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INDIA CHINA PHARMACEUTICAL TRADE A COMPREHENSIVE STUDY

2013

INDIA CHINA ECONOMIC AND CULTURAL COUNCIL

7/23/2013

July 2013 Page 2

Acknowledgements

Our team is highly indebted to Mr. Anjani Jha (Employee at BUREAU OF RESEARCH ON INDUSTRY AND

ECONOMIC FUNDAMENTALS), Mr. Prashant Kumar who had given us the proper guidance throughout

the making of this report and Mrs. Nipika Walia Sharma (Former Intern at India China Economic and

Cultural Council) for her valuable comments and suggestions on earlier work done on this report.

Disclaimer

ICEC Working Papers intend to disseminate preliminary findings of the research in progress to

encourage the exchange of ideas about development issues. The papers carry the names of the authors

and should be cited accordingly. The findings, interpretations, and conclusion expressed in this paper

are entirely those of the authors. They do not necessarily represent the views or policies of the ICEC. The

feedback and comments may be directed to the author(s).

Abstract

The objective of this paper is to address the key issues evolved in the India China

pharmaceutical trade. It highlights the current state of Indian and Chinese

pharmaceutical industries and latest pacts made between the two countries. This

report focuses on hindrances existing between the two countries in respect to

pharmaceutical trade. This report found that there is large elbow room for

pharmaceutical trade which can make better off both countries. What challenges our

Indian exporters are facing to export goods to China and what are the major non tariff

barriers working as obstacles in trade. Some key suggestions to improve the bilateral

trade relationship between the two countries by improving the procedure in China and

make it more for Indian exporters.

July 2013 Page 3

CONTENTS 1) INTRODUCTION……………………………………………………………………………………………………4

a) THE GLOBAL PHARMACEUTICAL TRADE………………………………………………...………4

i) TOTAL PHARMACEUTICAL TRADE IN THE WORLD………………………….…………4

2) PHARMACEUTICAL INDUSTRY IN INDIA………………………………………………………….…….4

a) COMPOSITION OF INDIAN PHARMACEUTICAL MARKET…………………….…………..6

b) INDIAN PHARMA INDUSTRY GROWTH……………………………………………………….…..6

c) IMPORTS…………………………………………………………………………………………………........8

d) EXPORTS…………………………………………………………………………………….……………………8

3) PHARMACEUTICAL INDUSTRY IN CHINA…………………………………………………….………….9

a) COMPOSITION OF CHINA PHARAMACEUTICAL MARKET…………………………………10

b) CHINA PHARMACEUTICAL INDUSTRY GROWTH………………………………………………11

c) IMPORTS…………………………………………………………………………………………………….…..12

d) EXPORTS…………………………………………………………………………………………………….…..13

4) CURRENT OUTLOOK OF PHARMACEUTICAL GIANTS IN INDIA AND CHINA…………..14

5) RECENT DEVELOPMENTS IN ECONOMIC TIES……………………………………………………….16

a) NINTH SESSION OF JOINT WORKING GROUP………………………………………………....16

b) MOU’S ON PHARMACEUTICAL AGREEMENTS……………………………………………..….18

6) MAJOR NON TARRIF BARRIERS IN PHARMACEUTICAL TRADE……………………………….20

a) REGISTRATION………………………………………………………………………………………………..20

i) PAPERWORK……………………………………………………………………………………………..22

ii) PAYMENTS…………………………………………………………………………………………………23

b) WEAK IPR’S……………………………………………………………………………………………………...23

c) LANGUAGE PROBLEM…………………………………………………………………………………..….25

d) PROTECTIONISM………………………………………………………………………………………………26

7) CONCLUSION……………………………………………………………………………………………………….…26

a) SUMMARY OF MAJOR FINDINGS AND KEY POINTS OF THE REPORT

i) REGISTRATION………………………………………………………………………………………….…26

ii) WEAK IPR…………………………………………………………………………………………………….27

iii) PROTECTIONISM……………………………………………………………………………………..….27

iv) LANGUAGE……………………………………………………………………………………………….....27

b) Policy recommendations…………………………………………………………………………………...28

Annexure A: Export-Import Data of India & China with Trade Potential…………………..29

Annexure B: The details of some of the major NTMs that are maintained against Indian

exports……………………………………………………………………………………………………………..………30

Annexure C: Application and approval procedure for imported drugs (1)………………………..…31

Annexure D: Application and approval procedure for imported drugs (formulations) (2).....31

July 2013 Page 4

1. INTRODUCTION:

The word pharmaceutical comes from the Greek word pharmakeia.The pharmaceutical industry

involves task of discovering potential drug, production and then marketing of final

pharmaceutical product. This production involves two categories of products i.e. branded drugs

and generic drugs. The difference between Generic drugs and branded drugs is that generic

drugs are marketed under the chemical substance without any advertisement. This industry is

acknowledged as venturesome because of high cost of innovation, low approvals of drugs and

low expected returns. It takes around 12 to 15 years to discover a potential product which

requires a lot of patience and focal point of attention. There are many cases of counterfeiting of

product in recent times, another reason to consider this industry as risky one. Although there

exist some watchdogs like medicines authorities, media who take care of this facsimile1.

THE GLOBAL PHARMACEUTICAL INDUSTRY: The top 10 largest drugs companies in the world

represents around one third of the whole market. These companies’ sales hover around US$10

billion a year and profit margins of about 30%. Six are based in the United States and four in

Europe. It is predicted that North and South America, Europe and Japan will continue to

account for a full 85% of the global pharmaceuticals market.

TOTAL PHARMA TRADE IN THE WORLD: Pharmaceutical trade is growing at exponential trade.

Total expenditure spent on drugs in 2011 found to above $ 954billion. United States accounted

35.63 % of global pharmaceutical market followed by Europe and Japan. According to premier

think tank in medicines ‘IMS’ this figure will reach $ 1.1 trillion by 2014.

2. PHARMACEUTICAL INDUSTRY IN INDIA:

Indian pharmaceutical sector enjoy world class reputation because of its reputed research and

development facilities and low cost products. Indian pharmaceutical market mainly produces

generic drugs. Both multinational companies and domestic firms are taking steps towards

maximizing potential returns from branded generics, making Indian market more lucrative.

Domestic firms are also looking to increase their share of the branded generics market.

The Indian pharmaceutical market is expected to grow at a compound annual growth rate

(CAGR) of 14-17 per cent during 2012-16.It is also have a one of the highest success rate for

approval of drugs from overseas authorities. India has largest no. of approval drugs from USFDA

(United States food and drug administration). India also supply large no of retroviral to

countries like South Africa where about 33 % of population suffered from AIDS.

Some of the leading Indian Pharmaceutical companies derive 50% of the total value of total

sales from their exports. There was tremendous spurt in the exports of pharmaceutical sector,

1Wikipedia entry, ‘Pharmaceutical Industry’, retrieved from http://en.wikipedia.org/wiki/Pharmaceutical_industry

July 2013 Page 5

which found to be around Rs. 47551crores. The Indian Pharmaceutical industry is on the

threshold of becoming a major global market by 2020. As per the IMS Health data, the

pharmaceutical market will grow at a CAGR of 13.7 per cent during 2011 to 2016 with the

growth for 2013 expected around 11-15 percent. Many experts believe that the Industry has

the potential to grow at an accelerated 15 to 20% CAGR for the next 10 years to reach between

US$49 billion to US$74 billion in 2020. This industry grew at 16.9% in financial year 2012. Indian

pharmaceutical sector accounted for 10% of total world’s volume of production while 1.4 % in

value terms. For Indian pharmaceutical industry, most of the revenues come from exports.

India sells large part of generic products to United States, Europe, and other markets.

Biopharmaceuticals recently became the center of interest given the limited competition in the

sector.

The drug price control order seems to create hurdles for Indian pharmaceutical industry. With

policy of 354 drugs, it has control over the prices of drugs which are considered as relevant

under its control. This has been opposed by pharmaceutical industry constantly. With the

advent of GDUFA (Generic drug user fee Act) in US, Indian companies are required to pay more

amount than ever before. United States uses this fund to generate additional resources to

speed up the process. Most of the companies saw increase in raw material and employee costs.

