EU pharma manufacturers face increased costs under new customs restrictions

The legislation, which comes into effect on 1 January 2007, requires all importers and exporters from all industries throughout the EU to have a special security certificate for easier access across borders.

The EU Customs Security scheme allows those qualifying for the special security certificate to move their goods quickly to and from the EU.

Companies that fail to comply with the new rule could face crippling delays to their exports and imports, burdening them with extra costs, says Charles Meechan, tax director at Ernst & Young.

"Companies which do not have the certificate will not be seen as a secure supply chain partner,"​ he said in a statement about the new requirements. "They will be subject to delays and audits. This could leave businesses with higher supply chain costs and dissatisfied customers."​

Meechan estimates that in the UK alone up to 130,000 businesses may be affected if they do not obtain a certificate. At present, about 9,000 of them qualified by simplified customs procedures through UK customs. These businesses can expect to have most of their operations scrutinised during the application process.

For some big businesses it may take up to 18 months to apply and would require a team of full time employees working on the application, he forecasts.

"Businesses need to start planning now for their certificate, as it may take several months to complete the application,"​ he said.

He noted that if businesses do not obtain a certificate, UK Customs can hold back their goods until they have been security checked.

"Adding up all labour and administration costs, it's estimated that the application and implementation of the certificate will cost UK businesses in excess of £20m,"​ Meechan said.

While many pharma manufacturing firms may view the new legislation as a thorn in their side, the pharmaceutical supply chain is full of gaping holes and any legitimate move to strengthen the fight against fraud and counterfeit products should be welcomed.

Counterfeit drugs is one of the most critical issues facing the pharma industry today, having evolved into a burgeoning global industry which is estimated to grow 13 per cent a year to reach $75bn (€58.5bn) in 2010, a 92 per cent increase from 2005 - compared to just 7.5 per cent estimated annual growth for global pharmaceutical commerce.

A number of technology firms have been scrambling to develop next-generation 'track and trace' and product authentication technologies, primarily involving RFID, to address this problem, although such technologies are still in their infancy and have yet to provide the industry with a suitable solution.

Furthermore, the EU is not alone in facing tougher trade regulations - similar certification programmes are already in place in the US, Canada, Australia and New Zealand and other countries are planning similar moves.

The Commission published the security amendments to the Community Customs Code on 4 May 2005. The measures cover three major changes to the customs code.

They would require traders to provide customs authorities with information on goods prior to import to or export from the EU. "Reliable traders"​ would qualify for the fast-track security certificate as an "authorised economic operator".​

The European Commission confirmed the criteria for the certificate in June.

The amendments would also introduce a mechanism for setting uniform EU risk-selection criteria for controls, supported by computerised systems.

The Commission tested the use of security certificates in a pilot involving 11 member states customs authorities and 11 companies. The test, from January to July this year, included an audit of the 11 companies to determine whether or not they were meeting the criteria and conditions to become an authorised economic operator.

The European Commission's guidelines and other information on the programme are available by clicking >here.​