Eight years after the phase-in schedule for the relevant World Trade Organization (WTO) commitments, Vietnam is, for the first time, setting forth a legal framework for foreign invested enterprises to trade in pharmaceuticals and pharmaceutical ingredients to fulfill its WTO commitments.
With the long-awaited Pharmaceutical Law having taken effect in January 2017, and its implementation under Decree No.54/2017/ND-CP taking effect on July 1, 2017, foreign invested enterprises (FIEs) will be able to exercise their import rights.
When joining the WTO in 2007, Vietnam made different commitments for “import rights” and “distribution rights” for FIEs with respect to pharmaceuticals. These are summarised below:
Import rights refer to the right to import goods to resell to distributors or wholesalers in Vietnam.
An FIE with import rights and without distribution rights is not entitled to sell its imported goods to retailers and/or consumers. Under its WTO commitments, Vietnam committed to granting FIEs the import rights as of January 1, 2009.
However, FIEs have not been able to exercise their import rights for pharmaceuticals due to legal barriers.
Under the Vietnam-EU Free Trade Agreement, which is expected to take effect in 2018, Vietnam committed to “adopt and maintain appropriate legal instruments” to allow FIEs “to sell pharmaceuticals legally imported by them to distributors or wholesalers.”
Distribution rights refer to the right to conduct wholesale, retail, and similar commercial activities. An FIE with distribution rights may resell goods to any buyer, including wholesalers, retailers, and consumers.
Vietnam’s WTO commitments exclude the distribution rights for pharmaceuticals. Import rights under the Pharmaceutical Law
To fulfil its WTO commitments, Vietnam has created a legal framework for pharmaceutical FIEs’ import rights, which is written down in the Pharmaceutical Law and further explained in Decree 54.
The Pharmaceutical Law contains the import rights of FIEs with a reference to “pharmaceutical importers not having the distribution rights for drugs and drug ingredients,” entities informally referred to as “FIE importers.”
For reference, an importer has the following major rights, among others, under Article 44 of the Pharmaceuticals Law:
– Conducting drug introductions via drug representatives, circulation of drug information, organisation of drug introduction seminars, and advertising for drugs for which advertising is permitted;
– Registering and/or transferring drug and drug ingredient visa; and
– Importing drugs and drug ingredients for resale to local distributors.
Scope of import rights
Under Decree 54, an FIE importer may sell its imported drugs and drug ingredients to distributors who has obtained a Ministry of Health (MoH)-issued Certificate of Good Distribution Practice.
An FIE importer must notify MoH of the identities of the distributors who will distribute the FIE importer’s drugs and ingredients. MoH will then publish a list of such distributors on MoH’s web portal within three business days.
Decree 54 restricts an FIE importer from conducting any of the following activities (except with respect to drugs or drug ingredients it produced in Vietnam), which are considered as activities of a distributor:
– Selling or delivering drugs or drug ingredients to retailers, healthcare establishments, retailers, individuals or organisations that are not distributors (collectively referred to as retailers);
– Accepting purchase orders or accepting payments under a retailer’s purchase order for drugs or drug ingredients;
– Providing transport or warehousing services for drugs and drug ingredients;
– Determining or fixing sale prices of drugs or drug ingredients distributed by other enterprises;
– Determining strategies for drug and drug ingredient distribution and business policies of distributors;
– Establishing drug and drug ingredient supply plans for healthcare establishments;
– Providing financial support in any form to those who directly buy drugs and drug ingredients from the FIE importer in order to impact the distribution activities for such drugs and drug ingredients; and
– Conducting other activities related to the distribution of drugs and drug ingredients.
Decree 54 also requires that a distributor who buys drugs and drug ingredients from an FIE importer has sufficient capacity to perform distribution activities independently of the FIE importer’s control or administration.
Eligibility certificates under the Pharmaceutical Law
Under the Pharmaceutical Law, an enterprise must obtain an eligibility certificate for trading pharmaceuticals in the relevant pharmaceuticals business categories it wishes to operate in. Categories include manufacturing, importing, wholesaling , retailing, and clinical testing.
The application dossier for an eligibility certificate as a pharmaceutical importer consists of the following:
– An application in the statutory form;
– Technical documents;
– A certified true copy of the enterprise registration certificate or equivalent forms of corporate licences; and
– A certified true copy of the practice certificate of a person-in-charge of the importer’s professional activities.
An eligibility certificate under the Pharmaceutical Law no longer has any term or expiry date.
An issue arises as to what scope of activities a representative office (RO) of an offshore pharmaceutical enterprise would be permitted to conduct under the Pharmaceutical Law and Decree 54. If such an offshore pharmaceuticals enterprise decided to continue to operate an RO in Vietnam instead of incorporating an import FIE subsidiary.
Under Article 54 of the Pharmaceutical Law, an offshore pharmaceuticals enterprise with an RO in Vietnam has the right to register drugs and drug ingredients in its own name.
Also, as noted in Decree 54, if authorised by the offshore pharmaceutical company, the RO in Vietnam can file a request with MoH for their confirmation of the content of the drug information, drug advertisements, and drug introduction seminars.
The Pharmaceutical Law and Decree 54 are silent on whether an RO is entitled to conduct drug introductions to healthcare professionals via “drug introduction representatives.”
By Phan Thi Hong Diem and Vo Ha Duyen VILAF law firm