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PARIS, April 6 — The pharmaceutical industry, the largest sector for international trade behind electronics, has so far escaped tariffs from Washington but US President Donald Trump has indicated that situation may not last. The United States imports more medicines than it exports and to date the pharmaceutical industry has been spared the protectionist offensive the Trump administration announced on Wednesday. But Trump indicated the following day that Washington could take decisions soon on customs duties targeting the sector.
Uncertainty “We’re still in this climate of uncertainty,” said pharma analyst Nicolas Dumas from consulting firm Roland Berger. He told AFP he thought medicines might be targeted in a “second wave” of US tariffs. Since the World Trade Organisation reached an agreement in 1994, pharmaceutical products, including the main active ingredients in medicines, have in general been exempt from customs duties.
The WTO signatories are, in the main, developed nations. “I wonder if the entire value chain will continue to be exempt, as it is under the 1994 agreement,” said Virginie Lefebvre-Dutilleul, who works in the heath sector at EY in France. Exports to North America For the past 20 years, the health product sector — which includes medicines, their components and equipment — has seen trade increase to the point that it represented 13 per cent of world trade in manufactured goods in 2021, according to France’s Centre for Research and Expertise on the World Economy (CEPII).
The sector is second only to electronics in terms of global trade. A large part of pharma imports and exports — 35 per cent — is between European countries. Europe’s exports to North America — Canada, Mexico and the United States — represent “around 12 per cent” of world trade in health products, while North American exports to Europe constitute around “5 per cent”, said CEPII economist Deniz Unal.
The European trade surplus is “concentrated particularly in Ireland”, she said. Irish exports to the US represent “2.5 per cent of world trade in health products”, she said.
“It’s the most important trade flow in the world,” she said, slightly bigger than the China-US flow. This is due mainly to the low taxes applied by Ireland. Belgium, the Netherlands and Switzerland also have low taxation rates.
Irish taxes “As it stands, pharmaceuticals have been exempted from the recent US tariff hikes,” said Billy Melo Araujo, Professor of Law at Queen’s University Belfast. “Should tariffs be applied in the future, this could have a significant economic impact on Ireland, as the pharma industry employs approximately 45,000 people and its yearly exports to the US are valued at over €72 billion (RM350 billion).” The price of medicines comes down essentially to the cost of the patent.
Because of Ireland’s favourable taxation system, large pharmaceutical labs in the United States have registered their patents in Ireland. This allows them to benefit from Ireland’s 15-per cent rate of tax on large companies, as opposed to 21 per cent in the United States. They declare their research and development in Ireland and sell their products on the US market, where the price of medicines is traditionally higher than in the rest of the world.
Thus “an American medicinal product can create a trade deficit with Ireland just because of the intellectual property manoeuvres”, said Nicolas Picard, a health sector specialist at CPR Asset Management. Relocating The market for medicinal products is dominated by a dozen huge multinationals who have research and production centres in Europe and Asia as well as the United States. Shifting all production to the United States to avoid potential trade tariffs “would be far from trivial given the complexity and regulatory issues”, said Matt Moran, an industry expert and former head of The Irish BioIndustry Association.
Simply transferring a molecule from one facility to another involves “the validation procedure that takes around two years — or half of Donald Trump’s mandate”, pointed out Florin Istrate, a consultant at Circle Strategy. Dumas said he thought that if the United States did impose customs duties on pharmaceuticals, it might do so “in a more differentiated way” via a “mechanism introduced progressively so labs that want to manufacture goods in the United States have time to repatriate their production chain”. A downside of this is that relocating to the United States could push up production costs and therefore the end-user price of medicines.
— AFP.
