Natural Products Insider

NOV-DEC 2018

INSIDER is the leading information source for marketers, manufacturers and formulators of dietary supplements, healthy foods and cosmeceuticals. Since 1997, INSIDER has been serving the needs of the global nutrition industry.

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4 INSIDER November/December 2018 In the News President Donald Trump pulled the trigger on an additional 10 percent tariff for US$200 billion of goods imported from China, including many dietary ingredients. Trump announced the news in a statement issued by the White House on Sept. 17, more than a week after the comment period closed Sept. 6. The catch? The tariff increase will be 10 percent starting Sept. 24, but will rise to 25 percent Jan. 1, 2019. Trump recently said he was considering raising the proposed tariff from 10 to 25 percent, mirroring the level of earlier tariffs he imposed on $34 billion worth of Chinese goods, mostly steel and machinery, on July 6, and $16 billion worth of goods on Aug. 23. "Further, if China takes retaliatory action against our farmers or other industries, we will immediately pursue phase three, which is tariffs on approximately $267 billion of additional imports," the president said, in the statement, alluding to his promise to go the "full 500"—total annual imports from China are around $500 billion. These waves of tariffs stem from an investigation conducted by U.S. Trade Representative (USTR) Robert Lighthizer into Chinese trade and business practices. "For months, we have urged China to change these unfair practices, and give fair and reciprocal treatment to American companies," Trump said, in the statement. "We have been very clear about the type of changes that need to be made, and we have given China every opportunity to treat us more fairly. But, so far, China has been unwilling to change its practices." The latest round of tariffs imposes a 10 percent ad valorem rate—the additional duty is on top of existing tariff rates—and includes a range of dietary ingredients sourced from China, from amino acids to minerals, proteins and sweeteners. Ingredientsonline.com, which connects U.S. and other manufacturers and vendors to ingredient suppliers from around the world, including China, compiled a list of more than 180 affected ingredients in the company's supply chain, including choline, creatine, xylitol, animal and plant proteins, ribose, phytosterols, hemp seeds and various forms of minerals and amino acids. "The cost of sourcing raw material is going to go up in all these cases," said Steve Mister, president and CEO of the Council for Responsible Nutrition (CRN). "Sometimes, it's the fi nished ingredient; in other cases, it's the excipients or fi llers and similar compounds. Each one incrementally increases the cost of goods, the cost to make the products. "We've co-signed letters with the U.S. Chamber [of Commerce] and work with them," Mister said, "as we know these issues cause a great deal of consternation not only to supplement companies, but all U.S. manufacturing industries." CRN submitted comments to USTR on the proposed tariffs, as did the Natural Products Association (NPA), whose president and CEO Dan Fabricant, Ph.D., testifi ed on the fi rst day of USTR's public hearings held Aug. 20 to 27 in the U.S. International Trade Commission (ITC) building in Washington. "Today, America is the undisputed global leader in natural products and dietary supplements. We are the champs," he said. "But that leadership position could be lost forever if these tariffs are put into place." Fabricant argued the tariffs could have the opposite effect of what Trump intends, by reducing domestic manufacturing and sending jobs and operations overseas. He added, "A number of our members are now contemplating moving their U.S. manufacturing to China to circumvent the tariffs." Fabricant warned the tariffs would be unsustainable for many small and medium natural products businesses, which could be forced to close. Further, he suggested global competitors from Europe, Asia and South America would come out the winners, as they would be better able to maintain supply to meet growing demand. One big issue for the supplement industry is that some of the ingredients included in the tariff increase are almost entirely sourced from China. "A good example of this is amino acids, which are a fundamental ingredient in many of our products," Fabricant said, in the hearing. "You pretty much have a sole source of supply [from China]. Even if there was an amino acid manufacturer in the United States, could they meet the demand of everyone in the industry? I don't see how. That would take a long time to scale up." The U.S. Harmonized Tariff Schedule (HTS) lists amino acids in several categories, including aromatic (mostly tryptophan, tyrosine and phenylalanine) and non-aromatic amino acids—further broken into subcategories based on oxygen function. Various subcategories for amino acids have at least three different tariffs for: 5.8 percent, 4.2 percent and 3.7 percent. ITC import data indicated a total $182.8 million of all the aromatic and non-aromatic amino acids (HTSUS 2922.49.XX) was imported from China in 2017. Based on these numbers, an additional $18.3 million in annual tariffs would be collected for amino acids from China. Another concern for the natural products industry is retaliatory tariffs levied by China on imports from China, including dietary ingredients. China responded to Trump's earlier tariff increases by imposing tariffs on various U.S. agricultural products, including soybeans. While acknowledging the increased demand for "Made in the USA" products across Asia, Mister said CRN is concerned about potential tariffs on fi nished goods going back to China. He advised the net effect could be increased costs of materials coming into the United States and decreased amount of product being sold back to China. NPA seemed less concerned, especially relative to dietary supplements. Fabricant explained Chinese consumers have been willing to pay a premium for U.S. goods in the past, such as whey protein and other products. "All signs point to there not being a slowdown of premium [health and nutrition] goods from the United States into China," he assured. For more information on the latest tariffs issued by the Trump administration, including the list of goods affected, visit USTR.gov. Tariffed! Increased Supplement Duties Increases Go Live by Steve Myers

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