The U.S. Department of Commerce Bureau of Industry and Security (“BIS”), on April 14, 2025, announced the initiation of an investigation into the imports of pharmaceuticals and pharmaceutical ingredients as well as semiconductors and semiconductor manufacturing equipment in the context of U.S. national security. This move could affect India’s USD 10 billion annual pharmaceutical exports to the U.S.
The BIS investigation would determine whether reliance on foreign pharmaceutical supply chains, particularly active pharmaceutical ingredients (“APIs”) and finished drugs poses a threat to the domestic healthcare system of the U.S. India has consistently increased its footprint in the U.S. pharmaceutical market over the past decade, thereby establishing itself as one of the top 5 suppliers of pharmaceutical products to the U.S. India’s exports include a wide range of finished formulations and APIs, which find a wide use in the U.S. healthcare system.
This investigation marks a strategic shift from the traditionally lenient trade stance towards the pharmaceuticals sector due to its humanitarian significance to a more aggressive policy. Where the pharmaceutical sector was thus far not exposed to high tariffs, the current move of the U.S. indicates a likelihood of the U.S. imposing tariffs on imports of generics and APIs in range of 10% to 25% for countries like India and China.
BIS investigation
The investigation by BIS conducted is under Section 232 of the Trade Expansion Act, 1962, which empowers the President of the U.S. to adjust imports, by way of tariffs or otherwise, if excessive foreign imports are perceived as a threat to U.S. national security..
The investigation under Section 232 typically takes the following course:
- The Department of Commerce, investigates specific imports in question and prepares a report suggesting potential courses of action.
- This report must be presented to the President within a period of 270 days of commencement of the investigation. It must highlight whether the imports in question pose a threat to the national security of the U.S.
- The President must take a decision basis the recommendations in the report within 90 days of receiving it.
The investigation into the pharmaceuticals sector pertains both to pharmaceuticals and pharmaceutical ingredients. This includes finished drugs, medical countermeasures, active pharmaceutical ingredients and other critical inputs and key starting materials, and their derivative products. The BIS is undertaking this investigation under the U.S. National Security Industrial Base Regulations (“NSBIR”). As part of this process, interested parties are invited to submit written comments, data, analyses, or any other information relevant information to the BIS by May 07, 2025. The submitted comments and information must pertain to the criteria outlined in the NSIBR. These include, inter alia, the level of demand for pharmaceuticals and pharmaceutical ingredients in the U.S., the extent to which U.S. manufacturers can meet the domestic demand, the role of foreign supply chains, concentration of U.S. imports of these from small number of suppliers and associated risks and other such relevant questions.[1]
BIS will take all public comments into consideration during the course of the investigation. Participation in this process by submitting information or comments can influence the outcome of the investigation and prompt regulators to further clarify actions. The responses received by the parties may also be informative in terms of any potential legal challenges that could arise if any action is taken basis the report submitted on the conclusion of the investigation.
What is the potential impact on Indian pharmaceutical companies?
Indian pharmaceutical companies fulfil a significant share of the demand for affordable generics and APIs. However, this development could lead to a reshaping of the risk assessment, market access and compliance expectations in the following manner:
- Increased scrutiny of exports: Indian pharmaceutical exporters may face tighter oversight on such drug categories that are deemed essential for the U.S. national security, which could lead to longer timelines for approval as well as increased documentation requirements.
- Supply chain audits and traceability requirements: The increased scrutiny explained above may also include scrutiny of the entire supply chain. In light of the “trade war” between China and the U.S., supply chain audits may be instituted in situations where key ingredients are sourced from China, which is the case with many Indian pharmaceutical manufacturers. Resultantly, Indian pharmaceutical companies may be required to demonstrate end-to-end traceability of the supply chain including manufacturing as well as vendor vetting processes.
- Reclassification of certain products: Pharmaceutical products, including generics and APIs, may be reclassified on the basis of their importance in the realm of American national security Indian companies may have to proactively review the legal scenario as well as the legal strategy surrounding these exports.
- Increased exposure to the cross-border regulatory action: This development signifies convergence of trade policy with national security concerns, implying that the pharmaceutical sector would now be assessed not just by health regulators like the Food and Drug Administration (“FDA”) but also by the Department of Commerce, thereby widening the field of risk.
What can these companies do?
The abovementioned implications on the Indian pharmaceutical companies necessitates the following actions:
- Submitting public comments: Indian pharmaceutical companies having a strong case to mitigate the impact of the Section 232 investigation and subsequent potential tariffs, may consider participating in the public comment window open until May 07, 2025.
- Robust Documentation and record-keeping: Indian pharmaceutical companies exporting to the U.S. must maintain documentation in relation to the sourcing ingredients and engagement of vendors, as well as the quality and testing of the drugs. This must be in line with the local laws of India as well as that of the U.S due to scrutiny from different regulators like the FDA and BIS. This is especially important in cases where ingredients are sourced from countries that are under scrutiny of the U.S.
- Due diligence: In case of contract-based manufacturing or where Indian pharmaceutical companies have U.S.-based subsidiaries, adequate due diligence must be undertaken in respect of affiliates and partners.
- Trade and sanctions and compliance: While undertaking risk reassessment, it is crucial to include countries or other affiliates that are subject to U.S. sanctions laws to avoid collateral risks.
- Institute relevant policies: Indian companies must institute relevant polices to determine red flags in their businesses and ensure transparency.
It is prudent for companies to engage Indian legal counsel, who are uniquely placed to help companies navigate the evolving legal and geopolitical matrices, for strategising trade in accordance with Indian and U.S. regulations. This can be particularly helpful in managing disclosures and compliances under increased scrutiny. Further, it would be useful in conducting internal audits to determine gaps in current supply chain documentation or any other exposure under law.
Conclusion
The investigation under Section 232 underscores the reality that compliance is not merely about regulations but about geopolitics. It is crucial that Indian companies strategise business in a manner that encompass the legal landscapes as well as trade policies and international risks. Such companies must balance transparency with legal protections and prevent damage to business.
[1]The notice for the investigation and request for public comments may be accessed here: 2025-06587.pdf;