Challenges in comparing drug prices across countries

A major obstacle to cross-country comparisons of drug prices is the wide variation in the regulatory procedures for determining how much will be paid for patent-protected and brand-name medicines and what pro­portion of those payments will come from public and private sources. In Germany, there is strictly speaking no binding drug price requirement. Instead, a manufacturer introducing a drug to the market initially sets a launch price. Then, negotiations are conducted to determine the reimbursement amount paid to manufacturers by statutory and private health insurers (Krankenkassen).

The determination of reimbursement amounts for new drugs in Germany takes into account both scientific and market-based considerations. Once a medicine has been authorised by either the European Medicines Agency or the Paul Ehrlich Insti­tute, the manufacturer must submit a dossier containing the required information about the medicine to the Federal Joint Committee – the main decision-making body in Germany’s self-governing health­care system. The Federal Joint Committee then applies various criteria to assess the additional benefit the new medicine offers patients over the existing standard treat­ment for the corresponding disease or condition. This assessment is conducted without any interference from the govern­ment or private actors.

On the basis of the assessment by the Federal Joint Committee, the National Asso­ciation of Statutory Health Insurance Funds (GKV-Spitzenverband) − representing Ger­many’s statutory health insurance funds − and the manufacturer have six months to negotiate the reimbursement price.

This procedure for determining pharmaceutical expenditure in Germany is based on self-governance within Germany’s federal healthcare system and, as such, is not com­parable to other systems with different decision-making structures. As discussed below, drug pricing and expenditure in other countries, such as the United States and the United Kingdom, have different features that must be taken into account in international agreements on pharmaceutical policy.

US external economic policy on the offensive in the pharma­ceutical sector

In its announcement of the Section 301 investigation, the USTR cites preliminary evidence that German drug price regulation is unfair, including the then draft legislation of the Statutory Health Insurance Contribution Rate Stabilization Act (GKV-Beitragssatzstabilisierungsgesetz). This law was adopted in July 2026 and provides, among other things, for a reduction in public expenditure on medicines, primarily through an increase in the mandatory manufacturer rebate of the total sale of a medicine to statutory health insurance funds (gesetzliche Krankenkassen) from 7 per cent to 15.5 per cent. However, the USTR’s announcement also refers to Germany’s “persistent under­payment for innovative pharmaceuticals”, which suggests that the scope of the inves­tigation may extend beyond the recently adopted legislation.

The launch of a Section 301 investigation into drug pricing practices in Germany and the threat of tariffs if “unfair trade practices” are found exemplify the use of external economic policy tools by the Trump admin­istration to achieve domestic policy goals. This investigation is part of broader efforts by the Trump administration to use trade policy to reduce drug prices for US con­sumers and create incentives for investment in the United States.

The Section 301 investigation into Germany’s pricing practices is one of several interconnected trade measures recently adopted by the US government. In a presi­dential proclamation of April 2026, the president imposed tariffs on imports of certain patented pharmaceuticals and associated ingredients. The legal basis for this presidential proclamation – unlike that for the Section 301 investigation – is Section 232 of the Trade Expansion Act of 1962, which authorises the president to “adjust imports” if, following a Commerce Department investigation, he agrees that they threaten to impair US national secu­rity. The presidential proclamation aims in particular to reduce US dependence on imported pharmaceutical products and sets a default tariff rate of 100 per cent on imports, but a reduced rate of 15 per cent for such pharmaceutical products originating in the EU and certain other countries. This is the first time the United States has raised tariffs from the standard zero-baseline, which had prevailed since the WTO Agreement on Trade in Pharmaceutical Products of 1994. Nevertheless, a zero rate applies to qualifying companies that have agreements with the US government concerning both MFN pricing and the onshoring of production.

Besides being unprecedented in the field of drug pricing, the USTR’s Section 301 investigation should lead to political dis­cussions among EU countries and with third countries on developing a common approach to fair pricing practices in the pharmaceutical sector. Although Germany is the first country targeted by a Section 301 investigation over drug pricing, the multi­national nature of the pharmaceutical sec­tor means that other countries could also be targeted in the future over their pricing policies.

The MFN principle and drug pricing policy

The MFN principle, a founding principle of the multilateral trading system, has tradi­tionally applied to relationships between states. The best-known formulation of MFN is found in the law of the World Trade Organization (WTO). In short, the MFN prin­ciple requires WTO members to grant the best market access conditions provided to one member automatically to all other members. This allows all members to bene­fit, without further negotiation, from con­cessions that may have been agreed between trading partners. Such benefits may extend to goods, services and intellectual property rights. There is, to date, no WTO dispute concerning MFN in the field of drug pricing.

