6 Costly Mistakes in Pharmaceutical Trade Compliance

Machine Automated Script:

Andy  00:34

Hey, folks, we’re on for simply trade podcast, and it’s another great show we have planned for you. With that we folks, we’re going to have a great discussion. We have. Elizabeth low backs, no of you from working years ago with the AEI, when we were doing some things with the it was the healthcare industry. Forget the name of the committee off hand, but Elizabeth, what are you doing nowadays? You, I don’t think you’re in the pharmaceutical end of things. Now. You’re probably more of an advisor role.

01:14

Yeah, I started my own consulting firm. I left Novartis, so I was at Novartis for six years in the US building out their US trade compliance program. And then I had the opportunity to go to the company headquarters in Switzerland for eight years and built the entire global trade compliance program. They didn’t have a global program. So I came back to left Novartis. Came back to the States. Long story, because I got married, so I came back with my husband, who was in the Foreign Service, and he was overseas, and his time was up, so he went back to Washington. I came back with him. Decided, hey, I have all of this trade compliance knowledge, plus I have all of this specialized pharmaceutical knowledge of how to import pharmaceuticals. Went through all of this experience with the FDA. What data do you need so that goods are not detained and let through and clear quickly? So I thought, let me put all of this knowledge that I have to use as a consultant. So now I work with a lot of smaller to mid size pharmaceutical companies who are just starting to develop international, global supply chains. And so they’re moving pharmaceutical ingredients, or they’re moving finished goods around for different reasons, for packaging, for clinical trials, and they don’t have a lot of expertise about how to do that, because they don’t even really have well developed supply chain groups, much less anybody who does trade compliance. So they bring me in, and I help them with the importing and even the exporting part of pharmaceutical what regulations do you need to meet to make sure that you can submit all the right data and documentation to customs and FDA and other agencies so that your goods are cleared quickly, so they don’t have issues with manufacturing delays or clinical trial delays, but not being able to Supply life saving medicines to patients?

Renee Chuichiarelli  03:01

I was, I was gonna say my intro into FDA was a medical device heating pad. But what I for our novice listeners that have not dealt with Ogas or FDA, one of the things I had to start to learn to clear was it, what was the trigger? FD, 1234, you know, because then that signaled what I needed to provide. Not that I shouldn’t have done my due diligence up front with my quality control product development. But really does it match what CBP US Customs is expecting an FDA upon arrival. So I started, you know, with people that came into my team, I taught them about these triggers that were done by HTS and classification, just like baseline. Now, yeah,

03:48

yeah, it’s really important to know, if you’re bringing in a product with this particular classification, what agency flags are on that tariff classification, and then, based on that flag, what are the requirements? Do you have to provide data to the agency? You may maybe it’s a probable you need to provide data to that agency. And so if it’s regulated, need to provide particular data. If it’s you know it may require data, but you know that it’s not regulated by the agency, then submitting the proper disclaim code to the agency, and then sometimes you just you need to provide some backup documentation for why you’re disclaiming.

