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Those Stubborn Facts: Why Health Security Should “Trump” Free Trade for Americans

19 Thursday Mar 2020

Posted by Alan Tonelson in Those Stubborn Facts

≈ 2 Comments

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active pharmaceutical ingredients, CCP Virus, China, coronavirus, COVID 19, European Union, exports, free trade, globalization, health security, India, medical devices, pandemic, pharmaceuticals, surgical equipment, Those Stubborn Facts, Trade

“[White House Office of Manufacturing and Trade Policy Director Peter] Navarro raised a lot of eyebrows when he warned that [international trade] fights over [healthcare-related goods] loomed and told Fox Business Network on Feb. 23: ‘People need to understand in crises like this, we have no allies.’ But what then seemed potentially alarmist now looks like foresight.”

– Bloomberg News, March 16, 2020

Number of countries that have curbed exports of healthcare-related goods*: 38**

 

*Includes pharmaceuticals, active pharmaceutical ingredients, medical devices, surgical appliances and supplies

**India, China, India, Taiwan, Indonesia, Belarus, Malaysia, Thailand, South Korea, Russia, United Kingdom, and the 27 members of the European Union

 

(Sources: “Export Wars Erupt as Officials Curb Supplies to Battle Virus,” by Shawn Donnan, Bloomberg News, March 16, 2020, https://www.bloomberg.com/news/articles/2020-03-16/trade-war-latest-welcome-to-the-coronavirus-export-wars-of-2020-k7uf1k01; “The Global Mask Shortage May Get Much Worse,” by K Oanh Ha, Ibid., March 10, 2020, https://www.bloomberg.com/news/articles/2020-03-10/the-global-mask-shortage-may-be-about-to-get-much-worse; “Export Trade News,” Foreign Trade Online [latest daily edition], https://www.foreign-trade.com/export_trade.htm; “The World Needs Masks. China Makes Them – But Has Been Hoarding Them,” by Keith Bradsher and Liz Alderman, The New York Times, March 16, 2020, https://www.nytimes.com/2020/03/13/business/masks-china-coronavirus.html; and “UK bans parallel export of two COVID-19 treatment candidates to protect national supply,” by Janet Beal, “Life Sciences,” IHS Markit, February 26, 2020, https://ihsmarkit.com/research-analysis/uk-bans-parallel-export-of-two-covid19-treatment-candidates.html)

(What’s Left of) Our Economy: When Washington Slept on America’s Dangerous Dependency on Foreign Healthcare Products

16 Monday Mar 2020

Posted by Alan Tonelson in (What's Left of) Our Economy

≈ 2 Comments

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active pharmaceutical ingredients, Bureau of Industry and Security, China, China virus, Commerce Department, coronavirus, COVID 19, globalization, health security, healthcare, India, medical devices, national security, Office of Technology Evaluation, offshoring, pharmaceuticals, supply chains, surgical equipment, Trade, {What's Left of) Our Economy

Last week I wrote that no one in American politics, in either party, deserves blame for failing to anticipate the China Virus outbreak (in the sense of being ready for a genuine pandemic), and especially the Trump administration’s flawed response to its spread within the United States (as opposed to its timely decision on January 31 to start curbing inbound travel from overseas – initially from China). 

But there’s one big aspect of coronavirus-related public policy where potentially calamitous and avoidable mistakes have been made, and where identifying responsibility is essential (largely to prevent repetition). That’s the growth of America’s dependence on pharmaceuticals, their active ingredients, and other healthcare-related goods from foreign sources, especially from China.

It should have been obvious long before the virus broke out in Wuhan (at least as far as we know) that health security is national security, and that the blithe approval of trade and related policies that encouraged the offshoring of production in this crucial sector was as dangerous as the offshoring of crucial defense and defense-related (because so many inputs to weapons and platforms aren’t weapons themselves) products. Even louder alarm bells should have sounded once it became clear that a leading offshoring destination was China – a dictatorship that has challenged U.S. national security interests long before the rise of current leader Xi Jinping, and whose role in medical supply chains inevitably created the threat of supply cutoffs (as has recently been threatened in the Chinese government-controlled press).

And indeed American policymakers had all the evidence they needed as early as 2011. That’s when a small office at the Commerce Department called the Bureau of Industry and Security (BIS) issued a report called – yup – “Reliance on Foreign Sourcing in the Healthcare and Pubic Health (HPH) Sector: Pharmaceuticals, Medical Devices, and Surgical Equipment.”

