Regulations Amending the Food and Drug Regulations (Exports and Transhipments of Drugs): SOR/2022-100

Canada Gazette, Part II, Volume 156, Number 12

Registration
SOR/2022-100 May 17, 2022

FOOD AND DRUGS ACT

P.C. 2022-468 May 16, 2022

Her Excellency the Governor General in Council, on the recommendation of the Minister of Health, pursuant to section 30footnote a of the Food and Drugs Act footnote b, makes the annexed Regulations Amending the Food and Drug Regulations (Exports and Transhipments of Drugs).

Regulations Amending the Food and Drug Regulations (Exports and Transhipments of Drugs)

Amendments

1 The Food and Drug Regulations footnote 1 are amended by adding the following after section A.01.045:

A.01.046 An exporter that issues a certificate referred to in paragraph 37(1)(c) of the Act in respect of a drug shall retain a copy of the certificate for five years after the day on which the drug is exported.

A.01.047 (1) For the purposes of paragraph 37(1)(d) of the Act, a drug that, by virtue of paragraph A.01.048(a), is required to be fabricated, packaged/labelled, tested, distributed or wholesaled in accordance with an establishment licence must be fabricated, packaged/labelled, tested, distributed or wholesaled by the holder of such a licence that has paid fees in connection with the licence in accordance with the Fees in Respect of Drugs and Medical Devices Order.

(2) Words and expressions used in this section have the same meaning as in subsection C.01A.001(1).

A.01.048 For the purposes of subsection 37(1.2) of the Act, the following provisions are prescribed in relation to drugs:

Transhipments

A.01.049 For the purposes of paragraph 38(c) of the Act, all drugs must be in bond.

2 The Regulations are amended by adding the following after section C.01A.003:

C.01A.003.1 For the purposes of this Division and the provisions of Divisions 2 to 4 that are prescribed in paragraphs A.01.048(b) to (d),

3 Paragraphs C.01A.004(1)(c) and (d) of the Regulations are replaced by the following:

4 (1) Paragraphs C.01A.008(2)(a) and (b) of the Regulations are replaced by the following:

(2) Subparagraph C.01A.008(2)(c)(ii) of the Regulations is replaced by the following:

(3) Item 4 of Table I to section C.01A.008 of the Regulations is replaced by the following:
Item Activities
4 Distribute as a distributor referred to in paragraph C.01A.003(a) an active ingredient other than
  • (a) an active pharmaceutical ingredient; or
  • (b) an active ingredient that is used in the fabrication of a drug that is of non-biological origin and that is listed in Schedule C to the Act
(4) Item 7 of Table I to section C.01A.008 of the Regulations is replaced by the following:
Item Activities
7 Wholesale a drug other than
  • (a) an active pharmaceutical ingredient; or
  • (b) an active ingredient that is used in the fabrication of a drug that is of non-biological origin and that is listed in Schedule C to the Act

5 The Regulations are amended by adding the following after section C.02.002.1:

C.02.002.2 In this Division,

6 The form in Appendix III to the Regulations is amended by replacing “(Under the Food and Drugs Actnote * — R.S.C. 1970, c. F-27)” with the following:

(Under section 37 of the Food and Drugs Act)

7 Appendix III to the Regulations is amended by replacing the portion of the form after “and marked in distinct overprinting with the word “Export”” and before “Dated at” with the following:

8 The form in Appendix III to the Regulations is amended by replacing “19   .” with “20   .”.

9 The form in Appendix III to the Regulations is amended by deleting the following:

Transitional Provisions

10 (1) Unless the context requires otherwise, words and expressions used in this section have the same meaning as in subsection C.01A.001(1) of the Food and Drug Regulations.

(2) Subject to subsection (3), during the three-month period that begins on the day on which these Regulations come into force, a drug that has, until that day, been exempt, under subsection 37(1) of the Act, from the provisions prescribed in section A.01.048 of the Food and Drug Regulations and that continues to meet the conditions set out in subsection 37(1)

(3) If, before the end of the three-month period, a person referred to in paragraph (2)(a) submits — in accordance with section C.01A.005 or C.01A.006 of the Food and Drug Regulations — an application for, or to amend, an establishment licence to authorize the activity that they have been conducting in respect of the drug, the person is, in respect of the activity, exempt from the requirement to hold an establishment licence and from the provisions referred to in paragraph (2)(b) until the Minister of Health

(4) The exemptions referred to in subsection (3) cease to apply if the person withdraws the application.

