[Federal Register Volume 61, Number 153 (Wednesday, August 7, 1996)]
[Rules and Regulations]
[Pages 40963-40981]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 96-20075]


=======================================================================
-----------------------------------------------------------------------

DEPARTMENT OF HEALTH AND HUMAN SERVICES

Food and Drug Administration

21 CFR Part 101

[Docket No. 94N-0031]
RIN 0910-AA19


Food Labeling; Nutrition Labeling, Small Business Exemption

AGENCY: Food and Drug Administration, HHS.

ACTION: Final rule.

-----------------------------------------------------------------------

SUMMARY: The Food and Drug Administration (FDA) is amending its food 
labeling regulations to modify the basis on which low-volume food 
products of small businesses are exempted from the requirements for 
nutrition labeling. The regulations also establish a notification 
procedure for small businesses to claim exemption for qualifying food 
products. This final rule is in response to the Nutrition Labeling and 
Education Act Amendments of 1993 (the 1993 amendments), and it is 
intended to provide an understanding of how the small business food 
labeling exemption provisions of the 1993 amendments operate.

DATES: The effective date of this rule is October 7, 1996.
    Submit written comments on the information collection requirements 
by October 7, 1996. This information collection has been approved by 
the Office of Management and Budget (OMB) for 90 days, under OMB 
control no. 0910-0324.

ADDRESSES: Submit written comments on the information collection 
requirements to the Dockets Management Branch (HFA-305), Food and Drug 
Administration, 12420 Parklawn Dr., rm. 1-23, Rockville, MD 20857.

FOR FURTHER INFORMATION CONTACT: Gerad L. McCowin, Center for Food 
Safety and Applied Nutrition (HFS-151), Food and Drug Administration, 
200 C St. SW., Washington, DC 20204, 202-205-4561.

SUPPLEMENTARY INFORMATION:

I. Background

A. Procedural

    On November 8, 1990, the Nutrition Labeling and Education Act of 
1990 (Pub. L. 101-535) (the 1990 amendments) was enacted. This new law 
amended the Federal Food, Drug, and Cosmetic Act (the act) in a number 
of important ways. One of the most notable aspects of the 1990 
amendments is that they added section 403(q) to the act (21 U.S.C. 
343(q)). This section, as amended by the Nutrition Labeling and 
Education Act Amendments of 1993 (Pub. L. 103-80) (the 1993 amendments) 
and the Dietary Supplement Health and Education Act of 1994 (Pub. L. 
103-417) (the DSHEA), provides that, with certain exceptions, a food, 
including both conventional foods and dietary supplements, is 
misbranded unless its label or labeling bears certain nutrition 
information (nutrition labeling).
    Among the exceptions that Congress made to the nutrition labeling 
requirement was one for small businesses based upon the value of their 
gross sales (section 403(q)(5)(D) of the act). Following the expression 
of concerns by small businesses about the narrow coverage of the 
exemption and about the problems that relatively small firms would have 
in meeting the requirements of the new law, Congress passed the 1993 
amendments establishing a new exemption for low-volume food products of 
small businesses under section 403(q)(5)(E) of the act. This section 
provides that low-volume products of small businesses need not be 
nutrition labeled.
    What constitutes a low-volume food product is defined in the act by 
the number of units of the product sold per year; what constitutes a 
small business is defined by the number of full-time equivalent 
employees (FTE's) that the firm employs. For a food product to be 
exempt under this section, a small business must file a notice with FDA 
claiming the exemption and providing information as to: (1) The average 
number of FTE's for itself and all of its affiliates and (2) the 
approximate number of units of its sales in the United States for each 
product for which an exemption is claimed. For products that were on 
the market before May 8, 1994, the 1993 amendments provide a gradual 
phase-down of what constitutes a low-volume food product of a small 
business. The number of units decreases from ``fewer than 600,000'' for 
the 12-month period before May 8, 1994; to ``fewer than 400,000'' for 
the 12-month period before May 8, 1995; to ``fewer than 200,000'' for 
the 12-month period before May 8, 1996; and to ``fewer than 100,000'' 
thereafter. The number of FTE's starts at ``fewer than 300'' through 
May 8, 1995, decreases to ``fewer than 200'' for the year before May 8, 
1996, and down to ``fewer than

