an opportunity for all of you to address your study and for the committee to ask questions on it.
Dr Brain —We did not think that you would want a recap but I will take the opportunity. Basically that address was to put the thing in context. We thought it was important to look ahead in terms of evaluating the relevance of these sorts of things in the environment that is likely to be faced by the nation. Although it is not central to our study—but it is certainly background—we are coming from the idea that in the not too distant future, whether it be in one year or five years, Australia will be desperately looking for new drivers of growth because the current debt-driven driver will have run its course and the constraint of the balance of payments is likely to become more binding. The sorts of issues that are relevant to evaluating the benefit of the free trade agreement will be very important in determining our ability to transfer the economy onto a new path and a new set of drivers. In that context I was talking about the imbalances in the economy and how we thought that correction of those imbalances, which is part and parcel of finding new drivers, is likely to require the sorts of instruments that we think are going to be undermined, or at least circumscribed to a great extent, by the operations and provisions of the free trade agreement. That was the context of that little address.
In terms of our study and where we fitted in, we first of all took the government's study—the study undertaken by the CIE—and we subjected that to what we thought were appropriate tests as to what answers might come up with alternative methodologies that could be employed. Basically we were looking not for a whole-system approach to the problem, which can disguise the basic driver mechanisms or what is determining the outcomes of any bottom line assessment, but for a fairly transparent way of looking at these things. In any quantitative assessment it all comes down to parameters and elasticities that you feed into any system to get a conclusion.
We looked around and we thought the best way of recalculating the CIE estimates, at least in terms of the trade liberalisation, was to go to the US and find the best and latest estimates of the parameters that are relevant in assessing these sorts of outcomes. Those parameters are a country's market share with respect to change in US tariffs against that country's imports, the elasticity of substitution for a given good between different countries that go into the US. We thought we would find those estimates and then just redo the calculations. We thought we would look also at what had happened to Canada in terms of its trade agreement with the US and the carry down of that into NAFTA and we would then just draw some conclusions. But also we wanted not to simply decide on a point estimate but to develop a framework which would allow us to take into account a range of different alternatives and combine them into a rational framework that would assign probabilities to different ranges and outcomes. Everything then would be taken into account and, therefore, the argument basically would be one of a test of logic of the assessment of the probability given to each possible alternative on each given issue. That is what we did.
Using our methodology of the latest estimates of parameters based on actual data and looking at the Canadian performance under Canadian free trade, the bottom line was that we did not get a net trade liberalisation outcome—that being merchandise exports less merchandise imports—that was all that different from the CIE study. In that sense our study says, `Okay, on our methodology there is not all that much difference.' Then we moved on and looked in more detail at the whole raft of issues that we thought the CIE either had not done well outside the trade liberalisation area or had basically ignored. Those issues related to copyright, procurement both in Australia and in the US market, foreign investment and the constraints on using industry policy levers that governments around the world use to establish new and emerging technology industries and important things like the implications for the pharmaceutical scheme.
Basically, in looking at all those issues we did exactly the same thing that we did on the trade liberalisation issue. We looked at the range of alternative possibilities, we assigned probability rankings in what we thought were rational or logical ways within those sorts of parameters, and we came down to expected outcomes and a range of possible outcomes. In doing that we found that, once a more holistic or better balanced approach—in our view, anyway—is taken to these issues it is likely, on our assessment, that the negatives from considering the broader picture outweigh the positives from keeping a narrow focus on just the trade liberalisation issues. That is where our conclusion stands. In relation to the question on notice, we have sent to you this afternoon the impact on manufacturing employment which you requested.
CHAIR —I have not seen that answer, but I will dig it out. I turn to a couple of questions. Have you had a chance to see the study analysing the free trade agreement undertaken by the consultant to this committee, Dr Philippa Dee, now that it has been publicly released?
Dr Brain —No, we have not been through that study. My understanding is that her assessment was based in terms of the narrower focus of the CIE study. Therefore—I could be wrong—her conclusions would be more pessimistic than ours in relation to those narrower issues.
CHAIR —Her conclusions on net welfare gains to the Australian community were much smaller than those in the CIE study. But if you have not read her study then it seems to me it is unlikely that I can fairly question you on it.
Dr Brain —I got the impression that her negatives were more to do with the methodology around the CIE estimates that they had provided rather than the broader approach that we had taken. Therefore, my impression was that she would argue that we had been too optimistic, too, in those areas.
