On July 27, Reps. John Joyce (R-PA) and Jim Banks (R-IN) introduced legislation that would establish new US trade negotiating objectives for the pharmaceutical sector, in the context of a broader renewal of the trade promotion authority ("TPA") statute that governs the negotiation and congressional approval of US trade agreements. The proposed objectives would apply to a wide range of pharmaceutical products, including biologics, as well as the active pharmaceutical ingredients (APIs) used to produce finished pharmaceuticals for animals and humans. US trade negotiating objectives for the pharmaceutical sector historically have focused on improving intellectual property protection in foreign countries to reflect the levels of protection provided under US law. The new bill, entitled the International Pharmaceutical Supply Chain Security Agreement Act of 2021 (H.R. 4711), would direct US trade negotiators to pursue additional objectives designed to improve the security and efficiency of pharmaceutical supply chains, reflecting concerns brought on by the COVID-19 pandemic and certain policy responses thereto such as export restrictions. Aside from these new objectives, H.R. 4711 would renew without changes the TPA statute enacted by Congress in 2015. This alert provides an overview of the proposed legislation.
Article I, Section 8 of the US Constitution gives Congress authority over the key levers of trade policy, including the power to impose duties and to otherwise "regulate Commerce with foreign Nations[.]" At the same time, the President has authority under Article II of the Constitution to conduct foreign affairs, including the power to negotiate international treaties with the advice and consent of the US Senate. Given this constitutional framework, the negotiation and implementation of US trade agreements requires cooperation and compromise between Congress and the Executive Branch.
Recognizing the constitutional framework and the need for the US government to credibly negotiate trade agreements with foreign nations, the Congress since 1974 has periodically enacted special, expedited procedures to consider trade agreements negotiated by the Executive Branch. Such legislation (previously referred to as "fast-track" and more recently "trade promotion authority") commits Congress to vote on bills implementing trade agreements within a fixed time period, with limited debate, without amendment, and subject to an up-or-down vote, once the President submits an implementing bill. These legislative procedures improve the likelihood that Congress will approve a trade agreement negotiated by the President, but they can be withdrawn if the President fails to adhere to the requisite statutory obligations, including negotiating objectives and congressional notification and consultation requirements. Congress enacted the most recent version of TPA, entitled the Bipartisan Congressional Trade Priorities and Accountability Act, in 2015 ("TPA 2015").1 However, the law expired on July 1, 2021.
International Pharmaceutical Supply Chain Security Agreement Act of 2021 (H.R. 4711)
Reauthorization of TPA 2015
H.R. 4711 would reauthorize TPA 2015 through July 1, 2023, with an optional extension through July 1, 2026. The extension would occur if (1) the President requests the extension; and (2) neither House of Congress adopts a resolution before July 1, 2023 disapproving the extension. In practice, this means that:
- The President would be permitted to enter into (i.e., sign) trade agreements with foreign countries before July 1, 2023 (or July 1, 2026, if the President receives an extension); and
- The expedited legislative procedures set forth in TPA 2015 would apply to implementing bills for trade agreements signed by the President within the above timeframes.
Aside from extending the duration of TPA and establishing new negotiating objectives for the pharmaceutical sector (described below), H.R. 4711 would not modify TPA 2015, which consists of (1) congressional objectives for trade agreements negotiated by the Executive Branch; (2) Executive-congressional notification and consultation requirements; and (3) the procedures for expedited congressional consideration of trade agreements.
New negotiating objectives for the pharmaceutical sector
H.R. 4711 would amend TPA 2015 by adding the following negotiating objectives relating to "trade in covered pharmaceutical products":2
- The objective regarding tariffs is to ensure that parties to US trade agreements "eliminate the imposition or re-imposition of tariffs on imports of [covered pharmaceuticals], particularly in the event of a declared emergency."
- The objectives regarding regulatory and technical barriers are:
- To "reduce or eliminate regulatory and other technical barriers in the pharmaceutical sector;"
- To ensure that parties promote "expedited approval" of pharmaceutical production facilities;
- To ensure that parties promote the use of good regulatory practices and streamlined regulatory review and approval processes for pharmaceutical production;
- To ensure that parties eliminate "duplicated actions and other barriers" to reduce the time for approval of pharmaceutical products and facilities; and
- To ensure that parties will expand transparency and cooperation to ensure that regulatory processes are streamlined and harmonized among parties, to the maximum extent possible.
- The objective regarding export restraints is "to prohibit export restraints against parties to the agreement, particularly in the event of a declared emergency."