[[Page 40964]]

100'' thereafter. Products that initially come onto the market after 
May 8, 1994, are subject to the ``fewer than 100,000 unit and 100 FTE'' 
limit.
    Thus, the 1993 amendments provide additional time before low-volume 
food products of small businesses must conform with the requirements 
for nutrition labeling. By doing so, the 1993 amendments permit small 
businesses to use up stocks of labels, thereby reducing the costs of 
label inventory disposal, and to avoid having to compete for design and 
printing resources with larger firms. By providing that no food product 
from a firm having fewer than 100 employees and for which there are 
sales of fewer than 100,000 units per year will have to be nutrition 
labeled (at least until after May 8, 2002), the 1993 amendments save 
small firms the expense of nutrient analysis and preparation of new 
labels for those products.
    Under the provisions of the 1993 amendments, as noted above, 
persons that claim an exemption for a low-volume food product must file 
an annual notice with FDA claiming the exemption. For products on the 
market before May 8, 1994, the first such notice was due May 7, 1994, 
and a second notice was due on May 7, 1995 (section 403(q)(5)(E)(iii) 
of the act). Although the filing of the notice is necessary for an 
exemption, it does not entitle a firm to an exemption. Under section 
403(q)(5)(E)(I)(I) and (q)(5)(E)(ii) of the act, a product is not 
exempt if its labeling provides nutrition information or bears a 
nutrient content or health claim.
    One other aspect of the small business exemption is relevant for 
background purposes. In providing the new exemption for low-volume food 
products of small businesses (section 403(q)(5)(E) of the act), 
Congress noted that FDA had misinterpreted its intent as related to the 
small business exemption in the 1990 amendments, which is based upon 
total gross sales, by applying it to manufacturers, packers, and 
distributors in addition to retailers (section 403(q)(5)(D)). However, 
recognizing that FDA had issued regulations that small businesses were 
relying on, Congress provided that section 403(q)(5)(D) of the act 
would apply to all firms through May 7, 1995, but only to firms that 
sell directly to the consumer (i.e., retailers) after that date 
(Statement of Explanation, H.R. 2900, 139 Congressional Record H6358 
(August 6, 1993)).
    The 1993 amendments were self-effectuating in establishing the 
provisions for exemption from nutrition labeling for low-volume foods 
of small businesses. In passing the 1993 amendments, Congress was 
concerned that action be taken quickly. In discussing the need for 
quick action, Senator Bumpers noted that: ``To come into compliance 
with the May 1994, effective date of the Nutrition Labeling and 
Education Act requirements, small businesses must in the very near 
future begin to incur the cost of initiating product analysis and 
labeling redesign.'' (139 Congressional Record S10818 (August 6, 1993.)
    Further, in introducing H.R. 2900 (the bill that became the 1993 
amendments) for consideration, Senator Kennedy stated that: ``No action 
or response by the FDA is required for the exemption to be in place. 
Businesses with fewer than 10 employees, which sell fewer than 10,000 
units of products, are (not) required to file any notice with the 
FDA.'' (139 Congressional Record S10817 (August 6, 1993).) The 
provisions of the 1993 amendments became effective upon their enactment 
on August 13, 1993.
    Although FDA recognized that the 1993 amendments were self- 
effectuating, it concluded that rulemaking would be useful in providing 
a common understanding of how the exemption provisions operate. Thus, 
to facilitate implementation of the 1993 amendments, FDA published in 
the Federal Register of March 14, 1994, a proposal entitled ``Food 
Labeling; Nutrition Labeling, Small Business Exemption'' (hereinafter 
referred to as ``the small business exemption proposal'') (59 FR 11872) 
to: (1) Modify Sec. 101.9(j)(1)(21 CFR 101.9(j)(1)) and 
Sec. 101.36(f)(1) (21 CFR 101.36(f)(1)), which provide for a small 
business exemption based upon gross sales, to reflect the provisions of 
the new law, (2) incorporate the provisions for exemption of low-volume 
food products of small businesses, and (3) establish procedures for the 
filing with FDA of notices from small businesses claiming exemptions 
for low-volume food products.
    FDA received 30 letters, each containing one or more comments, to 
the small business exemption proposal. The responses were received from 
trade and retail associations, Federal and State government agencies, 
and industry. A number of the comments supported various aspects of the 
proposal. Several comments addressed issues outside the scope of this 
proposal, which will not be responded to here. A number of comments 
suggested modifications in, or were opposed to, various provisions of 
the small business exemption proposal. A summary of the arguments and 
changes suggested by these latter comments, and the agency's responses, 
are provided below.

