Lawyer in Vietnam Dr. Oliver Massmann PHARMACEUTICAL SECTOR

Vietnam – Pharmaceutical Sector - Current Issues and Solutions for

Investment and Outlook on Major Trade Deals TPP 11 and EUVNFTA

A. OVERVIEW

The Universal Healthcare Coverage in Vietnam is with 81% of the population, one of the highest

in southeast-Asia. Vietnam’s generic penetration in tendering and ex-manufacturer prices of

producers is very with 97%. On the other hand, the accessibility of new pharmaceuticals is still

low. Only 6% of recent launched pharmaceuticals in the last 3-7 years are available in Vietnam,

thus, the value (22%) and the volume (4%) share of producers is among the lowest in APAC area.

This is leading to outbound medical tourism with an estimated amount of USD2 billion a year.

A. LEGAL UNCERTAINTIES

Decree 54/2017/ND-CP (Decree 54) is providing guidelines for implementation on the Law of

Pharmaceuticals. Among other, pharmaceutical business establishments are allowed to organize

seminars and to distribute certified drug information. In Addition, under Circular 13/2009/TT-

BYT, drug traders and representative offices with pharmaceutical activities registered in Vietnam

are allowed to organize seminars for introducing licensed drugs. In view of that, clarification is

needed. These seminars are important for providing most recent information to healthcare, disease

treatment or to inform about the product. Further, seminars provide the possibility for exchange of

scientific information on products or exchange of information about medical treatment. To ensure

that and to make safe and effective pharmaceuticals available in Vietnam, the existing regulations

have to be amended to remove inconsistency.

A. FOREIGN INVESTED ENTERPRISES AND EUVNFTA-SPECIFIC ISSUES

Foreign Invested Enterprises (FIE) make up 39% of the total GDP Vietnam’s. As a result, FIE is

a highly important factor for the economic growth Vietnam’s.

Foreign enterprises are allowed to operate due to the rights given under the WTO and hopefully,

from 2019, also under the EUVNFTA. The EUVNFTA was signed in 2015 and is expected to be

ratified by all member countries by 2018. It is probably going to take effect in 2019. It is estimated

to generate an increasing GDP and to liberalize the economy of Vietnam. Another aspect is the

elimination of almost all custom duties (over 99% of all tariff lines). As a result, there will be a

huge impact on trade development and the interest of investors. However, the rights of the foreign

companies are not fully implemented yet. It should be possible in the future that investors can

establish FIE which can contract or carry out a third party, every activity granted under

international commitments. The recently issued Pharma Decree, now, allows importation but also

contains a long list of restricted activities which can lead to dysfunctionality of the FIEs. In the

past, innovative products have been delayed due to several reasons such as administrative

procedures and local clinical trial. The Pharma Law is removing the local clinical law requirement

to improve the patients‘ access.

FIEs are necessary for transfer of technology or knowledge to Vietnam and to bring capital into

Vietnam. To ensure this, further implementing regulations have to be made. Furthermore, Vietnam

reserved distribution rights to 100% Vietnamese owned enterprises only. As a result, FIEs

operating in distribution, transportation or warehousing for long time, could be forced out of

business.

However, the government needs to create viable FIE models and legal framework for MNC

pharmaceutical enterprises for being able to work efficiently in Vietnam

A. OUTLOOK ON MAJOR TRADE AGREEMENTS TPP 11 AND EUVNFTA

In January 2017, US President Donald Trump decided to withdraw from the US’ participation in

the TPP. In November 2017, the remaining TPP members met at the APEC meetings and

concluded, about pushing forward the now called CPTPP (TPP 11) without the USA. The

agreement shall be signed by all member states by the first quarter of 2018. After that, it has to be

ratified in each member state before taking effect.

The effects of the TPP 11 promising great benefits for pharmaceutical sector in Vietnam. The TPP

11 is targeting to eliminate tariff lines and custom duties among member states on certain goods

and commodities to 100%. With the National and Most-Favored Nation Treatment principle, the

TPP is ensuring a fair competition which will attract new foreign investment, also in the

pharmaceutical sector. Furthermore, the investors gain some securities due to prohibition of

expropriation, so that, Vietnam cannot expropriate intellectual property rights from pharmaceutical

companies.

However, the EUVNFTA will also ensure certain growth for the pharmaceutical sector in Vietnam.

For instance Article 14.2 Chapter 2 of the agreement requires Vietnam to create and implement

legal instruments to allow FIE’s establishment in Vietnam. In addition, this Article also requires

Vietnam to allow FIE’s to sell pharmaceuticals legally imported by them directly or through

distributors or wholesalers who are not required to have a Good Storage Practice (GSP) certificate

or directly. If the Vietnamese legislation is responsible for certification requirements and process,

the EUVNFTA creates real influence as it encourages establishment of FIE’s and their extended

scope of activities.

Lastly, the EUVNFTA is removing all additional requirements for all pharmaceuticals, biologics

and drugs.

Additionally, with both, the TPP 11 and the EUVNFTA, two further instruments will be enrolled.

The Investor State Dispute Settlement (ISDS) will ensure highest standards of legal certainty and

enforceability and protection for investors. We alert investors to make use of these standards! We

can advise how to best do that! Under that provision, for investment related disputes, the investors

have the right to bring claims to the host country by means of international arbitration. The

arbitration proceedings shall be made public as a matter of transparency in conflict cases. In

relation to the TPP, the scope of the ISDS was reduced by removing references to “investment

agreements” and “investment authorization” as result of the discussion about the TPP’s future on

the APEC meetings on 10th and 11th November 2017.

The second instrument is the Government Procurement Agreement (GPA)

The GPA in both agreements, mainly deals with the requirement to treat bidders or domestic

bidders with investment capital and Vietnamese bidders equally when a government buys goods

or requests for a service worth over the specified threshold. Vietnam undertakes to timely publish

information on tender, allow sufficient time for bidders to prepare for and submit bids, maintain

confidentiality of tenders. The GPA in both agreements also requires its parties assess bids based

on fair and objective principles, evaluate and award bids only based on criteria set out in notices

and tender documentation, create an effective regime for complaints and settling disputes, etc.

This instrument will ensure a fair competition and projects of quality and efficient developing

processes.

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If you have any question on the above, please do not hesitate to contact Dr. Oliver Massmann

under omassmann@duanemorris.com . Dr. Oliver Massmann is the General Director of Duane

Morris Vietnam LLC.

Thank you very much!