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Vol. 33 No. 3
May-June 2011

Is there a Broken Link?

With supply chains strung across the developing world, how can the chemical industry ensure that the end product is safe?

In 1996, 80 Haitian children died from ingesting cough syrup tainted with diethylene glycol (DEG), a chemical commonly found in antifreeze. An investigation conducted by the U.S. Food and Drug Administration (FDA) found that Pharval, a local company that produced the cough syrup products Afebril and Valodon, did not contaminate the product at its site. Instead, a supposedly pharmaceutical-grade-shipment of glycerin, a key component in the most widely prescribed cough syrup in the country, was contaminated at its source in China. However, the Haitian company was under the assumption that the chemical was produced in Germany by VOS BV, owned by chemical giant Helm AG. According to a 1997 article in the World Press Review, Pharval felt that it didn’t have to implement any quality controls on the imported product because of its presumed European origin.

Issues surrounding product stewardship, supply-chain management, quality control, politics, and legal responsibility are at the heart of this disaster. A complicated web of interactions led to negative implications for all the parties involved. In the aftermath of this disaster, many of the companies in the supply chain engaged in finger pointing, lawsuits, and denials of responsibility.

In this article, we address questions that arose from this disaster in the context of Responsible Care. We test the hypothesis that the magnitude of this crisis would have been reduced if some or all of the companies along the supply chain subscribed to Responsible Care principles and codes.

In 2007, The New York Times reported that the U.S. Food and Drug Administration’s investigation of the cough syrup incident indicated that the pharmaceutical manufacturing and testing facilities at Pharval laboratories did not meet international standards. This was due to a variety of factors, including the fact that Haitian regulations are not as strict as those in other countries. Furthermore, the maintenance costs for clean rooms, proper HVAC systems, and high-tech testing equipment are too high for most companies in developing countries. Even if the facilities were clean and properly maintained, Pharval would not have had access to the technologies required to test for diethylene glycol.

The investigation of the glycerin suppliers led to some disheartening conclusions related to the management of international supply chains in China, the Netherlands, and Germany, especially where developing countries are concerned. In the Haitian case, no company along the supply chain was found to be directly responsible for the problems that occurred. Some denied responsibility, others covered up mistakes, and, in the case of the contamination source, it was never determined which Chinese company was responsible. However, according to a 2007 issue of Pharma-Brief Special, a newsletter put out by the German pharmaceutical-watchdog group BUKO Pharma-Kampagne, the company is believed to be Sinochem, based in Beijing.

The investigation of VOS BV by the Special Rapporteur of the United Nations Economic and Social Council of the Commission on Human Rights found that the company knew about the contaminated glycerin after it sent the shipment to Haiti, but did not alert authorities. VOS BV sent a sample of the Chinese shipment to an independent testing laboratory and falsely marked the barrels of glycerin as 98 PCT USP, pharmaceutical grade. Kevin J. McGlue, a board member of the International Pharmaceutical Excipients Council, told The New York Times “where there is a loophole in the system, a frailty in the system, it’s the ability of an unscrupulous distributor to take industrial or technical material and pass it off as pharmaceutical grade.”

The UN investigation found that the barrels were sent with a certificate of pharmaceutical quality that was taken from the certificate that originated in China. It is common practice to re-use certificates when a product changes hands from manufacturer to supplier and onward to the destination customer. The identification of the source contamination and the FDA inspection of Pharval laboratories clearly established that the glycerin was contaminated at the source and not along the supply chain. It was a lack of product stewardship policies and a lack of due diligence across the supply chain that lead to the disaster. In both Haiti and Panama, a country that experienced DEG contamination more recently, the factories’ original certificates of analysis for the glycerin containers did not accompany them as they moved across the supply chain. Instead, a copy of the original was used and stamped with the receiving company’s information each time the container exchanged hands.

Helm AG, one of the largest chemical companies in the world, declined to comment on the case given that the contamination occurred outside of Germany. Helm AG has been associated with other issues involving the transport of materials to the third world, according to the German media. The Chinese government also denied any responsibility since the glycerin was not shipped directly to Haiti from China.

. . .there were many organizations responsible for transporting the glycerin across international boundaries.

No international supply chain management regulations exist to solve problems such as this. However, the European Union’s Registration, Evaluation, Authorisation and Restriction of Chemical Substances (REACH) legislation and Responsible Care’s supply chain management policies may have a positive effect. This issue has received major coverage over the years since the Haitian tragedy occurred. In the Haitian case, there were many organizations responsible for transporting the glycerin across international boundaries; therefore, it is very difficult to lay blame. However, after the details of the case were sorted out, some litigation was undertaken in the Netherlands, Germany, and Haiti.

Pharval settled with the Haitian families whose children died from DEG exposure for USD 10 000 per family. The company also filed a civil suit, jointly with the families, against VOS BV in the Netherlands. The litigation focused on VOS BV, since it knowingly sent DEG-contaminated glycerin to Haiti. Eventually, the suit was settled out of court with the Dutch company for the same amount as Pharval had settled with the parents. In the aftermath, the affected families were compensated, yet no company accepted full responsibility for the tragedy. VOS BV was also prosecuted by the Dutch government, found guilty of a cover-up, and fined USD 250 000. Although both companies were partly to blame, Pharval and VOS BV (now Helm Chemicals BV) remain in business today.