CHAIR —I think that would be true. Therefore, you might address us on that point. Why should we regard you as not being too optimistic? Are you being too optimistic?
—That is an interesting exercise. I think where we could be optimistic is in determining our upper limit. We said: `Let's say Australia entered into a free trade agreement with Canada in 1989—as the US did. How would we have done, compared to the negatives that actually happened?' Because of the crowding out by Canada against Australia we lost that benefit. In setting, if you like, a practical maximum for the benefit, we said, `Let's say we can turn back the clock now.' From memory, I think we lost a half a percentage share of the US market because of Canada and NAFTA. We said, `Let's assume that we can get that back.'
The reality is that if we had gone with Canada into the agreement in 1989 we might well have not lost that half a percentage share in the US market. But some of those firms that could have driven that response in 1989 have now gone out of business or changed their structure. All sorts of things have happened, so that platform is no longer there. When you read the Canadian study put out by the University of Saskatchewan in relation to the Australian free trade agreement you see what they think of our prospects for clawing back that market share lost because of the early first mover advantage of Canada in the US. Basically, they do not think we are going to do much good at all, because they have the first mover advantage. Our capacity in a lot of these areas has now gone, compared to the competitiveness of Canada as it would have been in the late eighties. So, yes, you could argue that we are being quite optimistic in that regard.
CHAIR —I have a series of questions related to the Dr Dee study, but I will just move on for a moment. I think on page 106 of your study at reference 10.3, AUSTFA and the cost of pharmaceuticals, you have provided us with an analysis from your perspective of how the free trade agreement might impact on the cost of pharmaceutical medicines.
Dr Brain —It is obvious; you just have to look at the table of the contributions as an important element. Our thinking basically is as follows. The first thing we asked ourselves was, `Well, let's look at the agreed principles on pharmaceuticals in the agreement.' They basically revolve around reward for innovation and R&D. The second thing we looked at was the public record of what the objectives of the pharmaceutical industry in the US would be in the context of this agreement with the added context that, as far as I know, this is the first time that pharmaceutical pricing arrangements have been included in a free trade agreement. What the American industry clearly does not like about the Australian Pharmaceutical Benefits Scheme as it is currently is that it delivers lowcost medicines in conflict—or what they perceive as conflict—with the perceived principles. It does that by making the rewards for getting onto the list so great that companies have to compete very fiercely in order to get on it.
This is not a criticism or my saying that they are evil or anything, but faced with that sort of arrangement it is only natural that you would love to do away with it—not so much because Australia is a great deliverer of profits to the American pharmaceutical industry but purely on the basis that it is a model which, if it were imported to the US or more vigorously elsewhere, such as in the European jurisdiction, could be quite costly. From that perspective, you would want to weaken that scheme. We think that the principles included in the agreement and the mechanisms that have been put in there in terms of the operation of the system will, in fact, by hook or by crook, lead to a convergence of Australian prices with US prices.
CHAIR —Is there an additional comment?
Dr Manning —I have an additional comment. From our reading of the document, it looks as though a breach of procurement principles is involved. Even though it is at some distance, if you are a government buying, in this case, pharmaceuticals, it is not a good idea to allow representatives of the vendors into your procurement process.
—I think the third factor was the uncertainty when the institute looked at the operations of the medicines working group and the uncertainty around the review mechanism. They then considered the dispute resolution procedure outlined in 21.2(c), which applies to chapters 2, 3, 5, 10, 15 and 17. That particular set of review mechanisms led the institute to conclude, on the balance of probabilities and given the objectives of the global pharmaceutical companies, that the PBS would probably end up in a disputes panel with a number of other issues. It was also considered that clause 17.10 and the potential implications for delaying the introduction of generic drugs would put upward pressure on drug prices through the extension of new use patents.
Because these things have been said by other parties, I think the value of the institute's work is less to regurgitate those arguments, which at the end of the day are largely subjective, but is rather to ask: if Drahos and his colleagues are right and we put their estimates into the CIE framework of looking at it over 20 years in a net present value sense with a five per cent discount rate, and given the CIE outcome of $55 billion, what is the effect from pharmaceuticals? Suddenly you come up with a minus $29 billion factor. All of a sudden you are offsetting a great deal of what were seen in the CIE as potential upside benefits.
