122 C Street N.W., Suite 700, Washington, DC 20001
October 1, 2025
Claire Avery-Page
Director for Innovation and Intellectual Property
Office of the United States Trade Representative (USTR)
Re: USTR-2025-0018, 2025 Review of Notorious Markets for Counterfeiting and Piracy
On behalf of National Taxpayers Union (NTU), the nation’s oldest taxpayer advocacy organization, we write with brief observations “that identify online and physical markets to be considered for inclusion in the 2025 Review of Notorious Markets for Counterfeiting and Piracy (Notorious Markets List).” As USTR notes, “[t]he Notorious Markets List identifies examples of online and physical markets that reportedly engage in or facilitate substantial copyright piracy or trademark counterfeiting.” Although intellectual property protections are not the focus of NTU’s mission, these matters can occasionally concern taxpayers, as the following comments will outline.
Introduction
NTU is the nation’s oldest taxpayer advocacy organization, founded in 1969 to achieve favorable policy outcomes for taxpayers with Congress and the executive branch. Our experts and advocates engage federal policymakers on important matters affecting taxpayers in a variety of settings, including tax administration, trade, health care, and product regulation. All these matters intersect and provide NTU with an opportunity to offer its views today.
For most of NTU’s 55-year history, our team has analyzed and provided commentary on important questions surrounding the fiscal impact of federal legislation and regulations on the health space. We have noted with great concern the decades-long cost spiral in federal health care programs, which has seemed to defy attempts at reducing or at least controlling the burden on current and future taxpayers.1 Even with the passage of the One Big Beautiful Bill Act, which NTU strongly supported, outlays for the federal share of the Medicaid program are projected to increase between Fiscal Years 2025 and 2034 by 31%. It should be noted that, without the reforms contained in OBBBA, federal Medicaid outlays would have risen at roughly double that rate.2
To NTU, it is evident that innovative approaches to reducing health care costs must continue to be explored and implemented, to reorient this unsustainable trajectory toward a more realistic and affordable direction. We believe that thoughtful deployment of prescription drugs (both branded and generic/biosimilar) in more settings, as longer-term alternatives to costlier treatments, can be a vital part of this necessary exercise. Another important component is wider availability of alternative products to combustible tobacco, which can reduce the harm (and associated costs to taxpayers) of various smoking-related ailments. These are just two examples of how taxpayers have a significant stake in how federal and state governments approach taxes, spending, trade policy, and regulations of product markets here and abroad. For this reason, we offer the following observations on USTR 2025-0018.
Comments
Policing Counterfeit Medicines Carries Serious Taxpayer Costs
For many years, NTU has warned that proposals to allow importation of prescription drugs from abroad carries fiscal—not just health—risks because of their potential to allow counterfeit medicines from areas that could be described as “notorious markets.”
For instance, several states—ranging from Vermont to Florida—have attempted to craft drug importation programs in the name of saving patient and taxpayer dollars. The results have been underwhelming, as an NTU letter to the Utah Legislature fully six years ago pointed out:
Ensuring consumer safety likewise carries a considerable financial burden to government agencies, and therefore taxpayers. In 2004, a Department of Health and Human Services report estimated that approximately 10 million packages entered the United States with imported prescription drug products; developing a federal regime to screen all these packages for safety would add up to nearly $3 billion—or approximately the total potential savings from an importation regime, according to the Congressional Budget Office (CBO). It would be a mistake to assume that some 15 years later, improvements in tracking, testing, and monitoring shipments have erased these costs. The significant outlays necessary to preserve the integrity of the pharmaceutical supply chain – especially due to the proliferation of counterfeit Internet pharmacies – could still easily overwhelm whatever price breaks drug importation could produce nationwide or in Utah. Policing transshipments that might be sent from Canada but actually manufactured elsewhere would remain difficult. Interestingly, not even the association representing U.S. pharmaceutical wholesalers, some of whose members would presumably benefit by the contracted portion of the proposed Utah program, has endorsed importation.