Other attempted litigation has generally failed to produce a favorable outcome for the plaintiffs. The Chinese government and corporations denied responsibility and would not work with the U.S. FDA to find the source of the contamination, The New York Times reported. David Mishael, a U.S. lawyer representing Haitian parents has unsuccessfully pursued legal claims against Helm AG and VOS BV.

The issues surrounding global supply chains that originate and terminate in the developing world have continued to plague the chemical industry.

In terms of the economic and social effects of the disaster and the ensuing litigation, very little change occurred and a minimal amount of punishment was received by all the parties involved. The costs associated with non-compliance were USD 250 000 with very little transparency or accountability demanded in the aftermath. Policies on supply-chain management remain largely unchanged worldwide, with the exception of the European Union’s REACH legislation. Over the past decade, evidence of a policy and regulatory gap has become clear as DEG contamination has been repeated in developing countries throughout the world. In many cases, the source of this contamination continues to be from poorly regulated Chinese suppliers.

In 2006, Panama experienced a tragedy similar to of the one in Haiti, with DEG contamination in a government-manufactured cough syrup resulting in hundreds of deaths. Over the years, other countries such as Bangladesh, Argentina, Nigeria, China, and India have also been affected by DEG poisoning cases. The case in Panama clearly illustrates that the proper steps have not been taken to minimize a preventable disaster. After the Haitian experience, an inexpensive DEG testing kit was developed to assist regulators in identifying contaminated shipments; however, according to an article in the journal Public Health Reports this is not in widespread use.

In 2007, the International Herald Tribune reported that DEG poisoning had become a global problem with a preventable death toll in the thousands. China has recently taken action against drug counterfeiters, but when the role of pharmaceutical companies in the Panama tragedy was examined, it was found that no laws had been broken. According to the Tribune, many developing countries, including China and India would need tougher regulations in order to meet safe standards.

After the Haitian incident, world health experts recommended improving the certificate of authenticity system to provide a clear path of the material flow through the supply chain from source to destination. These experts also stressed that transparency and accountability should be enforced through regulations and investigations within and between international borders. However, the Tribune article pointed out that as long as counterfeiters do not fear prosecution, there is no incentive to improve the quality of their products.

The issues surrounding global supply chains that originate and terminate in the developing world have continued to plague the chemical industry. In North America, issues with lead-poisoned toys, DEG-tainted toothpaste, and other dangerous products mimic the problems encountered in developing countries; however, in most situations, tainted products are identified before they reach the end customer. According to the 2007 Pharma-Brief article, tough North American regulations and industry standards, which are not usually present in developing countries, may be responsible for the successful identification of dangerous products.

In our recent paper, we examined events in which DEG poisoning and drug counterfeiting have continued to be an issue in developing countries since the 1996 Haitian tragedy. A mix of national and international regulations, along with corporate voluntary initiatives are assessed as a way to determine whether the public can be better protected from these poisonings. The central question of this case study asks: Would Responsible Care, appropriately applied throughout the supply chain, have averted the crisis experienced in Haiti and other developing countries?

The paper examined the key topics of global supply chains, stakeholder trust, due diligence, and corporate culture in the context of three main theories:

  1. The companies involved did not internalize the concepts of product stewardship and the cradle to cradle philosophy that Responsible Care advocates.
  2. The loss of business and reputation through erosion of trust was not a major consideration in the decision-making processes of the companies involved.
  3. The major players involved in the case study did not embed the philosophies of the Responsible Care ethic or create a corporate culture of protection of all stakeholders.

The paper concludes that Responsible Care, as implemented by the Chemistry Industry Association of Canada, would have mitigated or averted the crisis. Responsible Care needs to better promote preventative, rather than reactive approaches to risk assessment and risk management. Responsible Care’s product stewardship principles can do more to encourage the substitution of the most dangerous chemicals. This approach would better demonstrate the industry’s commitment to its principles and avoid claims that the industry has incongruent political and environmental goals. A related opportunity for the improvement of Responsible Care is the full integration of the principles of sustainable development into its mandate. A move to a more transparent and accountable process would most likely include an emphasis on sustainability and the principles of industrial ecology.

Overall, Responsible Care’s commitment to continuous advancement will help capitalize on the opportunities for improvement identified and continue to ensure safe and equitable global supply chains in the future.

The text of this article was excerpted from a paper that, at the time of publication of this magazine, had been submitted to the journal Environment, Development and Sustainability. Reprinted from July/August 2010 Canadian Chemical News, p. 21.

Corresponding author Gail Krantzberg <[email protected]> is director of the ArcelorMittal Dofasco Centre for Engineering and Public Policy of McMaster University in Hamilton, Ontario, Canada.

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