For many years, BIS’ Office of Technology Evaluation (OTE) has been issuing reports on sectors of the U.S. defense industry and other portions of the economy critical to the nation’s security and their use of foreign parts, components, materials, and other inputs whose availability shouldn’t be taken for granted. And fortunately, the Office and the various acts of Congress that have defined its mission have long understood that, as suggested above, national security-related industries are by no means restricted to those that turn out products that go bang and boom.

Notably, the study was requested by the Obama administration’s Department of Homeland Security (DHS), which shows commendable foresight. And the main results make jaw-dropping reading today:

>“There is a significant amount of U.S.-based manufacturing for critical healthcare-related commodities.” At the same time, “There is…a very high degree of foreign sourcing and dependency for components, materials, and finished products.”

>“Exposure to supply disruptions is widespread, but many respondents consider it a cost of doing business in the healthcare industry.”

>As a result, “Only 34 percent of respondents are taking steps to reduce their exposure to foreign sourcing and dependency issues.”

>When it comes to the chemical ingredients for drugs, where heavy China dependency has attracted so much attention today, in 2011, pharmaceutical companies reported “difficulty limiting their exposure to foreign dependencies primarily because most of the APIs [active pharmaceutical ingredients] are produced outside the United States.”

>Medical device producers stated that they were “vulnerable primarily due to their reliance on other countries for electronic parts.” Japan was the main concern, due at least in part to the earthquake that year that disrupted many industries’ supply chains. But China has become an even more important supplier since then.

Sadly, however, the record also demonstrates that once the findings came in, no serious follow-through was undertaken.

OTE surveyed 161 companies – 70 pharmaceutical producers, 75 manufacturers of medical devices and surgical equipment, and 16 companies that turned out both kinds of products. Roughly three fourths of these companies were headquartered in the United States and roughly one-fourth were foreign owned.

All told, these firms produced 868 individual pharmaceuticals and 833 kinds of medical devices or surgical equipment. Of these, in turn, 290 pharmaceuticals and 128 types of devices and equipment were deemed by OTE “critical to effective healthcare services in the United States,” meaning “needed in various emergency scenarios.” The bureau also looked into the chemical ingredients and parts and components comprising these products.

As for the specific information sought, here it is:

“Survey respondents were asked to identify the pharmaceuticals and medical devices/surgical equipment they manufactured, integrated/assembled, and/or sold for use in the United States. For each product area selected, companies were then asked to provide the top three company proprietary products they make and the location of manufacture. Finally, companies identified, to the best of their knowledge, whether they were the sole U.S.-based manufacturer, sole global manufacturer, or not the sole manufacturer of each product.”

Some of the above results in greater detail:

More than 73 percent of the total surveyed companies depended on suppliers located abroad for at least one critical component, manufacturing material, or actual finished good. And the average number of such foreign-sourced goods per company surveyed was 11.4. Seventy-nine percent of pharmaceutical firms surveyed reported themselves in this situation versus 63.7 percent of the device and equipment manufacturers, and the average number of foreign-sourced products was 11.4 for the drug companies versus 9.8 for their device and equipment manufacturers.

Interestingly, even at this point, China loomed pretty large large in the picture at that time – especially for medical devices and surgical equipment. Its entities represented 13.8 percent of the total number of foreign suppliers to U.S.-based producers. For pharmaceutical companies, they accounted for 9.1 percent – less than leader Italy (15.7 percent), India (12.8 percent), and Germany (10.6 percent). Not that this result should be especially comforting, as India – a major global producer of generic drugs – has recently announced to restrict exports because it’s experiencing difficulty getting chemicals from China and (surprise?) wants to make sure it can provide for its own population.

The OTE survey, in other words, found that, in 2011, healthcare products companies operating in the United States relied on a diverse global supply chain. But significant vulnerabilities were reported, too. Principally, for pharmaceuticals, “there was no U.S.-based source for at least 65.5 percent of [total goods] identified by survey respondents.” And for medical devices and surgical equipment, the figure was at least 60.5 percent. More troublingly, in the device and equipment sectors, the greatest dependencies tended to be in complex products.

Moreover, when thinking about the safety of imported healthcare goods, keep in mind BIS’ finding that only 60.3 percent of the companies in total could identify the suppliers of their suppliers.

Nor were significant supply disruptions unknown by healthcare products companies. Thirty percent of these businesses reported experiencing at least one of these events between 2007 and 2010, 40 percent of these came from foreign suppliers, and 17.5 percent came from China – the biggest share for any single country. Both domestic- and foreign-origin disruptions lasted an average of 155 days. Nonetheless, these figures are surely way too low, as only 18.3 percent of responding companies said they tracked foreign supply disruptions.