Coming into Force

11 These Regulations come into force on the day that, in the sixth month after the month in which they are published in the Canada Gazette, Part II, has the same calendar number as the day on which they are published or, if that sixth month has no day with that number, the last day of that sixth month.

REGULATORY IMPACT ANALYSIS STATEMENT

(This statement is not part of the Regulations.)

Issues

Canada has long-standing obligations under the Canada-European Union Comprehensive Economic and Trade Agreement to align the oversight of drugs manufactured in Canada for consumption or use outside Canada with drugs manufactured for the domestic market.

Section 37 of the Food and Drugs Act (the Act) exempts a drug manufactured or prepared in Canada for consumption or use outside Canada (i.e. a drug solely for export) from the application of most of the Act, the Food and Drug Regulations (the Regulations) and the Fees in Respect of Drugs and Medical Devices Order (the Fees Order). This exemption inadvertently allows a drug solely for export to be of a lower standard of quality than an identical drug if it were manufactured or prepared for the Canadian market. The limited oversight over these exported drugs does not align with international best practices and international regulatory partners (e.g. regulatory authorities of the European Union [EU] member states) have identified it as a long-standing concern.

Section 38 of the Act provides a broad exemption from its application for drugs imported into Canada solely for the purpose of export (i.e. transhipped), unless otherwise prescribed by regulation. The lack of a direct requirement in the Regulations to clarify that drugs in transhipment through Canada must be in bond (i.e. moved by carriers that have posted security with the Canada Border Services Agency [CBSA] and, if stored, only in bonded or sufferance warehouses) has led to confusion and regulatory uncertainty among stakeholders.

Background

Oversight of domestic and exported drugs

Canada produces approximately 4% of the global drug supply, and strong oversight measures are in place to contribute to ensuring that drugs entering the domestic market are safe for Canadians.

A person (i.e. an individual or a business) that conducts a licensable activity with a drug in Canada (i.e. fabricate, package/label, import, test, distribute or wholesale) must hold a drug establishment licence as set out in the Regulations, unless otherwise exempt under the Act or the Regulations. In addition, fees are charged for the examination of applications for new drug establishment licences, for amendments, and for the annual review of drug establishment licences in accordance with the Fees Order. A valid drug establishment licence demonstrates compliance with good manufacturing practices. Good manufacturing practices are part of quality assurance and concern both production and quality control. Compliance with good manufacturing practices contributes to ensuring that drugs are consistently produced and controlled to the quality standards appropriate to the intended use. Health Canada inspects establishments involved in activities authorized by a drug establishment licence to verify compliance with good manufacturing practices.

Section 37 of the Act provides a broad exemption, with some exceptions, from the application of the Act and the Regulations for drugs solely for export, provided a certificate is issued attesting that the drug does not contravene any known laws of the country to which it is exported. Relevant requirements of the Act that apply to these drugs include prohibitions on adulteration, on manufacturing under unsanitary conditions, and on labelling, packaging, treating, processing, selling or advertising in a manner that is false, misleading or deceptive. A person that conducts licensable activities with these drugs (e.g. fabricator) is not required to obtain a drug establishment licence or to follow Canadian requirements for good manufacturing practices. Health Canada’s regulatory oversight of these establishments and activities is therefore limited.

Transhipment of drugs

The interconnected nature of the Canadian and American transportation system means that goods, including drugs, are transported between the United States and other countries through Canada. While these transhipped goods are physically present in the country, they are not for consumption or use in Canada.

There are controls in place to mitigate the risk that a good transhipped through Canada be diverted to the domestic market. Controls include the reporting of all in-transit goods to the CBSA at the first point of arrival, use of cargo control documents, use of CBSA seals, and use of bonds/security while goods are in Canada. Carriers of goods in bond are liable for those goods. Goods in bond are not accessible for alteration by other parties. These requirements are prescribed by the Customs Act.

In 2014, Canada and other members of the World Trade Organization adopted the Agreement on Trade Facilitation, which came into force on February 22, 2017. Article 11.8 of the Agreement on Trade Facilitation prohibits members from applying technical regulations and conformity assessment procedures to goods in transit through their territory.

In 2016, to comply with the Agreement on Trade Facilitation, the Act was amended to include section 38, which provides an exemption for drugs manufactured outside of Canada and imported solely for export from the application of the Act, unless otherwise prescribed by regulation.

International regulatory cooperation

Canada is a participant to several mutual recognition agreements covering good manufacturing practices compliance programs for drug products (e.g. the Comprehensive Economic and Trade Agreement’s Protocol on the mutual recognition of the compliance and enforcement programme regarding good manufacturing practices for pharmaceutical products). Mutual recognition agreements enhance international regulatory collaboration and help Health Canada maintain high standards of product safety and quality, while facilitating the reduction in the regulatory burden for industries. These agreements also provide opportunities to develop stronger relationships with other international regulatory authorities.