Companies continued to increase their strength and expand their reach to rural areas. Rupee

depreciation had benefitted most of the domestic forms. This led to increase in the volume of

goddess exported. USFDA is the regulator in United States which gives authority to overseas

firms to operating in their market after conducting clinic trials and other tests. Last year, most

of the Indian companies got green signals from USFDA indicating the efficacy of Indian

products. It has been found in case study that about 1-2 % whole market is patent drug market

which clearly indicates the current outlook of Indian patent drug market. In numbers, this figure

is around $120-130 million of the total drug market.

There are other reasons as well impeding foreign institutional investors to come to Indian

market like the existence of counterfeiting of product due to weak patent laws creating a lot of

hurdles for them. To avoid counterfeiting, patent act in line with TRIPS (trade related aspects of

intellectual property rights) needs to be amended. Three offices of IPR (intellectual property

rights) had been opened within the offices of PHARMAEXIL to spread the information on

patents like current status of Indian pharmaceutical industries in the world, how to use patent

rights. In the future with growing affordability and steady improvement in Intellectual Property

Rights (IPR), patented product launches should increase.

There had been many reforms taken place in recent times, these reforms include exemption of

drug price control on innovative products, building hospitals, boosting health care sectors,

increased government expenditure on health sector, health care insurance, special financial

scheme given to firms innovating a product, patents granted for long number of years to

July 2013 Page 6

incentivize firms to keep investing in research and development. The R&D investment of all

other firms hovered around 4 percent of sales. Ranbaxy and Dr. Reddy’s invested 16 per cent of

sales turn over in R&D in 2005-06. The R&D intensity of DR. Reddy’s reached 18 percent in

2004-05 and Ranbaxy’s 20 per cent in 2005-06. But this came down to 9 per cent for Dr.

Reddy’s and 11per cent for Ranbaxy by 2009-10.Government spent US$293 million on the

promotion of healthcare through programmes for the prevention and cure of diseases such as

cancer, diabetes, heart ailments and stroke in 2011-12.Health care insurance industry is at low

level now but it is expected to grow at 15% by 2015. Medical expenses account large

proportion of pocket expenses which limits Indian propensity to spend. Therefore health care

insurance comes to discount this problem of under purchasing power; this is another factor to

push this industry in India.

COMPOSITION OF INDIAN PHARMACEUTICAL MARKET: Majority of Indian pharmaceutical

market is inclined to urban market (comes in TIER 1) which accounted for 38 % of the whole

market, stood at around $3.4 billion. While rural sector (comes in TIER 7 and the bottom part of

TIER system) accounted just 17 % of the whole market, stood at around $ 2 billion. As we

mentioned above in the report, that big MNCs and domestic firms will converge to rural market

because of lot of room for expansion. It has been found that less than 20% of population has no

access to health care services, clearly showing the massive gap between the amount of

treatment required by rural households and the degree of hospitality services given to them. In

future we can expect expansion in rural health sector. Recently government has also shown its

interest in its political agenda through a channel of rural health care programmes. There is one

more reason to believe expansion in rural segment that is increase in rural income heralds an

increase in rural expenditure. Over past few years, government has given subsidies to rural

people followed by rural households tilted their consumption towards healthcare services2

INDIAN PHARMA INDUSTRY GROWTH IN 2010-12:

The financial performance of the Drugs and Pharmaceutical industry for the year2010-11 and

2011-12 are given in Table below 2Wikipedia entry, ‘Pharmaceutical Industry in India’, retrieved from

http://en.wikipedia.org/wiki/Pharmaceutical_industry_in_India

Sales RURAL AREAS

URBAN AREAS

OTHERS

July 2013 Page 7

Drugs and Pharmaceuticals: Growth and Profitability in the year 2010-113

(%age Change over year ago)

S. No. Particulars Quarterly Annual

June’11 Sept.’11 Dec.’11 March’12

2009-

10 2010-11 2011-12

Estimates

Rough

estimates

Rough

estimates

Rough

estimates

1 Income 10.9 10.0 17.9 17.4 15.0 10.9 14.1

2 Net sales 9.2 11.0 17.1 16.3 11.9 12.4 13.5

3 Total expenses 11.6 -1.8 18.8 14.8 3.1 19.2 10.3

4 Raw materials 13.6 14.0 19.0 16.8 8.0 14.8 15.9

5 Salaries & wages 15.5 13.0 13.3 13.6 18.2 21.1 13.8

6 Power & fuel 10.2 24.0 24.0 10.0 2.5 20.1 17.1

7 Selling & marketing 9.0 15.1 10.0 9.0 0.1 11.9 10.7

8 Other expenses 2.8 28.0 11.1 12.1 -19.3 15.9 13.7

9 Depreciation 9.1 13.0 11.5 12.0 14.3 12.4 11.4

10 Interest expenses 15.6 20.0 25.0 18.0 -0.3 6.6 19.4

11 Tax provision 37.5 -78.6 90.6 75.9 108.8 73.6 -37.2

12 PBDIT 17.3 -4.3 19.9 18.9 105.7 -1.1 12.6

13 PAT 15.7 - 7.1 25.8 210.8 -31.6 55.6

14 PBDIT/Net Sales (%) 18.8 17.2 21.5 17.1 21.4 19.0 18.7

15 PBDIT/Income (%) 22.8 20.8 24.9 20.9 25.4 22.7 22.4

3Annual Report 2011-12, Department of Pharmaceuticals, Ministry of Chemicals and Fertilizers. Retrieved from

http://pharmaceuticals.gov.in/annualreport2012.pdf

July 2013 Page 8

16 PAT/Income (%) 13.7 11.4 14.5 10.9 15.0 9.2 12.6

The improvement in sales growth largely driven by higher realization of export oriented

Pharmaceutical companies. The sector generated around 40 percent of its sales from exports. A

sharp depreciation in the rupees led to result in higher export realizations, which enhanced the

overall growth of the sector.

The pharmaceutical sector import raw materials like chemical intermediates and active

pharmaceuticals ingredients. Imports accounted 38% from raw materials. Depreciation of rupee

made imports more costly.

IMPORTS

Year Value of Import of “drugs and Pharmaceuticals”(Rs. in Crore)

Growth (%)

2010-11 5504.46 49.26

2011-2012 813,1.1420 47.71

It was observed that the imports declined in terms of growth in the year 2011-12 compared to

previous year. The country is almost self-sufficient in production of most of formulations/

pharmaceuticals products

EXPORTS

Year Value of Exports of “drugs and

Pharmaceuticals”(Rs. in Crore)

Growth (%)

2010-11 30383.22 28.76

2011-2012 40816.85 34.34

It was observed that value of exports had positive growth as compared to previous year.

Reason could be favorable changes in exchange rate in recent past.

PROJECTED GROWTH

YEAR DOMESTIC EXPORTS TOTAL

VALUE GROWTH VALUE GROWTH VALUE GROWTH

2016-17 130000 21% 158000 16% 288000 18%

2019-20 233000 22% 248000 17% 481000 19%

As this table showing that forecasted growth is increasing overtime and will reach to 17 % by

2020.

July 2013 Page 9

3. PHARMACEUTICAL INDUSTRY IN CHINA:

The pharmaceutical industry is one of the fastest growing industries in China. China accounts

for 20% of the world’s population but only 1.5% of the global drug market. Changes in China’s

pharmaceutical environment were brought to give an access to medicines to large portion of

population of china. These development changes ensure china’s expansion in pharmaceutical

sector. Research and development sector deepening its roots in Shanghai. Recent example is

Novartis, major pharmaceutical firm who just installed its research and development

department in Shanghai, could prove to be its drug development engine4.

According to IMS health, China's pharmaceutical revenue is growing fast and that the market

there may double by 2013. Sales of prescription drugs in China will grow by US$40 billion

through 2013, the report said.

