The Parliamentary Budget Officer released a report last week providing its estimate on the economic impact of the Canada – EU Trade Agreement. While the Liberal government made CETA its top trade priority when it came into office (and the Conservatives claimed that the deal would add $12 billion to the Canadian economy), the PBO report concludes that the economic benefits will be modest at best.

The report devotes a full chapter to CETA’s intellectual property provisions, particularly the patent related rules that will have a direct impact on the pharmaceutical industry.  CETA establishes patent restoration and patent appeal rules that will extend the term of patent protection for pharmaceutical products, thereby increasing consumer prices and royalty outflows. With a regulatory framework designed to address pricing in place, the report focuses on increased royalty outflows with extended protection.

It concludes that the additional royalty outflows will run into the hundreds of millions of dollars. In 2015, the PBO estimates the increased royalty payments would have been $85 million. By the time the agreement is fully implemented, it pegs the annual royalty increase at $209 million.

Of note is that the report also rejects claims that increased patent protection leads to greater expenditures on research and development.  It states:

The explicit link between patent protection and R & D expenditure was necessary because the two are only weakly linked by market forces. A statistical analysis shows no significant correlation between the two for OECD countries. Moreover, R & D expenditure in Canada for pharmaceuticals has not necessarily followed changes in the protection of intellectual property. After some initial increases following the extension of protection in 1987, R & D expenditures relative to sales have been declining. This coincides with the conclusion of the NAFTA and trade-related aspects of intellectual property (TRIPS) agreements.

CETA may be a done deal and the opportunity to increase trade with Europe important given the uncertainty associated with NAFTA, but the PBO report throws some cold water on the agreement, concluding modest economic gains and huge outflows in royalties due to the patent provisions demanded by the European Union.