Healthcare Product Import-Export Regulations: China, India and South Korea

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1 Healthcare Product - Regulations: China, India and South Korea By Philipp Novales-Li, DMedSc, PhD, DPhil (Oxford), RAC (US, EU, CAN) 22 February 2009

2 In the past 10 years, Asia has burgeoned into one of the fastest-growing markets in the world, not just in gross domestic product and import-export considerations, but also as a source of manpower and knowledge for industry to tap when outsourcing manufacturing, research, design/development and general administrative functions. Indeed, the world is flat, and modern technology and communications have hastened the streamlining of international commerce. In the case of the healthcare industry, Asia is one of the most attractive regions in which to do business, in view of its strong economic growth and sundry demographic factors that have propelled an increase in healthcare spending, high per capita consumption of healthcare products and entrepreneurship. This article focuses on three emerging markets in Asia, namely China, India and South Korea, which have experienced double digit growth, and have expanded their importation and exportation of healthcare products such as drugs and devices. Similarly, these three countries command a growing share of the healthcare outsourcing market because of their large pool of highly skilled technical workers, as well as competitive labor costs and favorable trade incentives. Primarily, the import and export policies of these three countries will be described, since knowledge of the regulatory landscape for customs and trade compliance in these countries is one key factor in ensuring business success. China The Chinese Ministry of Commerce ( mofcom.gov.cn) is the Competent Authority that administers import licenses in China. In 2002, the ministry was also given significant powers to oversee export control laws. Further, the Customs General Administration is responsible for import/ export clearances, collecting customs duties/taxes, inspections and import/export controls. China s licensing system for import of restricted goods, such as drugs and devices, safeguards Regulatory Focus 23

3 the types of goods that are imported. There are three systems of import licensing in China: License Administration, Automatic Licensing and Tariff Rate Quota Administration. Only the first applies to drugs and devices, since the latter two are applicable to products that are free from import restrictions but require import monitoring. In essence, License Administration is a system in which import restrictions can be applied according to China s obligations under various international conventions. Foreign trade managers of drug and device firms should apply for an import license from the Ministry of Commerce before importing goods that are subject to the License Administration. Chinese customs would then accept and grant the declarations made in the import license. To apply for an import license, an application form needs to be completed and submitted with relevant documents (e.g., business license, approval certificates of foreign investment enterprise) stipulated by the Ministry of Commerce. No licensing fees or administrative charges are associated with the issuance of import licenses. If the license-issuing body is satisfied that the application meets its requirements, it will issue an License within three working days from receipt of application. Conversely, if the justification for importation is deemed unconvincing, the application may be refused. An import License is valid for one year. The validity period can be extended once, but by no more than three months. Also, if there are any changes related to managers, tax number, quantity, price, place of origin, purpose of import, source of foreign exchange, port of customs declaration, etc., or if the license-issuing body had placed restrictions on the license, the license needs to be returned to the license-issuing body for amendment and re-authorization or removal of restrictions. Three types of import licenses applicable to drugs and devices are issued: One Lot/One Customs, i.e., the import license can only be declared at one customs office; One Lot/One License, i.e., the import license can only be declared at customs once, within the valid term of the license; and Non-One Lot/One License, under which the import license may be declared at customs up to 12 times within its validity period. Note that there are other procedural requirements. For example, if the products are subject to statutory inspection, an inspection and quarantine certificate issued by the relevant quality supervision, inspection and quarantine authorities must be provided as part of the documentation prior to importation. Also, an import declaration needs to be prepared for customs, which includes invoice, airway bill, certificate of origin, packing list, freight accounts, proof of insurance and customs duty payment slips (if applicable). 1 In 2002, China released new decrees and regulations on export controls. Previously, China s export controls were based upon the Foreign Trade Law of 1994, which relied mainly on the issuance of circulars and legislative regulations. As the economy grew, legally binding regulations became necessary to ensure compliance with and enforcement of export controls. Further, the international community had pressured China to improve its export control system. China s current export system has moved from administrative to legal controls. China s customs organization classifies exports as either non-dutiable or formal export shipments. The latter includes products that are controlled by a license and subject to export duties/taxes, foreign exchange collection or a tax refund. Conversely, non-dutiable goods include samples or advertising materials that are not subject to the licensing or duties/taxes requirements of formal export shipments. For export clearances, the required documentation includes: commercial invoice (or a pro forma invoice for non-trade shipments with no commercial value), airway bill, packing list, certificate of origin and export license/permit (as applicable). (Note: For medical devices exported to the US, additional measures were added under the China-US Joint Commission on Commerce and Trade that will require registration, certification, verification and inspection measures as part of the export controls. 2 ) 24 February 2009

