Commerce Department finalizes 0% rate for specialty drugs ahead of Section 232 expansion

South Korea among 19 eligible jurisdictions; ADCs, cell and gene therapies, plasma products exempted

Exporters and CDMOs retain competitive edge, but product codes and supply chain documentation remain key hurdles

The South Korean and US flags. [Newsis]
The South Korean and US flags. [Newsis]

South Korean advanced biopharmaceuticals have largely been shielded from sweeping US tariffs as Washington prepares to extend its Section 232 pharmaceutical trade measure — which imposes duties of up to 100% on patented drugs — to all companies starting Tuesday.

The US Commerce Department's detailed exemption guidelines formally designate South Korea as a zero-tariff eligible jurisdiction, meaning key next-generation export products from domestic pharmaceutical and biotech firms — including antibody-drug conjugates (ADCs), cell and gene therapies, rare disease drugs and plasma-derived products — will face a 0% tariff rate.

The Commerce Department's Bureau of Industry and Security published the "Specialty Pharmaceutical Tariff Adjustment Detailed Guidelines and Harmonized Tariff Schedule of the United States (HTSUS) Technical Amendments Pursuant to Presidential Proclamation 11020" in the Federal Register on Wednesday (local time).

Presidential Proclamation 11020 imposes 100% tariffs on patented drugs and their active ingredients on the grounds that foreign pharmaceutical imports threaten national security. However, it carves out a 0% rate for certain specialty drugs from countries that have concluded relevant agreements or can meet urgent public health needs.

The newly published notice is the final guideline codifying the specific eligibility requirements and the list of exempt countries.

S. Korea among 19 eligible jurisdictions; ADC, cell and gene therapy, plasma products officially at 0%

According to the Commerce Department announcement, South Korea has been formally included on the list of eligible jurisdictions for the 0% tariff rate, alongside the EU, Japan, the United Kingdom, Switzerland and 14 other jurisdictions.

The zero-tariff exemption covers nine categories of specialty pharmaceuticals: drugs whose every approved indication is a rare disease, radiopharmaceuticals, plasma-derived products, fertility treatments, cell therapies, gene therapies, ADCs, medical countermeasures for chemical, biological, radiological and nuclear threats, and veterinary drugs.

The Commerce Department specified that the definitions cover not only FDA-approved drugs but also investigational drugs at the investigational new drug (IND) stage in the United States.

In addition, the department established a new HTSUS subheading (9903.04.70) to apply a 0% tariff to all otherwise-dutiable drugs and active ingredients imported into the United States for clinical trial and research and development purposes rather than commercial sale.

The department also reaffirmed that generic drugs and biosimilars remain excluded from Section 232 tariffs, consistent with existing policy.

Biosimilar exemption reaffirmed, new R&D duty waiver added — exporters and CDMOs set to benefit

The measures remove what had been the single greatest trade-policy uncertainty hanging over South Korea's pharmaceutical and biotech industry as it pursues the US market.

ADCs, cell and gene therapies — which major domestic companies have identified as core growth engines — along with plasma-derived products that have been pushing into the US market, all qualify for zero-tariff treatment, preserving their price competitiveness and profitability.

Contract development and manufacturing organizations (CDMOs) and global clinical operations are also expected to benefit. With tariff burdens on clinical and R&D samples that fall under the dutiable product schedule fully eliminated, the risk of a sharp rise in US clinical trial costs for domestic biotech firms has been neutralized.

Analysts also expect that eligible-jurisdiction status, combined with the biosimilar exemption, will make South Korean CDMO facilities significantly more attractive for global orders compared with manufacturing sites in non-eligible countries.

Strict rare-disease indication rules mean exporters must move quickly on product codes and supply chain documentation

Practical customs compliance challenges, however, will require thorough preparation. The Commerce Department has defined the rare-disease drug exemption narrowly — requiring that every approved indication be for a rare disease — leaving open the possibility that drugs with any common-disease indication mixed in could be subject to the patent tariff.

Because the tariffs apply not only to finished drug products but also to active pharmaceutical ingredients (APIs) and key starting materials (KSMs), South Korean exporters are advised to proactively organize their 10-digit HTSUS product codes, manufacturer histories and supply chain traceability documents for presentation to US Customs and Border Protection at the time of clearance.


silverpaper@heraldcorp.com