A deal we should refuse

Drug re-importation has long been an issue in American politics. It’s not surprising, therefore, that the Senate once again is considering whether US consumers should be able to purchase medicines originally manufactured in the United States, exported abroad, then later re-imported back into the country.

But hidden in this latest legislation is a “forced sale” provision that not only would cause enormous harm to the health care industry, but also set a dangerous precedent for government interference into private business deals.

“Forced sale” is quite simple – the government forces an American company to sell its wares and sets the terms of the sale to any foreign firm planning to export those wares back to the United States. Not only would the US company be unable to walk away from the table but it also would have to sell at the lowest price charged to any other firm in that country. Furthermore, the quantity sold must be at least as large as that provided to any other foreign buyer in that country.

This forced-sale provision isn’t just anti-American; it is an unprecedented intrusion of the federal government into the operations of US companies.

Through forced sale, the government decides to whom a company will sell its goods, how much of those goods it will sell, and for what price. And if the company refuses to comply with the US government’s requirements for its transactions and operations in the foreign market, it will be prosecuted in American courts under American law.

Sound kooky? It should. It’s common sense to think that a business has the right not to sell a product or the right to refuse to sell to certain customers on unfavorable terms. But forced-sale provisions revoke these very integral principles of how business is conducted.

Proponents of forced sale argue that it’s the only way to make sure that pharmaceutical companies allow the free flow of their drugs from foreign markets, where prices are cheaper, to the American market, where brand-name drugs tend to cost more. It’s just free trade, they say.

To the contrary, it is just another form of government-managed trade and one that likely will fail to benefit consumers very much since most of the difference between the foreign price and the domestic price of the drugs will be eaten up by the reseller. The current prohibition against importation of pharmaceuticals back into the United States is controversial to be sure. But whatever one’s opinion on the economic justification for the current importation ban, no free-trader could possibly support coupling its repeal with a forced-sale provision.

Drugs are cheap in foreign countries because foreign governments place Soviet-style price controls on the drugs in question. Most pharmaceutical companies go along with such mandated prices, selling a finite number of drugs to the foreign market in order to avoid having their patents revoked – and their products stolen – by foreign governments.

It’s a form of extortion given the color of law by a flawed international trade agreement that gives foreign countries with socialist and price-controlled health-care systems the right to revoke drug patents if they don’t get the terms and prices they demand.

If buyers of prescription drugs are to have the right to re-import prescription drugs back into the United States, then certainly sellers of prescription drugs must be free to determine the terms upon which they will export those drugs to begin with, including whether they will continue to export them at all and the terms on which they will sell them.

Otherwise, the US government would simply be setting prices on drugs sold in America by importing foreign price controls into American regulatory law.

If forced sale is crippling to American businesses and of no benefit to American consumers, then why would Congress try to enshrine such a principle into law? That’s a question that all of us should ask of our representatives.

Dr. Lawrence A. Hunter is the former staff director of the Joint Economic Committee and the former chief economist of the US Chamber of Commerce. He currently serves as a consultant to the pharmaceutical industry.