Peru's newly completed Free Trade Agreement (FTA) with the US has been welcomed by independent observers, although the deal could place additional strain on the government's drug purchasing system. The new drug market regulations set out by the treaty -- which the US has also negotiated with the other Andean states excluding Venezuela -- are nevertheless a breakthrough for foreign firms.

A key US concern has been "national treatment" -- or the 20% bidding preference given to local companies on all government tenders worth more than US$175,000. The FTA will now equalise preferences for US companies, although firms based in other Andean states -- notably including fellow FTA partners Ecuador and Colombia -- will not enjoy the same privileges. Unsurprisingly, Peruvian manufacturers have vigorously opposed this reform.

Patentability was also an important aspect of US negotiating priorities. The FTA urges conformity with TRIPS as a minimum standard, but some measures go beyond basic international accords -- for example, biotech products will now be subject to an examination of their patent status prior to approval by health authorities. The introduction of five-year data exclusivity is also a major positive factor for research-based firms -- as is the right to seek non-punitive redress in all future patent infringement cases.

However, opponents of the FTA have outlined serious concerns regarding the treaty's IP terms, especially on the data exclusivity issue. Mainly due to the fact that Peru lacks a clear definition for New Chemical Entities (NCEs), it is feared that extendable data protection terms will eventually amount to a "parallel" patent system.

Nevertheless, Peru can claim to have protected some of its interests. The FTA includes a "Bolar exemption" for generics makers, and decisions on patent term restoration will rest with the government. Further, the FTA also upholds many of Peru's rules on compulsory licensing and parallel importation. So-called "second use" patents are also not recognised, and suggestions that key principles of US trademark law be adopted in Peru was rejected.

Meanwhile, the eventual impact of the treaty remains to be seen. There are concerns that prices could rise as state drug purchaser Essalud is obliged to buy more original drugs, although the health ministry has pledged to create a new fund to offset any extra costs brought by the strengthened IP regime.