Will the NHS be on the table for a Pacific trade deal?

Long read: Only six months since it left the EU single market, talks have begun for the UK to join the Comprehensive and Progressive Agreement for Trans-Pacific Partnership. Mark Dayan and Martha McCarey look at the key ways in which joining the CPTPP could affect health in this country.

Blog post

Published: 28/06/2021

The UK has only been outside the EU single market for six months, and the impact on health and social care is just beginning to emerge. But already talks have begun on this country joining another, equally large trading area, one that has so far been confined to the other side of the world. These are the eleven Pacific nations which have signed the Comprehensive and Progressive Agreement for Trans-Pacific Partnership (CPTPP).

This would bring about important changes for health, should talks on UK accession succeed in the coming months or years. It would raise early many of the issues to be expected in a trade agreement with the USA. Barack Obama’s government originally played a leading role in the drafting of the agreement. The country pulled out under Donald Trump before the papers were finally signed. However, the text remains more like a typical US trade deal than the EU arrangements the UK has “rolled over” with many other countries, including CPTPP member Japan, and American re-entry remains a topic of debate in Washington.

This long read looks at the key ways in which joining the CPTPP might influence health in the UK. Would it keep to the government’s commitments that “the NHS will not be on the table”, “the price the NHS pays for drugs will not be on the table”, and “the services the NHS provides will not be on the table”? And are there less obvious ways it might affect our health and wellbeing?

Is the NHS “off the table”?

Discussion during elections of the NHS being “on the table” tended to centre on an idea that trade deals might mean a shift to more health services being provided by private companies. This debate tended to involve all sides misunderstanding the starting point. Private companies – British or international – currently have extensive guaranteed access to the marketised English NHS.

Around a tenth of the budget for hospital, community, and mental health services was won by private providers in the years before Covid-19. For example, the Priory Group, currently owned by a Dutch private equity firm, is a large provider of NHS-funded mental health services of many descriptions.

This takes place in the context of an “internal market” in the English health service. The extent to which this functions as a true market can be debated, but its legal status as such has provided a range of rights to private providers. The care purchased is still free to patients at the point of use. In Scotland and Wales, there is no internal market to which to gain access, so in general there is nothing for a trade deal to open up or protect. Care is only contracted out when the private sector is explicitly desired – to clear waiting lists for example.

A more realistic concern was always that the rights given to foreign investors in trade deals could make it harder to shut the English market down in the future, or shut private providers out. Trade deals, including CPTPP, often contain protections for investors that guarantee they keep their assets and market access, as well as setting out rights to be considered in government procurement.

This is not a hypothetical concern. The NHS Bill set to arrive in Westminster shortly will cut back the rights companies have to be given the chance to bid for contracts, and reduce the degree of competition and marketisation.

The CPTPP’s investment chapter gives owners of capital in member countries extensive protection against unequal treatment based on nationality, and against “expropriation”. That “expropriation” may include measures that reduce profits and market capitalisation – like removing access to the NHS market. The chapter is enforced by a system of Investor-State Dispute Settlement (ISDS), private tribunals more characteristic of a USA trade approach, where investors can sue governments outside the domestic legal system. There are exemptions – as discussed below – but it is not clear that these would cover measures to reduce competition in health care or, as a future government might try, to actually bring services back into the public sector.

The government’s document setting out its approach to CPTPP states on investment that it “will protect the UK’s right to continue to protect the NHS”. However, there is no detail on what this means in terms of specific negotiating goals.

The obvious way to exempt the NHS would be through the “services and non-conforming measures” annex each country agrees. This will have to be negotiated and will need to be carefully scrutinised for how it deals with health. CPTPP here uses a “negative list” approach, where everything is covered unless it is specifically ruled out, so defining the “health” sector to be exempted will not be straightforward. Does it include social care, sometimes purchased by NHS commissioners? What about private health care markets that may be shaped by the availability of free public care through the NHS?

The procurement chapter requires government bodies buying services to treat providers from all CPTPP member countries equally, with process and transparency requirements. If applied to the English NHS, this would mean treating domestic and foreign companies equally to NHS trusts. Here, though, areas of service and government bodies are only covered if they are explicitly listed.

