Regulatory Impact And Compliance Cost Statement

Proposed Classification of Pseudoephedrine and Ephedrine under the Misuse of Drugs Act 1975

Date of publication: February 2004

Statement of the nature and magnitude of the problem and the need for government action

During the last two to three years the prevalence (availability and use) of methamphetamine (a Class A controlled drug) has increased dramatically. Used mainly for its stimulant and euphoric effects methamphetamine can quickly cause addiction, has been linked to violence, has a very high addiction potential, has significant health risks, including death, and has a very dangerous and chemically volatile manufacture process.

In recent years there has been a marked increase in the manufacture of methamphetamine by clandestine laboratories (“clanlabs”) in New Zealand, using either pseudoephedrine or ephedrine as a key ingredient. The number of clanlabs detected in New Zealand has increased from fewer than two per year before 1998, to nine in 2000, to 42 clanlabs in 2001. In 2002, a further 147 clanlabs had been detected and in this calendar year to 20 November 2003 157 clanlabs have been detected.

As domestic sources of pseudoephedrine and ephedrine have been tightened up, through Police, industry and pharmacy efforts to restrict the diversion of these substances into illicit methamphetamine manufacture, the importation of pseudoephedrine and ephedrine has increased dramatically. In 2000 approximately 10,000 tablets of pseudoephedrine and ephedrine were seized by Customs. This calendar year up until 10 November 2003, 776,900 tablets (or powder equivalent of) of pseudoephedrine and ephedrine were seized.

Currently, although Customs do have powers in their own right to seize imported precursor substances under the the Customs and Excise Act and of the Medicines 1981 Act. These provisions do not provide Customs with the necessary operational powers and penalties required to limit and deter the illicit importation of pseudoephedrine and ephedrine.

Currently Customs are unable to effectively investigate importation syndicates and the current penalties for unlawful importation of pseudoephedrine and ephedrine under the Medicines Act 1981 are insufficient to act as a deterrent. Therefore these provisions are not adequate for Customs to effectively combat the increasing importation of pseudoephedrine and ephedrine.

To more effectively combat the illicit importation of pseudoephedrine and ephedrine Customs requires wider powers to investigate importation syndicates, including the ability to conduct controlled deliveries (controlled deliveries are where Customs is able to continue the delivery of an intercepted item in order to apprehend the intended recipient of the item).

Additionally products containing pseudoephedrine and ephedrine are regulated primarily as medicines, under the Medicines Act 1981, within a classification system that is based on availability criteria without regard for their potential misuse. This results in fewer powers for Customs and Police to regulate supply and lower penalties for those using these products in a manner that is an offence.


Statement of the public policy objective(s)

The public policy objective is to limit the illicit manufacture of methamphetamine by controlling the importation of pseudoephedrine and ephedrine without affecting their legitimate use by the public as prescription and pharmacy only medicines.


Statement of feasible options (regulatory and/or non-regulatory) that may constitute viable means for achieving the desired objective(s)

The status quo

Both pseudoephedrine and ephedrine are controlled under the Medicines Act 1981. Pseudoephedrine in pharmacy-only preparations is listed in the Third Part of the First Schedule of the Medicines Act (pharmacy-only), whilst ephedrine and pseudoephedrine where it is not in pharmacy-only preparations are in the First Part of the First Schedule (prescription medicines).

This classification means that a wholesale medicines license is required to import or export commercial quantities of pseudoephedrine and ephedrine products. Unlawful importation is any attempt by a person to import a commercial quantity without a wholesale medicines license. The penalty that is applied to a person convicted of an unlawful importation under Section 78 of the Medicines Act is either a maximum of 3 months imprisonment or a fine not exceeding $500.

Powers for Customs to apply some border controls on the importation of pseudoephedrine and ephedrine, for example, being able to stop importations of commercial quantities and charge any person without a license for wholesale medicines with unlawful importation, are provided under Section 225 of the Customs and Excise Act (any goods unlawfully imported), which allows Customs to stop any goods from being imported unlawfully, and Section 43 of the Medicines Act (restrictions on the possession of prescription medicines), which makes it an offence to import without a license

The main non-regulatory measure already in place to tackle the use of ephedrine and pseudoephedrine in illicit methamphetamine manufacturing in New Zealand is managed through co-operation between Police, the Ministry of Health and the pharmaceutical industry and pharmacies to reduce the opportunities for diversion of pseudoephedrine and ephedrine into the illicit manufacture of methamphetamine. These will continue in conjunction with the preferred option.

Pseudoephedrine and ephedrine are not classified as a controlled drug in Australia. A license to import pseudoephedrine and ephedrine is required in Australia. A continuation of the status quo would not meet the public policy objectives of the proposal.


