Heated debate over new pharmaceutical FIE regulation

Lawyer Le Net raised issues related to non-retroactivity

According to Article 91(10) of the decree, foreign invested enterprises (FIEs) holding import rights but no distribution rights are prohibited from conducting “activities directly related to the distribution of drugs or drug materials in Vietnam.” Distribution is defined by Article 91(10) to include “transporting or providing storage services for drugs/medicinal materials.”

At the workshop on the new policy for pharmaceutical FIEs jointly held by the American Chamber of Commerce in Vietnam (Amcham) and the Vietnam Association of Foreign Invested Enterprises (VAFIE) this morning, Chung Yee Seck, lawyer of Baker & McKenzie, said that according to Dispatch No.9436, the FIEs in question need to adjust their current business model to satisfy Article 91(10) of Decree 54.

Thereby, FIEs had to stop providing drug storage and transportation services to third parties starting from July 2017 and change their business model to that of a drug importing company.

Additionally, Decree 54 has retroactive effect on FIEs that are already licensed to provide drug storage and transportation services to third parties and this is a problem under Vietnamese laws.

Article 91(10) noted that if it is applied retroactively and if it will be implemented in a way that suspends or stops the operation of already-licensed FIEs, it could give rise to claims under international investment protection treaties for inappropriate cancellation, resulting in international arbitration.

Thereby, in the draft circular to guide Decree 54, FIEs suggest removing “cannot transport drugs” and to formulate the law to ensure that FIEs have the freedom of negotiation with a local wholesaler regarding the place of delivery, which should not be restricted to the FIE’s warehouse.

However, Nguyen Thu Trang, director of the WTO Centre and Economic Integration at the Vietnam Chamber of Commerce and Industry (VCCI), said “According to the services commitments form of the WTO, Vietnam did not commit to allow FIEs to conduct drug distribution services.

In order to ensure that Vietnam’s regulations are in line with international commitments, the contents of Article 2(3) of the draft circular guiding Article 44(1d) of the Pharmaceutical Law and Article 91(10-12) of Decree 54 need to be considered carefully.”

Trang confirmed, “Vietnam has never licensed FIEs to conduct distribution activities. With this draft circular, FIEs are allowed to import drugs but not distribute them, and Vietnam does not violate any commitments to the WTO.”

“This circular will be applied for FIEs with import rights but no distribution rights. In Vietnam’s WTO commitments, distribution services include transportation and storage. Therefore, if Vietnam does not allow FIEs to conduct distribution services, Vietnam cannot allow transportation and storage services under distribution services,” she added.

On the topic of (non-) retroactivity, lawyer Le Net said that Articles 152 and 156 of the Law on the Enactment of Legal Normative Documents stipulates that retro-activity is not allowed in case a new legislation introduces new legal obligations on actions happening at a time when such legal obligations had not been provided by law.

Retroactivity is also not allowed in case a new legislation introduces new legal obligations which were higher than those applied at the time when the actions took place.

In the opinion of economist Vo Tri Thanh, policy-makers should go beyond the country's commitments to the WTO and other partners and establish a more progressive legal framework.

Along with the integration process, Vietnam’s legal system has changed positively in line with economic development and international commitments and practices, which facilitate businesses in general and create a fair business environment for both foreign and domestic enterprises.