India is one of the leaders and has the largest manufacturers of generic drugs globally with a recorded export value of $17.3 billion in the year 2017/18 (April-March); The other major export countries being the United States and the EU.
India has always found it difficult to export medicines to Asian countries, especially China, because of the once prevalent Beijing’s protectionist policies. China being the world’s second largest pharmaceutical market receives only 1% of India’s exports. One of the major restraints in establishing Indo-China relationships was the high import tariffs levied by the Chinese Government. Only some of the Indian Pharma players, mainly the EU-approved companies, had been able to establish their presence in China. According to Pharmexec.com, only 100 innovative drugs could enter the Chinese market out of 433 drugs launched between 2001 to 2016 in developed countries.
Imported drugs are expensive in China due to the high tariffs paid at the time of import. This price is usually 2-3 times higher, sometimes five times higher than the price of their counterparts abroad. This made Chinese patients give up treatments in China and find solutions outside the country. To address this, the Indian Commerce Ministry has taken up this issue with its Chinese counterpart and finally, the Chinese government is phasing out import tariffs, reducing them from 5% – 6% to zero tariffs on May 4th, 2018. Currently, China has removed import duties of 28 medicines being imported into the country. These 28 medicines are cancer drugs. Since this announcement, India is hoping to see a significant boost in Indo-China trade. This decision of China ultimately helps it in bringing down its healthcare cost which was forecasted to reach $1.1 trillion by 2020. Correspondingly, following this announcement, the prices of all the drugs will be reduced by cross-border e-commerce and the names of all the cancer drugs for which the tariff has been reduced will be merged into the directory of medical insurance reimbursement.
- More export for India; China will receive low-cost high-quality medicines.
- Rise in the Import and the listing of innovative medications
- Strengthen intellectual property protection
- Enhanced quality control and supervision
However, changes from this China decision will not be very dramatic and quick because of many possible reasons. Before applying the zero tariff, many drugs including penicillin V preparations and anti-cancer drugs had a tariff rate between 5%-6%. In addition, China has many local Penicillin drug manufacturers and they dominate the local market. Therefore, any reduction in the tariffs on Penicillin drugs made by China will not have an immediate impact on importations. However, while considering the penetration of the anti-cancer drug into the China market, local manufacturers from China cannot compete with the big international players. Unlike that of Penicillin drugs, anti-cancer drugs manufacturers outside China have taken a huge market share in China, and zero tariff decision from China is likely to make a considerable impact in the future.
The prevalent rate of cancer and the overall population rate in China is quite large, however, because of the currently small market share of imported anti-cancer drugs, the implementation of zero tariffs on individual cancer patient costs will be small, in total the savings achieved by the tariff reduction are forecasted to only be $312 million in the short term. With the cancer rate currently recorded at 4.3 million patients diagnosed every year, the above-mentioned savings will only lead to a reduction of $100 per patient per year which is an insignificant amount. But, with growing market penetration of imported anti-cancer drugs, this situation is likely to change.
IMPACT ON CHINA PHARMA SECTOR
Earlier, the Chinese companies did not face any competition in the generic drugs market resulting in a gradual loss of interest in innovator drugs. However, over the past few decades as the Chinese economy is becoming stronger, more number of innovations are booming in the drug development sector. Now, the zero-tariff policy implemented by the China government further strengthens the domestic pharma sector to compete with the international players.
It is factual that the zero-tariff decision from China will impact positively for countries like India in building good trade relationships with China; However, still, China must investigate and expedite its registration and approval of drugs and medical equipment process which will aid the Indian pharmaceutical exporters to expand their business in China.