Monday, June 18, 2007

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The rise of trans-Pacific regulatory conflict

In the past two days there have been two stories in the press suggesting that the U.S. will be butting heads with China and India over a variety of regulations.

On Sunday, the Washington Post's Marc Kaufman writes that the growth of pharmaceutical imports is triggering health and safety concerns:

India and China, countries where the Food and Drug Administration rarely conducts quality-control inspections, have become major suppliers of low-cost drugs and drug ingredients to American consumers. Analysts say their products are becoming pervasive in the generic and over-the-counter marketplace.

Over the past seven years, amid explosive growth in imports from India and China, the FDA conducted only about 200 inspections of plants in those countries, and a few were the kind that U.S. firms face regularly to ensure that the drugs they make are of high quality.

The agency, which is responsible for ensuring the safety of drugs for Americans wherever they are manufactured, made 1,222 of these quality-assurance inspections in the United States last year. In India, which has more plants making drugs and drug ingredients for American consumers than any other foreign nation, it conducted a handful.

Companies based in India were bit players in the American drug market 10 years ago, selling just eight generic drugs here. Today, almost 350 varieties and strengths of antidepressants, heart medicines, antibiotics and other drugs purchased by American consumers are made by Indian manufacturers.

Five years ago, Chinese drugmakers exported about $300 million worth of products to the United States. Eager to meet Americans' demand for lower-cost medicines, they, too, have expanded rapidly. Last year, they sold more than $675 million in pharmaceutical ingredients and products in the U.S. market.

After the pet food scandal that triggered fears over the safety of human and animal foods imported from China, experts say medicines from that country and from India pose a similar risk of being contaminated, counterfeit or simply understrength and ineffective.

"As the manufacturing goes to China and India, the risk to human health is growing exponentially," said Brant Zell, past chairman of the Bulk Pharmaceuticals Task Force. The group represents American drug-ingredient makers that filed a citizen's petition with the FDA last year asking the agency to oversee foreign firms more aggressively.

"The low level there" of follow-up inspections, "combined with the huge amount of importing, greatly increases the potential that consumers will get products that have impurities or ineffective ingredients," he said.

FDA officials say that they are not aware of any health problems caused by drugs imported from India or China and that the American companies that import them usually do their own quality and safety testing. But the agency acknowledges that it is virtually impossible for it to know whether poor-quality or contaminated drugs from lightly regulated Asian plants have caused patients to get sicker or remain ill, especially because patients and doctors are unlikely to suspect poorly manufactured drugs as a problem.

Meanwhile, in USA Today, Jayne O'Donnell reports about another brewing regulatory problem -- lead levels in childrens' jewelry:
The Chinese government opposes a proposed U.S. standard limiting the amount of lead allowed in bracelets, necklaces and other jewelry sold for children.

All but three of more than 30 Consumer Product Safety Commission recalls for lead in children's jewelry since 2003 were for China-made items. The others were made in India.

The Chinese government said in comments to the CPSC that it's not necessary to limit the lead content to the proposed 0.06% by weight because much of the lead wouldn't seep out of jewelry so would "do little harm for children." China's comments are the only ones opposing the CPSC proposal. A final regulation is likely by early 2008.

CPSC says 20,000 children were treated in emergency rooms from 2000 to 2005 after swallowing jewelry. The number doesn't include choking incidents. A 4-year-old boy died last year after swallowing a charm that was 99% lead.

CPSC is concerned that children can ingest unsafe levels of lead after putting necklaces and other jewelry in their mouths, even briefly. If they are also exposed to lead in their homes or drinking water, there can be a cumulative risk. Lead poisoning can lower the IQ, cause learning disabilities and lead to kidney or liver disease.

Along with being the target of nearly all of the lead jewelry recalls, China-made products have made up half of CPSC's overall recalls for at least two years, says acting Chairman Nancy Nord. Recalls of China-made products have been steadily increasing since 2003.

"It is absolutely imperative that all manufacturers understand that if they are going to sell products in the U.S., consumer protection has to be one of their main concerns," she says.

In the comments, Guo LiSheng, a deputy director general in China's Administration of Quality Supervision, Inspection and Quarantine, said the agency agrees with the U.S. that children's health and safety need to be protected but believes putting warning labels on the jewelry "may be more efficient than setting the limit of lead content."

