Even low import tariff rates have a significant compounding effect on the final retail price of medicines, which in turn impacts on affordability. While much of the “access to affordable medicines” debate is about intellectual property rights (IPRs) and business practices of pharmaceutical manufacturers, import duties and national protectionism are swept under the political rug. In this paper, we provide a synopsis of tariff barriers for exports of pharmaceutical products to the world’s major low and middle income countries (BRICS-MINT countries).
Studying the impact on final prices for consumers, we estimate that the annual compounded financial burden of import tariffs on pharmaceuticals and prevailing trade facilitation inefficiencies is highest for China (up to 6.2bn USD), Russia (up to 2.8bn USD), Brazil (up to 2.6bn USD) and India (737mn USD), followed by Mexico (663mn USD), Turkey (290mn USD), Indonesia (251mn USD), South Africa (177mn USD) and Nigeria (60,000 USD). For Brazil and India, tariffs on medicines increase their final price by up to 80 per cent of the original sales price ex factory. As most BRICS-MINT governments directly buy or settle patients’ invoices for a bulk of medicine products, the sum of all tariff-induced premiums on final prices for pharmaceuticals tends to exceed by far the tariff revenues initially collected by these governments’ customs authorities.
While import tariffs on medicines can cause substantial net losses for governments, taxpayers and patients, they effectively work as a subsidy for companies along national distribution chains. This may lead to a political economy, in which customs authorities and pharmaceutical distributors may have a common interest in maintaining (high) import tariffs. We call for all low and middle income countries to join the “zero for zero” pharmaceutical agreement, which would help to significantly cut the costs of medicines in general, reduce obscurity and absurdities in government spending and create better conditions for the access to medicines for low-income patients in these countries.
Research assistance by Julie Richert and Nicolas Botton is gratefully acknowledged.
Patterns in BRICS-MINT Countries’ Trade in Pharmaceutical Products
In this Section, we provide an overview of trade and tariff data to get an understanding about the evolution and importance of trade in pharmaceuticals by country, the rate of nominal protection and how patterns in tariff protection differ between BRICS-MINT countries.
Patterns in Imports and Exports
Since 2010, global trade in pharmaceutical products has stagnated, showing a relatively low aggregate growth rate of 1.3 per cent. While global trade volumes of products containing vitamins, penicillin, alkaloids and antibiotics generally decreased, global trade picked up for medicines containing hormones and insulin (see Table 1). At the same time, medicines “containing hormones” (HS 300439; 22bn USD in 2016) and medicines “containing other antibiotics” (HS 300420; 12.1bn USD in 2016) still account for high shares in global pharmaceuticals trade, only surpassed by “non-specified” other medicines, which account for 243bn USD in total pharmaceuticals trade (see Figure 1).
Source: WTO COMTRADE.
Source: WTO COMTRADE.
The volume of medicine products traded to and from BRICS and MINT countries has increased significantly in the past 20 years. BRICS and MINT countries’ trade in pharmaceuticals stood at 51bn USD in 2016. Together the group of BRICS-MINT countries accounted for 17.1 per cent of total world trade in pharmaceutical products of about 300bn USD in 2016. While global trade in pharmaceutical products increased by 33 per cent between 2007 and 2016, BRICS-MINT countries trade in pharmaceuticals grew by 98 per cent between 2007 and 2016 (see Figure 2).
Source: WTO COMTRADE. For Nigeria, growth is given for the period 2009 to 2014 (the earliest and latest data available).
Contrary to the world’s largest pharmaceuticals producers of pharmaceutical products (the EU, Japan and Switzerland), BRICS-MINT countries’ trade in pharmaceuticals is generally characterized by trade deficits with the rest of the world (see Figure 3). Imports exceed exports by 100mn USD for Indonesia, 400mn USD for Nigeria, 1.3bn USD for Mexico, 2bn USD for Turkey, 2.4bn USD for Brazil, 6.5bn USD for Russia, and 11.3bn USD for China. The only exception is India, which shows a trade surplus in pharmaceutical products of 10.7bn USD in 2016.
Source: WTO COMTRADE and Eurostat. For the EU, number are given in EUR.
Between 2007 and 2016, pharmaceutical exports increased for all BRICS-MINT countries, except for Brazil, which shows a low 2 per cent decline in medicine exports (see Figure 4). For pharmaceutical imports to BRICS-MINT countries, the picture is much more diverse. Nigeria, China, India and Indonesia show rising import values for pharmaceuticals from abroad, while imports to Russia, Turkey, South Africa, Mexico and Brazil are lower than in 2007. At the same time, China, India, Indonesia and Russia show relatively high growth rates in pharmaceutical exports.
Source: WTO COMTRADE and Eurostat. For the EU, number are given in EUR. Note: Nigeria’s export growth rate for the period 2007 to 2014 (latest data available) was 1,499 per cent, an outlier, which has been eliminated from above chart.
Tariff Levels and Tariff Lines
WTO data show that tariffs on pharmaceuticals are still high among BRICS-MINT countries. Weighted average tariffs for pharmaceutical products, which represent the effective rate of protection at aggregate import level, are 4.2 per cent for China, 4.4 per cent for Indonesia, 4.3 per cent for Russia, and 2.6 per cent for Mexico. The highest weighted average tariffs are found for Brazil (10.1 per cent) and India (10 per cent). At the same time, Nigeria, South Africa and Turkey already apply zero tariffs medicine products imported from abroad (see Figure 5). As concerns the development of tariff protection, the governments of China, Indonesia, Brazil and India have hardly reduced import tariffs for medicine products in the past decade, while Nigeria eliminated tariffs for all pharmaceuticals products (in 2013) and Mexico reduced its import tariffs from an average 7.1 per cent to an average 2.6 per cent.