We would also note that the net impact of importation on consumers – and in the case of Utah’s Medicaid and state employee insurance programs, taxpayers – remains uncertain, despite being informed by other states’ generally negative experiences. Illinois, for example, terminated its importation program in 2008 after fewer than 4,000 residents availed themselves of the services. More recently, in December 2018, importation advocates hailed a report from Vermont’s Agency of Human Services (AHS) which claimed that a wholesale Canadian-oriented importation regime there could allow commercial insurers to “see savings of between $1-5 million dollars.” Yet, that same report also noted that administration of such a program “would likely come at substantial cost to the state, requiring upfront investment and appropriations.” Such funds could not be raised painlessly through taxes on the pharmaceutical industry, which would then be left with unappetizing choices of passing along the cost to other customers, reducing research or employee benefits, or cutting returns to shareholders (many of whom are, ironically, institutional entities such as state pension funds). On the question of whether the benefits of a potential Vermont importation program would outweigh its costs, AHS demurred.3
This problem has been magnified recently in the Anti-Obesity Medication (AOM) space because, in addition to direct importation of counterfeit drugs, some U.S.-based compounding pharmacies’ utilization of foreign Active Pharmaceutical Ingredients (APIs) have been linked to adverse health events. Although compounding pharmacies often provide important services to patients with unique conditions that require specialized prescriptions, some of these entities have recently come under scrutiny for utilizing AOM ingredients that are either ineffective or harmful. Examples of both these types of direct importation and compounding controversies include:
- According to an analysis of FDA and other data conducted by the Partnership for Safe Medicines (a business coalition) and the former Director of FDA’s Criminal Investigations Division, 2,465 bulk foreign shipments of semaglutide or tirzepatide entered the U.S. for inspection between September 2023 and January 2025. Of these, 239 came from entities that were not registered in advance with FDA, and from that number 195 “were allowed into the U.S. despite clear legal prohibitions.”4
- An Endpoints News investigation summarized a litany of allegations against a large U.S.-based compounding pharmacy that it was utilizing food- or animal-grade ingredients for injectable drugs including AOMs.5
- In February of this year, 38 state and territorial Attorneys General urged the FDA to “take decisive action” and “safeguard our American supply chain and to work with other federal and state agencies to stop bad actors from producing counterfeit drugs.” The signatories noted that while AOMs are important discoveries to improve health, “counterfeit or copycat drugs can be contaminated through shady supply chains running from China, Turkey, and other overseas suppliers, or they can contain entirely different drugs manufactured and packaged to look like [AOMs].”6
To be clear, NTU opposes excessive regulation of the private sector as well as protectionist policies designed to keep foreign goods of all types out of the U.S. Both approaches ultimately harm taxpayers in a variety of ways, from making purchases by the governments they support more expensive, to preventing the domestic growth and investment that provides stable revenues without raising tax rates. Rather, we offer these examples to illustrate the fact that, when governments enact unwise policies regarding the importation of drugs or the oversight of certain pharmaceutical operations, taxpayers are left with fiscal side effects. Patient injuries in government-funded health care programs make heavier the burdens taxpayers must already bear for treatments, while the salutary effects of authentic medications in driving down expensive hospital stays, surgeries, and other treatments are diminished as patients are unable or unwilling to access them.
We hasten to add that, under the User Fee Agreements that prescription drug, generic drug, medical device, and other businesses conclude with the FDA, the private sector effectively pays billions to the government to be regulated, accounting for up to half of FDA’s budget.7 Tobacco and Modified Risk Tobacco Product approvals, also under FDA’s regulatory rubric, are funded almost entirely from business user fees. The value the private sector receives from these payments is diminished when activities such as import inspections fall by FDA’s wayside.
There is another specific historical connection between taxpayers and compounding pharmacies, including smaller entities. In 2018, NTU remarked:
[C]oncerns have been raised that 503A producers may be able to skirt the law by manufacturing compound drugs in bulk and marketing them directly to health care offices rather than to individual consumers. By following this strategy, they are able to inflate their revenue by adding expensive, and often unnecessary components into certain drugs, and filing huge reimbursement claims to health programs like Medicare and Medicaid, often amounting to tens of millions of dollars.
Taxpayers are footing the bill for some of these fraudulent claims, so they have a stake in how federal regulators approach the situation. In a recent report, the Office of Inspector General at the Department of Health and Human Services examined the spending trends for compounded drugs as well as the existence of fraud in the system. The OIG noted that Medicare Part D spending for compounded drugs has skyrocketed over the last decade, rising from $70 million in 2006 to more than $508 million in 2015, a nearly 625 percent increase. While some may point to America’s aging population for the cause, the report noted that over the same period, overall Medicare Part D prescription drug spending had grown by about one-fourth that rate.
The OIG believes the trend in Medicare compound drug spending can partially be attributed to abuse of taxpayer dollars, noting that “this high growth raises concerns that some compounded drugs may not have been medically necessary or may not have been dispensed.”8
Fortunately, government agencies have been able to combat this problem, but now a new threat has arisen because of impurities in AOMs either brought into the U.S. in ready-to-use form, or through APIs that are later compounded here.
To reiterate, taxpayer-funded health care programs such as Medicare and Medicaid stand to benefit from the introduction of AOMs, which can obviate expensive surgeries and hospital stays for patients.9 These salutary fiscal effects are negated, or worse, made into cost drivers, when counterfeit doses or APIs render AOMs useless or deleterious. To the extent that USTR can work with the Food and Administration and the Centers for Medicare and Medicaid Services in preventing these fake drugs or APIs from entering the country, taxpayers stand to gain.