CHAIR —I want to go into some detail about pharmaceuticals for a moment. There are two elements to it as you have presented it to us. The first is the independent review, the medicines working group and the impact they might have on pricing, as you have described. The second, which you have just referred to, is article 17.10—and I think the relevant provision is 17.10.4. The way in which it has been submitted to us by some who have appeared before us is that that provision can create evergreening—the ability to extend patents of drugs. I want to ask you some direct questions about both of those things. The agreement, which no doubt you have looked at, makes it plain what the purpose of the independent review and the medicines working group is without providing us at this point with the detailed regulations on how they will be structured.
Last evening, we had a roundtable discussion with various people associated with health, which included the AMA, various academics, the department of health and the chief negotiator. We focused for about 4[half ] hours on trying to get to the bottom of what all this meant. Obviously senators will have arrived at their own conclusions following being exposed in some detail to the points of view that were put, but for the sake of this discussion can you tell us why you think—I assume you do from what you have said—that the broad purpose of both the independent review and the medicines working group would lead to higher priced drugs being eventually admitted to the PBS? Also, is it your view that article 17.10.4 leads to a potential for evergreening?
Dr Manning —Our first point is that we are pointing to the very strong uncertainty of this provision. If I am right, we put as our top balance that there will be hardly any downside for the pharmaceuticals scheme, but we put it as most probable that there will be some downside, and as the lower bound we say that there will be quite a lot of downside. So I agree with what you have just put—that the wording of the document is very obscure or rather—
Senator BRANDIS —Just because it is obscure to you does not mean it is obscure. It might mean that you simply do not understand it because you do not have the expertise. The people who do profess expertise—that is, international trade lawyers—find it not obscure at all.
CHAIR —Please complete your answer, Doctor.
—We are not certain as to exactly what the effects will be in actual operation. However, as economists, we have looked at the international drug industry and are very impressed with its continued high profit rate. According to economic theory, competition should remove that. It has not. We can only assume that this is because of the industry's expertise in exploiting its patented advantages, which are a government provision, and also in exploiting government procurement, because as you are well aware sick people are not generally rich people. Usually therefore some form of subsidisation of drug purchase is required. So, because of our general view of the industry, as articulated by, among others, the Industry Commission, we are inclined to look very carefully at any change in the balance of power that might be involved. I agree that the changes to procurement provisions are not direct. However, the matters of appeal against listing do have the potential to change both listing requirements and prices.
CHAIR —Next I want to go to your section which commences at page 36 in your report. That is headed: `5. The core methodology: the generation of probability distributions for motor vehicle industry outcomes'. Can you just describe to me as a layperson what these charts are supposed to establish?
Dr Brain —The basic methodology we used was what is described in the literature as a triang distribution, which is fully described by the specification of the concepts of the mean likely outcome, the practical maximum outcome, the practical minimum outcome and the probabilities that the practical minimum and maximum will be exceeded. This appealed to us because it is a reasonably intuitive way of combining a lot of information in relation to an issue, in the sense that, although there is obviously an element of subjectivity, it is transparent subjectivity, and it does allow people to assess fairly easily the logic of your argument. We all do, I think, intuitively look at things in terms of a reasonable or practical range of possible outcomes and in relation also to where we expect the mode that is specified to be—that point which is likely to have the highest probability of outcome.
CHAIR —What am I to assume from these studies? If you can put it for me in plain language, what do you believe this establishes?
Dr Brain —In terms of the motor vehicle industry, what we said was that there is a range of views. The possibility in terms of the maximum outcome is that indeed we may export utilities or four-wheel drives to the US by using some capacity that could become available in the Australian motor vehicle industry, providing the American motor vehicle industry would allow it. But on the balance of possibilities, although that is a possibility, at this stage it is unlikely that those decisions would be made because of the various complexities of decision making in the US motor vehicle industry irrespective of cost. On the other hand, based on US assessments of how much of the Australian motor vehicle market they could capture through exports from the United States—I think figures around $US500 million have been specified—there is a possibility in terms of the Australian free trade agreement. That is a possibility, but in our view it is unlikely. It has a low probability of being achieved simply because of the reasonably low degree of substitutability—at this stage at least—between Australian motor vehicles and those produced in the US. That is specifying the upper and lower bounds. The figures on page 44, given that sort of assessment, give you a probability ranking in terms of outcomes of the likely benefit.
CHAIR —So we see in this table something akin to table 7.1 in the CIE study. In that case it was about jobs. This is about exports and imports and the direct net benefits.