B. FDA's Experience with the Filing of Notices

    Before responding to the comments, it may be informative to discuss 
FDA's experience with the notices that have been submitted claiming 
exemptions under the 1993 amendments. FDA began receiving notices 
almost immediately after enactment of the 1993 amendments with 
approximately 150 notices being received by March 14, 1994, when it 
published the small business exemption proposal. Approximately, 3,600 
more notices were received by May 7, 1994, the date when all such 
notices were to have been filed for products already on the market. The 
agency has continued to receive notices from firms claiming exemption 
for products that had been on the market before May 8, 1994, as well as 
notices for new firms and new products.
    Although not required by the 1993 amendments to approve or even 
review the notices, FDA has maintained a file on each notice and has 
attempted to acknowledge receipt of the notice. One of FDA's first 
steps following receipt of a notice has been to record the name and 
address of the firm in a computer data base. In establishing and 
maintaining its file of notices claiming an exemption, FDA has reviewed 
each notice to determine whether it contained the basic information on 
the number of employees and the number of units of food products sold 
by the firm in the United States. Finally, FDA has issued a letter 
acknowledging receipt of the notice for each notice that appeared to 
contain complete information and appeared to, in fact, be qualified for 
the exemption.
    One of the intended uses of the computer data base information on 
firms that had submitted notices to the agency was to develop for FDA 
field offices and State enforcement agencies a list of firms that had 
submitted notices claiming an exemption under the provisions of the 
1993 amendments. Enforcement action under the 1990 amendments was 
delayed until after August 8, 1994, by enactment of Pub. L. 103-261 on 
May 26, 1994. This public law extended the time period for compliance 
with the provisions of section 403(q) of the act until after August 8, 
1994, for certain food products. By August 8, 1994, FDA had received 
approximately 6,000 notices claiming exemption under the 1993 
amendments. Between that time and the present, FDA has received 
approximately 3,000 notices from

[[Page 40965]]

additional firms claiming exemptions under the 1993 amendments.
    In August 1994, FDA made its data base of the names and addresses 
of each firm that had submitted a notice under the provisions of the 
1993 amendments available to its field offices and State enforcement 
agencies through a computer bulletin board system called ``FDA PRIME 
CONNECTION,'' which is maintained by the agency. FDA also placed 
information concerning the names and addresses of foreign firms and 
American importers filing notices on a second bulletin board system 
called ``FIARS'' (``FDA Import Alert Retrieval System'') that is 
available to FDA's import offices. FDA's enforcement offices were 
advised to review these listings to determine whether a firm had 
submitted a notice under the 1993 amendments if a product appeared to 
be out of compliance with the nutrition labeling requirements of the 
act.
    As stated above, under the 1993 amendments, the notice claiming an 
exemption must be resubmitted every 12 months. The anniversary date for 
most such notices, i.e., those covering products on the market before 
May 8, 1994, is May 7th of each year. By May 7, 1995, FDA had received 
just over 1,100 notices claiming a continued exemption for food 
products for the time period of May 8, 1995, to May 7, 1996, under the 
provisions of section 403(q)(5)(E)(ii)(II) of the act. In the beginning 
of June, the agency sent a letter to each firm that had not yet renewed 
its exemption reminding it of the need to submit a new exemption notice 
to claim exemption for eligible products for the time period of May 8, 
1995, to May 7, 1996. The reminder letter asked that the notices be 
submitted to the agency by July 10, 1995. By July 31, 1995, FDA had 
received a total of approximately 4,000 notices for the time period of 
May 8, 1995, to May 7, 1996. A small number of firms responded to the 
June reminder letters by stating that they were out of business or had 
revised the labels of their products to comply with the requirements 
for nutrition labeling.
    A small number of the notices submitted to the agency were 
deficient, or inconsistent with the provisions of the 1993 amendments, 
in one or more aspects. A small number of the notices were deficient in 
that they did not supply information on the average number of FTE's or 
the number of units of product sold in the United States. Others were 
deficient in that they did not name the products sold in the United 
States for which the firm was claiming exemption. Some notices were 
inconsistent with the provisions of the 1993 amendments in that the 
average number of FTE's was 300 or more, or the number of units sold in 
the United States was 600,000 or more. To the extent that its resources 
permitted, FDA contacted by telephone or by mail those firms that had 
submitted notices that were deficient or contained information 
inconsistent with the provisions of the 1993 amendments. In some cases, 
products appeared to be ineligible for the exemption without further 
clarification; e.g., a bakery claimed an exemption for ``cookies'' and 
listed total sales of less than one million units. Upon questioning 
concerning the information in the notice, the firm advised that it 
produces several different types of cookies, none with sales of greater 
than 100,000 units. While resolving such questions, FDA has retained 
the firm's name and address in the data bases for exempt firms and for 
products. There were some instances where FDA advised firms submitting 
notices that one or more products listed in their notice were not 
exempt from nutrition labeling because either they did not qualify as a 
small business or the product was not a low-volume food product. In 
such a case the firm or the product were removed from the computer 
listing of exempt firms or exempt products.

