The EU is set to expand its listing of pharmaceutical products and associated materials which will benefit from duty-free treatment upon importation.
Under the WTO/GATT Agreement on Trade in Pharmaceutical Products, over 7,000 products and chemical intermediates imported into the EU are eligible for duty-free treatment. Agreement has now been reached to expand the current listing of products covered by the duty-free status and address the backlog of newly developed pharmaceutical products to duty free treatment. This expansion will include a further 1290 pharmaceutical and chemical products. EU industry reports estimate annual import duty savings of €230 million as a result of this act.
These agreed changes are now being introduced in the EU. So pharmaceutical importers and manufacturers of pharmaceutical products may now have the opportunity to reduce their duty costs on a wide range of finished products and raw materials, including chemicals, intermediates, and derivatives (salts, esters or hydrates etc.) and reduce their duty compliance costs in situations where previous customs planning solutions are now superseded by these changes.
If you import any pharmaceuticals or related raw materials from outside the EU, you should carry out a review of their Chemical Abstract Services (CAS) registered numbers - this number can then be matched against the "INN" listing to ascertain whether your imports may be eligible for a duty-free rate. If your products or materials are on the INN's list, we would recommend that you seek a formal classification ruling (Binding Tariff Information - BTI) from the Customs authorities to be certain that you qualify for the zero percent import duty rate.
Companies that currently use the customs duty relief scheme to avoid paying duty on your raw materials should carry out a review of the materials to see if they are on the new list and qualify for duty free treatment. If they are, you may be able to dismantle these schemes and eliminate their compliance costs - freeing up resources and commitments while continuing to guarantee duty savings.
If you still have to import dutiable raw materials including chemicals to manufacture finished pharmaceutical product and you can show that your finished product would be duty free under the new listing, you may be able to put arrangements in place to opt to assess your duty liability on the finished products at the 0% rate and thereby avoid duty on the imported raw materials.
For those manufacturers that buy any chemical products indirectly via EU suppliers, you may be suffering a hidden cost built in to the price if your suppliers are delivering chemicals or other raw materials they imported, and duty paid, from outside the EU. Planning arrangements can be put in place to release this trapped cost if you use the materials to manufacture products on the new listing.
Timing and effect of the new duty relief
It is expected that the legislation introducing the new list will be published during the first quarter of 2007. It is also likely that it may contain a provision to give retroactive effect from 1 January 2007. Should this be the case, it will be possible to seek a refund of duties on the affected products imported from the beginning of 2007. Chemical and pharmaceutical companies operating in Europe may be able to minimise duty costs and enhance supply chain efficiencies by:
- Reviewing your products and raw materials (including chemicals) to determine whether they can benefit from the new duty free listing
- Obtaining appropriate classification (BTI) rulings on your behalf
- Reviewing your customs planning schemes and arrangements to see whether these can be dismantled as a result of your finished products being on the new list
- Eliminating any associated trapped duty in your supply chain
- Securing refunds, assuming that the new listing is retrospective to 1 January 2007.
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