According to national research for science and technology for development, gap had became

widened between Chinese and global pharmaceutical firms. The study was titled as “can

biotechnology industries catch up with world class industries”. Less government initiatives,

poor intellectual property rights and other factors led to lack of development in pharmaceutical

industries of china.

To maintain the same pace with other competitive countries, china must develop patents. It

had been found in study that most of the patents are about to expire in few years. Patents give

major protection and incentives. This step will give a new shape to its industry.

According to statistics from China Chamber ofCommerce for Import & Export of medicines & he

alth Products,China’s pharmaceutical industry saw revenue of 272.4 billion yuan ($43.9 billion) i

n the firsttwo months of this year up 22.7 percent over the same period last year bringing profit

of 25.billion Yuan, an increase of 24.3 percent. Chinese pharmaceuticals are well recognized by

global pharmaceutical companies and global giants have desire to leverage Chinese market

because of local market knowledge and administrative resources to take a bigger market

share, especially in the grassroots sector in china "On the flipside, the Chinese companies are

also ambitious. They are eager to getinternational market access, realize technical upgrades an

d even build their brandsthrough platforms abroad," said Zhang Fabao, a member of China Phar

maceuticalTechnology Organization Expert Committee."That can be seen as a shortcut for Chin

ese pharmaceutical enterprises to go globaland a win-win strategy for both sides," he added5.

COMPOSITION OF CHINA PHARAMACEUTICAL MARKET

Large number of MNCs are setting up their research facilities in various biotech parks situated in China because of Shanghai Zhangjiang Hi-Tech parts has attracted many such as Novartis 4Wikipedia entry, ‘Pharmaceutical Industry in China’, retrieved from

http://en.wikipedia.org/wiki/Pharmaceutical_industry_in_China 5 China Daily USA, ’Chinese Pharma Companies look West’,(July 23, 2013) by Liu Jie in Beijing and Cecily Liu in London (China

Daily). Retrieved from http://usa.chinadaily.com.cn/business/2013-05/20/content_16510864.htm

July 2013 Page 10

Pfizer and others. Due to lower energy costs in China in the past, fermentation industry has moved to China from several countries including India. Several biotech products need fermentation. China follows aggressive pricing and has gone through huge capacity expansion which has helped China to capture global markets.

Even Contract Research Organizations such as HD Biosciences, Medicilon have established there

R&D centers in China as biopharmaceutical companies are looking for cost efficiencies in R&D.

The market for CRO (Contract Research Organization) is worth RMB 22 to RMB 28 billion

(US$3.5 billion to US$4.5 billion) in 2011, a news report says.

Chinese pharmaceutical market is highly fragmented with strong rivalry. The three major firms

share broadly 10% of the market6. And distribution is criticized for lack of transparency and

inefficiency. More than 90% of pharmaceutical industry is comprised by API’s (Active

Pharmaceutical Ingredients), PCF’s (Pharmaceutical Chemical Formulations), TCM’s (Traditional

Chinese Medicines), biologics, and herbals in terms of sales and output value.

Lupin Pharma Director-Corporate Affairs Mr. Kuldeep Wakhloo stated “The abundant Human

Resources, less expensive clinical trials and availability of extensive R & D bases make the

Chinese environment favorable for foreign players in pharmaceutical industry”. Huge benefits

are available by investing in China such as the large patient pool available in China which is

cheap and easily accessible. Since past few years this has led to strong growth in China-based

clinical trials. Major benefit of investing in China is government support for Chinese

pharmaceutical and biotechnology industry which includes tax reliefs, direct funding

opportunities, as well as the development of numerous technology parks.

Taxation

The investments made by government of China are tremendous and have a far more efficient

infrastructure compared to India. Since past few years China has taken steps to encourage R&D

activities in country such as provides incentives by passing Corporate Income Tax Laws such as

the enterprises which are qualified as High/New Technology Enterprise (HTNE) incentive will be

entitled to Corporate Income Tax rate of 15% as compared to standard rate of 25%, also to

encourage fresh investment newly established HTNEs in five Special Economic Zones and the

Pudong New Area within Shanghai enjoy a tax holiday of 2 years of full exemption followed by

50% reduction in CIT. But the criteria to qualify as a HTNE is might not be that easy even if it

seems like ownership of core proprietary intellectual property rights7, products/services falling

under the scope of encouraged domain and R&D expenditure and both income from relevant

activities and even headcount of R&D/technical personnel meeting certain minimum

6 Working paper, The rising Chinese pharmaceutical industry: local champions vs global players (October 2012), written by

Francesca Spigarelli and Hao Wei 7 PWC report, Investing in China’s Pharmaceutical Industry – 2nd Edition (March 2009). Retrieved from

http://www.pwc.com/gx/en/pharma-life-sciences/assets/en-pharma_03-26-small.pdf

July 2013 Page 11

thresholds, but still some companies obtain HTNE status successfully in various local

jurisdictions.

China is a leading API producer in the world only to India it makes a contribution of about ---- of

pharmaceutical imports. A weak rupee is making imports of raw material costlier for Indian

pharmaceutical industry. China has been appreciated for faster decision making and

investments, there is a CIT super-deduction policy including pharmaceuticals in which they are

allowed an extra 50% deductions for R&D costs including expenditure incurred through

development of new technology and products, up to the extent that they even cover the salary

expenses of R&D personnel and making for the costs of depreciation of instruments and

equipment used for R&D purposes. And the kind of policies which make them outstanding

compared to neighboring countries includes income tax exemption for the transfer of

technology which states that the portion of income derived from the transfer of technology

during a tax year not exceeding RMB5 million can be exempt from CIT. The portion exceeding

RMB5 million is eligible for a 50% reduction in CIT.

CHINA PHARMACEUTICAL INDUSTRY GROWTH

China is a country with huge population their demographic factors show large potential market.

Due to their one child policy they have an ageing population. There is a migration of large

population to urban areas. It has led to easy access to retail pharmacies with better lifestyles.

Pharmaceutical needs are growing because of an increase in number of lifestyle diseases and

new needs of Chinese consumer such as respiratory illnesses, cancer, diabetes, as well as

obesity due to environment and air pollution. Therefore there is a booming demand for new

lifestyle drugs. State-owned enterprises, foreign enterprises and private enterprises compete in

the market. SOEs average size has increased but there numbers have reduced significantly.

Large and medium-sized pharmaceutical firms in 2010 were 1,125 out of the 7,039 controlling

694.8 billion Yuan ($102.64 billion) of the pharmaceutical industrial output value (59.17% of

total value). In China Medium-sized Industrial Enterprises refers to those enterprises in which

number of employed persons is between 300 and 2000, the sale revenue is between 30 and

300 million Yuan.

Low cost electricity at subsidized rates is a huge benefit for investing in China than any other

countries, incentives are given in infrastructure development and basic amenities. Taxes are

very low in China as compared to other countries. Since manufacturing segment pharma

products avails all benefits from the government. Also there is a bulk procurement policy as

every company in China is being regulated under government supervision, the demand and

supply is through government authorities."Chinese domestic players not only produce dosage

forms but also own the pharmacies where they are dispensed as well as the distribution

networks that deliver them to the hospitals. Their budget for R& D activity is very less as

compared to MNC’s but they enjoy these advantages” Mr Kuldeep Wakhloo said. They (China)

July 2013 Page 12

import raw material in bulks and then distribute to their respected companies which reduces

the price of the final product. Whereas in India, companies acts and deals as individuals which

has effect on pricing.

New reforms are taking place in China according to the Guidelines on Deepening the Reform of

Health-care System, which aims to increase the Basic Medical Insurance (BMI) to reach a 90% of

population coverage by 2011 and revision the reimbursable medicines under BMI. Second

phase of reform targets at bringing universal health care system in to effect.

In 2010, the gross output of Chinese pharmaceutical market was $183.57 billion.