II. The Final Rule

A. Provisions Rendered Moot by Passage of Time

    Certain provisions contained in the small business exemption 
proposal are subject to timeframes, after which they no longer have an 
effect. Proposed Sec. 101.9(j)(1)(i) would have provided an exemption 
until May 7, 1995, for food offered for sale by a manufacturer, packer, 
or distributor based upon the firm's gross sales. Proposed 
Sec. 101.9(j)(18)(i)(A) would have provided an exemption for low-volume 
food products for the time period of May 8, 1994, to May 7, 1995. The 
passage of time has rendered both of these proposed provisions moot. 
Accordingly, FDA is not incorporating Sec. 101.9(j)(1)(i) and 
(j)(18)(i)(A) as proposed on March 14, 1994 (59 FR 11880), and is 
renumbering the remaining paragraphs in Sec. 101.9(j)(1) and (j)(18) in 
this final rule. Because Sec. 101.9(j)(1)(ii) is identical to the 
existing regulation, it will not be set out in this final rule.

B. Dietary Supplements

    On January 4, 1994, before it issued the small business exemption 
proposal, FDA issued final rules on nutrition labeling and nutrient 
content claims for dietary supplements. At that time, the act provided 
an exemption from nutrition labeling for dietary supplements of 
vitamins or minerals but not for dietary supplements of herbs or other 
nutritional substances. Thus, in the small business exemption proposal, 
FDA included provisions for conventional foods and dietary supplements 
of herbs and other nutritional substances under proposed 
Sec. 101.9(j)(18) and for dietary supplements of vitamins and minerals 
under proposed Sec. 101.36(f)(2).
    The DSHEA amended section 403(q)(5)(F) of the act to eliminate the 
distinction between dietary supplements of vitamins or minerals and 
dietary supplements of herbs and other nutritional substances. In 
addition, even though the nutrition labeling and nutrient content claim 
requirements for dietary supplements were to go into effect on July 1, 
1995, in the wake of the DSHEA, FDA published a notice on February 9, 
1995 (60 FR 7711), in which it stated that, given the need to modify 
its regulations on nutrition labeling and nutrient content claims for 
dietary supplements to respond to the DSHEA, it did not intend to 
enforce those regulations until after December 31, 1996. The agency 
published a document proposing appropriate changes to its regulations 
for the nutrition labeling and nutrient content claims for dietary 
supplements on December 28, 1995 (60 FR 67194).
    FDA notes that the DSHEA does not alter the exemption for low-
volume food products created by the 1993 amendments as they relate to 
the submission of notices to claim exemption for dietary supplements. 
The agency has received some notices claiming exemption for dietary 
supplements under the provisions of the 1993 amendments even though the 
agency has yet to enforce the labeling requirements with respect to 
this class of products. FDA is unaware of any basis for not moving 
forward to establish provisions for the exemption of dietary 
supplements under the 1993 amendments. None of the comments on the 
small business exemption proposal raised a question about its 
application to dietary supplements. To streamline the regulations and 
to be consistent with the manner in which other exemptions and special 
labeling provisions are listed under Sec. 101.36(g)(21 CFR 101.36(g)), 
FDA has modified Sec. 101.36(f) to cross-reference the small business 
exemption in Sec. 101.9(j)(1) and the exemption for low-volume food 
products of small businesses in Sec. 101.9(j)(18), rather than codify 
those exemptions in Sec. 101.36.

