oversight

Fresh Produce: Potential Implications of Country-of-Origin Labeling

Published by the Government Accountability Office on 1999-05-26.

Below is a raw (and likely hideous) rendition of the original report. (PDF)

                    United States General Accounting Office

GAO                 Testimony
                    Before the Committee on Agriculture, Nutrition, and
                    Forestry, U.S. Senate




To be Released
at 9 a.m. EDT
Wednesday
                    FRESH PRODUCE
May 26, 1999


                    Potential Implications of
                    Country-of-Origin Labeling
                    Statement for the Record by
                    Robert E. Robertson,
                    Associate Director, Food and Agriculture Issues,
                    Resources, Community, and Economic
                    Development Division




GAO/T-RCED-99-200
    Mr. Chairman and Members of the Committee:

    We appreciate the opportunity to present this statement for the record,
    which discusses our recent report—Fresh Produce: Potential
    Consequences of Country-of-Origin Labeling (GAO/RCED-99-112, Apr. 21,
    1999). As you know, in the past few years several legislative proposals
    have been introduced that would require fresh produce to be labeled at the
    retail level by its country of origin. As requested by the Senate and House
    conferees for the Omnibus Consolidated and Emergency Supplemental
    Appropriations Act, 1999, our report reviewed a number of issues
    associated with the potential costs and benefits of a mandatory labeling
    requirement.1 These issues would also be relevant considerations for meat
    labeling. Specifically, our report—as well as our testimony
    today—provides information on (1) the potential costs associated with the
    compliance and enforcement of a mandatory country-of-origin labeling
    requirement at the retail level for fresh produce, (2) the potential trade
    issues associated with such a requirement, (3) the potential impact of such
    a requirement on the ability of the federal government and the public to
    respond to outbreaks of illness caused by contaminated fresh produce,
    and (4) consumers’ views of country-of-origin labeling.2

    In summary:

•   The magnitude of compliance and enforcement costs for mandatory
    country-of-origin labeling for fresh produce at the retail level would
    depend on several factors, including the extent to which current labeling
    practices would have to be changed. In addition, enforcement would be
    difficult.
•   Labeling could be viewed by other countries as a trade barrier if, for
    example, they are concerned that additional costs may be incurred by
    their exporters.
•   Because of the time lag between the outbreak of an illness and the
    identification of the cause, labeling would be of limited value in
    responding to produce-related outbreaks of illnesses.
•   Surveys indicate that most people favor country-of-origin labeling;
    however, they rate information on freshness, nutrition, handling and
    storage, and preparation tips as more important.

    1
     Our report was requested in Conference Report 105-825, accompanying H.R. 4328, which became the
    Omnibus Consolidated and Emergency Supplemental Appropriations Act, 1999 (P.L. 105-277, Oct. 21,
    1998).
    2
     In conducting our review, we assumed that the retailer would be responsible for ensuring that
    produce is labeled as to its country of origin and that the term “label” means any label, mark, sticker,
    stamp, placard, or other clear visible sign.



    Page 1                                                                            GAO/T-RCED-99-200
             The Tariff Act of 1930, as amended, generally requires imported
Background   articles—such as clothing, appliances, and canned and frozen goods—to
             be marked with the country of origin. Under the statute, however, certain
             articles, including fresh produce, are not required to be marked
             individually; however, the container holding the article must be marked.
             U.S. Customs Service rulings provide that when fresh produce is taken out
             of its container and put into an open bin or display rack, there is no
             obligation to identify the items by the country of origin.3

             Total U.S. consumption of fresh produce has increased 43 percent since
             1980, from about 56 billion pounds to nearly 80 billion pounds in 1997, the
             latest year for which the U.S. Department of Agriculture (USDA) has
             compiled such data. During this same period, the amount of fresh produce
             the United States imported more than doubled—from 7.5 billion pounds to
             16 billion pounds. In 1997, the majority of the produce the country
             imported came from Mexico, Canada, and Chile, as shown in figure 1. The
             United States is also the world’s largest exporter of fresh produce, valued
             at $2.9 billion in 1998. Three-fourths of exported U.S. produce goes to
             Canada, the European Union, Japan, Hong Kong, and Mexico.4




             3
              U.S. Customs ruling HRL 722992. This ruling was interpreted in Customs ruling HRL 733798 to not
             require marking because open bins or display racks were not determined to constitute “containers.”
             4
              The European Union is composed of Austria, Belgium, Denmark, Finland, France, Germany, Greece,
             Ireland, Italy, Luxembourg, the Netherlands, Portugal, Spain, Sweden, and the United Kingdom.