Some of the world’s best-selling drugs, including Pfizer’s cholesterol-lowering Lipitor and Lilly’s

antipsychotic Zyprexa have lost patent protection in 2011.And within next 3 years lot of drugs

are going to off patent with estimated value8 about 77 billion $. Big players such as Novartis,

Pfizer, Merck Serono, AstraZeneca, and Roche have established research centers in China. The

strategy of the companies is to have good R&D departments in home country and to carry out

implementation phase and applied research activities in China. This leads to reduced time for

drug improvement and lowering of costs. Development of core phases of drugs is left to the

West, partly because of stringent rules of trials required by the U.S. and European agencies.

Further activities such as trials and market extension are done in China where appropriate

environment is available with University research centers and talented scientists.

IMPORTS

With Chinese government strong support, China’s import and export of biopharmaceuticals are facing

good development opportunity. China’s bio-pharmaceutical industry has made great progress and is

becoming increasingly closely linked with the international bio-pharmaceutical industry. China imports

bio-pharmaceuticals from 43 countries and regions, mainly from Europe and North America, from which

the bio-pharmaceutical import value accounted for up to 96.55% of China's total.

China's human vaccine import value amounted to US$196 million, up 6.41% year on year.

An increasing number of TCM (Traditional Chinese Medicine) and health care products were exported in

the first half of 2011, contributing to the persistent growth of export volume. The foreign trade of TCM

has undergone a steady increase with its total import and export volume to be 1.438 billion dollars, or a

year-on-year increase of 41.43 %. Compared with the import volume of 326 million dollars, or a year-on-

year increase of 36.50 %, the export still retains its dominance in the trade with its volume totaling

1.111 billion dollars, or a year-on-year increase of 42.95 %. Data on imports of pharmaceutical products

show a strong expansion (+195% of the value of flows from 2006 to 2010), and in parallel, exports are

accelerating (+135% over the same period).

Import and Export trade in Medical & Pharmaceutical Product sector (data in million US dollars)9

8Working paper, The rising Chinese pharmaceutical industry: local champions vs global players (October 2012), written by

Francesca Spigarelli and Hao Wei 9Working paper, The rising Chinese pharmaceutical industry: local champions vs global players (October 2012), written by

July 2013 Page 13

There is a huge trading opportunity gap left between India and China. See Annexure 1, as India

exports major pharmaceutical products to the world and China imports similar products from

other countries but not from India. This shows that major trading gap and potential left

between Indian exporters and Chinese importers. One of the reasons can be Indian exporters

are discouraged to sell in China because of already mentioned cumbersome registration

procedure or IPR violation cases. Another possibility can be tariff barriers and custom

procedures for India. But more or less it’s both of these affects hampering India’s trade to

China. Major losses are being suffered in both of these economies due to this as being a

country in Asian region we are better off trading with each other in same products as compared

to other foreign country. Also there is a possibility that similar product is exported from India to

foreign based entity and then again imported to China from same foreign based entity, so there

is a loss of consumer surplus for Chinese based producers as there are two layers of exporting

instead of one and a similar loss for Indian exporters as they are exporting at a lower price

which they can receive if they actually trade directly with Chinese entity.

Exports One of the drivers of Chinese pharmaceutical market growth is its exports. The strength of domestic

companies lies in manufacturing generics and exporting active pharmaceutical ingredients (API). Export

value of Active Pharmaceutical Ingredients (API) is USD10billion, growth rate 31percent, accounting for

53 percent of exported pharmaceuticals10.

According to the statistics of China Chamber of Commerce for Import & Export of Medicines & Health

Products, China's import and export value of bio-pharmaceuticals was US$887 million, up 44.35% year

on year, of which the export value was US$87.175 million, up 53.16% year on year; and the import value

was US$800 million, up 43.35%. China's bio-pharmaceuticals were exported to 126 countries and

Francesca Spigarelli and Hao Wei 10

KPMG report, Page 7 Chapter 1 China’s Pharmaceutical Industry-Poised for a giant leap. Retrieved from

http://www.kpmg.com/CH/en/Library/Articles-Publications/Documents/Sectors/pub_20110601_Chinas-Pharmaceuticals-and-Biotechnology-Industries_EN.pdf

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July 2013 Page 14

regions, but mainly to the Asian market, for which the export value accounted for 59.57% of the total.

The top destinations of China's bio-pharmaceutical exports were India, the United States, Hong Kong,

Canada, Egypt, Ethiopia, Vietnam, Indonesia, Thailand and Pakistan. The combined exports to these

countries accounted for 77.99% of China's total, and the exports to India alone accounted for 34.66% of

the total.

China's drug formulation export jumped 31.19% in 2010 and it was led by such export to emerging

markets like ASEAN, India, Brazil and Russia with growth rates at 44.88%, 72.96%, 61.73% and 65.27%

respectively. Lupin Pharma Director-Corporate Affairs Mr Kuldeep Wakhloo quoted “ In pharma sector

though India has the advantage of producing cheap medicines, China’s export to India far exceed its

exports.” Very recently three MOU’s were signed to take steps for fixing the issue of trade imbalances

including pharmaceuticals.

4. CURRENT OUTLOOK OF PHARMACEUTICAL GIANTS IN INDIA AND CHINA:

Indian giants like Glen mark Pharmaceuticals which with a growth of 37%, is the fifth fastest-

growing generic company globally, followed by Dr Reddy's which grew 34% in FY 2011-12 ,

according to global pharmaceutical research firm, Evaluate-Pharma . The third domestic

company on the list, Sun Pharmaceutical witnessed a growth of 29%, occupying the eighth rank,

right below its subsidiary Taro which had a 33% growth.

India has proven global quality standard capabilities as measured by number of abbreviated

new drug application approvals, united States, food and drug administration. Government is

currently working to bring trace and track mechanism, which would enable monitoring of the

supply chain possible at all the three levels namely primary, secondary and tertiary. This

response has come with recent event of penalized a firm on felony charges, it paid $ 500

million11.

Indian pharmaceutical industry has position of low cost manufacturing unit and highest quality

of medicines. The government also believed that there could be desperate attempts by other

countries to target Indian companies by alleging under the name of spurious drugs.

There are more than 350 ,manufacturing sites endorsed by the European union for their good

manufacturing practice in India as on april30,2013.the government has taken a number of

steps to ensure manufacture and export good quality products,one of them is ‘trace and track’

mechanism12.

11

Business News,‘Indian drug companies break into world's fastest growing list’ (August 30,2012), by Sukumar Balakrishnan.

Retrieved fromhttp://sukumarbalakrishnan.blogspot.in/2012/08/indian-drug-companies-break-into-worlds.html

12The Hindu, ‘Centre rushes to defend Indian pharma firms’ (June 30, 2013), by. Retrieved from http://www.thehindu.com/business/Industry/centre-rushes-to-defend-indian-pharma-firms/article4778505.ece

July 2013 Page 15

Coming to china, many international enterprises continue to see china as leading overseas

market with dazzling growth in this field. US and EU drug makers invested more than billion

dollars since 2009 in manufacturing and research & development.

Top five MNCs in China13:

Company Sales (US $ million) Growth

(%)

Share(

%)

PFIZER 835 31 8.32

ASTRAZENECA 749 32 7.47

BAYER HEALTHCARE 663 20 6.61

SANOFI 620 31 6.18

ROCHE 531 31 5.29

TOTAL SALES (IN US $ MILLION) OF TOP FIVE MNC’s IN CHINA

After China’s entry into the WTO, many leading pharmaceutical companies are transferring

their research and development centers to China. For instance, Roche of Switzerland opened its

R&D center in Shanghai recently, GSK has established its OTC research and development center

in Tianjin, China, and Pfizer and Janssen Pharmaceutical (Johnson & Johnson) will carry out

13

KPMG report, China’s Pharmaceutical Industry-Poised for a giant leap. Retrieved from

http://www.kpmg.com/CH/en/Library/Articles-Publications/Documents/Sectors/pub_20110601_Chinas-Pharmaceuticals-and-Biotechnology-Industries_EN.pdf

0 100 200 300 400 500 600 700 800 900

July 2013 Page 16

similar plans in the near future. AstraZeneca, Bayer, Eli Lilly and Company, and Hoffman-La

Roche, has also set up R&D or clinical trial centers in China14.

