Hello everyone, and welcome to my interview series. Today we have a guest that we’ve had before Mark Schaub from King & Wood Mallesons.
We wanted to have Mark back on because we’ve had these changes with the announcement of big changes to animal testing requirements for China and Mark obviously has watched the space very closely.
Thank you so much for coming back Mark. Thanks Allie. Today let’s dive right in.
Can you give us a bit of an overview of the key changes that will affect independent Beauty Brands or any Beauty Brands coming into China that are cruelty free?
Yes, people been waiting for a long time. I think the first article I wrote about, the end of animal testing getting nearer was I think 12 years ago, it’s been a long time coming and I guess it’s not a surprise that it’s really hard end.
Exemptions are opening up. I think the best way to encapsulate it is back in 2014.
There was the exemption for some types of domestic products. If it was the message you manufactured if you’ve got an exemption you didn’t have to do animal testing that’s now been extended imported products for the first time but it does require you to have a QMS, which is like a GMP type certification from your country of origin.
And you also need to do a safety assessment which is acceptable to the NMPA, I think this is the start of a pathway but I guess the major hurdles is for the QMS.
There’s nothing really in place yet. It will be bilateral. I think the French government has said that they’ve already got something in place but far as we can tell the Chinese haven’t recognized it and we’re not fully sure what the safety assessment is, but I guess we can look at what was happening in the domestic arena.
And probably that will give us a bit of odds. Yes, and there’s the thing with the GMP or the QMS is the fact from what I understand the NMPA have said that it needs to be certified by authority of the government of the market in which you manufacture.
If you manufacture in multiple markets, then you need to think as far as I understand you need several different. Well, I think it’s only the one, let’s say if you’re a beauty brand and you’re manufacturing Mexico, Australia and France then if you’re going to supply the Chinese market from Mexico and France, those two manufacturers would have to be certified.
One of these days probably because of the geopolitical situation at the moment Australia will not be first cab off the rank when it comes to these kind of things.
Yes, exactly. The fact that it’s all needs to be authorized by the government of the country or manufacturing in. And the Chinese have to accept that process.
As you mentioned the French have obviously announced that they have that process. From what I’ve seen as well I don’t think the Chinese have fully rubber-stamped it yet.
The British are also in the process of negotiations. But again that hasn’t been completely rubber-stamped yet. It’s all supposed to come into play from the first of May. First of May. It’s possible to do it.
Somebody asked me how will we find out which countries are able to do it? I said, I’m sure if you just read the news you’ll find out because there’ll be a lot of announcements.
I think ones the frontrunners seen through the French and perhaps the Koreans and the Japanese. I think the other problem would be for people that are a good brand in a country where it’s not a major type of Industry, they might take longer.
If you’re a Finnish Beauty brand maybe it’s the top priority for the Finnish government. There is going to be a lot of teething issues. It’s going to take a lot of time until it is all solved. And from what I’ve heard as well for the U.S of course things like that are done not necessarily on a federal level.
You’ve got that extra complexity between the states and the federal level. As you said we need to wait and see. But in terms of cruelty free something that I know you’ve worked on in the past is the pilot project where Brands can come in.
They can manufacture locally through a specific project with Cruelty Free international and that exempts them from any possibility of post-market animal testing.
With this new regulation, what do you think will happen with post-market animal testing?
I’m not really sure if that’s true the post market animal testing. I think post-market animal testing my understanding its various different authorities can do it. As far as I know, it hasn’t happened for a long time.
Yeah, but it’s not banned. And I think there are beauty bloggers and cruelty-free organizations that take a very hard stance on post market. But as far as I know the U.S. also still has those kind of regulations in place for a human health and safety. Obviously there’s no need to do it but it’s still on the book.
I don’t think this addresses that I think we have to also realize it still allows. You can’t use this if you’ve got a special use cosmetic, something would feel skin whitening or bleach or something like that and also if it’s targeted at children or infants, it’s not an explicit ban on animal testing.
It’s more certain. It can get an exemption. I think we shouldn’t over marketed.
It’s the right direction but it’s not the end position with absolutely it’s not complete. There are plant. There are quite a few exemptions. As you said the baby and anything to do with children and infants is quite a big exemption.
SPF for example, yes those there’s a lot of exemptions but it is a good step in the right direction.
If anyone’s wanting to start the preparation, what would you advise as the next step? Just wait or is there something that they can do now?
Like I said, I think the first article I wrote was 14 years ago or 12 years ago. And that’s a long time to wait. It’s a bit like real estate in Shanghai if you wait, you might be waiting a long time.
I think what will happen is you mentioned like the leaping bunny of those pilot projects. There’s no magic to it. The leaping bunny ones there’s some oversight and people are checking things, more carefully.
I would think what we will see is actually they’ll be a bit of a media or an awareness that China is changing and counter-intuitively. I think more of those smaller Brands will be willing to go and do the domestic production because it yet tell you the truth.
The other thing I think is probably at some stage. It will be a bit like the abattoirs or some things like honey. And also of course infant formula is probably the most similar where Chinese did open up to having certain factories overseas certified so they actually did the inspections.
Here (with beauty regulations) it seems a bit softer. But what happened in the end of that infant formula. They made it easier to import on paper but in the end, all those infant formula companies ended up doing local production here in China.