[[Page 40966]]

C. Definition of ``Person''

    1. Two comments stated that the agency should clarify that the 
exemption is available to private label packers and distributors as 
well as to manufacturers. The comments urged that FDA state that a 
``person'' entitled to apply for the low-volume food product small 
business exemption includes a manufacturer, a packer, or a distributor 
of such food products. The comments stated that the clarification that 
they suggested is consistent with the law and with the preamble to the 
proposal and would prevent confusion over the exclusion of 
manufacturers, packers, and distributors from the exemption based on 
gross sales.
    FDA agrees that the 1993 amendments should be interpreted to give 
as much relief to small businesses as can fairly be provided. FDA 
recognizes that, by tracking the language of the 1993 amendments and 
using the term ``person'' in the proposal, the agency may not have made 
clear that all types of small businesses are eligible to submit a 
notice for the exemption for low-volume foods. The agency has modified 
Sec. 101.9(j)(18) to clarify that a small business, whether it is a 
manufacturer, a packer, a distributor, including an importer or a 
retailer that introduces the food into interstate commerce, is eligible 
to claim an exemption for a low-volume food product under the 1993 
amendments.
    2. One comment stated that the ``person'' claiming the exemption 
for a product should not be limited to the manufacturer or the company 
whose name is on the label of the food product. The comment argued that 
the person that is the exclusive sales agent for a firm's products also 
should be able to file the notice. The comment argued that, because the 
1993 amendments consistently refer to the person who claims an 
exemption for a food product, the exemption need not be linked to the 
manufacturer of the product but can be claimed by the firm that makes 
sales of the food product in the United States. The comment stated that 
the focus of the 1993 amendments is on making accountable the person 
who presents the product to the consumer. The comment identified three 
provisions of the 1993 amendments that it stated supported its 
position:
    (1) The law does not mandate that one affiliate (manufacturing) 
instead of another (marketing) file the notice,
    (2) The very small business exemption from the notice requirement 
applies to a person who sells fewer than 10,000 units of a food product 
in a year, and
    (3) A notice may be filed by importers, who of course are not 
manufacturers of the products they handle.
    The comment concluded that the exclusive sales agent knows the 
total number of units of a food product sold in the United States and 
can make an accurate statement of those sales on the notice.
    As noted in response to the preceding comment, FDA agrees that the 
law does not mandate that the ``person'' filing the claim be the 
manufacturer or the company whose name is on the label. The agency 
agrees that an exclusive sales agent can file a notice claiming an 
exemption for a low-volume food product under the 1993 amendments.
    This comment interprets the intent of the 1993 amendments too 
narrowly, however, by linking the exemption directly to the seller of 
the food product, as opposed to the manufacturer, repacker, or 
distributor. The 1993 amendments are silent in defining what type of 
small business constitutes the ``person'' that may submit a notice 
claiming an exemption for a low-volume food product. The only specific 
requirement that relates to that person is that the average number of 
FTE's of the person, and of all of its affiliates, be fewer than the 
number established as the standard by the statute (i.e., less than 300 
between 1994 and 1995, less than 200 between 1995 and 1996, and less 
than 100 after that date or less than 100 for any product initially 
introduced into interstate commerce on or after May 8, 1994). The 
modification to Sec. 101.9(j)(18) that FDA has made in response to 
comment 1 in section II.C.1. of this document will adequately address 
the concerns of this comment.
    3. Several comments addressed the relationship of affiliated firms 
to those firms claiming an exemption under the provisions of the 1993 
amendments. One comment stated that the guiding notion in defining 
``affiliate'' should be whether one entity actually exercises control 
over a small food company. It stated that indirect and unexercised 
control should not create the status of affiliate. The comments argued 
that tenuous relationships linking far flung affiliates, and standard 
contractual arrangements that permit small food companies to exist, 
should not be considered an affiliation.
    The Statement of Explanation presented by Mr. Waxman in presenting 
the bill that became the 1993 amendments explains that:

    Section 403(q)(5)(E)(vi)(III) defines person, in the case of a 
corporation, to include all domestic and foreign affiliates of the 
corporation. The FDA should consider the regulations issued by the 
Small Business Administration on this issue. 13 CFR. 131.401 (sic) 
(1993).