We must sound a note of caution, however, in that policymakers should take care not to label all foreign APIs as originating from “notorious markets.” For instance, generic and biosimilar providers, which are a key component to the U.S.’s unique environment that offers both access and affordability for prescription drugs, depend upon high-quality APIs to manufacture their goods. As NTU explained in comments earlier this year on its Section 232 investigation into pharmaceuticals:
Raising the costs of certain API imports would erode this trade advantage and impose higher costs on innovator drugs that show up in Medicare, Medicaid, and other taxpayer-supported health programs. Discoveries that could occur here, thereby bending the cost curve over time, will either shift abroad or never occur in the first place. For their part, generic manufacturers already operate on extremely thin margins to remain profitable, even as their sales volumes increase. Tariffs will raise the costs of their inputs as well, perhaps leading some firms to cease operations here.10
Compulsory licensing and attempts on the part of other countries to obtain Trade-Related Aspects of Intellectual Property Rights (TRIPs) waivers are yet another way that markets abroad attempt to benefit financially from U.S. discoveries. As NTU has explained before, such schemes, if U.S. leaders allow them to proliferate further, will damage America’s standing as the strongest economic and health care innovator in the world.11
Regulatory Reform Here Can Keep Ineffective Imitations from Abroad at Bay
Other products conducive to public health and savings in taxpayer-funded health care programs, such as alternatives to combustible tobacco, can likewise be compromised by counterfeits from abroad, some of which may be considered “notorious markets.” Here again, the solution begins at home. As an NTU analysis from 2022 put it:
A gray market is similar to the concept of a black market in that the products being sold are not strictly speaking legal, but instead of finding items through back channels, the deep web, or the back of a truck, the illicit items can be found by the general public readily available in brick and mortar stores, or reliable websites. Another distinction worth noting in this case is that retailers are likely following other legal requirements for these products, like age restrictions and collecting some taxes.
Since 2016, the FDA has sought to ban or block through the rulemaking process the sale of flavored tobacco products, including vapor products such as peach Juul or melon Vuse that were officially removed from the market in 2020. The FDA created a new application process, known as premarket tobacco applications, for companies seeking to sell such products and required all e-cigarette manufacturers to remove their products from the market until they were approved for sale by the FDA. More than 500 companies were able to file applications for more than 6.5 million products, submitting the required scientific evidence demonstrating that their product was less harmful than combustible tobacco. Since the application deadline, the FDA has approved only 20 e-cigarette products out of millions of applications.
While the large manufacturers like Juul and Vuse complied with the FDA, other flavored disposable vapor products have remained on the market without FDA approval. Disposable products have seen a boon in the last three years, growing from 2 percent to a staggering 33 percent share of the U.S. market, according to a Reuters review of retail sales data.
Responsible U.S. businesses who followed the process as required by the FDA and removed their products from circulation are being punished and the FDA is doing little to curb the gray market availability of bad actors who are knowingly subverting the law in order to turn a profit.
The truth of the matter is that e-cigarettes like reusables or disposables are valuable cessation devices that have been proven to assist adults in reducing or altogether stopping their combustible usage, which has significant health advantages. According to the most recent study released in 2022 by Public Health England, vaping is “at least 95 percent less harmful than smoking.” Driving this point further, a 2021 study conducted on San Francisco’s ban on flavored tobacco sales yielded higher odds of minor students’ usage of combustible tobacco.
The FDA continues to overregulate and push policy that leads to gray markets, bad actors, and worst of all, increased youth combustible usage. At a time when states are exhausting their COVID relief dollars and looking to boost revenue, this situation shows that they’d be better off with reasonable regulations and lower taxes, incentivizing the use of less harmful e-cigarettes. Instead, states will likely attempt to raise taxes – either on tobacco products or elsewhere – in order to close budget shortfalls. This would be especially problematic during these uncertain economic times.
