ΆΓ Liberalizing the pharmaceuticals industry

Korea Herald 2001. 5. 2

Like the automobile market, the pharmaceuticals industry remains a relatively tough place for foreign investors to do business despite the progress made in liberalizing the foreign investment regime under the Kim Dae-jung administration.

Currently, foreign multinational pharmaceutical companies engaged in manufacturing take up just 24 percent of the market, far below the 50 percent market share held by foreign pharmaceutical companies in other similar countries.

For foreign pharmaceutical companies with manufacturing bases located overseas and regional offices in Korea, the obstacles to exporting brand new, state-of-the-art pharmaceutical goods can be daunting.

For many of these companies interested in selling their goods in Korea, the main source of friction lies with the burdensome and redundant cross border quality inspection tests imposed by the Korean Food and Drug Administration (KFDA), a situation which is gradually beginning to change.

Why, foreign pharmaceutical companies ask, must they undergo another set of time-consuming inspection tests in Korea when their products have already been certified by their home country's government agencies, which happen to be based on the strictest international standards?

These dual quality inspection tests serve to discourage foreign direct investment into Korea in two ways.

First, the requirement that it must setup separate laboratories or factories to certify the new medical product for the benefit of the KFDA is an expense borne by the company.

Second, re-testing of new medical products consumes valuable time and disrupts the supply chain to the pharmaceutical market. These burdensome requirements only hurt the consumer in the end in the form of higher prices and inadequate access to vital state-of-the-art medical products.

In the face of these obstacles, a foreign pharmaceutical company sought the services of the Office of the Investment Ombudsman (OIO) to revise the regulations governing the import of new medical products already approved by their home country authorities.

The OIO suggested three ways in which the KFDA could resolve problems surrounding the import of foreign pharmaceutical goods. To signify the Korean government's commitment to liberalization and internationalization, the KFDA embraced all three suggestions in December 2000.

The first was the establishment of pursuing mutual certification or bilateral agreements so that certificates of Quality Assurance could be accepted from the country of manufacture.

However, for this to happen the Korean government must meet international standards in accordance with the Good Manufacturing Practices (GMP) guidelines, which are stricter than the KGMP guidelines in Korea. Meeting these standards would allow for a quid pro quo acceptance of medical products between the nations.

The second solution agreed to was that government inspection officials would be sent to the pharmaceutical exporting country to visit the factories or laboratories and confirm foreign test data before providing certification. This way laboratories would not have to constructed in Korea and the distribution time would be significantly reduced. This proposal also entails an increase in manpower and costs however.

The third, and perhaps most easily achievable, solution is to simplify the quality inspection system by granting hassle-free admission to new and innovative medical products from certain companies in advanced countries.

These pharmaceutical products would have already passed rigorous testing procedures from highly respected governmental bodies such as the U.S. Food and Drug Administration.

Japan and some EU countries have adopted this simplified system for accepting pharmaceutical products following certification from authorities in advanced countries.

The difference, however, is that the Korean government has opted for a more selective system, giving preferential treatment on a company by company basis.

The above solutions, agreed to in principle, by the Ministry of Health and Welfare represent the gradual acceptance of the need to open up the Korean pharmaceuticals market in line with its obligations to fair trade as a WTO and OECD member.

The rational revision and application of regulations governing the import of new pharmaceutical products from foreign companies is good for consumers and public health as well as improving the perception among foreign investors that Korea is a convenient and receptive place to do business.

Trade liberalization, deregulation and harmonization with the international community will pave the way for more FDI flowing into Korea as more foreign-invested companies will be encouraged to enter the 10th largest market in the world as well as upgrading healthcare safety.