Andy  04:28

Otherwise, that’s, well, I was just gonna say on the disclaimers, folks, one of the things that’ll happen, you may not realize it, but if you have shipments that are being imported and you’re using a classification that you first off, you classify the widget it is what it is, so you know whatever the appropriate classification is. There could be a scenario where in that particular Harmonized Tariff number, it will flag it as possible. FDA jurisdiction or FDA clearance is required. Yeah, and so you, your broker, can what’s called disclaim that, which means, no, this does not require FDA, but you got to have your backup, just like Elizabeth was just saying, is, like, we’re disclaiming it because it’s, it’s not food related, it’s not going to be ingested, it’s not going to be on the skin, or whatever the issue is for that. So that’s one thing. But the other thing is, is, as you’re going through this is, again, it’s, you know, what’s the information to me? If I can get hold of a eighth grader to look at my paperwork and review that, to that, they can at least say, now there’s going to be technical terms, chemical terms, medical device terms, whatever. But I’m of a big proponent to say, let an eighth grader look at it and say, What is this? And if they can come back and tell me it’s now in layman terms. Because here’s the thing about FDA, there’s going to be, if needed, the the appropriate folks with the expertise, even from a customs, from, you know, the agriculture side of things, on the on the FDA side of things, or anybody is involved, if there’s a needed expert in it, they’ll be that’ll be cued to them at Some point, but generally speaking, you’re going to have something that’s there. And if it’s in layman enough terms, but the classification and the declarations are all right there, you’re going to be fine. One of the things you also mentioned, Renee, is the FDA one, two or three. That’s the type of product. Now, Elizabeth, I’m Forgive me if I go awry here, if I recall FDA or an FD one type product is not something that would be again, it’s not like a lotion is going on my skin or something like that. It may be a bowl to see as an FD one, FD two would be something I’m going to actually put inside my my mouth, my eyes, eye drops, or something like that, or something like that. And an FD three would be an invasive type product that actually is, like for surgery or something like that. Is that, if I got that right, if I got that all screwed up,

07:19

generally, yeah, you’re right. I off the top of my head, I can’t tell you the description of each FDA flag. I think FD for pharmaceuticals. Usually, if you’re in Chapter 30, I think there’s, it’s FD two Yeah, yeah.

Andy  07:33

I think those are FD twos, yeah, yeah. So anyway, just and I say that, forgive me on this, but I’m the there’s a lot of our listeners that are listening. Hey, this is a new wrinkle with it, and they may not catch on to some of that terminology, so I’ve just stopped for that so you can hear that. Yeah. And

Renee Chuichiarelli  07:50

one thing I was going to add too about the our broker routinely was audited by customs and FDA when they disclaimed. So to Elizabeth’s prior point, supporting documentation is extremely important if you’re disclaiming from one of these triggers, yeah,

Andy  08:10

well, and that’s, you know, that’s where somebody is going to try and look at it and go, you know, are they trying to get away with something that they shouldn’t have? And they, obviously, you’re going to look at the disclaims and all of that. And so again, if you’ve got your paperwork appropriate, you’re fine. So

08:25

yeah, and you even have to look at the situations where the tariff classification might not be flagged, but you know that it is regulated by the agency, so therefore you still have to provide the information. I just came across this recently with a client of mine where they’re importing a chemical, precursor chemical, the HTS is in chapter 29 it’s not flagged, but it’s being used for pharmaceutical purposes. So we still need to submit FDA data for that entry. We

Renee Chuichiarelli  08:50

had that same thing, and we had to, we had to, like, fake the system. Yeah, that’s very important. Good point. Elizabeth, I was reading some of your posts. You have awesome posts. I love the one about the figure skater. We got to talk about that, but first we said six, six things companies get wrong about trade compliance, and especially in your business, you know, your highly regulated pharmaceutical industry. I always thought, hey about going into that industry, you know, as a trade compliance professional, because they’re highly regulated, I’m like, oh, transfer their current manufacturing processes into trade. They understand the depth and the need for this process development. Maybe it’s going to be easy, but I don’t know, you tell us.

09:38

No, I would say it’s not any easier in pharmaceuticals than it is in any other industry to get people to understand that this is really an important thing they need to pay attention to. It’s something that people don’t understand. And so I think because they don’t understand it, they kind of dismiss it, or they think, Well, I’m getting goods from overseas and everything’s just fine. I’m not having any issues. Every. Thing must be going fine. I’m not doing I’m doing everything I need to do. There isn’t anything in addition I need to do, which is completely not true. Lots of times you just getting lucky, or if you’re not paying attention to trade compliance, maybe you’re paying too much duty because you’re classifying things wrong. You’re not taking advantage of duty reduction schemes. But what I like to do when I’m talking to a client at the beginning of a project or we’re just beginning discussions, is put it in the context of the entire supply chain and say that this is if you’re moving goods around. Yeah, you’ve got the transportation part of it. Someone has to manage all of that, but there’s this really specialized part where it crosses the border, where there’s all this regulation, all these government requirements. You have to do an import declaration. You need particular data and documentation in order to make sure that process happens quickly and efficiently. So if you don’t pay attention to this one little piece of the supply chain, you could be causing real ripples in the entire supply chain, because you’re going to have bottlenecks or delays in this one part. So if you can take care of this one part, it helps make sure that you have a an efficient and healthy supply chain, which is what every company wants. And I think there’s been more emphasis on supply chain since the pandemic, but then you’ll be able to make sure that your goods are flowing quickly and smoothly and compliantly, and you’re going to be able to get your goods on time to customers. You’re going to be able to get them to your production plan so that they can make the goods that get to your customers on time. And that adds to the bottom line,

