How To Deal With Pharma Trade Compliance Pressures

Machine Operated Script:

Annik  

Nick, welcome to the simply trade news roundup. My name is Anik. I’ll be your host today, and this podcast is dedicated to exploring the moving pieces of global trade and compliance. Today, we’re highlighting the pharmaceutical supply chain at a moment when trade rules and tariffs are changing more rapidly, really, than ever, and we’ve seen that in all types of industries, but right now we see a lot of focal point on the pharmaceutical industry. So I have a special guest for you. She’s been on today. She’s been on today. Wow. Annick, no, not well. She is on today, but she has been on. I also want to date this episode real quick, so we’re Corning October 23 just because there’s a lot of things that could happen between now and the time this episode will go live. So my special guest Elizabeth Lomax, and she is a leading trade compliance consultant with deep experience in the cross border movement of pharmaceuticals, and we’ve talked to her before about pharmaceuticals, and I thought this would be the right time, because it’s been a little bit of a while, and with all the changes coming up, well, we were not sure. I think this is a this is a great topic to touch on. So again, thank you so much, Elizabeth for being on and discussing this topic with us.

Speaker 1 

Thanks for having me happy to be back on the simply trade podcast again.

Annik  

Yeah, and Elizabeth is very active on LinkedIn, so if you want to give her a follow, she shares a lot of personal stuff. You know, together with pharmaceuticals, kind of relatable. I love it. I think it keeps it light on my I want to say for you page, but that’s Tiktok, but I guess news feed, or whatever you want to call it on LinkedIn, with no further ado, we’ll kind of want to touch on the overall image of pharmaceuticals in 2025 so there’s been a lot happening in this industry. Can we kind of discuss what the Movement was from the beginning of the year to now. Has there been any big changes?

Speaker 1 

Okay, kind of No is the answer. There’s been a lot of consternation and a lot of announcements that created a lot of consternation and anxiety in the industry, and then they all kind of tend to peter out. And so far, pharmaceuticals really haven’t been that affected by the tariffs, which is a good thing, but I think everyone in the industry is just waiting for the other shoe to drop. So so far, most pharmaceutical products, like the API’s or the drug products or the finished drug products, are still duty free because their HTS codes are on the annex two that came out in that executive order way back in April, that actually hasn’t changed. And then, as most people are probably aware, the administration announced that they were starting a 232 investigation against pharmaceuticals, being the precursor for imposing tariffs specifically on the pharmaceutical industry. And I think that’s why they carved out those HTS codes in Annex too, because they were looking to then impose industry specific tariffs on pharmaceuticals. Things are just fine for a while, and then a couple of weeks ago, we had that truth social post from the president where he said he was going to impose 100% tariffs on pharmaceuticals unless you’re building a US manufacturing plant or you’re breaking ground on a US manufacturing plant. And so this created a lot of consternation in the industry, because people thought, what does this even mean? So it raised, you know, raised a lot of questions, what does breaking ground actually mean? What if your company already manufacturers in the US, because you have an existing plant, or you just built one. I had a client that just built one said, hey, it doesn’t discount. Can’t we get exemptions too because of this? And then how would they this affect the smaller pharmaceutical companies? Because a lot of the smaller biotics, pharmas, they’re very innovative, but they’re very small, so they don’t have the capital, they don’t have the volumes that would justify building their own pharmaceutical plants. So if they’re using contract manufacturers in the US or somehow they are at a disadvantage because they can’t build their own manufacturing plants. And then I think also for me, my question was, how would they even implement this? Because if you’re giving exemptions to some companies and not others, the best way to well, the real the main way to apply tariffs is by the HTS code. So the products from the companies that would be exempt because they have a plant are the same as the companies that don’t. So how would you actually determine which goods being imported had exemptions and which ones didn’t?

Annik  

Yeah, so that’s very interesting, because there is a lot of small companies, I think, in the pharmaceutical industry, and if they’re being affected harder than big companies, that doesn’t really make sense. And it kind of gives an emphasis on we want small businesses to rise. And I feel like the United States was always a business, a country to support. Small businesses, and it seems like now they’re favoring Big Pharma.