Even so, the study oddly found that “Only 16.6 percent of companies foresee a risk of supply disruptions from outside of the United States” but that 29 percent “believed their company was vulnerable to serious and/or prolonged supply chain disruptions from events or dependencies outside the United States.” For pharmaceuticals, the top concern again was lack of API availability domestically.”

OTE made several policy recommendations to strengthen America’s health security. For example, various major relevant federal agencies should “further examine [the] survey data to prioritize the foreign sourcing and dependencies that could have the greatest impact on the healthcare supply chain in an emergency situation.”

In addition, these agencies, “in coordination with DHS and the Department of Commerce, should assess whether the use of Defense Production Act authorities, such as the Defense Priorities and Allocations System (DPAS), could provide the ability to rapidly expand or surge capacity of U.S.-based pharmaceutical and medical device/surgical equipment facilities to meet demand in an emergency situation.” As made clear, however, by the continued sky-high levels of the healthcare industry’s China and other foreign dependencies, the problem was promptly ignored.  

Such measures, along with many others in the trade, tax, and regulatory fields will no doubt be crucial to rebuilding the kind of domestic healthcare industry so many Americans and even their leaders finally recognize is essential. But if the nation really is seriously behind the idea that health security is national security, it’s going to need updated detailed information on foreign dependencies. In other words, time to put the OTE to work again.

(What’s Left of) Our Economy: What Washington Doesn’t Know About U.S. China Drug Dependence Can Literally Kill Us

24 Monday Feb 2020

Posted by Alan Tonelson in (What's Left of) Our Economy

≈ 3 Comments

Tags

active pharmaceutical ingredients, antibiotics, chemicals, China, China virus, coronavirus, COVID 19, FDA, Food and Drug Administration, generic drugs, globalization, Hastings Center, Katherine Eban, medicines, pharmaceuticals, public health, Rosemary Gibson, supply chain, U.S-China Economic and Security Review Commission, {What's Left of) Our Economy

It’s bad enough, as widely reported, that as the coronavirus has begun spreading rapidly beyond China, the United States finds itself reliant on the People’s Republic for a wide variety of medicines and, just as important, for the chemical building blocks of those medicines. It’s at least as bad, and much less widely reported, that the U.S. government still doesn’t know the exact extent of this dependence, and still uses an inspection system for checking the safety of these Chinese inputs that looks as leaky as the proverbial sieve.

Even worse, as I see it, these shortcomings have been way out in the open since at least last July, when the official U.S.-China Economic and Security Review Commission held a hearing on the matter.

Anyone with any doubts about how dangerous this dependency on China has become should check out the testimony of Rosemary Gibson of The Hastings Center, one of the world’s leading research institutes focusing on healthcare and healthcare and broader scientific ethics issues. Gibson has been investigating this situation for years, months before the corona virus outbreak, made the following claims at the Commission session to justify her conclusion that “The nation’s health security is in jeopardy”:

>”The U.S. can no longer make penicillin. The last U.S. penicillin fermentation plant closed in 2004. Industry data reveal that Chinese companies formed a cartel, colluded to sell product on the global market at below market price, and drove all U.S. European, and Indian producers out of business. Once they gained dominant global market share, prices increased.”

>”The U.S. can no longer make generic antibiotics. Because the U.S. has allowed the industrial base to wither, the U.S. cannot produce generic antibiotics for children’s ear infections, strep throat, pneumonia, urinary tract infections, sexually-transmitted diseases, Lyme disease, superbugs and other infections that are threats to human life. We cannot make the generic antibiotics for anthrax exposure. After the anthrax attacks on Capitol Hill and elsewhere in 2001, the U.S. government turned to a European company to buy 20 million doses of the recommended treatment for anthrax exposure, doxycycline. That company had to buy the chemical starting material from China. What if China were the anthrax attacker?”

>”Beyond antibiotics, the U.S. industrial base for generic drug manufacturing is on the brink of collapse. Generic drugs are 90 percent of the medicines Americans take. Examples of generic drugs made in China by domestic companies and sold in the United States include: antibiotics, anti-depressants, birth control pills, chemotherapy for cancer treatment for children and adults, medicine for Alzheimer’s, HIV/AIDS, diabetes, Parkinson’s, and epilepsy, to name a few. If past performance is indicative of future performance, China’s generic drug companies will engage in cartel formation and predatory pricing, and drive out U.S. and other western generic companies.”

>[T]he pharmaceutical and chemical industry’s successful requests to the U.S. Trade Representative not to impose tariffs on medicinal products made in China corroborate that much of the US industrial base, and our self-sufficiency in manufacturing products essential for life, has collapsed.”

