In hindsight, this was a predictable consequence of the swine flu outbreak: Devious Web sites have begun offering fake cures. It is merely the latest adaptation of a swinish global counterfeit drugs industry which, like a flu virus, cleverly yet sinisterly mutates to exploit the poorest patients.
“It has been seen time and time again that following a global threat or natural disaster, criminals exploit the situation,” Interpol Executive Director of Police Services Jean-Michel Louboutin said last week.
An Interpol sweep in China and throughout Southeast Asia seized US$6.65 million in counterfeit drugs in November. Taiwan’s effective rules and supervision, plus fancy near-infrared spectography keeps its citizens safe, but many of its trading partners have no such defenses.
A study by the US Center for Medicines in the Public Interest predicts that global sales of counterfeit drugs will reach US$75 billion by next year, nearly double the 2005 figure. All parts of the world are affected, with Africa the prime victim and the Middle East increasingly used as a hub for trafficking. An EU report said Dubai was the world’s third-highest shipping point for counterfeit drugs into Europe — many from India, stopping over to conceal their origin.
The common reaction is to call for government action and the common response is a clampdown: more laws, more regulation and more inspections.
We should, however, be wary of government, largely for one reason: corruption. Health sectors throughout the world are particularly susceptible, with the Global Corruption Report 2006 saying how officials frequently “demand ‘fees’ for approving products ... and counterfeit or other forms of sub-standard medicines may be allowed to circulate.”
One example of this emerged recently in India. In Orissa, a strong drug controller procures medicines for the state health department, with separate drug inspectors checking them. Sounds robust? Sadly, inspectors and officials of the drug controller were in league with counterfeit drug producers and supplied fake medicines to public hospitals.
This is no isolated case. Health economist Maureen Lewis observed so many instances of corruption while working for the World Bank that she has written several publications solely on these shocking examples. Increased regulation often does little more than increase opportunities for corruption, playing into the counterfeiters’ hands.
So what can government do? In short, it can stop making the problem worse. Many of the root causes of drug counterfeiting are exacerbated by government interference, such as price controls and taxation.
Price controls may aim to make drugs cheaper but they can have dire consequences. They deter companies from registering their medicines in a market, hence reducing competition — which is the best means of keeping prices down in the first place. Furthermore, the purveyors of high-quality medicine may well have the highest costs because of their higher manufacturing standards and therefore be the most deterred, while producers of cheap substandard drugs and fakes will be encouraged to enter the market.
Price controls also cause shortages in medicines, creating a gap that counterfeiters then fill. An article in the British Medical Journal on Indian price controls reported that “drugs became unavailable ... and a black market — as well as spurious and counterfeit drugs — flourished.”
Price caps in South Africa resulted in the closure of at least 103 small, rural pharmacies, because they had to charge more than large, urban shops. Previously, the rural poor could choose whether to pay more locally or travel into the cities for cheaper drugs but now they must travel — or buy them locally from peddlers who sell fakes.
One must ask why governments impose price controls while simultaneously driving up medicine prices with taxes and tariffs.
A WHO report in May 2006 stated: “Taxes and duties levied on medicines, as well as the mark-ups applied, frequently contribute more to the final price than the actual manufacturers’ price does.” The previous year a study found that government-imposed measures such as taxes and tariffs add a world average of 68.6 percent to the cost of imported pharmaceuticals. By artificially driving up prices, taxes create an opportunity for illegal, unregistered drugs to undercut high-quality versions.
Counterfeit drugs are a growing worldwide threat to health, worsened by government policies. Instead of declaring periodic crackdowns, governments in developing countries must back permanent vigilance and the rule of law. They must also reduce the market distortions that help the counterfeiters, such as price controls, taxes and tariffs. Countries with effective vigilance such as Taiwan can help their neighbors and trading partners. Your life may depend on it.
Julian Harris is a research fellow at International Policy Network, London, an international, non-governmental, educational and non-partisan development think tank.
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