Trump's Most Favoured Nation (MFN) Policy On Drug Pricing

On May 12, 2025, US President Donald Trump signed an executive order invoking a “Most Favoured Nation” (MFN) pricing policy aimed at drastically reducing drug prices in the US.

Key Highlights of Executive Order

Price Benchmarking: US drug prices will be aligned with the lowest prices paid internationally among developed nations.
Anti-Profiteering: The policy is framed as a strike against “middlemen” and pharmaceutical profiteering.
Voluntary Compliance: Companies are being encouraged to voluntarily reduce prices, although legal enforcement mechanisms remain unclear.
Electoral Messaging: Framed as restoring “fairness to American consumers” and part of broader healthcare reform.

About MFN

MFN Clause (Article 1, GATT 1994): Under WTO rules, member nations cannot discriminate between their trading partners. If one country is given a special trading benefit (like reduced tariffs), the same must be extended to all other WTO members.
India’s Example: India granted MFN status to Pakistan from 1996 to 2019, but revoked it after the Pulwama terror attack, showing how MFN can be politically retracted.

Implications for India

Aspect	Details
Pharma Exports	India exports ~$9 billion worth of generic drugs to the US annually. Price benchmarking could squeeze margins, affecting India’s pharma trade surplus.
Global Pricing Pressure	Indian firms may be pressured to lower international prices or risk being excluded from US procurement, affecting global competitiveness.
Domestic Price Hikes	To offset US losses, companies may raise prices in domestic markets, affecting drug affordability in India.
R&D Investment Impact	Lower profitability may curtail funding for research, innovation, and new drug development, weakening the long-term capabilities of Indian pharma firms.

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