Recommendations for Trade in Medical Goods and Services to Facilitate Pandemic Response, Preparedness, and Resiliency

Thursday, April 15, 2021 - 4:15pm

As the beginning of the end of the COVID-19 pandemic comes into view, assessing U.S. trade policies relating to medical goods and services is overdue. Recalibrating U.S. policy can strengthen our response to the pandemic, making needed medical goods and services more widely available in the United States and abroad and build health system resilience around the world. In addition, trade policy changes can help ensure the country is better prepared for any future pandemic and enhance the resilience of supply chains for medical goods generally. Such actions can help ensure that vaccines and other critical medical goods are delivered safely, swiftly, and efficiently to patients in need.

The U.S. Chamber looks forward to working with the Biden-Harris administration to advance the following goals relating to: 1) government procurement; 2) intellectual property; 3) tariff relief; 4) export restrictions; 5) trade facilitation; and 6) digital health and trade in health services.

1) Government Procurement

U.S. government procurement policy, for medical goods and procurement generally, is built on a two-tier approach to promote U.S. jobs and U.S. businesses. For smaller value federal contracts, “Buy American” rules (notably the Buy American Act of 1933) provide goods made in the United States a price preference over imported goods. For higher value federal contracts, most foreign products are forbidden from bidding altogether; for most higher value contracts, the only countries whose products are permitted to bid are those that have opened their own government procurement to U.S. products.* Under this framework, a very large majority of the federal government’s procurements by value go to U.S. products (97% by some measures), while U.S.-made products enjoy fair access to some of the world’s biggest government markets, generating important opportunities for U.S. workers and businesses.

Some recent proposals in the wake of the pandemic aim to expand “Buy American” rules attempt to enhance the domestic production of medical goods. However, proponents of such measures often overlook the reality that more than 70% of all the medical devices and innovative medicines consumed in the United States is already produced domestically. Further, U.S. federal procurement of these goods represents just 3% - 4% of the U.S. market. In this context, the overall impact of additional new “Buy American” requirements for federal health institutions would likely be extremely limited. The probable outcome would be to drive up costs for federal health entities while having limited if any impact on overall U.S. public health readiness or further onshoring of production. Meaningfully enhancing U.S. medical goods production will rely on a more complex set of incentives.

At the same time, U.S. exporters of medicines and medical goods—i.e., U.S. businesses and the U.S. workers they employ—benefit substantially from U.S. participation in procurement agreements with some of our key partners and allies. The most important of these is the World Trade Organization (WTO) Government Procurement Agreement (GPA), which gives American companies the right to bid on foreign government procurement opportunities in the 46 other countries that are parties to the agreement—and do so on a level playing field.

Access to government procurement is an important part of access to foreign markets in some sectors, and nowhere is that more true than medical goods, where most other advanced economies have government-managed healthcare systems that in most cases account for a much larger share of healthcare spending than in the United States:

  • The OECD reports that governments and compulsory insurance schemes played the largest role in purchasing pharmaceuticals among its member states, covering an average of 58% of such spending in 2019 (and 80% or more in Germany and France).
  • A report by Cube RM drawing on public data identified a total of €47 billion for EU government tenders for medicines in 2019. Comparing that figure with the OECD data on total retail pharmaceutical spending of €210 billion reveals that EU government tenders account for approximately 22% of all spending on medicines in the EU.
  • AdvaMed estimates the EU’s largely government-managed healthcare systems spend approximately $145 billion on medical technologies annually, and as much as 80% of this may pass through government procurement systems. U.S. firms account for roughly 40% of global medical technology sales and thus account for tens of billions of dollars of European government procurement purchases. One large medical technology firm estimates that foreign government procurement markets are 10 times as important to its bottom line as the U.S. equivalents.
  • Chamber members assess that over half of their sales in key Asia-Pacific markets such as Japan, Korea, Taiwan, and Australia are to government entities and thus pass through government procurement systems.

Again, given that U.S. government procurement of medicines and other medical goods is estimated to represent just 3% - 4% of the total U.S. market for those goods, these differences in healthcare systems make the GPA lopsidedly valuable to U.S. firms that produce medicines and medical devices.

