Vietnam
Basic Principles
The basic principles PhRMA hopes to see realized in Vietnam, are those of the World Trade Organization WTO. Specifically, PhRMA seeks transparency in the issuance and enforcement of regulations affecting its companies in Vietnam, national treatment for foreign pharmaceutical companies in Vietnam , the dismantling of tariff and non-tariff barriers to trade and the elimination of protectionism in all its forms. PhRMA hopes that an acceptable level of compliance with these principles can be achieved as soon as possible so that Vietnam can be granted U.S. Most-Favored-National (MFN) status and admissions to the WTO at the earliest possible date.
Inadequate Protection of Intellectual Property Rights
PhRMA member companies in Vietnam are concerned about the lack of adequate patent protection in that country. PhRMA applauds provisions in the new Vietnamese Civil Code and related implementing legislation which extend the term of protection for patents from 15 years to 20 years and provide temporary protection to patent owners during the examination process.
Still troubling, however, is the right of the National Office of Industrial Property (NOIP) to order a "compulsory license" i) if a patent is not used, or is inadequately used, during the period of protection, ii) if a prospective licensee has attempted to obtain a license for a patent, but the owner has refused "notwithstanding that a reasonable price has been offered", or iii) if the patent is needed for prevention and treatment of disease. Specifically, the legislation provides no guidance as to what constitutes adequate "use" of the patent or how "reasonable" compensation is to be determined, though PhRMA looks positively on the fact that patent owners will be permitted to rebut another party's request for a "compulsory license".
Proposed Action:
The Vietnamese Government should issue regulations that specifically provide that importation of a patented product alone (as opposed to manufacturing the product using the patent in Vietnam) will be sufficient to overcome a request for a compulsory license based on non-use or inadequate use. In addition, legislation should require "compulsory licensees" to pay a level of compensation commensurate with the patent's market value. This will encourage the transfer of patented technology to Vietnam.
Infringement of Registered Trademarks of Pharmaceutical Products
Although the new Civil Code and associated implementing legislation provide a clear legal basis for protecting registered industrial property rights in Vietnam, infringement of registered trademarks is systematic and widespread in Vietnam, causing substantial financial losses to members of PhRMA. Infringers include state-owned pharmaceutical companies under the jurisdiction of the Ministry of Health, and manufacturers and distributors from foreign countries. The substandard quality of some of these imported products adds a public health dimension to the consumer confusion generated by the acts of infringement. Trademark infringement is also one of the deterrents to investment and technology transfer in the production of pharmaceuticals in Vietnam.
Administrative Enforcement Mechanism
In the absence of a legal basis supporting a formal administrative mechanism for enforcing registered intellectual property rights, a mechanism has evolved in practice to which infringement victims primarily turn when they are unable to settle cases through informal discussions with the infringer. This involves petitioning the NOIP for a decision of infringement. While the NOIP has issued decisions of infringement in a responsible and timely manner, victims of infringement have encountered difficulties enforcing NOIP decisions through the de facto administrative mechanism because:
State-owned manufacturers and importers of pharmaceutical products sometimes refuse to comply with the NOIP decisions on the ground that they are subject to the regulatory authority of the MOH only, not the NOIP.
The administrative enforcement bodies, specifically the Market Management Bureau and the Economic Police, sometimes say they are confused over whether the NOIP has authority to issue instructions to pharmaceutical companies that are primarily regulated by the MOH.
The administrative enforcement bodies are influenced by the local authorities who claim they have the authority to make an independent decision as to whether an infringement has actually occurred; and
The MOH does not cooperate closely with the NOIP to resolve cases of trademark infringement by pharmaceutical companies. (In a few cases, the MOH has acted in unison with the NOIP by following up NOIP decisions of infringement with letters of its own instructing the infringing company to change the name of its product. However, this is not being done in all cases and even when there is such follow-up, little is done to compel recalcitrant infringers to comply with the MOH directive).
Proposed Action:
New legislation should be issued pursuant to Article 65 of Decree No. 63/CP of the Government providing Detailed Regulations and Guidelines for Implementing the Civil Code Provisions on Industrial Property dated 24 October 1996 which stipulates that i) all companies operating in Vietnam, including local and foreign manufacturers and distributors of pharmaceutical products are required to comply with NOIP's decisions concerning infringement of industrial property rights and ii) the administrative enforcement bodies are required to comply with NOIP decisions irrespective of the opinion of local authorities.