Throughout the development of the Comprehensive Economic and Trade Agreement, the EU was persistent in its efforts to get a commitment from Canada to introduce stronger oversight of drugs that are subject to a section 37 exemption. Before the conclusion of the negotiations on the Comprehensive Economic and Trade Agreement, Canada agreed to amend legislation to address the discrepancy in oversight between drugs for the domestic market and drugs solely for export.

Health Canada, as Canada’s regulatory authority, has also been a member of the Pharmaceutical Inspection Co-operation Scheme since January 1999. The Scheme provides active and constructive cooperation in the field of good manufacturing practices for drugs to

There are several benefits to Health Canada’s participation in the Pharmaceutical Inspection Co-operation Scheme. One such benefit is the reduction of the burden on industry associated with undergoing multiple inspections, or with complying with different regulatory requirements from multiple jurisdictions. When a Canadian importer seeks to add a new foreign building to their drug establishment licence, an inspection report is required to demonstrate the good manufacturing practices compliance of that foreign building. When the inspection report is from a regulatory authority that is also a Pharmaceutical Inspection Co-operation Scheme member, generally the review process can be streamlined.

In October 2019, Health Canada underwent a reassessment audit intended to verify that it complied with the requirements of the Pharmaceutical Inspection Co-operation Scheme. The reassessment audit found that, contrary to the Scheme, there was no requirement for a drug establishment licence to be held by companies manufacturing drugs solely for export, and there was therefore no routine inspection program for those sites. In response to the audit’s observation, Health Canada pointed to its long-standing commitment to strengthen oversight of Canadian establishments that conduct licensable activities with drugs solely for export.

Objective

These amendments to the Regulations aim to

Description

Strengthen oversight of exported drugs

The amendments to the Regulations will prescribe the following requirements to persons conducting licensable activities in respect of drugs intended solely for export.

Part C (Drugs), Division 1A — Drug Establishment Licensing

The amendments to the Regulations will require that a drug solely for export be fabricated, packaged/labelled, tested, distributed and wholesaled by the holder of a drug establishment licence. The same licensing requirements will apply to persons conducting activities in respect of drugs solely for export as persons conducting those same activities in respect of drugs for the domestic market. These licence holders will be subject to the prescribed requirements in Part C, Divisions 2 (Good Manufacturing Practices), 3 (Radiopharmaceutical drugs listed in Schedule C to the Act) and 4 (Biologic drugs listed in Schedule D to the Act) of the Regulations.

Part C, Division 2 — Good Manufacturing Practices

The holder of a drug establishment licence that conducts activities with a drug solely for export will be required to comply with applicable good manufacturing practices requirements, with certain exceptions. The exceptions relate to a provision that falls outside the scope of the amendments to the Regulations dealing with the importation of active pharmaceutical ingredients and to provisions that are linked to a Canadian market authorization which, in the case of a drug solely for export, does not exist. The specifications for raw material, packaging material, and finished product will be required to comply with the specifications in the country in which the drug is intended to be consumed or used. The definition of expiration date in Part C, Division 1 of the Regulations will not apply in respect of a drug solely for export.

Part C, Divisions 3 and 4 — Radiopharmaceutical and Biologic Drugs

Provisions relating to the good manufacturing of radiopharmaceutical and biologic drugs will apply to the holder of a drug establishment licence of a drug solely for export, with the exception of requirements that are Canadian specific, such as product labelling and efficacy requirements.

Export certificates

The amendments to the Regulations will introduce section A.01.046, which will require an exporter who signs and issues an export certificate in accordance with the Regulations and the Act to retain the certificate for five years after the day on which the drug is exported.

Non-substantive amendments are included to the export certificate form in Appendix III to the Regulations to modernize it and align it with the other amendments to the Regulations. The exporter will be required to certify that the exported article is manufactured or prepared in Canada, that the exported article is not manufactured or sold for consumption or use in Canada, and that the packages and contents of those packages do not contravene any known requirement of the law of the destination(s) to which the packages are exported or about to be exported.

Fees

The holder of a drug establishment licence who conducts activities with a drug solely for export will be required to pay fees in accordance with the Fees Order associated with the examination of applications for their drug establishment licence.

Clarity in the requirements respecting drugs in transhipment

For the purposes of the Act, the amendments to the Regulations will clarify that drugs transhipped through Canada must be in bond.

