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Reimportation of prescription drugs

Parallel trade, or “reimportation,” is the practice of importing products from distributors who purchase who have purchased the product from the original seller. With drug prices higher in the United States than any other nation, many Americans purchase drugs abroad to save money.Savings can be substantial; the Department of Commerce has estimated that drug prices in Canada and Europe average 50-60 percent of the U.S. price.  A 2008 DHHS survey found that 13% of Americans who purchased drugs in 2005 did so through mail-order.

However, reimportation is not legal under current federal law. Article 381(d) of the Federal Food, Drugs and Cosmetics Act reads “no drug… which is manufactured in a State and exported may be imported into the United States unless the drug is imported by the manufacturer of the drug.”In practice, however, the Food and Drug Administration grants an exception for personal use that applies to individuals importing enough of their prescription(s) to last for 90 days.

In November 2005, the Border Patrol sought to enforce this law, and began a systematic campaign in November 2005 to confiscate all mail from Canadian pharmacies being sent to Americans.They claim to have seized and destroyed more than 40,000 orders.This came to an end last month Senators Bill Nelson and David Vitter put a provision in the Appropriations for the Homeland Security Bill that prohibits customs officers from preventing people from “transporting” up to 90 days worth of medicine for their personal use.The customs service then announced that they were ending their policy of seizing shipments of drugs.

Since the brand name drugs are patented products, trade rules on intellectual property come into play, but the World Trade Organization rules expressly permit reimportation.Article Six of the Agreement on Trade Related Aspects of Intellectual Property Rights, commonly referred to as the TRIPS Agreement says “nothing in this Agreement shall be used to address the issue of the exhaustion of intellectual property rights.”This means a patent right may be “exhausted,” or used up once a patented good, such as a medicine, has been sold by the legitimate patent holder.Different countries have different rules concerning exhaustion, but today’s multilateral trade rules do not address the issue at all.

Some of the bilateral free trade agreements that the United States has entered into, however, explicitly give companies the power to prevent reimportation through contracts.The US-Australia FTA, for example, says “the exclusive right of the patent owner to prevent importation of a patented product… shall not be limited by the sale or distribution of that product outside its territory,” provided they have put it in a contract.The US-Singapore FTA has a similar provision.

The bilateral FTA with Morocco includes a similar provision, but it goes a bit further, denying parallel imports as a default, but then saying a party has the option limit the ban on reimported goods to situations where there’s a contract in place.

To date, no patent-holding companies have attempted to use these provisions in the FTAs to block pharmaceutical reimports, but the potential for a legal challenge exists.

Legislation in both the House and Senate (H.R. 340 / S.242) would explicitly legalize reimportation by both individuals and wholesalers.It would set up a registration process and provide funding for the FDA to ensure the safety of the imported drugs.Additionally, it would prevent pharmaceutical firms from refusing to supply overseas pharmacies that re-export the medicines back to the United States. There is considerable support for the legislation in Congress – H.R. 380 has 108 co-sponsors and the S.242 has 35, including Sens. McCain, Clinton and Obama. Similar legislation has been opposed in the past by the both the Clinton and Bush administrations.

Congressional Research Service Report on Reimportation
CRS's overview of the legal issues surrounding pharmaceutical reimportation and internet sales.
S.242 The Pharmaceutical Market Access and Drug Safety Act of 2007
A bill to amend the Federal Food, Drug, and Cosmetic Act with respect to the importation of prescription drugs, and for other purposes.

NGO Advocacy
Drug Reimportation: The Free Market Solution
CATO Institute report that predicts reimportation would lower prices in the US, while raising prices abroad.

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