On February 24, 2006, the United States proposed to eliminate global tariffs and other barriers to trade in medicines and medical devices. The U.S. proposal, which is supported by the governments of Switzerland and Singapore, covers more than $55 billion in trade in medicines and medical devices.

Under the proposal, principally developing countries would reduce or eliminate tariffs in the range of 10-30%. These tariffs are calculated based on the value of the imported merchandise. For example, a 20% tariff on a medical device valued at $1,000 would result in a $200 tariff. In addition to tariff reduction, the U.S. proposal calls for eliminating non-tariff trade barriers. These barriers further restrict trade in medicines and medical devices, and include burdensome customs formalities, trade restrictive conformity assessments procedures, and other measures imposed by foreign countries.

The U.S. proposal covers specified pharmaceuticals and pharmaceutical bulk active ingredients, and all chemical intermediates used solely in the production of pharmaceutical active ingredients. With respect to medical devices, the U.S. proposal covers products such as X-ray equipment; clinical and veterinary thermometers; medical, surgical and laboratory sterilizers and equipment; motorized wheelchairs and wheelchair parts; medical/surgical instruments and appliances; and hearing aids, among others. Other products could be included in a final agreement.

The U.S. proposal comes in the context of broader WTO trade negotiations (referred to as the Doha Development Agenda negotiations), which were launched in 2002 and are set to conclude in late 2006 or early 2007. The proposal seeks to build on the progress made in the previous round of WTO trade negotiations (referred to as the “Uruguay Round” of negotiation), which were completed more than a decade ago. In those negotiations, tariff and non-tariff barriers were reduced on more than $200 billion in trade in medicines and medical devices, mostly between developed countries. The U.S. initiative in the current Doha negotiations thus focuses on trade barriers imposed mostly by developing countries.

During the course of the next 6-12 months of negotiations, the United States and its trading partners will be considering many questions in determining whether a final trade agreement covering medicines and medical devices is feasible. These questions include:

• Should this proposal covering medicines and medical devices be considered a high priority within the context of the broader Doha Round negotiations?
• Which countries will be a party to an agreement covering medicines and medical devices?
• Which specific products will be covered by the agreement?
• Will there be a transition period before elimination of tariffs?
• If a transition period is negotiated, what products will be subject to the transition period, how long will the transition period last, and what are the tariff levels during the transition period?
• What specific non-tariff trade barriers will the agreement target?
• What specific commitments will be made to eliminate such non-tariff trade barriers?

A trade agreement covering medicines and medical devices has the potential to offer significant cost savings and to enhance the competitive position of companies in the medical sector. As the U.S. only recently announced this proposal, pharmaceutical and medical device companies have an opportunity to influence the negotiations and the scope and substance of any final agreement. By developing a strategy to engage the Office of the U.S. Trade Representative, the lead negotiating agency of the U.S. government, companies can increase the likelihood that their trade interests and concerns are reflected in the U.S. negotiating position and, ultimately, a final agreement.

Link to the U.S. Proposal and Supporting Paper:
http://geneva.usmission.gov/Press2006/022406USTRMed.pdf

Should you have any questions concerning the U.S. trade proposal for medicines and medical devices, please contact Myles Getlan of the firm’s International Trade Practice and Brian Waldman of the firm’s Food and Drug Practice:

Myles S. Getlan
202.828.3428
getlan.myles@arentfox.com

Brian Waldman
202.857.8971
waldman.brian@arentfox.com