Transition period

The amendments to the Regulations will come into force six months after the date of publication in the Canada Gazette, Part II. A person that fabricates, packages/labels, tests, distributes or wholesales a drug solely for export will be permitted to continue to conduct that activity in relation to the drug without an establishment licence and without meeting good manufacturing practices requirements for an additional three months after the coming-into-force date (i.e. nine months following publication in the Canada Gazette, Part II). Furthermore, such a person will be permitted to continue conducting that activity beyond the three-month transition period if, prior to the end of the transition period, they applied to have the licensable activity authorized, and the Minister has not issued or amended the licence, or given notice that the licence will not be issued or amended. The extension will last until the licence is issued or amended, the drug establishment licence application is withdrawn, or notice has been given that the licence will not be issued or amended.

Regulatory development

Consultation

Consultation for the amendments to the Regulations was included in a larger consultation initiative undertaken for proposed amendments related to drug establishment licence modernization in 2019, during which drug establishment licence holders who conduct licensable activities with drugs for sale in Canada and for export were contacted. In summer 2020, additional outreach was conducted to engage with drug exporters who do not hold a drug establishment licence to learn more about the reasons why they rely on the section 37 exemption. A summary of these industry consultations is described below.

Health Canada also received industry feedback through the Treasury Board of Canada Secretariat’s consultations for the Health and Biosciences Sector Regulatory Review Roadmap. Through the online public consultation over the spring, summer, and fall of 2018, stakeholders identified ways that regulations could remain flexible and agile to support economic competitiveness. Through these consultations, stakeholders raised concerns about the reputation and competitiveness of Canada’s drug export sector, given the exemption that exists from most requirements in the Act and the Regulations.

Industry consultations

Between April 23, 2019, and June 24, 2019, industry consultations were completed through an email survey directed to drug establishment licence holders as well as to medical device establishment licence holders to support the development of a broader regulatory proposal related to modernization of the drug and medical device establishment licensing frameworks, including proposed amendments related to drug exports. The purpose of the survey was to collect information about the Canadian drug and medical devices exportation landscape to allow Health Canada to assess the potential administrative and compliance costs of the regulatory changes being proposed at the time. Approximately 8 300 email invitations were sent to stakeholders, of which approximately 500 were returned as undeliverable. Separate surveys were also sent to industry associations and their members. Surveys were further distributed through a stakeholder newsletter and discussed at one of Health Canada’s bilateral meetings with the Canadian Generic Pharmaceutical Association. Health Canada received 84 responses from across all sectors. Of these 84 responses, 23 were received from drug establishment licence holders. The remaining 61 responses were received from medical device establishment licence holders and are therefore not relevant to the amendments to the Regulations.

The responses from drug establishment licence holders indicated that four businesses conducted licensable activities in respect of drugs for exportation. Of these, two businesses indicated they rely on section 37 of the Act to export drugs. Further, the responses suggest that these two companies currently follow Health Canada’s good manufacturing practices quality standard for the drugs they export.

Industry associations who responded included those that represent the compressed gases, nuclear medicine, consumer health products, and pharmacy sectors. All responses received from these associations indicated that the amendments to the Regulations will have little or no impact on their members.

In August 2020, stakeholder outreach was conducted with three unlicensed establishments who were known to rely on section 37 of the Act for drug exports. These three companies were not included in the 2019 consultation. Five associations, whose members may have an interest in the amendments to the Regulations, were also included in the August consultation. These associations included those who represent the import and export industry, pharmaceutical distribution, and regulatory affairs specialists. The purpose of this consultation was to reaffirm what was heard from drug establishment licence holders who responded in 2019 and engage with non-licence holders who have shared export certificates with Health Canada in the past. Three responses were received from drug establishment licence holders who received the request from associations, and all indicated their companies do not rely on section 37 of the Act for exports. No responses were received from non-licence holders who had relied on section 37 of the Act in the past.

An association representing the cosmetics and personal care products industry responded that their members were unlikely to rely on section 37 of the Act for drug exports. Furthermore, the association requested that Health Canada exclude certain low-risk non-prescription drugs from the scope of the amendments to the Regulations. While the request aligns with certain objectives of the proposed Self-Care Framework, which is a separate regulatory initiative under Health Canada’s Forward Regulatory Plan 2021–2023, that framework is still under development and the details have not yet been published. Health Canada considers it appropriate to retain these non-prescription drugs within the scope of the amendments to the Regulations.