Similarly, the number of actively applied tariff lines is still high for most BRICS-MINT countries, causing importers to struggle with administrative procedures and government discretion over product classification decisions. Figure 6 shows that, except for Nigeria (10 tariff lines), Turkey (11 tariff lines) and South Africa (17 tariff lines), all other BRICS-MINT countries apply more than 30 tariff lines for pharmaceuticals products within the HS 3004 product classification category. Brazil (146), India (137), China (125) and Mexico (78) apply the highest number of tariff lines. While the number of tariff lines applied by Brazil, India and Mexico did not change since 2007, the number of tariff lines applied by China significantly increased dramatically from 30 in 2007 to 125 in 2016, indicating a serious shift towards protectionism within the Chinese government.
Source: WTO TRAINS.
Source: WTO TRAINS. Tariff line: a product as defined in lists of tariff rates. Products can be sub-divided, the level of detail reflected in the number of digits in the Harmonized System (HS) code use to identify the product. Note that Nigeria, South Africa and Turkey still disclose tariff lines even though tariffs are zero across all HS 3004 product categories.
Table 2 shows that weighted applied average tariffs vary considerably across major sub-groups of pharmaceutical products. While India imposes a 10 per cent lump sum tariff across the board of imported medicine products, applied import tariffs for different products categories range from 0 to 14 percent for Brazil, 0 to 7.5 per cent for Russia, 3 to 6 per cent for China, 0 to 15 per cent for Mexico and 0 to 15 per cent for Indonesia (see Figure 7).
Source: WTO COMTRADE and WTO TRAINS. For Nigeria, trade values are given for 2014 (the latest data available).
Patterns in the Distribution of Import Tariffs on Pharmaceuticals (HS 3004)
Our analysis of the distribution of import tariff levels across product-specific tariff lines reveals that half of Brazil’s tariff lines set import tariffs at levels of at least 8 per cent. Similarly, 50 per cent of pharmaceutical products’ tariff lines of Russia’s tariff schedule show import duties larger than 5 per cent. India, on the other hand, imposes a lump sum tariff of 10 per cent on every medicine product that is imported from abroad. 50 per cent of Mexico’s tariff lines show zero tariffs, while 25 per cent of Mexico’s tariff lines are set levels between zero and 5 per cent and another 25 per cent of Mexico’s import tariff lines show tariff levels between 5 and 15 per cent. Finally, 75 per cent of tariff lines in Indonesia’s tariff schedule are set at levels of at least 5 per cent (see Figure 8).
Source: WTO TRAINS. Note: numbers represent minimum, 1st quartile, median, 2nd quartile and maximum values for the entire range of applied tariff lines, by country.
Source: WTO TRAINS. Own calculations for the entire range of applied tariff lines, by country.
Tariffs imposed on pharmaceuticals of specific product categories vary considerably across BRICS-MINT countries. For the 8 product categories of the HS 3004 category, Brazil, India and Mexico are the most protectionist countries among the group of BRICS-MINT countries. All three countries employ a very high number of tariff lines and relatively high tariffs on almost all pharmaceutical products of the HS 3004 product group. For these countries, high tariffs are applied across the board of pharmaceutical products, i.e. medicines containing hormones, penicillin, vitamins, alkaloids, and, except for Mexico, antibiotics. Indonesia also applies relatively high tariffs for imported drugs that contain vitamins, penicillin, hormones and antibiotics. By comparison, tariffs applied by the governments of China and Russia are still far from zero, but lower than those applied by the governments of Brazil, India, Indonesia and Mexico (see Table 3).
As applied tariffs also vary substantially within HS 3004 product lines, foreign importers willing to export to these countries have to employ specialized, and therefore expensive resources to administer databases, certificates, customs and payment procedures and liaise with government authorities to be eligible to serve customers in these markets. All of these costs are passed on to importers in these countries, which, in addition to the nominal import tariff and domestic sales taxes, are passed on to distributors, pharmacies, hospitals, doctors and, finally, patients. The alignment and simplification of heterogeneous customs procedures and import requirements is the key rationale of the WTO’s Trade Facilitation Agreement (TFA), which was concluded in 2013 and entered into force on 22 February 2017. The full implementation TFA, if effectively implemented, is estimated to reduce trade costs by an average 14.3 per cent for African countries, while least developed countries (LDCs) could enjoy an even bigger reduction in trade costs (WTO 2017).
Source: WTO TRAINS.
 On 16 January 2017, MEDICALWORLD NIGERIA wrote that Nigeria fixed her Common External Tariff at 0 per cent, and that the effect “is that despite the astronomical rise in foreign exchange rates, many Nigerians can still afford to buy daily used drugs and medicaments.” See https://www.medicalworldnigeria.com/2017/01/association-of-pharmaceutical-importers-of-nigeria-press-statement-on-imminent-scarcity-and-high-cost-of-medicament-looming#.WakeOa2B1eg, accessed on 1 September 2017.
 A tariff line reflects a product as defined in lists of tariff rates. Products can be sub-divided, the level of detail reflected in the number of digits in the Harmonized System (HS) code use to identify the product.