The Government is preparing to scrap rules that prevent pharmacists not trained in Ireland from opening new chemist shops. But the barrier will not be removed until legislation to reform the sector is passed by the Oireachtas.

The proposal emerges more than two years after the Government received the report of the Pharmacy Review Group, which called for wide-ranging reform of regulations governing the sector.

While almost all the group's proposals are likely to be included in a new pharmacy bill, its suggestion that single pharmacy groups should be prevented from holding more than 8 per cent of contracts to sell medicine to public health patients has been rejected.

This follows legal advice to the Tánaiste and Minister for Health, Mary Harney, from Attorney General, Rory Brady SC.

Mr Brady is believed to have advised that the Minister was not empowered to regulate for market share. According to informed sources, a further concern was that some commercial groups have already gained control of more than 8 per cent of public contracts and might be obliged to surrender some of those if the restriction was introduced.

Such provisions would be very difficult to defend in the courts, the sources said.

The proposals include plans for a scheme under which the Health Service Executive would give incentives to pharmacists to set up outlets in areas in which there are too few or no chemists.

The plan to allow foreign-trained pharmacists to open shops in Ireland will remove what is one of the last remaining restrictions to trade in the pharmacy business.

It is contained in a memo scheduled for discussion by the Cabinet next Tuesday.

The removal of the barrier will reverse a derogation from a European Union directive which had the effect of preventing foreign-trained pharmacists from owning, managing or supervising a chemist that is less than three years old.

The development comes three years after the Government liberalised the sector by removing limits on the number of State contracts to distribute drugs that can be operated in particular areas.

With major foreign-owned chains such as Celesio and Boots making big inroads in the Irish market, the removal of the restriction on foreign-trained pharmacists will make it easier for such groups to compete.

The restriction also applies to Irish pharmacists who trained abroad.

But while the OECD called some time ago for the removal of this restriction, the proposals for discussion by Ministers next week are unlikely to become law for another year.

This is because the Government wants to bring in the change in tandem with a new code of ethics and fitness to practise regime governed by the Pharmaceutical Society of Ireland.

The plan includes provisions which will impose new costs on pharmacies by requiring them to be registered with the Pharmaceutical Society.

Only pharmacists are registered in the current system. The money raised will be used to fund an inspectorate managed by the society, which will have powers to penalise pharmacies who break its rules.