Global Insight Perspective | |
Significance | Mexico is changing its drug registration laws to allow firms without a direct presence in the country to commercialise their products. |
Implications | The reform will remove the long-standing entry barriers to the Mexican market faced by low-cost manufacturers in Central America and elsewhere. |
Outlook | Multinationals are well placed to benefit in the longer term, but Central American players may struggle to comply with Mexico’s increasingly tough standards for product quality and intellectual property. |
The President of Mexico, Felipe Calderón, is reported to be on the point of abandoning a policy that has arguably done more to promote the development of his country’s pharmaceutical industry than any other single measure. According to the Reforma newspaper, Calderón is shortly to decree changes to the Regulation on Health Inputs which will allow foreign firms that have no direct presence in Mexico to obtain registrations for pharmaceutical products. At present, firms wishing to commercialise any pharmaceutical product in Mexico have only been allowed to do so if they already have a direct presence, either as a manufacturer or a distributor. But once the change comes into effect, companies seeking to register a drug in Mexico will only require a sanitary registration in their country of origin, a technical dossier, a document outlining the patent status of the active ingredient, and the contact details of their local legal representative.
Article 258 of the General Health Law |
“Establishments corresponding to Article 257 (i.e. pharmaceutical manufacturers or distributors)…must have a licence granted by the Health Secretariat”. |
Article 181 of the Regulation on Health Inputs |
“In order to become the bearer of a sanitary registration…a notice of authorisation for a factory, production laboratory, or warehouse in the national territory is required”. |
Source: Global Insight Research |
The changes could bring an end to several decades of what might be called protectionism in Mexico’s drug industry. In trade terms, the law has played a significant part in making the country broadly self-sufficient in pharmaceuticals, and transformed it into a leading producer and logistics hub for the industry. In 2005, drug-makers in Mexico accounted for some 1% of GDP, employed 45,000 people and exported products worth US$1.26 billion; almost all leading multinationals are also present in local manufacturing. Notably, a similar law is in effect in Brazil, a country which is—with the exception of Puerto Rico—Latin America’s other major market and production base for pharmaceuticals.
President’s Hand Forced
For the government, the reform will not be entirely voluntary. The changes follow a ruling in August 2006 by the tribunal that oversees Mexico’s free trade deal with El Salvador, Guatemala and Honduras. The ruling swung in favour of a group of manufacturers from El Salvador, who had complained that the Mexican law was arbitrary and discriminatory. El Salvador’s finance minister hailed the decision as an economic triumph: using a soccer analogy, Yolanda de Gavidia claimed the ruling was “like beating Mexico 5-0 in the World Cup”. According to Reforma, multinationals in Mexico never took issue with the law, largely because they were already its principal beneficiaries.
Outlook and Implications
However, the reform does not immediately imply that Central American drug-makers are set to take the Mexican market by storm. There are still significant non-tariff barriers to entry, and product certification is becoming an expensive business in Mexico. There are, for example, strict requirements on bioequivalence for new generic products.
In the longer term, the major multinationals are best positioned to benefit, and this trend is likely to be accelerated by the advent of the Central American Free Trade Agreement (DR-CAFTA). Central American states cannot yet boast Mexico’s skilled personnel and long track record in pharmaceutical manufacturing—let alone match its intellectual property or product quality standards. But even now, states such as Costa Rica are becoming the rising stars of the region’s healthcare products manufacturing industry.
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