The Proposed U.S.-South Korea Free Trade Agreement (KORUS ...

CRS-29
South Korea exported $214 million in medical devices and $61 million in
pharmaceuticals to the United States.
Of major concern was the South Korean government’s May 2006 change in how
it determined reimbursement amounts. Prior to the change, it maintained a “negative
list” system, under which products would be eligible for reimbursement unless they
appeared on the list. With the change, the South Korean government has switched
to a “positive list” requiring a product to be listed before it would be eligible making
it potentially more difficult for a product to become eligible. Announcement of the
policy came without prior notification to U.S. officials or affected U.S. manufacturers
and occurred at an early point in the negotiations placing a cloud over them. Despite
complaints from the United States, South Korea went ahead with implementing its
positive list system.
P&M manufacturers also have cited the South Korean government’s policies on
reimbursements for pharmaceuticals and medical devices under its single-payer
health insurance program. U.S. manufacturers have argued that the policies
discriminate against innovative pharmaceuticals because they establish relatively low
reimbursement amounts for medicines thus not taking into account the costs that
producers of leading-edge pharmaceuticals incur and that are reflected in higher
prices. The manufacturers wanted the KORUS FTA to establish transparency as an
important principal in South Korea’s development and implementation of
reimbursement policies, including an appeal process for decisions going against U.S.
manufacturers.
In response, South Korea agreed in the KORUS FTA to allow U.S.
pharmaceutical makers to apply for increased reimbursement levels based on safety
and efficacy. South Korea also agreed to publish proposed laws, regulations, and
procedures that apply to the pricing, reimbursement, and regulation of
pharmaceuticals and medical devices in a nationally available publication and to
allow time for comment. In addition, South Korea agreed to establish a process for
U.S. manufacturers to comment on proposed changes in laws and regulations and for
them to obtain a review of administrative determinations that adversely affect them.
Intellectual property rights protection in South Korea has been a critical issue for
U.S. pharmaceutical manufacturers. Specifically, the failure of the South Korean
government to protect from competitors proprietary data that manufacturers must
submit for market approval. In addition, the South Korean government has, in some
cases, approved marketing of some pharmaceuticals before it has determined that the
applicant is the rightful owner of the patent and trademark. 92 In part for these
reasons, the USTR has continued to place South Korea on the special 301 “Watch
List.” 93
92 Primosch, William. Testimony of Senior Director, International Business Policy,
National Association of Manufacturers on the Proposed United States-Korea Free Trade
Agreement for the Trade Policy Staff Committee, Office of the U.S. Trade Representative.
March 14, 2006. p. 6.
93 Office of the USTR. Special 301 Report. April 2007. “Special 301” refers to Section
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