Volume I, No. XXI
The pharmaceutical tariff's zero rate turns out to be a trade-agreement benefit, not a product exemption
Six days before the 100 percent Section 232 duty on patented drugs reaches most companies, Commerce has defined the orphan, nuclear, plasma, cell and gene therapy categories that can enter duty-free and named the 19 jurisdictions whose products qualify. Everything else must ask, one product at a time.
Which imported medicines will escape the 100 percent tariff that reaches most patented-drug makers on September 29? Since April the answer has rested on one clause of Proclamation 11020, which promised a zero rate for orphan drugs, nuclear medicines, plasma-derived therapies and a handful of other specialty categories2. On September 23 the Commerce Department’s Bureau of Industry and Security (BIS) published the notice that makes the clause usable, and it settles a question the proclamation left open1. The zero rate does not attach to the medicine. It attaches to the medicine’s origin, through a list of 19 trading partners, or else to a case-by-case Commerce finding that a particular product meets an urgent U.S. health need1. As policy, that makes a public-health carve-out into one more benefit of a trade deal.
The instrument: section 232 and the clause 3(d) carve-out
Section 232 of the Trade Expansion Act of 1962 lets the President adjust imports of an article that the Secretary of Commerce finds is being imported in such quantities or under such circumstances as to threaten to impair the national security7. Commerce opened its pharmaceutical investigation on April 1, 2025, and at the outset it covered generic and non-generic finished drugs, medical countermeasures, active pharmaceutical ingredients (APIs) and key starting materials5. The proclamation that followed on April 2, 2026 was narrower. It cited Food and Drug Administration figures that about 53 percent of patented pharmaceutical products distributed in the United States are made abroad and that only 15 percent of patented APIs by volume are produced domestically, and it set a 100 percent ad valorem duty on patented drugs and their ingredients2. Generics, including biosimilars, were left out “at this time”2.
The proclamation then built a tiered schedule beneath the headline rate. Products of Japan, the European Union, South Korea, and Switzerland and Liechtenstein pay 15 percent; the United Kingdom pays 10 percent2. Companies with onshoring plans approved by Commerce pay 20 percent, rising to 100 percent on April 2, 2030, and those that have also signed most-favored-nation pricing agreements with the Department of Health and Human Services pay nothing until January 20, 20292,3. Clause 3(d) adds the specialty categories at zero, but only where the Secretary, consulting the U.S. Trade Representative and HHS, determines that they are products of a jurisdiction with “a current or forthcoming trade and security framework agreement” as referenced in Executive Order 14346, or that they meet an urgent health need2.
That cross-reference is the hinge. Executive Order 14346, signed September 5, 2025, set procedures for implementing framework agreements, chiefly through the reciprocal tariffs, and directed Commerce and USTR to carry them out4. It also stated a reluctance: “Though I am generally unwilling for framework agreements to narrow the scope of the reciprocal tariffs or modify any relevant section 232 tariff before the conclusion of a final agreement,” the order said, final agreements might do so4. Clause 3(d) goes further than that order contemplated, extending a section 232 rate of zero to partners whose frameworks are only forthcoming2.
The mechanism: definitions, a country list and a one-product request
The notice does three things1. First, working with the FDA and the Agriculture Department’s Center for Veterinary Biologics, Commerce defined each category. An orphan drug qualifies only if it is designated under section 526 of the Federal Food, Drug, and Cosmetic Act and every approved or licensed indication is for a rare disease or condition1. Nuclear medicines are keyed to the FDA’s “radioactive drug” and “radioactive biological product” definitions; antibody drug conjugates are combination products of a small-molecule payload and an antibody joined by a chemical linker; animal health products include veterinary drugs and USDA-regulated vaccines, bacterins and diagnostics but not animal devices1. The definitions cover investigational drugs as well as approved ones, apply only to Proclamation 11020, and may be revised1.
Second, the notice names the eligible jurisdictions: Argentina, Bangladesh, Cambodia, Ecuador, El Salvador, the European Union, Guatemala, India, Indonesia, Japan, Jordan, Malaysia, North Macedonia, the Republic of Korea, Switzerland and Liechtenstein, Taiwan, Thailand, the United Kingdom and Vietnam1. China, Canada and Mexico are not on it1.
