When merchandise is imported into the United States, there is a slew of information required to be reported to United States Customs and Border Protection (Customs) and the Food and Drug Administration (FDA). The information is transmitted electronically, usually by the importer’s designated customs broker. Among the key elements transmitted to Customs and the FDA is the country of origin of the imported product. Unfortunately, the answer to this question is not always easy, and in many cases Customs and the FDA do not agree. While it may not always be possible to reconcile the two agencies’ requirements, compliance with both is nonetheless required.
Country of origin determination and labeling for pharmaceutical products is a prime example of where the FDA and Customs do not see eye-to-eye. The FDA generally defines origin based on the last country of manufacture. Moreover, FDA requires any drug product in finished packaged form to conspicuously identify the name and place of business of the manufacturer, packer, or distributor. In contrast, Customs generally considers the country of origin to be the last country where processing resulted in a substantial transformation, with the product conspicuously labeled with any required foreign country of origin to allow the ultimate purchaser to make an informed decision.
For example, based on FDA origin reporting and labeling requirements, a French-produced active pharmaceutical ingredient (API) that is further processed in Ireland by adding additional excipients, mixing, encapsulating the bulk API into sterile microspheres, finalizing the dosage form, and packaging the product for retail sale would be considered by the FDA to be of Irish origin given the manufacturing completed in Ireland. Moreover, if the finished single API drug product was then imported into the United States for distribution, FDA label requirements may result in something like “Manufactured by: Company X, Dublin, Ireland” and “Distributed by Company Y, Des Moines, Iowa.”
Customs, however, would have an entirely different interpretation of the country of origin of this product and its required origin labeling. Aside from unique requirements under the North American Free Trade Agreement when importing from Canada or Mexico, in determining the origin of imported drug products Customs applies a “substantial transformation test.” When evaluating the production operations occurring in more than one country, Customs law requires the importer to determine a single country of origin based on where the product was last substantially transformed. In other words, where the last processing occurred to create a product with a new name, character or use.
Application of a “substantial transformation” test under the U.S. customs laws is subjective and dependent on the facts and circumstances in each case. Nevertheless, there is consistent Customs administrative precedent to suggest that the country of origin of an imported single API drug product is the country of origin of the API.
Customs has routinely determined that subsequent production operations such as adding excipients, mixing, encapsulating the bulk API into sterile microspheres, finalizing the dosage form, and packaging the product for retail sale do not, absent a change in the product’s chemical composition, result in a substantial transformation of the API. Customs has held in such cases that the essential character of the API remains unchanged, and not subject to a “substantial transformation,” thereby continuing to drive the product’s origin for Customs purposes — even if FDA considers the origin to be last place of manufacture.
Taking our above manufacturing example, Customs would consider the country of origin of the finished retail drug product to be France – the country of origin of the single API. At the time of importation, the importer’s customs broker should be advised of the FDA origin and the Customs origin for reporting to the two agencies.
To make matters worse, while the FDA has specific labeling instructions that require the listing of the manufacturer, packer, or distributor’s address, Customs has specific foreign country of origin marking requirements that are triggered where an address or location (e.g., “Des Moines, Iowa”) other than that of the foreign country of origin appears on a label which could mislead the ultimate purchaser as to the actual country of origin of the article. In such cases, not only does Customs require the foreign country of origin marking to appear on the label (e.g., “Product of France”), but Customs also requires that such foreign country of origin marking appear in close proximity and comparable size to such U.S. address, and be preceded by “Made in,” “Product of,” or other words of similar meaning. In order to comply with both the FDA and Customs, the label may state something like “Manufactured by: Company X, Dublin, Ireland,” “Distributed by Company Y, Des Moines, Iowa,” “Product of France.” FDA and Customs labeling requirements apply even if the final packaging occurs post-importation within the United States.
It is a function of our regulatory scheme that importers must navigate the requirements of multiple federal agencies. Tackling these issues up-front prior to the FDA’s label approval process can reduce Customs penalty risks, ensure compliance, and reduce costs. Training and awareness throughout a company, and in particular with Regulatory, Supply Chain, and Marketing groups, can help avoid potentially significant civil penalties and supply chain delays.©2013 Drinker Biddle & Reath LLP. All Rights Reserved