A poll on 33 foreign pharmaceutical enterprises in China shows that seven out of the 33

companies have R&D centers in China, accounting for 22% of the surveyed. The remaining 26

pharmaceutical enterprises have no R&D centers in China, accounting for 78% of the surveyed.

5. RECENT DEVELOPMENTS IN ECONOMIC TIES:

Keeping the view of trade in mind, both countries had signed major agreements in recent

times. It is of no doubt that there is large scope of having bargaining power over other nations,

if both countries continue to co- operate like this. Beside it also improves bilateral relations

reinforcing existed relations between the two.

(a) NINTH SESSION OF JOINT WORKING GROUP (AUGUST 2012)

The Union Minister of Commerce, Industry and Textiles Shri Anand Sharma, met Chinese

Commerce Minister Mr. Chen Deming for the 9th session of India-China Joint Economic Group

(JEG) on August25, 2012.

The Indian side led by Minister Anand Sharma raised the issue of growing trade deficit. Export

of pharmaceutical products, diamonds and export of sea food to China were also discussed. The

Chinese side brought to the front the ways to strengthen cooperation in goods and services

trade. The border trade issues between India and China, and modes to improve investment and

operation environment for Chinese enterprises in India were put to discussion. The total

bilateral trade between India and China for the financial year 2011-12, stood at USD 75457.42

million as compared to USD 59000.36 million during 2010-11. During FY 2011-12, the exports

stood at USD 17902.98 million while the imports stood at USD 57554.44 million. The trade

deficit for 2011-12 stood at USD 39,651.46 million15.

14

China Daily USA, ’Chinese Pharma Companies look West’,(July 23, 2013) by Liu Jie in Beijing and Cecily Liu in

London (China Daily). Retrieved from http://usa.chinadaily.com.cn/business/2013-

05/20/content_16510864.htm

15The Hindu, ‘India, China plan to set up joint working group to boosttrade’(27 August,2012), by BinduMenon. Retrieved from

http://www.thehindubusinessline.com/economy/india-china-plan-to-set-up-joint-working-group-to-boost-

trade/article3827225.ece

July 2013 Page 17

INDIA CHINA TRADE (IN US $ MILLION) IN LAST TWO YEARS

Mergers and acquisition activities had declined from 1135 in 2010 tom 806 in 2011 indicating

lack of collusion and economic cooperation. India and China had formed joint working group to

solve some trade issues including issues on

pharmaceutical trade between the two. The decision

for the JWG was taken at the meeting of India-China

Joint Group on Economic Relations, Trade, Science and

Technology held here recently.

The issue of growing trade deficit between the two

countries and the exports of pharmaceuticals also

featured the discussion between the Union Commerce

and Industry Minister Anand Sharma and Chinese

Commerce Minister Chen Deming. “We want to buy

more from India to have a more balanced trade. We

encourage Indian industry to promote their products in

our country,” said Chinese Commerce Minister Deming.

Currently, China and India are the strongest in the pharmaceuticals market. China is the largest

manufacturer of active pharmaceutical ingredients (APIs) and intermediates besides having a

well-established pharmaceutical packing industry.

“We have been assured by China of support on the issues of trade deficit and greater access to

the Chinese market for the Indian pharmaceuticals sectors, apart from Information technology

(IT) and ITES services,” Commerce and Industry Minister Sharma said16.

16

Pharmabiz.com,‘India, China form JWG to address pharma trade &investments’(7 Sept,2012), by Nandita Vijay. Retrieved

from http://pharmabiz.com/PrintArticle.aspx?aid=71022&sid=1

0

10000

20000

30000

40000

50000

60000

70000

80000

2010-11 2011-12

. “We have identified key

areas and nodal authorities

who will be working to put

the development plan,”

Commerce & Industry

minister Sharma said.

July 2013 Page 18

India has green chit to Chinese companies to invest in the proposed National Investment and

Manufacturing Zones (NMIZs), both countries also agreed to work on a five-year plan on

economic cooperation, proposed by Deming. Currently, investments from China are to the tune

of around $580 million. In April, this year, the two countries delegates met on to strengthen the

business environment under the Strategic Economic Dialogue (SED) which also called for larger

market access for pharmaceuticals. Currently, China and India are the strongest in the

pharmaceuticals market globally. Moreover China is one of the world’s largest pharmaceutical

markets globally with sales of around $52.3 billion. “India pharmaceutical industry has been

lobbying with the government to address of issues of Export Obligations’ and take a re-look on

‘Norm Fixation’ and rationalize the registration process and fee, said Anjan K Roy, managing

director RL Fine Chem17.

According to Espicom Business Intelligence, Brazil, India, China and Russia together represent

$160 billion in pharmaceutical market at retail prices. The top 10 local pharmaceutical

manufacturers, including China Pharmaceutical Group, Harbin Pharmaceutical Group, North

China Pharmaceutical and Shanghai Pharmaceuticals, have total revenue of around US$ 10.0

billion in 2010.

(b) RECENT MOU’S (MEMORANDUM OF UNDERSTANDING) ON PHARMACEUTICALS (2013)

With the maiden visit of Chinese premier Le Kequiang, both Asian giants had signed on several

Memorandum of Understanding including agreements on pharmaceutical field. The agreement

on pharmaceutical sector signed between Indian pharmaceutical export promotion council of

India and china chamber of commerce for export and import of medicine and health care

products. This will significantly increase the pharmaceutical trade between the two as the trade

base is too low because of some obstacles like rigid regulations and high registration fees. This

agreement is a win win situation for both countries18.

India used to convince china to have diplomacy on these trade issues but nothing much had

come in positive, because globally economies are struggling to get back to high growth

trajectory, so it is high time for china to give a nod to several trade agreements to survive its

economy. China has shown some concern about trade imbalance which has widened to $40.8

billion in 2012-13 from $39.4 billion in 2011-12, in China's favor19.

17

ibid Pharmabiz.com 18

The Hindu, ‘India China take steps to reduce trade gap’(20 May 2013).Retrieved from

http://www.thehindu.com/business/Economy/india-china-take-steps-to-reduce-trade-gap/article4733147.ece

19The Hindu,‘China signs pacts with India to help bridge trade deficit’ (20 May, 2013) . Retrieved from

http://www.thehindubusinessline.com/economy/china-signs-pacts-with-india-to-help-bridge-trade-deficit/article4733245.ece

July 2013 Page 19

Mr. Salman Khurshid, minister of external affairs visited china to address border and trade

issues. New report revealed that Indian exports had come down by almost 24 % in April

compared to last period. India’s trade deficit with China, after four months of this year, has

ballooned to almost half of the entire trade volume.

Bilateral trade after four months of this year reached $20.87 billion, down 6.2 per cent. Trade

last year fell by 12 per cent to $66 billion, even as both

countries set an ambitious target of $100 billion by 2015.

India has been finding it difficult to expand its trade with

China in the pharmaceutical sector. The signing of the MoU

is expected to facilitate access to the China market in

pharmaceuticals

India and china are the important trading partner and

expect bilateral trade to reach $100 billion by 2015.India

wants more access to china markets for its exports without

any obstacles; it is worried about by rising trade account

deficit which accounted about 5 % of gross domestic

product last year. It exports mainly raw materials and

unprocessed goods like iron ore, cotton etc.

Although India had also shown some uncooperative

behavior to protect new born industries from Chinese well

known products. Many researcher believe that it is very

challenging task to compete with Chinese low cost products, for instance, "It is impossible for

Indian manufacturers making things like ceiling fans or toys to compete with Chinese goods,"

said Brahma Chellaney, professor of strategic studies at the Centre for Policy Research, a New

Delhi-based think tank20.