—That is correct.
CHAIR —Where do I go to see the job impacts of that?
Dr Brain —In terms of the motor vehicle industry or the total?
CHAIR —Firstly, the motor vehicle industry. I understand manufacturing was one of your focuses.
Dr Brain —I will give you the manufacturing jobs in total. I will email it off this afternoon. The overall bottom line outcome is to go through all the different issues and specify these probability distributions where the declining distribution gives you in any given read-off of the distribution the probability that the outcome will be lower or closer to the origin. For example, for the motor vehicle industry, figure 5.4 shows there is a 25 per cent probability that it will be lower than minus $2.2 billion in terms of net benefit, and so on. So we go through all the different issues, specify these probabilities, then we combine them all to get a bottom line outcome with all the probabilities interacting to give you the total bottom line probability. Those bottom line probabilities for employment are given on page 115.
CHAIR —On page 115 there are two graphs: figures 11.6 and 11.7.
Dr Brain —What I am doing here is focusing on figures 11.5 and 11.6. Figure 11.5 shows the average annual change in employment compared to what otherwise would have been the case. In other words, what the variable represents is a baseline going out, then we take the deviation from the baseline as a result of all these factors being put into the mix and average that difference. It is the year-by-year differentials averaged. What we see from that graph is that, taking 100 minus 25 per cent, with a 75 per cent probability the outcome will be greater than a job loss of 64,598.
CHAIR —This is not a time series graph, though. This is a static snapshot, is it?
Dr Brain —No. It is the average over the years 2005 to 2025. The final year, 2025, is in figure 11.6.
CHAIR —I see that now.
Dr Brain —You can see that we have mucked up the dollars.
CHAIR —So there is a 25 per cent probability according to figure 11.6. But what is that figure there?
Dr Brain —The other way of interpreting it is that there is a 75 per cent probability that you will get fewer job losses than 195,000 in 2025. The year 2025 will be greater than the average because all this is phased-in. Some of the effects, like foreign investment and those sorts of things, do not start cutting in until 2008 or 2009.
—When I looked at the figures in the CIE study in table 7.1 and totalled up all the notations of `occupation'—as I think it is fair to call them—as to what I thought were manufacturing occupations, one of the entries in what I made to be the manufacturing column in their study was leather or leather goods, which showed, as I recall, quite an extraordinary increase in jobs for that sector. There were job reductions in mechanical components and automotive components. I am going to ask Dr Stoeckel this but are you able to offer any views about the likely impact on leather goods or leather products?
Dr Brain —Yes. If you have a minute, I will try to bring it up on the system.
Mr Apple —Chair, has the committee received the two graphs on manufacturing employment that Peter sent up?
CHAIR —We do not seem to have those two graphs.
Mr Apple —They were sent today to the email address on the Senate inquiry's web site. I will give you a brief summary. Your question was: for those 57,000, on average, job losses per year and the large job losses at the end of 2025, how many were in manufacturing? The material we sent today said that, on average, the job losses in manufacturing compared to the situation without the agreement was 17,300 and that by 2025 manufacturing would have approximately 39,000 fewer jobs than would otherwise have been the case.
CHAIR —I have the graphs now.
Mr Apple —It is the same methodology in terms of the distribution of the 25 per cent probability and the 75 per cent probability.
Dr Brain —The thing to remember about 7.2 in CIE is that they are more akin to our analysis in table 4.1 and so on. So it is a question of what export increase we basically have for that industry. For leather goods exported to the US we have 2.2 per cent of output. Leather and leather substitutes are up 9.2 per cent. We have to aggregate that. That should be aggregated in table 3.3.
CHAIR —What I am asking, and you may not be in a position to answer this question—you may need to refer back to your notes—is this: what is the explanation for that? It shows increased exports on your table 3.3 and on the CIE model in the job distribution it shows a dramatic increase in jobs, which, in my calculations, on the CIE calculations, turned the manufacturing sector into a positive employer under this agreement, not a negative one. The anomalies seem to be quite a dramatic increase in jobs in this area, which, notionally at least, appears to be confirmed by your table 3.3. What is it that causes that change?
Dr Brain —I think we will do better justice to it if we give you a written response to that.
Dr Brain —It obviously goes back to the fact that the tariff cut must be in percentage terms quite high. That is in our table 3.3—we gave those percentage changes. It must also go down to the fact that the tariff elasticity of imports with respect to tariffs is also quite high.