(139 Congressional Record H6358 (August 6, 1993).)

    Section 121.401 of Title 13 of the Code of Federal Regulations (13 
CFR 121.401) sets out the provisions established by the Small Business 
Administration (SBA) concerning affiliation. (FDA presumes that the 
reference in the Congressional Record to 13 CFR 131.401 was a 
typographical error because that section does not involve the question 
of affiliation.) 13 CFR 121.401 provides a general rule on the 
determination of affiliation plus more specific instructions on how to 
determine whether affiliation exists between two firms. Among other 
things, 13 CFR 121.401 states that size determinations shall include 
the applicant concern and all its domestic and foreign affiliates. 
Moreover, all affiliates, regardless of whether organized for profit, 
must be included. Concerns are affiliates of each other when either 
directly or indirectly one concern controls or has the power to control 
the other; or a third party or parties controls or has the power to 
control both; or an identity of interest between or among parties 
exists such that affiliation may be found. In determining whether 
affiliation exists, consideration shall be given to all appropriate 
factors, including common ownership, common management, and contractual 
relationships.
    FDA agrees with the comment that stated that standard contractual 
arrangements, to the extent that they do not create an identity of 
interest, should not be considered as evidence of affiliation. However, 
the other comments on affiliation are inconsistent with the provisions 
of 13 CFR 121.401. The other comments argued that affiliation is not 
present if an entity is not actually exercising control over the 
affiliate. The SBA regulation provides, however, that concerns are 
affiliates of each other when one ``controls or has the power to 
control.'' None of the comments attempted to explain how their 
suggested interpretations of the term ``affiliation'' were consistent 
with 13 CFR 121.401.
    Because the suggestion for the interpretation of affiliation 
presented in the comments is not consistent with the congressional 
intent, as evidenced by the Statement of Explanation, FDA concludes 
that modification of the meaning of ``affiliation'' as suggested by the 
comments would be improper, and the agency is not making the suggested 
change. To reduce the potential for confusion over the use of the term

[[Page 40967]]

``affiliate'' in its regulation, however, FDA is modifying the 
definition of the term ``person'' in Sec. 101.9(j)(18)(vi)(C) to 
include a reference to 13 CFR 121.401 as defining ``affiliate.''
    4. One comment stated that FDA should not expand upon Congress' 
definition of ``person'' to include, for companies that are not 
corporations, all affiliates of that company.
    FDA recognizes that the 1993 amendments specifically refer to 
corporations when stating that: ``the term `person' in the case of a 
corporation includes all domestic and foreign affiliates of the 
corporation.'' Accepting the view that the 1993 amendments are silent 
with respect to how entities other than corporations are to be treated, 
the fact remains that section 201(e) of the act (21 U.S.C. 321(e)) 
states that the ``term `person' includes individual, partnership, 
corporation, and association.'' Even though the 1993 amendments are 
silent as to how persons other than corporations should be treated, 
there is nothing that suggests that those persons should be treated 
differently than corporations. None of the comments presented any basis 
for treating these other persons differently than corporations. 
Therefore, FDA concludes that the best approach would be to treat all 
persons the same. Thus, in Sec. 101.9(j)(18)(vi)(C), the term 
``person,'' as relates to an entity that is not a corporation, includes 
all affiliates as defined in 13 CFR 121.401 for purposes of section 
403(q)(5)(E) of the act.

