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End tariffs on medicine to improve access

Written by Philip Stevens, Senior Fellow at IDEAS and Nilanjan Banik, Professor of Economics at Bennett University, New Delhi, India

First published in The Malay Mail Online on 22 July 2020

While researchers in universities and private-sector laboratories work round-the-clock for new treatments and vaccines for Covid-19, physicians rely on a broad cabinet of older medicines to help patients through their darkest hour.

Unprecedented demand caused by hospitals stockpiling basic medicines such as antibiotics, painkillers, sedatives, and corticosteroids has caused global shortages and surging prices.

India’s drug regulator’s temporary green light for a 50 per cent increase in price of the blood thinner heparin is one example. Meanwhile, Covid-related pressures have seen Pakistan’s regulator approve a 7 per cent increase for essential drugs. In the UK, the price of basic painkillers has leapt 30 per cent since the start of the pandemic.

These are unusual times when manufacturers are struggling to meet demand. But some governments are adding to the problem by levying needless import tariffs on medicines.

Most countries, including Malaysia, levy no tariffs on imported medicines. But many middle-income countries do.

At 20 per cent, Pakistan boasts the highest rate globally, according to a report published this week by Geneva Network. More, the South Asian trio of Nepal, Pakistan and India have the top three tariff rates (10 per cent in India), the study finds. Latin America is another medicines tariff hotspot, with Argentina and Brazil levying average tariffs of close to 10 per cent.

Pharmaceutical manufacturing value chains are increasingly globalised; even low tariffs have a cumulative impact on a product’s end price, ultimately paid by patients.

A 2017 study by the European Centre for International Political Economy found that tariffs add a cumulative burden of up to US$6.2 billion (RM264.42 billion) per year in China. In Brazil and India, patients may pay up to 80 per cent more than the ex-factory sales price due to tariffs.

Abolishing these tariffs would deliver to patients aggregate savings of up to US$6.2 billion in China, US$2.8 billion in Russia, US$2.6 billion in Brazil and US$737 millio in India, the study says.

Existing medicines are one issue, but Covid-19 is a newly identified disease; a new vaccine is the only long-term solution. Its invention, mass manufacture and rapid distribution globally are all critical.

Tariffs will hinder the rapid dissemination and uptake of the vaccine, resulting in needless suffering and death and economic hardship. While most countries enjoy tariff-free regimes for vaccines, certain others needlessly inflate their price through import tariffs. India again tops the table globally, with vaccine tariffs at 10 per cent. Pakistan and Bolivia are among a clutch of countries that impose vaccine tariffs of 5 per cent.

Beyond medicines, Covid essentials from hand soap to ventilators are more expensive thanks to tariffs. According to the World Trade Organisation (WTO), the average applied tariff for hand soap is 17 per cent and some countries apply tariffs as high as 65 per cent.

Five Latin American countries (Ecuador, Bolivia, Venezuela, Brazil, and Argentina) have the highest tariffs on facemasks, from 17 per cent to 55 per cent. Brazil, Argentina, and Venezuela levy a 14 per cent import tariff on ventilators; in India it’s 10 per cent.

Some governments – Pakistan, Brazil, Columbia and Norway among them — have shown leadership by temporarily exempting Covid-19 related medicines, vaccines and medical supplies from import duties and taxes.

Meanwhile, Apec governments are discussing proposals to eliminate for at least one year taxes and tariffs on Covid-19 medical products.

Malaysia has also temporarily eliminated import tariffs on Covid-related supplies such as face masks, soap and protective equipment and ventilators.

While positive, such reforms are only temporary. They create uncertainty for exporters over the long-term direction of individual markets. They undermine preparation for future pandemics by medicine manufacturers.

Governments should commit to permanent tariff reductions on medicines, vaccines, and medical supplies through legally binding WTO commitments.

Most obviously, more WTO members should back the organisation’s Pharmaceutical Agreement (also known as “Zero for Zero”) as swiftly as possible, bolstering the group of 34 countries who have already agreed to abolish tariffs on medicines for all WTO members.

Notably absent here are India, Brazil, South Africa, Russia, China and of course Malaysia.

For Malaysia, non-membership of the WTO Pharmaceutical Agreement means any future government could increase tariffs on medicines, to the detriment of patients. Joining the Agreement would mean permanent duty-free medicines in perpetuity.

This is not only vital for beating Covid-19, but also a positive legacy for the future.

2020-07-23T10:12:35+08:00 23rd July 2020|Opinion|Comments Off on End tariffs on medicine to improve access