Bring Out the Border Blockers

Where is the International Trade Commission when you need it?

The ITC is one of the US government's border blockers, erecting barriers to low-priced imports in order to protect domestic industries from being injured. Right now, the US pharmaceutical industry is in grave danger of serious injury. But the ITC and its sister agency, the Import Administration, are nowhere to be found.

Lifting barriers to imports is usually a good thing because it results in lower prices for US consumers. But imports - or more precisely re-imports - of patented pharmaceuticals are an exception to that rule.

These are drugs that were produced in the United States and then exported to countries like Canada, where they are sold at far below US market prices because of foreign government-imposed price controls. Now, Congress is poised to commit drug abuse: it wants to allow the reimportation of those drugs so that Americans can buy them at the artificially low prices.

This action would devastate the development of new drugs. It costs about $800 million to bring a new drug to market, according to the Pharmaceutical Research and Manufacturers of America. Only 3 out of 10 drugs on the market generate enough revenue to recover the average cost of their development.

Pharmaceutical companies have to charge high prices in order to try to recoup those expenses. In places like Canada and Europe, the government-controlled drug prices are too low to enable companies to do that, with devastating effects. Whereas Europe used to be a pharmaceutical powerhouse, now most breakthrough drugs come from the United States. The main reason that non-generic pharmaceutical companies anywhere can still thrive is because of the lack of price controls here.

For most industries displaced by imports, foreign producers fill the void. Do not count on that happening with pharmaceuticals, not only due to price controls abroad but also because drug development requires a workforce full of Ph.Ds, which most countries lack.

If the US Senate follows the House's lead and votes to allow the reimportation of drugs, it would be nice if the ITC blocks such a move on the basis that it will harm not only the US pharmaceutical industry, but also hurt US consumers in the long term. Unfortunately that probably will not happen. Most ITC cases arise when a US company petitions for protection from foreign competitors. But this time the issue is not foreign competitors. It is foreign governments.

In response to reimportation, US drug companies could simply refuse to sell their products abroad. But many foreign governments have a policy of responding to that by allowing their generic manufacturers to produce copies of the drugs. Were this to happen, it would not be surprising if Congress - always wanting to give out freebies to voters - allows imports of them despite the patent violation.

One may wonder, with price controls abroad, why do US companies choose to sell there at all? Because once a drug is developed, it is relatively cheap to manufacture the actual pills. The initial start-up costs and all the trials and errors are the expensive part. So the drug companies reason that it is better to generate some overseas revenue than none at all. But if we decide to import those price controls, all kinds of would-be wonder drugs will never come into existence.

The matter shows that while free trade is desirable for the vast majority of goods, cross-border trade in some items - like pharmaceuticals (in addition to many other products like pirated movies and dangerous chemicals) - should be restricted.

Damage to the pharmaceutical industry is not the only concern. It is relatively easy for bad actors to produce fraudulent, diluted or even poisonous pills. According to the World Health Organization, about 10 percent of pharmaceuticals in the world is counterfeit, most of it circulating overseas. Reimportation would make it harder to keep them out. That alone is enough of a reason to quash reimportation.

The ITC and Import Administration usually block imports of goods that should not be blocked. They should make an exception by expanding their scope to crack down on the reimportation of drugs. Then their services finally would be put to good use.