On August 6th, President Trump issued his long-promised Buy American executive order (EO) on medicines. The Executive Order on Ensuring Essential Medicines, Medical Countermeasures, and Critical Inputs Are Made in the United States seeks to maximize domestic production in procurement and identify vulnerabilities in supply chains. This post examines the EO requirement that agencies maximize their purchase of American-made essential medicines and related products. It particularly focuses on the order’s implicit recognition that such a requirement would not be consistent with U.S. trade obligations and its directive that the U.S. Trade Representative (USTR) remove the products from U.S. commitments under the WTO Government Procurement Agreement (GPA) and free trade agreements (FTAs).
The first step in implementation of the EO is the Food and Drug Administration’s (FDA) identification, within 90 days, of the essential medicines, medical countermeasures and their critical inputs (Essential Medicines) “that are medically necessary to have available at all times.” The Order provides little guidance as to what is an essential medicine; it labels personal protective equipment as a medical countermeasure.
Within 30 days after FDA prepares its list of Essential Medicines, USTR must “take all appropriate action” to modify U.S. federal procurement product coverage under the GPA and FTAs to remove Essential Medicines from U.S. coverage. USTR would be expected to follow the process provided in the agreements for parties to modify the procurement that they cover. It is initiated by a notification of proposed changes that includes likely consequences to mutually agreed coverage, followed by an opportunity for other parties to object and consultations to resolve objections.
Modifying U.S. coverage under the GPA will be the most important as it will affect the access of 47 other WTO members. After USTR submits its GPA notification, other parties will have 45 days to register any objections to the proposed withdrawal of Essential Medicines. GPA parties can be expected to object because unless they do, they cannot withdraw equivalent coverage from the U.S. The European Union would be particularly likely to file an objection and withdraw coverage to match U.S. restrictions, as it applies strict reciprocity in its procurement commitments.
The GPA anticipates that the parties will try to resolve objections through consultations. However, it also provides an arbitration process, which was added in the 2012 revision of the GPA as a consequence of several prolonged disputes that arose over prior proposed modifications.
If the parties are unable to resolve differences over the proposed U.S. modification, any party that has objected to it will need to invoke the arbitration procedures within 120 days of the notification or lose the opportunity to withdraw substantially equivalent coverage. After an arbitration process is initiated, the proposed modifications cannot be implemented until the completion of the arbitration. If no party initiates arbitration, the U.S.’s proposed modification would become effective 130 days from its notification. In that case, no party could withdraw coverage.
To carry out its aim relating to procurement, the EO requires federal agencies “to the maximum extent permitted by applicable law” to use limited tendering procedures to limit competition in procurement of Essential Medicines to products produced in the U.S. It also directs them to divide procurement requirements among two or more manufacturers located in the U.S. There is no indication in the Order that these directives will be held in abeyance until the U.S. has successfully withdrawn Essential Medicines from the GPA and the FTAs. As long as Essential Medicines are covered under the GPA and FTAs, limiting competition to U.S. suppliers and dividing a procurement between two or more U.S. manufacturers would not be consistent with U.S. obligations under the agreements.
The EO extends its buy domestic requirements to the Department of Defense’s (DoD) procurement of Essential Medicines and requires it to “reject otherwise acceptable offers of such products from sources in Qualifying Countries in instances where considered necessary for national defense reasons.” These countries are parties to reciprocal defense procurement agreements with DoD.
The executive order includes exceptions that typically apply to Buy American requirements: where applying the domestic purchasing restriction would be inconsistent with the public interest; the Essential Medicines are not produced in the U.S. in sufficient and reasonably available commercial quantities and of a satisfactory quality; or the cost of U.S. products would increase the cost of the procurement more than 25 percent, unless another law requires a higher percentage.
Over the past several months, industry groups, members of Congress and others have expressed reservations over an executive order such as the president has just issued. The Congressional Research Service summarized concerns: “current U.S. capacity may be insufficient to meet immediate public health care needs (manufacturing of 72 percent of pharmaceutical ingredients for U.S. markets occurs outside of the United States), and closing off access to foreign suppliers may raise supply chain vulnerabilities in the event of disruptions within the United States.”
Jean Heilman Grier
August 12, 2020
UPDATED, December 2, 2020, to clarify the role of arbitration in the resolution of disputes relating to proposed modifications.