With the swipe of a pen, President Donald Trump is closer to keeping his campaign promise to slash 70 to 80 percent of federal regulations. Trump signed a “one-in, two-out” executive order Jan. 30, meaning for every new federal rule, two others must be scrubbed from the Federal Register.
The move cannot come soon enough for the e-cigarette industry, scrambling to prepare for a new Food and Drug Administration (FDA) rule that treats liquid nicotine products that contain no tobacco the same as it treats cigarettes.
But in addition to the FDA, e-cig companies now have a new concern: the possibility of a trade war with China, where most vaping products are manufactured.
“We rushed a lot of R&D and got a lot of products out into a very limited number of stores so we could precept future technologies and say that we’ve already sold them commercially,” Jan Verleur, CEO and co-Founder of V2, the nation’s largest independent electronic cigarette/vaporizer brand, told Watchdog.org. “We were also preparing for a complete shutdown of future innovation in the nicotine space.”
The rule, shortened to “deeming,” (from the official title, “Deeming Tobacco Products To Be Subject to the Federal Food, Drug, and Cosmetic Act, as Amended by the Family Smoking Prevention and Tobacco Control Act; Restrictions on the Sale and Distribution of Tobacco Products and Required Warning Statements for Tobacco Products”) took effect in August 2016.
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The rule allows FDA to treat e-cigs as tobacco, even though a 2015 study by Public Health England determined e-cigarettes are 95 percent less harmful than their tobacco counterparts.
Now, the battery-powered liquid nicotine devices are subject to a costly, two-year pre-market approval process for all products that hit the market after Feb. 15, 2007. (Though Congress has been trying to move that “grandfather” date to August 2016.)
DOUBLE WHAMMY: Trump’s China trade policies could pile onto FDA regulations already threatening the e-cigarette industry
Verleur says the agency is ignoring the boon vaping has meant for the economy and possibly public health — ironically in the name of health.
“When you’re talking e-cigarettes and nicotine delivery in the form of vapor, and then an industry, I don’t care how good of a snake-oil salesman you might be,” Verleur told Watchdog.org. “No industry grows from zero in revenues to a $5 billion domestic industry in the flash of an eye, and is not solving some problem for someone.”
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The FDA states in the Federal Register that total compliance will take 1,633,554 total hours in applications and reporting, and cost up to $77 million per year.
That breaks down to 1,500 hours of paperwork and $330,000 to apply for each new product. (More like $1 million, according to the American Vaping Association.) For a company like V2, which sells 500 different products, the company is looking at $175 million to $1 billion and 750,000 hours to keep its products on the market.
Verleur says the scheme simply sets up an ideal environment for big tobacco, which has been snatching up shares of the e-cig market.
“It grandfathers in the products they have that are sitting around, a 3 or 4 percent share of the overall sales,” explained Verleur. “And they raise the cost of entry to the R&D space by saying, ‘Well now, anything new is going to cost you a million bucks.’ So you limit the number of innovators, engineers, young companies that can compete because they don’t have the money.”
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In addition, Verleur says the FDA’s focus on chemicals and labels ignores another safety issue — unstable batteries, which have reportedly led to a small number of explosions.
“They don’t even understand the cause they’re trying to regulate. We are inherently an electronics industry. They should be requiring overcharge protection, circuitry at a minimum,” he suggested. “I don’t think that the regulators have really wrapped their head around the fact that we are existing in these two worlds and so far they’ve approached us like we’re a tobacco leaf. And we’re not.”
Worried about China policy
While Verleur is encouraged by the Trump administration’s tough talk on regulations, he fears tough talk on China.
“The vast majority of our products are manufactured in southern China, specifically Guangdong province. We’re an American company but we have a factory in Shenzhen and that’s our lifeblood.” he said.
“To manufacture goods in China levels the playing field because we can do it cheap enough that a guy with a computer who’s a good designer with a couple of engineers in the room can design a circuit board, a structure, and they can suddenly manufacture it there. And now they’re competing against some massive company that’s been entrenched for 100 years.”
China, the birthplace of the e-cigs, produces about 90 percent of the devices sold all over the world. Guangdong, boasts the highest GDP of all provinces and nearly one third of China’s exports.
The president, however, has criticized China’s economic activities for being illegal and unfair, and during his campaign, promised punishment:
“The U.S. Trade Representative will bring trade cases against China. China’s unfair subsidy behavior is prohibited by the terms of its entrance to the WTO. If China does not stop its illegal activities, including its theft of American trade secrets, Donald Trump will use every lawful presidential power to remedy trade disputes, including the application of tariffs.”
UP IN SMOKE: In addition to FDA regulations, the vaping industry could suffer under a China trade crackdown.
Trump followed up in early January by naming Robert Lighthizer as trade representative. Lighthizer was deputy U.S. trade representative under former President Ronald Reagan and is a critic of China’s trade policies. His confirmation hearing has not yet been set.
Trump has two other leadership selections in his corner when it comes to China. UC-Irvine business professor Peter Navarro, who wrote “The Coming China Wars” and “Death by China” will head up the newly created White House National Trade Council. Last fall, he and Commerce Secretary nominee Wilbur Ross co-wrote “Scoring the Trump Economic Plan,” which cited China’s perceived sins against the American economy.
So far, no executive action has been directed at China, and Verleur hopes it stays that way.
“I am definitely a proponent of the global economy because I think it levels the playing field for young innovative companies that want to start something out of a two-bedroom apartment and turn it into a 1,500-person company,” he said. “You can’t do that if you need six or seven million dollars to start.”