Executive Summary
- What’s new: The U.S. Commerce Department’s Bureau of Industry and Security published a notice launching a new application process for pharmaceutical manufacturers to obtain reduced Section 232 tariff rates through company-specific onshoring agreements.
- Why it matters: Companies not listed in Annex III of Proclamation 11020 face a 100% tariff on patented pharmaceuticals effective September 29, 2026; approved onshoring agreements reduce the duty rate to 20%, or 0% with MFN pricing agreements.
- What to do next: Pharmaceutical manufacturers should consider moving quickly to evaluate their product portfolios, supply chains and manufacturing footprint, and begin preparing applications, which are due by June 12, 2026.
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On May 13, 2026, the U.S. Commerce Department’s Bureau of Industry and Security (BIS) published a notice (the Notice) that launched a new application process for important tariff benefits. Under this process, pharmaceutical manufacturers may apply for company-specific onshoring agreements to obtain reduced Section 232 tariff rates on imports of patented pharmaceuticals and associated pharmaceutical ingredients. The deadline for submitting these applications is June 12, 2026.
The Trump administration previously announced a 100% tariff on certain imports of patented pharmaceuticals and associated pharmaceutical ingredients, effective September 29, 2026, for companies not listed in Annex III of the Proclamation. Companies that enter into approved onshoring agreements with BIS will receive a significantly reduced duty rate of 20%, and those that also enter into Most Favored Nation (MFN) pricing agreements with the U.S. Department of Health and Human Services (HHS) will receive a 0% duty rate until January 20, 2029.
Background
On April 2, 2026, the president issued Proclamation 11020, titled “Adjusting Imports of Pharmaceuticals and Pharmaceutical Ingredients Into the United States,” imposing Section 232 tariffs on imports of patented pharmaceuticals and their ingredients.
Proclamation 11020 included, among other actions, a 100% tariff to be imposed on patented pharmaceuticals and associated ingredients identified in Annex I of the Proclamation, and a 20% tariff to be imposed on patented pharmaceuticals and associated pharmaceutical ingredients produced by companies that have onshoring agreements with Commerce (which will increase to 100% on April 2, 2030).
Application Process and Requirements
To apply for the 20% tariff, companies must be prepared to disclose extensive amounts of information. Applications must include information such as:
- Corporate information, including organizational information and beneficial ownership.
- Total planned U.S. investments from January 20, 2025, to January 20, 2029 (specifying capital expenditure on manufacturing plants and R&D facilities).
- A comprehensive onshoring commitment describing the products, volume and value to be onshored.
- Current and projected percentages of U.S. and global sales produced domestically.
- Investment commitments with production milestones and ongoing reporting obligations, as well as information for patented products that the company proposes not to onshore.
- An annex listing products for which preferential tariff treatment is requested, with detailed product-level information including HTSUS codes, advertised name and brand, active ingredient(s), country of origin, importer of record, exporter information and more.
Given the tight response timeframe, it may be challenging in some cases for companies to set out granular information concerning planned U.S. investments and onshoring (e.g., production milestones). If companies have not already formulated onshoring plans, they will have to move quickly to develop these plans and ensure that they are sufficiently robust to sustain review during the application process.
Review, Approval and Enforcement
There is no time limit for BIS’s decisions. Commerce may condition its approval pending the applicant’s acceptance of proposed modifications, or approve the proposal as submitted.
Similar to the offset credit mechanism employed in the Section 232 auto tariff context,1 the reduced Section 232 pharmaceutical tariff may be used by entities other than the drug manufacturer itself. As long as they are approved by Commerce, other importers designated by the manufacturer may take advantage of the reduced rate. We anticipate that these importers will be issued a license code similar to the code issued to importers designated by the OEM in the Section 232 auto parts context. Importers would insert this code into the relevant Form 7501 to receive the 20% tariff.
Once approved, the reduced tariff comes with important limitations. Unless Commerce otherwise specifies, the reduced tariff:
- Does not apply to products produced by a company that the drug manufacturer acquires after April 2, 2026, or to products acquired or licensed after that date.
- Does not apply to products that the drug manufacturer has not itself developed as a majority participant.
Collectively, these limitations significantly narrow the scope of the products to which the reduced rate applies. By design, the threat of 100% tariffs will have a chilling effect on manufacturers entering into future acquisitions or licenses that rely on the importation of patented drugs. And although there is some ambiguity in the language, the Notice could be read to indicate that the tariff reduction excludes any drug — even those from a manufacturer’s existing portfolio — that the manufacturer helped develop, but did so as only a minority participant. If this is indeed how Commerce intends to restrict the tariff benefit, this could create numerous administrative challenges — for instance, requiring companies to recreate the development history of decades-old drugs.
Finally, we note that companies entering into onshoring agreements face significant compliance risk. Approved companies must submit periodic reports to Commerce regarding progress toward fulfilling onshoring milestones, and Commerce may require that such reports be audited by an external auditing firm. If a company is found to have engaged in fraud or to have lied to the U.S. government with respect to its onshoring commitments, Commerce may reimpose the tariffs introduced in Proclamation 11020, both prospectively and retroactively, as well as additional penalties.
Implications and Outlook
The launch of this application process is a key development in the Section 232 pharmaceutical tariff regime. More companies can now receive tariff benefits in exchange for onshoring commitments, and concerns about the negative economic effects of the Section 232 pharmaceutical tariffs may be muted if a significant number of these agreements are inked. Indeed, Commerce has estimated that approximately 450 companies may submit onshoring agreement applications.
But the application window is narrow, and companies will need to move quickly if they want to take advantage of this opportunity. Applications are due by June 12, 2026, and as noted above, a considerable amount of information will need to be assembled and conveyed in the application.
If pharmaceutical manufacturers have not already developed onshoring plans, they should consider moving quickly to evaluate the scope of their product portfolios, supply chains and manufacturing footprint to determine which products are eligible for onshoring agreements and to develop credible onshoring plans and investment commitments. The significant gap between the default 100% tariff rate and the reduced 20% rate — or 0% for companies with MFN pricing deals — makes the onshoring agreement pathway a critical tool for managing tariff exposure.
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1 International Trade Administration, “Procedures to Administer Import Adjustment Offset Amounts for Certain Imports of Automobile Parts Under Proclamation 10908, as Amended,” 90 Fed. Reg. 25027 (June 13, 2025). Under the import adjustment offset mechanism in the Section 232 auto tariff context, automakers that imported certain auto parts but had automobiles that underwent final assembly in the U.S. are eligible for a partial offset/credit, and allowed to allocate portions of their approved credit to importers of record within their supply chain.
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