New regulations: A surgical strike on Pakistani exporters

New regulations: A surgical strike on Pakistani exporters

Industrialists in Sialkot have been reeling from a regulation set upon them from the world over. Pakistan’s surgical instrument industry, which brings in $400 million annually in exports, is in serious jeopardy. This is in light of the European Union (EU) implementing a Medical Device Regulation (MDR) on the trade of surgical instruments.

While the EU introduced this law in 2017, its enforcement deadline has only just passed, and exporters are feeling the costs.

The MDR now demands that manufacturers meet the new quality controls, conduct audits for product safety, and carry out rigorous lab testing for all surgical instruments before they can be sold in the European Union. Moreover, manufacturers will also have to sign mandatory contracts with European notified bodies for external audits.

To comply, Pakistani exporters must hire a European representative at an annual fee upwards of PKR 1.5 million. Additionally, they must sign an agreement with a notified body, which costs at least PKR 3.1 million for small exporters.

This only grants companies a three-year window to fully implement a production process that is MDR-compliant. The cost of complying with the stipulations set out by the MDR and acquiring the necessary paperwork is a staggering PKR 30 million.

Abdul Moize, Marketing Director of Weldon Industries, captured the hardships, stating, “The burden these new regulations have created is unbearable. With interest rates at around 18%, securing loans for MDR compliance is almost impossible. The new laws favour only the big players, pushing smaller manufacturers out of the European market.”

What’s worse for smaller manufacturers is that Pakistan has one EU MDR-certified notified body, SGS, that can perform the required tests to check for compliance. The lack of local testing facilities causes manufacturers to send their instruments overseas for testing, which increases costs.

While larger exporters have the financial capital to absorb these expenses, the same can not be said for smaller ones.

Could the current situation lead to the extinction of smaller manufacturers, giving way to the monopolisation of the surgical instruments sector?

For these businesses, whose primary clients are located in Europe, the stakes are incredibly high. Failure to meet MDR requirements means losing access to the EU market – a loss of around $110 million.

If exports fall by such a magnitude, it would cause factory closures and a consequential increase in the local unemployment rate. This might decrease local consumer demand, which means that the economic aftershocks will be felt in other sectors, too. Also, fewer exports will negatively impact the current account, which has stayed, historically, in the red.

Given the seriousness of the situation, the surgical instruments business community has started urging the government to provide some sort of economic relief. The government could offer subsidies, and if not, it could offer financial relief by providing low-interest loans specifically for MDR implementation, which would help manufacturers get the funding they need to take steps towards complying with the new regulations.

This will serve the interests of the business community responsible for the export of surgical instruments and political interests in Islamabad, where lawmakers want to portray a positive image of the economy to their constituents.