Speaker 1 

Yeah, I think so too. This the innovation, and all of the a lot of the innovation and new drugs are coming from these smaller pharma companies, so it’s really important to nurture them. And this is a big industry in the US. There’s a lot of these small farms in the US. Obviously, there’s some in other countries, and some in Europe. This is really something that’s taken off in the US. So why would we not want to encourage and nurture this? Because this is good for the US. It creates well paying jobs, it creates exports. So I’m not sure what the administration’s strategy is, and if they’ve even thought this through, I kind of think that there really is no strategy, but that’s my opinion, or the strategy may be that there is no strategy, and that we keep throwing a bunch of stuff out, creating chaos, creating consternation, creating anxiety in the industry, and that is then the baby of fear, which is one of the ways this administration exercises its power. And then that gets people to run to the negotiating table and to say, oh my goodness, I have to avoid this horrible scenario that’s been thrown out. So I’ll negotiate, and then we’ll come to some kind of agreement, and everybody will breathe a sigh of relief and walk away, because for the industry, they’ll think, Oh, we avoided, we averted disaster, and we got something that we can live with. And then the administration also gets the tariffs that they want, and they walk away with Mission accomplished. Part of me that might be what they’re actually trying to do is actually purposely create all this chaos and spoil our anxiety and

Annik  

fear. You said, a good point. You said, negotiate. But like the people that are negotiating is Big Pharma, because it’s not going to be the small company, because they don’t really have the power to speak on this, and they don’t have huge CEOs that are known that can talk to the, you know, to the people in the White House and say, Hey, you see us. We’re making this much money. We want to control this market, and we want to, we want to deal so we can stay profitable. And you can also make money off of us. And those small business obviously don’t have that kind of power. So is there anything they can do like in this situation, or how they can stay prepared? Because I know, as a small business, it’s not as easy, and it’s more fearful than it is for the big businesses,

Speaker 1 

right? Yeah, and the big businesses, if there are tariffs imposed, you know, if they’re 10, 15% they can most likely, or more easily absorb that. It’s the smaller ones that can’t. They’re not as capital rich, so and they don’t have as big as markets, or maybe their drugs are for origin disease, and so they really don’t have a big patient population. They’re not going to be able to absorb this. So yeah, that’s one of my big questions, because I work a lot with smaller farm companies. How will they be affected by this? So you kind of get back to the tariffs after this truth social post, everyone expected an executive order, a federal register or notice to come out on the 232 tariffs. And then there was silence. There was nothing about that time the EU deal came out, and there was this new annex two that had conditions put on a lot of HTS codes for pharma, saying that it would only apply to generic products, which, again, doesn’t make a lot of sense. How would you implement that? Because, again, generic and branded have the same HTS codes. Is the administration’s goal to only bring the tried to drive the manufacturing of branded drugs back to the US. And they don’t care about generics, because they don’t think there’s really a lot of value there. So there’s willing to let those still be duty free, I don’t know. And you know that really wasn’t implemented either two from the original EO that covers all the HTS codes, regardless of whether they’re generic or branded, that still stands. So I’m not really sure what the deal was with this annex two. Again, maybe it was just to create consternation, to bring people to the negotiating table. But then we’ve also learned that the administration sent letters to about 17 of the big pharma companies to get back to your point about big and small pharma, saying that we want you to reduce prices. Then we heard that about the deals with Pfizer, where they agreed to reduce prices on some drugs and participate in this Trump RX program. And since then, I think Amgen and Sanofi have also said that they’ve negotiated deals, and then part of this deal was that they would get exemptions from the tariffs, but the goods are already exempt from the tariffs because there’s no 3232 so I don’t know how you can be exempt from something that doesn’t exist. But again, this goes back to this. Just put small pharma at a disadvantage because they weren’t invited to negotiating table on this. Yeah, so how do they get exemptions? Are they going to be punished, then, just because they’re small, innovative pharma companies, which doesn’t seem very fair, so we’ll see how this plays out. Because then the administration started saying, well, we don’t want to impose 232 because we want to see how these negotiations play out. So was the real goal, just to try to force companies to drive down prices by threatening tariffs. I don’t know. Possibly it is, if you know that’s the real goal, then maybe this accomplishes it, and we won’t see any big pharmaceutical tariffs. Or maybe we won’t see any pharmaceutical tariffs, I’m not really sure.

Annik  

Yeah, I definitely agree with how you’re saying. It doesn’t make sense, because if they. Are already exempt, and they’re talking about exemptions, but, you know, that’s already in place. Yeah, you know, you mentioned the HTS codes. It seems like there’s no knowledge of that when stuff like this is being discussed or being announced. So for the compliance process for cross border pharma shipments, is there anything that’s changed in the light of new regulations, or just like the change that’s been going on in the trade industry, as in tariffs, have these companies implemented a different compliance process?

