001003 USDA Statement on Country of Origin Labeling

Washington - Foolowing is the statement of of Caren A. Wilcox, Deputy Under Secretary for Food Safety, USDA, Before the Subcommittee on Livestock and Horticulture, House Committee on Agriculture

Mr. Chairman and Members of the Subcommittee, I am pleased to appear before you today to discuss the issue of country of origin labeling and, more specifically, H.R. 1144, the Country-of-Origin Meat Labeling Act of 1999, introduced by Congresswoman Chenoweth-Hage, a Member of this Subcommittee. As you probably remember, I testified before this same Subcommittee on country of origin labeling in April 1999. At that time, we discussed the study by the Department on the potential effects of mandatory country of origin labeling of imported fresh muscle cuts of beef and lamb. That study was requested by the conference report accompanying the FY1999 Agriculture Appropriations Act and was transmitted by the Secretary to Congress in January of this year. I have brought additional copies with me for your review.

You are probably also aware that the conference report accompanying the FY2000 Agriculture Appropriations Act directed the Secretary, in consultation with the affected industries, to define "which cattle and fresh beef products are 'Products of the U.S.A.'" The Secretary was also directed to determine what labeling terminology would best reflect that the beef products were derived from cattle born, raised, slaughtered, and processed in the United States. I am pleased to report to you that an Advance Notice of Proposed Rulemaking is undergoing clearance within the Food Safety and Inspection Service (FSIS) now and should be published in the Federal Register shortly.

I would like to begin with a brief background of current import requirements for meat. I must stress at the outset that FSIS, as you know, is responsible for making sure that the meat, poultry, and egg products moving in interstate commerce or exported to other countries are safe, wholesome, and accurately labeled. We feel that the broad issue of country of origin labeling primarily is a marketing issue, not a food safety issue. The Agricultural Marketing Service (AMS) is responsible for programs that facilitate the marketing of these products and Ken Clayton, the Associate Administrator from AMS, is here with me as well.

Current Requirements for Meat Imports

FSIS ensures that imported meat is every bit as safe as domestically produced meat. FSIS requires imported meat to be inspected under a system that FSIS has determined - through a rigorous and comprehensive process - to be equivalent to the U.S. system. Then, upon arrival at a U.S. port of entry, FSIS reinspects all meat shipments. Almost all imported products, about 85%, then proceed to a U.S. plant for further processing into value-added products - all under FSIS inspection. So, approximately 85% of imported product undergoes inspection three times.

FSIS has certified only 37 countries as meeting U.S. inspection standards. This is out of the 190 countries recognized by the United States. In general, inspection under an equivalent system means meeting U.S. standards for microbiological pathogens and chemical residues; it also means meeting all sanitation standards and ante-mortem and post-mortem inspection requirements applicable to U.S. meat processing plants. Perhaps most importantly, all plants exporting meat to the United States must meet the requirements of the Hazard Analysis and Critical Control Points (HACCP) inspection system, implemented in all U.S. plants over the past four years.

For the report we delivered in January, Congress requested that we look at fresh muscle cuts only. Based on data from USDA's Economic Research Service (ERS), we reported that imported fresh muscle cuts of beef consumed in the United States amounted to only about one percent of domestic beef consumption. However, about 24% of fresh lamb is imported into the United States. In any event, not one pound of imported product is permitted entry into the United States unless it has undergone inspection under a system certified by FSIS as equivalent to the FSIS inspection system. And, as I stated earlier, once imported product enters the United States, it undergoes reinspection.

FSIS does require country of origin labeling on all meat carcasses, parts of carcasses, and retail packages entering the United States. They must also be labeled with the foreign establishment number, either as part of the country's mark of inspection or on the product's packaging at the time of import. The container must bear, in English, in a prominent and legible manner: the country of origin, the foreign establishment number, and the name or descriptive designation of the meat product. How this information is displayed depends on whether it is on carcasses or on individual retail packages.

Imported meat products such as individual retail packages or consumer size packages must be labeled, in English, with the country of origin, foreign establishment number, and name or descriptive designation of the meat products so consumers know the origin of the product. Some of these products include: canned ham from Denmark, packaged leg of lamb from New Zealand, and meat pot pies from Canada. Fresh meat products derived from imported carcasses and all meat products from imported animals slaughtered in the United States are not required to have country of origin labels at the retail level.

