Can EU laws tackle smuggling and forging?
By Craig Stobie
The European Union has a fight on its hands, and this time we aren’t talking about Brexit. The battle is against the illicit trade in contraband and counterfeit goods and the culprits are organised crime and even terrorists, its prime beneficiaries.
According to a report published by the OECD and the EU’s Intellectual Property Office in April 2016, imports of counterfeited and pirated goods have doubled in less than a decade and are worth nearly $500 billion a year, or around 2.5% of global imports.
Perhaps surprisingly for most people, the two most frequently smuggled product sectors in Europe are pharmaceuticals and tobacco. Research from KPMG showed that one in every 10 cigarettes smoked is from illicit sources, while the European Commission estimates that globally 10,000 deaths each year can be attributed to falsified medicines.
Not only does the illicit trade sell dangerous products, which puts consumers at risk, and fund serious crime, but it also costs governments billions of euros in lost tax revenue.
The EU is determined to tackle this problem by introducing legislation that seeks to improve track and trace and authentication of the most commonly smuggled products. Businesses from different sectors have also voluntarily tested and introduced measures against this criminal practice that erodes their revenue and reputation.
But the question remains, can EU legislation really be effective in tackling the problem? Especially one that often originates beyond Europe’s borders?
The Falsified Medicines Directive (FMD) was the first piece of European legislation designed to specifically tackle illicit trade through harmonised, pan-European measures that control and monitor the trade pathway and authentication of medicines.
Coming into force in 2019, its key requirements are that all medical products for sale in the EU carry a unique identifier (a 2D data matrix code and human readable information) that can be scanned at fixed points along the supply chain and have visible tamper evident features on the pack.
Manufacturers will be responsible for uploading the unique and serialised product identifier via a European hub to country-based national data repositories. The FMD requires verification of the safety features, including the serialised product identifier, at least once before the product leaves the supply chain, normally by pharmacies at point of dispensation.
But will it work? From the outset those involved in the pharmaceutical supply chain – brand manufacturers, wholesalers, traders and pharmacies – have argued that they should take the initiative on creating and developing existing serialisation technology and databases for them to then input unique serial numbers into an EU Hub database.
This will then supply the numbers to a stakeholder-led database in the local market. Sounds complicated, but this ensures ownership of commercial data – like pharmacy dispensing data – is retained by those who put it there in the first place.
The challenge is that manufacturers need to design their serialisation and compliance infrastructure both for the extreme scalability challenges presented by the FMD and the flexibility required to serve the member states.
For many larger pharmaceutical manufacturers serialisation was already implemented but for small to mid-size entities who do not have the infrastructure or resources readily available to create a bespoke solution or to integrate with an Enterprise Resource Planning system, this will be a significant cost and logistical challenge. There are also concerns that member states will not have their own systems ready for 2019.
A small price to pay
The main burden however will fall on pharmacies, including hospital pharmacies, which will be required to scan barcodes, check tamper-proof devices and decommission medicines at the point of dispensation.
The European Commission estimated average costs at €530 a year for each pharmacy, with a particular burden on smaller family run businesses lacking the economies of scale.
This may seem a small price to pay for patient safety but the difficulties surrounding implementation could be argued to be the result of the European Commission not taking sufficient time to consult with industry, especially smaller players, and not sufficiently understanding the logistical and cost implications of reporting and storing data across multiple systems, which requires open standards and interoperable solutions in order to be effective.
The European Commission is currently working on a second piece of legislation designed to tackle the trade in counterfeit and contraband goods, the Tobacco Products Directive Articles 15 (Track & Trace) and 16 (Security Feature) and is consulting with stakeholders, including the industry and supply chain, on the implementing Acts covering these articles, with submissions due by 4 November.
As with the FMD, the challenge is to ensure that a system dealing with product in the billions is sufficiently flexible and interoperable to allow international tracking and tracing distributors, beyond EU borders, to integrate with other product sectors, and manufacturers to continue to be involved in the authentication process.
Moreover, fair market competition among services providers based on best in class and latest technologies should be encouraged rather than undermined.
The European Union is at its most effective when it pools resources across member states to address a multinational problem like the trade in illicit goods. However, it must always remember that (unlike some of its parts) it is not an island, and that for its legislation to be effective it must also be flexible and adaptable, encouraging effective implementation rather than formal box ticking within and beyond its member states.
Craig Stobie is director - global sector management and development at Domino Printing Sciences