Speaker 1 

I don’t think it’s a different compliance process. I think you just need to pay more attention to the actual compliance process and maybe look for some of the risks or the gaps in your process, and really try to shore those up right now, because with all the tariffs, obviously, Pharma is exempt, you still need to make sure that your goods are properly classified so that you know that they’re in an HTS code that appears at annex two, so they’re exempt, and then you have to provide the secondary Chapter 99 HTS code to give you that exempt. So it’s super, super important now to really pay attention to the tariff classification and make sure you get that right, so that you can be exempt when you’re eligible. Strangely enough, you have to say you also need to make sure that it’s correct so you pay duties when you need to, because the administration and also Customs has said a lot about increased enforcement and trying to make claims under the False Claims Act against importers who maybe are trying to avoid the tariffs. So you really have to make sure you have good, robust processes around classification. You can’t just be like, well, that kind of looks good, or you have to be able to defend it. Yeah, there’s questions about that same thing with your country of origin, because if the tariffs would depend on the country of origin, so far for pharma, they’re not. We’ve seen different tariff rates be imposed for different countries. So you need to make sure you have the country origin right. So again, you’re not paying duties when you don’t need to, or you’re paying the lowest amount of duties that you’re eligible for and not paying too much, and then also just the value, because duties are based on value. So it’s super, super important to make sure you get the value right. And for a pharma, the value can be kind of tricky. If it’s a approved drug, and you’ve got manufacturing and more of the regular accounting processes for it. It’s easier to determine, Okay, what’s the value of this drug, whether it was produced by in house manufacturing plant or CMO. That’s not so difficult. But pharma really has issues and complexity when it comes to valuing clinical drugs, because obviously, they’re not approved, so there’s not the same kind of accounting for the expenses when you produce drugs for clinical trials. So it’s a lot more difficult to figure out, okay, what cost do I need to put into my value, and which ones can I leave out? And then you have R and D as well. So if you’re moving materials around for R and D again, you may be producing those in house. You may be purchasing but doing some kind of processing to them, and they’re not sold. You don’t have that transaction value of a purchase price. So how do you value those things? That’s really what. Pharma has some difficulties with value, but you really need to get that right now too, because if there are duties, you need to apply that to the right kind of value. So you need to have processes around all that place, all on that. And maybe if you have some higher level processes, you really need to start digging down into the details and making sure that you’ve got really robust processes in place to determine all that data so you can really defend it if there’s ever an issue. And I’ve heard from a lot of importers that there’s been an increase in CF 28 issued by customs, so they are starting to use those as part of their enforcement to really question some of the information that importers are putting on their entries to make sure that they’re not trying to avoid tariffs.

Annik  

It sounds like record keeping is one of the most important parts in this whole thing, and documentation just because that is what they would ask for. And if you do not have correct documentation, you may get in trouble, right?

Speaker 1 

If you can’t defend what value you put on your entry, or what HTS code you put on your entry, then, yeah, you’re gonna run into a lot of issues trying to convince customs not to think that you’re trying to avoid duties issuing cf 20 nines to change it, maybe, and making you pay more duty, or even referring your case to the DOJ, and that’s obviously not something that you want. So you need to really make sure that these processes are

Annik  

I’m really not sure on this, and I definitely you might say this has nothing to do with it, but the go the going away of de minimis, did that have a huge effect on the industry? Probably not, because it seems like the value would always be higher.

Speaker 1 

Yeah, I think it didn’t really have a big effect on Pharma. They don’t use it a whole lot. Obviously, for the APIs and the drug products that they would be importing, those are much too expensive to ever be under de minimis. Even smaller value R and D stuff, because a lot of it is subject to FDA. You could. Use de minimis anyway. You still had to submit it from anto so that you could actually submit data

Annik  

to so personal. But I used to be a little bit hooked on nasal spray. Got away with it, but I would get my stuff from Germany, and because it was the specific one I was using, you’re not supposed to use it longer than, really, three days, yeah, and I’m very much aware of that. My doctor has told me, but and I’m not using anymore, but I the last shipment I got, which was after the minimus, and I actually paid much more than I would always before. So I was like, Wait, this has to do with de minimis, because why did I only pay $17 and now I pay $31 for, you know, for this product. And I was, I was that that was my first hit.

Speaker 1 

Yeah, that is interesting. That sounds like you’re buying it, probably from some other kind of distributor, not from the manufacturer directly. So, yeah, so they’re just sending it to individual. Thankfully, I don’t have to deal with that anymore. Yeah, those German nasal sprays. I’ve used them too when I lived in in Europe, and they’re, they’re better than the ones here.

Annik  

They are also okay. So I wanted to address this real quick. There obviously is our drugs that we can buy in store, like ibuprofen, Advil, and those drugs seem to be, I mean, we don’t technically need them, but there is drugs that, you know, the hospitals need, or that are more, I would say, a higher level drug.

