Commentary: How much tariffs will be levied on a COVID-19 vaccine?
High import tariffs by many middle-income countries are driving up prices of medicines for their patients, say Philip Stevens and Nilanjan Banik.
LONDON: It’s been almost nine months since the COVID-19 pandemic was first reported in Wuhan, China, yet there is little sign that the virus will no longer pose a risk to the world.
While researchers in universities and private sector laboratories work round-the-clock for new treatments and vaccines for COVID-19, physicians rely on a broad cabinet of older medicines to help patients through their darkest hour.
However, such unprecedented levels of demand caused by hospitals stockpiling basic medicines such as antibiotics, painkillers, sedatives and corticosteroids has caused global shortages and surging prices.
The Indonesian Pharmaceutical Association (GP Farmasi) in April for instance warned of price rises of up to 60 per cent as manufacturers grapple with the crisis.
Over in India, the drug regulator has given a temporary green light for a 50 per cent increase in the price of the blood thinner heparin.
In the UK, media reports indicate that the price of over-the-counter painkillers such as paracetamol, ibuprofen and aspirin has leapt 30 per cent since the start of the pandemic.
TARIFFS ADDING TO THE PROBLEM
These are unusual times when manufacturers are struggling to meet demand. But some governments are adding to the problem by levying needless import tariffs on medicines.
Most countries do not levy tariffs on imported medicines. But many middle-income countries do, including Indonesia.
At a rate of 20 per cent, Pakistan boasts the highest rate globally of tariffs on medicines, according to a report published this week by Geneva Network.
More, the South Asian trio of Nepal, Pakistan and India have the top three tariff rates globally with the latter’s pegged at 10 per cent, the study finds.
Latin America is another medicines tariff hotspot, with Argentina and Brazil levying average tariffs of close to 10 per cent. Average medicine tariffs in Indonesia are 3.8 per cent.
Pharmaceutical manufacturing value chains are increasingly globalised. Even low tariffs have a cumulative impact on a product’s end price, ultimately paid for by patients.
A 2017 study by the European Centre for International Political Economy found that abolishing these tariffs would deliver to patients aggregate savings of up to US$6.2 billion in China, US$2.8 billion in Russia, US$2.6 billion in Brazil, US$737 million in India, and US$252 million in Indonesia.
IMPACTING THE FIGHT AGAINST COVID-19
Existing medicines are one issue, but COVID-19 is a newly identified disease. A new vaccine is the only long-term solution. Its invention, mass manufacture and rapid distribution globally are all critical.
Tariffs on the vaccine, if any, will hinder its rapid dissemination and uptake, resulting in needless suffering, death and economic hardship.
While most countries enjoy tariff-free regimes for vaccines, certain others needlessly inflate their price through import tariffs.
The same countries are among those that top the table globally - with India’s vaccine tariffs at 10 per cent. Pakistan and Bolivia are among a clutch of countries that impose vaccine tariffs of 5 per cent.
Beyond medicines, COVID-19 essentials from hand soap to ventilators are also more expensive thanks to tariffs.
According to the World Trade Organization (WTO), the average applied tariff for hand soap globally is 17 per cent and some countries apply tariffs as high as 65 per cent.
Five Latin American countries - Ecuador, Bolivia, Venezuela, Brazil, and Argentina - have the highest tariffs on facemasks, ranging from 17 per cent to 55 per cent. Brazil, Argentina, and Venezuela levy a 14 per cent import tariff on ventilators.
In Southeast Asia, Indonesia applies an average tariff of 10.5 per cent on imported Personal Protective Equipment, and 5.5 per cent on medical supplies.
MORE PERMANENT REFORMS NEEDED
Some governments – Pakistan, Brazil, Columbia and Norway among them – have shown leadership by temporarily exempting COVID-19 related medicines, vaccines and medical supplies from import duties and taxes.
Meanwhile, APEC governments are discussing proposals to eliminate for at least one year taxes and tariffs on COVID-19 medical products. From Apr 17, Indonesia also temporarily eliminated import tariffs on certain COVID-19-related medicines.
While positive, such reforms are only temporary. They create uncertainty for exporters over the long-term direction of individual markets. They undermine preparation for future pandemics by medicine manufacturers.
Instead, governments should commit to permanent tariff reductions on medicines, vaccines, and medical supplies through legally binding WTO commitments.
Most obviously, more WTO members should back the organisation’s Pharmaceutical Agreement - also known as “Zero for Zero” - as swiftly as possible.
This will bolster the group of 34 countries - Canada, 27 European Union member states and the UK, Japan, Norway, Switzerland, US and Macau - that have already agreed to abolish tariffs on medicines for all WTO members.
First created in 1995 with 22 countries to eliminate tariffs on some 7,000 pharmaceutical products, the expansion of the agreement over four updates since means that the 34 signatories now cover 65 per cent of the global pharma trade as of 2016.
However, notably absent from the list of members to the Pharmaceutical Agreement are India, Brazil, South Africa, Russia, China and Indonesia.
For these countries, non-membership of the WTO Pharmaceutical Agreement means any future government could increase tariffs on medicines, to the detriment of patients.
This may be especially true for the likes of India and Indonesia who may look to increase tariffs to correct their balance of payments deficit and also protect their growing domestic generic drugs market.
Joining the agreement would mean permanent duty-free medicines in perpetuity. In addition, member countries should expand the agreement beyond pharmaceutical goods to also include medical products and services.
This is not only vital for beating COVID-19, but also to prepare for future pandemics and virus outbreaks
Philip Stevens is Executive Director at Geneva Network. Nilanjan Banik is Professor of Economics at Bennett University, New Delhi, India.