In the pharmaceutical sector, the term MFN is being used by the US government to refer to pricing arrangements between governments and pharmaceutical companies rather than obligations between states. Consequently, states are not required to adopt the outcomes of other states’ negoti­ations with pharmaceutical companies. Decisions about drug prices and the result­ing public expenditure instead remain within the exclusive competence of the state concerned.

The Trump administration’s MFN policy is essentially a form of international or external reference pricing, whereby drug prices are linked to prices paid for the same medicines in other countries. This practice is widely used in other high-income coun­tries, including – to a certain extent – in Germany, but has historically played little role in the United States. Where the US MFN policy differs from usual practice, how­ever, is in pegging prices to the lowest price set by a group of reference countries – along with efforts to increase prices in those countries.

In the Executive Order of 12 May 2025, President Donald Trump claims that lower drug prices in other countries contribute to high prices in the United States. Accord­ing to a study from the RAND Corporation, US prescription drug prices are several times higher than in other high-income eco­nomies. Per capita spending on retail pharmaceuticals in the United States is also more than double the OECD average. Two major contributing factors are that both cost-effectiveness evaluations and centralised negotiations with drug companies over prices are much less common in the United States.

In its drug pricing policy, the Trump administration has interpreted and applied the MFN principle in a way that differs from its framing in WTO law. There are two key problems. First, it is unclear which foreign drug prices are being used to deter­mine baseline MFN prices for patent-protec­ted brand-name medicines and how the resulting MFN prices will be enforced in prac­tice. Furthermore, there remains an open question on whether each country would have a say on how it “binds” a specific com­mitment on drug pricing, as it does at the WTO. Clearly, neither the United States nor transnational pharmaceutical companies should unilaterally determine what consti­tutes a “fair” MFN baseline price.

Second, transnational pharmaceutical companies do not dedicate a fixed percentage of their annual revenue to R&D. Yet an MFN principle in this field could only be conceivable if a percentage of the price is directly earmarked for R&D. If a country were to adopt legislation to enforce this, however, it could face legal challenges in domestic courts. Moreover, a legal requirement to earmark revenue for R&D would likely distort investment decisions by private companies across countries because such decisions would no longer be made using a market rationale.

The United States currently enforces MFN pricing domestically as a manufacturer-specific rebate on external tariffs rather than legislation. Thus, manufacturers that sign MFN pricing agreements with the US govern­ment secure exemptions from Section 232 duties. According to publicly available infor­mation, 26 pharmaceutical companies had joined this pricing scheme, including Ger­man ones such as Boehringer Ingelheim and Merck. These MFN pricing agreements, however, do not represent a structural change in pricing practices, as they are manufacturer- and even product-specific. Thus, the Trump administration is currently planning for a so-called Great Healthcare Plan, which would address drug pricing issues more broadly through legislation.

Section 301 of the Trade Act: A tool of offensive external economic policy

Section 301 of the Trade Act of 1974 grants the president of the United States several legal powers that were formerly reserved for Congress. In broad terms, Section 301 allows the United States to adopt unilateral trade measures against third countries engaging in “unfair trade practices”. Before adopting trade measures such as tariffs, import restrictions and suspension of trade concessions against third countries, the USTR must identify and initiate investigations of practices in those countries. The trade measures subsequently imposed under Section 301 are meant to pressure third countries to change their policies, including by withdrawing administrative measures or even amending their national legislation.

Past investigations and trade measures adopted under Section 301 have been used to remove barriers to market access for US goods and services, as well as to strengthen the protection of intellectual property rights. This legal tool has been used to achieve several objectives of US trade policy, includ­ing compelling other countries to open markets to US products. Recently, the USTR categorised products from the EU as belong­ing to economies that do not properly enforce provisions against “forced labour” and, therefore, decided to impose a broad 10 per cent tariff under Section 301. How­ever, where separate tariff rates already apply to the goods concerned, the combined total percentage of additional tariffs must not exceed 10 per cent. Product-specific exceptions apply, including for numerous pharmaceutical products.

The USTR has previously criticised drug pricing policies in other countries. Through its annual Special 301 Reports, the USTR reviews the economic policies of foreign governments that might require further attention due to their possible engagement in “unfair trade practices”, without neces­sarily triggering a Section 301 investigation. Germany’s mandatory manufacturer rebate system – through which pharmaceutical manufacturers must grant a rebate on the price of medicines reimbursed by the statu­tory health insurance funds – was directly criticised in the 2005 Special 301 Report. The 2026 Special 301 Report raises concerns about the drug pricing policies of Australia, Canada, Japan and South Korea. Therefore, while the Section 301 investigation into Germany’s drug pricing policies is the first of its kind, those countries are arguably at risk of facing investigations.

