No more trade restrictions on infant formula
[This article has been published in Restoring America to consider how the U.S.’s trade policies might be exacerbating the supply chain crisis].
In recent months, a US infant formula producer has issued both voluntary and Food and Drug Administration (FDA) required recalls. These recalls are rocking the US infant formula market, leaving parents facing higher prices and empty shelves. Stores like Walgreens, CVS Health and Target are limiting the number of formula products per purchase due to low inventory – last month alone, national out-of-stock levels reached 40%!
Multiple trade restrictions that limit infant formula imports are one of the reasons retailers are struggling to recover stock levels. The United States subjects infant formula to tariffs of up to 17.5% and tariff rate quotas (TRQs); for TRQs, certain levels of imports are subject to customs duty, with the excess subject to customs duty and additional duties. A few trading partners benefit from “special” duty rates where certain imports of infant formula are duty free or benefit from lower tariffs and TRQs. Mexico is one of the few trading partners of the United States with duty-free access for infant formula and, coincidentally, is the largest trading partner for US imports of infant formula. However, relative to Mexico’s total imports (worth nearly $400 billion), infant formula imports are extremely small.
This chart illustrates how little infant formula is imported into the United States relative to its estimated domestic consumption. While it may not seem bad (and is even encouraged by many these days) that the US doesn’t import a lot of formula milk, it’s important to understand why the US doesn’t import milk. mothered – amid current scarcity, the inability to import is detrimental as parents have few or no options.
Absurdly, provisions were added to the United States-Mexico-Canada Agreement (USMCA) to restrict imports of infant formula from Canada, supposedly because China was investing in a food factory. for babies in Ontario, and that this new production could eventually enter the American market (paradise). to prohibit!). Thus, the provisions of the USMCA’s Agriculture Annex establish confusing and costly tariff rate quotas on Canadian exports of infant formula, and the United States has not imported any infant formula from Canada in 2021.
Worse still, infant formula is subject to heavy regulatory (“non-tariff”) barriers in the United States. For example, the FDA mandates specific ingredients, labeling requirements, and requires retailers to wait at least 90 days before marketing a new infant formula. Therefore, if US retailers wanted to source more infant formula from established trading partners like Mexico or Canada, parents’ needs could not be met quickly because of these wait times. Companies also have little incentive to go through the onerous regulatory process to sell to US retailers, given the aforementioned tariffs and the relatively short duration of the current crisis.
The European Union (EU) is particularly notable in this regard. Many parents are asking for formula from the EU not only because of the current scarcity, but also because European formula meets other preferences, including perceived higher quality and more varieties like formula based on of goat’s milk. Technically, it is illegal to import formula milk from the EU for commercial purposes, but parents can (and do) import it for personal use. Recently, the FDA recalled certain European infant formulas because they did not meet FDA labeling requirements. It is agreed by many medical experts that the differences between the American and European formulas are minor and not worth the expense imposed by these regulations.
U.S. “marketing orders” for milk throw another regulatory wrench. These laws cover several categories of milk and establish a system for dairy producers with price and income supports and trade barriers. The milt (ha) of the system makes it difficult to conclude clearly that these orders impact infant formula but given that powdered milk is a vital component, it can be deduced that these orders which we know increase the price of milk, distort economic activity in the dairy sector that could hamper the ability of U.S. producers to produce more infant formula to help offset the loss of supply. And of course, the import barriers contained in the orders are dampening demand from American producers for foreign classes of milk, including powdered milk, thus reducing the options, which are most needed during national emergencies.
Congress may not be able to do much about the current crisis, but it should act now and think about how to liberalize trade in infant formula by working to reduce the opacity of tariff quotas and prescriptions. of marketing. Even better, the complete repeal of infant formula tariff rate quotas and milk marketing orders could help prevent another infant formula crisis, and any regulations the FDA establishes regarding infant formula imports should necessarily be science-based. The unintended consequences that result from policies implemented in a vacuum illustrate once again that protectionism promotes the opposite of resilience.
As if being a new parent wasn’t hard enough!
This article originally appeared in the Cato to freedom blog and is reproduced with the kind permission of the Cato Institute.