Treatment of Like Products Under Term Paper

  • Length: 11 pages
  • Subject: Economics
  • Type: Term Paper
  • Paper: #58980371

Excerpt from Term Paper :



Distinctions can be found in trade-neutral taxonomic motivations, also, and many other contributors such as environmentalists, child-labor activists, etc., so it is more an art than a science

Case of pharmaceuticals: Jordan and U.S.

In trade between Jordan and U.S., U.S. is a highly developed country, and Jordan is a developing nation.

Free trade agreement between Jordan and U.S.

US has highly sophisticated Big Pharma manufacturers

Jordan is just starting out in pharmaceutical production

US pharma firms have international reputation, bolstered by years of production and exportation

Jordanian firms must first put in all the R&D investment to create a product, then have extra marketing dollars to spend to gain international reputation necessary for exporting

Also, according to Jordan Times,

US war on Iraq to deal Jordanian pharmaceuticals heavy blow

Jordan's pharmaceutical manufacturers suffered a heavy blow following the 1991 Gulf War and are getting hit heavily now again in the latest Iraq international dispute let by the U.S.

A possible blockade of both land and air routes could damage the industry," says Hikma Pharmaceuticals Chairman Mazen Darwazeh. Of course, this has come to pass.

A cutting off of passageways to Jordan would lead to a delay in the import of raw materials needed to manufacture the drugs.

Consequently, shipments to be delivered to international markets would also be delayed.

A majority of the Jordan's 17 pharmaceutical companies conduct trade with sanctions-struck Iraq.

In the early 1990s, only six companies operated in Jordan exporting around $50 million worth of their products to Iraq. At the time Jordanian pharmaceutical firms controlled the lion's share of the medicines trade to Iraq, it's neighbor.

Last year, of the total $200 million in Jordanian pharmaceutical exports, only $20 million, or 10 per cent, were exported to Iraq.

This is because of the Iraq war that the U.S. started, with which Jordan had no dealings at all.

At the same time, pharmaceuticals is a major industry for Jordan, and a great area for the developing country to build its exports:

Pharmaceuticals are a major foreign currency earner. Last year, at a total of JD142 million, pharmaceuticals ranked second on Jordan's list of exports after clothing. Some 60 per cent of production is exported while the remainder is consumed locally.

But already it is at a disadvantage because a GATT free trade trading partner is sabotaging its efforts to build its pharmaceuticals exports through a war with its neighbor.

As a backdrop, is it fair, then, for there to be no tariffs, or most-favored nation trading, on pharmaceuticals between U.S. And Jordan?

Which country does it help, or does it help both?

From the political / global perspective, the free trade in like product pharmaceuticals harms Jordan.

First, without dealing with the Iraq war,

Jordan has a fledgling industry, which is large by its own standards, but absolutely negligible compared to the U.S. pharmaceutical standards both internationally and domestically

So if Jordan is to produce a like product to a U.S. product (say, Advil), it's start up costs are significantly higher

Also, it'll have to spend the marketing dollars to get its product (say, J-Advil) known abroad

Already, without tariffs, Jordan is suffering

Then there is the idea that the U.S. started a war with Iraq that will further compromise Jordan's power to be competitive:

Jordan loses its major source of pharmaceutical revenue in Iraq, so it has that much less money to reinvest in R&D to make its J-Advil competitive with Advil, and then market the product abroad.

Without tariffs to protect its fledgling industry, an industry that has been veritably attacked by its major competitor, the U.S., it has no hopes of selling J-Advil in the U.S.

Of course, under GATT free trade, if it were to impose tariffs on Advil, U.S. would reciprocate with tariffs on J-Advil;

So the advantage would be lost

There are the like products issues too

Is it even possible, or is it advisable, for Advil and J-Advil to construed as like products under GATT?

First, the procedure.

Physical characteristics first.

Here, highly irrelevant. A pharmaceutical is rarely purchased based on its appearance, save perhaps the difference between capsules, tablets and syrups to be consumed.

But then again, maybe it is an issue:

If J-Advil is a tablet, and Advil is a capsule, are they like products?

Depending on how the WTO / GATT dispute resolution panels rule, they may or may not be, depending on the next factor:

List of criteria

End uses in a given market

Consumer tastes and habit

The product's properties

Nature

Qualities

Most recently, the dominant criterion: like products test: commercial substitutability.

First, end uses in a given market:

Both Advil and J-Advil would be used, presumably, exactly for the same purposes in the U.S. And in Jordan

Consumer tastes and habit: This question links closely with our earlier discussion of tablet/capsule/syrup. How is the pharmaceutical from Jordan presented? Will that change consumption and the nature of what type of product it is in the American marketplace, due to particularities of American consumers' tastes and habits?

The product's properties: Here, ostensibly similar; as the two drugs are made up of the same active ingredients.

Nature: redundant, following tastes and habit discussion

Qualities: are there other factors that influence consumers' buying decision, that should be taken into account in determining like product nomenclatures under GATT?

Commercial substitutability is the key.

With stringent FDA regulations on importation of foreign drugs, the Jordanian product J-Advil simply might not be ready for consumption in the United States for years, or perhaps forever.

This acts as a sort of de facto 100% tariff, even if none is imposed de jure under GATT.

The end result is the same: Advil will continue to get sold in the U.S. And in Jordan;

And J-Advil will continue to get sold only in Jordan

The U.S. internal governmental organizations have a huge influence and larger impact in importation, as we have seen in the latest debates over drugs from Canada.

The FDA will surely define J-Advil as different since it's undergone different - if not lesser - testing in the Jordanian R&D system.

US drugs are subjected to rigorous Phase I, II and III trials.

If the Jordanian drugs have not gone through the same exact system - even if their system is equivalent in its scope - are these not two different products under the FDA, and thus under GATT, effectively?

The U.S. consumers will surely not buy a drug that has not gone through the same testing as domestic Advil, even if the FDA allows it to reach the nation's pharmacies.

As a result, the testing of the drug is another characteristic that will define competitiveness and therefore like product status under Articles I and III of GATT.

This factor is unique, in some ways, to pharmaceuticals.

Then there is the issue of production.

If, for instance, Jordan employees lower cost labor or even child labor to produce its pharmaceuticals, in this case, J-Advil,

Should the product be treated as a like product under Articles I and III of GATT if it is manufactured differently?

Apparently not, according to the tariff criteria:

Let us examine the various other inputs into determining like product status restated below with regard to Advil and J-Advil:

differences in materials of constructions: What has gone into the Jordanian drug? The casing, the packaging? Does that mean the good is similar to Advil?

A differences in method of manufacture: Here we hit what was touched upon above: Who manufactured the good, and how? In factories with good labor conditions, forced labor, child labor, underpaid labor, highly skilled or unskilled labor? All of these factor in.

A scientifically recognized distinctions between plant or animal species: The easiest question: is there a difference in the chemical makeups of Advil and J-Advil. If yes, then they're not like products.

A differences in value: This is a harder question: Is there a higher value intrinsically to American drugs? And if so, does that mean that Jordanian drugs are not like products? This seems to fly against economic principles but may not fly against the principles in GATT differences in shape, size, dimension: dealt with above quality distinctions: dealt with above Conclusion

There are so many factors that are in play in Jordan vs. U.S. In GATT free trade on pharmaceuticals.

It is hard to determine whether drugs will be considered like products without submitting to the panels at GATT and WTO

However, one thing is certain:

Without tariffs; in essence, with free trade; Jordan will have a nearly impossible time penetrating the U.S. market

SO, the reciprocity agreements in GATT will serve to squelch the fledgling Jordanian pharmaceutical export…

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