In our August 11 blog post, we alerted our readers to new fees that FDA will begin extracting from food importers and foreign food manufacturers at $224 per hour ($335/hour for foreign travel). FDA will charge the new fees whenever FDA “re-examines” imported food it previously examined and found to be violative for some food-safety related reason. We explained how these fees will significantly increase the cost of importing food, which in turn will result in higher food costs for consumers. Under the FSMA, however, FDA was directed to consider the impact re-inspection fees will have on small businesses. On August 1, 2011, as a companion notice, FDA issued a call for comments respecting the impact on small businesses.
A Major Impact on Small Businesses – and Food Prices
During a time of worldwide recession, FDA issues a new imported food tax. These fees serve as barriers to entry into the imported food supply business, reducing the number of potential competitors and diverting available capital away from production and innovation and toward the U.S. Government. The net effect will be a reduction in employment and increased costs at the same time that inflation is driving down the buying power of the dollar. In other words, these fees amount to a hidden food tax on American consumers. This is no small thing as roughly 20% of the U.S. food supply is imported, including 70% of seafood and 35% of fresh produce.[1]
To us it seems a near certainty that FDA’s Imported Food Tax will have a substantial impact on small businesses. There is little margin in food distribution when compared to other commodities (dietary supplements, cosmetics, drug products, to name a few). FDA’s Imported Food Tax could crush smaller firms (especially start-ups), because smaller firms typically have smaller revenues, profits and cash reserves to cover FDA’s fees and other bureaucratic impediments. Add to this the fact that most food importers are small businesses and the only conclusion we can make is that FDA has initiated a fee structure that is likely to have very significant economic impacts. In 2003, when FDA published its Interim Final Rule requiring a “Prior Notice” submission to FDA for every shipment of imported food, the Agency stated then that its rule would affect 77,427 U.S. importers and that “most of these importers” are “small businesses.”
Heavy burdens on small businesses can have a profoundly negative effect on the U.S. economy, because small businesses account for almost 2/3 of new job growth.[2]
FDA’s Request for Comment
According to the FSMA, FDA can only adjust the imported food re-examination fee through notice and comment rule making. On August 1, FDA issued a request for comments from interested parties on the following:
(1) Definitions of “small business” and “very small business” for FSMA.
(2) A separate definition of “small business” for fees only.
(3) Impact of the fees on small businesses.
(4) Circumstances where reduction is necessary or not.
(5) Ways to reduce and alleviate the burden without a fee reduction.
(6) Types of reduction, such as waiver, percentage reduction or need based reduction.
FDA states in their Federal Register notice that while it evaluates whether to grant waivers or fee reductions to small businesses, the Agency will invoice the importer or foreign manufacturer the full fee amount. The importer or foreign manufacturer may then appeal the fee, pleading for a waiver or a fee reduction. Yet there is no mechanism for such an appeal.
Consider also that FDA will have done the work already, created the invoice and mailed it to the importer or foreign manufacturer, will be expecting (even salivating over) collection of the fee, only to receive an appeal begging for a lower fee. And this FDA will be strapped for cash – as every other federal agency claims to be due to the massive deficits run up over the last several years
Making yourself heard on the impact of these fees is critical and time sensitive. For more on the steps your small business can take to be heard on this issue, visit the FDAImports.com coalition and comments page.
SOURCES
1. Hamburg, Margaret, Testimony before the U.S. House of Representatives, Committee on Energy and Commerce, Subcommittee on Oversight and Investigations, (April 13, 2011), available at http://www.fda.gov/NewsEvents/Testimony/ucm250710.htm
2. Small Business Administration, “How Important are Small Businesses to the U.S. Economy” http://www.sba.gov/advocacy/7495/8420
