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The pharmaceutical industry is undergoing some significant changes to business models that have been in place for decades. Increasing consumer safety and licensing requirements, especially in emerging markets, mean that certification and compliance processes and procedures need adjustment and customisation. Appearance of generic manufacturers has led to increased competition and a changing approach to IP management. Historically inefficient supply chains require re-assessment because of increased cost competition and the proliferation of Free Trade Agreements. And the personalisation of care has resulted in a wider variety of entirely new products shipped in smaller quantities.
We work with our pharmaceutical clients on many diverse projects resulting from these changes. Examples range from the development of the most cost efficient supply chain and manufacturing strategies to on-the-ground implementation of efficient and customs procedures. We understand how pharmaceutical production processes and distribution channels typically fit together and when typical opportunities and regulatory concerns will arise.
Our experience it that that the most prevalent customs and trade challenges facing the pharmaceutical industry in the Asia Pacific region include:
- Determination of the correct import price of Active Pharmaceutical Ingredients (APIs), drugs and medical devices.
- Application of the customs valuation treatment of royalties, R&D costs and medicines and equipment imported for clinical trials is complex and depends on local rules and practices. WMS has extensive experience in assisting clients with a wide range of issues surrounding pricing and payments for intangibles.
- Assistance in classification of new products, ensuring all applicable licensing and control requirements are understood and can be managed.
- Building oversight and knowledge of import license and domestic registration requirements for APIs, drugs and medical devices.
Pharmaceutical manufacturers and distributors typically run a high risk of non-compliance with local regulations. This can easily result in damage to reputation, particularly if no in-country dedicated or experienced regulatory resource. Using our in-country expertise WMS can guide you through license and registration application processes, assess the impact on lead times and provide support in checking product coverage.
Read about how we helped our pharmaceutical clients in the Asia Pacific region.
Case studies
Toll manufacturing and customs valuation
A pharmaceutical company in Japan engaged an overseas toll manufacturer to produce pharmaceutical ingredients and provided the toll manufacturer with raw materials and technical support. The pharmaceutical company compensated the toll manufacturer using milestone payments.
Since there was no sale value for the pharmaceutical ingredients between the pharmaceutical company and the toll manufacturer WMS advised as to how the customs value should be determined.
WMS approach
WMS conducted a thorough review of the toll manufacturing agreement and looked into the commercial substance, based on a deep understanding of common manufacturing arrangements in the pharmaceutical sector as well as Japan’s customs laws and regulations. This included:
- Determination of the appropriate customs valuation method and import price valuation for the pharmaceutical ingredients.
- Analysis of correct customs valuation treatment of the raw materials, technical support provided free of charge and the overall milestone payment.
- Provided a concise written report addressing the best and worst case scenarios and explaining methods for the quantification of customs duty liability.
Benefit for the client
- The pharmaceutical company was able to build a supportable position and avoid inappropriate additions to its declaration price upon importation, effectively mitigating potential duty costs and ensuring compliance with Japan’s customs regulations.
Clinical trials
A pharmaceutical manufacturing company at the "clinical trial" phase of product development was importing a comparable product as manufactured by a third-party in order to complete a "double-blind" test with selected consumers. No sale for export to China existed and an "invoice for Customs purposes" was used to support the transfer and importation. China Customs challenged the value stated on the "invoice for Customs purposes" was too low, therefore resulting in an underpayment of customs duty and import VAT.
WMS Approach
WMS conducted an independent review of the declared dutiable value and provided strategies to defend the said value as being acceptable for customs valuation purposes.
The review included:
- A technical assessment of the declared dutiable value, including validation of the Method of Valuation;
- Provision of strategies, technical information and regulations to support the position;
- Provision of explanation letters and ongoing assistance in addressing Customs' concerns and mitigating potential financial and legal risks.
Benefit for the client
We achieved success in not escalating this case to the Anti-smuggling Bureau, which saved the company from administrative penalties and other commercial exposures.
We improved the compliance level for the company in relation to the determination of dutiable value for drugs imported for "double-blind" test purposes.
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