Infant Formula Imports: Are Non-Tariff Barriers More Limiting Than Tariffs?

Non-tariff barriers may have weighed more heavily on the decision by foreign producers of infant formula not to enter the US market than tariffs, according to a recent report from the Congressional Research Service (CRS).

During the current infant formula shortage, some analyses argue that high tariffs on formula have impeded the development of foreign sources of infant formula for the US market and exacerbated the US shortage, the report noted. As a result, tariffs are a focus of congressional attention, and legislation addressing tariffs has been introduced in Congress.

While both infant and children’s formula are considered food products, infant formula is subject to additional oversight, the report explained. The current shortage applies primarily to infant formula, particularly for use in infants with specific health needs.

Because HTSUS (Harmonized Tariff Schedule of the US) 1901.10 includes both infant formula and children’s formula, some recent discussions on the impact of tariffs have relied on trade data that included both types of formula.

The US imports little infant formula relative to its domestic production and consumption, the report noted. Between 2012 and 2021, the US produced an estimated average 524 million kilograms ($2.3 billion) of infant formula annually. An industry analysis calculated average demand over that time at approximately $2 billion annually, leaving the US with an average surplus of $300 million annually.

During that time, the US exported an average of 33.5 million kilograms ($277.1 million) annually and imported an average 3.2 million kilograms ($13.4 million), the report continued.

Imports of infant formula increased over the past decade from approximately 1.3 million kilograms ($3.8 million) in 2012 to 4.3 million kilograms ($28.8 million) in 2021. In 2021, the $28.8 million in imports satisfied approximately 1.5 percent of the estimated domestic demand of $1.8 billion.

Last year, the largest source of infant formula imports was Ireland (2.3 million kilograms, $17.2 million), followed by Chile (1.2 million kilograms, $3.3 million) and the Netherlands (0.5 million kilograms, $7.1 million). Those three countries represented 93 percent of all imports by quantity.

In 2021, the US imported no infant formula from Canada. Although Mexico is a large source of US imports of children’s formula (98 percent of imports by quantity in 2021), it is a minor source of infant formula (0.4 percent), the report said. Whereas imports of children’s formula were relatively rare prior to 2020, they are more common in the two years since.

The most-favored-nation (MFN) tariff rate for infant formula ranges from 14.9 percent to 17.5 percent depending on the content. Once a certain threshold of imports is reached, the duties on most common infant formulas increase to $1.035 per kilogram plus 14.9 percent. Also, once another threshold is reached, certain low-priced formulas may be subject to additional tariffs.

Certain infant formulas enter duty-free from some free trade agreement (FTA) partners. Between 2012 and 2021, the US imported approximately $149 million infant formula, $29 million (19.4 percent) of which entered duty-free.

The average effective calculated duty rate on the remaining imports was 25.1 percent.

“It is difficult to assess the impact US tariffs have had on the current shortage,” the report stated. The US infant formula market is “highly saturated,” with domestic producers exceeding domestic demand by a considerable margin.

That, coupled with FDA’s nutritional requirements and USDA’s Special Supplemental Nutrition Program for Women, Infants, and Children’s (WIC) sole-sourcing contracting, may make the US a relatively unattractive market for foreign manufacturers, particularly of low-cost infant formula, the report said.

As such, Congress might consider encouraging mutual recognition agreements on regulatory testing and certification, or other policy instruments to reduce these trade barriers, in addition to potentially lowering tariff rates.

Of the three major sources of US of infant formula, one (Chile) has duty-free access to the US market. Despite that duty-free access, imports from Ireland, which does not have duty-free access to the US market, have grown at a faster pace.

Nevertheless, the additional cost tariffs add to imports of infant formula may play a role.

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