The MOH and NOIP should coordinate more closely to resolve infringement problems in respect of pharmaceutical trademarks, at least until it is made clear that infringers and local enforcement bodies must comply with NOIP instructions. PhRMA welcomes Decision No. 1203/BYT/QD of the Ministry of Health Promulgating Regulations on Medicine Registration to the extent it requires local and foreign pharmaceutical companies, before registering their products, to present a verification from the NOIP that the name of the product does not infringe the registered trademark of another company. It is hoped that this portends closer cooperation between the MOH and NOIP on this important issue.
Insufficient Protection for Product Trade Dress
Loopholes in the current legal framework allow companies to mimic or copy the product packaging of other companies, thereby trading unfairly on the hard-earned goodwill associated with such product "trade dress". Vietnam needs legislation which protects foreign and local companies from unfair competition. It is hoped Article 9 of the new Commercial Law will provide a basis for legal action against companies which attempt to deceive consumers by imitating the unregistered trade dress of another company's products.
Vietnam's National Drug Policy
On 20 June 1996, the Vietnamese Government announced a National Drug Policy in conjunction with Decree No. 37/CP on the Strategic Orientation for the Care and Protection of the People's Health.
PhRMA believes that several fundamental aspects of Vietnam's National Drug Policy should be reconsidered in light of WTO standards. These include:
moves toward reinforcing centralized management of the production and distribution of pharmaceutical products which fetter competition and reduce efficiencies, resulting in higher costs for Vietnamese consumers;
a pronounced trend toward protectionism in favor of locally-manufactured pharmaceutical products with the apparent goal of replacing imports of a large number of foreign pharmaceutical products; and
restrictions on the forms in which foreign pharmaceutical companies may invest and do business in Vietnam which impede the transfer of technology.
These general features of Vietnam's National Drug Policy have given rise to a number of specifics problems for foreign pharmaceutical companies which are addressed as follows:
Restrictions on the Import and Distribution of Products
PhRMA member company affiliates are not permitted to freely import and distribute their products in Vietnam. According to Decision No. 1523/BYT/QD of the Ministry of Health on Permitting Foreign Companies to Engage in the Trading of Medicines and Medicinal Raw Materials for Humans in Vietnam dated September 9, 1996, foreign pharmaceutical companies are permitted to import and trade in their products only on the basis of contractual relationships with designated Vietnamese companies authorized to engage in the import and export of pharmaceuticals and pharmaceutical raw materials. This inefficient and anti-competitive practice of preserving state control over pharmaceutical distribution in Vietnam ultimately leads to higher costs to Vietnamese consumers. It also forces foreign pharmaceutical companies to deal with some State-designated importers who are concurrently importing and/or distributing products which infringe their registered trademarks.
Directive No. 03/BYT/CT of the Ministry of Health Concerning the Supply, Management and Use of Drugs at Hospitals issued on 25 February 1997 and Official Dispatch No. 110/TCTD/KH/HTQT issued on 11 March 1997, indicate that steps will soon be taken to further strengthen State control and management of pharmaceutical distribution in Vietnam. The MOH is expected to grant a monopoly on distribution of pharmaceuticals to hospitals under MOH management in favor of three State-owned companies, each with its own regional responsibility. Reacting to this measure, provincial authorities are now implementing a similar scheme for provincial hospitals that can only be supplied by provincial suppliers/distributors. PhRMA is concerned that this portends further steps to centralize state management and restrict the free and efficient distribution of pharmaceutical products to the Vietnamese population at large.
Proposed Action:
Distribution of pharmaceuticals should be de-centralized and liberalized. Foreign pharmaceutical companies should be permitted to import and distribute their products freely in cooperation with a Vietnamese company of their choice or by themselves through branch offices. The branch office provisions of the new Commercial Law should be applied to allow foreign pharmaceutical companies to establish branches in Vietnam, subject to fair and internationally accepted levels of taxation, licensing requirements and regulations governing the scope of their activities. This will lower pharmaceutical prices and generate additional tax revenues for the State budget.
