NPCSC Revamps Drug Law, Overhauls Rural Land Expropriation Rules & Passes Resource Tax Law

The 13th NPC Standing Committee (NPCSC) concluded its twelfth session on Monday with the adoption of three legislative bills: a revised Drug Administration Law [药品管理法], an amendment to the Land Management Law [土地管理法], and a new Resource Tax Law [资源税法]. Below we take a look at each.

The Drug Administration Law revision is the first comprehensive update of the Law in 18 years. The revision reorganized the provisions of the Law and expanded it to 12 chapters with 155 articles. The most notable feature of the revised Law is its codification of the “marketing authorization holder” [上市许可持有人] system that has been piloted in ten provinces since November 2015. Under this system, the entity (e.g., a research and development institution) that holds the marketing authorization for a drug (or, in the revised Law’s language, a Drug Registration Certificate [药品注册证书]) may either manufacture or commercialize the drug itself (subject to licensing requirements and certain exceptions), or do so by contracting with a licensed drug manufacturing or operating organization (see arts. 32, 34). Under the prior statutory regime, however, only licensed drug manufacturers may apply for marketing authorizations. To commercialize its invention, a drug R&D entity would thus have to transfer the invention to such a manufacturer, or invest in its own manufacturing facility. By allowing researchers to contracting out drug manufacture, the revision aims to spur drug innovation.

But with greater autonomy comes with greater responsibilities. Under the revised Law, marketing authorization holders have primary responsibility over the “safety, efficacy, and quality controllability” of drugs throughout their lifecycles—from development and manufacture to commercialization and use (art. 6; see also Ch. III). The revision also increased penalties across the board (see Ch. XI). For instance, unlicensed manufacture of drugs is now subject to a maximum fine thirty times the value of drugs manufactured (see art. 115)—compared to five times the value pre-revision.

The revision also decriminalizes importing drugs without a license, in response to a 2015 criminal case that was later adapted into the blockbuster film Dying to Survive [我不是药神]. In that case, Lu Yong, who suffered from leukemia, purchased from India a less expensive, generic version of a brand-name leukemia drug and resold it to numerous other fellow patients at cost. But because he did not get an import license, the generics (not approved in China) were considered “fake drugs” [假药] under the pre-revision Drug Administration Law. Lu was later indicted for selling fake drugs (see Crim. L. art. 141), but the prosecution eventually dropped the charges amid public backlash. The revised Law no longer deems drugs imported without a license as fake drugs (see art. 98, para. 1), although such importation remains illegal (see id. para. 3) and may be subject to stiff administrative penalties (see art. 124). But the revised Law does provide that the penalties may be mitigated or waived for those who (like Lu) “without a license import a small amount of drugs that have been legally marketed overseas” (id. para. 3).

The revised Drug Administration Law will take effect on December 1, 2019.

The amendment to the Land Management Law is the first major update of the Law in 21 years. In prior blog posts, we have briefly mentioned the main changes made by the amendment. Here, we want to focus on one of them—overhaul of the rules on government takings of rural land—and discuss three aspects of such change.

First, the amendment requires that land expropriations serve the “public interest” [公共利益]—tracking the Constitution’s language (see P.R.C. Const. art. 10, para. 3)—and seeks to delineate the scope of permissible takings (art. 45 post-amendment; same below). Article 45 lists six categories of scenarios where rural land (which is collectively owned by rural communities) may be expropriated (subject to further restrictions under the article’s paragraph 2):

  1. for military or diplomatic purposes;
  2. for government-built infrastructure (energy, transportation, postal, etc.);
  3. for government-organized public services [公共事业] such as education, health, sports, and cultural relics protection;
  4. for government-organized “poverty-alleviation relocations” [扶贫搬迁] and affordable housing construction;
  5. for “tract development” [成片开发] (e.g., real estate development), provided that the takings occur on urban construction land [城镇建设用地] as provided in overall land use plans [土地利用总体规划] and must be approved by governments at or above the provincial level; or
  6. for other purposes permitted by statutes.

Much controversy surrounded category #5 during the NPCSC’s deliberations. Some legislators worried that much of the land taken in this category would be used for commercial purposes and not in the public interest. This category nonetheless made it to the final draft, with the added provincial-approval requirement. The amendment authorizes the Ministry of Natural Resources to set the standards for tract developments.

Second, the amendment changes the way compensation for takings is calculated. Previously, land compensation fees and relocation fees (part of the total compensation) were based on the original purpose of the land taken; if the land taken was farmland, those fees were based on its average annual yield over several years. By contrast, the amendment requires that compensation be “fair and reasonable” and land takings “not decrease the rural residents’ original living standards and safeguard their long-term livelihood” (art. 48, para. 1). To this end, the amendment requires that those fees be based on the “regional comprehensive land price” [区片综合地价] to be set by provincial governments (id. para. 3). In setting such price, the governments must consider various factors including the land’s original use, yield, local land supply and demand, population, and level of economic development (id.). The price must be adjusted every three years (id.).

Third, the amendment requires that local governments consult the rural communities affected before—rather than after, as pre-amendment—finalizing land expropriation plans. If a local government intends to expropriate land, it must first investigate the current condition of the land and assess social stability risks (art. 47, para. 2). It must then put on public notice (among other information) the scope of the proposed taking, its purpose, the compensation standard, and means of relocation for at least 30 days (id.). Where a majority of the members of the affected rural community consider the taking and compensation plan unlawful, the government must hold a hearing and revise the plan accordingly (id. para. 3). Only after these and other preliminary procedures are followed may the actual expropriation proceeds (id. para. 5).

The amendment to the Land Management Law (and a companion technical amendment to the Urban Real Estate Administration Law [城市房地产管理法], also adopted on Monday) will enter into force on January 1, 2020.

Finally, the Resource Tax Law was adopted as a part of the NPCSC’s ongoing efforts to implement the “law-based taxation” [税收法定] principle, by elevating all tax regulations to statutes. The Law largely codifies the resource tax scheme as currently implemented, levying the tax on 164 taxable resources (mostly minerals). For most resources, the Law authorizes provincial legislatures to decide on specific tax rates within the ranges it specifies; for others, it sets fixed rates applicable nationwide (see art. 2, para. 2 & Appendix). The Law also authorizes the State Council to pilot the collection of resource taxes from entities and individuals who use surface or underground water (art. 14). The pilot has already been underway in ten provinces, said the State Council, which is required to report back to the NPCSC on the pilot within five years after the Law takes effect (id.). The Resource Tax Law will enter into force over a year later, on September 1, 2020.

We expect the NPCSC to solicit public comments on following bills soon:

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