There can be a better solution to the baby formula case in Hong Kong by separating the problem of parallel trade and supply of baby formula to local mothers. All babies in Hong Kong are born in local hospitals, and all babies need baby formula to a certain age. All Hong Kong's hospitals, either collectively, individually or through government arrangement, can work with the supplier of baby formula so that mothers can return to the same hospital to acquire the formula. All hospitals need to do is have additional facilities catering for the supply of formula. This will bring extra business to the hospitals. All new births have to return to hospital for regular checkups anyway. Getting the baby formula from the hospital is just another convenient service provision. If the mother has moved or lives far away, arrangements to obtain the supply from another nearby hospital could easily be made.

Since hospitals have records of all new births, demand for formula can be accurately estimated, given there is the possibility of supply from different brands. Such an arrangement through the hospital will be an effective way of ensuring supply to the needed mothers. Of course, mothers can choose to use the hospital or buy from the market.

The solution to tackle parallel trade is even easier. There are always duty-free shops at the border. It will be an extremely good business for them to stock up with baby formula. New and additional rules or laws can easily be instituted to allow duty-free shops to sell formula, and other high-demand consumer goods. Pre-orders can even be made so that purchasers are guaranteed a supply. If this can be made possible, individual travelers can come to Hong Kong for leisure and on their return pick up the goods at the duty-free shop when they cross the border. This will be a more civilized solution.

The author is an associate professor in the Department of Economics and Finance at City University of Hong Kong.

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