In parallel to the August 2020 consultation, the two drug establishment licence holders who responded in 2019 saying they relied on section 37 of the Act for drug exports were contacted to confirm whether their survey responses were still valid in light of the COVID-19 pandemic. No responses were received from these two stakeholders.

Regulatory consultation

On June 12, 2021, the proposed amendments to the Regulations were published in the Canada Gazette, Part I, followed by a 75-day comment period. Health Canada received responses from eight stakeholders and comments that fell within the scope of the amendments to the Regulations are summarized below.

Stakeholders were generally supportive of the proposed amendments to the Regulations and emphasized the importance of aligning internationally, responding to international commitments and maintaining relationships with international partners.

Three stakeholders commented on the proposed six-month coming into force and transition timeline. One supported the approach, another indicated more time would be needed to come into compliance, and a third cautioned that the transition may not be long enough. The third stakeholder, a major association representing the cosmetics and personal care products industry, indicated its membership would not be impacted by the amendments to the Regulations. Members who conduct licensable activities with drugs solely for export already hold drug establishment licences and therefore would not be affected by the coming into force and transition timelines. Taking into consideration the comments received, Health Canada has decided that the coming-into-force date for the amendments to the Regulations will be six months after the date of publication in the Canada Gazette, Part II.

Modern treaty obligations and Indigenous engagement and consultation

A preliminary assessment was done and no modern treaty obligations were identified in relation to rights protected by section 35 of the Constitution Act, 1982, modern treaties or international human rights obligations.

Instrument choice

Status quo

Under the status quo, drugs solely for export would not be required to be fabricated, packaged/labelled, tested, distributed or wholesaled by the holder of a drug establishment licence or in compliance with good manufacturing practices, unlike drugs for the Canadian market. Canadian legislation respecting drug exports would be misaligned with that of international partners. It would also contradict commitments Canada made to the EU under the Comprehensive Economic and Trade Agreement and put Health Canada’s membership in the Pharmaceutical Inspection Co-operation Scheme in jeopardy. The EU has already signalled its disagreement with the status quo by halting expansions to the scope of its mutual recognition agreement with Canada and might further escalate matters if Canadian action seems unlikely.

Regulatory option

The option to regulate was chosen over status quo, as it contributes to ensuring that Health Canada’s oversight of drugs solely for export is the same as that for drugs manufactured for the domestic market. It also responds to commitments Canada made to the EU during negotiations of the Comprehensive Economic and Trade Agreement. This option will contribute to ensuring mutual recognition agreements with international regulatory partners are upheld and, as a result, enable Health Canada to also continue to rely on inspection reports of foreign manufacturing sites by trusted foreign regulators. In addition, this option will provide clarity to stakeholders as to the requirements respecting the transhipment of drugs through Canada.

Regulatory analysis

Benefits and costs

The amendments to the Regulations will extend regulatory oversight to additional participants in the Canadian drug export industry through the requirements to hold an establishment licence and comply with good manufacturing practices. This oversight focuses on traceability and quality assurance of drugs. Canadian consumers will not face any changes in the supply or price of drugs as a result of the amendments to the Regulations.

Table 1 outlines the costs to industry associated with the amendments to the Regulations respecting establishment licensing, record keeping, and compliance with good manufacturing practices. Unless otherwise specified, information and data used in the analysis below are based upon responses received as part of the stakeholder consultations made between April 23, 2019, and June 24, 2019, and assume that 10 companies are impacted by the amendments to the Regulations.

Table 1: Monetized costs
Activity Base year
Year 1		 Final year
Year 10		 Total
(present value)		 Annualized value
Drug establishment licensing application $6,935 $6,935 $48,709 $6,935
Drug establishment licence fee table 3 note 1 $306,770 $306,770 $2,154,624 $306,770
Record retention $91 $91 $641 $91
Training and good manufacturing practices compliance $88,870 N/A $83,056 $11,825
Total costs $402,666 $313,796 $2,287,030 $325,621

Table 3 note(s)

Table 3 note 1

The fee for a drug establishment licence is set out in the Fees in Respect of Drugs and Medical Devices Order. The activity of fabrication (in non-sterile dosage form) of drugs was selected for the purposes of this assessment given its placement in the mid to high fee range with a licence fee of $30,677 for the 2022–2023 fiscal year as cited in the Drug establishment licence (for human use) and associated fees. Fees for activities including testing, packaging/labelling, wholesale and distribution vary from $4,129 to $15,691, while fees for non-sterile fabrication, importation, and sterile fabrication vary from $30,677 to $43,171 (fiscal year 2022–2023).

