Drugs often are cheaper in Canada than in the United States--sometimes by quite a bit. And this discrepancy has led the U.S. Senate to back a bill that would allow the re-importation of U.S.-made drugs from our price-controlled neighbor to the north.

Will this mean that lower prices are in store for U.S. consumers? Hardly. Congress passed a similar law two years ago permitting drug re-importation. The law never went into effect because the Department of Health and Human Services could not certify that mass re-importation would reduce costs without compromising safety.

In addition, the Food and Drug Administration vigorously opposed re-importation because it could not assure the nation that re-imported drugs would meet U.S. safety and labeling standards--or any other nation's standards, for that matter.

But there clearly is a political imperative for congressional action, and the House is being urged to pass the re-importation bill again before Congress adjourns.

To bring some reason and sanity to the debate, it is important to ask why pharmaceuticals are cheaper in Canada and what the legislation would mean for the United States in the long run.

First, Canadians are poorer than we are. Not only do they pay less for drugs, they also pay less for automobiles and computer software.

Second, some drugs are cheaper in Canada because the government controls pharmaceutical prices.

What would happen if the re-importation legislation became law? Drug prices would not come down, at least not very much, because Congress--hard as it may try--cannot repeal the basic laws of economics.

Supporters of re-importation legislation believe that U.S. manufacturers would send all the drugs needed by U.S. consumers to Canada, which would permit re-importation back to the United States at controlled Canadian prices. There is a problem, however. The Canadian pharmaceutical market is less than a tenth the size of ours.

Suppose Canadian drug prices are two-thirds the level of U.S. prices. Drug companies would face two choices: They could ship the U.S. supply of their drugs to Canada, reducing their revenue by one-third. Or they could tell Canadian authorities they will no longer sell at discounted Canadian prices, reducing their revenues by less than a tenth--reflecting the smaller market size and lower Canadian prices.

Their choice is obvious, and Canada would have to lift its prices nearly to U.S. levels if it wanted to keep the supply of drugs it needs flowing. Administrators of the perpetually crisis-ridden Canadian health-care system would be very unhappy.

Hence drug re-importation cannot force U.S. prices to Canadian levels. In fact, it would work the other way. Congress might then look beyond Canada to Spain and Greece, where prices are especially cheap, or even to larger European nations, and try to link U.S. prices to these other countries rather than just those in Canada.

In fact, the Senate bill actually encourages trans-shipment of pharmaceuticals from other nations through Canada.

That would vastly complicate safety problems and expand the political stakes. Financially strapped European health-care systems, fully understanding that what happens to Canadian prices could also happen to theirs, would make drug prices a matter of diplomatic negotiations.

The end of the road could be price controls in the United States--with disastrous consequences for new-drug development.

Controlled prices are set only after a drug is developed at great financial risk and at a cost that can easily reach hundreds of millions of dollars. But regulators make their decisions in the face of political pressure to hold down drug costs.

Such a system cannot reward the risks of pharmaceutical research and development. That is one reason Europe, which once led the world in pharmaceutical research, has fallen far behind the United States, whose firms produced eight of the top 10 world best-selling drugs in 1999. European and Canadian consumers have grown accustomed to free-riding on American pharmaceutical research.

If we follow the European path toward price controls--a distinct possibility if Congress passes a strong Canadian re-importation bill--something has to give because free-riding on research must stop somewhere.

Aggressive, risk-taking pharmaceutical research would be the first victim--a depressing prospect, because that is the only research that will find cures for cancer, Alzheimers', diabetes, and heart disease.

One sure way to blunt such research is to announce that successful manufacturers cannot charge more than what is allowed by an HHS administrator whose main goal would be to demonstrate that he can cut drug costs to the bone. That unfortunate scenario is one of the chief dangers of the drug re-importation plans under discussion.