Health and Personal Care Conference October 13, 2010

1. Health and Personal Care ConferenceOctober 13, 2010 Lynda Westerfield Alcon Laboratories, Inc.

2. INTERNATIONAL TRADE REGULATORY DEVELOPMENTS 2010:HEALTH CARE PRODUCTS October 2010 Matthew T. McGrath Barnes, Richardson & Colburn mmcgrath@barnesrichardson.com 202-628-4700

3. International Trade Environment • Security programs – US and global • Increased focus on revenue protection • Gathering more information earlier in the supply chain • Increased focus on US export requirements and enforcement • Companies moving to “global” compliance • Information sharing between government agencies, countries • More robust databases/data mining • Rapidly changing export environment

4. Customs Priority Trade Issues • High-risk areas that can cause significant revenue loss, hurt the U.S. economy, or threaten the health and safety of the American people. • Agriculture • Antidumping (ADD) and Countervailing (CVD) Duties • Import Safety • Intellectual Property Rights (IPR) • Penalties • Revenue • Textiles You can add security and audits to that list

5. Foreign Customs Priority Trade Issues • EU: • Modernised Customs Code, Regulation 450/2008 • “Protect the financial interests of the Community and its member states” – direct and indirect taxes • Protect from “unfair and illegal trade” • Ensure security and safety, and protect the environment • Balance customs controls with trade facilitation

6. China Export promotion Cooperative efforts to promote export market access (eg, Joint US-China consultations) Protection of domestic markets through both import and export controls Foreign Customs Priority Trade Issues

7. Foreign Customs Priority Issues • Brazil • Revenue enhancement • Industry and market protection • Security and IP protection a lower priority than in US

8. Security – To Join or Not Join? • C-TPAT – 10,000 members • Increasing requirements • Business Partner Requirements • Value • Importer Security Filing (ISF) – ocean shipments • TSA Certified Cargo Screening Program (CCSP) • Automated Economic Operator (AEO) Customs has considered using security data for enforcement purposes

9. Foreign Security Programs • EU • Regulation 1875/2006 – pre-arrival and pre-departure declarations similar to 10+2 • Updated in 273/2009 – reliable traders provisions, uniform EC-wide risk-selection criteria, EU database • Authorized Economic Operator program • Mutual recognition of CTPAT and coordination with trading partners, including CSI

10. Foreign Security Programs • China • Brazil • WCO – SAFE Framework standards • Focuses on risk detection and formal cooperation • 17 standards balanced between security and trade facilitation

11. Government Programs • Lacey Act • PREDICT • Importer Self Assessment (ISA) – other agencies joining Customs • Joint Strategic Plan on Intellectual Property Rights • Free Trade Agreements • Focused Assessment/Quick Response Audits

12. Government Programs • EU – Authorized Economic Operator • Member states can grant special status to companies meeting compliance, record-keeping, financial solvency, and security criteria • SASP – single authorization for simplified procedures • AEO status granted by national authorities • DGTaxud proposed EU-wide AEO self assessment criteria for adoption by member states by end of 2010

13. Government Programs • EU • Administrative tariff suspensions, latest in June 2010 • Pharmaceutical zero-for-zero tariff agreement and periodic updates

14. Government Programs • China • Drug and food safety authorization for export • Variable VAT export refunds • Export licensing restrictions on strategic materials: • Medical devices – ultrasound equipment, syringes, needles and sutures, kidney dialysis, blood transfusion apparatus, x-ray tomography, similar equipment • Chemicals – fumazone, PCBs, hexadrin, benzidine, dioxin, PCDE

15. Government Programs • China • Indigenous industry procurement preferences Brazil • Tax credits under PIS social integration taxes for certain sectors to offset stronger Real – export perfromance requirements • Exemption of jet fuel from PIS tax

16. Government Programs • India • Special Economic Zones • Excise taxes on imports cut from 14 to 16% as part of stimulus

17. Import Compliance Challenges for Companies • Valuation • Samples • R&D • Assists • Tariff Classification • Free Trade Agreements - NAFTA Audits • Express Carrier Shipments • Communication • Finance • Tax • Manufacturing • Marketing • Doing more with less

18. Import Challenges for Companies • EU • Valuation – Considering elimination of “first sale” option • Valuation of Samples and R&D – bonded entry; inward or outward processing • REACh • Excise Movement and Control System – 4/10

