Medical devices are not just simple commodities. They are the result of decades of research and development and scientific advancement, and an increasingly important sector for future economic development. Not simply because of the imminent demographic changes, the medical technology industry is one of the innovative and research intensive sectors that creates high- skilled jobs within its own sector and those sectors that use them.
Yet hip implants or cardiovascular equipment cannot be sold like most commercial goods. The marketing conditions for medical devices are to a great extent determined by public health pol- icies and regulations. The inherent policy dilemma is to establish a balance between promoting innovation and access to new devices while ensuring product safety.
Due to different political histories and regulatory traditions, countries have different regulatory regimes for the medical devices industry. As a result, duplicate testing of products, including du- plication of clinical trials, as well as non-value adding administrative requirements are common. Such procedures may delay access to certain devices, lead to higher prices for patients and are detrimental to the sustainability of healthcare systems. In practice, the range of available medical technologies differs between the EU and the US.
Previous attempts to address regulatory divergences in the field of medical devices have basically been fruitless. International regulatory coordination has progressed slowly and existing interna- tional agreements have very modest scopes. Products still have to go through duplicate clinical tests even though they have already been authorised in other countries.
This is where the Transatlantic Trade and Investment Partnership (TTIP) comes into the picture. Aiming to promote economic growth and jobs, one of the original key objectives of TTIP is to foster ‘enhanced compatibility of regulations and standards’.1
There is no doubt that the medical devices sector should be a key sector within TTIP. To begin, Europe, the US and Japan are highly dominant in both production and usage for medical devic- es, and economic benefits could be derived from further integrating the markets. Although tariffs are already relatively low, even if further progress needs to be made on some categories of devices, the next step must be to address the regulatory discrepancies. Meanwhile, it seems unfeasible to expect regulatory harmonisation to take place elsewhere – be it at multilateral level amongst the 159 members in the World Trade Organisation (WTO), or other forums. Considering the importance and complexity involved, any meaningful approach to regulatory issues in the sector are only likely to take place in bilateral agreements with like-minded economies of similar im- portance and level of development.
Additionally, a substantial amount of engagement from policy-makers, industry and regulators will be needed to achieve any results, which means that any deal on medical devices would have to be part of a bigger grand bargain with other sectors. Previous experiences in regulator-to-reg- ulator dialogue show that it is unlikely that a standalone agreement would mobilise the necessary political capital to achieve any meaningful progress in the sector. Meanwhile comprehensive economic integration is already taking place elsewhere, with or without Europe – most notably through Trans-Pacific Partnership (TPP).
Against this backdrop, this policy brief analyses possible ways of addressing regulations on med- ical devices in TTIP. First, the paper analyses the current market structure and past attempts of integrating the markets. Second, it explores possible ways of dealing with medical devices in TTIP, taking the defining features of both regulatory systems into consideration.
PAST ATTEMPTS AT TRANSATLANTIC INTEGRATION
With the case for transatlantic regulatory cooperation being strong, the idea to integrate the medical devices market is not an untested idea. The most advanced form of market integration is regulatory harmonisation that applies to both existing and future regulations. This complete form of cooperation is difficult both at a technical level and also at a political level. It requires that regulators relinquish a certain amount of decision-making power.
Given the difficulties of regulatory harmonisation, efforts of regulatory cooperation have instead taken two other forms. First, provisions on medical devices and pharmaceutical products that goes beyond mere tariff eliminations are included in free trade agreements (FTA), for instance in the EU-Korea FTA, the EU-Singapore FTA and the US-Korea FTA (KORUS). In a nutshell, these provisions provide acceptance of each other’s standards, some acceptance of conformity assessment results on good practices and common definitions. In some cases, they assure that the signatories will be given non-discriminatory, national treatment on public reimbursement.
An annex on medical devices, pharmaceutical products and cosmetic products has also been proposed to the Trans-Pacific Partnership by the US. A second way to address regulations is through mutual recognition agreements (MRAs). There are several MRAs in place, notably the EU-US agreement on mutual recognition, the EU-Australia MRA on conformity assessment as well as the EU-Japan MRA on good manufacturing practice for medical products. However, as this section will demonstrate, these previous efforts have failed to deliver significant efficiency gains due to their modest scopes and the complexity of the regulatory systems.
Medical devices in Free Trade Agreements
Let us first look at provisions on medical devices in FTA annexes. As this section will show, no FTA concluded up to date has fostered any significant market integration. In effect, there is nothing beyond regulatory cooperation and transparency with respect to the administrative procedures. These commitments are, however, not subject to legal review.
