Sanofi, a multinational corporation operating in Vietnam has just obtained the Certificate of Satisfaction of Conditions (CSC) for drug import activities. By this license, Sanofi may do the direct import and sell to the local wholesalers. The local wholesalers will do the distribution activities. This may be considered as the first shot for the foreign invested enterprises to expand their business operations with a greater involvement in pharmaceutical market in Vietnam.
In fact, this movement fits with (i) the policy of the government and Ministry of Health (“MOH”); (ii) the treaties that Vietnam has been participating; and (iii) the provisions of applicable laws of Vietnam.
The governmental policy when granting foreign invested pharmaceutical enterprises (herein after referred to as “FIE”) to implement the right to import drugs is to help patients have access to high quality medical products and services.
On 30 June 2019, Vietnam and European Union officially signed the Free Trade Agreement (referred to as “EVFTA”). Article 2.1.5 of the EVFTA regulates other trading rights and related rights for pharmaceuticals. Particularly, this Article regulates that “Vietnam shall adopt and maintain appropriate legal instruments allowing foreign pharmaceutical companies to establish foreign-invested enterprises for the purposes of importing pharmaceuticals which have obtained a marketing authorisation from Vietnam’s competent authorities…”. The requirements under Article 2.1.5 of EVFTA, however, were already reflected in Pharmaceutical Law 2016 and its guiding legal documents.
Though Pharmaceutical Law 2005 (effective until 1 January 2017) regulates the drug importer as a type of drug business establishments, this Law does not have any provision to grant the FIE to do the drug importation. Furthermore, Decree No. 102/2016/ND-CP on drug business requirements clearly states that one of conditions for issuance of CSC to a drug exporter, importer is that enterprise has had the CSC for wholesaling (Article 8 of Decree No. 102/2016/ND-CP). This document, however, cannot be provided by FIE since the FIE is not allowed to do the drug wholesale under Pharmaceutical Law 2005 and Vietnam’s WTO Commitments on services. Thus, until 1 Jan 2017, the FIE is not allowed to do the drug importation under the laws of Vietnam.
When Pharmaceutical Law 2016 came into effect from 1 January 2017, the right of the FIE to do the drug importation is recognized. Article 44.1(d) of Pharmaceutical Law 2016 regulates that “…In the event the exporter, importer is not allowed to do the distribution in Vietnam, such exporter, importer has the right to sell the drug, medicine materials imported in accordance with regulations of Ministry of Health.” However, until the effectiveness of Decree No. 54/2017/ND-CP (effective from 1 July 2017) guiding Pharmaceutical Law 2016 (“Decree 54”), Decree No. 155/2018/ND-CP amended Decree 54 (effective from 12 November 2018) (“Decree 155”), and Circular No. 36/2018/TT-BYT on Goods Storage Practice for drug and drug materials (effective from 10 January 2019) (“Circular 36”), there are full legal basis for the FIE to apply for the issuance of CSC for drug import activity.
Particularly, Decree 54 and Decree 155 provide application forms and more detailed guidance for the FIE to apply for getting CSC. Circular 36 regulates the conditions for the warehouse using for goods storage – which are one of significant requirements to apply for CSC of drug import activity. Article 91.10 of Decree 54 clearly provide the FIE to import and sell the imported products to the local wholesalers, the FIE will not have the right to do the distribution activities (wholesale, retail) or any activity in relation to the drug distribution (for example, providing drug/medicinal ingredient transport, developing the plan for supply of drugs and medicinal ingredients of health facilities, providing financial assistance for buyers of drugs/medicinal ingredients to control the distribution of imported drugs and medicinal ingredients). Article 91.12 of Decree 54 also regulates the FIE will notify the MOH in writing before it starts to sell or stops selling drugs to a wholesaler that distributes the imported drugs or medicinal materials.
The chain of trading drug or medicinal materials with the involvement of the FIE may be visualized as below:
It can be seen that the applicable laws of Vietnam already aligned with the requirements under the treaties that Vietnam attended (i.e. EVFTA). By signing the EVFTA and the opening in the provisions of applicable laws, Vietnam is promised to welcome many multinational pharmaceutical companies (especially, corporations from European Union) to invest to Vietnam as form of drug exporter and importer.
The change of governmental policy in pharmaceutical field will affect significantly to the local pharmaceutical market, also from both sides. Looking at the positive side, the grant for FIE to do the importation will help patients to receive drug products and services with good quality and cheaper price. The local wholesalers may have more contracts with the FIE to distribute imported products to hospital, pharmacies and retailers. The local wholesalers also can lease the warehouse to the FIE for them to do the importation activities.
On the other side, the opening for the FIE to do the drug import will put the local pharmaceutical companies (which also do the import, export), the manufacturers in Vietnam (both local company and foreign invested company) in a more competitive environment. The FIE with great financial resources somehow may defeat other local companies with smaller and weaker financial resources. Moreover, Article 2.21 of EVFTA regulates the parties (including Vietnam and EU) will implement their commitments on sector-specific nontariff measures on Pharmaceutical/Medicinal Products and Medical Devices. At that time, the products imported by FIE will have more competitive price and may affect to the products imported or manufactured by local companies.
However, with a very large market with more than 96 million people, there are many chances for both FIE and local partners to perform their business activities in pharmaceutical fields, especially when the local companies has the right to do the distribution, while the FIE cannot do so.
In my opinion, this movement will provide more good effects to the pharmaceutical market rather than negative effects. It is because the involvement of FIE in importation activity will (i) provide a good quality products with a competitive price to consumers; (ii) align with the general development trend of Vietnam when we are attracting more foreign investors to invest into Vietnam; and (iii) form a competitive environment for the companies to maintain and develop their business activities.
The application of CSC for doing drug importation can be conducted through the following steps:
Step 1: Register the investment project at the licensing authority (e.g. Department of Planning and Investment) to obtain the Investment Registration Certificate (IRC) and Enterprise Registration Certificate (ERC), which record the importation right.
Step 2: Prepare dossier and warehouse for applying the CSC and Certificate of “Goods Storage Practice” (GSP).
Step 3: Conduct self-audit, training in GSP, Standard Operating Procedures (SOP) of the company.
Step 4: Submission CSC dossier to Drug Administration of Vietnam (DAV)
Step 5: DAV’s audit (site visit at the warehouse)
Step 6: DAV (i) grant GSP and CSC if the company met all requirements; or (ii) request to remedy pending issues; (iii) reject the CSC dossier in case the company has critical deficiencies
Step 7: If (ii), remedy pending issues after the audit, make the remedy report
Step 8: DAV check the remedy report and grant the GSP, request Minister of MOH to issue CSC
 Vietnam’s WTO Commitments: “Cigarettes and cigars, books, newspapers and magazines, video records on whatever medium, precious metals and stones, pharmaceutical products and drugs, explosives, processed oil and crude oil, rice, cane and beet sugar are excluded from the commitments.”
By Dr Le Net – Partner and Mr Ngo Thanh Hai – Associate
This article is featured in the August issue of the Vietnam Investment Review.
Disclaimer: This article is for information purposes only. Its contents do not constitute legal advice and should not be regarded as detailed advice in individual cases. For legal advice, please contact our Partners.