Section 301 Tariffs on Medical Devices Are Unwarranted and Threaten Patient Access to Life-Saving Medical Technology

Monday, July 2, 2018

Source: AdvaMed

Overview


The medical device industry is focused on advancement of medical science, the improvement of patient care, and in particular, the contribution that high quality health care technology can make toward achieving those goals. The medical device industry consists of the leading medical technology innovators and manufacturers of medical devices, diagnostic products and medical information systems, and includes members that range from the smallest to the largest medical technology innovators and companies. We are a research-intensive industry, spending as much as 20 percent of revenue on R&D to provide patients the most innovative technologies and to compete in a highly competitive global market.

The medical technology industry, an American success story, is one of the few remaining manufacturing sectors of the U.S. economy with a positive net balance of trade. The people who work in the U.S. medical technology industry depend on trade to ensure security, growth, and new opportunities. In fact, medical technology industry salaries are nearly 30 percent higher than the average U.S. salary because the industry employs so many highly skilled workers in the areas of research and development, manufacturing, sales and management. The medical technology industry is responsible for nearly 2 million high-paying U.S. jobs – roughly 519,000 directly and 1.6 million indirectly – and 9,800 manufacturing facilities across the 50 states.

Medical technology accounts for 3 percent of U.S. Gross Domestic Product. The U.S. exports over $50 billion worth of medical devices annually. Opening markets and ensuring a level playing field are essential to the future growth of the U.S. medical technology industry.

Background

Section 301 of the U.S. Trade Act of 1974 authorizes the President to take action against a foreign government that implements policies that violate international trade agreements or is deemed unjustified, unreasonable, or discriminatory, and burdens or restricts U.S. commerce. Section 301 can be self-initiated by the United States Trade Representative (USTR) or by petition from an affected stakeholder. Typically, the goal of a Section 301 investigation is to negotiate a settlement that results in the elimination of a harmful trade barrier.

Initiation of Section 301 investigation against China began August 2017 and is in response to the Administration’s position of China’s unfair trade practices related to the forced transfer of U.S. technology and intellectual property theft. A final report of this investigation was released
on March 22, 2018, with a list of products subject to a 25 percent tariff released by the USTR on April 3, 2018. This list provided a 25 percent duty be applied to around 1,300 tariff lines worth around $50 billion in total on Chinese goods imported into the U.S. Of that $50 billion, there were $2.8 billion worth of medical technology products covering 58 codes, a significant amount focused on one industry that the USTR did not find evidence of forced technology transfer or intellectual property theft.

On June 15th, the USTR released two lists that will be subject to additional tariffs.

• List 1: The list of products totals $34 billion and includes $835 million in tariffs on medical technology, a $2 billion reduction from the April 3rd proposed list with the number of product codes cut by almost half. Of the products still impacted, however, medical imaging, radiation therapy, pacemakers, patient monitoring systems and others. The Administration has indicated that the tariffs will go into effect on July 6th.

• List 2: There are $16 billion worth of goods subject to implementation at a later date after a consultation process. Medical technology is not on the list.

Chinese Tariffs on U.S. Exports

As retaliation for the final USTR list, the Chinese government also released two lists on June 15th of U.S. exports that would be subject to tariffs.

• List 1: This list includes an equivalent 25 percent tariff increase on $34 billion worth of U.S. exports. Medical technology is not on the list.

• List 2: China also released a second list of 114 products totaling $16 billion that would be subject to an additional tariff. While there is no timeframe for implementation, included on the list are U.S. exports of medical imaging, radiation therapy, patient monitoring systems, medical instruments, diagnostics, and ophthalmic devices.

Future Risks

In response to China's retaliation list, the Administration has signaled that it will pursue tariffs on $200 billion worth of additional Chinese imports. While the lists are not yet defined, it is conceivable that this list will include medical technology (excluding those medical devices already removed). This could invite further retaliation from the Chinese government.

China imports $130 billion worth of products from the U.S. As a result, while China may not be able to impose tit-for-tat tariffs on U.S. exports, it could use other mechanisms that would negatively impact U.S. medical technology manufacturers.

• Improving Access to Chinese Markets Could be Threatened. The Chinese medical technology market is over $25 billion. China imports about 70 percent of its medical devices and imports are expected to grow. U.S. companies continue to be the leading suppliers of medical devices to China, capturing one-third of all medical device imports.
China’s growing economy and middle class, and increasing demand for healthcare by a rapidly aging population will continue to make the country an attractive market for U.S. medical technology manufacturers.

• Impact on Healthcare Costs. Numerous studies have shown that medical technology not only directly impacts the health, well-being and life of Americans, but also provides significant economic benefit. A 25 percent tariff could increase the cost of healthcare and limit patient access to life-saving technology.

• Non-tariff Barriers Could Be Implemented. The Chinese government could impose non-tariff barriers that would detrimentally impact U.S. manufacturers and negate significant policy gains we have made in China in recent years. For example, localization, regulatory and procurement policies, and alternatively, China could increase their subsidies in response to USTR’s Section 301 List, each having the ultimate benefit of improving China’s domestic industry and strengthening their position to compete in China and internationally at the expense of U.S. firms.
Conclusion

We believe a successful negotiating resolution to the current crisis is possible. As noted by USTR’s March 22 report, the lack of evidence of forced technology transfer and intellectual property theft does not warrant tariffs on medical technology. Implementing tariffs on medical devices could increase health care costs, limit access to life-saving medical technology, and harm U.S. manufacturing and jobs.

List of medical devices included in the Final USTR 301 list:

• X-Ray, generators, screens, desks and chairs associated
• Ultrasound
• MR
• CT
• Pacemakers
• Radiation Therapy
• Electrocardiographs
• Scintigraphy, SPECT and PET
• Patient monitoring systems
• Ophthalmic devices
• Anesthesia delivery
• Dental devices
• Electrosurgery devices
• Sterilization equipment

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