ANIMAL HEALTH The animal health industry is engaged in providing antibiotics, vaccines, parasiticides and other medicants for livestock and pet animals. These products improve animal productivity, production efficiency, and the welfare of livestock and pets. The animal health industry plays a vital role in helping ensure Korean consumers of high quality, safe and affordable pork, beef, poultry and dairy products. In addition, Korean farmers are provided with some of the same technological advances as other global producers to enable them to compete effectively in livestock export markets such as Japan and Taiwan. The overall animal health market (including nutritional products) is valued at approximately US$324 million. Participating companies within the industry are made up of local and foreign manufacturers, local distributors and importers. The industry is regulated under the Pharmaceutical Affairs Act (PAA). For the most part the regulations under the PAA are recognized as necessary, however, there are regulations under the Act that impede trade, curtail investment and limit market access by foreign companies. While these regulations have nurtured a local manufacturing industry, they have at the same time discouraged the import of finished products. Furthermore, since there is no alternative for importing companies to produce locally without compromising intellectual property, there is a reluctance to bring in new technology. In spite of repeated efforts on the part of importers, regulations remain a barrier that could risk a trade related dispute if remedial action is not undertaken. The AMCHAM Animal Health Committee is hoping to collaborate and provide constructive input with the Ministry of Agriculture and other industry stakeholders to improve the Korean business and investment climate. This will require legislative reform that will harmonize Korean regulations in line with international standards and accepted business practices. Industry reform will not only encourage further foreign investment, but also help ensure that Korean livestock producers remain efficient and competitive. Furthermore, these recommended reforms are consistent with the current government’s desire to increase market liberalization and demonstrate greater transparency in business practice. The opportunities to significantly improve the Animal Health industry investment climate are listed below. 1. Testing of Imported Biological Vaccines. All biological vaccines not made under Korean Good Manufacturing Practices (KGMP) are required to undergo mandatory potency testing (National Assay Test) by the National Veterinary Research & Quarantine Service (NVRQS), prior to release for sale. The test is to ensure both local and imported products meet Korean quality control standards. However, as most local manufacturers do not undertake any quality control testing at their manufacturing facilities, they are reliant on the potency test as a quality control check. This testing process is a duplication of quality control testing for many importers, as most imported products are manufactured under approved and accepted international Good Manufacturing Practices (GMP) or Animal and Plant Health Inspection Service (APHIS) manufacturing standards that meet or exceed Korean GMP standards. As a result of having to submit imported products to the National Assay test process, there are significant delays in the importation process of up to 90 days. In turn these delays drive up inventories, duplicate warehousing needs, render products un-saleable due to the sampling requirement of the test itself and create an enormous administrative burden. Furthermore, under this requirement the NVRQS assumes product liability for the product after it has passed the National Assay test. Recommendation: Undertake manufacturing plant inspections by a recognized International Standards Organization (ISO) certified organization to evaluate the importer’s manufacturing processes are compliant with KGMP. If found to meet or surpass KGMP standards, imported finished products from these facilities should no longer be subject to routine local national assay testing (but would still subject to random testing). Reduce the number of imported lots requiring mandatory testing, thereby eliminating the need to test each imported lot from every shipment (assuming imported products have not previously failed the national assay test). Adopt a "phased out" approach with specific timelines eventually eliminating the need to test imported vaccines and antibiotics. Mandate that animal health companies assume liability for the quality and potency of their products if they meet KGMP standards. 2. Toll Manufacturing Toll manufacturing is prohibited in the animal health industry (unlike in the pharmaceutical industry). Non-manufacturing companies (the majority) have limited options with respect to local manufacture and are either forced to import finished goods or relinquish product intellectual property and marketing rights to a local manufacturer. This practice discourages investment, compromises proprietary rights to intellectual property, increases local product costs and limits the animal health industry's ability to utilize surplus manufacturing capacity. As a consequence, non-manufacturing companies may choose not to introduce new technology that would otherwise be beneficial to Korean livestock and poultry producers. Recommendation: Remove restrictions that limit toll manufacturing, thereby allowing all companies to take advantage of local manufacturing capacity and capabilities. Eliminate the requirement that restricts importation of raw materials to local manufacturers only. All toll manufacturers should meet KGMP standards. 3. Proprietary Rights and the Protection of Intellectual Property and Trademarks Under current regulations, local animal health companies who hold product licenses granted under the regulatory dossier supplied by a third party, can choose to import, manufacture and market substitute generic products on limited information without proving bio-equivalency or concern for patent protection and trademarks. This practice often violates international patent and trademark law, compromises proprietary intellectual property rights and can be misleading to consumers (as manufacturers can substitute with generic products which may not be equivalent under the same trademark). Recommendation: Regulatory dossiers should be recognized as the intellectual property of the developing company. The regulatory dossier and subsequent product registration and trademark should remain the intellectual property of the developing company. Enforce compliance with Article 7 of the rules for Animal Health Products Dealing and penalize non-compliance. 4. Bio-Equivalency & Registration Classification for Generic Products. A distinction between generic and new product registration would permit quicker registration of generic products. Generic products should demonstrate bio-equivalency to the currently registered active ingredients; for instance not all generic actives have the same level of activity as the original. Furthermore generic manufacturers can submit pilot batches of product that are produced in a laboratory that do not necessarily resemble the final manufacturing production batch (lot) for registration purposes. Recommendation: Implement a classification system for generic and innovative product registration guidelines, ensuring that generic products can demonstrate bio-equivalency, safety & effectiveness. Ensure product samples submitted for registration trials are the same as the final manufacturing plant production batch (lot). 5. Animal Health Companies Regulated as Small to Medium Sized Enterprises The regulations classify the majority of local Animal Health companies as small to medium sized- enterprises; this regulation effectively limits foreign companies (as they are classified as large enterprises) from investing in new technologies in Korea. A permit is required from the government for investment in new technology plant and equipment. Approval for this permit can only be granted after consultation with local competitor companies. This regulation perpetuates production inefficiencies, drives up product costs and ensures innovation is kept out of the animal health manufacturing industry. Recommendation: Declassify the Animal Health industry's designation as a small to medium sized industry or allow foreign companies to invest in new technologies at their own discretion. 6. Requirement for a Pharmacist Under current regulations, licensed animal health companies are obligated to employ a pharmacist. This requirement is antiquated and without merit as a pharmacist’s training and orientation is not suited to the veterinary industry. Several animal health companies are involved in marketing biological vaccines, for example, that are completely outside a pharmacist's area of expertise. Recommendation: Remove the mandatory requirement for animal health companies to employ a pharmacist. Instead, require a licensed veterinarian on staff. 7. Need for Greater Consultation with Foreign Suppliers as Industry Stakeholders. Current practices confine discussions on key issues relating to regulatory and policy development to local company associations's members only. Consequently foreign suppliers (who have no voting membership rights to the Korea Animal Health Products Association (KAHPA)) are rarely consulted or represented as stakeholders on critical issues relating to the industry. Foreign suppliers collectively account for a very large proportion of the total Korean animal health products's industry. Foreign suppliers participate in the Korean market as incorporated Korean business entities, as suppliers of raw materials to local Korean companies, and as suppliers of finished goods to local Korean distributors. Foreign suppliers are typically the primary source for future new and innovative technology. Recommendation: Provide full recognition of the AMCHAM Animal Health Committee as a functional component of the Animal Health industry. Actively seek input from the committee member companies so that their interests and ability to add value to the Korean market can be included in the consultative process. These companies have the ability to provide a global perspective and advice on new and emerging technologies that will impact Korean market and regulatory policy changes.