Guest Column | May 20, 2019

What Will the USMCA Mean for MedTech?

By Zaid Al-Nassir, Decision Resources Group (DRG)

medtech-trendwatch-ZAS

[5/29/2019 Editor Note: This article has been updated to reflect Canada's recent actions and U.S. tariff changes]

On Nov. 30, 2018, US President Donald Trump, then-Mexican President Enrique Peña Nieto, and Canadian Prime Minister Justin Trudeau signed The United States–Mexico–Canada Agreement (USMCA), concluding over a year of negotiations surrounding the much-publicized successor to the North American Free Trade Agreement (NAFTA). Though signed and agreed to in principle, the new agreement has not been ratified by each country’s legislature and has therefore not yet come into force.

Despite the contentious nature of the negotiations, as well as criticism levelled at some of the new provisions, analysts appear to agree that the USMCA represents an upgrade — albeit a modest one — over NAFTA for all parties included. One facet of the new agreement surrounding medical devices marks clear progress for North American medtech markets, given that NAFTA did not include a section dealing exclusively with medical devices.

USMCA Medtech Provisions: What is New?

Titled Annex 12-E,  this addition has been hailed by AdvaMed as a significant improvement in the rules governing medical devices across North America. Included in this annex are a handful of provisions, summarized below, that the signatories must abide by once the agreement is ratified and in force:

  • On Competent Authorities:
    • All signatories must make available online a description of each competent authority, its specific responsibilities, and regularly updated contact information.
    • In addition, all parties must ensure that regulations surrounding medical devices across the three countries are not duplicative, as well as institute regular examinations into potential duplicative practices by their competent authorities. (In this context, “duplicative” refers to requiring medical device companies to conform to highly similar regulatory requirements in each individual country, which increases costs and delays authorization).
  • On Regulatory Harmonization:
    • All parties should ensure the definition of “medical devices” in its own laws and regulatory requirements is aligned and consistent with definitions approved by the Global Harmonization Task Force.
    • Signatories are required to bolster cooperation to maintain aligned and harmonized regulatory requirements across North America; this effort is to include participation in international and regional initiatives, such as the International Medical Device Regulators Forum.
    • All audits of companies’ quality management systems (QMS) that are conducted by sanctioned regulatory authorities and abide by conditions of the Medical Device Single Audit Program are to be recognized and accepted in all three countries.
    • Regulations for medical device market authorization should be developed and implemented in accordance with internationally and regionally recognized guidance documents.
  • On Regulatory Implementation:
    • Signatories are required to guarantee that products imported from another signatory (as well as any other country) receive equal treatment under their country’s regulations.
    • All parties must ensure that medical devices are classified through a risk-based approach, and any related regulations are based on risk assessments.
    • To avoid the implementation of regulations that may decrease the effectiveness of procedures or devices, or delay the availability of products in a certain market, signatories developing regulatory requirements must take into consideration their resources and capacity to ensure compliance.
  • On Marketing Authorization:
    • All parties are to grant marketing authorizations for medical devices based on information and data that relates solely to the safety, effectiveness, design, usage, and quality of the device; no data surrounding sales, pricing, or other financial information can play a part in marketing authorizations.
    • Marketing authorization processes must avoid duplicative requirements, be conducted based on a set of publicly available criteria (with a published checklist or guidance document detailing required information), consider potential conflicts of interest, and be conducted within a “reasonable period of time” (which is noted to possibly vary depending on the novelty of the device or other circumstances).
    • Parties should implement processes that would provide applicants with the opportunity to review or resubmit applications that have been denied.
    • Barring findings of safety, efficacy, or quality issues, devices that have previously received authorization and require regular reauthorization are to be allowed to remain on the market until a decision for reauthorization is issued.
    • Devices needn’t receive authorization in the country where they were manufactured in order to be eligible for authorization under a signatory’s authority.
    • Signatories can recognize marketing authorizations issued in another country as proof of a device’s adherence with local regulatory requirements; in cases where a signatory does not possess the required resources to provide marketing authorization for a certain device, it can require a marketing authorization from another country. The signatory is required to have a pre-established and publicly available list of countries from which marketing authorizations will be accepted.
    • All parties must allow manufacturers the opportunity to relabel or supplement existing labelling after devices have been imported, but before they are commercialized, as long as labeling is aligned with each party’s requirements; under NAFTA, improperly labeled imported devices are sent back to the exporting country.