             Page 2                                                                        GAO/T-RCED-99-200
Figure 1: Source of Fresh and Frozen
Imported Produce, 1997, by Dollar
Value
                                                                                         2%
                                                                                         Guatemala

                                                                                         3%
                                                                                         Netherlands


                                                                •
                                                                     •                   4%
                                                                                         Costa Rica

                                                                     12%
                                                                       •

                                            51%
                                              •                          13%
                                                                           •


                                                                    15%
                                                                      •



                                                                                         Chile

                                                                                         Other

                                                                                         Canada

                                                                                         Mexico




                                       Source: GAO’s analysis of data from USDA’s Economic Research Service.




                                       Three states—Florida, Maine, and Texas—have enacted country-of-origin
                                       labeling laws for fresh produce. Florida requires all imported fresh



                                       Page 3                                                                  GAO/T-RCED-99-200
                      produce to be labeled, Maine requires labeling of produce imported from
                      countries identified as having specific pesticide violations,5 and Texas
                      requires labeling for fresh grapefruit.


                      The magnitude of compliance and enforcement costs for a
Uncertainties Exist   country-of-origin labeling requirement at the retail level would depend on
About Costs           several factors, including the extent to which current labeling practices
Associated With       would have to be changed.
Compliance and        Associations we spoke with representing grocery retailers are particularly
Enforcement           concerned that a labeling law would be unduly burdensome for a number
                      of reasons. First, retailers would have to display the same produce items
                      from different countries separately if each individual item is not marked,
                      which in some cases would result in only partially filled bins. According to
                      these retailers, consumers are less likely to buy from such bins because
                      they are less appealing, causing the retailers to lose sales. Second, retailers
                      report that they do not have sufficient display space to separate produce
                      and still stock all the different varieties consumers want. Large grocery
                      stores usually carry over 200 produce items. Third, because the country of
                      origin of retailers’ produce shipments may vary each week, retailers would
                      incur costs to change store signs and labels to reflect the origins of the
                      different shipments. According to the Food Marketing Institute, an
                      association representing grocery retailers, it would take about 2 staff
                      hours per store per week to ensure that imported produce is properly
                      labeled. Costs would also be incurred if retailers were required to maintain
                      paperwork at each store as evidence of the origin of these multiple
                      shipments.

                      It is unclear who would bear the burden of any additional labeling costs.
                      Initially, to ensure that produce is properly labeled, at least some of the
                      compliance costs would be placed on retailers. However, retailers could
                      pass some or all of the costs to their suppliers or to consumers. A
                      country-of-origin labeling requirement may also result in fewer choices for
                      consumers if retailers decide to stock more prepackaged produce, which
                      would already be labeled, and fewer bulk items, which would have to be
                      labeled. Furthermore, if a law required labeling for imported produce only,
                      retailers could decide to stock fewer imported produce items in order to
                      avoid the compliance burden.



                      5
                       Maine also requires packages of Maine apples to state that they are from Maine and potatoes
                      packaged in Maine to be labeled as to their country of origin.



                      Page 4                                                                         GAO/T-RCED-99-200
                       Regarding enforcement, Food and Drug Administration (FDA) and USDA
                       officials told us that enforcing a labeling law would require significant
                       additional resources for this inherently difficult task. FDA estimated that
                       federal monitoring of a recently proposed bill would cost about $56 million
                       annually. The agency enforcing such a law would have to implement a
                       system to ensure that the identity of produce is maintained throughout the
                       distribution chain. While inspectors could ensure that retailers have signs
                       or labels in place and could review documentation—if it were
                       available—they might not be able to determine from a visual inspection
                       that produce in a particular bin was from the country designated on the
                       sign or label.

                       It is not clear who would be responsible for these inspections. State and
                       local officials now generally conduct grocery store inspections for
                       compliance with federal health and safety laws. USDA officials pointed out
                       that if state and local governments were to carry out the inspections
                       required by a federal country-of-origin labeling law, such a law would have
                       to specify the states’ enforcement role and provide funding for
                       enforcement activities.

                       Of the three states with labeling laws, only Florida’s law is enforced.
                       Enforcement is part of Florida’s routine state health inspections that are
                       conducted about twice each year in every store. During these routine
                       inspections, officials check the shipping boxes and packages in the store
                       against the display signs or labels—a task they estimate requires about 15
                       minutes per visit. However, Florida does not require its retail stores to
                       maintain paperwork documenting the country of origin, and inspectors
                       there told us that they sometimes have no reliable means to verify the
                       accuracy of labels. According to the Inspection Manager for Maine’s
                       Department of Agriculture, Maine does not enforce its country-of-origin
                       labeling requirements because the list of countries to be identified keeps
                       changing and paperwork to verify the country of origin is often
                       unavailable. According to a Texas Department of Agriculture official,
                       grapefruit is rarely imported into Texas, and the labeling law, which
                       applies only to grapefruit, is not currently being enforced.