In this context, the Trump administration’s poorly drafted and ambiguous Executive Order (EO) 13944—which has set in motion moves to withdraw select U.S. commitments on medical goods under the GPA and U.S. free-trade agreements —will only harm U.S. manufacturers of medicines and medical devices and the U.S. workers they employ. Following are illustrations of the direct harm to U.S. workers and companies that will soon follow from full implementation of this EO:

  • Other countries that are parties to the GPA will impose retaliatory measures to close their market to U.S. products made with U.S. workers. Indeed, a number of key U.S. allies have already demanded binding arbitration at the WTO to determine how much they will be able to close their government market to U.S.-made products in retaliation.
  • Since no country has ever withdrawn existing GPA commitments as the United States is seeking to do under EO 13944, there is a significant likelihood that arbitration could lead to huge and disproportionate foreign retaliation against U.S. products, and this outcome will not be appealable.
  • This EO will directly hurt U.S. workers as the closure of foreign government markets to U.S. products forces U.S. medical goods manufacturers to move production out of the United States as they seek to retain access to those foreign government contracts.
  • Counterintuitively, by bringing federal procurement of medical goods under the scope of the “Buy American Act,” this EO will in fact open U.S. federal government procurement to competition from non-GPA parties such as China, Russia, India, Brazil, South Africa and other countries for the first time. Such an outcome is facially at odds with trade and procurement objectives set by the Biden-Harris administration.
  • Finally, as a corollary to the above, the only countries that would be disadvantaged by this EO would be that small group of U.S. allies and partners in the GPA and in U.S. free-trade agreements. At a time when the United States is focusing on restoring its alliances, including in the global trading system, this EO will provoke a needless and counterproductive trade fight with the closest allies we need to work with us in support of U.S. objectives.

EO 13944, which the Trump Administration issued in August, also conflicts with the Biden-Harris administration’s January 24 EO on “America’s Supply Chains,” which outlines a more comprehensive approach to strengthening supply chains, including through engagement with our key allies and partners.

Recommendation: The administration should recognize that expanded “Buy American” rules—and potential moves to limit or abrogate U.S. commitments under the GPA or our FTAs —would fail as a meaningful incentive for further U.S. production of medical goods -- while endangering foreign sales by U.S. firms that employ millions of Americans. The Biden-Harris Administration should withdraw Trump’s EO 13944 and fold consideration of the issue of medical goods production (and federal procurement) into the year-long supply chain review it has launched.

2) Intellectual Property

U.S. leadership to promote and protect intellectual property (IP) at home and abroad, including embedding such protections in trade agreements, has been a central objective of multiple U.S. administrations for many decades. The year 2020 marked the 25th anniversary of the groundbreaking WTO Agreement on Trade-Related Aspects of Intellectual Property Rights (TRIPS), which has helped foster a clearer understanding of the role of IP rights in making available breakthrough products, services, and technologies to meet the needs of a growing global population. These benefits are detailed in the U.S. Chamber International IP Index, which measures implementation of IP best practices, including those relating to TRIPS, on a country-by-country basis across specific indicators ranging from patents and copyrights to trademarks and trade secrets, as well as enforcement.

The COVID-19 pandemic—and the miraculously rapid development of vaccines and therapeutics to address it—illuminate the value of this IP system. IP gives ideas economic value and fuels research investments. Without these incentives and this legal foundation, private investment in breakthrough innovation simply isn’t viable.

A claim frequently heard at the beginning of the pandemic was that IP is a barrier to collaboration and knowledge-sharing, but the biopharmaceutical community has made clear that is not the case. The Pfizer-BioNTech partnership is one high-profile example, recently extended to include help on manufacturing from Novartis. Gilead partnered with nine manufacturers in India, Pakistan, and Egypt to expand access to Veklury—the first FDA-approved treatment for eligible patients with COVID-19—in 127 countries, most of which are low-income or lower-middle-income and have populations with limited access to healthcare. Other partnerships have been solidified between Bayer and CureVac, Moderna and Lonza, Novavax and Baxter. AstraZeneca is teaming up with the Serum Institute in India and more than 15 others around the world. Collectively, these efforts will drive the manufacture of billions of vaccine doses by the end of 2021.

These kinds of partnerships are the keys to scaling up—not forced technology transfer, as some countries have proposed at the WTO. Even if governments began forcing technology transfers, experts estimate that there are only 5 or 6 manufacturers with adequate infrastructure to deliver COVID-19 vaccines at the pace, scale, and quality needed. Even the most sophisticated manufacturers must unpack the drug formula in question, address logistical and payment challenges, secure the necessary inputs (production of which must be scaled up), and adjust their production strategy. In short, “waiving IP” would do nothing to ease the real manufacturing challenges companies face while adding significant complexity to these supply chain challenges.

