COVID-19 and the U.S.–Japan Trade Agreement, Phase 2

Shipping containers at a port in Tokyo, Japan, in 2014. (Toru Hanai/Reuters)
These two highly innovative nations need to make trade between them as free and open as possible.

COVID-19 has inspired doctors and scientists to collaborate around the world in pursuit of a vaccine. Trade policy needs to help, not hurt, these efforts. The next phase of the U.S.–Japan trade agreement should show the way.

The medical response to COVID-19 has been amazing. The time from RNA sequencing of COVID-19 to clinical trials of a vaccine was a mere 65 days, not the several years it took for SARS. Doctors and scientists talk about the need to respond to COVID-19 by learning and even sharing across borders.

In contrast, a lot of the trade talk to date has centered on the need to re-shore medical supply chains around the world (i.e. bring them back home). COVID-19 has led countries to misguidedly impose import and export restrictions on items ranging from soap to masks.

Fortunately, a few countries have bucked this trend. New Zealand and Singapore signed an agreement to lower trade barriers to keep medical supply chains secure. Australia, Canada, and several other countries have since joined. But this deal is the exception.

Luckily, the impending Phase 2 U.S.–Japan agreement gives negotiators the chance to set a new, more comprehensive standard for bilateral trade.

Phase 1 of U.S.-Japan was signed last October. It focused on agricultural tariffs and digital trade. The pandemic delayed Phase 2 talks, but U.S. Trade Representative Robert Lighthizer says that negotiations will likely resume in the next few months. Phase 2 is an opportunity for two of the world’s leading and most innovative economies to do more to enhance patient access to medicines.

Tariffs aren’t the problem. The United States and Japan both signed the 1994 Agreement on Pharmaceuticals at the World Trade Organization (WTO), eliminating border taxes on drugs. The problem is non-tariff barriers. During both Democratic and Republican administrations, the U.S. has long complained, for example, that Japan tends to take longer to approve imported versus domestic drugs and doesn’t pay full market value for the American drugs that are ultimately approved.

For example, the Japanese government currently relies on pseudoscientific evaluations to determine the price of groundbreaking medicines. These flawed analyses routinely price U.S. lower than what they should be worth, and in the process, keep U.S. biopharmaceutical firms from breaking into the Japanese marketplace.

These and other regulatory barriers should be taken up in U.S.–Japan Phase 2.

The WTO’s Pharmaceutical Agreement didn’t tackle non-tariff barriers. Given the salience of non-tariff barriers up and down medical supply chains, negotiators from New Zealand and Singapore took a small step towards addressing these barriers in their bilateral agreement — though far more can be accomplished by a robust U.S.–Japan Phase 2 deal.

The New Zealand–Singapore text calls on its members to ‘intensify consultations with a view to removing non-tariff barriers . . .” Consultations are a good first step, but recent U.S. trade deals, such as the U.S.–Mexico–Canada Agreement (USMCA) and the U.S.–Korea Trade Agreement (KORUS), include actual text on regulatory issues that improve upon the WTO. And yet, while these agreements better emphasize the need for “good” regulatory practices to comport with sound science and internationally recognized standards, significant room for improvement remains.

That’s where U.S.–Japan Phase 2 comes in. The U.S. and Japan have an unparalleled opportunity to rewrite the rules on global trade, and by doing so in the midst of a pandemic, help patients gain access to a vaccine when one is ready. Of course, this won’t happen unless U.S. negotiators demand fairer pharmaceutical price-setting practices from their Japanese counterparts.

If Japan can no longer pay below market value for top-notch U.S. pharmaceuticals, Japanese researchers will have to start innovating their own generation of breakthrough medicines. This renewed focus on domestic biopharmaceutical innovation will hopefully turn Japan into a stronger, more responsible world leader in the process.

In the coming months, there will be many political demands made of U.S.–Japan Phase 2. Doctors and scientists are collaborating on a vaccine for COVID-19 on a global scale. Trade needs to be an asset in this endeavor, not a hindrance. U.S.–Japan Phase 2 can be the template.

Marc L. Busch is the Karl F. Landegger Professor of International Business Diplomacy at the Walsh School of Foreign Service, Georgetown University, a nonresident senior fellow at the Atlantic Council, and the host of the podcast TradeCraft.


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