D. Definition of ``Unit''

    5. Some comments stated that whether a food is a low-volume food 
product should be based upon the number of units of a food product for 
which the packer or distributor is responsible, regardless of the 
number of similar units produced by its manufacturer for other persons. 
These comments stated that FDA has inadequately explained in the 
proposal how the number of units criterion and the definition of ``food 
product'' should be applied to private label food products. They stated 
that a private label packer or distributor that is a small business 
should be able to apply for, and claim the benefit of, the small 
business exemption based on the number of units of food products the 
packer or distributor sells annually under its own private label. They 
reasoned that this approach would be consistent with the agency's 
explanation of the application of the small business exemption based 
upon gross sales, where the name of the firm on the label determines 
responsibility for the label for the purpose of determining the firm 
that must have sales of less than $500,000 for purposes of section 
403(q)(5)(D) of the act, which was passed as part of the original 1990 
amendments. The comments stated that FDA's interpretation of 
eligibility for exemption under the 1993 amendments should be 
consistent with its interpretation under the 1990 amendments.
    Having evaluated these comments and the notices that it has 
received over the past year, FDA concludes that there are some basic 
misunderstandings about the products that are eligible for exemption 
under the 1993 amendments, particularly with respect to how to count 
units in determining whether a product is a low-volume food product. 
The comments also evidence a belief that the agency has considerable 
leeway in its interpretation of the 1993 amendments. To the contrary, 
the 1993 amendments are highly specific and prescriptive in providing 
an exemption from the requirements of mandatory nutrition labeling for 
low-volume food products of small businesses and leave little room for 
interpretation by FDA.
    It is not clear that those submitting the comments understand fully 
the differences between the exemption for small businesses under the 
1990 amendments and the exemption under the 1993 amendments. In 
presenting guidance on the 1990 small business exemption in ``Food 
Labeling QUESTIONS AND ANSWERS'' (Office of Food Labeling, FDA, August, 
1993), FDA stated that, for a food to be eligible for the exemption, 
the firm that was responsible for the labeling of the food, i.e., the 
firm whose name appeared on the label of the food product, would be the 
firm whose total gross sales would be considered; that is, the firm 
whose gross sales must be less than $500,000 for the product in 
question to be eligible for exemption.
    Under section 403(q)(5)(E) of the act, which was added by the 1993 
amendments, however, whether a food product is eligible for exemption 
is based on two factors, neither of which involves the value of the 
firm's gross sales. One factor is the number of employees of the firm 
that is submitting the notice claiming the exemption (see the 
discussion above under section II.C. of this document on the definition 
of ``person'' and the discussion under section II.F. of this document 
on ``calculation of average number of FTE's.'' The other is the number 
of units of the product that is sold in the United States. The latter 
factor is the one that is not well-understood by the comments.
    Under section 403(q)(5)(E) of the act, whether a food product is a 
low-volume food product, and, thus, eligible for the exemption, is not 
dependent on the identity of the firm claiming the exemption. This 
determination depends only on the total number of units of that 
specific food product that are sold in the United States (see, e.g., 
section 403(q)(5)(E)(I)(IV) of the act).
    A specific food product is defined by three parameters: (1) Its 
being from a single manufacturer or bearing the same brand name; (2) 
bearing the same statement of identity; and (3) having a similar method 
of preparation (section 403(q)(5)(E)(vi)(II) of the act). This 
definition means that, in counting the number of units of a food 
product, e.g., a cake mix, for purposes of claiming an exemption, firms 
must consider: (1) The total number of units of the cake mix produced 
by the manufacturer for sale to consumers in the United States 
regardless of the brand name under which it is packaged and (2) the 
total number of units of the cake mix labeled under one brand name, 
regardless of the number of manufacturers that produced it. If either 
number exceeds the low-volume criteria, the product is not eligible for 
the exemption.
    Presume, for example, that a manufacturer produces one million 
packages or units of a cake mix for sale in the United States. The cake 
mix is not a low-volume food product and, thus is not eligible for 
exemption under the 1993 amendments, even if the manufacturer ships all 
of the product in equal quantities to 20 small businesses, and each 
puts its own brand name on the cake mix that it sells. Alternatively, 
if one million packages of a cake mix are made in equal quantities by 
20 different manufacturers, but all bear the same brand name, the cake 
mix is not eligible for exemption under the 1993 amendments, even if 
each of the manufacturers has less than 100 employees, because, again, 
it is not a low-volume food product.
    On the other hand, a food product could be eligible for the 
exemption even though it is manufactured by a large firm, if the food 
product qualifies as a low-volume food product. If a manufacturer with 
too many employees to qualify for the exemption were to make a product 
under another firm's brand name, the product may qualify as a low-
volume food product if the sales of that private formula food product 
are less than the applicable number defining a low-volume food product.
    In the case of the cake mix, for example, presume that a small 
business with only 15 employees contracts with 1 large copacker or 
manufacturer to

