The Free Market Mirage of Reimportation
by Doug Bandow on 05/24/2004
22 Pages
With the approval of Medicare drug benefit legislation last fall, public attention has shifted to reimportation of pharmaceuticals from foreign nations. Although some reimportation advocates are attempting to sell the practice as a simple matter of free trade, most supporters have a different agenda: they are pushing reimportation because it would effectively impose foreign price controls on the U.S.market.
Foreign governments have created artificial markets to take advantage of U.S. patients by free-riding on American R&D. Despite this, U.S. support for reimportation is now reaching from individuals to governments.
Genuine competition presumes the freedom to set and adjust prices. But the “competition” advanced by reimportation is competition against oneself. Thus, attempts at price arbitrage based on lower prices abroad effectively means applying foreign price controls at home.
But what of the free market argument that reimportation will force American companies to negotiate hard for prices increases abroad? The argument goes, “Liberalize your markets, or we will leave.” The problem is that governments with nationalized systems routinely sacrifice their people's health in order to save money. For instance, pharmaceutical regulations have sharply reduced Canadian access to needed drugs. In the province of British Columbia more than a quarter of doctors report that they have had to treat or even hospitalize patients because of government substitutions of medicine. Incredibly, the more useful the medicine and the more people it would help, the smaller the likelihood that European governments will quickly approve it. Explains Europe Economics: countries "facing tight budget constraints will be more resistant to a given price demanded by a company the higher they expect the demand for the product to be."
If Congress approves reimportation, it will do so in the expectation that the practice will lower prices. Only a few members advocate the policy as a means to make the market work, to whatever end. Everyone else sees this as a politically popular way to deliver benefits to their constituents. The number one purpose of S. 1781, introduced by Sen. Conrad Dorgan, who has incongruously been joined by free market advocates to push reimportation, is "to give all Americans immediate relief from the outrageously high cost of pharmaceuticals." For most non-free market backers, reimportation is merely the first step of more regulation, and if it happens, neither foreign nor American governments are likely to fight fair.
Well-intended friends of freedom mistakenly view reimportation as a question of free trade. But friends of regulation have more accurately diagnosed the impact of reimportation: government control of drug prices at home. When forced to choose between innovative medical research and arbitrary cost controls, foreign governments routinely pick the latter. So, unfortunately, would many American politicians. If they succeed in doing so by legalizing reimportation, all Americans will be the losers.
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