Preferred option: Amendment of the Third Schedule of the Misuse of Drugs Act 1975 and amendment of Regulation 28(4)(b) of the Misuse of Drugs Regulations 1977

This option requires amendment to the Third Schedule of the Misuse of Drugs Act 1975 (MODA) as follows:

• classifying pseudoephedrine in Part 3 (which brings in stronger existing Customs powers);

• classifying pseudoephedrine in Part 5 (which brings in stronger Customs powers);

• classifying ephedrine in Part 5.

Regulation 28(4)(b) of the Misuse of Drugs Regulations 1977 would be amended to include pseudoephedrine (which will bring in stronger Customs powers).

The change would have the following features:

• The following penalties under the MODA will apply up to 8 years imprisonment for importation, manufacture and supply and up to 3 months imprisonment and/or $500 fine for possession.

• A license will be required for legitimate producers and suppliers to import, export and to deal in pseudoephedrine and ephedrine.

• Customs will have wider powers to investigate importations. Various Customs powers apply to the suspected import or export of “controlled drugs” (s 36). Customs could seize without a warrant controlled drug that is without a licence (s 26).

• Pharmacy-only pseudoephedrine products will need to be labelled “Controlled Drug C3”, and all prescription doses of pseudoephedrine and ephedrine labelled “Controlled Drug C5”. This requirement is applied at the importer/producer stage and so pharmaceutical retailers/pharmacies will not incur any costs relating to labelling requirements.

• A license will be required for each consignment of pseudoephedrine and ephedrine. The license will cost $11.25 per consignment.

• An exemption from controlled drug storage requirements for the sale of pharmacy-only pseudoephedrine and prescribed pseudoephedrine and ephedrine products.

Statement of the net benefit of the proposal, including the total regulatory costs (administrative, compliance and economic costs) and benefits (including non-quantifiable benefits) of the proposal, and other feasible options

Government

This proposal will assist with restricting the availability of illegally imported pseudoephedrine and ephedrine for illicit methamphetamine production and assist with restricting local manufacture of methamphetamine. This is expected to reduce pressures on and costs for Police, Customs and Health.

Any increase in costs to Customs of increased enforcement of import restrictions on pseudoephedrine and ephedrine from the proposal will be met out of departmental baseline budgets. The deterrence effect of the classification is expected to lead to a decrease in these costs arising from fewer attempts being made to illegally import pseudoephedrine and ephedrine.

A classification under the Misuse of Drugs Act 1975 would give Customs wider powers to investigate the individuals and syndicates involved in illicit importation of pseudoephedrine and ephedrine, including the ability to conduct controlled deliveries of ephedrine and pseudoephedrine as well as allowing for greater penalties to act as a deterrent to the importation of ephedrine and pseudoephedrine.


Pharmaceutical Industry

The Pharmaceutical industry will face potential costs as a result of the proposal. These include the costs of changing packaging labels to meet the new labelling requirements under the MODA., The compliance costs associated with the labelling requirements are discussed in the Business Compliance Cost Statement.

Licenses for importing controlled drugs will be required for each consignment imported. The cost of these is currently $11.25 per consignment. Most companies importing pseudoephedrine and ephedrine currently import other controlled drugs and are familiar with the licensing requirements for importation. This will add to compliance costs already incurred by companies importing controlled drugs.

The exemption from controlled drug storage requirements being proposed will allow pharmacies to continue the sale of pharmacy-only pseudoephedrine and prescribed pseudoephedrine and ephedrine products as is currently done under the Medicines Act.


Society

Society is expected to benefit chiefly from a decrease in the availability of methamphetamine due to more effective restrictions on the availability of the key ingredients, pseudoephedrine and ephedrine, to illicit methamphetamine manufacturers. Society is also expected to benefit by maintaining access to pseudoephedrine and ephedrine as medicines. There may be, however, some decrease in the range of products containing these ingredients as a result of the increases in compliance costs to the pharmaceutical industry resulting from the proposal.


Statement of consultation undertaken

A targeted consultation of the pharmaceutical industry was undertaken by invited submission. Letters were written to the industry outlining the proposal and asking for comment. Discussions also occurred between some companies and the Medsafe unit of the Ministry the Health.

The organisations consulted were:

• the Pharmaceutical Society of New Zealand,

• the New Zealand Self-Medication Industry Association (SMI),

• New Zealand HealthCare Pharmacists’ Association,

• ProPharma,

• Pfizer Consumer Healthcare (Pfizer),

• the Pharmacy Guild of New Zealand, and

• the Australian Self-Medication Industry (ASMI).

