Tear down the deadly trade barriers

South Africa, like most other African countries, faces what may seem to be insurmountable obstacles to achieving improved healthcare and reduced death and disease. Millions of Africans die from entirely preventable and curable diseases, like malaria, TB and diarrhea. While many governments have made noble efforts to reduce the outrageous burden of these illnesses, some are making matters worse by imposing tariffs and taxes on the poorest and most vulnerable members of society. A new WTO initiative being pushed by the US, Switzerland and Singapore to remove import tariffs on medicines should be embraced by African governments as an important step towards improved access to medicines.

In a research paper, ‘Still Taxed to Death’, that I co-authored with Jasson Urbach of the Free Market Foundation and Roger Bate of American Enterprise Institute we examine the impact of these tariffs. The paper, which is published by the American Enterprise Institute – Brookings Institutions Joint Centre finds a statistically significant relationship between higher import tariffs and reduced access to medicines. The inverse relationship between import tariffs on vaccines and immunization rates is even stronger. Even though this conclusion might seem somewhat obvious, our analysis should encourage poor countries, particularly those in Africa, to remove these highly regressive taxes, especially if they are genuinely motivated to improve healthcare in their countries.

While South Africa and the rest of the Southern African customs union have done the right thing and have removed all import tariffs from medicines, many countries have not. Many countries, such as Zimbabwe and the Democratic Republic of Congo impose average tariffs of around 8 percent on medicines. Others such as India and Mexico impose average tariffs of 16 percent and 18.3 percent respectively. When one considers the additional sales taxes and other import charges that are levied, the state-imposed price hikes can sometimes increase the price of medicines and diagnostic equipment to patients by over 20 percent and in some cases by over 30 percent. These tariffs and taxes on the sick are surely one of the most regressive and pernicious that a government could impose.

One could argue that many countries with a small tax base are severely restricted in how they generate domestic revenues with which to run various state programs. In reality however, the revenues raised from tariffs on medicines usually account for less than 0.5% of total government revenue and in all but a handful of countries, accounts for less than 1% of healthcare expenditure. The WTO along with the World Bank could provide help to those countries that do rely on this revenue, such as Lebanon, Nigeria and the Democratic Republic of Congo to find alternative sources of revenue.

Sometimes the tariffs charged on medicines are very low and some countries sensibly have exempted some medicines, such as those to treat HIV/AIDS, from tariffs. Yet the mere fact that the tariffs remain on the books means that the process of importing medicines is slow, as permission to apply the zero tariff can take a considerable amount of time. Giving discretionary power to customs officials is frequently a bad idea, particularly if they are poorly paid and keen to augment their salary with a greased palm. In that regard, our research finds significant inverse relationship between the level of corruption in a country and access to essential medicines.

Cheryl Durstein-Decker MD, an emergency medicine physician from Florida in the United States, would certainly welcome any progress towards removing tariffs completely. Durstein-Decker supports a faith-based organization in Burkina Faso, providing much needed medical care to many who would otherwise go without. Although the rules suggest that they shouldn’t have to pay import tariffs, she complains that they “ never know where we stand when we actually get to customs. There doesn’t seem to be clear set-out policies and we feel at the mercy of the officials.” Soon they will be importing eye-glasses and they have no idea if they will be expected to pay tariffs or not.

Durstein-Decker’s current struggle is to import a much-needed vehicle for their clinic. Although the vehicle has been donated, their charity is required to pay $45,000 simply to bring it into Burkina Faso; a prohibitive cost for a small faith-based organisation. The experience has made Durstein-Decker appreciate the many obstacles that her patients face as they attempt to produce goods, trade and become more prosperous. The high tariffs between Burkina Faso and its neighbours mean that most trade and commerce is stifled and she becomes despondent when she considers the future for the children whose lives she is saving today. “How are they supposed to advance when their own government puts them in these binds?” she wonders.

While removing the import tariffs on medicines is an important step towards improved access to healthcare, reducing poverty through economic growth is the only long-term solution to Africa’s ill health. In order to achieve higher growth, African governments should be moving towards more open trade, freer markets and towards supporting the institutions of a free society.

All of that is a tall order and tearing down the trade barriers that are holding Africa back will take a long time and considerable political will; but African governments are now facing a unique and important opportunity to do the right thing in one small, but crucial area. Failing to seize the opportunity now and remove medicine tariffs will not only harm ordinary African’s at risk from often preventable diseases, but will demonstrate that African governments are more content to blame poor healthcare on rich drug companies and insufficient aid instead of their own damaging policies.

Author: Richard Tren is a director of the health advocacy group Africa Fighting Malaria. This article may be republished without prior consent but with acknowledgement to the author. The views expressed in the article are the author’s and are not necessarily shared by the members of the Free Market Foundation.

FMF Feature Article/ 28 February 2006