A U.S. trade official this week held open the possibility that the Office of the U.S. Trade Representative would delay taking a procedural step on the U.S.-Australia free trade agreement (FTA) that could delay the implementation of the agreement beyond January 1, 2005, when both countries had hoped to implement the deal. That procedural step involves an exchange of diplomatic notes that certify that each country’s implementing legislation fulfills the obligations of the FTA.

Copyright and pharmaceutical industries have flagged problems to USTR regarding Australia’s implementing legislation for the FTA, and USTR shares some of those industry complaints, the U.S. trade official said. The official noted that the U.S. had previously delayed exchanging diplomatic notes with Chile and Singapore in order to ensure that those two FTA partners enacted “necessary” implementing legislation.

However, the official said it is “too early” for the Bush Administration to say whether it will be necessary to delay exchanging notes with Australia, the trade official said.

The U.S. implementing legislation stipulates that before the agreement can come into force, the two governments must exchange notes certifying that the other’s implementing legislation fulfills the obligations agreed to under the FTA. The U.S. law calls for this exchange to take place 60 days in advance of the agreement entering into force, or on any other date the two parties agree. The U.S. and Australia have long said they wanted the agreement to enter into force on Jan. 1, and had hoped to exchange notes by the end of this month.

However, U.S. law does allow both countries to delay exchanging the diplomatic notes without jeopardizing the Jan. 1, 2005 deadline as the law allows both countries to agree on an alternative date for exchanging notes.

The U.S. trade official said the U.S. and Australia have already engaged in “a constructive dialogue” on a range of issues tied to the FTA, but did not elaborate the substance of those talks. “We believe that they are taking our concerns seriously and are hopeful that we will resolve our differences,” the official said.

The official added that for the moment no formal meetings between the U.S. and Australia are scheduled to discuss the FTA.

At issue is a provision in Australia’s implementing legislation that permits new penalties to be imposed on pharmaceutical companies that file false or misleading certificates to extend patents. Specifically, drug patent holders would be required to issue a certificate when they seek to prevent a generic version of a patented drug from entering the Australian market. Those certificates would state that the patent holder is commencing with legal action in good faith, feels it has reasonable prospects for success, and will conduct the action without unreasonable delay.

If the certificate is proved to be false or misleading, or if any undertakings given under the certificate are subsequently broken, a maximum penalty of 10 million Australian dollars could be invoked for each contravention.

Pharmaceutical industry sources have said this requirement could be viewed as a violation of World Trade Organization rules on intellectual property protections because this requirement adds a new burden for pharmaceutical companies seeking to extend their patents that are not imposed on other patent holders (Inside U.S. Trade, Aug. 13, p. 1).

Australia’s opposition Labor Party, whose support for the implementing legislation was necessary to get the legislation through the Australian Senate, pushed the pharmaceutical amendment.

In addition, sources said the U.S. copyright industry is upset with other parts of the Australian legislation unrelated to the pharmaceutical issue. U.S. trade officials have declined to comment on the specifics, and copyright industry officials have not elaborated on their concerns publicly.

Government and private-sector officials have been reluctant to discuss U.S. problems with the Australian implementing legislation in part because they wanted to avoid a public debate before the Oct. 9 Australian election. U.S. Trade Representative Robert Zoellick last month told members of the Congressional Oversight Group it was not in the U.S. interest to raise the issue before the Australian election.

Australian Prime Minister John Howard was reelected last week, with his Liberal Party retaining and actually increasing its majority in Australia’s lower house.