4 India The Ministry of Finance, specifically the Central Board of Excise and Customs ( is the Competent Authority that oversees import and export enforcement in India. The Central Drug Standard Control Organization (www. cdsco.nic.in) also sets policies on import and manufacture of medical devices. All importers must register with a regional licensing authority (i.e., the director general of foreign trade) and also obtain an importer/exporter code (IEC) number as well as a Business Identification Number (BIN) to import goods into India. There are exceptions, however, such as commercial samples, tools of the trade, or materials used for exhibitions or similar displays, as long as these are accompanied by a global customs document (i.e., ATA carnet). Documents required to support customs clearance for imported products into India include: bill of entry, commercial invoice, packing list, airway bill, GATT declaration form, importer/broker declaration, proof of insurance, licenses (e.g., import, industrial, etc., as needed) and certificate of origin. (Note: Invoices must declare the correct market values of each itemized good, and a declaration of zero or value for customs purposes is not acceptable.) As far as import duties are concerned, the amount would depend upon two factors the Harmonized Tariff Number product classification and the end user (e.g., government entities can import goods at a reduced rate). Typical rates are 5%, 15%, 25% or 35%, calculated based upon the cost, insurance and freight (CIF) price of the goods. A 10% surcharge is added on top of the import duties. For imported goods destined for a Mumbai address, a local municipal tax of 4.5% of the landed value (i.e., assessed value plus all customs duties) will be levied, as well. 3 ers need to register with the regional licensing authority (i.e., director general of foreign trade) and obtain an IEC number, as well as a BIN to export goods out of India. ers also need to register with the Promotion Council and obtain a registration membership certificate. In addition, exporters must demonstrate knowledge of export compliance and commodity/export schemes, have proper export documentation and meet preshipment requirements for the country to which the goods are being exported. The following documents, as required, would typically support export license applications: invoice, packing list, letter of instruction, various declarations (e.g., exchange control, DEEC, DEPB, drawback), modified VAT certificate, export certificate, drug license, lab analysis report and product labeling (e.g., manual, brochure). To allow Indian products to be competitive in the international market, no duties are levied on exports. 3 South Korea The Korea Customs Service (KCS) ( is the governmental agency that oversees import-export activities in South Korea. KCS uses an electronic data interchange (EDI) system to support a nationwide, automated import-export clearance network, which replaced the erstwhile importexport permit system. This allows faster clearance and streamlined linkage with other government agencies. Any company that wants to import products into South Korea must first file a declaration with a customs house that oversees the district where the products are to be stored (i.e., bonded storage). The customs import declaration can be submitted in the name of the owner of the goods, its customs broker or a customs brokerage firm. The declaration may be filed either before or after the vessel carrying the imported cargo enters the port or the goods are stored in a bonded warehouse. Regulatory Focus 25

5 (Note: Prior-entry import declaration must be made within five days before the carrier enters South Korea s ports.) The import declaration form must describe the products, their quantity and value, and any other information as required. In addition, the following supporting documents must be included: import license; invoice; price declaration; bill of lading; proof(s) to satisfy requirements under Article 226 of the South Korean Customs Act; packing list; certificate of origin; and application for duty exemption/abatement or preferential Tariff Rate, etc. (in case these are available). There are two ways in which an import declaration can be processed, as determined by the Customs Office. In the document examination route, if the customs officer accepts the declaration, the importer can take the goods from bonded storage by providing a certificate from the Customs Office that proves that the import declaration has been accepted. Conversely, under the inspection of goods route, if there is any discrepancy in the paperwork, the customs officer may demand inspection of the shipment. This usually happens when intended use, ingredients, markings, etc., cannot be verified from the import declarations, or if the shipment is deemed a highrisk cargo. If the imported goods are cleared, customs duties and taxes must be paid before the goods are released from bonded storage. Customs duties are not due until 15 days after the import declaration is accepted. Most imported goods in South Korea are charged an 8% customs duty and a 10% value added tax on the dutiable value. 4 To export goods out of South Korea, an export declaration must be filled out under the name of the exporter, customs broker/corporation or corporation dealing with clearance affairs. s can be declared via the EDI system (i.e., paperless approach), with the exception of certain goods that require additional documentation. These include goods that require evidence of compliance with certain requirements prior to export clearance and those that are re-exported due to breach of contract. The export declaration is then processed for clearance in one of three ways: automated processing: accounts for 95% of export declarations processed, and can be done electronically without being inspected by a customs officer immediate processing: accounts for 4.6% of export declarations and applies to goods that require additional documents post-inspection processing: accounts for 0.4% of total export declarations and requires examination of the exported goods by a customs officer Goods must be shipped out of South Korea within 30 days after an export declaration is accepted. If the export shipment is delayed due to unforeseeable circumstances, an application must be made to postpone it up to a year from the date of first export declaration acceptance. 5 Conclusion Drug and device companies need to have a presence in the global marketplace to remain competitive in today s boundary-less business world, which has, in recent years, seen the expansion of multinational drug/device operations. One of the most important aspects of a global commercial strategy is an understanding of the regulatory landscape for import and export compliance and enforcement. Since Asia is one of the most attractive growth markets, an understanding of local import-export policies in that region will help companies create and implement market-entry strategies based upon the export potential of their products and the appropriate foreign markets for their initiatives. References 1. Chinese Ministry of Commerce. Measures on Administration of Licenses for Goods. MOFCOM Decree No. 27, 10 October, Clinivation. China: Regulatory Intelligence Report, World View. Fourth Quarter 2008, pp Clinivation. India: Regulatory Intelligence Report,. World View. First Quarter 2008, pp Korea Customs Service. Clearance. ( english.customs.go.kr/kcsweb/user.tdf?a=common. HtmlApp&c=1501&&page=/english/html/kor/ facilitation/facilitation_01_01.html&mc=english_ FACILITATION_IMPORT). 5. Korea Customs Service. and Cargo Management. ( HtmlApp&c=1501&&page=/english/html/kor/ facilitation/facilitation_02_01.html&mc=english_ FACILITATION_EXPORT). Author Philipp Novales-Li, DMedSc, PhD, DPhil (Oxford), RAC (US, EU, CAN), is based in the San Francisco Bay Area and is currently manager of regulatory affairs at Abbott Diabetes Care Inc. He can be reached via at novatika@hotmail.com. Disclaimer The views and opinions expressed herein are of the author and in no way represent the views and policies of the author s past and present affiliations. 28 February 2009