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Journalism of Courage
WHY NOW?
United States President Donald Trump on Monday (May 12) signed an executive order to lower the prices of prescription drugs by a range of 59% to 90%, according to Reuters. He described the move as the “most favored nation’s policy” in a social media post the previous evening, to bring drug prices in the US at par with the “Nation that pays the lowest price anywhere in the World.”
Under Article 1 of the General Agreement on Tariffs and Trade (GATT), 1994, every member country of the World Trade Organization (WTO) must accord Most Favoured Nation (MFN) status to all other member countries.
Under the WTO agreements, countries following the MFN status cannot discriminate among their trading partners or grant one country “a special favour” such a lower customs duty on one of their products, without extending the same to other WTO members.
Between 1996 and 2019, India accorded the MFN status to Pakistan. This was revoked in February 2019 following Pakistan’s terror attack on Pulwama in Jammu & Kashmir.
The WTO is the successor of the erstwhile GATT, and is the world’s largest intergovernmental trading body. It has 166 member nations, and represents 98% of the world’s trade. Its stated goal is to open trade for the benefit of all.
The ranges of Trump’s MFN policy have varied – the President announced a 30-80% range on Sunday, and announced a 59% reduction in pharma prices in a subsequent social media post.
Given that the US currently pays about three times more for the same drugs compared to other high-income nations, Trump has long expressed an interest in reducing this gap.
He has referred to the proposed policy as “equalising” drugs prices worldwide, a measure that will “for the first time in many years, bring FAIRNESS TO AMERICA!” he wrote.
In his address on Monday, he said, “The U.S. will no longer tolerate ‘profiteering’ by drug companies,” and will “cut out the ‘middleman’ in drug pricing.” However, pharma companies would be asked to reduce drug prices voluntarily, according to The NYT.
It is currently unclear what legal authority Trump would use, or how he would “use the power of the federal government” if companies do not comply. It is also likely that this order, like several other orders, would be challenged in court.
Yes. Former President Joe Biden’s Inflation Reduction Act allowed the government to negotiate the price of its most expensive drugs. Despite this, the prices of the first 10 drugs thus negotiated ranged from twice to five times what these companies charged in other high-income nations, according to a Reuters report.
Pharmaceutical companies have staunchly opposed this move and are lobbying for safeguards. They have expressed fear that the proposed price cuts would reduce their profits, which in turn would reduce funds for research on new medicines.
The impact on India would be acute, given it has the largest number of medical providers. According to a Reuters report, the US accounts for nearly a third of India’s pharma exports, which rose 16% to about $9 billion last fiscal year, according to the government-backed trade body Pharmexcil.
