Asia-Pacific: World’s Largest Trade Deal’s Pharma Impact Too Early to Tell

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On 15 November 2020, the world’s largest trade deal in terms of GDP – the Regional Comprehensive Economic Partnership (RCEP) –was signed virtually by 15 countries: the ten members of the Association of South East Asian Nations (ASEAN) – Brunei, Cambodia, Indonesia, Laos, Malaysia, Myanmar, the Philippines, Singapore, Thailand, and Vietnam – and China, Japan, South Korea, Australia, and New Zealand. Together, these countries represent 2.1 billion people and around 30 percent of the world’s GDP.

 

With negotiations for the RCEP having started in 2012, it has been a long journey – and one that has not ended yet, as at least six ASEAN members and three other non-ASEAN member countries have to ratify it before it takes effect, a process that could take years. In general, the RCEP aims to lower tariffs, foster trade in services, and promote investment in emerging economies. For example, analysts expect that the RCEP will eliminate about 90 percent of the tariffs on imports between its signatories within 20 years. However, it does allow countries to retain import tariffs in sectors considered particularly important or sensitive.

 

Another potential positive for trade and economic cooperation is the provision of unified rules of origins, which could reduce export costs within the bloc. Under existing Free Trade Agreements (FTAs) between signatories, products containing components made elsewhere might still face tariffs.

 

However, under the RCEP, parts from any member country will be treated equally, potentially offering companies in member countries strengthened incentives to look within the trade region for suppliers. Most notably, the RCEP would be the first FTA between China, Japan, and South Korea, three of the four largest economies in Asia.

 

China and Japan are, of course, also two of the largest pharmaceutical and healthcare markets globally. The initial implications of the RCEP on pharma and healthcare companies within the bloc are still unclear and might remain vague for a while longer as the complete ratification of the RCEP may take years.

 

In addition, unlike other – more controversial – FTAs like the Trans-Pacific Partnership (TPP), which had to be renamed and renegotiated after the surprise withdrawal of the US in 2017 – the RCEP places less emphasis on labour rights, intellectual property (IP) protections, and dispute resolution mechanisms. However, as the final legal text for the RCEP is as yet unavailable publicly, it is unclear how the RCEP will eventually affect the pharma industries in its member countries.

 

However, some research has been done on this front. A recent analysis by Gleeson et al. in November 2019, published in Globalization and Health, looked at a number of FTAs to examine “the ways in which … provisions in trade agreements can affect pharmaceutical policy and, in turn, access to medicines”. The team identified ten types of provisions that could impact domestic pharma policy and regulation, as follows:

 

  1. TRIPS-Plus intellectual property protections;
  2. Investment protections, including investor-state dispute settlement;
  3. Procedural requirements for pharmaceutical pricing and reimbursement programs;
  4. Provisions with implications for regulation of pharmaceutical marketing;
  5. Regulatory requirements for assessment of safety, efficacy, and quality;
  6. Reduction/elimination of tariffs on medicines or their ingredients;
  7. Rules applying to government procurement of pharmaceuticals;
  8. Rules applying to state-owned enterprises and designated monopolies;
  9. Procedural requirements for customs administration and trade facilitation; and
  10. Rules applying to regulatory practices, cooperation and coherence.

 

According to the final summary document of the RCEP agreement, the objective of the RCEP Agreement “is to establish a modern, comprehensive, high-quality, and mutually beneficial economic partnership that will facilitate the expansion of regional trade and investment and contribute to global economic growth and development”. It remains to be seen if this ambition will materialize for pharma companies in the region.

 

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