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Pharmaceutical industry of Uzbekistan upon joining the WTO

CEIR is assessing the possible consequences of Uzbekistan’s accession to the WTO.   This material provides an assessment of the consequences of accession to the WTO for the pharmaceutical industry. 

Import structure by countries and commodity groups. In 2018, 72.4% of imports came from 10 countries. The largest share of imports by value comes from India, Latvia, Russia, Georgia, the United States and Ukraine. The largest share of imports falls on imports of medicines. In particular, 80% of imports are drugs containing corticosteroid hormones, 10% – antibiotics.

Export structure by commodity groups and countries.   The export of pharmaceutical products is approximately $ 10 million. 90% of the country’s export falls on the share of 7 countries – Kazakhstan (25%), Kyrgyzstan (19%), Ukraine (15%), Afghanistan (10%), Georgia (9%), Russia (8%) and Lithuania (4%). 43% of exports go to gauze products to Kazakhstan, Ukraine and Russia, 37% – to medicines containing ascorbic and niacin, mainly to Kyrgyzstan, Georgia, Afghanistan and Lithuania.

The level of tariff barriers in the industry.   Currently, tariffs are not applied for most of the pharmaceutical products that are currently imported into Uzbekistan. For pharmaceutical products, such as dressings (medical cotton wool, gauze, etc.), from January 1, 2020, a tariff of 30% will be charged.

Forecast of scenarios of changes in average import tariffs when Uzbekistan joins the WTO.  Under WTO rules, tariffs used by member countries are very low. Import tariffs for medicines, vaccines or other health products are reduced as global, regional and bilateral agreements on tariff reductions come into effect. Average tariffs for final pharmaceutical products are generally low to moderate in developing countries, with the exception of only a few countries such as India and Tunisia, where they are 30% and 20.6%, respectively. For active ingredients that go into pharmaceutical manufacturing, average tariffs in six developing countries range from 20% to 30% (Burkina Faso, Pakistan, Tanzania, India, Kenya and Tunisia). In some developing countries, duty-free trade is available for a limited number of essential drugs. And several countries mostly WTO members, in their tariff plans, the WTO pledged to provide duty-free access for pharmaceutical products. For example, for Kyrgyzstan, upon accession, tariffs were reduced from 15% to zero, for Kazakhstan they were also reduced from 5% to zero. In the case of Russia, tariffs have also dropped from 10% to 5%. 

As the calculations of CEIR show, for Uzbekistan, accession to the WTO will be accompanied by an increase in imports of $ 5.8 million, if tariffs are reduced to the level of Russia (up to 5%) and by $ 6.7 million, if reduced to the level of Kazakhstan. and Kyrgyzstan (up to 0%).

The level of non-tariff barriers in Uzbekistan and their possible impact on the volume of imports and domestic production. The public sector is the main importer of pharmaceutical products, but procurement procedures are still complex. All types of activities in the field of healthcare in Uzbekistan are subject to licensing. The protection of intellectual property rights is also a major concern for international business. Any government procurement must go through an open tender, while national producers are provided with certain incentives in tenders.

In particular,

– from July 1, 2019, to December 31, 2020, on an experimental basis, when carrying out a public procurement of medicines and medical products, the state customer rejects all applications containing proposals for the supply of imported medicines and medical products, if there are two or more participants – domestic manufacturers of similar products (by the international non-proprietary name);

– enterprises that produce medicines and medical products in the full and incomplete technological cycle, as well as medicines and medical products based on “in bulk” products that do not have similar domestic products, are provided with price preferences in the amount of 20% of the cost of the same products of foreign manufacturers with participation in public procurement.

In addition, the following benefits for local manufacturers are currently envisaged for the development of the pharmaceutical industry in Uzbekistan:

– medicines, raw materials and auxiliary materials, medical products and medical equipment are exempt from value-added tax;

– value-added tax is applied when importing medicines and medical products that have analogues in local production;

– import customs duties are not applied on technological and laboratory equipment, components and spare parts for pharmaceutical products, “clean rooms” for pharmaceutical industries, sandwich panels and ventilation systems, raw materials and materials used in the production of drugs, medical products and packaging materials …

As calculations of the effects of the abolition of privileges for local producers under the WTO conditions show, their competitiveness will significantly decrease and imports will increase by $ 23 million, which will lead to a 13% reduction in domestic production.

How WTO accession will affect the state budget, welfare and employment of the population.

WTO accession will also have a potential effect on the state budget. In particular, from the reduction of tariffs, cash receipts will decrease to -2.6 million dollars under the terms of Russia’s accession and -21 million dollars under the terms of accession of Kazakhstan and Kyrgyzstan, from changes in national production -3.5-3.6 million. dollars, from changes in employment -0.02 million dollars, cancellation of benefits + 24-25 million dollars. 

Also, with a decrease in prices for medicines, the well-being of the population will increase by +1 million dollars. The number of employed will decrease by 500-550 people, due to the termination of the operation of local ineffective industries.

Level of non-tariff barriers in the WTO countries. Calculations of potential exports to other countries based on their demand show that Uzbekistan can increase exports by $ 4.5 million more than now.   At the same time, under the terms of the WTO, for the export of pharmaceutical products to the WTO member countries, manufacturers must switch to certification for compliance with “good manufacturing practices” (GMP). To date, 10 out of 95 domestic pharmaceutical enterprises producing medicines have introduced the requirements of good manufacturing practice – GMP (31 domestic production enterprises have implemented the ISO 9001 quality management system, six enterprises have implemented the international GMP standard and three have implemented the national GMP standard) …

Implementation of appropriate standards and practices. The WTO rules governing technical barriers to trade that are applied to protect human health are covered by either the Agreement on Technical Barriers to Trade (TBT) or the Agreement on the Application of Sanitary and Phytosanitary Measures (SPS). Health is considered a legitimate target of trade restriction under both of these agreements.

While the TBT Agreement strongly recommends the use of international standards, member countries may opt-out of them if they believe that their application would be ineffective or inappropriate to achieve certain legitimate goals. If a Member considers that certain WHO standards are suitable for adoption as national standards or technical regulations, it should use them. However, members can set standards at a level they deem appropriate but should be able to justify their decisions at the request of another member.

It is advisable to organize work on the implementation of international standards at domestic enterprises, including the requirements of good manufacturing practice (GMP), good pharmacovigilance practice (GVP) and ISO 13485, which regulate the quality and safety management system at pharmaceutical enterprises, without limiting the ability to produce efficiently and safely pharmaceutical products that are competitive in the foreign and domestic markets.

Of no small importance is the introduction of good pharmaceutical practices (GxP) aimed at regulating the quality and safety management system of medicines during distribution (GDP), preclinical (GLP) and clinical trials (GCP), in general, ensuring the effectiveness and safety of products throughout its entire life cycle.