Return to table 3 note 1 referrer
Costs

The amendments to the Regulations will extend drug establishment licence and good manufacturing practices requirements to persons that conduct licensable activities with drugs solely for export that are exempt as a result of section 37 of the Act. These persons may hold a drug establishment licence, or they may not. Based on a combination of previous consultations and export certificates voluntarily submitted by companies in the last two years, Health Canada is aware of 16 companies who rely on section 37 of the Act for a drug, 13 of which held a licence and 3 of which did not.

Companies who rely on section 37 of the Act and also hold a drug establishment licence indicated during consultations that they use the same production line to conduct licensable activities in respect of drugs solely for export as they do for drugs sold on the domestic market. It can also be assumed that the same quality management system is used for both exported and domestic products. Therefore, all drugs manufactured by these companies will be in accordance with good manufacturing practices. For the purposes of this analysis, the cost associated with drug establishment licensing and compliance with good manufacturing practices to persons that rely on section 37 of the Act, but also hold a drug establishment licence, is assumed to be minimal or zero.

Due to the broad exemption in section 37, Health Canada is unable to identify the exact number of persons that conduct licensable activities with a drug solely for export and do not hold a drug establishment licence. These persons are not required to notify or inform Health Canada of their existence and fall outside Health Canada’s purview of oversight. However, Health Canada is aware of three such persons (i.e. companies). For the purposes of this analysis, and taking into account the small number of companies who rely on section 37 of the Act for a drug that do not also conduct licensable activities with drugs for the domestic market, it is estimated that the number companies that will seek a new drug establishment licence will be no more than 10.

Drug establishment licensing

Costs associated with applying for and managing a drug establishment licence and retaining records of export certificates will contribute to the overall administrative costs for persons that rely on section 37 and that are not already holders of an establishment licence when the amendments to the Regulations come into force.

The time involved in applying for and maintaining a drug establishment licence averages 19 hours annually. The average salary of personnel engaged in this work is $36.50 per hour, varying between $25 and $42 per hour. It is therefore estimated that the average cost to apply for a drug establishment licence will be $694 and the average cost to maintain it afterwards will be $694 per year.

The cost of a drug establishment licence depends on the most upstream activity (requiring the greatest amount of regulatory oversight) that a licence holder undertakes at a domestic establishment. This cost assessment assumes the person conducting licensable activities is fabricating drugs in non-sterile dosage form and will be subject to a fee of $30,677 for the 2022–2023 fiscal year. While in nominal terms, the licence fees will escalate by an amount equal to the Consumer Price Index each year, which amounts to an increase of approximately 2% per year, this only serves to maintain the real value of the fee as measured at fiscal year 2020–2021 price level.

Record retention for export certificates

The amendments to the Regulations will require a licence holder to keep an export certificate. It is estimated that the time involved to retain this record is 15 minutes at an average salary rate of $36.50/hour. The cost of storage is assumed to be negligible.

Training and good manufacturing practices compliance

The costs associated with the coming into compliance with good manufacturing practices will likely be influenced by multiple factors, including the size and complexity of the operation and the degree to which its manufacturing practices already approach good manufacturing practices. Approximately 89%footnote 2 of Canadian drug exports in 2020 were to countries whose regulatory authorities were members of the Pharmaceutical Inspection Co-operation Scheme or to countries with which Health Canada has mutual recognition agreements in relation to good manufacturing practices. Drugs exported to these countries are required to be manufactured and prepared in accordance with quality standards that are considered comparable or equivalent to Canada’s good manufacturing practices. Also taking into consideration that at least one of the three known unlicensed companies that rely on section 37 of the Act export to countries that require drugs to be manufactured in accordance with good manufacturing practices, these numbers indicate that most, if not all, companies already comply with good manufacturing practices or a similar standard and, as such, would assume minimal compliance costs.

There might be a one-time compliance and training cost for some companies conducting licensable activities in respect of drugs solely for export that have not voluntarily complied with good manufacturing practices. It is assumed that companies that are not licensed will require employee training to support compliance with good manufacturing practices and preparation of an application for an establishment licence in the first year. Estimated cost of training per company is $6,503.footnote 3

For unlicensed companies, there will also be a cost associated with preparing for and supporting an inspection by Health Canada to verify compliance with good manufacturing practices, based on the activity being sought in the application for an establishment licence. This cost is estimated to be $23,840 for 10 companies. Inspections are not performed on an annual basis. Frequency is based on the licensed activity’s level or risk, as set out in the Good manufacturing practices inspection policy for drug establishments (POL-0011). In addition, an estimated training cost for 10 companies is $65,030.