It has been identified by SMI, Pfizer, ASMI and the Pharmaceutical Society of New Zealand the labelling requirements will cause increased compliance costs and may lead to the removal of some products from the market.

Two other concerns were raised in relation to labelling.

• Firstly, that labelling requirements will be different in Australia and New Zealand and, thus, increase compliance costs for companies working in both markets.

• Secondly, that this labelling will draw attention to these products by those using them to produce illicit drugs (eg. Methamphetamine).

This is outweighed by the greater control that can be exercised on pseudoephedrine and ephedrine containing products, whilst continuing to allow legitimate users access to them as useful medicines.

Pfizer believes that whilst the licensing requirements are necessary to allow suitable border control, it will be a burden on legitimate importers of pseudoephedrine and ephedrine products. The Ministry of Health, along with the Pharmaceutical Society of New Zealand, however, believes that licensing will not be onerous or expensive for legitimate importers of these products.

The licensing of the import and export of pseudoephedrine into and from New Zealand brings this country in line with current Australian requirements.

The Pharmaceutical Society of New Zealand has raised concerns that the classification of pseudoephedrine and ephedrine as controlled drugs will be inconsistent with its classification in Australia and contrary to the trans-Tasman harmonisation of medicines.

The Ministry of Health advises that it is within the principles of trans-Tasman harmonisation to implement differing approaches in order to deal with an issue peculiar to one party. In this case it is necessary to differ with Australian classifications of pseudoephedrine and ephedrine in order to address problems of pseudoephedrine and ephedrine use in illicit production of methamphetamine.

The following government agencies were consulted on and supported this proposal:

• the Ministries of Justice and Social Development,

• the Police, and

• Customs.

Business Compliance Cost Statement

Compliance costs will arise from learning and understanding the new requirements, redesign of the packaging to take account of the new labelling requirements, the process by which a person obtains a wholesale dealing license and the process by which a person obtains a consignment license.

There are possible costs associated with differing labelling requirements in Australia and New Zealand for those companies operating in both markets. It is uncertain what these costs would be.

It is expected that labelling requirements will be met by companies with a large presence in both Australia and New Zealand by producing New Zealand specific packaging, this would incur a one-off cost. Companies that import smaller amounts into New Zealand are more likely to re-label by using a label that will be attached on top of the existing label, this will be incur an ongoing cost, however, it is expected to be minimal.

The process for obtaining a license to import, export and deal a controlled drug is dependent upon whether a company holds such a license for other controlled drugs or not.

If a company holds a controlled drug license they must write to the Medsafe unit of the Ministry of Health with their request to include pseudoephedrine and ephedrine in their controlled drug license, and include a copy of their original controlled drug license. This will be processed and issued at no cost.

If the company does not hold a controlled drug license they will be required to fill in and submit an application form and pay a license fee of $11.25 (this fee is currently under review). Once the application for a license has been made Medsafe will visit the premises of the company to inspect and discuss records and record keeping, storage facilities, security and general operational procedures. If these arefound to be adequate a license will be issued.

A further license is required for each consignment of imported controlled drugs. Companies are required to submit to Medsafe an application form and a letter and pay a fee of $11.25 (this fee is currently under review). This license is consignment specific and can only be used once within six months of being issued.

Of the 17 companies dealing in pseudoephedrine and ephedrine 12 currently hold controlled drug licenses and will therefore be familiar with controlled drug licenses for imported or exported consignments of controlled drugs. There will be minimal costs expected for the remaining five companies to learn the processes involved as most companies will be familiar with them. As the licensing requirement is similar to requirements for licensing in regard to wholesaling medicines the cost associated with learning and understanding the new requirements for importing pseudoephedrine and ephedrine is expected to be minimal.

The parties affected by the proposal will be the Pharmaceutical industry that consists in New Zealand of 17 importers with one manufacturer. Almost all the 17 businesses importing and dealing in pseudoephedrine and ephedrine are large multi-national corporations. Compliance costs are likely to fall evenly on businesses regardless of size. However, the compliance costs will impact most on the five companies that do not currently import controlled drugs but the level of costs are uncertain but are thought to be minor.

The Medsafe unit of the Ministry of Health will inform affected parties of the changes and will assist businesses to limit compliance costs associated with the proposal by providing information and assistance for companies applying for licenses. Pharmaceutical retailers and pharmacies will be exempted from storage requirements under the MODA by an exemption from controlled drug storage requirements in the Misuse of Drugs Regulations 1977, and therefore the impact on pharmaceutical retailers will be negligible. Pharmacies will also be able to sell current stock with existing labels.

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Related information:

Regulatory Impact Statements page

Information about drugs in New Zealand

National Drug Policy website www.ndp.govt.nz