Speaker 1 

Yeah, they’re life saving drugs. So they’re, yeah, exactly.

Annik  

So with Is there a huge effect on this, if these 100% or what the tariffs go into effect. Because, I mean, I’m gonna get into and that’s a different topic. The amount of costs it is here to, you know, get surgery or get drugs in the hospital is extensive. So if there is tariffs placed on these products life saving drugs, would that happen, or would those be exempt? Did he make a note on that?

Speaker 1 

Yeah, that’s a good question. And I don’t know, and I think there’s, from what I’ve been reading, there is starting to be a lot of pressure on the administration from industry and from other areas that if tariffs are imposed on pharmaceuticals, that’s going to raise prices and it may cause shortages. So it sounds like maybe the administration is starting to listen to that, and that’s why they perhaps have changed tactics and not implemented the 232 tariffs. But yeah, this is different than saying you’re going to have tariffs on your television, okay, well, if I can’t buy a new television, yeah, I’ll be fine. But if you don’t have life saving drugs, yeah, this really affects people’s lives and the quality of their life. So yeah, it’s hard, it’s hard to say, but I think that’s that’s why there’s more consternation and anxiety about pharmaceutical tariffs, as opposed to other kinds of tariffs.

Annik  

I think it’s kind of a conga line, because, okay, there’s obviously the companies that sell the trucks, but there’s also hospitals that use the drugs. And if they hear these kind of news, I feel like they hold back on what they give to people because they’re like, Well, if this goes into effect and we can’t get the drugs, or there’s a shortage, we already have to think about how much we use of this drug. Who we give these drugs to.

Speaker 1 

They’re rationing, if they’re shortages. So some people get these

Annik  

drugs, yeah, and I think that that’s a problem for the country. One of the

Speaker 1 

administration’s data goals is to reduce pharmaceutical prices. Well, imposing high tariffs is not the way to do that. I would even question the logic of trying to drive pharmaceutical manufacturing back to the US where it doesn’t exist now. That won’t necessarily make drugs cheaper either. Well, again, that kind of makes me wonder what it is that they’re trying to do, but a lot of and there’s other issues that they need to address too, because in talking with clients, and they’ve said that some of the technologies that they need to produce drugs only exist in, say, Europe. So that’s why they’re importing their APIs from Europe. They can’t produce them in the US. So that, to me, says there’s a there’s a different issue, and just imposing tariffs won’t necessarily drive it back. What what is causing it to develop in Europe, but not in the US? Because obviously, Europe isn’t really known as a place that has low labor costs or low levels of regulation, of bureaucracy. So there’s something else that’s that’s causing it to develop there and not here. So they need to start looking under the hood a little bit more about why things are produced in certain places. Because to me, if pharmaceutical companies could produce goods more cheaply and effectively in the US, they already would be doing that. So what’s preventing them from doing that? I don’t think tariffs are going to fix that problem. There’s something else that needs to be done to fix that problem. If that’s what you think is the problem, yeah,

Annik  

and it takes a lot of specialists, I feel like, and if there is a good group that you know can handle these kind of conversations, I think something could potentially be done. So I want to ask you one last question, just to kind of round this. Up how? Okay, so we obviously are living with a lot of fear, not knowing what will happen next. But what can these companies do right now to stay calm and you know, know that we’re doing right now is the best they can to, you know, to move forward and just be prepared on whatever will happen. Yeah, yeah. That’s a really good question, because I think to a certain extent, there isn’t a whole lot you could do to prepare when you don’t really know what you’re preparing for. If you don’t know what tariffs are coming or how they will look, what how they’ll be structured, it’s hard, really, to prepare for that, and you can’t necessarily start