Import Quotas
Vietnam is one of the few countries that still imposes import quotas on pharmaceutical products. The criteria for establishing these quotas are unknown. Currently, all state companies wishing to import foreign pharmaceutical product are required to apply for annual quotas. This introduces instability and uncertainty into the market mechanism. Moreover, it provides fertile ground for corruption related to the circumvention of applicable quotas.
Proposed Action:
All import quotas ultimately should be eliminated and the free market allowed to determine the amount of pharmaceutical products that are imported into Vietnam. During the transitional period, the criteria for establishing quotas should be transparent.
Product Registration
PhRMA considers Decision No. 1203/BYT/QD of the Ministry of Health Promulgating Regulations on Medicine Registration, which took effect on August 1996, a positive step insofar as it i) stipulates specific and clear procedures for registering pharmaceuticals and ii) contains a welcome requirement that the MOH and Ministry of Science, Technology and the Environment ("MoSTE") cooperate in protecting the registered trademarks of Vietnamese and foreign pharmaceutical companies. However, the product registration regime should be reviewed in respect of the following issues:
New Regulations on Product Registration Applications
Until recently, product registration applications could be submitted in English, French or Vietnamese. On 25 April 1997, with no advance notice, the MOH issued a new directive requiring three copies of the application in Vietnamese and one copy in English or in French. At a time when most countries are trying to eliminate superfluous paperwork, this unnecessary requirement introduces another obstacle to the expeditious issuance of product visas for foreign pharmaceutical products in Vietnam and adds to the uncertainty of the commercial environment generally.
Ban on Re-registration and Import of Certain Pharmaceuticals
On 30 May 1996, the MOH issued Official Dispatch No. 4162/VD announcing a list of 63 pharmaceutical products (which was subsequently reduced to 62) which may no longer be registered and re-registered by foreign companies and, accordingly, no longer imported after current registrations expire. PhRMA understands that recent pressure on Hanoi by an envoy from the European Union resulted in many European products being removed from this "negative List." A new negative list was published on May 20th 1999, reducing the number of de-listed products from 62 to 40. While most of the products taken off this "negative list"1 were European, most of the new additions were U.S. products. PhRMA now understands that at least five of its member companies may be severely affected by the new de-listing decision.
The basis for Official Dispatch No. 4162/VD is the MOH's conclusion that Vietnamese companies are now capable of meeting domestic demand for these 62 products. On 21 April 1997, the MOH announced that applications for registrations and re-registrations of the 62 products would continue to be accepted until 30 September 1997. However, registrations for these products, if granted, will only be valid until the end of 1998. (See Official Dispatch No. 2608/QLD of the Ministry of Health dated 21 April 1997.)
Such protectionism not only conflicts with WTO principles, it ignores the fundamental reality that foreign pharmaceutical companies will be unable to invest in manufacturing facilities or transfer the technology that Vietnam wants and needs unless such investment and technology transfer can be funded by the sale of various products for which there is a significant existing market in Vietnam. Most of these products are on the list currently banned from registration and re-registration.
PhRMA asks that U.S. negotiators urge Hanoi to remove the U.S. products from the existing "negative list" in order to facilitate the final signing of the pending bilateral trade agreement between the U.S. and Vietnam.2 The Vietnamese Ministry of Health should understand this message quite clearly.
Inconsistencies in Duration of Product Visas
In most countries, registrations for pharmaceutical products are valid for 5 years. This was the case in Vietnam until 1996, when the MOH began issuing product visas with validity periods of as short as one year. PhRMA is concerned that this reflects an intent on the part of MOH to require certain products to be re-registered annually after considering whether to deny re-registration altogether. This is cumbersome to companies that must prepare applications annually and to the MOH which must review them.
Discriminatory Enforcement of Product Registration Requirements
At the same time the MOH is issuing more stringent product registration requirements, state-owned importers of pharmaceutical products under the jurisdiction of the MOH continue to import and/or distribute products from companies which have not registered their products. This discriminates against foreign pharmaceutical companies which go to the trouble and expense of registering their products in accordance with applicable regulations. Many of the unregistered pharmaceutical products also infringe the registered trademark rights of others or violate applicable quotas.
