Drug Snares

Roger Bate & Kathryn Boateng | 09 Sep 2006
National Review Online
Throughout the developing world, hospitals have become places where patients don't bother to go; it's not that they aren't sick — there just are no drugs for the doctors to prescribe for them. Two thirds of the world's population and 80 percent of Africans do not have adequate access to drugs. While manufacturers' pricing and grotesque poverty-levels are partly to blame, a major culprit is the governments of these poor countries, which impose tariffs, taxes, and customs duties on imported drugs. This is allegedly done for the sake of protecting domestic industries, but it is actually just another way of raising funds. Some countries, such as Nigeria, Iran, and India, have tariffs of over 15 percent, which, combined with other charges, increase the prices of some drugs by more than 50 percent. Not only do these price increases make drugs more scarce, but they also encourage corruption, and with fatal consequences, as we explain in our paper published today.

Last month, confronted with compelling issues of global security and energy prices, G8 leaders still managed to set aside the time to denounce the severe public-health effects of tariffs on medical interventions in their final communiqué: "We encourage governments around the world to consider eliminating import tariffs and non-tariff barriers on medicines and medical devices, where appropriate, as a measure to reduce further the cost of health care for the poor and expand their access to effective treatments."

And at last year's G8 summit in Gleneagles, world leaders identified eliminating corruption as a key component for establishing the necessary conditions for economic growth in poor nations. In our latest research, we analyzed the link between tariffs and corruption and found evidence that tariffs provide opportunities for irregular payments and delays of product shipments.

The paper is the product of months of interviews and surveys in the field, providing us with first-hand accounts of experiences with drug delivery in developing countries from charitable, corporate, multilateral, and bilateral aid agencies. Most respondents reveal that tariffs on essential medicines are a "serious threat" to access to medicines. We found numerous instances in which organizations donating products were asked to pay questionable "administrative handling" fees and other "custom support" fees. In one case, donated drugs destined for use in South Africa were repeatedly delayed because of several bureaucratic requirements which took years to resolve, and only after the donor secured the services of appointed local distributors. The frustration of many philanthropic drug-donating organizations was succinctly expressed in one interview thus: "The necessity to invest both time and effort to address such delays is a significant deterrent to [our] ongoing commitment."

But the pernicious effects of tariffs on the availability of essential medicines permeate deeper still. The burden caused by high and frequently altered tariff rates creates an opportunity for public officials to extract bribes; since local officials often have asymmetric knowledge about what is a correct fee, as well as the authority to charge it locally, this allows them all sorts of leverage, such as allowing them opportunities to waive official fees if paid a bribe. Also, random or capricious intervention by customs officials makes criminals of importers by often leaving them little choice but to pay bribes to avoid delays, especially where goods with short shelf lives (for example, antibiotics that need refrigeration) are concerned. Such corruption contributes to the instability of access to medicines in a country. Clearly, the corrupting influence of tariffs is detrimental to any ongoing efforts to improve health in a nation.

Among the specifics we found our survey are the following: Vietnamese officials routinely demand bribes; delays and unofficial administrative payments are routinely demanded in Nigeria, and it is almost as bad in Uganda, Kenya, and Ethiopia. Also, in about a third of the cases we studied (36 out of 105), bribes were demanded; and in 85 percent of the cases, delays occurred and non-official payments were demanded.

Tariffs and taxes on essential medicines account for a negligible contribution to national income, and thus are of little benefit to the governments of developing countries; the effect of the conditions they create, however, is disproportionate and damaging. Today, rallying behind the G8 are other multilateral initiatives — such as the United States Trade Representative (USTR) and the Swiss and Singaporean collective initiative to remove tariffs on essential medicines — striving to bring the era of tariff imposition on essential medicines to an end.

Leaders of developing countries should not wait for U.S. and EU action, but should restart the Doha Development round by taking the simple, initial step required to help their own people — implementing national tariff policies that eliminate tariffs and taxes on essential medicines. This action will come at little cost to their revenue base, and will bring about an immeasurable gain for their people.

Roger Bate is a resident fellow of the
American Enterprise Institute. and Kathryn Boateng is a research assistant at AEI. Their paper on the issue was published earlier this week.