Distribution

Under Decision 10 of Ministry of Trade (now Ministry of Industry and Trade) dated 21 May 2007 on publicizing roadmaps for goods trading and directly related activities (Decision 10), “foreign-invested company” (doanh nghiệp có vốn đầu tư nước ngoài) in Vietnam is not allowed to distribute drugs in Vietnam. Under Vietnamese law, “distribution” includes wholesale, retail sale, sale and purchase agency and franchising.

The current regulations are silent on the foreign ownership threshold in a Vietnamese enterprise that makes such Vietnamese enterprises become a foreign-invested enterprise under Decision 10. There are two possible interpretations:

(1)        Only companies with more than 49% foreign ownership are regarded as foreign invested enterprises. This interpretation is based on Article 29.4 of the Investment Law and Article 11.3 of Decree 102 of the Government dated 1 October 2010 implementing the Enterprise Law (Decree 102); or

(2)        Companies with even 1% foreign ownership are regarded as foreign invested enterprises.

In practice, different authorities seem to take different views at different times for different companies. However, it seems that:

(1)        the authorities (especially those in Hanoi and Ho Chi Minh City) are increasingly take the more restrictive views on definition of foreign-invested enterprises; and

(2)        for drug distribution business, the authorities seem to take more restrictive views than other sectors. The notable case is the view that the authorities take against Mekophar, a pharmaceutical company with shares listed in the Ho Chi Minh City Stock Exchange. It is reported that in March 2011 the Ministry of Planning and Investment took the view that Mekophar with 4.28% foreign ownership is a foreign-invested enterprise.

Import business

Pursuant to Decision 10, foreign-invested enterprises are allowed to import drugs. Under of the Government dated 12 February 2007 on import and distribution rights of foreign investors (“Decree 23”), if a foreign-invested enterprise is licensed to import drugs, it would be expressly allowed to:

(1)        conduct the procedures to import drugs in its own name; and

(2)        sell imported drugs to business entities, which have the right to distribute pharmaceutical  goods in Vietnam.

A foreign-invested enterprise with drug import licence may operate substantially similarly to a company with drug wholesale licence. However, a foreign-invested enterprise with drug import licence would not be permitted to set up its own distribution network for its imported products and would not be able to purchase local drugs for wholesale business.

Under Decree 79 of the Government dated 9 August 2006 implementing the Law on Drugs (Decree 79), a foreign-invested enterprise with drug import activities would also need to obtain a Certificate of Satisfactions of Conditions for Drugs Business (Drug Trading Licence) for the drug import business from the relevant provincial Health Department. However, Decree 79 seems to suggest that only companies that are licensed to manufacture drugs or conduct wholesale trading of drugs can apply for a Drug Trading Licence for the drug import business. Further, Circular 47 of MOH dated 29 December 2010 on import and export of drugs and its wrapping (Circular 47) re-states that foreign invested companies in Vietnam holding the Drug Trading Licence are allowed to import drug materials for its drug manufacturing business and indicates that other drug import activities, unconnected to manufacturing will be governed by separate legislation to be issued by the Ministry of Health. However, it seems that there is no such subsequent legislation and as such Vietnamese law is still silent on whether a foreign investor can obtain a Drug Trading License to import drugs unconnected to its manufacturing business and without being a drug manufacturer or a wholesaler.