—What you are asking is what the quantitative significance of that is. Our output shows a high percentage, so that must be the reason.
Senator BRANDIS —Doctor Brain, you said in your evidence, and I made a note of it, `This is the first time pharmaceutical pricing arrangements have been included in an FTA.'
Dr Brain —I said I thought it was.
Senator BRANDIS —Yes, sorry. But you do think, don't you, that pharmaceutical pricing arrangements are included in this FTA?
Dr Brain —I think that mechanisms have been included in this FTA that will in effect produce that outcome, yes.
Senator BRANDIS —I am wondering how you think that could be the case, when, as we now know from the expert evidence we heard last night, there is no price review mechanism whatsoever in the FTA for pharmaceutical goods? Did you know that?
Dr Brain —What we are basing our assessment on is the dispute resolution procedures, as outlined in 21.2(c), which we think also applies to chapters 2, 3, 5, 10, 15 and 17 of the agreement.
Senator BRANDIS —I do not know whether you happened to be listening to the evidence we had last night or have had the opportunity to consult the Hansard record of yesterday's proceedings.
CHAIR —It is not out yet.
Senator BRANDIS —It is not out yet, I am told. Let me be the first to give you the good news and reassure you that, for a variety of reasons that I am happy to take you through, it is simply not possible for the dispute resolution mechanism in 21.2(c) to have the effect that you fear it may have on pharmaceutical prices, most obviously because the whole of chapter 21 of the agreement, which deals with dispute resolution, ex hypothesi can only operate on a dispute arising under the agreement. That is what it is there for. There is nothing in the agreement that provides for any mechanism by way of review or setting in the first instance. The agreement absolutely does not speak to the question of pharmaceutical prices, so it is not possible for a dispute about pharmaceutical prices to arise under the agreement. Did you not appreciate that, Dr Brain, when you gave that evidence before? My questions are to Dr Brain in the first instance. I do not want to shut out Dr Manning or Mr Apple if they want to say something, but I am testing the accuracy of the evidence given by Dr Brain. Perhaps we could have him respond in the first instance.
Dr Brain —My evidence is based on the assessment of putting myself in the position of the American pharmaceutical industry—what is on the record in terms of their objectives and how they consider the benefit or the operation of—
Senator BRANDIS —I can understand that you might be—
Senator BRANDIS —Mr Chairman—
CHAIR —No! We are not going to go through this again, Senator.
Senator BRANDIS —Mr Chairman, govern your temper, please.
CHAIR —Just you obey the chair, Senator Brandis.
Senator BRANDIS —Your conduct of these proceedings has been a disgrace. You have been partial. You have been bad-tempered. You have not governed yourself by the same procedural rules—
CHAIR —Senator Brandis, bring yourself to order or I will close these proceedings instantly!
Senator BRANDIS —Well, close the proceedings.
CHAIR —Senator Brandis, bring yourself to order. You will withdraw the reflection on the chair now.
Senator BRANDIS —No reflection on the chair was intended.
CHAIR —A reflection on the chair was made. Withdraw those remarks now, please.
Senator BRANDIS —If a reflection on the chair was made, to that extent I withdraw.
Dr Brain —Can I just—
CHAIR —No. The chair has the floor.
Senator FERRIS —What? Still?
CHAIR —The chair has the floor—
Senator FERRIS —You have had the floor for an hour. I do not know why we are even sitting here.
Senator BRANDIS —The chair has had the floor of this committee all the time.
CHAIR —The chair has the floor as the presiding person in this hearing.
Senator FERRIS —You have had the floor for an hour.
CHAIR —Order! Order on this committee!
CHAIR —Come to order, Senator!
Senator FERRIS —Don't shout.
CHAIR —Come to order, Senator!
Senator FERRIS —I will not be shouted at, Senator Cook.
CHAIR —Come to order!
Senator FERRIS —I am in order and I am asking you to stop shouting.
Senator BRANDIS —Until Senator Cook behaves himself, we should suspend the proceedings.
CHAIR —Order! I am standing now as the presiding officer of this committee and I ask for silence while I make a ruling. Can we have some silence? I am here to find out the information that the witnesses are providing. I want to hear the answers of the witnesses before they are intervened on with further additional questions. I am interested in hearing the full answer. Let us now hear the full answer that the witness was providing. Then you can ask your additional questions, Senator Brandis.