Costs to government

The net impact on government resources for the amendments to the Regulations is not expected to be significant. Any costs associated with government activities are already accounted for through drug establishment licensing fees that will apply.

Benefits

The amendments to the Regulations will benefit Health Canada by removing a major obstacle to developing a stronger mutual recognition agreement with the European Union, while facilitating greater international harmonization and improving the prospects for future mutual recognition agreements with other jurisdictions. Additionally, the amendments to the Regulations will permit Health Canada to remain a full and credible member in the Pharmaceutical Inspection Co-operation Scheme. Mutual recognition agreements and Canada’s membership in the Pharmaceutical Inspection Co-operation Scheme facilitate the exchange of information and experience between international regulatory partners and contribute to saving Health Canada significant human and financial resources on administration and inspection.

The amendments to the Regulations will also benefit Canadian exporters by increasing the reputation of Canada as a safe and quality source of drugs. This increased reputational value may give Canadian companies an advantage over competitors from countries that are not participants in, or have not met their obligations under, the Comprehensive Economic and Trade Agreement and/or the Agreement on Trade Facilitation.

Total costs and benefits

It is expected that the amendments to the Regulations associated with export will have an estimated annualized cost of $325,621 or a present value cost of $2,287,030 over 10 years, discounted at 7%. The amendments to the Regulations associated with transhipment will have negligible cost since all goods transhipped through Canada are already required by the Customs Act to be in bond.

Small business lens

Current information collected by Health Canada from drug establishment licence holders indicates that 33% of holders meet the definition of a small business and qualify for discounted fees. No issues arose during consultations in relation to small businesses with the exception of one small business who raised concerns regarding the cost of compliance and the length of the transition period. It is assumed that businesses to which the amendments to the Regulations apply will continue to operate.

Separately, Health Canada has identified 16 companies that hold export certificates, of which 3 do not currently hold a drug establishment licence. Under the amendments to the Regulations, these three companies will be required to obtain a drug establishment licence and demonstrate compliance with good manufacturing practices. Further research of publicly available data suggests that two of these three companies are small businesses. Health Canada does not possess data to confirm whether additional, currently unidentified, small businesses will be affected by the amendments to the Regulations.

As with larger businesses, small businesses conducting licensable activities in respect of drugs solely for export will be required to hold a drug establishment licence, come into compliance with and follow good manufacturing practices, and comply with provisions of the Regulations. The transitional provisions in the amendments to the Regulations will allow a three-month period for businesses to continue their operations without an establishment licence if they have applied for one. This will limit the potential cost on businesses, including small businesses, and give them more time to come into compliance with the amendments to the Regulations.

The Fees Order allows for a 25% reduction in drug establishment licence fees for applicants that are small businesses. No alternative compliance options have been identified for small businesses.

It is not known what cost will be assumed by a small business to come into compliance with good manufacturing practices compared to the industry as a whole estimated as part of the cost-benefit analysis. However, if a small business is currently exporting to a destination requiring good manufacturing practices, that small business will already need to be in compliance. In that situation, costs related to good manufacturing practices will be expected to be low.

One-for-one rule

Pursuant to the Red Tape Reduction Regulations, the export-related components of the amendments to the Regulations are exempt from the application of the one-for-one rule because they are non-discretionary in nature. They respond to international trade obligations established through the Comprehensive Economic and Trade Agreement. Therefore, the amendments to the Regulations will not be required to offset new incremental administrative burden costs that will result from the amendments to the Regulations.

Table 2: Summary of annualized administrative costs
Annualized administrative costs ($2012) $3,572
Annualized administrative costs per business ($2012) $357.22

Although the amendments are exempt from the one-for-one rule for the reason stated above, it is anticipated that the administrative burden to establishments will be $3,572 annually. This calculation includes costs related to an application for a drug establishment licence and the record-keeping requirement for export certificates. The cost estimates associated with the one-for-one rule are discounted at 7% and reported in 2012 dollars in accordance with the Red Tape Reduction Regulations.

There are no incremental administrative burden costs associated with the transhipment component of the amendments to the Regulations, as drugs transhipped through Canada are already required under the Customs Act to be in bond. The component of the amendments to the Regulations related to transhipment will not require an exemption under the Red Tape Reduction Regulations, as they do not result in any new incremental administrative burden costs.

There is no new regulatory title associated with the amendments to the Regulations. Therefore, no commitment to repeal a regulatory title is created.

