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Rock‐​a‐​Bye Trade Restrictions on Baby Formula


Muda69

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https://www.cato.org/blog/rock-bye-trade-restrictions-baby-formula

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Over the last few months, a U.S. baby formula producer issued recalls both voluntarily and required by the Food and Drug Administration (FDA). These recalls are rocking the U.S. baby formula market leaving parents facing higher prices and bare shelves. Stores like Walgreens, CVS Health, and Target are limiting the number of formula products per purchase because of low inventory—just last month, national out‐of‐stock levels reached 40 percent!

One reason retailers are struggling to recover stock levels is the multifarious trade restrictions that limit infant formula imports. The United States subjects infant formula to tariffs up to 17.5 percent and tariff‐rate quotas (TRQs); for TRQs some level imported are subject to a tariff with the excess subject to a tariff and additional duties. A few trading partners receive “special” duty rates where some infant formula imports are duty‐free or receive lower tariffs and TRQs. Mexico is one of the few U.S. trading partners that has some duty‐free access for infant formula, and uncoincidentally, is the top trading partner for U.S. formula imports. Though, in comparison to total imports from Mexico (worth almost $400 billion), formula imports are extremely low.

Figure 1 illustrates how little baby formula the United States imports compared to its estimated domestic consumption. While it may not seem bad (and is even encouraged by many nowadays) that the U.S. does not import much baby formula, it is important to understand why the United States is not importing baby formula—amidst the current scarcity, the inability to import is detrimental as parents are left with few to no options.

 

 

Absurdly, provisions were added to the United States‐Mexico‐Canada Agreement (USMCA) to restrict imports of formula from Canada, supposedly because China was investing in a baby food plant in Ontario, and this new production might eventually enter the U.S. market (heaven forbid!). Thus, the provisions in the USMCA’s agriculture annex establish confusing and costly TRQs on Canadian exports of infant formula, and the United States imported no baby formula from Canada in 2021.

Making matters even worse, infant formula is subject to onerous U.S. regulatory (“non‐tariff”) barriers. For example, the FDA requires specific ingredients, labeling requirements, and mandates retailers wait at least 90 days before marketing a new infant formula. Therefore, if U.S. retailers wanted to source more formula from established trading partners like Mexico or Canada, the needs of parents cannot be quickly met because of these wait times. Businesses also have little incentive to go through the onerous regulatory process to sell to American retailers, given the aforementioned tariffs and the relatively short duration of the current crisis.

The European Union (EU) is especially noteworthy in this regard. Many parents demand formula from the EU not only because of the current scarcity but because European formula meets other preferences, including a perceived higher quality, and more varieties like goat’s‑milk-based formula. Technically, it is illegal to import baby formula from the EU for commercial purposes, but parents can (and do) import it for personal use. Recently, the FDA recalled some European infant formula because it did not comply with FDA labeling requirements. It is agreed by many medical experts that the differences between American and European formula are minor and are not worth the expense imposed by these regulations.

U.S. “marketing orders” for milk throw in another regulatory wrench. These laws cover multiple classes of milk and establish a system for dairy farmers with price and income supports, and trade barriers. The milkiness (ha) of the system makes it difficult to clearly conclude that these orders impact infant formula but given dry milk is a vital component, it can be inferred that these orders that we know raise the price of milk, distort economic activity in the dairy sector that could stymie U.S. producers’ ability to produce more formula to help make up for lost supply. And of course, the import barriers contained within the orders dampen U.S. producers’ demand for foreign classes of milk, including dry milk, thereby reducing options, which are needed most during domestic emergencies.

Congress may not be able to do much for the current crisis, but it should act now and consider how to liberalize trade in baby formula by working towards reducing the opacity of TRQs and marketing orders. Better yet, completely repealing both TRQs on baby formula and milk marketing orders could help prevent another formula crisis, and any regulations set by the FDA affecting formula imports should be out of necessity based on science. 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 isn’t hard enough!

Agreed. Onerous government regulations created this shortage.  

 

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Biden's Baby Formula Airlift Stunt Should Never Have Been Necessary

https://reason.com/2022/05/19/bidens-baby-formula-airlift-stunt-should-never-have-been-necessary/

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America's current shortage of baby formula is a crisis created, in significant part, by the failures of government policy aimed at protecting domestic companies from foreign competition.

But rather than sweep aside the rules and regulations that have contributed to this mess, the Biden administration and Congress are gearing up to address a problem created by industrial policy with…more industrial policy. We're now weeks into the crisis, but the best response that our political leaders have been able to muster is an attempt to use public resources to duplicate the market response that would have solved (or at least eased) the mess if it had merely been allowed to operate. The entire saga is a sad and infuriating commentary about the entirely predictable failures of central planning.

Take the White House's latest idea for addressing the shortage as a perfect example. On Wednesday, President Joe Biden announced plans to send military aircraft to Europe—"Operation Fly Formula," as the White House is calling it—to bring back formula for American parents.

"I've directed the Department of Defense and the Department of Health and Human Services to send aircraft, planes, overseas to pick up infant formula that meets U.S. health and safety standards so we can get it on a store shelves faster," Biden said Wednesday.

