CONTENTS—Continued Tables—Continued 3.2 <strong>Products</strong> imported at the “K” special rate of duty for pharmaceuticals: U.S. imports for consumption, by six-digit HTS subheadings, 2008–09 .................................................. 3-4 3.3 Proposed additions to the <strong>Pharmaceutical</strong> Appendix to the HTS for which submissions were received: Estimates for U.S. imports, exports, <strong>and</strong> trade balance, 2010......................... 3-7 iv Page
Executive Summary In 1995, the United States <strong>and</strong> 21 other countries agreed to eliminate tariffs on approximately 7,000 pharmaceutical products, their derivatives, <strong>and</strong> certain chemical intermediates used to manufacture pharmaceuticals. This agreement is known as the <strong>Pharmaceutical</strong> Zero-for-Zero Initiative. Since the original agreement entered into force, it has been updated three times—in 1997, 1999, <strong>and</strong> 2006—to exp<strong>and</strong> the list of products that can be imported free of duty. This report provides advice to the United States Trade Representative (USTR) concerning the products proposed for the fourth update. The list of pharmaceutical products in the <strong>Pharmaceutical</strong> Appendix (Appendix) to the Harmonized Tariff Schedule of the United States (HTS) has grown substantially since 1995. As a result of the first update, 496 items were added to the Appendix. The second update introduced an additional 642 items. The third update added 1,298 items. The current update includes 381 drugs identified by their international nonproprietary names (INNs), 17 prefixes <strong>and</strong> suffixes to identify derivatives of the INNs, <strong>and</strong> 354 chemical intermediates. When the current update is completed, the Appendix will include more than 10,000 products. The USTR compiled this list of new products using submissions from U.S. pharmaceutical firms <strong>and</strong> the other signatory countries. <strong>Pharmaceutical</strong> products covered in the <strong>Pharmaceutical</strong> Zero-for-Zero Initiative can be imported either as bulk active ingredients or in dosage forms that can be packaged for retail sale. <strong>Products</strong> in dosage form are generally classified under chapter 30 of the HTS, where most of the subheadings are duty-free. Many of the bulk pharmaceutical active ingredients <strong>and</strong> chemical intermediates are classified under HTS subheadings that also contain non-pharmaceutical products <strong>and</strong> have rates of duty ranging from 0 to 6.5 percent ad valorem. In order for pharmaceutical products classified under these HTS subheadings to be imported free of duty, they must be listed in the Appendix. The Appendix consists of three tables. The first table lists the INNs of pharmaceutical active ingredients that are eligible for duty-free treatment. The second table consists of chemical prefixes <strong>and</strong> suffixes that may be combined with the INNs to specify pharmaceutical derivatives that are also included in the agreement. The third table specifies the chemical intermediates for which duties have been eliminated. U.S. imports of products included in the <strong>Pharmaceutical</strong> Appendix totaled over $85 billion in 2009; U.S. exports of these products exceeded $41 billion. 1 The pharmaceutical industry has estimated the effect on U.S. imports for only about 12 percent of the items proposed for inclusion in the Appendix. These items alone are expected to account for approximately $440 million of U.S. imports in 2010. U.S. International Trade Commission staff estimates that U.S. exports of the proposed items will reach or exceed $150 million in 2010 based on information submitted by the industry. A more precise estimate of imports <strong>and</strong> exports of items included in this update is not possible for many reasons, including the level of aggregation of many of the HTS provisions, uncertainty about final regulatory approval for many of the drugs, <strong>and</strong> the high proportion of proprietary data in this industry. 1 The total value for U.S. imports is the sum of the trade under the specific HTS provisions <strong>and</strong> trade under the special tracking code for the <strong>Pharmaceutical</strong> Agreement. Since the tracking code does not apply to exports, the total value presented for U.S. exports under the agreement is a lower bound estimate. v
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