On October 2, India and South Africa circulated a problematic proposal to the WTO TRIPS Council regarding COVID-19 and intellectual property. Inaccurately blaming IP rights for hindering the rollout of vaccines, the two countries propose that the TRIPS Council waive on a temporary basis the application and enforcement of critical provisions of the WTO TRIPS Agreement. If implemented, this proposal would suspend WTO member states’ obligations to grant patents on a broad range of technologies related to COVID-19 until “widespread vaccination is in place globally and the majority of the world’s population has developed immunity.” The breadth of the waiver proposal is such that a large swathe of pharmaceutical and medical technology industries—including many firms well removed from pandemic response—could be affected.

Not only would such actions fail to accelerate the production, distribution, and administration of vaccines, such an attempt to renegotiate international obligations that the WTO membership has uniformly adopted poses serious long-term risk. Going down this path could open the door for additional countries to argue that other negotiated IP obligations, such as those in bilateral and multilateral trade treaties, should be altered or suspended during the pandemic. Such a course risks undermining the private sector research capacity that is now being brought to bear on COVID-19.

Fortunately, to date, the United States, the European Union, the United Kingdom, Switzerland, Norway, Japan, and other countries have strongly opposed this waiver proposal at the WTO.

Recommendation: The Chamber strongly urges the U.S. government to support private sector investment in innovative products, services, and technologies with a firm foundation of IP rights, including through international trade agreements. This must include continued opposition to the TRIPS waiver proposal at the WTO. We also strongly support U.S. engagement with multilateral programs such as COVAX and regional partnerships such as the Quad (the Quadrilateral Security Dialogue comprised of Australia, India, Japan, and the United States) to increase international manufacturing, supply, and distribution of vaccines and therapies.

3) Tariff Relief

Tariff relief for medical products is an idea that has attracted considerable support in the past year. Suspending or eliminating tariffs on these goods can help America’s health care workers and first responders stay safe by assisting them in obtaining medical supplies speedily and economically as vaccines are administered more widely. Tariff relief can also facilitate a safe resumption of normal economic activity, given the wide range of industries that rely on products such as personal protective equipment to operate safely in the months ahead. Reducing or eliminating tariffs on inputs to medicines can help lower manufacturing and distribution costs for these critical goods and eliminate so-called tariff inversions that may be a disincentive to American manufacturing. While some cite the importance of medical goods as an argument against tariff elimination, economists almost universally agree that tariff protection has a miserable record as a tool to foster industrial production whether an “infant industry” or a mature one is involved.

As long ago as May 2020, House Ways and Means Committee Chairman Richard Neal urged the U.S. administration to exercise its authorities to suspend temporarily tariffs on products relevant to responding to the COVID-19 public health crisis. He said: “Resolving this immediate shortage requires both increasing production—which many U.S. companies are now stepping up to do—and removing impediments to the importation of needed goods. Emergency situations require emergency measures, especially when lives are at stake.”

The Biden-Harris administration has already taken positive action on this front. On March 5, USTR announced it was extending through September exclusions from the Section 301 tariffs on medical goods. The Chamber applauded this move and, with other business organizations, has urged the administration to suspend all tariffs (both most-favored nation and Section 301 tariffs) on the broader list of medical supplies identified by the U.S. International Trade Commission (ITC) in its December 2020 report on Supply Chain Challenges for COVID-19 Related Goods. The Chamber has urged that these suspensions be effective for the duration of the pandemic and at least through the end of 2021.

The Chamber also supports moves by the United States to join the Ottawa Group initiative to examine tariffs on medical goods more broadly. These countries—Australia, Brazil, Canada, Chile, European Union, Japan, Kenya, South Korea, Mexico, New Zealand, Norway, Singapore and Switzerland—have been developing proposals to expand tariff-free trade in medicines, inputs, and medical supplies to build on the framework established by the 1995 WTO sectoral agreement on medicines and promote trade facilitation measures for critical products such as vaccines. Such an initiative could be crucial to minimizing trade disruption and facilitating swift pandemic response, ensuring that the world is better prepared for future pandemics. The recent expansion of the Information Technology Agreement brought substantial benefits for the medical technology industry, and, in that light, the administration should also consider how to maximize the benefits of current and future plurilateral agreements for the medical goods and medical technology sectors. The United States has an important leadership role to play in brokering an agreement on these issues and encouraging greater global cooperation.

Recommendation: The administration should suspend all tariffs on ITC-identified medical goods for the duration of the pandemic; engage with close U.S. allies in the Ottawa Group to permanently eliminate tariffs on medical goods; and explore how to maximize the benefits of current and future plurilateral agreements for the medical goods and medical technology sectors.