CPTPP’s procurement chapter largely replicates the World Trade Organisation’s Government Procurement Agreement. The UK has not included health services under its commitments to the GPA, and the government’s negotiating goals document strongly implies that it will make the same commitments for CPTPP. Excluding the NHS would be entirely possible as long as the UK holds to its recently stated pledges.

In short, protections for investors and private suppliers to access NHS contracts as they do today will be on the table as CPTPP negotiations begin. The UK could add text to remove them – but this may be more straightforward for the specific issue of procurement than for wider protections for investors.

What about the price the NHS pays for drugs?

Another serious concern about US-designed trade deals, which we have raised in the past, is that they might increase the price the NHS has to pay for medicines. US trade negotiators have historically sought to bring other countries in line with their country’s generous intellectual property rights which keep out cheaper competitors, its lack of negotiation on prices, and its lack of a test for good value such as is applied by NICE in the UK. These allow medicines companies in the American market to charge high prices for less effective drugs.

The manifesto on which the government was elected, reflecting these concerns, states that “the price the NHS pays for drugs will not be on the table”. This language is repeatedly echoed in the CPTPP negotiating document.

The prices paid by the health service might be affected in three ways: what intellectual property rights there are on medicines; how medicines are licensed for the UK market; and how the UK negotiates their prices.

CPTPP would do little to give longer intellectual property protections to companies. Provisions on the length of time for which rights are protected, for their extension in the case of delays in approving medicines, and for exclusive rights to data, all appear compatible with what the UK already does. Data exclusivity provisions have in any case been suspended after the USA left negotiations.

A different issue is the risk that CPTPP terms may clash with the European Patent Convention (EPC) – the system of intellectual property that accounts for 90% of patent rights in the UK, unaffected by Brexit. Under CPTPP rules, inventors have an additional year or grace period to apply for patents, even after their inventions have been publicised – something the EPC has in the past considered, but does not allow.

Apart from possibly allowing more medicines to be patented and sold at higher prices, this clash could result in enforcement action against the UK by other member states for breaching EPC terms. It is highly unclear whether this would happen, or whether it would be successful as enforcement processes are weak, but some uncertainty would hang over the UK system. Any actual threat of leaving the EPC would be a serious issue, risking the country splitting off from the European market with higher costs and paperwork to introduce products here. Firms could no longer use the UK as a legal base camp to introduce a patented medicine to Europe, something that currently probably benefits eligibility.

The government document on CPTPP accession pledges not to do anything “inconsistent with the UK’s obligations under the European Patent Convention”, but leaves unclear how this would be achieved.

A more radical departure – and something resisted strongly when the UK negotiated trade deals through the EU – comes in Article 18.53. This would introduce what is known as “linkage”, where the regulator approving medicines (the MHRA in the UK) has to give patent holders notice of any competitor products based on the same discoveries, and a chance to object to block them.

By enlisting government regulators in support of stopping competition against patented measures, linkage is widely seen as making it more difficult for cheaper drugs to reach patients and health services in practice. Branded medicines can cost ten times the price of generics or more for the same product, so even a few months more without competition can cost the NHS tens or even hundreds of millions in wasted spending with no clinical benefit to patients.

The CPTPP does also contain requirements about how countries can decide whether or not drugs are cost effective – currently suspended. These have been a source of serious concern in offensive US trade policy before, both in the UK and in countries like Australia, where some believe that a new review mechanism created through a US trade deal resulted in the system of value tests being watered down. We have raised concerns that provisions like this are typically designed to stop health services like the NHS from deciding not to fund medicines that save fewer lives per pound spent than existing alternatives, or from using their bargaining power to get a better deal.

The text in CPTPP is not as restrictive. There is a somewhat problematic if non-enforceable principle about “competitive markets” as a basis for assessing value. NICE and the Scottish Medicines Consortium, which adjudicate cost effectiveness in the UK, would be required to disclose currently confidential stages of their decisions and to offer certain types of reviews. The former may weaken NHS bargaining power, and the latter might increase bureaucracy.

The price the NHS pays for drugs is not on the CPTPP negotiating table as explicitly as it appeared to be in leaked negotiations directly with the USA a few years ago. But several parts of the agreement could potentially make it harder for the NHS to keep down prices – in particular by making the medicines regulator work to protect pharmaceutical patents, and by placing a legal question mark over the terms of our continued membership in the European patent system. The UK negotiating priorities document commits rhetorically to stopping prices rising, but does not address these issues.