6) MAJOR NON TARRIF BARRIERS IN PHARMACEUTICAL TRADE

a. Registration

The Chinese government is not very liberal in registering a product. Few of the industries which

have tried to settle in china have failed. The process of application for registration is often

delayed and the registration charges are quite high which makes it difficult for the product

registration. It often seems that China looks at its competitors as more of a threat to them so as

to imposing more barriers and also consume a lot of time.

20

The Wall Street Journal, ‘China’s Li Promises to Reduce Indian Trade Surplus’ (21 May,2013), By William Davies. Retrieved

from http://online.wsj.com/article/BT-CO-20130521-704197.html

"In areas where India is

strong—

pharmaceuticals, IT—

the Chinese have all

sorts of visible and

invisible barriers which

limit Indian access. Also

the Chinese are buying

primary goods from

India, such as iron-ore,

and selling finished

goods back," Mr.

Chellaney said.

July 2013 Page 20

In the 2003, India-Swift registered its first pharmaceutical product named Clarathromycine, in

the Chinese market for the first time. This registration of product took 2 years and till it came in

market the demand of this particular product vanished. As there was no demand, company

could not sell in china market, see Annexure 2 for details.

Registration remains a problem for companies to enter into china. The rules and regulation by

which every company has to pass through, is more or less biased. They have rules for domestic

company and for foreign company. Every product which enters into china market has to pass

through various tests and inspection which runs under STATE FOOD AND DRUG

ADMINISTRATION (SFDA). The principal powers of the SFDA in the area of the administration of

pharmaceuticals are; regulation, enforcement, drug registration, monitoring-system and

supervision over quality. In practice, many of the powers of the SFDA have been delegated to

local level government authorities in charge of pharmaceuticals.

The quality control check is very stringent on foreign companies. The check for impurities is

very high on western countries as compared to domestic company. Going through product

specific regulation china has been biggest challenge for countries entering into china to meet

the guideline of SFDA.

Registration of pharmaceutical product requires about 2 years entering into china market.

Once the product is registered it is allowed to sell in for 5 years, after which the company has to

renew the registration for that particular product. Till the time the product is registered,

demand in the market changes, or similar products are already circulating in market.

Registering a pharmaceutical product in china takes more than 2 years. The time which the

Chinese document say is very less as compared to the actual time consumed in processes. On

the other hand registering a product in India takes maximum of 9 months. Details for

registration of product, step wise reveals that after the submission of the application to the

SFDA which is done through the local partner, the next step is dossier content and format

checking, notification of quality test and specification verification by SFDA, here Chinese have

quoted 30 days’ time limit. But actually this process takes a very long time, Chinese keep on

checking the process and system which consumes a lot of time. Every process is checked

thoroughly. The SFDA requires every paper to be accurate, and they keep on asking for

documents for every single process. The local partner has a very important role in registering a

product, as he/she is the intermediate person between the company and the SFDA.

If you have made changes in your product, the Chinese want each and every detail of the

changes with the respective documents. Here the prescribed time is said to be 30 days, which

actually is more than a year. After which the rest of the procedure takes more than another

year, which is why registering a product in china takes more than 2 years.

July 2013 Page 21

Similarly for formulations also, clinical trial consumes much more time than expected, which is

the reason they consume a lot of time in registering a product. Formulations have to pass

through clinical trial and any change made in formulations requires documents for every

particular change.

For selling a pharmaceutical product in china, the company needs to have an ideal registration.

It is only after this ideal registration the company will be approved to sell its product in the

market. And by the time the company gets it the demand of the particular product in the

market becomes low. Therefore selling a product in china and obtaining ideal registration is a

challenge for companies.

Government in China is not an open type of government, once the documents are submitted

for the registration, it’s difficult for companies to check the status of registration process unless

and until they approach you back. Companies have to wait for the time being. Chinese

companies are under the state administration there is no way of enquiring about the details of

progress. In China, companies are given on lease for certain years by the government with

having percentage of companies share. So the government has full authority to intervene in

companies issues.

In India, Chinese Pharmaceutical Company has registration within a year, and in between the

person can have a status update with meeting the concern authority from the company or

government agency.

(i) Paperwork

There is a considerable amount of work to be undertaken before the documentation of a deal is

sensibly generated. Firstly, the aim is to set out term sheet, letter of intent, or memorandum of

understanding which sets out nature of project in detail, contribution of the parties, and key

objectives (e.g., achieving a given exit).

In letter of intent, it is critical to make allowance for number of face-to-face meetings, possibly

including the intermediaries, to make them comfortable with each other. Although it is not

customary for international transactions (with certain carve outs), Chinese companies

sometimes want the letter of intent to be binding.

Once the letter of intent is executed, then it comes to due diligence on both parties proposed

contributions, and means of integrating the internal and external approval processes and

generating definitive agreement, which also generates timing issues due to need to produce

initial, interim, and final drafts of each agreement in both Chinese and English.

July 2013 Page 22

Sometimes, the Chinese party is not as experienced with these types of deals, and when it

begins to understand the proposed terms of the transaction in detail, it may seek to renegotiate

the terms of the transaction.

In addition, the foreign party (or certain groups within its organization) may not be familiar with

Chinese foreign investment and technology import regulations. Therefore, additional time and

energy may be needed to understand regulation-driven structures and terms, which may be

more rigid or less favorable, than those adopted by the Western organization in its domestic or

other international collaborations. There needs to be understanding on both sides about this.

By this point, however, when the parties are feeling more comfortable with each other, more

can be potentially handled through the exchange of drafts and the need for face-to-face

meetings may diminish. There must also be adequate time and resources set aside for

government and third-party approval processes, many of which occur from the date the

definitive agreements are signed until the closing of the proposed transaction.

The message is clear that getting a deal done in China is going to take considerable time,

commitment, and patience. From inception to conclusion to get a strategic partnering deal

takes around 12 – 18 months in Western countries. In relation to China, it is possibly a little

longer, so the Western rights holder wanting to announce a deal to sustain its share price and

to bring in money for underutilized assets should be under no illusion that trying to carry out a

deal in China will be a short-term phenomenon. Indeed, the foreign company needs to have the

commitment and drive to see things through. Over the next several years, we anticipate these

timelines shortening as the Chinese companies get more and more experience with such deals.

(ii) Payments

In international transactions Letters of credit (L/C) are often used to ensure that payment will

be received. The use of letters of credit has become a very important aspect of international

trade due to the nature of international dealings including factors such as distance, differing

laws in each country and difficulty in knowing each party personally. The bank also acts on

behalf of the buyer (holder of letter of credit) by ensuring that the supplier will not be paid until

the bank receives a confirmation that the goods have been shipped.

Payment remains to be one of the important issues while trading with china. Mode of payment

should be specified and open letter of credit should be provided as to improve trade relations

But many times Chinese issue a restricted L/C, as letter for credit cannot be consigned to a

specific bank. In restricted negotiable letter of credit, the authorization is limited to specific

nominated bank for issuing bank to pay the beneficiary. The notified bank will not release

payment until the buyers ensure their bank and confirms of product delivery. This procedure

July 2013 Page 23

consumes time, and an exporter has to keep a tab on bank as to when they will release their

payment.

b) Intellectual Property Rights

Intellectual property rights provide copyrights to its holder. It doesn’t not only give protection

but also gives quantum of incentive to the innovator. But in recent times, even domestic

companies start filing cases against the counterfeiting of their products, showing the ‘still

presence’ of thin divide line between duplicate and original products. American Chamber of

Commerce in Shanghai 2005 White Paper stated that percentage of counterfeit drugs sold off

over the counter drugs is as much as 10-15%, in China particularly in rural areas. Counterfeiting

cases had risen sharply in china and exceeded the no. of counterfeiting cases in U.S .China is

working hard with domestic and international demand for patents protection21.

As pharmaceutical industry is venturesome, so here comes the critical role of patent laws.

Patent laws amended on January1, 1993. Application for the grant must be written in Chinese

language. Application for the grant needs to be examined to check the inventiveness, practical

applicability etc. Patented subject matter includes such as non-therapeutic cosmetic treatment,

diagnostic, handling and analytical methods, treatment, analysis and preservation methods etc.