In addition to labeling requirements, official meat inspection health certificates must accompany all consignments of meat and meat products imported into the United States (except those for personal consumption). These certificates, signed by an official of the national meat inspection program of the exporting country, certify that the exported products meet three criteria: they were derived from livestock that received ante-mortem and post-mortem inspections at the time of slaughter in plants certified for importation of their products into the United States; they are not adulterated or misbranded as defined by U.S. meat inspection regulations; and they have been handled in a sanitary manner and are otherwise in compliance with requirements equivalent to those in the Federal Meat Inspection Act (FMIA) and U.S. meat inspection regulations. Similar certificates certifying compliance with requirements equivalent to those in the Poultry Products Inspection Act (PPIA) and U.S. poultry inspection regulations must accompany imported poultry products.

Imported carcasses or carcasses from animals imported into the United States are currently eligible to receive a USDA grade provided they meet all other inspection requirements. However, in July of this year, the Department announced that a proposed rule will be issued later this year to restrict the USDA grading of imported beef, lamb, veal, and calf products. Under the proposed rule, the USDA grade shield would only appear on meat products from livestock slaughtered and processed in the United States.

H.R. 1144 - The Country-of-Origin Meat Labeling Act of 1999

Congresswoman Chenoweth-Hage's bill, H.R. 1144, would require that all meat and meat food products, whether domestic or imported, bear a label notifying the ultimate purchaser of these products of the country of origin of the livestock used for these products. I want to stress the words all meat and meat food products. Fresh imported product only constitutes about one percent of beef, four percent of pork, and twenty-four percent of lamb consumption in the United States - a total of about 2.5 billion pounds. This bill would also require the labeling of the over 43 billion pounds of domestically produced beef, lamb, and pork.

Currently only 10 countries export fresh beef to the United States: Australia, Canada, Costa Rica, Guatemala, Honduras, Japan, Mexico, New Zealand, Nicaragua, and Uruguay. Australia, Canada, and New Zealand account for the vast majority; imports from other countries are negligible. For lamb and mutton, only six countries export to the United States: Australia, Canada, Costa Rica, Iceland, Mexico and New Zealand. By far, the vast majority of imported lamb and mutton comes from Australia and New Zealand, and much of that is already subject to country of origin labeling laws in that it enters the United States in consumer-sized packages.

So what would be required of foreign countries, the United States government, consumers, producers, and industry if this bill were to become law? I'd like to discuss briefly the implications of mandatory labeling as examined by the USDA report.

Costs of Mandatory Labeling

The major costs associated with country of origin labeling requirements are related to the cost of (1) segregating and preserving product identity; (2) the direct cost of labels; (3) enforcement costs; and (4) market disruption costs.

The cost of segregating and preserving the identity of imported and domestic meat and meat products is unknown, but could be significant. As our January 2000 Report to Congress found there are no quantitative estimates of segregation costs available. Some of the costly steps processors, wholesalers, and retailers might have to take include separation in storage, placing tags on carcasses, labels on boxes, and the creation of records. When retail packages are prepared, labels would have to be applied.

The direct costs to the industry of labeling are also difficult to ascertain. Our January 2000 report estimated an annual cost of up to $8 million just to label imported and domestic muscle cuts for sale at grocery stores. This estimate does not include the cost of labeling ground products such as hamburger and sausage. Such ground products often contain ingredients from more than one country. The labeling of these ground products could be extremely costly because H.R. 1144 would require labels to bear, in descending order, a list of all the countries of origin of the livestock from which the blended product was derived. On top of these annual costs, industry would incur one-time costs in designing and gaining approval for labels.

Although FSIS has personnel present at slaughter and processing facilities under Federal inspection who could verify that segregation of domestic and imported meat occurs and that records and labels are maintained and made available to wholesalers, distributors, and retailers, this would be new work not now being performed. The same would be true at USDA-approved cold storage establishments and warehouses.

Costs for verification at the retail level could vary depending on whether FSIS compliance officers include country of origin labeling verification as part of their routine compliance visits. In FY1998, FSIS made approximately 15,000 visits to retail stores to conduct reviews and collect ground beef samples for laboratory analysis. FSIS would incur additional costs if visits for country of origin labeling verification were required even annually at all 130,000 retail stores where meat products are sold. If violations were found, enforcement action would also lead to additional costs.

Alternative methods to minimize additional Federal costs for labeling verification include: (1) a set number of visits could be scheduled based on decisions as to how available personnel resources should best be deployed with sites selected either randomly or on a targeted basis; (2) visits could be statistically driven to determine the state of compliance nationwide within a certain level of confidence; or (3) visits could be limited to those generated by complaints from competitors and whistleblowers.

