A Trade Opportunity for China and America

Roger Bate & James Driscoll | 14 Apr 2006
TCS Daily

Bush administration Commerce Secretary Carlos Gutierrez has warned that the US is running out of patience waiting for China to take effective steps to do its part to reduce the ballooning US$200+ billion trade deficit with China. Recently, the US, Switzerland, and Singapore proposed a small but highly constructive remedy China could implement immediately: eliminate tariffs on medicines and medical products. Chinese President Hu Jintao's visit to Washington DC next week affords President Bush a signal opportunity to call upon China to take this urgently needed action.

The US, the EU, Japan, Canada and other developed countries eliminated these tariff impediments to healthcare years ago. With their large trade surpluses China and other rapidly developing Asian states can easily afford elimination; with their huge unmet healthcare needs maintaining medical tariffs is folly.

Provision of healthcare in China and Asia has failed to keep pace with economic growth and environmental strain. SARS, burgeoning HIV rates, and the threat of avian flu make the region's relatively poor healthcare painfully evident and urgent. Despite growing foreign exchange surpluses, the Asian countries with the largest HIV epidemics, still erect high tariff barriers to AIDS drugs, as well as to other medications and medical products -- India (16 percent), China (6.5 percent) and Thailand (11 percent). Then they pile VAT and local sales taxes on top their tariffs, (India 5 percent, China 17 percent, and Thailand 7 percent).

Compounding the damage, collection of tariffs creates bureaucratic obstacles to treatment access and provides ample opportunities for corruption at ports and at other borders where tariffs may be collected. Health charities privately claim that their donated supplies often sit on the docks of China and other Asian countries spoiling while kickbacks of as little as $20 are demanded. Removal of tariffs will not stop corruption but should make it less routine and harder to sustain.

To build hospitals, medical schools, clinics and health services, China and the rest of Asia need to import advanced US medical products and technology. Tariffs delay improvements in Asia's healthcare infrastructure and increase their cost. China's medical tariffs can fund less than one tenth of one percent of their national healthcare budget; yet they inflate the cost of many medical products by more than ten percent.

Medical tariffs are regressive, detrimental, and obsolete. They hurt the poor most, denying them access to medications essential to life, health, and productivity. For rapidly developing countries with balance of payments surpluses, tariff barriers to healthcare access are protectionism at its inexcusable worst. Such barriers foster global trade imbalances and damage public health solely to benefit selfish special interests. China and other Asian countries should throw their doors wide open to the best available medical products and technology by joining the US, EU, and Japan with a zero-tariffs policy.

For President Hu Jintao abolishing tariffs on medical products would be an act of wise statesmanship with great rewards. It would help remedy trade imbalances with the US, and simultaneously improve healthcare for the Chinese people. Hu's decisive action would pressure other rapidly developing countries, like India, Thailand, Mexico, Russia, and Brazil, to follow China's lead.

Globalization provides great economic benefits but to similarly improve world health and protection against infectious disease, we need global trade policies that give priority to healthcare needs. America and China have a unique opportunity to help correct their trade imbalances and to lead all nations toward better healthcare by championing zero tariffs on medicines and medical products. If Presidents Bush and Hu Jintao can together seize this opportunity, all humanity will benefit from their statesmanship.

James Driscoll, Ph.D., a long time AIDS activist, is an advisor to the China Foundation, and has served as a Bush appointee to the Presidential Advisory Council on HIV-AIDS. Roger Bate PhD, is a resident fellow of the American Enterprise Institute, a Director of health advocacy group Africa Fighting Malaria and lead author of the paper Still Taxed To Death published by the AEI-Brookings Joint Center.