Senator BRANDIS —I have a point of order, Chair. During the course of your conduct of these proceedings and when you have been the senator with the call, you have, with no objection so far as I am aware from any government senators and certainly with no objection from yourself as the chair, consistently interrupted the answers of witnesses when they were answering questions, in most cases for the very sensible reason of directing the witnesses' attention to the issue that you wanted them to focus on in their response. That is a helpful procedure. It certainly attracts no criticism from me. I invite you to apply the same principle to government senators as you have been happy to apply to yourself.
CHAIR —I reject that analysis. There is no point of order. Proceed, Dr Brain.
Senator BRANDIS —You cannot remember where you were, Dr Brain. Do you want me to ask the question again?
Dr Brain —No. I will turn over to Ian Manning. I would just like to say that there is a study put out by the government on the record which says that there will be zero costs or insignificant costs in terms of the agreement in relation to pharmaceuticals. But we have simply done—
Senator BRANDIS —Before you turn over to Dr Manning I want to ask you some more questions arising out of that answer, so why don't you finish your answer and then I will ask you some more questions.
—The evidence that we have presented in relation to pharmaceuticals takes into account the view, as Ian Manning has already said, that there may be additional costs with the agreement but in our judgment, from a variety of sources, puts a more practical assessment in relation to what we consider to be the evidence for a logical conclusion on likely future costs, and we stand by that.
Senator BRANDIS —You said that is a logical conclusion. I am sure you believe it is, if you are prepared to say that it is. Can you tell me how, as a matter of logic, this agreement can impose pressure on pharmaceutical prices when the agreement contains no mechanism for price review? It is just not part of the agreement at all. So how can that, in your opinion, happen?
Dr Brain —I will just go back to what I said at the beginning. We make that assessment on the basis of looking at what are the agreed principles on pharmaceuticals which are in the agreement, which is all about rewarding innovation and R&D.
Senator BRANDIS —From a legal point of view this is a legal document so perhaps, not being a lawyer, you are at a disadvantage here, but you do not look at principles in order to determine the way a mechanism operates, you look at what the mechanism says. But if we were to look at principles, I am just wondering, Dr Brain, why you are focusing on one of the principles mentioned in the agreement and have not so much as breathed a work on another of the principles also recited in the pharmaceutical section of the agreement—that is, the need for medicines to be affordable. If one of the principles of the agreement is to keep medicines affordable and if the right approach to construing this agreement, as you would have it, is to construe it by reference to the principles, that would suggest, would it not, that the agreement is not going to cause pharmaceutical prices to rise if it is one of its stated principles to keep them affordable?
Dr Brain —That is not our view. It is not our view because, technical or legal aspects aside, what this relationship is about is a power relationship between the two parties. In relation to this issue it is our judgment that Australia's position is not hugely advantaged. Secondly, you talk about—
Senator BRANDIS —Can I ask you to pause there.
Dr Brain —Could I just answer the question in relation to—
Senator BRANDIS —If you are going to go on to another point, I just want to challenge you on that first part of your answer. May I do that?
Dr Brain —Yes, sure.
Senator BRANDIS —You say it is a power relationship. You appreciate, surely, that where two parties have a contract—because that is what this agreement is; it is a contract between two countries—in relation to the resolution of any disputes that might arise under that agreement they stand in a relationship of equality in the eyes of the dispute tribunal. They have equal rights under the agreement. Their rights are the rights the agreement gives them. The fact that America is a more powerful country that Australia is, from a dispute resolution point of view, irrelevant. Surely you understand that.
—I was going to go on and talk about the concept of affordable medicine. If we look at this week's Economist, there is a graph showing health expenditure as a per cent of GDP. In the US, currently that expenditure is 14.4 per cent of GDP, compared to Australia where it is around nine per cent. Not all but a substantial part of that cost differential is the higher cost of drugs in the United States. Using that evidence, the American concept of affordability will presumably be based on their own benchmarks, not on what we consider to be affordable medicine.
Senator BRANDIS —Why do you say `presumably'? This is an agreement between two parties. They both say they want affordable medicines. I would have thought as a matter of logic that medicines would be only affordable according to the common view of those two parties—that is, if they are affordable according to the principles of both.
Dr Brain —You are right, Senator Brandis, I am not a lawyer but I have been in enough litigation to know—
Senator BRANDIS —That is logical isn't it?