Regulatory cooperation and alignment

The amendments to the Regulations will allow Canada’s approach to drugs solely for export to align more closely with international partners, and in particular with the European Union. The amendments to the Regulations will contribute to international cooperation by removing a major obstacle to developing new or stronger mutual recognition agreements with international regulators. In addition to that, the amendments to the Regulations will respond to commitments made to international partners through the Comprehensive Economic and Trade Agreement and the Pharmaceutical Inspection Co-operation Scheme reassessment audit.

Strategic environmental assessment

In accordance with the Cabinet Directive on the Environmental Assessment of Policy, Plan and Program Proposals, a preliminary scan concluded that a strategic environmental assessment is not required. Health Canada does not expect the amendments to the Regulations to have any important impacts on the environment.

Gender-based analysis plus

An impact assessment of gender and diverse groups within Canada was undertaken, and no gender-based analysis plus (GBA+) impacts have been identified for the amendments to the Regulations.

Health Canada will continue to monitor health research with respect to gender and diversity and will develop evidence-informed measures to address population specific needs, as required.

Rationale

The amendments to the Regulations are necessary to improve oversight of drugs manufactured or prepared in Canada solely for export and to meet commitments made to international partners. In particular, these amendments will respond to commitments Canada made during Comprehensive Economic and Trade Agreement negotiations and that Health Canada made during the 2019 Pharmaceutical Inspection Co-operation Scheme reassessment audit. The amendments to the Regulations will align the oversight of drugs manufactured or prepared in Canada solely for export with drugs intended for the domestic market and contribute to upholding Canada’s reputation as a manufacturer of high-quality drugs. Proceeding forward contributes to ensuring that the approach to the regulation of drug exports in Canada aligns more closely with international partners. Additionally, the amendments to the Regulations are needed to help provide clarity and certainty to stakeholders around the requirements for drugs being transhipped through Canada.

Implementation, compliance and enforcement, and service standards

Implementation

Once the amendments to the Regulations are in force, drugs solely for export will be required to be fabricated, packaged/labelled, tested, distributed or wholesaled by the holder of a drug establishment licence and in compliance with good manufacturing practices prescribed in the Regulations.

The amendments to the Regulations will come into force six months after the date of publication in the Canada Gazette, Part II. Additionally, fabricators, packagers/labellers, testers, distributors or wholesalers of drugs solely for export will be permitted to continue conducting their activities in relation to those drugs, without an establishment licence and without meeting good manufacturing practice requirements, for an additional three months after the coming-into-force date (i.e. nine months following publication in the Canada Gazette, Part II). This three-month transition period will be extended if, before the end of the transition period, an application for, or an amendment to, an establishment licence to authorize the licensable activity is submitted and the Minister has not issued or amended the licence, or given notice that the licence will not be issued or amended. The extension will last until the licence is issued or amended, the licence application is withdrawn, or notice has been given that the licence will not be issued or amended. This will allow regulated parties to make necessary adjustments to business practices, apply for or amend a licence, and come into compliance with good manufacturing practices requirements.

Health Canada will conduct targeted outreach to international partners and industry stakeholders, including those that have relied on section 37 in the past, to notify them of final publication of the amendments to the Regulations.

Compliance and enforcement

Compliance and enforcement of the amendments to the Regulations will be done in accordance with a risk-based approach, aligned with departmental policies, including Health Canada’s national compliance and enforcement approach for health products, Compliance and enforcement policy for health products (POL-0001).

Health Canada employs a wide range of compliance and enforcement actions and tools. The actions, tools and level of intervention used are dependent on the situation context and risk to health. Some actions and tools are designed to help regulated parties understand their responsibilities under the law, while other actions and tools are designed to induce compliance with the law. Following the premise that the majority of regulated parties will comply with laws if they are aware of them and understand them, Health Canada actively works to promote and monitor compliance. When necessary, enforcement actions are used to address non-compliance with the law.

Service standards

Responsibilities and service standards set out in the Management of Applications and Performance for Drug Establishment Licences (GUI-0127) will be applied as a result of establishments complying with the amendments to the Regulations. Fees associated with the application and amendment of a drug establishment licence are set out in the Fees Order. Health Canada does not anticipate a change in the service delivery standards as a result of the amendments to the Regulations.

Contact

Catherine Hudon
Director
Compliance Policy and Regulatory Affairs
Policy and Regulatory Strategies Directorate
Regulatory Operations and Enforcement Branch
Health Canada
Address locator: 1907A
200 Eglantine Driveway
7th Floor, Room 705A
Ottawa, Ontario
K1A 0K9
Email: hc.prsd-questionsdspr.sc@canada.ca