Renee Chuichiarelli  11:36

yeah. And you know what I like, what you said, not people tend to confuse trade and logistics. That’s, you know, one of the main issues. They’re like, Oh, it’s the same thing. You can do logistics, then you can do customs and trade. No,

11:49

not the same thing, in my experience, and I’m sure in all of yours, too, that they’re separate skill sets. They’re related. So a logistics person may know a little bit about trade, and the trade person knows a little bit about logistics, but you don’t usually find someone who knows a lot about both. People usually specialize in one

Andy  12:05

of the well, and that’s where as we’re going through in some previous shows. I’m always a proponent of having shared goals, so that those that are in the logistics and transportation area and the distribution area, which is another area that can affect your product when you’re doing FDA, and all of that, as well as then the compliance folks and then your sourcing, all of them having shared goals, so that it forces them to have to listen to the other departments and get involved or learn of what’s going on in the other departments. Is

12:44

it that all these departments don’t talk to each other and don’t work together? And then procurement, or someone in manufacturing checkups, decides they’re going to source a product or a material from the supplier, and then it comes in, and then they freak out because they didn’t realize it was 6.5% duty, and, you know, it’s a million dollar import value. And if they had just talked to trade compliance, they could have figured that out ahead of time and figured out a way to deal with it, or said, Well, maybe that’s not the best supplier. Maybe there’s another option, because there’s a country where I can use a free trade agreement or something like that.

Andy  13:19

See that, right? There is one of the Paramount things to to get that going and having that kind of a discussion, you’ve got to have the relationships built. But if you’re in upper management, again, those shared goal, goals forces your folks to get together so you don’t have to babysit them and try and, you know, aren’t you talking to each other or whatever it’s, you know, it’s, you know, money talks, and it’s if their bonus is tied to it. There you go. That’s one thing, yeah. But the other is establishing, like a What’s the rule? I’m looking for a logistics Council, is what some people have called them, in something to that effect, so that you’re, you’re bringing in people from different areas, you know, marketing, sales, customer service, your your it, your logistics, your compliance, your legal, all those different facets. So that something comes up, here’s existing business, here’s what we’re thinking about, new business. And as you go through, you know, a new product doesn’t just happen. It takes months, if not years, to bring it to market. Well, don’t wait until you know you’re ready to go to bring it. Oh, well, let’s bring in compliance or legit. How are we going to get it here? Where are we going to do it, you know? Are there any issues of where it’s going to be manufactured, you know? And so your purchasing, sourcing folks need to come into play. All that. I don’t know if that would be of benefit. Is one of your suggestions for improvement, for your

14:52

Yeah, yeah. That would have been one that would have been a good addition to the to the suggestions, yeah, working with other areas of the business. This to make sure that you’re dealing with some of these issues and uncovering them so that you can deal with them early enough in the process. At Novartis, a trade compliance group, we were working really hard to get involved in the product development teams and product launch teams so that we could play a role in making sure that there wasn’t going to be any issue with bringing product in from overseas that would delay a launch, or would delay manufacturing or any kind of clinical trial. And so that was really, especially with

Andy  15:29

some of the geographic saber rattling, if you will. You know, US and China. Then, you know, you got the US and Europe at times. And, you know, doing some things. And well, if you’re going to do that, here’s retaliatory this or that, whatever, right? Yeah,