I think the thing is, the trend is ok. But it will really depend on the beauty organizations and you know beauty bloggers whether you feel now, is it enough or if the post-market thing is an issue.
I personally don’t think it’s really an issue because as far as I know, they haven’t done it for a long time. Do it and that be perception is that it still free because you know for beauty blogs in particular selling in China except through cross border Ecommerce is shorthand for animal testing.
And I guess that’s become a little bit grayer and it’s a little bit more complicated.
Yes. I think that’s something that brands struggle with specially brands that have a really strong stance and that’s part of their brand DNA because as add people that are not very informed about the China Market.
They think that if you’re selling in China at all, then you are effectively testing on animals.
This gives another route. It gives us another way for brands to explain but at the same time it’s still explaining right?
We’re not the press, isn’t that China has banned animal testing it still more nuanced than that. I think that’s a tricky piece. I agree about the manufacturing in China. I think brands that have that sort of size.
Medium sized brands that can do that. We will see more brands doing that from for many reasons as well as the animal testing aspects.
I think those medium Brands too, what they’ll probably do is I think you’re part of the whole thing is that new law which came into effect on the first of January this year that law overhauled something which was your back from the Berlin wall was still there was back from 89. There’s been a big change and I think part of it is it’s a more sophisticated liability chain.
You will see that one of the other exceptions is the responsible agent the manufacturer of the brand can’t be on a watch list.
I think that’s one thing which a lot of companies perhaps haven’t
really fully realized, is we have more market access, but you’re going to be potentially much more likely to be on the hook for liability and I think responsible agents in the past were just always an afterthought and now I think anybody who’s really responsible would not want to be a responsible agent because you really do inherit a lot of liability.
But for a lot of those medium brands that you say will perhaps venture and have a outsourcing the manufacturing. They’ll probably have to set up something in China in order to act as a responsible agent and at take some responsibility for the action and you know keep an eye on things as well.
Yes. Absolutely. I think when you’re choosing a Distributor in China is tricky enough as it is to find someone that you can trust that you can feel good could look after your brand.
But now with this added sort of responsibility of the responsible agent, the watchlist there’s a whole load more things that brands need to consider with their partners that they choose.
I think that’s another thing. I mean that would be just some advice on that just as a side I would never really recommend that your distributor is you’re responsible agent because you know when that beautiful relationship ends this gives a lot of leverage and a lot of complexity and especially now that these, you know registrations will be for many many more companies.
You really would want to have your own team or somebody neutral. The problem is I think a few years ago, you would find neutral parties or consultants who would do it, but I think they’re not going to really like doing it because it puts them in a very high position.
Exactly. Very tricky and no one knows sort of how the government’s going to regulate that right?
It’s a big unknown in terms of how strict they going to be. I believe this is one of the reasons why their strict, it might be that it’s a bit of a trade barrier, but to be fair a lot of cosmetic companies have also been tricky and naughty and special because new ingredients is one of the things which is a carve-out.
If you’ve got a new ingredient in, it’s not unheard of that, cosmetic companies, supplement companies, they kind of didn’t tell the truth about what was in their product in order to align with Chinese requirements.
I think even if I was a consultant, I’m not really sure if I can trust everybody, it’s always like what’s it product? That’s why it’s a bit, is also oversights not just for no reason. I think there’s legitimate reasons to keep an eye on.
Sure of course, and actually there’s one other thing about this new regulation. I’ve had brought up to me about the amount of information that the brands are going to have to give over to the authorities in terms of formulation, in terms of also including the suppliers of their ingredients.
I don’t know whether that’s something that you’ve seen in the legislation? I think the formulations that kind of information was always required whenever you’re doing it and probably before most cosmetic brands that you’re dealing with didn’t do it because they couldn’t do registration because that would involve animal testing.
I mean that really is shorthand for animal testing is if you had NMPA registration – you animal test. I guess that’s the first thing people aren’t used to it because they didn’t do it in the past.
I think with these suppliers that’s going to be something now complicated. It seems that China is not just looking at that first level. They’re looking at the underlying safety of the ingredients.
I haven’t worked it all myself in my head, but there will be a lot of IP issues about the formulations of these products. You’ll have some time where you will be kind of like the Monopoly like a kind of a mini patent,
but these will be complicated issues because whoever first applies for the new ingredient that will effectively get a monopoly for fine on that kind of agreed.
That’s a complicated issue that hasn’t been fully resolved yet. I think it’s an issue for the new ingredients because they want to know but also for the existing legislation, or is it only on the new ingredients that they’re going to be thinking of that level of detail.
I think it’s only going to be the new ingredients because the old ingredients are already tried and tested. That’s another thing for brands to think about IP is always as we talked about last time IP is always an issue that people associate with China and obviously trademarks is a big one.
But this is an extension of looking after your IP. That’s something that I want to look at when I got some time going to talk to our patent guys because it’s not really a patent. It’s really more that you’ve given this confidential information to the NMPA and they give you some kind of right of exclusivity for a period of time.
I don’t even know how those things coincide. It’s a complex issue not for the Beauty Brands as much as the suppliers, probably the big chemical companies. This will be an issue for them.
It’s all going to be a bit of trial and error from the 1st of May as brand start to start to go down this process and I’m sure we’ll have more opportunities for updates as it happened.
That was great for just today to get a bit of an update from your point of view on that.
Thank you so much Mark. Thanks a lot Allie.