Both the EU and the United States have high standard FTAs with Korea. The agreements address not only tariffs but also behind-the-border barriers such as regulatory issues. The annexes on medical devices in the EU-Korea and the KORUS are very similar – they are designed to address same barriers, and the EU sought to maintain level playing field with KORUS that was already signed. In fact, the wordings of two texts are to a large extent identical. There are provisions recognising the parties’ commitments to promote patients’ access to medical devices and to assure high standards of safety, efficacy and quality. Moreover, the FTAs state that both parties shall ensure that the procedures regarding reimbursement decisions, listing, pricing and regulations are fair, reasonable and non-discriminatory. With respect to transparency of the administrative procedures, the parties shall, for example, “permit a manufacturer of the […] medical device, after a decision on a reimbursement amount is made, to apply for an increased amount of reimbursement”. Furthermore, there are provisions obliging health authorities to publish proposed regulations before these are adopted and allow stakeholders to submit comments. Each party “shall ensure that its laws, regulations, procedures, administrative rulings and implementing guidelines of general application […] are promptly published or otherwise made available”. Both FTAs also establish working groups with the objective of facilitating regulatory cooperation.
There are, however, a couple of important differences between the EU-Korea and the KORUS texts. Unlike the EU-Korea text, the KORUS annex does not refer to international organisations such as the WHO, OECD, the International Conference on Harmonization and the Global Harmonization Task Force or the new International Medical Device Regulatory Forum. Nonetheless, there are certain nuances with respect to the obligations of health authorities to inform manufacturers during the course of the administrative procedure. In this respect, the EU-Korea agreement is more detailed, stating for example that “if the information submitted by the applicant is deemed inadequate or insufficient and the procedure is suspended as a result, the Party’s competent authorities shall notify the applicant of what detailed additional information is required”. Also, unlike the KORUS, the EU-Korea annex states that “[…] in case of a negative decision on listing prices and/or reimbursement, or should the decision-making body decide not to permit in whole or in part the price increase requested, the decision-making body shall provide a statement of reasons that is sufficiently detailed to understand the basis of the decision, including the criteria applied and, if appropriate, any expert opinions or recommendations on which the decision is based”.
KORUS, on the other hand, includes a paragraph on companies’ rights to disseminate information, which is not found in the EU-Korea. It is stated in KORUS that “each Party shall permit a pharmaceutical manufacturer to disseminate through the manufacturer’s official Internet site registered in the Party’s territory and through medical journal Internet sites registered in the Party’s territory, that include direct links to the manufacturer’s official Internet site, truthful and not misleading information regarding the manufacturer’s pharmaceutical product […]”.
In comparison to the agreements with Korea, the EU-Singapore FTA annex on medical devices is shorter and less detailed. Still, akin to the EU-KOR FTA, it contains provisions on transparency, non-discrimination and stakeholder dialogue.
The annex on “transparency and procedural fairness for pharmaceutical products and medical devices” in TPP follows broadly the language of the KORUS FTA, but the annex appears less detailed. The text also includes a provision for the non-application of dispute settlement mechanism.
In sum, none of these FTA annexes contain any legal provisions that could prompt market integration. There is no formal recognition of test results or marketing authorisation decisions. The provisions are confined to encourage the parties to ensure transparency and non-discrimination within the decision-making and testing procedures. Accordingly, the FTA annexes remain statements of the parties’ good intentions to pursue regulatory cooperation.
Mutual Recognition Agreements on medical devices
Let us turn to mutual recognition agreements (MRAs), which were the main regulatory pathway to market integration prior to bilateral FTAs. MRAs in the medical device sector have had limited scopes – in fact, looking at existing MRAs in the sector, e.g. the EU-US MRA, the EU-Australia or the EU-Japan MRAs, none of them are actual real mutual recognition agreements in the meaning they are mutually recognising each others products legitimately circulated on the market. In other words, none of these agreements state that one country accepts and recognises products that are authorised and marketed according to the regulations in the other country. In the EU-US MRA, for instance, it is explicitly stated that the “agreement shall not be construed to entail mutual acceptance of standards or technical regulation of the Parties and […] shall not entail the mutual recognition of the equivalence of standards or technical regulations”.
Instead, the MRAs on medical devices state that the parties will accept each other’s products provided that they have been approved by appointed Conformity Assessment Bodies (CABs). In practice, this means that a European-based medical device manufacturer will first have to get marketing approval from a European Notifying Body (NB) in order to sell its product in Europe. In order to sell the exact same product in the US, the manufacturer can submit an application for premarket approval to a CAB within the EU, recognised by the US. The CAB is authorised to make a preliminary report regarding the product’s conformity with US regulations. The file is thereafter forwarded to the US health authority that takes the final decision. In sum, the only impact of the MRA is that the European-based manufacturer can submit the application for market authorisation to an agency based in Europe, instead of applying to the responsible authority in the US. The EU-US MRA does not remove the need for duplicate testing, and products still need to be assessed against both the American and European regulatory requirements in order to be sold on both markets.
Moreover, the product coverage of the EU-US agreement is very limited, including only products in Class I and Class II, excluding Class III. Also, the agreement includes a number of safeguards, namely that it does not limit the health authorities’ power to implement measures considered appropriate in order to guarantee safety etc. In addition, both the EU and the US retain the right to withdraw their respective obligations under the agreement in the event that an industry suffers from a loss of market access.
Similarly to the EU-US MRA, the EU-Australia MRA from 1999 states that “both the European Union and Australia recognise and accept the technical competence of each other’s conformity assessment bodies (CABs) to certify products for compliance with the regulatory requirements of the other Party”. Although it is claimed that the agreement is “largely eliminating the need for duplicative testing or re-certification when the goods are traded”, that is hardly the case, as demonstrated above in the example of the EU-US case.