                       Depending on what it might require and how it might be implemented, a
A Labeling Law Could   law mandating country-of-origin labeling for fresh produce could have
Have Adverse Trade     adverse trade implications. U.S. trading partners might challenge the law’s
Implications           consistency with international trade obligations or take steps to increase
                       their own country-of-origin labeling requirements. Moreover, according to



                       Page 5                                                    GAO/T-RCED-99-200
USDA officials, enacting a labeling law could make it more difficult for the
United States to oppose foreign countries’ labeling requirements that it
finds objectionable.

Any labeling law would need to be consistent with U.S. international trade
obligations in order to withstand potential challenges from U.S. trading
partners. International trade rules that the United States has agreed to,
such as those embodied in the World Trade Organization (WTO) and the
North American Free Trade Agreement (NAFTA), permit country-of-origin
labeling.6 For example, WTO provisions recognize the need to protect
consumers from inaccurate information while minimizing the difficulties
and inconveniences labeling measures may cause to commerce. WTO rules
require, among other things, that the labeling of an imported product not
result in serious damage to the product, a material reduction in its value,
or an unreasonable increase in its cost.7 Correspondence from the Office
of the U.S. Trade Representative (USTR) stated that our trading partners
could raise concerns that country-of-origin labeling requirements
adversely affect their exports by raising costs.

Similarly, NAFTA requires that any country-of-origin marking requirement
be applied in a manner that would minimize difficulties, costs, and
inconveniences to a country’s commerce. According to USTR and
Department of State officials, Mexico requested consultations to discuss
its concerns that one recently proposed U.S. country-of-origin labeling bill
would violate certain NAFTA provisions on country-of-origin marking.

Officials also noted that countries concerned with a labeling law could
take actions that could adversely affect U.S. exports. For example, these
countries may develop or more strictly enforce their own labeling laws.
Currently, about half of the countries that account for most of the U.S.
trade in produce require country-of-origin labeling for fresh produce at the
retail level.

While U.S. representatives have worked informally and cooperatively to
oppose certain foreign country-of-origin labeling requirements, the United


6
 The WTO was established in 1995, as a result of the Uruguay Round (1986-94) of the General
Agreement on Tariffs and Trade. WTO facilitates the implementation, administration, and operation of
multiple agreements that govern trade among its member countries. NAFTA is a multilateral trade
agreement that contains obligations governing trade among Canada, Mexico, and the United States.
NAFTA negotiations began in 1991, and the agreement entered into force in 1994.
7
 In addition, country-of-origin labeling is covered as a technical regulation subject to the WTO
Agreement on Technical Barriers to Trade. This agreement provides guidelines for developing and
applying technical regulations.



Page 6                                                                        GAO/T-RCED-99-200
                      States has not formally challenged any such requirements within the WTO.
                      WTO officials said they were unaware of any formal challenges to any
                      country’s country-of-origin labeling requirement. However, USDA and WTO
                      officials agreed that the absence of any formal challenge does not
                      necessarily indicate that existing country-of-origin labeling requirements
                      are consistent with WTO rules. Moreover, the absence of formal challenges
                      to existing laws does not preclude these laws from being challenged in the
                      future. Finally, because the United States is such a large importer and
                      exporter of fresh produce, officials with USDA and the Department of State
                      pointed out that a U.S. labeling law is more likely to be formally
                      challenged than are other countries’ laws.


                      Considerable time—several weeks or months—generally passes between
Labeling Would        the outbreak of a produce-related foodborne illness, the identification of
Provide Limited       the cause, and a warning to the public about the risks of eating a certain
Benefits in           food, according to the Centers for Disease Control and Prevention (CDC)
                      and FDA officials. By the time a warning is issued, country-of-origin
Responding to         labeling would benefit consumers only if they remembered the country of
Outbreaks of          origin or still had the produce or if the produce were still in the store.
                      Consequently, country-of-origin labeling would be of limited value in
Foodborne Illnesses   helping consumers respond to a warning of an outbreak. Moreover, a law
                      exempting food service establishments from country-of-origin labeling
                      would be of limited value because many identified outbreaks have been
                      traced to food served in restaurants or at catered meals.