How does a company ask for the urgent health need exception?
Third, for products from anywhere else, a company must email BIS a request covering one product only, giving the 10-digit HTSUS number where possible, the brand name or Investigational New Drug number, the active ingredients, the category claimed, the countries of origin and export, the importers of record and the manufacturer1. The rationale may address the disease treated, the presence or absence of alternative therapies, the number of U.S. patients and availability elsewhere1. “Commerce will make an individual, fact-specific, company-specific decision for each request,” the notice says, after consulting USTR and HHS; approved information goes to U.S. Customs and Border Protection, which applies the rate at entry summary and may ask for more documents1. Requests are accepted on a rolling basis from September 231. The notice sets no deadline for decisions, and the parallel onshoring program, opened in May, said plainly: “There is no time limit for Commerce’s decisions”3.
The notice also rewrites parts of the tariff schedule, effective for goods entered from 12:01 a.m. eastern time on September 291. “Pharmaceutical articles” now means finished products, their APIs and the APIs’ key starting materials; the amended note adds that “Inactive ingredients and excipients are not pharmaceutical articles”1. Unpatented animal health products are folded into the generic definition, which keeps them outside the tariff1,2. A new heading, 9903.04.70, carries a zero additional rate for covered articles imported solely for clinical trials, research and development or other non-commercial uses1. Five subheadings, among them 3002.13.00, 3002.14.00 and 3004.49.00, come off the Annex IV zero-tariff list because they overlapped with Annex I1.
The effect: who gains from the list, and who must wait
The interaction with the proclamation’s stacking rules decides who benefits most. Where several rates apply, the lowest one governs2. A gene therapy made in Germany or Japan therefore falls from the 15 percent framework rate to zero, while the same therapy made in a country off the list faces 100 percent unless its maker holds an onshoring plan or wins an urgent-need approval1,2. For the European Union, Japan, Korea, Switzerland and the United Kingdom, the list lowers a reduced rate to zero for these categories; for the other 14 jurisdictions it lowers 100 percent to zero1,2.
EY’s reading is that the notice “does not convert the carve-outs into self-executing exemptions”6. For the country route, eligibility turns on a defensible origin determination; for the health-need route, EY writes, “There is no mechanism for an importer to self-assess eligibility on that basis”6. The orphan definition is stricter than the label suggests: in EY’s words, “a single non-orphan indication will disqualify the product,”6. The notice describes the burden as falling on manufacturers and importers of record, who file the requests and carry the duty at entry1.
Commerce itself acknowledged the timing problem. Invoking emergency Paperwork Reduction Act clearance under a new OMB control number, 0694-0150, BIS wrote that it “needs time to receive and evaluate requests for specialty pharmaceutical products that meet an urgent United States health need before September 29, 2026,” and that failing to decide before then “creates uncertainty for companies’ understanding of their tariff liability and could also cause supply chain disruptions”1. The notice was signed by Jessica Curyto, deputy assistant secretary for technology security, and filed on September 21, leaving six days between publication and the effective date1.
The longer view: a national-security tariff with a trade-policy key
The section 232 statute has always mixed security with bargaining. Its section 232(c)(3)(A) lets the President negotiate agreements to limit imports and take other action if no agreement is reached within 180 days or one proves ineffective, and Proclamation 11020 invoked that clause in directing Commerce and HHS to keep negotiating2,7. By this journal’s count, 180 days from April 2 falls on September 29, the same day the general rate begins; neither document draws that connection. Company-level bargains have appeared elsewhere in this year’s section 232 practice, as in the engine tariff offset this journal examined in August.
What is new here is the use of trade-agreement status to decide which rare-disease and radiopharmaceutical imports pay a security tariff. The proclamation itself frames the pricing and onshoring agreements as making medicines “more accessible and affordable in the United States”2. The jurisdiction list may grow, Commerce may add specialty categories, and BIS has said it will publish a separate 60-day notice taking comment on the information collection1. The proclamation also requires the Secretary to tell the President within a year whether generics should face tariffs after all2. The list of 19 governs from September 29. How many urgent-need requests Commerce will have decided by then is not public.