No amount of enforcement can stop the torrent of fake drugs and active pharmaceutical ingredients (APIs) coming into the U.S. from China, says the author of a paper forthcoming in the Columbia Science and Technology Law Review.
China is the world’s largest supplier of counterfeit pharmaceuticals and APIs, and the source of 79% of all counterfeit drugs seized in the U.S., according to the United States-China Economic and Security Review Commission. In recent years, Fentanyl flows from China have fueled opioid deaths, overdoses and addiction across the U.S.
Daniel Chow, a professor of international trade law, writes that enforcement-based solutions to the counterfeit drug problem– from seizures to prosecutions– face way too many obstacles to be effective. These include a lack of cooperation from the Chinese government, and the common use of Free Trade Zones to obscure a product’s origin.
While “counterfeit” technically means an exact replica of a product using its trademark, the term is more commonly used to variously refer to knock-offs, substitute or contaminated ingredients, and improperly sourced products.
The majority of counterfeit drugs on the market make use of a trademark without copying the ingredients, which is how counterfeiters turn a profit.
Besides knock-off drugs, China is also the largest global producer of counterfeit or substitute active pharmaceutical ingredients, or APIs, which wind up in medicines around the world.
A notorious example of this is the 2008 case of a blood-thinner made by Baxter International, which killed 81 people after being distributed to hospitals around the U.S. Baxter used a contaminated ingredient (herapin) that was later traced back to Chinese suppliers.
Free trade zones, or FTZs, shield products from country-of-origin labeling, and are purposely used to hide the true origin of the goods. “In the FTZ, the goods can be finished, assembled or reassembled, and repackaged,” writes Chow.
Drugs originating from China can enter a FTZ in another country, such as Dubai, get repackaged, and re-labeled with a different country of origin.
Tracing the true provenance of APIs is expensive, time-consuming, and in some cases impossible, according to the report.
The other significant problem facing enforcement is the Chinese government itself: local governments in China are evaluated on their economic outputs and exports, and therefore “have an incentive to protect local industries, even if they are engaged in behavior of questionable legality.”
Central enforcement authorities tend even more toward protectionism. In the Baxter-herapin case, Chinese officials refused to disclose where the contaminated ingredient entered the supply chain, even though the information “was plainly available to central-level authorities.”
China’s Not Interested
“Why would central level authorities be willing to hide the locations of illegal factories that produce APIs or drugs that cause deaths to consumers in foreign countries?,” Chow asks.
“This type of government behavior might not seem likely to occur in the United States, but China has a much different political system. In China, the political realities are that even where there is clear wrongdoing, central and local level officials do not want to be found responsible for a dereliction of duty that would compromise their own interests in maintaining their careers or their prospects of professional advancement.”
“The situation is quite different when the harms or even deaths occur in a distant foreign country outside the glare of the public and social media in China. In these cases, the Chinese public and media seem to show little interest or concern and the Chinese authorities do not feel compelled to act.”
China’s world-class “immense and complex” bureaucracy is also implicated in the report. Ultimately, however, the lack of government cooperation is a matter of political will, says Chao.
So far, there doesn’t seem to be an alternate to enforcement solutions. “For the foreseeable future, substandard drugs and APIs from chemical factories not subject to supervision by the [China Food and Drug Administration] seem likely to continue to pour unchecked into the international market.”
Three Major Problems Threatening Multi-National Pharmaceutical Companies Doing Business in China, by Daniel C.K. Chow, is forthcoming in the Columbia Science and Technology Law Review. Readers’ comments are welcome.