This is ridiculous on its face. For starters, there's already a massive private industry dedicated to moving products from one part of the world to another. The baby formula shortage isn't the result of there not being enough planes to transport baby formula from Europe to the U.S.; it's the result of the federal government making it nearly impossible to transport baby formula from Europe to the U.S.

As Reason's Elizabeth Nolan Brown explained earlier this week, the Food and Drug Administration's (FDA) rules that prohibit many baby formulas made in Europe from being imported to the U.S. have nothing to do with health or nutritional safety issues. Often, those brands are banned because they fail to meet the FDA's labeling requirements.

In addition, the U.S. imposes huge tariffs—technically tariff-rate quotas, which are designed to make it completely unprofitable to import more than a small amount of a certain product—on imported formula. Those tariffs exist for no reason other than to protect domestic formula manufacturers and the American dairy industry that supplies them. As a result, about 98 percent of the formula sold in the United States is produced here as well.

Along with the FDA's labeling requirements, the tariffs make it pointless for foreign suppliers to try to get their products into American stores. Why spend all the time and money to get FDA approval for your labels if your FDA-approved product is going to be tariffed at such a high rate that it can't compete?

As Bryan Riley, director of the Free Trade Initiative at the National Taxpayers Union Foundation, points out, the European Union is the world's largest exporter of baby formula. Infants literally everywhere on the globe (except in the U.S.) consume formula made in Europe.

"The EU exports enough infant formula to potentially supply the entire U.S. market," Riley writes. "Had American families been free to import tariff-free formula from the start, the temporary shuttering of one U.S. factory would have been much less costly."

If those tariffs and regulations weren't on the books, private sector importers could have been stockpiling European-made formulas—the same formulas that Biden is now ordering the Pentagon and the Department of Health and Human Services to start airlifting into the U.S.—months ago. As the White House admits, those brands meet American health and safety standards. So why weren't American parents allowed to buy them weeks, months, or years ago?

Maybe European-made baby formula suddenly became less hazardous, or maybe putting it on a military cargo jet somehow magically ensures that it is safe for American babies to consume.

Or maybe the FDA's regulations (and the tariffs on formula) are a bunch of protectionist nonsense that should never have existed in the first place and should be permanently scrapped as soon as possible.

Sen. Mike Lee (R–Utah) has introduced a bill that moves things in the right direction. His proposal, the Fixing Our Regulatory Mayhem Upsetting Little Americans (FORMULA) Act, would temporarily waive the tariffs on baby formula, temporarily remove the FDA regulations for labeling, and expand the number of products covered by the Women, Infants, and Children (WIC) program, which subsidizes the purchase of baby formula but currently does so only for specific brands. (For more on how the regulations in the WIC program are adding to this government-created formula mess, read this excellent analysis from the Cato Institute's Scott Lincicome)

"American babies are going hungry and the federal government is standing in the way," Lee said in a statement.

Temporarily easing those rules is good. Permanently scrapping them would be better.

Rather than moving to ease those regulations, however, the House of Representatives approved a bill on Wednesday that throws $28 million at the FDA to "boost the part of the workforce focused on formula, as well as FDA inspection staff," according to CBS News. As if the FDA deserves to be rewarded for its incompetence and over-regulation of baby formula. This crisis demands less from the FDA, not more.

Airlifts of baby formula from Europe and the oh-so-typical Washington response of throwing more money at regulators might make it look like Biden and Congress are doing something to respond to the formula crisis. The best response, however, would be to learn that protectionism is a recipe for failure and that markets work—if you let them.

While specific policies are of course important to debate, it's also worth zooming out a bit to consider how this entire crisis and the governmental response to it illustrates one of the biggest problems with industrial policy of any kind.

The Abbott plant in Michigan—the source of the domestic supply crunch—has been shut down since February. Supplies of baby formula started running low on store shelves by late April and it became a national problem by the first week of May. If government officials possess the perfect knowledge necessary to run the economy, why didn't they act three months ago? Why didn't they act three weeks ago? Even if the Biden administration's response to this crisis was an effective one, it took far too long for anything to happen.

Markets—ones that are actually free, not those calcified by decades of debilitating protectionism—can read and react to changing conditions with far greater speed. It's impossible to prove what would have happened in a world where imported baby formula can flow freely into the United States, but it's a good bet that the Abbott plant's temporary shutdown would have been much less disruptive if importers could have immediately responded to the impending shortage by placing orders for greater supplies of European-made baby formula during March and April.

If you let markets work, there would be no need for a performative baby formula airlift orchestrated by the White House. Doubling down on industrial policy, on the other hand, only ensures that there will be more avoidable crises and more calls for politicians to performatively fix the messes they've helped make.

 

Agreed. Another failure of government regulation and "planning".  The free and open market will always, always perform better.

 

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https://www.cnn.com/2022/05/22/politics/baby-formula-us-military-aircraft/index.html

Baby formula arrives in Indianapolis from Germany on US military aircraft to address critical need

 

Well, this is embarrassing...

