Trade Policy Shifts: Compliance and Cost Strategies for Pharma

*full transcript below

In Part 3 of our multi-part interview series, Jason Waite, an international trade expert at Alston & Bird, outlines how proposed sector-specific tariffs on pharmaceutical products could significantly disrupt the United States drug development landscape. He explains that emerging biopharma companies, especially those in early clinical or reimbursement stages, may struggle to absorb the increased costs associated with imported drugs and ingredients. Waite warns that these cost pressures could slow development timelines, reduce return on investment, and limit market access. He also highlights the broader industry concern that a sector long exempt from substantial tariff burdens is now being forced to adapt to a fundamentally new cost and compliance environment.

Waite further emphasizes the need for pharmaceutical companies to quickly build internal capabilities in customs compliance, including tariff classification, country of origin documentation, and accurate customs valuation. He introduces the "first sale for export" doctrine as a potential cost-saving tool and urges companies to review and strengthen their import controls and compliance frameworks. As the tariff policy’s scope remains uncertain, he stresses that firms must prepare for enforcement and audit risks while simultaneously identifying lawful ways to optimize supply chain transactions. The interview underscores a growing urgency within the pharmaceutical sector to adjust to evolving trade policies that could reshape their operational and financial planning.

Access Part 1 - What Pharma Manufacturers Need to Know About US Trade Policy Changes, Part 2- Tariffs & Trade Policy: What to Watch for, Cost Impacts, and Supply Chain Strategies, and look for additional segments on how to mitigate pricing and development timeline impacts, compliance risks to monitor in this shifting trade environment, how to prepare for related potential audits or enforcement actions, best practices to navigate global trade disruptions, and affects on certain manufacturing geographies for outsourcing.

About the Interviewee

For over 25 years, Jason Waite has advised clients on all regulatory aspects of international trade and investment, including customs and trade agreements, export controls and sanctions, and related policy matters. Jason conducts internal investigations and compliance self-assessments, develops internal trade compliance and training programs, represents clients in audits and origin verifications, and guides clients through voluntary disclosures of actual and potential import and export violations. Jason has significant experience representing clients that are the subject of government investigations involving alleged violations of the export, import, and economic sanctions regulations. In transactional and strategic planning matters, Jason conducts international trade compliance due diligence, negotiates trade compliance responsibilities among parties to transactions, and develops supply chain optimization and global customs planning strategies. He regularly advocates before agencies in Washington for favorable advance rulings, advisory opinions, and commodity jurisdiction and classification determinations, and handles complex export licensing matters.

He is a frequent speaker at seminars and conferences on international trade topics and has been recognized in Chambers USA, Chambers Global, and The Best Lawyers in America^®.

Transcript

*Editor’s Note: This transcript is a direct, unedited rendering of the original audio/video content. It may contain errors, informal language, or omissions as spoken in the original recording.

I haven't seen it yet, but there's certainly talk that, you know, that that could be the outcome here. I think it would depend a lot on their, what their supply chain looks like, where they are in the clinical trials process, where they are in the FDA approval process.

Have they already come to market? Where do they stand on the reimbursement scale? Small biopharma, the way you say it. suggests that this is not a generic drug, that this is a branded, novel product that's gonna enjoy some protection and perhaps have access to higher reimbursement rates.

And so they might be able to survive this. But certainly it makes the growth plan for those kinds of startup, for those kinds of young companies more challenging. You know, are we going to raise the capital needed to build out this domestic capacity, which seems to be what the policy makers want us to do.

How do we do that? Can we do that with where, we are in our evolution as a company? I think you're gonna see a lot of companies asking that question in the coming months.

Yeah, well, they're going to increase cost. I mean, assuming this goes into effect, which we have all indication that it will in some form or fashion, it's going to increase cost for drugs and certain ingredients. This is gonna make drugs more expensive, which could affect their viability in the US market.

I think drug development could also be delayed or affected, because of increased costs and concerns about return on investment due to the effect of the tariffs in this market and certain drugs and key ingredients, as we said, could end up in short supply due to the increased costs and foreign suppliers pull back from the market.

So one of the things that I observe here is that the pharma industry is, as they're staring down the barrel of this threatened tariff, sectoral tariff program, it's an industry that, like others, has for decades operated without meaningful tariff burdens. Right. So companies that have always had tariff planning within their, you know, corporate organizations and it's always been a significant piece of their operations have a little easier time adjusting to this environment because they have these systems in place, they understand the rules. I think far as pharma companies, they're bracing for this. And for many years, it hasn't been a key part of their cost planning. This has sent many companies scrambling for crash courses on key customs requirements like country of origin, tariff classification, and valuation.

In some cases, you know, companies that have never had to be concerned about duties now have significant incentive to engage in sophisticated transaction planning and optimization to try to lawfully minimize their duty burdens. If the tariffs apply to all countries, then the country of origin will not be as important, but there is a possibility that some countries will at least temporarily enjoy better treatment under this sectoral tariff program. And country of origin is a complex concept when you're using raw materials from different locations and manufacturing them in a different place or packaging them in a different place.

So we'll be looking for that and companies should be looking at that. The exact scope of these tariffs is also not yet known, but it's very likely that tariff classification is going to be a key means of determining applicability of the tariffs. And so this just highlights the importance of companies being able to track and maintain and review their tariff classifications of all of their contemplated imports, both finished products and ingredients.

Customs companies that haven't been very active on this or that haven't prioritized it in the past are now really working hard to build out these internal systems and capabilities to be able to rapidly not only comply but also plan and try to optimize their transactions. I think meanwhile, perhaps the most promising one is that duties are paid on the value of imported goods.

So, well-advised companies right now are really looking closely at their transaction structures and sales into the United States, and they're examining what is the proper customs value of these goods. Again, if you're importing goods and they're duty free, you might not pay as close attention to the value of those goods. Because it doesn't matter what the value of those goods is. You're not paying any duty if the duty rate's free. But now that value will be critical. First sale for export is a doctrine, a long available doctrine under the customs law. It's been used for customs planning for decades, and many companies are revisiting this now under this doctrine.

If an item is being purchased from a party other than the manufacturer, then there is a possibility nonetheless to use the manufacturer's lower price as the declared dutiable value. The, sale from the manufacturer to the middleman… It must be a bonafide sale. It must be a sale for export to the United States. It must be an arm's length price. These requirements must be met and there are documentary requirements that go along with it, but it's one of the several optimization and planning tools that we're helping companies assess and utilize, again, first sale for export, looking at optimizing the correct dutiable value of imported goods.

Well, it's similar. The good news is that it's the same work that I just mentioned that goes into mitigating tariff impacts and optimizing transactions. It's that same type of work that goes into compliance too, right? It's the same. It's country of origin. It's tariff classification. It's entered value. These are core customs compliance areas, and they're gonna continue to be, and they're gonna be subject to audit, and they're gonna be subject to enforcement actions. Importers have an obligation to exercise reasonable care when they're importing merchandise. And that means exercising care to ensure that they're declaring the right origin and they're using the right tariff classification and they're declaring the right value and the proper duties are being paid.

So these same areas that we want to invest in assessing to try to optimize our import transactions are the areas that we need to have a good command of to ensure compliance and to be able to avoid or respond to audits and enforcement action.

So I would suggest reviewing your internal systems and controls over import requirements, looking at your overall written import compliance policies, standing up or refreshing internal organizations for managing imports. Now is the time we're in this high tariff environment.

We need to have careful planning that's gonna help us ensure compliance, and also that we lawfully minimize the duties we're payin