When high taxes kill

Roger Bate | 11 Mar 2006
Union Leader
In the time it takes you to read this column, at least 10 people in poor countries will die from diseases that are preventable and curable. Instead of improving access to critical medicines, many governments in those countries put up trade barriers that keep drugs out or make them too expensive.

The USA, Singapore and Switzerland recently launched a drive to remove tariffs and help the people of developing nations get access to essential medicines. It may seem beyond belief but certain domestic interests and finance ministries oppose this petition to the World Trade Organisation. The WTO holds an emergency meeting in London this weekend in an attempt to resolve moves towards free trade: opponents will call instead for "fair trade," the protectionism that hurts the poor directly.

Indeed, many countries not only have high levies such as tariffs and sales taxes on imported medical products, they also maintain onerous bureaucratic obstacles to registering and selling medicines: my colleagues and I expose the details in a report titled Still Taxed to Death, published this week. We looked at low-income countries which impose import tariffs on essential medical products like bandages and the raw materials for drug production. These tariffs range from zero in a few countries like South Africa to as high as 18.5 percent in Morocco. When all the duties and taxes are added up, the cost of average medicines and medical equipment is routinely inflated by over 20 percent in many places.

Although India is often hailed as a purveyor of cheap generic drugs abroad, high tariffs at home limit patients' access to critical drugs made overseas. In fact, only 35 percent of Indians have access to essential medicines. Less than 100,000 have access to domestically produced copycat anti-retroviral (ARV) treatment for HIV/AIDS, a troubling fact since the Global Fund estimates that over eight million Indians could be HIV-positive. But nearly half the world's population could suddenly get access to cheaper medicines if such offenders as India, China, Nigeria and Brazil alone lowered their high tariffs.

These high import tariffs are often designed to protect uncompetitive domestic industries as much as to raise revenue (this is the case in India, China and Brazil) so they not only deny imports of drugs but also foreign investment in manufacturing, lowering access even further. On top of that, high prices encourage cheap counterfeits that not only fail to cure people but, worse, can help diseases develop new and drug-resistant strains.

But even where tariffs are waived, other problems remain. South Africa, for instance, imposes no import tariffs on completed pharmaceuticals but still charges a sales tax of 14 percent on all medicines. For an already malnourished South African AIDS patient paying for antiretroviral therapy, that means about US $12 less to spend on food every month — and that is a lot of money in South Africa. But the small amount of lost tax would be amply repaid by healthier citizens who can work, create wealth and pay taxes.

Many of the poorest countries ignore or deny the Western lessons of free trade, deregulation and the link between wealth and better healthcare. State-imposed costs strangle access to medicines while foreign drug manufacturers must often jump through numerous bureaucratic hoops before they can sell their products, even if they have already complied with drug safety standards in the US, the EU and Japan. Only the ruling cliques benefit from this arrangement, for their protectionism depends on the perpetuation of difficult rules and regulations. Western governments, NGOs and pharmaceutical companies are trying to improve the level of research and development on health problems afflicting developing nations, but the main barrier is getting existing medicines to patients.

For many diseases that kill millions, such as malaria and gastrointestinal ailments, cheap vaccines and drugs already exist, and they should be allowed into every country today. The pleas from developing countries for greater Western commitment to tackling their problems ring hollow when the governments of poor countries maintain taxes, tariffs and bureaucracies that prevent access to healthcare and kill their own people.

Dr. Roger Bate is a fellow of the American Enterprise Institute and a director of health advocacy group Africa Fighting Malaria.