4) Export Restrictions

Export restrictions relating to medical supplies should be another area of immediate focus and international coordination for the Biden-Harris administration. Export restrictions delay the transit of critical goods and often fail to expand ready supplies, particularly when other governments retaliate in kind. These policies have a particularly damaging impact on patients in developing and least developed countries that are endpoints in complex distribution systems for medical goods. Such restrictions are at odds with the practice of humanitarian exceptions upheld by the United States and many other nations that share these values.

In the early weeks of the pandemic, more than 60 governments around the world adopted export restrictions on medical goods with the ostensible goal of ensuring sufficient domestic supply during the COVID-19 crisis. The most obvious immediate effect was foreign retaliation. Many export restrictions were relaxed or dropped as the first crush of the pandemic passed and medical goods became more available for a time, but the EU in January adopted a vaccine export authorization scheme and has used it on several occasions. The risk remains that these restrictions, even in limited form, will elicit tit-for-tat restrictions on trade in critical inputs in a dynamic that could ultimately slow or halt vaccine production. Such restrictions

For these reasons, the Chamber supports the statements by G20 Ministers that governments should first consider other policy tools to ensure adequate supplies of medical goods. Many policy tools other than export restrictions exist and may be more effective to address shortages and supply chain issues. Export restrictions should be a last resort, and if they are applied, they must be “targeted, proportionate, transparent, and temporary,” as the G20 Ministers have stated. They must be applied in a nondiscriminatory manner and be tailored to a legitimate objective. Expanding on the G20 position, the Ottawa Group called in November 2020 for immediate actions “such as exercising restraint in using any export restrictions, implementing trade-facilitating measures in the area of customs and services, as well as improving transparency.”

At the same time, the WTO has identified hundreds of trade-enabling measures taken by governments on a temporary basis to facilitate pandemic response. Attention should be given to dismantling export restrictions while at the same time identifying those policies that were adopted to facilitate trade that could be made permanent.

Recommendation: The administration should work with key allies and partners in fora such as the Ottawa Group to reinforce commitments to make export restrictions a last resort and prioritize alternative policies; and in those rare instances when export restrictions are used, international commitments should ensure they are targeted, proportionate, transparent, and temporary.

5) Trade Facilitation

The pandemic has highlighted the importance of trade facilitation and efficient logistics and distribution networks to ensuring safe and swift delivery of critical good in a crisis. The distribution of extremely urgent, temperature sensitive cargo such as COVID-19 vaccines requires unprecedented coordination between carriers and customs and regulatory authorities. The impact of COVID-19 on port operations has illustrated the importance of best practices for customs clearance, including paperless transit of goods, pre-arrival clearance, harmonization of import and export clearance requirements, transparency and consistency in classification, risk-based inspections, and streamlined regulatory requirements for air cargo and land crossings. The pandemic has underscored the need for pandemic-related rapid-response mechanisms to allow countries to quickly and efficiently remove customs and port-related barriers and misunderstandings that arise.

Recommendation: Governments should review commitments to trade facilitation included, for example, in U.S. trade agreements, undertakings at the World Customs Organization, and the WTO Trade Facilitation Agreement. With regard to the latter, WTO members should consider upgrading their commitments—and seeking trade capacity-building support to do so—with a view toward continued modernization and automation of customs clearance procedures.

6) Digital Health and Health-Related Services

Beyond the critical role of resilient supply chains for medical goods, the pandemic has highlighted the importance of trade as an enabler of life sciences R&D, the provision of health insurance, digital health, and other health-related services. These services contribute to supporting healthy populations around the world, and in some cases they have been critical to the discovery and delivery of vaccines and treatments.

Health-related services often depend on cross-border data flows of health information, which can be delayed or disrupted by overly restrictive government policies, as well as inconsistent rules and frameworks for data privacy and data sharing. Interoperable, risk-based data privacy regimes, as well as common health data sharing and interoperability frameworks, should be included in post-COVID health regulatory harmonization and convergence efforts. The WTO Joint Statement Initiative on e-commerce (JSI) also holds potential as an initiative to address these issues.

Recommendation: The administration should work with allies to reduce barriers to market access and data flows that relate to digital health and health-related services, and facilitate cross-border life sciences R&D, the provision of insurance services, and the operation of digital health applications, which can be particularly important to ensuring patient care during a public health emergency.

*This includes the 21 parties to the WTO Government Procurement Agreement (counting the European Union and its 27 member states as one party for a total of 47 countries) and the countries that have entered into free-trade agreements with the United States that include government procurement provisions.

Staff contact: John Murphy, Senior Vice President for International Policy, U.S. Chamber of Commerce