Draft circular to make foreign drug importers sick

The Ministry of Health (MoH) has just introduced the latest draft circular (Draft 13) providing guidelines for foreign direct investment (FDI) pharmaceutical enterprises to implement import-export rights in the pharmaceutical field in Vietnam.

Although it reflects some suggestions by FDI enterprises in relation to the expansion of businesses’ rights, LNT & Partners’ partner Nguyen Anh Tuan says it still has some shortcomings that need to be addressed before promulgation.

The category of “FDI enterprises in the pharmaceutical field” that are permitted to carry out drug import-export activities is defined by Article 3.11 of Draft 13.

According to this provision, in order to implement the drug import and export rights, FDI enterprises must invest in one of the following activities - drug manufacturing, drug storage services and drug testing services. This provision expanded the range of enterprises permitted to have the drug import-export rights defined under Decree No79/2006.

However, enterprises with drug import rights stipulated in their investment certificates still cannot directly import from overseas, even if pursuant to the Pharmaceutical Law, drug import and export are drug business activities that are independent from these aforementioned activities. In addition to the aforementioned business lines, in accordance with Article 5 of Draft 13 “Conditions for implementing the drug import rights”, FDI pharmaceutical enterprises must meet other conditions for being considered a grant of a Certificate of Satisfaction of Conditions (CSC) for drug import activities. These include(1) being licenced with drug import rights in its investment certificate, (2) holding the respective CSC for implementing drug manufacturing, drug storage services and drug testing services and (3) having drug storage warehouses with GSP standards. Upon satisfaction of all these conditions, FDI enterprises operating in the pharmaceutical field seeking to implement drug import and export rights need to undertake the following steps, (1) complete the registration for issuance of the investment certificate with the investment management authorities, (2) have a drug preserving warehouse of GSP standard and (3) request for issuance of the CSC in the pharmaceutical field (Article 6 of Draft 13). As a direct consequence of the above restrictions, FDI pharmaceutical enterprises are not permitted to conduct drug import activities independently. In order to implement the drug import rights, they are required to engage other drug trading businesses (such as drug manufacturing or drug storage services) together with drug import activities in their investment licences, obtain the relevant CSC and build a warehouse of GSP standard for drug preservation.

These requirements not only increase the investment capital of FDI pharmaceutical enterprises, but also consume a lot of time. In addition, as mentioned above, these restrictions conflict with Vietnam’s WTO commitments and Article 11 of the Pharmaceutical Law. Hence, their legitimacy is in dispute.

Notwithstanding being restricted on conditions for drug import, FDI pharmaceutical enterprises are also limited to choices of business partners in Vietnam. According to Article 7.3 of Draft 13, FDI enterprises are only permitted to carry out trading activities with and selling imported drugs to certain Vietnamese pharmaceutical entrepreneurs who meet distribution conditions regulated by the MoH, namely the enterprises that either (1) engage a chain of GPP pharmacies, (2) have distribution centers as regulated by the MoH or (3) have warehouses of GSP standard, and a drug distribution system of GSP standard and a computer software system to manage goods. As such, this regulation if passed, will directly limit FDI enterprises’ right to choose business partners, thereby centralising the imported drug distribution rights to a few domestic enterprises that meet the above standards. As a matter of law, since the Pharmaceutical Law and its promulgating documents regulate the conditions for granting the CSC for drug distribution activities, these limitations are not necessary and lack convincing foundations.

In relation to distribution activities, FDI enterprises are still not allowed to implement drug distribution activities in Vietnam, except for distributing drugs that are manufactured by themselves in Vietnam (Articles 9.1 and 9.2 of Draft 13). Also, FDI enterprises are not allowed to conduct some activities relating to the implementation of distribution rights as specified in Article 9.3, which includes contributing charter capital to Vietnamese distribution enterprises. This limitation conflicts with Vietnam’s WTO Commitments in which foreign investors are allowed to do their business by way of establishing new companies, contributing capital or purchasing shares in enterprises in Vietnam.

Moreover, when the circular is promulgated remains a valid question. It appears that FDI enterprises that seek to be licenced with a CSC must wait until this proposal is officially promulgated. It is not difficult to recognise that these limited regulations of adjusting the FDI enterprises’ activities relating to drug import-export activities regulated by the MoH decrease the competitiveness of FDI enterprises in the Vietnamese pharmaceutical market. Hence, FDI enterprises face many difficulties in expanding their business in order to meet their patients’ needs and to serve the public’s health system.

For the time being, pharmaceutical products may only be imported into Vietnam through domestic pharmaceutical companies possessing import licences. FDI pharmaceutical enterprises that have been granted drug import rights in their investment licences can only import drugs through consignment due to an absence of a CSC for drug import activities.

The inconsistency in the regulations and the MoH’s postponement of promulgating documents instructing the import-export activities of FDI pharmaceutical enterprises has inadvertently created policy barriers against FDI pharmaceutical enterprises in penetrating drug import and distribution fileds in Vietnam.

Although it was expected to remove these barriers to create free and fair competition between FDI and local enterprises in pharmaceutical markets, unfortunately Draft 13 has not yet met this expectation and requires further revisions to meet this goal.

Source LNT