Subject matter excluded from patent protection includes scientific discoveries, methods for the

diagnosis or for the treatment of diseases, and animal and plant varieties.

The previous approach had been replaced by the new one namely absolute novelty. In this

approach, authorities ask for the evidence of public use of the technology before issuing the

patent. If the technology is available to the public before the filing, then it will not be

considered as novel. In revised regulations, there had been increase in penalty amount too.

The regulations provide the protection to those products which were earlier excluded from patent list. The patentee can file a case if another public health property produces the duplicate of that. Patentee can also file a case if some other party produces without his permission, it means that patent right can be sold too. Amendment is a continuous process; it means with the rapid development in legislation environment there occurs changes in patent protection too. But it often takes much time to understand the new regulations.

It is unclear whether the protection granted extends as broadly as the original patent, or

whether it is limited to the particular pharmaceutical.

21

Deacons , Pharmaceutical Policies And Regulations In China (June 2007), by Annie Tsoi. Retrieved from

http://www.deaconslaw.com/eng/knowledge/knowledge_290.htm

July 2013 Page 24

According to the sources, there will be the fourth revision in Chinese patent laws to bring some

more harsh laws. It is recommendable that officers of local offices should be given more powers

to investigate and find evidence. But they are still confounded that how they are going to figure

out different level of infringement i.e. repeat infringement and group infringement.

China operates a bifurcated system for patent validity and infringement. At the moment, courts

often delay their decisions on patent infringement until a final decision has been made on

validity – either by the Patent Reexamination Board (PRB) or by a court if one of the parties

appeals the PRB’s decision22.

In 2012 draft version of 3 major IP laws were presented and debated and National People’s

Congress passed a major revision to Civil Procedure Law, loosening up restrictions on expert

witness testimony in patent cases. Also a bill designed to address a number of longstanding

issues, from damages to bad faith registrations. The recent draft revision to the Trademark Act

has been completed and is circulating, though not made available to the general public. And of

course, the patent and copyright law revisions are still pending and have initiated vigorous

discussions despite the relative lack of recent activity23.

If patent holder finds that his rights are being violated by some another party then he can file a

complaint in people’s court. However, few years ago these courts were not used to entertain

complaints lodged by foreign firms. But in recent times, few special IP courts had been

established. The Administration for Industry and Commerce is responsible for enforcement of

registered trademarks and unregistered rights pursuant to the Anti-Unfair Competition Law.

The Administrative Authority for Patent Affairs has power to enforce patents and designs. The

administrative authority can penalize the firm who infringe the patent laws.

Under Chinese law, monetary penalties on infringement are calculated as either the multiple of

three times the loss suffered by first firm(who got cheated) or benefits gained by the second

firm(who violated).In case of less reliable calculation of losses or gains, Chinese law defaults the

maximum threshold of RMB 1 million24. In case of pharmaceutical cases, it is very difficult to

calculate the amount of losses or gains. Therefore, it is very important to calculate the right

amount of penalty amount.

22

Managing Intellectual Property, CONCERNS RAISED OVER CHINESE PATENT LAW AMENDMENT (19 April, 2013), by Emma

Barraclough. Retrived from http://www.managingip.com/Article/3194021/Concerns-raised-over-Chinese-patent-law-

amendment.html

23 Managing Intellectual Property, CHINA’S IP REFORMS ARE PICKING UP STEAM( 15 July 2013), by Peter Leung.

Retrieved from http://www.managingip.com/Blog/3231049/Chinas-IP-reforms-are-picking-up-steam.html 24

Deacons , Pharmaceutical Policies And Regulations In China (June 2007), by Annie Tsoi. Retrieved from http://www.deaconslaw.com/eng/knowledge/knowledge_290.htm

July 2013 Page 25

Ordered monetary awards may be difficult because of fragmented legal system and local

government protectionism. There are still some practical challenges in the Chinese law despite

the improvement in infringement laws and increase in the amount of penalties.

c) Language

Chinese language remains to be major issue in taking any trade to china. Every country willing

to trade with china faces language one of the biggest hurdles. It becomes difficult to have

access to markets and companies in such a country where English is not the business language.

The market information required to have a base in china is difficult to access due to language.

English considered as the main language for communication which is spoken by just a small

percentage of population in China. Registration of pharmaceutical product, documentation of

product details and company information is to be documented in Chinese. Product marketing

and labeling has to be in Chinese, which asks for very specific date product. At times the

information regarding registration and documentation is misunderstood due to the language

barrier.

Furthermore, every detail of company and product is required for translation and further

documented. Labeling of the product also has to be in Chinese language, company has to

provide information about the product to them for translation.

Obtaining market information is very difficult, as information is in Chinese. Therefore before

entering china company has to appoint one local representative. Local representative will act as

a channel through which the SFDA and the company will be connected. Generally, it is better,

for the time being, to approach these companies through an intermediary with Chinese-

language capability. Obviously, the intermediary needs to know the decision makers at these

companies and their decision-making processes. Many intermediaries claim to know many of

the key players, but the reality is that their contacts may not be with the right people within the

organization, or the contacts may be superficial.

Therefore, to establish good contact, it will be important to carefully research the potential

intermediaries, and to use two or three intermediaries in order to triangulate on the right

persons in such organizations. With the right intermediary, the whole process of

communication between the Western rights owner and the Chinese company may be greatly

facilitated. Realizing this, some of the key intermediaries are seeking remuneration through

finder’s fees or other success based compensation, along the lines of boutique investment

banks.

July 2013 Page 26

d) Protectionism

The government gives export subsidies and tax benefits to its domestic firm to increase the

exports and production respectively, a large number of manufacturing firms in China export all

or almost all of their production.

Exchange rate control had been the favorite policy for china which is worldwide known. China

had long history to control its exchange rate, primarily one of the major ingredients of export

growth for china over recent years. This makes Indian goods less competitive .Although this

makes Chinese consumers worse off (increase in the real price of imports for them).

On more protectionism policy in china is to impose anti-dumping duty on foreign firms.

Supporters of anti-dumping laws argue that they prevent "dumping’’ of cheaper foreign goods

that would cause local firms to close down.

7) Conclusion

Today India and china are the most important trading partners in the world. Due to

repercussion effects, this trade carry a major impact with itself .Trade between India and china

had been increased over last many years. But it is worthwhile to note that India continuously

experiencing current account deficit over last few years. There are major hurdles like

registration system, exchange control and language barriers which need to get solved. China’s

exports had been low as well for global reasons (recent global financial crisis), so it knows that

India has big market. China seems to give full support to Indian pharmaceutical firms. During

the last 9th joint working group, Chinese commerce minister Mr. Deming confirmed to give

Indian firms a palpable environment. Even recently Chinese premier gave a green signal on

many issues. In future we can expect a trade balance for India and increase in total bilateral

trade between India and china.

a) Summary of major findings and key points of the report

(i) REGISTRATION

Medicine registration system has not functioned well and has hampered the healthy

development of pharmaceutical sector. The production of some essential medicines has been

problematic. Too many manufacturers are producing the same chemical medicine with

different dosages and packing is being sold at different prices. This system can be granted for

better pricing and needs to better regulated and managed under better coordination between

the drug regulatory and pricing authorities. Also sometimes the quality of medicines is a

concern of public especially in rural and remote areas.

Lack of regulation enforcement and unethical practice has been the key sticking points which

blocked the health development and good governance in the Chinese pharmaceutical sector.

July 2013 Page 27

Government agencies such as SFDA and MoH have taken certain steps but still a lot of work

needs to be done. Rigorous regulations should be developed to ensure that any new

pharmaceutical product that wants to get registered and produced should be more cost

effective than existing ones. Relevant policies and actions should be put in place to prevent any

corruption and other illegal practices in pharmaceutical registration, distribution and utilization.

Paperwork

Make Chinese environment more favorable and transparent as per international standards. So

that there is easy catching up of foreign MNCs with Chinese environment and smoother

functioning and understanding of the paperwork can take place. Also it would also be beneficial

for Chinese entities going to foreign market.