The EU’s Anti-Coercion Instrument: A tool of defensive economic policy

As stated in its preamble, the EU’s Anti-Coercion Instrument, established by Regu­lation (EU) 2023/2675, was adopted in 2023 to protect the EU and its member states from economic coercion by third countries to “interfere in [their] legitimate sovereign choices”. “Economic coercion”, in turn, is understood to occur either when the govern­ment of a third country applies a measure, such as tariffs, or, notably, “threatens” to impose it. Thus, the Anti-Coercion Instru­ment has a wide scope of application that takes into account attempts to use offensive foreign economic policies even before they are applied. If the EU determines that a third country has applied or threatened to use these tools to interfere with sovereign decision-making anywhere within the EU, the Anti-Coercion Instrument allows the adoption of countermeasures as a defence against such interference.

In response to coercion by third countries, Regulation (EU) 2023/2675 allows the EU to adopt measures restricting trade and investment involving the third country exercising coercion. Examples of these measures include: import and export restric­tions; limiting participation by the third country’s government or private actors from public procurement through calls for tenders in the EU; restrictions on foreign direct investment from the third country; and restrictions on trade in services. Nevertheless, the EU’s Anti-Coercion Instru­ment is intended to deter coercion, not merely respond to it. Before any of the response measures may be adopted under this instrument, the EU must “enter consul­tations” with third countries to attempt a diplomatic solution or potentially a third-party adjudication of the disagreement.

So far, the EU Anti-Coercion Instrument has not yet been activated. Therefore, several criteria for its application remain open to interpretation. It is unclear whether the launch of a Section 301 investigation by the USTR, which does not always lead to actionable findings, constitutes a “threat” as understood in Regulation (EU) 2023/2675. Alternatively, it may be that the Section 301 investigation by the USTR, coupled with statements by President Trump and other US officials, offers sufficient grounds to view these actions as interference in Ger­many’s sovereign decisions on pharmaceutical expenditure. Taken together, there are convincing arguments to frame all of these elements as “economic coercion”, given the broad definition of this term in the EU’s Anti-Coercion Instrument.

Options for Germany, the EU and beyond

Recent reports of talks between German and US officials to explore a bilateral agreement on drug pricing raise multiple questions about the available options. Bilateral agreements in this field carry signi­ficant drawbacks. First, they are an ineffi­cient way to address the broader challenge of rising drug prices. The proliferation of bilateral agreements could lead to increasing fragmentation in approaches to “fair drug pricing” within the EU and beyond. Second, the application of an MFN principle as a basis for negotiating bilateral agreements is questionable because it does not readily align with the practices of private transnational companies. Third, the MFN principle does not determine whether prices rise or fall and could therefore be used to raise drug prices both in Germany and, as a result, in the United States if higher prices in one or more comparator countries are used for reference pricing.

Should it consider the bilateral option, Germany should reject any agreement modelled on the one between the United States and the United Kingdom. This is because of both the legal implications for institutions within Germany’s self-governing healthcare system and the detrimental effects of the higher drug prices sought by the United States. Furthermore, such an agreement risks directing public funds towards drugs that are minimally more effec­tive than those already reimbursed – undermining the scientific and economic basis for reimbursement decisions and potentially leaving less funding for other parts of the healthcare system.

Whether or not Germany signs a bilateral agreement with the United States, it should ask the European Commission to examine whether the actions of the United States constitute “economic coercion” for the purposes of the EU's Anti-Coercion Instrument. The Commission could be con­sulted even while the Section 301 investi­gation by the USTR is ongoing. In addition to the consideration of potential response measures, this could help clarify the appli­cability of the instrument and pave the way for discussions with other member states on available strategies to defend national deci­sion-making in the field of drug pricing. Furthermore, it could help develop a com­mon strategy to prevent fragmentation and distortions within the EU arising from bilat­eral agreements with the United States or other third countries. To clarify whether the Anti-Coercion Instrument is applicable in this particular case, it would be useful to examine proposals for its use in other eco­nomic sectors. Experts at the think tank Bruegel have pointed out, for instance, that the instrument could be used to respond to US pressure to change EU regulations in the digital sector.

Lastly, Germany should coordinate with other countries that could be targeted under the MFN pricing policy and consider raising this issue at the WHO Fair Pricing Forum. The forum allows countries to exchange experiences on recent developments in drug pricing and expenditure and brings together stakeholders from government, civil society, academia and industry. The Fair Pricing Forum is an appropriate setting for compar­ing internationally agreed approaches to drug pricing that could provide better alter­natives to MFN. At the same time, governments participating in the forum could jointly develop new strategies for dealing with external interference in national drug pricing policy. As signalled by the 2026 Special 301 Report, there is a risk that the USTR could target drug pricing practices in other countries besides Germany.