And Gibson categorically stated that “The FDA [U.S. Food and Drug Administration] cannot fix the underlying cause of the proliferation of contaminated and potentially lethal medicines in the legal supply of America’s medicines.”

One reason for the FDA’s ineffectiveness is clearly a lack of good data. Not that the challenge of conducting adequate inspections is easy. Jennifer Bouey of the RAND Corporation, another leading think tank, told that Commission that on top of China’s foreign affiliated plants, “Researchers estimate there are 5,300 to 7,000 local manufacturers, each with a small share of the Chinese domestic market.”

Mark Abdoo of the FDA itself acknowledged to the Commission that because of “remaining gaps” in its data, the agency lacks “visibility of all Chinese manufacturers that produce drugs or active pharmaceutical ingredients of drugs that are ultimately shipped to the United States.”

Abdoo added that on top of drug building blocks (called “active pharmaceutical ingredients,” or APIs) that the FDA knows come into the U.S. market from China, such China-produced ingredients “also come to the U.S. as part of finished drug products manufactured in other countries, for example, India. Therefore, the percentage of APIs produced by China for the United States marketplace is likely underrepresented by our numbers as China is a major supplier of APIs for other countries.”

It’s worth mentioning at this point that relying on the main federal government system for slicing and dicing the U.S. economy – the North American Industry Classification System (NAICS) – can produce a highly misleading picture of American imports of drugs and their chemical ingredients from China.

For example, according to the NAICS data, although American purchases of finished drugs and their ingredients are up astronomically in absolute terms over the last 20 years, they still account for only 1.34 percent of such imports from the world as a whole. Similar trends have unfolded in “non-diagnostic biological products,” which are defined as “vaccines, toxoids, blood fractions, and culture media of plant or animal origin.” Despite soaring literally 80-fold from 1999 to 2019, imports of these goods equal only 0.34 percent of all U.S. imports.

But separate testimony to the Commission by journalist Katherine Eban, drawing on her recent probe of the foreign factories that supply so much of the U.S. drug market, identified numerous flaws in inspection procedures and broader policies that are much more easily corrected – and indeed, should have never been allowed to emerge in the first place. For example:

>”Most of the FDA’s investigators who are sent to China do not speak the language. They can’t read the manufacturing records. The FDA does not always provide independent translators. Instead, the companies provide translators who, more often than not, are company salesmen. Sometimes, FDA investigators simply give plants a pass, deeming them to be No Action Indicated because they have no way to tell otherwise. The investigators also can’t read street signs, which make them vulnerable to wild manipulations. Companies steer them to phony ‘show’ plants, where everything looks compliant, but the companies aren’t manufacturing there. Sometimes a group of companies pool their resources and invest in the same “show” factory, so that different FDA inspectors return to the same plant at different times, each one thinking they are inspecting a different facility.”

>”In the United States, in order to inspect drug plants, FDA investigators simply show up unannounced and stay as long as is needed. But for overseas inspections—due to the complex logistics of getting visas and ensuring access to the plant – the FDA has chosen to announce its inspections in advance. Overseas drug plants typically ‘invite’ the FDA to inspect and the agency accepts. Plant officials serve as hosts to the visiting FDA investigators, who become their guests. It is not unusual for manufacturing plants to arrange local travel for FDA investigators. This system has allowed manufacturing plants to ‘stage’ inspections, as one FDA investigator put it, and conceal evidence of data fabrication.”

>”According to the FDA’s own data, which I obtained, from 2013 to 2018, out of 864 inspections in China that FDA investigators recommended as Official Action Indicated, FDA officials downgraded 78 of those [that is recommended a milder response from Washington]. By contrast, in the same time period, out of 11,642 inspections that FDA investigators conducted in the U.S. and recommended as Official Action Indicated, only one inspection was downgraded in that time. This reflects the FDA’s willingness to give foreign plants, particularly in China, an opportunity to reform without sanctions.”

>The agency appears to discourage talented staff to deploy in China and elsewhere abroad because of “a lack of clear career progression and promotion opportunities. Right now, those who serve overseas often return to the FDA’s U.S. headquarters without a guaranteed job, and sometimes have to accept demotions.”

Alert readers will note that although most of the problems mentioned here are rooted in pre-Trump policies and practices, they’ve continued into the Trump era. All Americans should demand that the coronavirus outbreak be regarded by Washington as the most urgent possible wake-up call.

Incidentally, Rosemary Gibson’s latest findings are contained in her recent book, China Rx.  Katherine Eban’s are available in her recent book, Bottle of Lies. 

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