Most of this blame, of course, lies with the FDA. If the FDA’s aim in requiring all vapor products to reapply for approval to be on the market is to truly reduce youth usage rates, then they need to enforce their rules while providing a true track to approval for responsible companies to continue to innovate in the space. Instead it’s created an enormous mess and, as usual, taxpayers will likely be left holding the bag.12
In 2024, NTU provided testimony to the Food and Drug Administration’s Center for Tobacco Products (CTP) on the approval process of Pre-Market Tobacco Product Applications (PMTAs) for Modified Risk Tobacco Products, observing that, while the gross costs of smoking on taxpayer-funded health care programs are well-known, the net fiscal impact of non-combustible products could not be better-known without more certainty and alacrity from CTP in allowing those products to enter the market. In this case, an evidence-driven approach to approving these products in the United States is the best antidote to items entering the country from “notorious markets” whose pedigree is less certain and less susceptible to data-driven evaluation of their capacity for fiscal benefits.13
Conclusion
These comments relate USTR’s interest in what it calls “notorious markets” to taxpayers’ interests in health care policy, but there are certainly other areas, ranging from tech to finance, where similar dynamics may exist. Wherever such cases may exist, NTU urges USTR to consider the importance of our home-grown policy environment that stresses economic freedom.
Returning to the health space, as NTU has noted many times, no other country in the world can boast of such a successful policy environment that both encourages discoveries to reach patients (nearly 90% of newly launched drugs worldwide are available here) and controls costs (over 90% of prescriptions written in the U.S. are for generics).14 This strategic asset should be strengthened, not undermined. USTR’s recent investigation into pharmaceutical markets, for which NTU filed comments, is a major illustration of how counterproductive federal policy can damage the well-being of taxpayers. Slow and uneven PMTA processes can likewise be an impediment to bringing economically and fiscally sensible products to American consumers, and by extension, American taxpayers.
In both cases, the response to “notorious markets” in other countries (and, for that matter, legitimate competition from abroad) can best be crafted through regulatory reform in this country, as well as respect for the bedrock intellectual property and taxpayer rights that have long characterized America’s success story.15
Thank you for your consideration of these comments, and, should you have any questions on this or any other fiscal or regulatory matter before USTR, we are at your service.
Sincerely and respectfully,
Pete Sepp, President
National Taxpayers Union
1 See, for example, the Congressional Budget Office report on the growth of Medicare and Medicaid costs at: https://www.cbo.gov/publication/60127.
2 See early projections of OBBBA’s effects on Medicaid spending from the Economic Policy Innovation Center at: OBBB Myth vs. Fact: Medicaid “Cuts” Are Just Washington Math - EPIC for America.
3 See the full letter at: Open-Letter-On-Importation-Legislation.pdf
4 For further details, see: New report reveals illegal ingredients for knockoff weight loss drugs flooding into U.S. from foreign sources, endangering patient safety – Partnership for Safe Medicines.
5 For further details, see: Empower Pharmacy allegedly used low-quality ingredients, skirted rules
6 For further details, see: TN Attorney General Leads Bipartisan Call for Action Against Sellers of Counterfeit, Unapproved, and Contaminated Weight Loss Drugs.
7 For background, see: FDA User Fees: Examining Changes in Medical Product Development and Economic Benefits - NCBI Bookshelf; and FDA Human Medical Product User Fee Programs | Congress.gov | Library of Congress.
8 See the full analysis at: Pharmacy Regulations Are Compounding Headaches for TaxpayersOpen-Letter-On-Importation-Legislation.pdf.
9 For further analysis on the impact of AOMs in reducing taxpayer-funded health care costs, see: NTU Comments on Medicare and Medicaid Coverage of Anti-Obesity Medications - Publications - National Taxpayers Union. For the impact of prescription drugs in general on bending the taxpayer-funded health care cost curve, see: How Much is Medicine Worth to the American Taxpayer? A Cost-Benefit Analysis - Publications - National Taxpayers Union.
10 See the NTU comments at: Section 232 Tariffs on Pharmaceuticals Will Increase Costs and Weaken U.S. National Security - Publications - National Taxpayers Union.
11 For further details on TRIPs waivers, see an analysis from NTU’s research arm here: Instead of Waiving IP Rights on Innovation, America Should Vaccinate the World - Publications - National Taxpayers Union.
12 For further details, see: FDA’s Lack of Enforcement Continues to Prop Up Gray Market Disposables - Publications - National Taxpayers Union.
13 For further details, see: NTU Testimony on Modified Risk Tobacco Products Program Developments - Publications - National Taxpayers Union.
14 See NTU’s commentary at: https://www.ntu.org/publications/detail/hatch-waxman-drug-patent-law-meets-middle-age-and-taxpayers-can-celebrate.
15 For further analysis on the importance of these rights, see, for example: Biden March-In Plan is Misguided and Likely Harmful - Publications - National Taxpayers Union; and Prescription Drug Market Needs Thoughtful Reform For Taxpayer Interests - Publications - National Taxpayers Union; and More Power to Federal Trade Commission over Medicines: What Could Possibly Go Wrong? - Publications - National Taxpayers Union; and Rebate Model Pilot Can Boost 340B's Mission, Reduce Costs - Publications - National Taxpayers Union; and Lutnick patent tax - coalition letter.pdf.