15:43

we don’t want people to just think about trade compliance. When those kinds of issues come up, you’re right. Those, those tariffs, there’s a lot of pharmaceutical companies. There was just an AEI hit committee call in December, and everybody was freaking out about that, and their management wants to know what is going to be the possible impact of these tariffs. So now they’re getting attention, which is good, but they need to get attention and be involved in the regular course of business. And then also, when the Russia sanctions, when the war started with Ukraine, and all these Russia sanctions, that was another big issue that people really had to deal with that really got the attention of management. About, hey, I need a group to help take care of this. This is what trade compliance does. Or I have a group I need to take advantage of it, because they’re the ones who really know this issue and keep us out of trouble. I think that was the first that’s one thing that led a lot of company managed to say, hey, we could possibly get in trouble if we don’t comply. So we need to

Renee Chuichiarelli  16:38

make sure go ahead and go ahead. One of my dream jobs was Nike, and I actually was going to go work there, but then I went to a defense contractor. But anyway, the reason is they do tariff engineering, right? Meaning they’re engineering their products based on what tariff they may be paying, and their customs people to are up in the front of the supply chain, and they’re in the room when they’re developing the product. And that’s like an awesome place to be for a customs trade professional, because, to your point, Elizabeth, you’re up in the front, you’re negotiate, you’re telling them all the whatever, Oga, FDA, APHIS, what your tariffs going to be use this type of rubber, rubber, or, you know, cloth, or, you know, so anyway, that if, if every company could be, you know, concerned about tariffs, like Nike before we’re worried about a trade war, yes,

17:30

and that’s a little bit of a hard sell in pharma, because lots of the goods are in Chapter 30, and they’re duty free if they’re a finished dosage form. The issue is with the APIs, which are duty both. So there’s where there’s some opportunity. And I actually, I’ve had experience at Novartis too, where there was a an API that was imported from somewhere outside of Europe into Europe. This is when I was in Switzerland. Nobody bothered to look at what like the duty rate B for this product entering and it was APIs are very expensive, so even if you have a 6.5% duty rate, which doesn’t seem like a lot, you could end up with hundreds of 1000s of euros of duty to and then you want

Renee Chuichiarelli  18:13

to tell the audience what API is active pharmaceutical ingredients.

18:17

So the the ingredient that has that pharmaceutical effect, that’s in your in your drug, in your tablet, in your capsule. So this drug came in, this API came in, and there was all this duty, and then because of the high value, there’s also a lot of VAT do in Europe. So everybody, again, was freaking out, what do we do? What do and so trade compliance came in and tried to figure out, Okay, what’s going to be the solution for the future? But I can’t help you with this import that you just did. I can’t do anything about the duty that you have to pay. So you need to make sure that we’re involved soon in the process, that we don’t have this.

Renee Chuichiarelli  18:56

So okay, so of the six, what is, what are your top three, Elizabeth, and then we have to bring in Donovan caril.

