Who is the owner of the processed cosmetic products?

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    Who is the owner of the processed cosmetic products?
    Posted on: 02/05/2024

    In this article, our Managing Partner, Nguyen Van Phuc will analyze the regulations related to processed cosmetic products in Vietnam. This article was part of HM&P's series of articles about cosmetics, published in The Saigon Times No. 16-2024, dated on April 18, 2024. Below is the English version:

    With a population of nearly 100 million people, Vietnam has always been an attractive market for companies in the FMCG industry, especially cosmetics. It is even more special when it is a direct item used on the human body, consumers often tend to choose the best items for themselves, instead of calculating for each product. This lucrative bait is targeted by many companies, however, to invest in a product, companies can spend a lot of time and money on research, production and bringing products to market. Alternatively, many companies are now developing their business activities in a new direction, they order outsourcing cosmetic manufacturing for outsourcing manufacturers to create products according to their demand. This method basically saves a lot of time and money for companies, but certain legal issues still remain.

    1. Liability of risks outsourcing cosmetics manufacturing

    (Source: The Saigon Times)

    According to the provisions of Clause 1 Article 3 of the Circular 06/2011/TT-BYT on Cosmetic Management, enterprises responsible for placing cosmetic products on the market may only place cosmetic products on the market if they have received the receipt number of the cosmetic product proclamation from a competent state management agency. At the same time, the enterprises must be fully responsible for the safety, efficiency and quality of the products. At the same time, according to the provisions of Clause 1, Article 48 of this Circular, the enterprises responsible for putting cosmetic products into circulation shall be fully responsible for the contents declared in the cosmetic product proclamation form.  They must be responsible for the safety, efficacy and quality of the products and ensure that the products put into circulation comply with all the requirements of the ASEAN Cosmetics Agreement and its accompanying Annexes.

    According to these regulations, the company responsible for placing products on the market is currently the entity responsible for the overall safety, efficacy and quality of cosmetics. It should also be clarified that the enterprise responsible for putting products on the market is the enterprise named on the cosmetic product proclamation dossier and is responsible for that cosmetic product on the market.

    This regulation aims to facilitate the management of cosmetics by assigning all responsibilities to the company named in the cosmetic product declaration dossier. In cases where a cosmetic company is both manufacturing and trading, this regulation seems reasonable. However, for companies that choose to outsource cosmetics manufacturing, as many do at present, this regulation poses risks to the enterprises named in the product proclamation dossier. These companies may own the formula and ingredients of the product, but they are not directly involved in the production process. As such, they cannot control the quality of the product or any errors or defects that the outsourcing party may encounter during production. It should be noted that the current cosmetics management is mainly based on post-inspection. Cosmetic product declaration is only a procedure for competent authorities to issue the receipt number of cosmetic product declaration, which accepts administrative procedures before cosmetics can be circulated in the market. Therefore, this information listed by enterprises is self-accountable. After the product is put on the market, the enterprise listed in the product proclamation dossier must keep the cosmetic product information dossier, including administrative documents and summaries of the product, the quality of ingredients, the quality of the finished product, and its safety and efficacy. It could be seen that these documents are crucial for the assessment of the product quality. However, most of these documents are prepared by the cosmetic outsourcing manufacturers. Therefore, the company choosing outsourced cosmetics may not be able to verify the accuracy of these documents or control the quality of the product. Bearing responsibility for any errors made by the outsourcing manufacturers is a significant risk for the company named on the product proclamation dossier.

    (Source: Internet)

    2. Who is the owner of cosmetics?

    In addition to the legal responsibility associated with placing cosmetics on the market, as mentioned above, in the case of companies choosing to outsource cosmetics manufacturing, the question arises as to who owns the outsourced cosmetics. According to the common understanding and the provisions of the Civil Code 2015, the enterprise choosing outsourced products would usually be the owner of the outsourced cosmetics manufacturing product, while the outsourcing manufacturers would receive payment for their services. However, Clause 5 Article 2 of Circular 06/2011/TT-BYT stipulates that the owner of the cosmetic product is the enterprise that owns the formula, production process and quality standards of the product. There would be no difference if the enterprise that chooses outsourced cosmetic manufacturing owns all the formulas, production processes, and quality standards of the product, and the outsourcing manufacturers only follow its instructions. However, in practice, many cosmetic companies almost rely on the outsourcing manufacturers because the production processes and quality standards are based on the templates provided by the outsourcing manufacturers. In such cases, the outsourcing manufacturers only pay for the services and get their brand name attached to the product. In addition, it is difficult to determine the companies that choose outsourced cosmetic manufacturing as the owner of the cosmetic product based on the provisions of Circular 06 governing the cosmetics industry. Determining the owner of the cosmetic product will affect the dossier of the cosmetic proclamation. Specifically, if the company that chooses outsourced cosmetics manufacturing is identified as the owner of the cosmetics, its cosmetics proclamation dossier will not include a letter of authorization from the manufacturer or owner of the cosmetics. On the contrary, if the outsourcing manufacturer is considered to be the owner, the proclamation dossier must include the letter of authorization. This is an unclear provision that may affect the process of submitting cosmetic proclamation dossiers for companies.

    3. The need for more appropriate changes

    Legislative amendments in line with practical business operations are essential, especially considering that cosmetics management is currently almost regulated by Circular 06/2011/TT-BYT, which has been issued for more than a decade. Therefore, drafting a regulation on cosmetics management can be seen as an important task for the Ministry of Health in the coming period.

    In order for the companies responsible for placing cosmetic products on the market to control the legal risks they may face due to errors or failures of outsourcing manufacturers, we believe that there should be a certain change in the responsibility of outsourcing manufacturers of cosmetic products. Therefore, there is a need for specific regulations regarding cosmetic outsourcing manufacturers, such as definitions, scope of activities, operating conditions, corresponding rights and obligations in their relationship with consumers. This would facilitate the allocation of responsibilities that enterprises and related units involved in outsourcing cosmetics manufacturing and distribution must bear toward consumers.

    Meanwhile, with regard to the definition of the owner of cosmetic products, it is necessary to make corresponding amendments after supplementing the regulations on the outsourcing of cosmetic manufacturing to clearly define the owner of cosmetic products. From there, this would create more favorable conditions for enterprises that are the parties that choose to outsource cosmetics manufacturing in the process of submitting cosmetics proclamation dossiers.

     

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