- The objectives regarding subsidies are:
- To encourage the "coordinated provision" of subsidies that are not prohibited by WTO rules and are intended to incentivize manufacturing of covered pharmaceutical products, including "the provision of grants, loans, tax incentives, and guaranteed price and volume contracts;"
- "[T]o explicitly permit, among parties to the agreement, the use of production subsidies to build pharmaceutical manufacturing capacity;"
- To "affirm that subsidies provided by parties are not intended to be used primarily for export or to distort trade;" and to affirm the parties' commitments under the WTO Antidumping Agreement and the Agreement on Subsidies and Countervailing Measures; and
- To encourage notification and consultation among parties regarding potential pharmaceutical manufacturing subsidies "to increase coordination and avoid creating conditions such as oversupply or market inefficiencies[.]"
- The objectives regarding government procurement are to provide reciprocal access to government procurements for pharmaceutical products among parties to the agreement; to facilitate the involvement of participant countries' companies in bids to supply such products; and to promote participation in the WTO Government Procurement Agreement.
- The objectives regarding trade in services are:
- To obtain fair, open, and transparent access to supply chain services in the markets of the parties, such as distribution, logistics, and transportation services;
- To ensure that any restrictions or regulatory requirements on such services are adopted and maintained in a transparent and efficient manner; and
- To require parties to establish an internal process for identifying restrictions or regulatory requirements that could be waived in the event of a declared emergency.
- The objectives regarding transparency and trade facilitation are:
- To obtain commitments to develop mechanisms to share information about supply chain constraints and coordinate approaches to minimize risks that could lead to supply chain failures; and
- To obtain commitments that parties will fully implement their obligations under the WTO Trade Facilitation Agreement, to the extent they have not already done so.
- The objectives regarding enforcement of trade disciplines involving pharmaceuticals are to:
- Ensure that benefits under the agreement can only be obtained by parties that are fully meeting their obligations;
- Ensure that parties "will not bring a dispute under another agreement for actions that are consistent with the agreement";
- Provide a dispute settlement mechanism comparable to that of the US-Mexico-Canada Agreement ("USMCA"); and
- "[M]inimize the ability of parties to the agreement to undermine the effectiveness of the agreement by abusing exceptions," namely by requiring notification of a party's intent to rely on an exception and by limiting the duration for which parties may rely on an exception.
The Biden administration and congressional Democrats have shown little interest in pursuing new TPA legislation this year, given President Biden's pledge to refrain from negotiating trade agreements until Congress has implemented his domestic policy agenda. Moreover, the vast majority of congressional Democrats opposed TPA 2015, and Biden administration officials have taken the view that any future TPA legislation should involve an overhaul of the law's negotiating objectives. At minimum, these stakeholders are likely to demand that any future TPA bill include updated negotiating objectives on labor and environmental protection, and perhaps on other issues such as investment protection, rules of origin, and intellectual property, reflecting the standards negotiated in the USMCA. For these reasons, it is highly unlikely that Congress will approve H.R. 4711 in its current form.
On the other hand, the negotiating objectives proposed in H.R. 4711 reflect the increasingly prevalent and bipartisan view that pharmaceutical supply chains should be made more secure and efficient in light of the COVID-19 pandemic. Such concerns prompted President Biden to order an interagency review of vulnerabilities in the pharmaceutical supply chain earlier this year, among other critical sectors. The Biden administration's review concluded that, in addition to providing financial and other incentives for domestic manufacturing of pharmaceuticals, the United States should cooperate with allied countries to secure supplies of critical products it cannot produce domestically, as well as to align regulatory approaches.3 The negotiating objectives set forth in H.R. 4711 reflect similar views, and are likely to inform future discussions in Congress regarding new TPA legislation.
The text of H.R. 4711 can be viewed here.
1 19 U.S.C. §§ 4201-4210
2 The bill defines "covered pharmaceutical products" as including:
• "An active pharmaceutical ingredient," i.e., "any component that is intended to furnish pharmacological activity or other direct effect in the diagnosis, cure, mitigation, treatment, or prevention of disease, or to affect the structure or any function of the body of a human or animal," subject to certain exceptions; or
• "A drug (including a biological product)[.]" The term "drug" is not defined in the bill; "biological product" is given the definition set forth in the Public Health Service Act, i.e., "a virus, therapeutic serum, toxin, antitoxin, vaccine, blood, blood component or derivative, allergenic product, protein, or analogous product, or arsphenamine or derivative of arsphenamine (or any other trivalent organic arsenic compound), applicable to the prevention, treatment, or cure of a disease or condition of human beings."
3 "Building Resilient Supply Chains, Revitalizing American Manufacturing, and Fostering Broad-Based Growth: 100-Day Reviews under Executive Order 14017." The White House, June 2021.