NCPA - National Center for Policy Analysis

The Politics of Cheap Canadian Drugs

February 27, 2004

The Canadian government's price controls on wholesale drugs make some prescription drugs artificially cheaper in Canada than in the United States, and many Americans, understandably, want to import the cheaper drugs. The federal government should grant permission, but the effects of that permission may surprise them, say David R. Henderson (Hoover Institution) and Charley Hooper.

Allowing importation from Canada will not be a huge boon to Americans, at least not in the short run. But it might be a small boon, by causing the Canadian government to relent from its price-control policy.

According to Henderson and Hooper:

  • If many people in the United States are allowed to buy from Canada, drug companies will certainly notice.
  • They don't want their U.S. pricing policies undercut because the U.S. market, relatively free of price controls, is the most lucrative drug market in the world.
  • There is only one way not to have their prices seriously undercut: They will choose to limit supplies to Canada.

That's not the end of the story. Even with limited shipments, Americans will still find Canadian drugs a good deal, and so, unless the Canadian or U.S. governments step in to squash importation, a big chunk of drugs meant for the Canadian market will end up here.

The net result? Americans will get a lot of the drugs meant for Canada but will be no better off, Canadian mail-order pharmacies will get rich, and Canadian consumers will either pay higher prices or go without, say Henderson and Hooper.

Ironically, then, allowing imports for Americans who want a deal will end up eliminating that deal but will create a better deal for all Americans; it will spread the cost of research and development, which is currently borne disproportionately by the United States, say Henderson and Hooper.

Source: David R. Henderson and Charley Hooper, "Hidden Drug-Reimport Potential," Washington Times, February 24, 2004.


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