Proposed Action:
The objective of product registration, in PhRMA's view, should be to record necessary information about pharmaceutical products being sold in Vietnam and ensure product quality. Accordingly, PhRMA proposes the following remedial measures with regard to the foregoing aspects of the registration process:
limit paperwork to only what is necessary to achieve the legitimate objectives of registration;
repeal the list of pharmaceutical products that are currently banned from registration and re-registration, and issue product visas with five-year validity periods for all pharmaceutical products; and
issue and enforce regulations strictly prohibiting the import of unregistered pharmaceutical products.
Requirements Concerning Shelf-Life of Imported Raw Materials
Under Official Dispatch No. 5410/VD dated 6 June 1996, Vietnamese importers of pharmaceutical raw materials with a shelf-life of less than three years must obtain special approval from the MOH to import such raw materials. This restriction is unnecessary, as the shelf-life of pharmaceutical raw materials has nothing to do with quality. The uncertainty associated with having to request approval each time they want to import quality raw materials affects production efficiencies of Vietnamese manufacturers and imposes further unnecessary strains on the efficient use of their limited capital resources.
It also pressures Vietnamese manufacturers to turn to disreputable suppliers who are circumventing this restriction by affixing labels to packaging which either lack a date of manufacture and "expiry date", or which contain fictitious expiry dates or dates of manufacture on the container. Such false labeling practices threaten the health of the Vietnamese population.
Proposed Action:
Official Dispatch No. 5410/VD should be repealed and replaced, if necessary, with a rule that requires pharmaceutical raw materials to be imported within six (6) months before the date of expiration of their shelf-lives. Confiscation, fines and other penalties should be imposed on companies which place labels or product packaging which fail to list or falsely list the shelf-life of the product based on scientific criteria.
Requirement That Pharmaceutical Raw Materials Be Imported Within Six Months of Manufacture
In addition to the aforementioned shelf-life requirement, Official Dispatch No 5410 requires that all pharmaceutical raw materials be imported into Vietnam within six (6) months of the date of manufacture. This requirement, which lacks scientific justification, discriminates against manufacturers who must i) produce buffer stocks of such raw materials at least five (5) months in advance of delivery in order to meet fluctuating demand and ii) produce in large quantities in order to keep unit costs down. This also results in inefficiencies in the production and delivery of pharmaceuticals which in turn raise the cost of such products for Vietnamese consumers.
Proposed Action:
The period within which pharmaceutical raw materials must be imported into Vietnam after their manufacture should be expanded to 12 months or no later than six (6) months before the date of expiration of their shelf-lives.
Requirement that Clinical Trials of Vaccines Be Conducted in Vietnam
Under Decision No. 2010/BYT/QD of the Ministry of Health Promulgating the Regulations on Registration of Vaccines and Immunization Products dated October 28, 1996, foreign manufacturers of vaccines are now required to conduct clinical trials in Vietnam before being permitted to register their vaccines for sale in Vietnam. This is unnecessary, as most international pharmaceutical companies which develop and manufacture vaccines will have already carried out safety and efficacy trials in accordance with the very stringent rules and rigorous protocols required by the U.S. Food and Drug Administration and/or other regulatory agencies before introducing their vaccines to Vietnam. Further, resources currently available in Vietnam would need to be upgraded significantly before clinical vaccine trials can be carried out in a manner that would achieve reliable results.
Proposed Action:
Foreign research-based vaccine manufacturers which conduct clinical trials outside of Vietnam in accordance with FDA or other high standards should be exempt from the requirement that vaccine trials be conducted in Vietnam. Increased availability of high quality non-plasma based vaccines will help Vietnam reduce the high social cost of serious preventable diseases, including chronic Hepatitis B.
Restrictions on Local Manufacturing
International research-based pharmaceutical companies want to invest in Vietnam, but economic considerations prohibit them from building or renovating production facilities as a first step. Foreign pharmaceutical manufacturers must already consider a number of risks associated with the current investment environment in Vietnam, including:
the low manufacturing standards of Vietnamese pharmaceutical companies that require major investments in equipment and technology to meet GMP standards;
problems protecting their registered trademarks and other intellectual property rights in Vietnam;
the inability of foreign-invested enterprises in the pharmaceutical field to control their own hospital distribution networks in Vietnam; and
the high cost of doing business in Vietnam.
