Institute for Policy Innovation: Parallel Drug Importation -- Perversion of Free Trade 10/23/2003
From: Sonia Hoffman of the Institute for Policy Innovation, 703-912-5742 or shoffman@ipi.org DALLAS, Oct. 23 -- Reimporting foreign-sourced prescription drugs, which were intended for overseas distribution, is not free trade, it's bad trade. According to a paper by the Institute for Policy Innovation (IPI), this practice, known as parallel importation or reimportation, robs both consumers and drug companies. "If restrictions on parallel importation were designed to stop the operation of international competition, than they should be rejected," says Richard Epstein, University of Chicago law professor and author of "Parallel Importation as a Perversion of Free Trade." "But these restrictions are neither designed to provide unfair subsidies to domestic producers nor to hamper foreign competition." In fact, legal restrictions placed upon importation actually spur trade and drug innovation. Conversely, eliminating restrictions will reduce innovation and will lead to fewer sales to overseas markets. Fewer Overseas Sales Will Lead to Shortages: Under legalized parallel importation, drug companies lose incentives to sell their products to foreign nations. Lost incentives translates into lost sales because private firms cannot be expected to continue selling if they cannot receive a rate of return sufficient to meet their large costs. In other words: better to receive no profits than to sustain a large loss. Reduced Innovation: Drug companies reinvest their profits into research and development to provide newer, better and alternative life-saving drugs. Parallel importation undermines this effort by reducing the global and domestic return to innovation, thus harming the national as well as international consumers. Yet simply banning parallel importation or imitating foreign price controls will not curb the foreign free riding on American innovation. According to Dr. Epstein, "Banning parallel imports, alas, does not supply any remedy to the persistent problem of foreign free riding on American innovation, when foreign governments use their sovereign power to limit price freedom in their own countries. "The only way to counter that misguided effort is through tough trade negotiations in which the American government (which shamelessly sponsors export cartels for goods that can be competitively priced at home) should use some of its political power for more sensible ends." ------ This information is abstracted from an report entitled "Parallel Importation as a Perversion of Free Trade" by Dr. Richard Epstein. For report copies, please visit http://www.ipi.org or call Sonia Hoffman at 703-912-5742. The author is available for interview. |