Furthermore, the EC-Japan MRA on good manufacturing practice for medicinal products from 2001 is designed along the same lines. According to the agreement; “each Party shall accept […] the results of conformity assessment procedures required by the applicable laws, regulations and administrative provisions of that party specified in the relevant Sectoral Annex, including certificates and marks of conformity, that are conducted by the registered conformity assessment bodies of the other party.” In practice, products still go through duplicate testing procedures. Besides, the EU-Japan agreement only covers a limited number of products in the categories of chemical pharmaceuticals, homeopathic medicinal products and vitamins, minerals and herbal medicines.
To the defence of MRAs, they have some merit – which is largely political and symbolical – rather than conducive to market integration. Their limited scope often arises from the positive listing, meaning that only products that are explicitly listed are covered by the agreement. This reduces the usefulness of these agreements significantly.
What is mutual recognition?
In fact, it seems fair to say that these MRAs are not actual instruments for mutual recognition, in the original sense of the word. In the context of trade agreements, the WTO does not pin down any legal definition of the concept. The WTO Agreement on Technical Barriers to Trade encourages countries to recognise conformity assessment decision by other countries’, stating that (art. 6.3) “Members are encouraged […] to be willing to enter into negotiations for the conclusion of agreement for the mutual recognition of results of each other’s conformity assessment procedures”.
In addition, mutual recognition of professional services was part of the so called Built-in Agenda issues, set-up at the Singapore WTO Ministerial Conference in 1996. Following up on the Uruguay Round and the negotiations on professional services, WTO members then agreed on guidelines for mutual recognition negotiations on accountancy services. However, these discussions have basically been put on the back burner ever since they saw the day as other issues came to dominate the WTO’s agenda.
Within the EU, mutual recognition has come to be defined by the European Court of Justice’s ruling in the Cassis de Dijon case from 1979, establishing that “any product lawfully produced and marketed in one Member State must, in principle, be admitted to the market of any other Member State”. This principle is today underpinning the free circulation of goods in the internal market. It has been upheld and reinforced by subsequent rulings by the ECJ, which is the supranational guardian of the EU treaties.
Cassis, or blackcurrants, are far less popular in the US, perhaps preventing this savoury berry from establishing a legal precedent. Nonetheless, the US Constitution, Article 1 Section 10, prohibits states from introducing duties on imports or exports between each other. Yet there is no constitutional obligation for the states to recognise each other’s standards for products or services.
Despite the absence of a Cassis de California case, federal standards do exist in certain sectors. In the field of medicine, for instance, federal rules pre-empt state regulations. Also, according to the Commerce Clause in the Constitution, “The Congress shall have Power To […] regulate Commerce with foreign Nations, and among the several States, and with the Indian Tribes”. This basically means that Congress can adopt regulations at federal level that supersede state regulations with respect to activities that have an effect on trade.
In addition, there are codes of mutual recognition in the US in certain sectors or professions. The establishment of such codes usually result from initiatives taken by professional interest groups, for instance in the accounting, engineering and architecture sectors. At the end of the day, however, the states decide whether or not to adhere to such mutual recognition codes.
In sum, there is no universally accepted understanding of the concept of mutual recognition. It can refer to the recognition of another country’s standards and regulations, or more simply to the recognition of the conformity assessment procedures carried out by agencies in another country.
Europe and the United States have different experiences when it comes to recognising products and services from other countries or states. The individual US states arguably have more power in introducing requirements that products and services have to comply with state regulations. In the EU, on the other hand, mutual recognition applies in principle to all products. Without reference to the conformity assessment procedures, all EU Member States are required to accept products that are lawfully sold and marketed in another Member States. All in all, it cannot be assumed that American and European negotiators have the same reference points when they sit down to discuss regulatory cooperation.
This needs to be taken into consideration in the TTIP negotiations. In particular, TTIP must include a concrete prospect of market integration if it is to achieve meaningful results. A half-hearted exercise similar to existing FTAs or MRAs will not suffice if TTIP is to have an impact on economic efficiency. It is also clear that regulatory cooperation with respect to medical devices has to be part of a grand bargain, like TTIP. Without political pressure, there is a significant risk that a dialogue between regulators will lead to a stalemate as there is no incentive to compromise. On this note, the regulatory dialogue in the Transatlantic Economic Council on rules regarding chlorine-washed chicken should discourage most policy-makers from sector-specific standalone agreements.
 Australian Government, Department of Health (2012-11-30) ‘Medical device amendments to the EU-Australia MRA on conformity assessment to come into effect 1 January 2013’
 OJEC (2001)
 EMEA (2004)
 WTO Council for Trade in Services, Guidelines for Mutual Recognition Agreements or Arrangements in the Accountancy Sector, S/L/38, 28 May 1997
 Communication from the Commission concerning the consequences of the judgement given by the Court of Justice on 20 February 1979 in case 120/78 , available at: http://eur-lex.europa.eu/LexUriServ/LexUriServ.do?uri=CLEX:31980Y1003%2801%29:en:HTML