19. Import Challenges for Companies • China • Tariff rates average 9.8%; Lower for medicaments, higher for cosmetics at 10-20% • Approval for Medicines at both provincial and federal level • Drug Business Certificate by SFDA • Importation through approved port • Registration with Regional FDA

20. Import Challenges for Companies • China • Cosmetics importation • Separate licenses required for listed “special use” and for “general use” • Approval by one of 3 centers • Medical devices importation • SFDA approval • Marketing approval from home country

21. Import Challenges for Companies • China • Labeling idiosyncracies • Samples – bonded entry GAC Dir. 179; 5 years, valuation depreciates over 60 months • Some ports value at reference price rather than Transaction Value • Port clearance delays

22. Import Challenges for Companies • China • Tariff classification – 4 centres, depending on product (HS 29, 30, 33 in Guangzhou; HS 90 in Shanghai) • Port classif decisions – lack of uniformity • Classification rulings – 45 days before; 3 years after entry

23. Import Challenges for Companies • Brazil • Retaliatory cotton tariffs against US exports • Samples and promotional materials – duty free simplified entry form; 3 month + extension; registration with Commerce ministry • Prohibited imports: blood products, used goods, some remanufactured goods • 60% flat tariff on retail goods entered by mail

24. Import Challenges For Companies • Brazil • Import licensing system for commodities otherwise regulated, like pharmaceuticals and beverages • Application of retail value in place of TV • Lower standard of IP protection – inadequate data exclusivity for pharmaceuticals; extended time for patent registration

25. Import Challenges for Companies • Brazil • ANVISA Import licenses for pharmaceuticals, medical devices and cosmetics – 3-6 months for new versions of existing products; over six months for new products, pharmaceuticals over a year

26. Import Challenges for Companies • India • Avg applied tariff rates 14.5% • Restricted imports • Samples and clinical trial materials • State VAT on imports – refunds on export slow • Some pharmaceuticals and other imports restricted to state trading companies • Licenses for remanufactured goods

27. Import Challenges for Companies • India • Periodic rejection of transaction value if deemed to reflect reduction from normal competitive price • Addition of royalties contrary to Valuation Code • Insufficient protection of data exclusivity

28. Export Export control and requirements – if you thought import compliance was tough……..stay tuned.

29. Export – Who’s Who at the Zoo? • Department of Commerce - Bureau of Industry & Security (BIS) • Department of State – Directorate of Defense Trade Controls (DDTC) • Department of Homeland Security - Customs & Border Protection (CBP) • U.S. Census Bureau - Foreign Trade Division • Department of Treasury - Office of Foreign Assets Control (OFAC) • Department of Justice – Foreign Corrupt Practices Act (FCPA)

30. Export – Who’s Who at the Zoo? • Food and Drug Administration (FDA) • Environmental Protection Agency (EPA) • Nuclear Regulatory Commission • Department of the Interior • Department of Energy, Office of Arms Controls and Nonproliferation • Department of Defense (DoD), Defense Technology Security Administration (DTSA) • Drug Enforcement Administration (DEA) • Patent and Trademark Office • US Department of Agriculture (USDA)

31. US Export Priorities • Protect National Security • Implement Foreign Policy • Protect Economic Interests Lynda’s List – All of the above plus: Increased audits Increased enforcement Increased penalties BIS audit module Export control reform

32. Export Regimes • Brazil • Defense Ministry licenses exports of military goods • Department of Nuclear Goods and Sensitive Assets licenses exports of dual use goods – most are chemicals • Foreign contracts may be subject to approval by the Foreign Ministry

33. Export Regimes • Brazil • Enforcement: warning; fine of 2X value; expropriation of the goods; suspension of export rights for 6 months – 5 years; suspension of privileges to engage in foreign trade • Military goods and dual use goods periodically listed in the Gazette

34. Export Regimes • EU • Control of dual use exports resides with member states under common direction of EU Regulation 428/2009 • Community General Export Lic (CGEA) • Transit Controls – new; brokering controls • National licensing authorities