19:04

Oh, okay, yeah, let’s definitely talk about him. Let’s see. I think the most important one, and I think actually the hardest to overcome, is convincing company management that trade complaints isn’t something that they should spend time and resources on, and then maybe even have a dedicated staff or someone who has trade compliance as part of their role, but at least there’s somebody in the company who’s responsible for it. And I think even if it’s part of a role, it needs to be formally included in that person’s role profile, so that there, you know, there’s, there’s a mandate for it, that they’re held responsible for it, and that it’s, it’s known in the company that this is their responsibility, so it’s not something that they can just set aside. Well, I don’t have time. It is part of my responsibility. I need to pay attention to that. So I think that’s what, and then you won’t get caught. Yeah, because companies, they have all kinds of regulations they need to comply with. It’s not just customs, it’s not just FDA, they have the IRS, they have the SEC and they have tons of stuff. And so, you know, I always try to get companies to think either from the in terms of the corporation or in terms of your personal life. You know, would you not comply with IRS rules and file file a tax return if you didn’t think you would get caught? You know, would a company not comply with SEC rules or other IRS rules if they didn’t think they would get caught? It’s kind of the same thing. If you think you won’t get caught for customs and compliance, because everything’s going just fine, then maybe that’s the reason that you don’t pay attention to it. But if you pay attention to these other regulations, because that’s a part of doing business, why aren’t you paying attention to this regulation? Because customs is the government agency. They have laws and regulations. You need to comply with them, just like you do any other agency, you know. And from the FDA standpoint, too, there’s lots of other areas where pharmaceutical companies have FDA regulation, but they’re manufacturing the manufacturing according to good manufacturing practices, so that the goods are not adulterated and they have the right efficacy and have the right strength, and they’re consistently produced. I don’t think any company would say, well, we don’t have to pay attention to GMPs, because FDA isn’t really going to check Well, FDA will check and then you won’t be able to sell your goods. Well, customs does check too. FDA does check too on the import side. So why would you neglect that when that’s something that can hold up you being able to get products to market? Yeah. And then what I think I have one more left? Yeah, okay, cut it. Not important. I guess. The other one that we haven’t talked about, though, is that sometimes, or a lot of times, companies who are small and that don’t have a lot of expertise in supply chain, logistics and trade compliance, tend to throw it all over to their foreign suppliers, because their suppliers say, Oh, hey, we’ll take care of it. We’ll send a DDP deliver duty paid. We’ll pay for the clearance. It’ll show up at your door. You don’t have to do anything. It’s just fine. And I just want to cringe when I hear this, because, as you both know, I’m sure is that you so the so the foreign supplier can pay for the clearance and pay for a broker in the US, but if they’re not set up as a foreign import of record, they can’t actually submit the declaration. They need your importer number, your EIN number, to put on that declaration. So therefore they get it clear, yeah, and they pay for it, but then you’re the one who’s actually responsible for the entry, because it’s your employer identification number that’s on the entry, so you’re responsible for compliance of something you had nothing to do with. You don’t know anything about the documentation or the data that was submitted. You know nothing. And so this is a recipe for disaster, because customs going to come after you. There

Andy  23:04

may be your foreign source. You know they’re delivering GDP. That’s delivery duty pay. That means that the seller is going to clear it through customs in the destination country and then deliver it to your door. Well, in this particular case, in the US, they may be a non resident importer, and they may be the importer of record. They have a bond and all that, and they can do all that. However, they’re still what’s called the ultimate constant, E on the entry, and your EIN number as a US importer, or US company that’s buying the goods, your EIN number is going to be put in there as that ultimate constantly. What does that mean? You’re the party causing that importation. Without you that they wouldn’t just be shipping it. They’re you’re buying the product. So even though they’re paying the duties and taxes and the clearance and all of that other you’re still causing the importation, which, in turn, then goes around, and that’s where you’re the one that’s on US soil, if you will, that customs can reach out to or the FDA, for that matter, and that either way. And so hence, that’s what we’re talking about. So even though you may not be listed as the importer of record, you’re going to be listed as the importer, because ultimate consonant e translate as to importer, not import record, but the importer. So that’s why the responsibility Elizabeth is alluding to here comes into play. Yes,

24:35

and I like to advise clients, get your own broker, have the documents turned over from the transportation, carry to your own broker that knows your products, that you have set up processes and procedures with so that you can make sure that the entry is compliant, and also that you get a copy of it so that you have it for

Renee Chuichiarelli  24:51

your records and you’re auditing, yeah, you know, yeah, I had a custom. We had some people recently. They’re like, Oh no, I’ve got everything taken care of. My suppliers. He’s gonna deliver it to my door. I don’t have to worry. It happens. Like you said, more than you think that’s great. I love those three. I call them glimpses of wisdom. So the reason I want to talk about Donovan because I think it is relatable to trade. And you can tell us a little bit, but I like how you summed it up, what his three traits were that got him through. I think that’s what we need in trade.

