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Pharmaceutical Products and Chemical Intermediates ... - IFPMA

Pharmaceutical Products and Chemical Intermediates ... - IFPMA

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Executive Summary<br />

In 1995, the United States <strong>and</strong> 21 other countries agreed to eliminate tariffs on<br />

approximately 7,000 pharmaceutical products, their derivatives, <strong>and</strong> certain chemical<br />

intermediates used to manufacture pharmaceuticals. This agreement is known as the<br />

<strong>Pharmaceutical</strong> Zero-for-Zero Initiative. Since the original agreement entered into force,<br />

it has been updated three times—in 1997, 1999, <strong>and</strong> 2006—to exp<strong>and</strong> the list of products<br />

that can be imported free of duty. This report provides advice to the United States Trade<br />

Representative (USTR) concerning the products proposed for the fourth update.<br />

The list of pharmaceutical products in the <strong>Pharmaceutical</strong> Appendix (Appendix) to the<br />

Harmonized Tariff Schedule of the United States (HTS) has grown substantially since<br />

1995. As a result of the first update, 496 items were added to the Appendix. The second<br />

update introduced an additional 642 items. The third update added 1,298 items. The<br />

current update includes 381 drugs identified by their international nonproprietary names<br />

(INNs), 17 prefixes <strong>and</strong> suffixes to identify derivatives of the INNs, <strong>and</strong> 354 chemical<br />

intermediates. When the current update is completed, the Appendix will include more<br />

than 10,000 products. The USTR compiled this list of new products using submissions<br />

from U.S. pharmaceutical firms <strong>and</strong> the other signatory countries.<br />

<strong>Pharmaceutical</strong> products covered in the <strong>Pharmaceutical</strong> Zero-for-Zero Initiative can be<br />

imported either as bulk active ingredients or in dosage forms that can be packaged for<br />

retail sale. <strong>Products</strong> in dosage form are generally classified under chapter 30 of the HTS,<br />

where most of the subheadings are duty-free. Many of the bulk pharmaceutical active<br />

ingredients <strong>and</strong> chemical intermediates are classified under HTS subheadings that also<br />

contain non-pharmaceutical products <strong>and</strong> have rates of duty ranging from 0 to 6.5 percent<br />

ad valorem. In order for pharmaceutical products classified under these HTS subheadings<br />

to be imported free of duty, they must be listed in the Appendix.<br />

The Appendix consists of three tables. The first table lists the INNs of pharmaceutical<br />

active ingredients that are eligible for duty-free treatment. The second table consists of<br />

chemical prefixes <strong>and</strong> suffixes that may be combined with the INNs to specify<br />

pharmaceutical derivatives that are also included in the agreement. The third table<br />

specifies the chemical intermediates for which duties have been eliminated.<br />

U.S. imports of products included in the <strong>Pharmaceutical</strong> Appendix totaled over $85<br />

billion in 2009; U.S. exports of these products exceeded $41 billion. 1 The pharmaceutical<br />

industry has estimated the effect on U.S. imports for only about 12 percent of the items<br />

proposed for inclusion in the Appendix. These items alone are expected to account for<br />

approximately $440 million of U.S. imports in 2010. U.S. International Trade<br />

Commission staff estimates that U.S. exports of the proposed items will reach or exceed<br />

$150 million in 2010 based on information submitted by the industry. A more precise<br />

estimate of imports <strong>and</strong> exports of items included in this update is not possible for many<br />

reasons, including the level of aggregation of many of the HTS provisions, uncertainty<br />

about final regulatory approval for many of the drugs, <strong>and</strong> the high proportion of<br />

proprietary data in this industry.<br />

1<br />

The total value for U.S. imports is the sum of the trade under the specific HTS provisions <strong>and</strong> trade<br />

under the special tracking code for the <strong>Pharmaceutical</strong> Agreement. Since the tracking code does not apply to<br />

exports, the total value presented for U.S. exports under the agreement is a lower bound estimate.<br />

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