35. Export Regimes • Germany – BAFA • licenses dual use, embargoes, verification agreements for chemicals

36. Export Regimes • UK – ECO issues trade control licenses • Military goods and strategic goods • Dual use list • Open General license, Standard Individual license • Medicine and Health Products Regulatory Agency – 4 types of certificates depending on status. • Food & Environmental Research Agency – certain agricultural products

37. Export Regimes • China • MOFCOM licenses sensitive exports, with assistance of provincial DOFCOMs • Customs and Ministry of Foreign Affairs • 2009 list of dual use items – chemicals, drug precursors, electronics, radioisotopes, nuclear mat’l • State Encryption Management Commission • Transaction license vs General Permit

38. Export Regimes • China – enforcement • Criminal prosecution • Administrative penalties, including fines, potential confiscation of proceeds, de-certification • Recent increase in enforcement activity

39. Recent Export Actions BIS Penalties $11,000 * New Census Regs Census Penalties$10,000* BIS Penalties $50,000* BIS Penalties $250,000* Sept 08 Mar 06 Oct 07 Jul 08 Pre-Mar 06 Export Penalties • Bureau of Industry & Security (BIS) penalties recently increased from $50,000 to $250,000 per violation • Possible denial of export privileges and/or jail time • BIS seeks to increase audits and enforcement – Oct 08 • No compliance program – no penalty mitigation *penalty amounts are per violation

40. What’s an Export?....Pretty Much Anything • Export: Actual shipment or transmission of items • Re-export: An item that is of U.S. origin or that has a U.S. connection, exported between two foreign countries • Deemed Export: Any release of technology or source code subject to EAR to a foreign national in the U.S. • Method of transportation doesn’t matter • Mail • Hand-carried by air • Via fax • Internet download • Conversation • Items leaving the U.S. temporarily • Items not for sale – gifts

41. Export Challenges for Companies • Commodity Jurisdiction • Deemed Exports • Departments • R&D • IT • Marketing • Mail Room • Re-exports • Denied Party Screening – how and when? • Automated Export System (AES) filing Customs recently held a webinar on their role in exports

42. Items to Consider • Laptops including software • Pumps • Valves • Precursor chemicals • Lasers (depending on specs could be considered Military use) • Routers

43. Export Transaction Questions 1. Which agency? (Commodity Jurisdiction) 2.What is the item being exported? 3. Where is it going? (ultimate destination) 4. What will it be used for? (end use) – some end uses are prohibited (e.g. item will be used in nuclear reactor) 5. Who will use it? (end user) - The person abroad that receives and ultimately uses the exported or reexported items.

44. Antiboycott Laws • U.S. companies are forbidden to participate in any unauthorized foreign boycott and required to report any request to cooperate with a boycott • Especially important when doing business in the Middle East but other areas can be affected Departments • Usually products from Israel • Prevents U.S. firms from being used to implement foreign policies of other nations which run counter to U.S. policy • Covers U.S. exports and imports, financing, forwarding and shipping, and certain other transactions that may take place offshore

45. Foreign Corrupt Practices Act (FCPA) • Law prohibiting exporters and agents from paying money to a foreign government agency, official, or political party for the purpose of retaining business or securing an improper advantage • Includes activity inside and outside US borders • The US government broadly interprets the FCPA • Even an unsuccessful offer to make a bribe violates the FCPA

46. Foreign Anti-bribery Laws • China • Civil and criminal sanctions under Company Law on Bribery • Applies to “director, supervisor or manager” • Authorizes fines, jail, asset loss • Anti-Unfair Competition Law

47. Office of Foreign Assets and Control (OFAC) • Administers and enforces economic and trade sanctions based on US foreign policy and national security goals • Restricts or prohibits trade and financial transactions with targeted foreign countries, terrorists, narcotics traffickers, and those engaged in activities related to the proliferation of weapons of mass destruction • Imposes controls on transactions and freezes foreign assets under US jurisdiction

48. Export Control Reform – Is Help on the Way? • Proposal designed to reduce the number of controlled items and make it easier for exporters to do license determinations and reduce the need for licenses • Proposal would include: • a single export control list of items; • a single licensing agency; • a single enforcement coordination agency and • a single information technology system. • Single export control list would make it clear to companies which items require a license and which ones don’t.

49. Export Control Reform – Is Help on the Way? • Proposal designed to reduce the number of controlled items and make it easier for exporters to do license determinations and reduce the need for licenses