South Korea acts to save its pharma industry from US competition

By Katrina Megget

- Last updated on GMT

South Korea is to inject about one trillion won ($1.07bn) into its
pharmaceutical industry to give it a rev up as the newly signed
free trade agreement (FTA) with the US comes into force.

The North Asian country's pharmaceutical industry, which is mostly dependent on generics production, is, according to reports, anticipated to be hit hard by the agreement, which will see innovative US pharmaceuticals flooding the South Korean market as restraints on the imports are removed and regulatory processes made more transparent. While the South Korean pharmaceutical market is currently estimated to be worth 13 trillion won, think tanks have forecast that local production could fall by up to 168.8 billion won annually for a decade as domestic products are forced to compete with US drugs. South Korea, which is Asia's third-largest economy and the US's seventh-largest trading partner, struck the free trade deal with the US in April this year and signed it off on Saturday. Considered the most commercially significant FTA for the US in 15 years, the KORUS agreement would eliminate tariffs and non-tariff barriers to trade in goods and services, promote economic growth, and enhance trade between the US and South Korea. In terms of the pharmaceutical sector, the FTA means the regulatory process on drugs would be more transparent, less discriminatory and access to drugs would be improved. There is also a commitment to establish a patent linkage system to ensure adequate enforcement of pharmaceutical patent rights. The provisions are reciprocal for both countries. The road to agreement has been rocky with the US seeking revisions to the deal. Among those were changes to intellectual property rights and pharmaceuticals. The December 2006 implementation of the National Health Insurance Drug Expenditure Rationalization Plan (DERP) by South Korea caused some concern with changes to drug reimbursement policy, but this has been assured to be implemented in a fair and transparent manner. A spokesman from the Office of the United States Trade Representative told that the FTA was a positive and beneficial move for US pharmaceutical companies and the Korean citizen alike. "We believe the pharmaceutical markets access portions of the KORUS FTA will markedly improve the environment for U.S. pharmaceutical and biotechnology products in Korea and enhance Korean patients' ability to gain access to the newest and most effective medicines."​ Likewise Pharmaceutical Research and Manufacturers Association of America president and chief executive Billy Tauzin was pleased with the deal. He said in a statement: "The FTA will help enhance Korean patient's access to the most effective, innovative cures. I am particularly pleased by the strong protection of intellectual property rights provided in the FTA. In the context of the FTA negotiations, Korea committed to some significant improvements in market access for pharmaceuticals. "Further, Korea will enhance intellectual property protection increasing Korean patients' access to the most innovative medicines. This will support ongoing investment in research and development by pharmaceutical companies,"​ he said. Meanwhile, South Korean health and welfare minister Byun Jae-jin said in a press conference last week: "[The FTA] could serve as stepping stones for tapping overseas markets as Korea already stands as the world's 10th-largest pharmaceuticals producer." ​ Prior to the deal, South Korea had a somewhat monopolized system over drugs, unlike the market-based system in the US, whereby the South Korean Government decided on the pricing and reimbursement process for pharmaceutical products. This system has been argued to be discriminatory and non-transparent. But the opening up of the system, while being heralded as a significant step forward, has provoked concerns within the domestic industry which have been exacerbated by potential future trade deals with Canada and the EU. To counteract the anticipated competitive damage to the domestic pharmaceutical industry, the South Korean Ministry of Health and Welfare announced the cash injection would take place over 10 years as a three-phase investment plan, beginning next year. The focus would be in the areas of new drug development and strengthening related infrastructure, increasing exports and improving manufacturing practices. About 810 billion won will be invested in research and development, 180 billion won for new infrastructures, and 44 billion won used to support companies' exports and related overseas marketing during the 10 years. Following the FTA, Business Monitor International estimates the value of the South Korean pharmaceutical market to be worth $21.6bn by 2011. The signed agreements now have to be ratified by the respective countries legislative bodies. If ratified, the agreement could generate $20bn in bilateral trade in coming years.

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