According to AdvaMed, these provisions are expected to enhance transparency and fairness throughout North America, and will afford patients in the region with broader access to novel medical technology under stable, clearly defined, and harmonized regulatory systems.

Moreover, these provisions — specifically those eliminating duplicative regulatory requirements — will likely reduce costs for manufacturers bringing devices to market in North America, which may allow companies to bolster investment into R&D and the development of innovative solutions. More particularly, the new trade agreement diminishes so-called “non-tariff barriers,” which will enhance the ability of US companies to offer devices in Canada and Mexico, and vice-versa.

The ITC Report: Positive Outlook for Medtech

In April 2019, the US International Trade Commission (ITC) released a report highlighting the USMCA’s expected impact on the US economy and certain industries — a mandatory procedural step that paves the way for USMCA debates to begin in Congress. With regard to the medtech space, the ITC anticipates a largely positive impact, spurred by the provisions seeking to inhibit duplicative regulatory requirements and unnecessary trade barriers, which “exert a statistically significant, negative impact on medical device trade,” according to the report.

Additionally, the ITC notes that improved intellectual property rights (IPR) protections stipulated in the USMCA — which include extended copyright protection terms, patent term adjustments, and strong enforcement provisions — are expected to benefit medical device industry players throughout North America; the report finds “statistically significant positive relationships between trade flows and IPR protections” specifically in the medtech industry.

Notably, the ITC estimates that the USMCA’s IPR protections will reduce the cost of medical device trade in the Canada and Mexico by 8.21 percent and 11.22 percent, respectively, which is subsequently expected to bolster medical device imports from the US in those countries.

The ITC also suggests that medical device trade in the region could be further improved by encouraging additional regulatory harmonization between the three parties in terms of import restrictions; in particular, the report highlights the fact that the FDA’s quality systems regulations are not recognized in Canada, which — in addition to forcing manufacturers to undergo separate regulatory pathways — constrains the import of high-end medical devices from the US and delays their availability to Canadian patients.

That all said, the USMCA’s impact on medtech markets is expected to be somewhat modest, primarily because the three parties are already well-aligned in terms of medtech regulations and standards.

Ratification: Not So Straightforward

The agreement, as previously noted, still requires ratification by each country’s legislature before coming into effect; however, domestic political developments in the US have hindered its approval thus far.

In particular, Democrats, who now hold a majority in the US House of Representatives, had indicated they were unwilling to put the USMCA to a vote before Mexico passed labor reform laws that were tied to USMCA provisions; on April 29, 2019, Mexico’s senate did just that, and a few days later, Mexican President Andres Manuel Lopez Obrador prompted US lawmakers to ratify the new agreement. While this explicitly fulfills the House Democrats’ conditions to begin debating the USMCA, it remains unclear when the House will do so, as some Democratic figures have suggested that Mexico may not be able to implement these reforms effectively, signaling that Democrats may seek out further assurances from Mexico. That said, recent reports have indicated that the White House may be warming up to the idea of making some amendments, such as specific language in the legislative text, to secure congressional support for the deal.

In addition, it appeared in recent months that the persistence of the Trump Administration’s steel and aluminum tariffs on Canada and Mexico, originally imposed in 2018, would render ratification even more challenging. However, those tariffs (and the associated retaliatory tariffs) were lifted on May 17, 2019, effectively satisfying the conditions set out by Republican senators to begin debating the USMCA and removing a significant obstacle to ratification in both Canada and Mexico. In fact, a few days following this announcement, Canadian Foreign Minister Chrystia Freeland introduced a ways and means motion to the House of Commons, thereby initiating the process required to ratify the deal.

As it stands, our research leads us to believe that the USMCA will ultimately be ratified by Congress (potentially with some minor adjustments, specifically revolving around labor, environmental, and pharmaceutical provisions), as well as the legislatures in Canada and Mexico. Once this takes place, the agreement’s ratification will be received warmly by medical device manufacturers and associations across North America, and will likely improve patient access to innovative medical devices in all three countries.

About The Author

Zaid Al-Nassir is a senior product support analyst at Decision Resources Group. He holds a B.A. focused in Political Science, History, Writing & Rhetoric from the University of Toronto. Zaid can be contacted at zalnassir@teamdrg.com