Speaker 1 

trying to jigger your supply chain and change sourcing countries, because if there’s 232, tariffs on pharmaceuticals, they’ll apply to product from whatever country it doesn’t have a disadvantage or advantage to move from one country to the next. So I think as far as preparing as much as you can, what companies can do is look at their past trade data, and they can go look at their ace reports, use that to model potential scenarios of what tariffs could look like. What would it cost you? What would it mean if they’re 10% 15% 25% just so that you have you’re prepared for what that means, what that will do to your costs, so that if it does happen, people are totally surprised, and there’s a plan in place to be able to have the money to pay these tariffs, because I think that’s another issue, especially the small ones. Tariffs mean they affect cash flow, because it’s cash you have to pay at the time of entry to get your goods. It’s not something you pay more than a month later, and if you’re on the periodic monthly statement, this is cash flow that you need to use for this, as opposed to something else like investment or hiring more people. So I think using your past aid to try to model your scenarios, or even also looking at what you think is coming in the future, what other clinical programs you have when things might be approved, and just look at under different scenarios, what would happen with the tariffs, so that you’re ready. But you know really need, if anything does come along, you need the clarity of an executive order, and then the Federal Register knows, and then the implementation by customs and the CSMs messages. So that’s something they that they can do. And again, like I had said before, making sure that you’ve really got good processes in place around your country of origin, your tariff classification and your value so that you can defend those if there’s ever any questions or issues, because you don’t want to be taken you know, and when a case implemented against you because you tried to avoid tariffs, that doesn’t make that doesn’t do anything to your reputation or trust on the market, so you certainly want to avoid that, and they need to make sure that they have trade teams in place, you know, if it’s a big company And there’s only one or two people doing trade, maybe, trade, maybe that’s not enough now, because there’s just so much going on and so much that needs to be managed. Maybe you need to have expand the team. Maybe you need some more resources, or you need some more automation so that people can not have to worry about day to day routine tasks, and they can focus on strategies for the for the tariffs, you can also start looking at what would be ways that you could mitigate the tariffs. Are there any possibilities to for exemptions, other than annex two, if it’s not on annex two, can you use, say, the prototype provision, because most of the tariff information that has come out has had exemptions for chapter 98 including 9817 which is the prototype provision. So are there, is there a way that you can use free trade zones to, at least, I guess, mitigate some of the tariff impact, because the administration, with all these CEOs, has said that goods have to be entered in privileged foreign status, you don’t really get the benefit of the tariff inversion, like importing an API at 6.5% manufacturing into drug product in the Foreign Trade Zone, then being able to exit that drug product at 0% duty. You’re still going to pay the 6.5% at least on the value of the API. But there might be some advantages with at least deferring some of the duty while you’re doing the manufacturing. So I think they can start looking at things like that right now. I don’t think that pharma really needs to use a whole lot of that because of annex two, but if things would change, what other options do you have? So I think it’s just a lot about thinking, what are the scenarios, and how can we model it so that when they do happen, if they happen, we’re ready to go. We know what the

Annik  

Yeah, that sounds like a lot of work. Sometimes I hear people say, Yeah, I’m the only trade compliance person. And they’re like, and I’m drowning in work. So I mean, at this point, it’s just the times have changed, right? And companies need to see that, especially upper level needs to assess, because if something goes wrong, you’re going to be in, you know, you might have to pay a lot of money. And I don’t think any company wants to pay a

Speaker 1 

lot, or no company wants to pay more duties than they need to pay. And I really identify with people who are the sole trader bites person, and who are completely overwhelmed. Because when I was in industry. Yeah, for a lot of years I was industry. I was the only train compliance person at a fairly large company, and it just, it doesn’t work. Will Work life balance, yeah. And especially with all this tariff chaos, you have to be able to work with the strategy part, work with all the other areas in the company, be able to constantly give information to your management so that they know what’s going on. So you can’t really be doing the day to day stuff. You need other team members who can do the day to day stuff. So you need a bigger team, or you need some automation that can take some of that. Yeah, because there’s just so much emphasis now on strategy and planning. Yeah.

Annik  

And okay, so you mentioned a couple of things. I want to I want to touch on this, but you mentioned ace. If you’re not using ace, you should be using ace. And I talked about that on my last episode with Michelle frenier. We talked why you should be using ace. And I think after that discussion, there’s no reason why you shouldn’t. Then you mentioned valuation, classification and origin. There is a on demand. Course, it’s like a it’s like a bundle from the global Training Center. They have the three pillars that’s easily for you to take, if that’s what you’re looking for, because it seems like we need to put emphasis on that. And then I want to mention that there is an icpa conference that we went to last week. If you missed that one, there is another one coming up in 2026 Wow. This is crazy that I’m speaking on 2026 already, but it’s from March 1 to the fourth in San Antonio, so that’ll be exciting. So I just want to foreshadow that, and you should probably register before they run out. And that is really it, Elizabeth, I am so grateful that you came on because that I think there’s so much insight to this industry, and you could probably talk for days on this I could if anyone is listening and they have questions, because we can’t cover it all, you can reach out to Elizabeth. Her information will be down below in the description if you’re on Apple or Spotify, wherever you get your podcasts from. So yeah, that it will be it, and we will see you other than that next week, make sure you like subscribe and follow us on LinkedIn and Have a great week. Bye. Thanks for having me. You