Payments

China should provide only with freely negotiable letter of credit, in which authorization from

the issuing bank to pay the beneficiary is not restricted to a specific bank; any bank can be a

nominated bank as long as the bank is willing to pay, to accept draft(s), to incur a deferred

payment undertaking, or to negotiate the L/C. The words "this credit is not restricted to any

bank for negotiation" or "this credit may be negotiated at any bank", or similar words, may be

indicated on the L/C. This should be done to improve Chinese business environment and make

it more favorable for foreign investors.

(ii) IPR

A long process for approval and the time consumed in process is a problem in Chinese

pharmaceutical industry so it preferred to have some initial approval even before the letter of

intent is established, especially if some arms of the local government are going to provide a

grant or some assistance via cash contribution in the development of the project.

To develop an effective intellectual property enforcement programme, experience shows that

the key element is building good relations with administrative authorities and effective

coordination of investigators, designated agencies and administrative authorities to solve

counterfeiting problems25. Also the industry should tune up with government stakeholders to

bring more clarity to regulatory policies on drug development.

(iii) Language

Some of the largest Chinese pharmaceutical companies, especially the pharmaceutical arms of

key State Owned Enterprises (SOEs), are still organizing themselves to conduct international

25

Deacons , Pharmaceutical Policies And Regulations In China (June 2007), by Annie Tsoi. Retrieved from http://www.deaconslaw.com/eng/knowledge/knowledge_290.htm

July 2013 Page 28

business development, including establishing business development groups with English-

speaking capabilities and developing intellectual property departments, licensing departments,

and other assets necessary to conduct international transactions. At present, they do not tend

to participate in international partnering sessions in force, nor even to attend partnering

sessions in China that are largely conducted in English. Therefore, accessing these companies

who want to do deals can be difficult.

b) POLICY RECOMMENDATIONS:

India and China should talk about notorious registration system existed in china for

ages. Indian pharmaceutical products already proved by world reputes like USFDA and

other Europe and UK government organizations. Chinese authorities can relook at

details of previous detailed examinations by other overseas authorities. This will not

only make the process faster but also give an impetus to other firms.

Both countries India and china are currently working on these programmes very

frequently. There are many NGOs who organized cultural and language programmes

every year, for instance in 2011 Indra Gandhi National Open University's (IGNOU) School

of Foreign Languages (SOFL) had launched a Diploma in Chinese Language and Culture

(DCLC). This not only help to get familiar with each other’s languages but also to get

familiar with each other’s cultures which is very important from trade point of view.

As mentioned in Annexure 1 both countries are better off if coordination is improved

and various hindrances working as non tariff barriers are removed for a better trading

partnership between India and China so both importers of China and exporters of India

can have a free trading passage.

China should bring with some more reforms focusing on more transparency .This step

could give lot of impetus to Indian pharmaceutical firms to invest in china.

During the recent visit of Chinese premier Le Kequiang, both countries had signed 8

MoUs, one of which related to pharmaceutical sectors. This sort of diplomacy needed to

happen at intermittent intervals.

July 2013 Page 29

AnnexureA:Export-Import Data of India & China with Trade

Potential

Product Description Product

Code Indian export

Import China

India to China

Trade Potential

Extracts of glands or other organs 300120 1633.497 98.564 0 1633.50

Antisera and other blood fractions 300210 12257.701 787866.421 4.945 12252.76

Vaccines for human medicine 300220 153273.42 228120.851 245.482 153027.94

Vaccines for veterinary medicine 300230 4575.814 107186.096 0 4575.81

Containing penicillins or derivativ 300310 71105.7 3329.371 7.249 71098.45

Containing other antibiotics 300320 146429.019 22155.238 748.124 145680.90

Containing alkaloids or derivatives 300340 756.461 5963.257 0 756.46

Containing penicillins or derivativ 300410 259770.708 120485.758 38.057 259732.65

Containing other antibiotics 300420 572588.311 620840.066 641.556 571946.76

Containing insulin 300331 1292.247 491014.735 0.587 1291.66

Containing corticosteroid hormones, 300432 2650.019 268755.833 0 2650.02

Containing alkaloids or derivatives 300440 39677.265 86459.867 35.255 39642.01

Other medicaments containing vitamin

300450 221894.746 100151.277 54.733 221840.01

Adhesive dressings and other article 300510 3673.816 33033.234 0 3673.82

Sterile surgical catgut, similar st 300610 17412.735 73647.027 0 17412.74

Blood grouping reagents 300620 239.826 17513.223 0 239.83

Opacifying preparations for X-ray ex 300630 2867.558 59011.767 0 2867.56

Dental cements and other dental fil 300640 5280.594 31551.459 0 5280.59

First aid boxes and kits 300650 1016.814 2888.552 0.567 1016.25

Chemical contraceptive preparations 300660 35290.039 30097.24 0 35290.04

Gel preparations designed to be use 300670 1852.741 5321.858 0.293 1852.45

Containing insulin 300431 52123.257 0.322 52122.94

Waste pharmaceuticals 300680 2087.954 0 2087.95

Other mendicants(excl heading 3002,3005,3006)for therapeutic prophylactic uses not put up for retail sale

300390 239960.267 254862.276 17277.965 222682.30

Other medicine put up for retail sale 300490 3954776.854 3296870.863 7193.919 3947582.94

(In 1000 USD)

July 2013 Page 30

Annexure B: The details of some of the major NTMs that are

maintained against Indian exports HS code Commodity Type Country Details

30000000 Pharmaceutic

als

Registratio

n

Argentina ANMAT (Drug regulatory authority) has not visited

Ranbaxy's facilities despite fees having been paid

30000000 Pharmaceutic

als

Certificatio

n

Armenia Registration, permission for importation

30000000 Pharmaceutic

als

Registratio

n

Brazil Clearances from Brazilian Health Surveillance Agency

(ANVISA), , inspection by ANVISA, registration of

products, issuance of licenses for sale, reports of bio

equivalence and procedural delays

30000000 Pharmaceutic

als

Registratio

n

Colombia Registration takes 11-12 months, Colombian Drugs

Control & Certification Authority (INVIMA) undertakes

physical inspection, certifies Spanish translated

documents.

30000000 Pharmaceutic

als

Registratio

n

Colombia 10% price preference for French Pharmaceutical

companies due to bilateral agreement

30000000 Pharmaceutic

als

Public

Procurem

ent

Colombia Strict Registration procedures, 11-12 months’ time

lag, inspection to ensure environmental compliance

30000000 Pharmaceutic

als

Certificatio

n

EC Import restrictions under the recently amended

German Code of Medical Law requiring permission for

microbiologically produced active pharmaceuticals

ingredients (API)

30000000 Pharmaceutic

als

Import

Restriction

EC Quality control guidelines and complexities of product

registration inflate costs.

30000000 Pharmaceutic

als

Standards EC Non harmonized maximum residue limit (MRL)

30000000 Pharmaceutic

als

Registratio

n

El Salvador Delayed registration

30000000 Pharmaceutic

als

Registratio

n

Honduras Delayed registration

30000000 Pharmaceutic

als

Registratio

n

Panama Delayed registration even up to 18 months

30000000 Pharmaceutic

als

Import

Restriction

Ukraine Import Licenses regulated by Cabinet of Ministers and

granted by Ministry of Economic Relations

30000000 Pharmaceutic

als

Certificatio

n

Ukraine Compulsory Certification i.e. (a) Certificate of

acceptance of foreign certification by Derzh Standard

or (b) Conformance certificate by Ukrainian agency.

ISO 9000 standards adopted by Derzh Standard on

production systems. Foreign certification recognition

only to the extent of international treaty obligations of

Ukraine.

Source: http://commerce.nic.in/trade/international_ntm

July 2013 Page 31

Annexure C: Application and approval procedure for imported drugs

(1)

Annexure D: Application and approval procedure for imported

drugs (formulations) (2)