Germany warned the United States on Friday that an investigation into its drug pricing policies could jeopardize a trade deal between the EU and U.S. that foresees a 15 percent tariff cap.
U.S. Trade Representative Jamieson Greer on Thursday evening announced a so-called Section 301 investigation into “Germany’s persistent underpayment for innovative pharmaceutical products.” If the U.S. finds Germany to be at fault, President Donald Trump could hit Germany with higher tariffs.
That would call into question the transatlantic trade deal struck last year at Trump’s golf resort in Turnberry, Scotland. A subsequent joint statement set a 15 percent tariff ceiling on most European exports to the U.S. — including branded medicines. This rate is due to take effect at the end of July. (Generic drugs, their ingredients and precursors are exempt under the deal.)
“I assume that the United States of America will honor the agreement,” Chancellor Friedrich Merz told journalists Friday after meeting with EU leaders in Brussels.
That includes “caps on pharmaceutical tariffs,” a German government spokesperson told POLITICO earlier, warning the U.S. should not “jeopardize their proper implementation on either side.”
The fate of the Turnberry accord hung in the balance for months, with EU enabling legislation held up in the European Parliament. EU lawmakers finally voted to enact the deal this week, after months of wrangling over adding safeguards to it. The Trump administration’s latest drug-pricing probe raises fresh concerns that the accord could yet unravel.
“The implementation of the Turnberry Agreement is in the mutual interest of both parties. In it, the U.S. side has committed to applying a 15 percent tariff cap on imports from the EU as a general rule. We are proceeding on that basis,” said a spokesperson from the German Ministry of Economic Affairs.
The spokesperson added that the government “must first clarify the facts” and “examine the concerns raised by the U.S.” with the Federal Ministry of Health, which is responsible for pharmaceutical pricing.
Merz told journalists the country’s drug pricing decisions were “a purely domestic matter.” However, “if the United States would like information on this, we will of course be happy to provide it.”
Bad joke
Bernd Lange, the top trade lawmaker in the European Parliament, fought a rearguard action to insert clauses into the Turnberry legislation that would enable the European Commission to suspend the deal if the Trump administration violates it.
“Unfortunately, this is no bad joke,” the German Social Democrat, who chairs the Parliament’s trade committee, said in a social media post.
“That is interference in national sovereignty. Absolute no-go! Good that the EP secured a safety net against Turnberry violations.”
The European Commission is “in touch with German authorities,” Deputy Chief Spokesperson Olof Gill told POLITICO. In its discussions with the U.S., there is “clear expectation that they will fully uphold their commitments under the EU-U.S. Joint Statement,” he added.
The investigation, under Section 301 of the U.S. Trade Act of 1974, will be open for comments from June 25 through Aug. 10 with a public hearing on Sept. 22.
Based on the outcome of that hearing, the U.S. can implement several trade options: imposing tariffs or import restrictions, revoking existing trade agreement concessions or entering into a bilateral agreement.
U.K. precedent
This is what the United Kingdom did earlier this year.
Outside of the EU and excluded from talks on the EU-U.S. trade deal, the U.K. agreed to a bilateral deal with America to pay more for medicines in return for avoiding tariffs for three years.
German officials have also been holding private talks with the U.S. on pharmaceuticals, which Health Minister Nina Warken confirmed this week.
Warken is under pressure from the pharmaceutical industry and the U.S. after announcing a raft of measures earlier this year to curb health spending, including cutting the drugs bill through pricing discounts.
While the U.S. pharma lobby welcomed the trade investigation, saying foreign governments have undervalued innovative medicines for “far too long,” the German pharma lobby called for a quick resolution to avoid uncertainty.
The German Association of Research-Based Pharmaceutical Companies (VFA) called on the German government to initiate talks with the U.S. quickly “to remove obstacles and create planning certainty for businesses.”
European biopharma lobby EUCOPE said the development highlighted a broader trend: “Pharmaceutical policy is increasingly being discussed not only in the context of healthcare budgets and patient access, but also through the lenses of competitiveness, innovation and investment,” Secretary General Alexander Natz posted.
“Healthcare policy, industrial policy and competitiveness policy are becoming ever more interconnected in a global life sciences landscape,” he added.
Koen Verhelst, Anton Dieckhoff, Claudia Chiappa and Milena Wälde contributed reporting.
This article has been updated with comments by German Chancellor Friedrich Merz. ]]>