MINNEAPOLIS -- Since October, officials from the White House Office of Management and Budget (OMB) have been meeting with interested parties that want to provide feedback and/or concerns about the Food and Drug Administration’s (FDA) proposed tobacco deeming regulations. This OMB regulatory review process involves analyzing the economic benefits and costs of proposed federal regulations.
On Friday, December 4th, NATO President Mary Szarmach and NATO Executive Director Thomas Briant met with OMB officials to discuss NATO’s concerns with the FDA deeming regulations. One of the key issues discussed was the requirement that literally thousands of cigars, pipe tobacco products, and electronic cigarette and vaping products would not remain on the market because of the requirement that a Pre-Market Tobacco Application (PMTA) be filed with the FDA for each product SKU.
Under the Family Smoking Prevention and Tobacco Control Act, the law that authorized the FDA to regulate tobacco products, a new tobacco product that is not virtually identical to an existing product already on the market as of Feb. 15, 2007, would need to file a PMTA application for each product SKU. This Feb. 2007 date is known as the “predicate date” or “grandfather date.” Since most cigars, pipe tobacco, and now electronic cigarettes have either changed in composition, blends, or are simply newer products, a PMTA application would need to be compiled and filed for most cigar, pipe tobacco and e-cigarette product SKUs.
Given this requirement to file a PMTA on thousands of cigar, pipe tobacco, and e-cigarette and vapor products, the concern expressed to the OMB is that a significant number of these products would be removed from store shelves because of the high cost of compiling and filing a PMTA. In July of this year, a Wall Street Journal article reported that a single PMTA application could cost $2 million or more. This means that many small to medium size manufacturers would simply not have the financial resources to file PMTA’s with the FDA for each of their product SKUs and would be required under the law to remove products from store shelves within twenty-four months after the deeming regulations become effective.
In fact, in the FDA’s own economic analysis, the agency states that considerable product exit would occur, meaning products would be taken out of the marketplace. The FDA’s report quantifies this product loss by estimating that 50% to 90% of handmade cigar products would remain on the market. Stated differently, this means that 10% to 50% of handmade cigar products would be removed from the market. That is a significant reduction in the number of products and would lead to reduced retail sales and lost retail and manufacturing jobs.
Based on her store sales, NATO President Mary Szarmach provided OMB officials with estimates of lost cigar, pipe tobacco, and e-cigarette/vapor sales. Hundreds of SKUs could be lost and this she said would result in an anti-competitive marketplace. If only the largest of manufacturers have the economic ability to pay for PMTA applications, then the removal of so many tobacco products made by small-to-medium-size companies would potentially leave very few manufacturers left to make these various tobacco products. A competitive free market economy better serves consumers as opposed to a marketplace with only several manufacturers.
In addition, NATO questioned the FDA’s statement in its fiscal analysis that “for the nation as a whole, employment gains from spending on other products would offset any employment losses from reduced spending on tobacco products.” In other words, NATO provided comments to the OMB officials that the deeming regulations would likely result in significant job losses, especially if the Feb. 15, 2007, predicate/grandfather date is not changed. The FDA referenced an article published in 2000 by Frank Chaloupka and Kevin Warner titled “The Economics of Smoking” source for this no-net job claim.
The OMB continues to schedule meetings with interested parties and there is no set or definite timetable for the agency to complete its review and recommendations regarding the FDA’s deeming regulations.
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