Dr Brain —that when you go to court they start from fifty-fifty and move upwards from there. Therefore, I would think that a practical interpretation of the operation of the principle of affordability will involve a convergence to some sort of average benchmark between the two standards.
Senator BRANDIS —I do not know why you think that, but anyway that is what you think. I want to come back to my initial question. We all know America is more powerful than Australia; America is more powerful than any country in the world. But we are interpreting a legal text here and I am asking you how, as a matter of logic, it is possible for this agreement to enable pharmaceutical prices to rise in Australia as a result of its operation when the agreement does not even have provision for reviewing prices? I could begin to understand your argument if there were a clause of the agreement that said, `You can review prices and there can be a disputes tribunal that reviews prices.' I imagine you would say then that the Americans with all their firepower would come along to this price review tribunal, they would put all these arguments and they might overwhelm the Australian advocates before the price review tribunal, but there is not a price review tribunal. We know that. If there was any doubt about that it was removed in the mind of even a fairly unintelligent person by the evidence we heard from the experts last night. So, if there is no capacity to review pharmaceutical prices under this agreement, how can the fact that America is a very powerful country with a powerful pharmaceutical industry even be relevant here?
Dr Brain —Our assessment is made on what we think of how the way the independent review process in annex 2C 2(f) will operate.
Senator BRANDIS —Let me take you through it, Dr Brain, because—
CHAIR —Make this the last question.
Senator BRANDIS —No.
—You will make this the last question.
Senator BRANDIS —No, I will not—
CHAIR —Yes, you will.
Senator BRANDIS —because I fully intend to use as much time as you used.
CHAIR —No, you won't. You won't be contemptuous. Make this the last question and we will now move to the next witness.
Senator FERRIS —That is outrageous.
Senator BRANDIS —I have several more questions for Dr Brain. You have occupied more than an hour, you have given the other senators 15 minutes—
Senator FERRIS —You cannot bully the whole committee.
CHAIR —Excuse me, make this the last question and we are moving on. I offered you the call at the beginning of this question period. You declined it. So did Senator Ferris. I asked questions. You now have the indulgence of the chair to ask additional questions—
Senator BRANDIS —As a matter of courtesy—
CHAIR —Do not speak while I am speaking. You now have the indulgence of the chair and I am saying we are now 15 minutes overdue—
Senator FERRIS —Why do you need to shout all the time?
CHAIR —for the next witness—
Senator BRANDIS —I move dissent from the chair's ruling.
CHAIR —You move dissent from the chair's ruling?
Senator BRANDIS —Yes. Put the motion. You have to put the motion immediately. Under Senate standing orders you have to put the motion—
CHAIR —I ask Senator O'Brien to take the chair because I wish to speak to the dissent motion.
Senator O'Brien having taken the chair—
—Mr Acting Chair, the agenda of this hearing was published in advance of this hearing. The agenda of this hearing is quite clear and all senators appearing on this committee know what it is. It says from 5.15 to 6 p.m. the National Institute of Economic and Industry Research will be available for evidence. It says from 6 p.m. to 6.45 p.m. the Winemakers Federation of Australia will be available for evidence and from 6.45 to 7.15 Baxter Healthcare will be available for evidence.
The clock now shows the time as 6.15 p.m., which means we have kept the Winemakers Federation waiting and/or Baxter Healthcare waiting, for an additional 15 minutes beyond the normal time. In order to keep to the published program, while I am happy to indulge additional questions and have done so, there has to be some reasonable limit so that witnesses who have made the effort to come here can be treated with respect and courtesy by this committee and be heard. My ruling is based on extending that reasonable courtesy per virtue of the published program of this hearing. The second point I wish to make is: I have been here all afternoon for this hearing, but not all senators have been.
Senator FERRIS —But you are the chair.
Senator COOK —Yes, I am the chair of the committee—thank you for interjecting—and you would expect me to be here. I have been here all afternoon. As the chair, I offered to Senator Brandis the opportunity to question these witnesses prior to anyone else questioning them. He declined that offer, indicating at that point that there were no questions. After I pursued a series of questions, because no-one else on this committee had any questions whatsoever for the witnesses, I then took an opportunity to ask them questions. As a consequence of that we now have additional questions. These questions are running around the same point and we can spend all night doing that, but I think that is an excessive indulgence and it is appropriate for the chair to draw a senator engaging in that excessive indulgence to order. They are the reasons for my ruling.
