Regulatory Issues: COOL reception for country-of-origin labeling

Retailers may ask suppliers to guarantee the information is correct and/or indemnify the retailer in the event of an enforcement action

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Despite the buzz about country of origin labeling (COOL), it isn't a new concept. What's new is its application to certain food products under the terms of the 2002 Farm Bill.

We're all familiar with the "made in China" statements that often appear on consumer products. These are required by the Tariff Act of 1930. According to the language of the act, "every article of foreign origin . . . imported into the United States shall be marked in a conspicuous place . . . to indicate to an ultimate purchaser in the United States the English name of the country of origin of the article."

As with any rule, there are exceptions. Importantly, regulations issued by the Customs Service (now the Bureau of Customs & Border Protection) have long exempted many food products from the country of origin marking requirement. Included among these exemptions are "natural products such as vegetables, fruits, nuts, berries, live or dead animals . . . in their natural state."

Customs has taken the position that this exemption does not apply to packaged produce. (The produce itself does not require labeling, but the package does.) Thus, loose bananas displayed in a supermarket bin need not bear a country of origin label, but strawberries packaged in a container must bear a country of origin label. In some cases, it is also necessary to refer to state law for country of origin labeling requirements that may apply to fresh produce.

Another important exception is available for goods that undergo "substantial transformation." It is recognized that if an imported article undergoes a substantial transformation in the U.S. (e.g., imported grapes are made into jelly), the transformed article need not bear a country of origin marking. In this case, the jelly manufacturer is regarded as the "ultimate purchaser" of the imported grapes.

Under the operation of these exceptions, many food products do not bear a country of origin marking even though the food may have been imported or may contain imported ingredients. Voluntary country of origin markings and "made in the USA" claims are a separate matter.

Why do we have country of origin markings? To put it bluntly, they allow consumers to discriminate against imported goods. As stated in a 1940 court opinion, "the evident purpose is to mark the goods so that at the time of purchase the ultimate purchaser may, by knowing where the goods were produced, be able to buy or refuse to buy them, if such marking should influence his will." Thus, the country of origin marking requirement is somewhat protectionist in nature, as was the Tariff Act of 1930 generally.

To be fair, many consumers are interested in knowing about a product's country of origin before they buy it, and in some cases, consumers may have a reasonable concern about the quality or safety of food produced in a particular country or region. Or they may simply want to support domestic agriculture. Therefore, we might acknowledge this is protectionism with a consumer-right-to-know element.

The United States is not alone in imposing the requirement. Our major trading partners also require country of origin labeling on imported goods, and in many other countries food products are more likely to require country of origin labeling than in the U.S. A report recently prepared by the Government Accounting Office (GAO) documented this. These requirements, although somewhat unfriendly toward free trade, have not been formally challenged as inconsistent with the World Trade Organization (WTO) agreements.

This brings us to the 2002 Farm Bill. The bill establishes mandatory country of origin labeling for beef, lamb, pork, fish, peanuts, and "perishable agricultural commodities" (i.e., produce, including fresh and frozen fruits and vegetables). Together, these are referred to as the "covered commodities." The law states that retailers of these foods must inform consumers of the country of origin of these foods at the point of sale.

Notice that the requirement applies to both domestic and imported foods. Thus, it requires all beef and other covered commodities in grocery stores to be identified either as a product of the United States or of some other country. It also places the ultimate burden of compliance on retailers rather than food producers. (Restaurants and certain small businesses are exempt.) The country of origin may be indicated on the label, in the case of packaged foods, or by means of a placard or sign. If the country of origin is indicated on a food's label, the retailer's obligation for that product is met.

From a practical standpoint, this means grocery stores will need to ensure that the country of origin of every covered commodity in the store is identified. It also means that at least to some extent, U.S.-produced beef, lamb, pork, fish, and produce will be sought out by retailers and consumers. And retailers will be asking their suppliers for information regarding country of origin. In some cases, retailers may be asking suppliers to guarantee that their information is correct and/or indemnify the retailer in the event of an enforcement action. One effect of all this may be the diversion of imported foods from grocery stores to restaurants.

The Farm Bill required USDA to issue guidelines for voluntary compliance with these provisions in 2002. Those guidelines were published in the Federal Register on October 11, 2002. The law further states that COOL becomes mandatory for the covered foods on September 30, 2004, and USDA shall issue any regulations needed to implement COOL no later than that date.

Regarding enforcement, the law provides that the U.S. Department of Agriculture (USDA) may fine retailers not more than $10,000 for each violation, but only after first issuing a warning and allowing the retailer to take necessary steps to come into compliance during a 30-day period.

The law states that COOL is not required for a covered commodity that is present as an ingredient in a processed food. USDA's guidelines explain this provision in greater detail.

With the September 2004, deadline looming, many in the food industry are now grappling with the burdens associated with COOL. At the time of this writing, USDA is expected to issue the proposed regulations soon. For now, it can be reasonably assumed that they will resemble the existing guidelines for voluntary compliance.

Predictably, COOL has supporters and detractors. The biggest supporters are purely domestic producers of the covered commodities: beef, lamb, pork, fish, and perishable agricultural commodities. Consumer advocacy organizations such as Public Citizen also support COOL. Detractors include foreign producers of the covered commodities and many in the food industry who handle covered commodities.

Representative Collin Peterson of Minnesota has introduced a bill in Congress, HR 3083, dubbed "COOL Lite," aimed at reducing the burden associated with country of origin labeling for these products. At the time of this writing, it's too early to predict whether any changes in the law will actually come about before COOL takes effect in September 2004.

What's clear is that COOL will continue to have highly polarized supporters and detractors, and the amount of resources expended in this area will likely eclipse the benefit that flows to the consumer. In this regard, COOL is certainly not the only item of information required to appear on food labels that may be of questionable value when the cost is compared to the benefit. Nevertheless, if the Tariff Act of 1930 is any indication, our trading partners can be expected to review their own country of origin labeling requirements and, if they have not already done so, adopt similar provisions.

DAVID JOY is a partner at the Washington, D.C., law firm of Keller and Heckman LLP. He specializes in food and drug law with emphasis on the domestic and international regulation of food, food additives, food labeling, antimicrobial pesticides, and medical devices. He is a member of the District of Columbia Bar and holds a bachelor's degree in chemistry. For more information about Keller and Heckman, visit the firm's web site at www.khlaw.com.

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