If you read both articles, these two cases are not identical. There appears to be a strong justification for ratcheting up the lead regulations, while problems with pharmaceutical imports remain more hypothetical than real.

Going forward, it will be interesting to see whether affected domestic industries will be lobbying for regulatory barriers rather than more overt forms of protectionism. The thing about regulatory barriers is that they are not always protectionist in motivation. And that's precisely what makes them more attractive for import-competitive sectors.


UPDATE: Thanks to Nicholas Weaver for sending me this New York Times story by Walt Bogdanich on Chinese resistance to regulatory investigations. Definitely worth a read.

posted by Dan on 06.18.07 at 08:07 AM


Actually, read the NY Times articles on phony glycerine from China.

I don't consider phony drug ingredients which have killed hundreds a theoretical problem.

posted by: Nicholas Weaver on 06.18.07 at 08:07 AM [permalink]

posted by: Nicholas Weaver on 06.18.07 at 08:07 AM [permalink]

I have to agree with Nicholas, when the public safety is involved barring goods from overseas is not protectionism.

China and India have shown that they are not reliable trading partners. Bigotry plays a part in that manufacturers in both countries don't think we're worth safeguards. But corruption plays an even bigger role. In neither nation is there any real accoutability, and so bribery and graft runs riot.

It's the same sort of prejudice that allows the exportation of adulterated goods to America, only this time expressed by the elite towards the common folk. The very same prejudice which leads to such as the TSA and its perversion of security at airports around the country.

We hear lots of noise about how China and India are fast risng competitors who bid fair to overtake us sometime in the future. No such thing. Unless they enact serious and comprehensive social and governmental reforms each will collapse harder than the Soviet Empire in 1990, and sooner than we expect.

posted by: Alan Kellogg on 06.18.07 at 08:07 AM [permalink]

Also, just in general, Chinese manufacturers can have serious Chutzpa (the "Kill your parents and then claim sympathy as an orphan" kind...)

I got a Woot "Bag of Crap": 3 random crappy items and a decent bag. One of the three items was a Made in China "Forever" type flashlight, where the LED is charged by a back and forth generator...

Except it was a FAKE forever-type flashlight. The coil on the 'generator' was not hooked up and was just a single winding of copper wire, instead of a magnet there was just a hunk of metal with two rubber bumpers, the circuit board had no components just a spring switch, and there were two flat-cell batteries to power the LED!

Given the small-unit (16 quantity) whosale price is still

posted by: Nicholas Weaver on 06.18.07 at 08:07 AM [permalink]

Cuttoff because of less-than. small unit quantity for the real thing is $4 or less for quantity 16, you have to wonder just how low a chinese manufacturer will stoop.

posted by: Nicholas Weaver on 06.18.07 at 08:07 AM [permalink]

I was told by the current administration that "candian drugs" are not safe and need to be they were banned. If the current administration continues to allow drugs from India and China they must feel they drugs are safe. The current FDAs word is good enough for me.

posted by: centrist on 06.18.07 at 08:07 AM [permalink]

Welcome to globalization and a loss of quality control. Yes, yes, I know the marketplace and political influence will eventually work it out, but after how many are harmed? What happens once we have relinquished all of our manufacturing in the pursuit of cheap consumer price, become totally reliant on imports (what..... we aren't already there?), have nothing of significance to export, and becoming a nation of beggars, no longer can influence unacceptable behavior?

Assuming exporting nations put into place qc agencies forcing its manufacturers to improve quality, and the US, with tax payer assist, improves its import surveillance, will cheap imports continue to be cheap?

posted by: bluhawkk on 06.18.07 at 08:07 AM [permalink]

Hi, Dan:

Saw an article in Chemical & Engineering News, which is the trade magazine of the American Chemical Society. It's basically Newsweek for chemists.

Apparently, it's OTC drugs and nutraceuticals that are really at risk for problems as they don't get routinely inspected by the FDA. Actual prescription pharmaceutical ingredients do get a much closer look.

This isn't much of a relief, though. I'd argue that more people have exposure to OTC drugs that prescribed ones.

posted by: Klug on 06.18.07 at 08:07 AM [permalink]

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