Senator BRANDIS —In fairness, there should be a rough equivalence of time available between government and opposition senators. That is all I wish to say.
ACTING CHAIR (Senator O'Brien) —I wish to vacate the chair and speak to the motion.
Senator BRANDIS —You will have to give the chair to me because I am the deputy chair.
Senator COOK —No, you are the mover of the motion.
Senator BRANDIS —Perhaps Senator Ferris should take the chair.
ACTING CHAIR —I am happy to vacate the chair to Senator Ferris while I speak on this matter.
Senator Ferris having taken the chair—
—The facts as outlined by Senator Cook are correct. I have been sitting here for the entirety of these proceedings. When these witnesses appeared via teleconference I was witness to a procedure whereby Senator Cook offered the call first, I think, to Senator Ferris and then to Senator Brandis. Both senators indicated they had no questions, or words to that effect. Then Senator Cook turned to me and asked me whether I had any questions and I said no. Senator Cook then undertook to ask a number of questions. We have a timetable for hearing from these witnesses, which is set out in the agenda on the table in front of us at the moment. In terms of that agenda, these witnesses were due to finish at 6 p.m. We have had a witness in the audience waiting to be heard for about 30 minutes. In my view Senator Cook is exercising a process of some convenience—indulgence is probably a better word—for Senator Brandis to allow him to ask questions 15 minutes past the stated time. I think that there has certainly been some acrimony in that period, which I think has probably not aided the conduct of these proceedings whereby the chair has attempted to rule on matters and that has raised the ire of Senator Brandis. Having been advised by the chair to conclude questions—
Senator BRANDIS —I am not angry. I am just trying to enforce procedural regularity by the chairman who has behaved in a disgraceful manner.
ACTING CHAIR (Senator Ferris) —Senator Brandis, I am the acting chair and I am asking you to please let Senator O'Brien finish.
Senator COOK —You are a disgrace.
ACTING CHAIR —I am the acting chair and I am asking you, Senator Cook, to allow—
Senator COOK —Call Senator Brandis to order.
ACTING CHAIR —I had done so, Senator Cook, before you interrupted. Senator O'Brien, please continue.
Senator O'BRIEN —I think some of the acrimony is continuing to spill out into these proceedings. The fact is that I have been a part of a great many proceedings where the chair has indicated that, there being a timetable—even with latitude given—those proceedings do come to an end, and a time is indicated for when they do come to an end. That is what the chair ruled. Regarding the dissent from that ruling—which, as I understand it, is the purpose of Senator Brandis's dissent motion—I wish to record that I believe that the chair is entitled to make the ruling that he did, and I will not be supporting the motion.
ACTING CHAIR —Thank you, Senator O'Brien. I will put the motion. All those in favour, please indicate by raising their hands. Those against, please now raise their hands. I use my vote as the chair to cast a vote in favour of Senator Brandis's motion.
Senator COOK —I think you are out of order.
Senator O'BRIEN —I do not think you can do that.
Senator COOK —You don't have a casting vote.
ACTING CHAIR —You appointed me acting chair, and I have used my casting vote accordingly. Please proceed, Senator Brandis.
Senator CONROY —Can we seek some advice from the Clerk on whether—
Senator FERRIS —Senator Conroy, you—
—It is your political purpose to reduce this whole thing to a farce. That is the line you are constantly pursuing.
Senator BRANDIS —Are you chairing this meeting at the moment?
CHAIR —I am chairing this meeting at the moment.
Senator BRANDIS —All right. I am proceeding to ask my question.
CHAIR —I want to indicate to this—
Senator CONROY —Can we seek some advice from the Clerk?
Senator FERRIS —There is no need to seek advice from the Clerk. We are now proceeding.
Senator BRANDIS —While that advice is being sought, I want to ask my question.
Senator CONROY —We can apply for advice from the Clerk at any stage.
Senator FERRIS —We will need to suspend proceedings and have a private meeting.
Senator BRANDIS —No, let us just ask the question.
CHAIR —No, we need to suspend proceedings, because I have said that this is your last question.
Senator BRANDIS —Your ruling has been dissented from.
CHAIR —Yes, and I now seek advice from the Clerk, in view of that vote. So we are not in session.
Proceedings suspended from 6.21 p.m. to 7.02 p.m.