Health beyond the NHS

The investment chapter described above may have implications for the ability of UK governments to legislate and regulate to promote public health. In high-profile cases under other trade deals, companies have sued Australia for expropriation for introducing plain tobacco packaging and Canada for blocking fracking. In the Australia case, tobacco giant Philip Morris argued, unsuccessfully, that plain packaging meant confiscating the value of its trademarks and was generally an “unreasonable impairment” to its investments.

The CPTPP investment chapter does offer three protections not usually present in older trade deals that gave rise to those cases:

  • It states that “non-discriminatory regulatory actions by a Party that are designed and applied to protect legitimate public welfare objectives, such as public health” cannot count as indirect expropriations,“except in rare circumstances”.
  • Countries can choose not to apply the rules to tobacco control measures.
  • Several countries, such as New Zealand, have signed side letters suspending compulsory ISDS between them.

However, given the high costs of an ISDS case, experts have often raised the idea of “regulatory chill” deterring governments from regulations even where they would probably win at tribunals. While CPTPP provisions would offer some more certainty around tobacco, it is not very clear what would and would not be a “discriminatory” regulatory action. The exception for “rare circumstances” leaves the wider exemption open for debate at a tribunal.

It may be difficult to draw up side letters with key countries. New Zealand notably has not reached these agreements with Japan, the biggest economy involved. If the USA were to rejoin, the default would be that the investment chapter fully applies.

Another area of concern will be any impact on data flows to and from the EU, which ensure research and information exchange in medical sciences. Because it still uses fairly strict rules based on the GDPR, the UK is currently more or less on course to have its protections declared “adequate” by the European Commission, allowing free exchange to continue past the current grace period. This would be important because sharing data, including personal data, is necessary for medical research and liaising on health issues and threats in some circumstances.

But the European Parliament passed a motion recently against this status for the UK – specifically noting that the UK’s application to the CPTPP could increase data sharing with unprotected countries.

Article 14 of the CPTPP states that countries can only restrict the flow of data on certain conditions – they cannot be a “disguised restriction on trade” or a restriction “greater than is required to meet the objective”. If a dispute arose, the UK rules that maintain the standards with which the EU is currently satisfied might be challenged, as they are stricter than those of many CPTPP countries.

The UK is unlikely to obtain an exception as a new applicant. The UK might be challenged, perhaps even by private investors through ISDS, on why it does not instead demand less drastic protective measures instead, like encryption. This in turn could mean losing adequacy status from the EU, creating new barriers for cooperation in science and public health.

Japan and New Zealand as CPTPP members do have EU adequacy status, showing that the two are not necessarily incompatible. However, a future dispute or challenge could still bring this unpredictably to the fore.

Joining the CPTPP would mean a drop in tariffs on food products from other members, making them cheaper and more available in the UK. British farming organisations have claimed that this will include categories of meat produced with more antibiotics in Australia, potentially promoting the rise of bacteria resistant to their effects.

Members are also required to recognise one another’s “sanitary and phytosanitary measures”, which protect food safety among other goals, as being equivalent where they achieve the same effects or objectives, granting market access. While the UK would remain free to have its own objectives, it may struggle to justify measures it has inherited from the “precautionary” approach of the EU restricting products for which safety is simply unclear – such as meat containing hormones. Although the science is highly disputed, an EU scientific committee found that there was evidence of at least one commonly used hormone causing cancer.

Defensive manoeuvres

Of course the NHS, and health in the UK, could be improved from international agreements. However, it must be said that the CPTPP contains little of the kind of scientific cooperation, agreed standards, or opportunities for cross-border care that might improve health in the UK, though it should have a slight general economic benefit that might affect funding and living standards.

The discussion is likely to centre around controlling and limiting the risks. The government’s priorities document shows it is well aware of these, but there is little detail on how it will address them, and there has been little open engagement with the health sector. The UK will have difficult choices to make in bargaining for entry in an already large and established club.

Suggested citation

Dayan M and McCarey M (2021) “Will the NHS be on the table for a Pacific trade deal?”, Nuffield Trust long read.