President Trump signed an executive order, aiming to reduce US prescription drug prices under most favoured nation (MFN) prescription drug pricing, which can have potential repercussions for India's pharmaceutical sector.
- Presently, US pays about three times more for the same drugs compared to other high-income nations
About MFN
- MFN principle is a cornerstone of multilateral trading system, which seeks to implement rules-based framework where trading rights do not depend on individual participants’ economic or political clout.
- It implies that the best access conditions that have been conceded to one country must automatically be extended to all other participants in the system.
- Under Article 1 of General Agreement on Tariffs and Trade (GATT), 1994, every member country of World Trade Organization (WTO) must accord MFN status to all other member countries.
- Under WTO agreements, countries following MFN status cannot discriminate among their trading partners.
Potential Impact on Indian Pharma sector
- Export Concerns: USA accounts for nearly one-third of India's pharmaceutical exports (approximately $10 billion annually), the order could disproportionately affect India’s trade.
- Impact on Research: Proposed price cuts would reduce the profits of pharma companies, which in turn would reduce funds for research on new medicines.
- Increased Prices in Domestic Market: Pharmaceutical companies may intensify efforts to offset reduced profits in the U.S. by seeking higher prices in markets like India.