Foreign pharmaceutical manufacturers must also consider Decision No. 7268/VD of the Ministry of Health dated 29 August 1996 ("Decision No. 7268/VD"). This decision lists 26 products for which registration for local manufacture has been temporarily suspended. This presents a significant additional restriction and risk factor for foreign pharmaceutical companies because:
the 26 products are products for which there is a market of sufficient size to justify investment;
it is uncertain as to when the restrictions will be lifted, if at all; and
the very existence of the list of 26 products presents the possibility of further restrictions in the future.
Proposed Action:
Vietnam should repeal Decision No. 7268/VD and allow the market forces and the companies themselves to decide on the range of products to be manufactured. In addition, Vietnam should issue new legislation to ensure long term stability and predictability of the business and commercial environment for foreign companies and local companies.
Ban on Toll Manufacturing
Toll manufacturing or "third party manufacturing" arrangements between foreign pharmaceutical companies and local Vietnamese companies were previously permitted under Decision No. 106/BYT of the Ministry of Health Promulgating Regulations on the Processing of Medicine for Disease Prevention and Treatment of Humans dated 30 January 1991 ("Decision No. 106"). However, MOH Decision No. 1824 dated 11 November 1996 ("Decision No. 1824") repealed Decision No. 106, thus prohibiting this option for foreign pharmaceutical companies.
Proposed Action:
Vietnam should either repeal Decision No. 1824 or issue new legislation authorizing foreign pharmaceutical companies to enter into toll manufacturing arrangements with local manufacturers (including foreign-invested enterprises). Toll Manufacturing arrangements are the beginning of the process by which know-how and GMP standards are transferred and therefore should be encouraged by the Vietnamese Government.
Tariffs
Currently, some pharmaceutical products are subject to tariffs, while others are not. Different tariffs are applied in different provinces for the same product on arbitrary grounds. The tariff rate is often not known until the products are imported. Such subjective and protectionist criteria conflict with the principles of the WTO and regional trade organizations and protocols, including some to which Vietnam belongs.
Proposed Action:
Vietnam should reduce tariffs on foreign pharmaceutical products with a view to ultimately eliminating such tariffs in accordance with the Zero-For-Zero Tariff Agreement. As long as there are tariffs, the process by which they are determined should be transparent and tariffs should be applied consistently nationwide.
PhRMA Companies Are Charged Discriminatory Rates for Services in Vietnam
PhRMA member company affiliates, like other foreign companies in Vietnam, are required to pay higher rates for water, electricity, domestic airline tickets, hotel room, commercial office space, advertising space and other services than are Vietnamese companies. Such discriminatory treatment, which is at odds with the "national treatment" principles of the WTO, raises the already very high cost of doing business in Vietnam and thus is an additional deterrent to foreign investment and technology transfer.
Proposed Action:
Foreign companies should be required to pay the same rates as Vietnamese companies for services and products in Vietnam.
Conclusion
Vietnam has made important progress since initiating Doi Moi reforms in 1986. In many instances over the past 10 years, the Vietnamese Government has shown itself to be open to suggestions from a variety of sources, public and private, as it moves toward integrating the country's economy with the world economy. However, more needs to be done. Even as Vietnam is moving toward gaining membership in the WTO and obtaining MFN status, the Vietnamese Government appears bent on strengthening State monopolies over the import and distribution of pharmaceutical raw materials and finished products, thus discouraging imports. Other protectionist policies conflict with WTO principles and, combined with inadequate protection of intellectual property rights, discourages the kind of investment and technology transfer in the pharmaceutical field which the Vietnamese government says it desires.
PhRMA hopes that the Vietnamese government will address the issues and problems discussed above and move in the direction of early compliance with WTO standards.
Potential Exports/Foreign Sales
It is not possible to determine the precise amount of sales lost by PhRMA member company affiliates because of Vietnamese Government policies, practices and acts affecting the research-based pharmaceutical industry.
Notes
1The European envoy reportedly threatened trade sanctions against Vietnam textile quotas in Europe unless the European medicines were taken off the negative list.
2The US-Vietnam Bilateral Trade Agreement to establish "Normal Trade Relations" was concluded in Vietnam on July 24th 1999. PhRMA understands that there is still an on-going process for finalizing technical details and language certification. While signing at the APEC Forum in Auckland was anticipated in September 1999, this did not take place.