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The Drug Reimportation Ban

Issue Analysis

Title

The Drug Reimportation Ban

A Less-than-Perfect Solution That Beats All The Rest

Full study available in pdf format

The ban on reimporting pharmaceuticals appears, at first, to violate our national commitment to free trade.  Several key factors, however, make this a unique controversy:  pharmaceutical patent rights face serious threats internationally, and the pharmaceutical industry’s ability to defend these rights is itself hampered by domestic law.  Under these circumstances, the ban essentially functions as a government substitute for reimportation limits that, in a perfect world, would be negotiated by drug companies themselves.

To an extent, similar problems are faced by other industries that have steeply declining marginal costs. To the extent that the pharmaceutical industry can adapt the business techniques of such industries, it may be able to alleviate the problems posed by reimportation.

Nonetheless, in the short term there is one unmistakable fact—when we reimport drugs from foreign countries, we are actually importing their price controls.  Doing so will produce the problems that price controls always produce—the destruction of future productivity and innovation.  This effect is always harmful, but in the field of medicine that harm would be incomparable.

Several key factors, however, make this a unique controversy:  pharmaceutical patent rights face serious threats internationally, and the pharmaceutical industry’s ability to defend these rights is itself hampered by domestic law.  Under these circumstances, the ban essentially functions as a government substitute for reimportation limits that, in a perfect world, would be negotiated by drug companies themselves.

To an extent, similar problems are faced by other industries that have steeply declining marginal costs. To the extent that the pharmaceutical industry can adapt the business techniques of such industries, it may be able to alleviate the problems posed by reimportation.

Nonetheless, in the short term there is one unmistakable fact—when we reimport drugs from foreign countries, we are actually importing their price controls.  Doing so will produce the problems that price controls always produce—the destruction of future productivity and innovation.  This effect is always harmful, but in the field of medicine that harm would be incomparable.