25:29

Remind me what the three grit and love? Yeah, yeah, exactly, because he’s for those who don’t know, he’s a figure skater from Mexico. He was at the Beijing Olympics. He was the first figure skater from Mexico to make an Olympic team in like, 30 or 40 years. Obviously, being from Mexico, it’s hard to be a figure skater. There’s not a lot of ranks, there’s not a lot of coaches, it’s not a lot of opportunities, right? Yeah. So the fact that he was able to get to that level, shows a lot of create a lot of determination, and you have to really have a passion for the sport to put that much dedication and time into it, when the rewards can be so elusive. Because if you think about it, you know from the US, the Olympics every year, maximum any country, a maximum of three skaters could go to the Olympics for any one country. So if you’re a big country like the US, and there’s lots of people that skate, well, your chance of actually going to Olympics, no matter how hard you were, unfortunately, really, really small. So if you don’t, if you don’t love it, so that you are passionate about putting the time into it, you’re never going to reach the goal. And I think that’s one thing that I admire about Donovan, is there was a lot of obstacles, a lot of challenges, yet he kept going and kept going because he just, he loves it so much, and it shows when he performs it, yeah, it shows

Renee Chuichiarelli  26:52

he’s great, yeah. And if, like, if you find that with the trade, you know, if you’re determined and you have your grid and the passion, you know, you find a way you get the process in place, you connect, you develop, you know, a compliance Task Force, and all the three things that you talked about that’s kind of some of this you need the characteristic, you know, in the person,

Andy  27:11

yeah, well, Elizabeth, thank you so much. This has been great. I you know, there’s a lot here, folks, we will have Elizabeth Lomax is contact information with our show notes. This is somebody you need to reach out to on LinkedIn. She has some phenomenal posts that you you do and listen, you are so, I mean, you’re so wicked smart, it’s not even funny. I mean, it’s just been great. But with that, I will say any last comments from from you. Elizabeth,

27:48

well, first of all, thanks for having me on the podcast. I really appreciate it. I think, yeah, I don’t know my last comments are if there’s issues. If anyone’s out there that has issues with bringing in pharmaceuticals, feel free to contact me. I’m more than happy to help. Definitely check out my LinkedIn content, because I have a lot of tips and pointers on there about especially about importing pharmaceuticals. So if you’re in that field, you can find that, hopefully find that really helpful. But yeah, I’m just, I’m looking forward to another year of helping clients accomplish their goals and get products to market and successfully complete clinical trials so they can then go for approvals and get life saving drugs to patients. It’s a really, really rewarding industry to be in.

Andy  28:41

Renee. How about you? Any closing thoughts here? Oh,

Renee Chuichiarelli  28:43

I loved it was great to meet you, Elizabeth. I love your LinkedIn. I’m following you, not just to mention your pharmaceutical experience and your FDA experience and customs. I mean, you’re so well rounded, but you just have, I love the other posts you do just about life. Thanks. Yeah,

29:01

thanks, yeah. I tried to sprinkle some of those in, because I think people seem to be interested in that. I get a lot of attention with those posts, so if I sprinkle them in, some of the content seems to work. Awesome.

Renee Chuichiarelli  29:13

Awesome to meet you. Thanks for being on the podcast

Andy  29:15

well. And Renee, you’d asked if I was in my new office. Yeah, I’m in Central Arkansas now, and it’s, it’s been fantastic in the little city of Searcy, Arkansas, and it’s been wonderful. And I will say, if anybody out there is looking for a group good place to set up a manufacturing place or whatever, check it out. Because it’s, this is fantastic in this area, it’s a good place to call home.

Renee Chuichiarelli  29:41

So Arkansas good place to be. I’m telling you, it’s

Andy  29:45

like they remind me all the time that Arkansas beat Tennessee, and I’m like, oh, okay, okay, all right. You know, we have a lot of fun with it. Well, hey, listen, folks, New Year. Thank you for your Yeah, happy New Year. Thank you for. Your listenership, please subscribe to our show, share it. You have been fantastic. We apparently are have listeners in well over 40 countries. It has been fantastic. We’re growing and all of that. But with that, I hope you have a great day. So have a good one.

Lalo  30:21

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