In addition to these alternatives, State and local governments, that do have a presence at the retail level, may have a role to play in a system of verification and enforcement with regard to country of origin labeling. However, it seems likely that if State and local governments were to carry out inspections required by a Federal country of origin labeling law, such a law would have to specify the States' enforcement role and consider resources available for such activities.

A requirement for mandatory country of origin labeling for all meat to the retail level would be disruptive. All segments of the meat distribution chain would need to develop and implement systems of monitoring and control to maintain the integrity of country of origin labeling, and costs to carry out these systems would be incurred. Benefits

Our January 2000 report noted that while some circumstantial evidence suggests the possibility that consumers in the United States distinguish domestic meat from imported meat, there is no direct or empirical evidence to suggest that a price premium engendered by country of origin labeling will be large or persist over the long term. Indeed, if consumers do distinguish goods depending on their country of origin, strong incentives exist for industries to act without government intervention on a voluntary basis.

FSIS has established guidance on voluntary labeling for any and all beef products as "Product of the United States." While we continue to encourage and support the use of this type of label, there has not been extensive use of this approach by domestic industry.

And as I mentioned earlier, an FSIS Advance Notice of Proposed Rulemaking on promulgating "regulations defining which cattle and fresh beef products are 'Products of the U.S.A.'" is in the final Agency clearance process.

The infrequent use of voluntary labeling by our domestic establishments may reflect the unwillingness of consumers to pay a price premium for domestically labeled products, or it could be that the benefits may be less than the costs the domestic industry would incur in changing to a country of origin labeling system. In either case, both producers and consumers could be worse off. As mentioned earlier, FSIS considers country of origin labeling to be a marketing issue - not a food safety issue. Therefore, H.R. 1144 would have no food safety benefits to consumers.

There is no evidence that the market for providing such information has failed. There is, therefore, no economic efficiency argument for mandatory country of origin labeling for products to the point of retail sale. However, some have argued that there is a "benefit" to consumers' right to know but, at this time, that benefit is not quantifiable. Trade Implications

In order for mandatory country of origin labeling at the retail level to be consistent with U.S. commitments under various trade agreements, various criteria must be met.

Article IX of the GATT addresses Marks of Origin by setting out guidelines for rules and their application on imports into a country at the time of import. Regulations on marks of origin are allowed, but difficulties and inconveniences to commerce or industry should be minimized, while protecting consumers against fraudulent or misleading indications. Marks of origin at the time of import are to be permitted provided they do not seriously damage products, materially reduce the product's value, or unreasonably increase costs.

Article III of the GATT requires that imported goods be treated like domestic product (national treatment) with respect to laws and regulations affecting their internal sale, offering for sale, purchase, transportation, distribution, or use. If labeling is required for purposes other than country of origin, post importation, then national treatment requirements could apply.

The disciplines of the World Trade Organization (WTO) Agreement on Technical Barriers to Trade (TBT Agreement) apply to a broad range of industrial and agricultural products. The Agreement establishes fundamental rules and procedures regarding the development, adoption, and application of voluntary standards, mandatory standards ("technical regulations"), and the procedures ("conformity assessment procedures") used to determine whether a particular product meets such standards. These requirements are intended to ensure that standards, technical regulations, and conformity assessment procedures do not create unnecessary obstacles to trade. Key obligations under the TBT Agreement include non-discrimination and national treatment; transparency; and a prohibition against unnecessary barriers to trade.

The North American Free Trade Agreement (NAFTA) also has various provisions, which would guide the application of country of origin labeling requirements.

Because the United States is a major importer and exporter, it is quite possible that our trading partners would challenge a U.S. requirement. In addition, the United States has objected to other countries' country of origin labeling, when they are objectionable, because of costs or lack of consistency with international agreements. Establishing a mandatory country of origin labeling requirement in the United States could undercut our ability to object to such requirements in the future.

It is important to consider that U.S. exporters can and do label products as a marketing tool when it will expand their market. In some markets, however, the presence of a mandatory country of origin label could be used to the detriment of U.S. products by protectionist interests.

Conclusion

Supporters of country of origin labeling have emphasized that consumers have a right to know if the meat and meat food products they purchase contain imported meat and that such labeling would help consumers make better informed choices. We, at FSIS, continue to believe that this issue is a marketing issue, and not a food safety issue.

Depending on the regulatory regime adopted, compliance with and enforcement of an extended country of origin labeling requirement could result in additional costs to the government, domestic industry, and consumers.

Thank you again for the opportunity to appear before you today. I will be happy to answer any questions you or other Members of the Subcommittee may have.

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