Today’s biopharmaceutical supply chains often stretch around the world. Key starting materials (KSM) and API originate more frequently from Asia. Manufacturing is commonly conducted in Europe and North America. And commercial distribution is spread across the globe. This globalization has resulted in increased logistics and global trade compliance (GTC) complexity along with ever-changing import/export compliance requirements.

On a global level, WTO and WCO treaties set the rules and regulations of fair trade and customs for valuation, origin, and tariff classification. Moreover, there are now five US agencies involved in import controls (FDA, CDC, USDA, EPA & CBP) that are governed by CFRs other than 21. Outside the US, each country has its own evolving regulations that cover import licensing, VAT and duties, and intellectual property.

More recently, countries are using global trade to advance national and foreign policy agendas. Trade policies are also playing an important role in ensuring national security. Laws such as C-TPAT (Customs & Trade Partnership Against Terrorism) are an example here in the US. In addition, the past several years include actions that shift the burden of compliance from customs to importers.

Demonstrating “Reasonable Care” Increasing in Importance

All of this increases the importance of GTC for life science companies. While the supply chain may be global, the ability to move material across global borders is not an inherent right. Even early-stage companies must demonstrate “reasonable care.” This concept was first introduced with the passing of the Customs Modernization Act of 1993 and shifts responsibility to importers of record. They are now required to inform themselves of all laws/legal obligations and regulations pertaining to their own customs business activities. Non-compliance can lead to penalties, delays in customs clearances, intensive investigation, revocation of import/export privileges, heavy fines, prosecution, or even imprisonment in cases of fraud or gross negligence.

Jeremy Friedler is the Director of Biotechnology & Pharmaceutical Operations, specializing in strategy, operations, supply chain, and manufacturing.
Larry Sweeney is a Senior Consultant with over 30 years of experience in logistics, supply chain, distribution, and information systems, as well as project and change management.
Mile Iliev is a Consultant supporting supply chain, project management, and strategic advisory services.

Furthermore, GTC is gaining the attention of senior executives at emerging biopharma companies. They recognize that non-compliance could result in cGMP manufacturing campaign production delays due to hold ups for cross-border KSM/API/drug product shipments or significant and unnecessary amounts of customs duties and VAT due to improper use of associated relief levers.

Global Supply Chain Network Map

Common Global Trade Compliance Mistakes

In our work, we see many areas of exposure in our emerging and growing clients. Small and mid-sized biotech companies often find themselves caught by surprise by compliance and documentation requirements. For development-stage companies, most transfers can be made duty-free. However, we often see companies making common mistakes such as:

  • Country-of-Origin – Mismatching country-of-origin markings with the country of substantial transformation.
  • Tariff Classification – Maintaining a duty-free tariff classification without obtaining a binding ruling.
  • Temporary Import Bonds (TIBs) – Insufficient documentation of the use/disposition of material imported under a TIB.
  • Free Trade Zone (FTZ) Use – Limited understanding of the proper selection and use of an FTZ to postpone duties.
  • Commercial Invoice Value – Using unrealistic nominal valuations for customs purposes.

For example, one of our recent clients was using TIBs to import raw materials into the US for clinical research. The TIBs allowed the company to avoid duties under certain conditions. As the organization grew, however, nobody oversaw management and administration of the documentation and compliance required to maintain an open TIB, manage the TIB provisions, and then close the bond successfully. One breach resulted in a 13% penalty, calculated at close to $500K. Furthermore, if the organization had complied with the TIB provisions, this entry would have qualified as duty-free.

Another common gap we see is simply with trade compliance basic education and awareness. This is prevalent in small/mid-sized companies where leaders come from larger organizations with trade compliance structures already in place. While these leaders may bring expertise in many areas, they often lack direct domain experience in logistics and GTC.

What You Should Do

Life science companies must still learn about trade regulations,  compliance, and practices that meet the CBP standard of “reasonable care.” Even early on, emerging organizations should have relevant training and skills development programs in place. They should also identify an individual or a department responsible for overseeing trade compliance processes and developing related policies.

Companies maintain the visibility and importance of GTC as they grow by establishing a well-structured program as a proactive mechanism to address compliance and security issues. A Supply Chain, Regulatory, or a Legal executive may own the program, and it should consist of these six components:

  • Education & Training – Ongoing education and training of all employees who deal with supply and distribution.
  • Initial Assessment – Performing an initial operations gap/risk assessment to ensure GTC current state capabilities and identify areas of risk.
  • Written Policies & Procedures – Developing policies and procedures to document methods and practices.
  • Import/Export Data Repository – Maintaining an accurate import/export data repository for use in GTC audits and record keeping.
  • Regular Audits – Conducting regular audits and reinforcing commitment to maintaining compliance.
  • Senior Management/Executive Level Commitment – Having senior management commit towards GTC as a segment of broader enterprise compliance initiatives and policies.

For growing life science companies, GTC matters need a sense of urgency. Laying a solid GTC foundation prior to product approval ensures that international logistics activities can scale quickly to support launch and eventual market expansion. Furthermore, early education and training can change the perception of GTC in your organization from afterthought to global trade threshold.

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