 

I keep hearing "Switzerland" all the time.
Switzerland is where the W.H.O., the W.H.A., the U.N., and a member of the C.C.P. are meeting this week to discuss and Vote on Joe's Amendments of turning our Sovereignty over to the Authority of the W.H.O. in the event of another PLandemic.

283705070_10221536013134371_2190143044366156536_n.jpg?_nc_cat=102&ccb=1-7&_nc_sid=dbeb18&_nc_ohc=MuD7RNuOkVEAX-rrPBT&_nc_ht=scontent-ort2-2.xx&oh=00_AT9pamow4TGjCATViPb2_xCRRQfCe4E2c8CbWF7k4l0N-g&oe=62911115

 

 

 

 

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3 hours ago, swordfish said:

https://www.cnn.com/2022/05/22/politics/baby-formula-us-military-aircraft/index.html

Baby formula arrives in Indianapolis from Germany on US military aircraft to address critical need

 

Well, this is embarrassing...

 

I keep hearing "Switzerland" all the time.
Switzerland is where the W.H.O., the W.H.A., the U.N., and a member of the C.C.P. are meeting this week to discuss and Vote on Joe's Amendments of turning our Sovereignty over to the Authority of the W.H.O. in the event of another PLandemic.

283705070_10221536013134371_2190143044366156536_n.jpg?_nc_cat=102&ccb=1-7&_nc_sid=dbeb18&_nc_ohc=MuD7RNuOkVEAX-rrPBT&_nc_ht=scontent-ort2-2.xx&oh=00_AT9pamow4TGjCATViPb2_xCRRQfCe4E2c8CbWF7k4l0N-g&oe=62911115

 

 

 

 

Also from the article:

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But the official said none of the first shipment would land on store shelves in the US, adding that Sunday's shipment is hypoallergenic and will be fed to babies intolerant of protein in cow milk.

Also embarrassing that taxpayer money had to be spent on this obvious publicity stunt, designed to boost Mr. Biden's moribund approval rating.  If the federal government really wanted to fix this problem they would permanently repeal the ridiculous tariffs and FDA labeling requirements on this product, and let the free and open market take the lead.

 

 

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  • 1 month later...

FDA Finally Admits It Caused the Baby Formula Shortage

https://reason.com/2022/07/07/fda-finally-admits-it-caused-the-baby-formula-shortage/

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The Food and Drug Administration (FDA) has finally determined what's to blame for America's recent shortage of baby formula.

The FDA.

More specifically, it's the FDA's unnecessary and protectionist rules that effectively ban foreign-made baby formula from being imported into the United States. On Wednesday, the agency announced plans to tweak those rules so foreign formula manufacturers can permanently import their goods into the U.S., giving American consumers greater choice in the marketplace and ensuring more robust supply chains.

"The need to diversify and strengthen the U.S. infant formula supply is more important than ever," FDA Commissioner Robert Califf said in a statement. "Ensuring that the youngest and most vulnerable individuals have access to safe and nutritious formula products is a top priority for the FDA."

That might be true now, but it clearly hasn't been the case in the past. As Reason has detailed throughout the recent crisis, the FDA's priorities have been protecting the domestic formula industry (and the dairy industry, which provides key inputs for baby formula) from foreign competition. As a result, it's nearly impossible to find foreign-made baby formula in the U.S., even though formula manufacturers based in England, the Netherlands, and Germany are some of the biggest suppliers of baby formula to the rest of the world.

When the Abbott Nutrition plant in Michigan was forced to close temporarily due to an FDA investigation into possible contamination, it created a supply shock that left store shelves empty and parents scrambling to find formula. Because of the FDA's protectionist rules (and high tariffs levied on foreign-made formula), markets could not adapt quickly to the shortage here in America—instead, we got political stunts like the White House's "Operation Fly Formula" that accomplished little.

In testimony to Congress, FDA officials admitted to botching the response to the contamination at the Abbott plant. But the real culprit of the recent shortage was a deeper and more pervasive one. No matter what nationalists like Sen. Josh Hawley (R–Mo.) might suggest, closing off the country to international trade is not a recipe for resilience. The baby formula crisis demonstrated that it is quite the opposite.

So it's good to see the FDA admit those mistakes and crack open the door to allowing foreign formula into the U.S. on a permanent basis.

Unfortunately, the list of policy changes the FDA announced on Wednesday mostly amounts to providing technical assistance to foreign firms that want to sell formula here. That is, offering help in navigating the complex approval process, rather than sweeping aside those regulations entirely. If a formula maker has passed muster under E.U. regulations, that should be good enough for the FDA.

There's also the matter of tariffs on imported formula, which are so high that they effectively make any imported formula uncompetitive in the American market. Why would a foreign manufacturer like Holle or HiPP go through the complicated FDA approval process (even after the announced changes) if it knows in advance that its goods won't be able to compete on a level playing field in America?

Give the FDA credit for identifying itself as one of the major causes of the baby formula shortage. But more changes are needed—including permanent changes to U.S. trade policy—to ensure a disaster like this can't happen again.

 

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