Politics & Policy

Don’t Let the Forced Be With You

Congress may buy into a bad drug deal.

Business is business, and there are simple rules one can expect in any transaction — or at least there should be. Unfortunately, some in the Senate want to take away the right of American pharmaceutical companies to say “deal” or “no deal” when selling drugs to foreign countries. Today, the Senate is expected to vote on S. 1082. The vote will determine whether to authorize the importation of medicines from other countries. But hidden in an amendment to this legislation is a “forced sale” provision that would not only cause enormous harm to the health-care industry, but set a dangerous precedent for government interference into private business deals.

“Forced sale” is quite simple — the government forces an American company to sell its wares to any foreign firm planning to export those wares back to the United States. Not only would the U.S. company be unable to walk away from the table, but it would have to sell at the lowest price charged to any other firm in that country. Further, the quantity sold must be at least as large as that provided to any other foreign buyer in that country.

This forced-sale provision isn’t just anti-American. It’s an unprecedented intrusion of the federal government into the operations of U.S. companies.

Through forced sale, the government decides to whom a company will sell its goods, how much of those goods it will sell, and for what price. And if the company refuses to comply with the U.S. government’s requirements for its transactions and operations in the foreign market, it will be prosecuted in American courts under American law.

Sound kooky? It should, and it has been recognized as such throughout U.S. history.

Federal courts have traditionally protected patent and contract rights — the very rights under assault by a forced-sale provision. It’s common sense to think that a business has the right not to sell a product or the right “to exercise.discretion as to the parties with whom he will deal,” as the Supreme Court put it in 1919. But forced-sale provisions revoke these very integral principles of how business is conducted.

Proponents of forced sale argue that it’s the only way to make sure that pharmaceutical companies allow the free flow of their drugs from foreign markets, where prices are cheaper, to the American market, where brand-name drugs tend to cost more. It’s just free trade, they say.

To the contrary, it is just another form of government-managed trade.

The current prohibition against importation of pharmaceuticals back into the United States is controversial. But whatever one’s opinion on the economic justification for the current importation ban, no free-trader could possibly support coupling its repeal with a forced-sale provision.

If buyers of prescription drugs are to have the right to reimport prescription drugs back into the United States, then certainly sellers of prescription drugs must be free to determine the terms upon which they will export those drugs to begin with, including whether they will continue to export them at all and to whom they will sell them.

Otherwise, the U.S. government would simply be setting prices on drugs sold in America by importing foreign price controls into American regulatory law.

Free trade is based on the notion that buyer and seller mutually consent to a price. Drugs are cheap in foreign countries because foreign governments place Soviet-style price controls on the drugs in question. Most pharmaceutical companies play along with such mandated prices, selling a finite number of drugs to the foreign market in order to avoid having their patents revoked — and their products stolen — by foreign governments. It’s a consensual business deal, if a bit coerced.

On the other hand, instructing a pharmaceutical company to sell unlimited quantities of its drugs to a foreign firm at the price legally mandated in that country hardly constitutes a consensual transaction. Forced trade is far from free trade.

And the supposed justification for forced sale — that it will lead to lower drug prices for American consumers — doesn’t stand up under scrutiny. A London School of Economics study showed that, in Europe, which allows importation of drugs across national borders, middlemen made enormous profits transporting from low-price markets to high-price markets. Consumers, on the other hand, saw no savings.

After all, forced sale doesn’t mandate the price consumers will pay; it just mandates the price that the exporting middleman will pay.

If forced sale is crippling to American businesses and of no benefit to American consumers, then why would Congress try to enshrine such a principle into law? That’s a question that the Senate should seriously ponder today when confronted with the folly of forced sale.

Lawrence A. Hunter is the former staff director of the Joint Economic Committee and the former chief economist of the U.S. Chamber of Commerce. He currently serves as a consultant to the pharmaceutical industry.

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