Select Committee on Trade and Industry Minutes of Evidence

Supplementary memorandum submitted by the Association of The British Pharmaceutical Industry

  With regard to question 259 and the reply, it may be helpful to include the attached paragraph extracted from the Commision Communication on the Single Market (November 1998) which makes it clear that arbitrage in pharmaceuticals is regarded as inefficient by the Commission.

  To the extent that price fixing by Member States results in the establishment of widely divergent prices, conflict can exist between the operation of price fixing mechanisms and the Single Market. Wholesale intermediaries buy products in lower priced parts of the European Union and sell them in higher-priced parts of the Union. In an effectively integrated market, the prices of tradable goods tend to converge towards a situation where arbitrage is no longer an issue; in this sector, since maximum prices are fixed in many Member States, the price convergence pressure on products already in the market will be towards lower prices, at least for out-of-patent products. Unless parallel trade can operate dynamically on prices, it creates inefficiencies because most, but not all, of the financial benefit accrues to the parallel trader rather than to the health care system or patient. However, parallel trade must equally be seen as an important driving force for market integration and, consequently, for achieving the Single Market. In as far as the market structure does not provide for the financial benefits of parallel trade to be passed on to consumers and taxpayers, this can normally be ensured through adequate national measures.

  Parallel trade has also, to an important extent, been stimulated by price differentials created by currency fluctuations. European Monetary Union is therefore an important step in reducing the risk of price distortions. For those Member States that participate in the Euro, currency movements after market launch, and the considerable effect that these fluctuations have had on parallel trade, will be a thing of the past.

13 May 1999

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