                      Several factors contribute to the delays in identifying causes of foodborne
                      illnesses, including how quickly consumers become ill after purchasing
                      and eating the food and whether they seek medical attention. State and
                      local agencies report known or suspected foodborne illnesses to CDC,
                      which uses this information to identify patterns of related
                      illnesses—outbreaks—and to work with state, local, and FDA officials to
                      identify the source. Once the source is identified, state and local public
                      health officials generally issue a warning to the public if the product is still
                      available in the marketplace. In most cases of foodborne illness, however,
                      officials are not able to identify the specific point at which the food
                      associated with the outbreak became contaminated. Between 1990 and
                      1998, CDC identified 98 outbreaks of foodborne illnesses linked to fresh
                      produce. In 86 of these cases, the point of contamination was never
                      identified. The remaining 12 cases were traced to contamination in food
                      handling and to seed that was contaminated.




                      Page 7                                                        GAO/T-RCED-99-200
                        CDC  officials told us that country-of-origin labeling might be a starting
                        point in tracing the source of contamination if a person who had eaten a
                        contaminated product remembered the source for that product. However,
                        they said that more detailed information identifying every step from farm
                        to table—for both domestically grown and imported produce—would be
                        of greater use in tracing the source of an outbreak and identifying the
                        practices that resulted in the contamination. CDC officials also pointed out
                        that a country-of-origin labeling law would be more useful to them if it
                        required retailers to keep better records, including invoices and shipping
                        documents. Such records would allow investigators to identify the source
                        of produce that was in grocery stores at a particular time in the past.


                        According to nationwide surveys sponsored by the fresh produce industry,
Although Consumers      between 74 and 83 percent of consumers favor mandatory
Favor Labeling, Other   country-of-origin labeling for fresh produce, although they rate
Information Is More     information on freshness, nutrition, and handling and storage as more
                        important.8 In fact, consumers ranked information on country-of-origin
Important to Them       fifth out of the six factors in a 1996 survey, as shown in figure 2.9




                        8
                         Based on nationally representative samples of U.S. households: Three surveys were conducted
                        between 1990 and 1998 by Vance Publishing Corporation for The Packer newspaper and were
                        published in its annual supplement, Fresh Trends, and one survey was conducted by the Charlton
                        Research Group in 1996 for the Desert Grape Growers League. For the data we included in our report,
                        we obtained frequency counts, survey instruments, and other documents, in order to review the
                        wording of questions, sampling, mode of administration, research strategies, and effects of
                        sponsorship. We used only the data that we judged to be reliable and valid.
                        9
                         Survey conducted for The Packer newspaper in 1996.



                        Page 8                                                                       GAO/T-RCED-99-200
Figure 2: Importance of Different Types of Produce-Labeling Information to Consumers




                                         Source: GAO’s analysis of 1996 survey data collected for The Packer, a publication of the fresh
                                         produce industry.




                                         Surveys also indicate that most consumers would prefer to buy U.S.
                                         produce if all other factors—price, taste, and appearance—were equal.
                                         And, one survey found that about half of all consumers would be willing to
                                         pay “a little more to get U.S. produce.”10

                                         However, the survey did not specify the additional amount that consumers
                                         would be willing to pay.

                                         In addition, survey responses show that consumers believe that U.S.
                                         produce is safer than imported produce; however, USDA, FDA, and CDC
                                         officials told us that sufficient data are not available to make this
                                         determination. Consumers Union—a nationally recognized consumer

                                         10
                                           Survey conducted for the Desert Grape Growers League in 1996.



                                         Page 9                                                                        GAO/T-RCED-99-200
           group—has used data collected by USDA’s Agricultural Marketing Service to
           compare the extent to which multiple pesticide residues were found in
           selected domestic and imported fresh produce.11 For its analysis,
           Consumers Union developed a toxicity index, which it used to compare
           the pesticide residues. According to this analysis, pesticide residues on
           imported peaches, winter squash, apples, and green beans had lower
           toxicity levels than those found on their domestically grown counterparts.
           In contrast, the pesticide residues on domestically grown tomatoes and
           grapes were less toxic than their imported counterparts. The study
           acknowledges that almost all of the pesticide residues on the samples
           were within the tolerance levels allowed by the Environmental Protection
           Agency. We did not independently determine the validity of the toxicity
           index developed by Consumers Union or verify its analysis or results.
           However, according to FDA officials, pesticide residues present a lower
           health risk than the disease-causing bacteria that can be found on food.




           11
            Do You Know What You Are Eating? An Analysis of U.S. Government Data on Pesticide Residues in
           Foods, Consumers Union, Feb. 1999.



(150149)   Page 10                                                                   GAO/T-RCED-99-200
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