[[Page 40968]]

make 50,000 units annually of that small business's special private 
formula cake mix which is not available to any other firm. In such a 
case, the private formula cake mix would be exempt under the 1993 
amendments upon the submission of a notice by the small business 
claiming an exemption, regardless of the number of employees of the 
copacker and regardless of the amounts of other products that the 
copacker produces. The cake mix would be exempt because the firm 
claiming the exemption is small (15 employees), and the cake mix is a 
low-volume food product (neither the total number of units produced for 
sale in the United States, nor the total number of units sold under the 
brand name in question, exceed 50,000).
    In summary, contrary to the assertions by the comments, under the 
1993 amendments (section 403(q)(5)(E) of the act), and in contrast to 
the small business exemption established in the 1990 amendments 
(section 403(q)(5)(D) of the act), the size of the company listed on 
the label of a food product is not necessarily determinative of whether 
that product is exempt from the nutrition labeling requirement. While 
that firm must be a small business (that is, have less than the 
requisite number of employees) to be eligible to claim an exemption, 
the number of products sold in the United States must be below the 
requisite levels for the product to be eligible for the exemption, and 
that number may include products sold by companies other than the 
company that is seeking the exemption. A product qualifies for the 
exemption under section 403(q)(5)(E) of the act only if the company 
submitting the notice is small, and the product is a low-volume food 
product.
    6. Several comments stated that the suggested method for counting 
products from a private label manufacturer that was in the small 
business exemption proposal was inappropriate. One comment suggested 
that the 600,000-unit exemption be based on the sales/production of the 
firm that takes control of (i.e., owns) the label and packaging on 
which nutrition information would otherwise be included. According to 
the comments, in many cases, that firm will be the private-label 
manufacturer; in other cases, that firm will be the distributor and 
marketer.
    Another comment stated that a private label distributor should be 
able to claim an exemption if the number of units sold in the United 
States under the distributor's own label meets the statutory 
requirement. The comment explained that it would defeat the purpose of 
the exemption to require a distributor to aggregate all units of a food 
produced by a common manufacturer and sold by other firms. Such an 
interpretation, according to the comment, would require a small 
distributor that sells a food in a low-volume to provide nutrition 
labeling, contrary to Congress's intent to relieve the burden on such 
firms. The comment noted that the approach that it was suggesting is 
the only feasible way in which the exemption provision can be 
administered because a distributor cannot know how many units of the 
food produced by the particular manufacturer were sold in the United 
States by other distributors under other brand names. Another comment 
stated that the proposed requirement that a private label manufacturer 
count all production in determining whether it is eligible for the 
exemption is inconsistent with the 1993 amendments and may produce a 
hardship on ``mom and pop stores'' that cannot produce product on their 
own, particularly if each has to supply labels to the manufacturer for 
labeling of the product.
    FDA agrees that the intent of the 1993 amendments was to provide 
relief for small businesses. In considering the intent of the 1993 
amendments, it is important to remember that Congress amended a section 
of the act (section 403(q)) that was added by the 1990 amendments. The 
overall intent of the 1990 amendments is to ensure that nutrition 
information is available on almost all foods marketed in the United 
States. The 1993 amendments were enacted to provide relief for small 
businesses from the economic burden of having to nutrition label low-
volume food products. This fact does not mean, however, that Congress 
intended to exempt all products that bear the name of small businesses. 
Rather, Congress sought to exempt those products that, because of the 
size of the firm that sold them and the number of units of the product 
that were sold, would likely be discontinued by the firm because the 
costs of relabeling would be too great to make continued marketing of 
the product economically feasible. Thus, Congress tailored the 
qualifications for an exemption to meet these goals.
    Congress apparently felt that, in circumstances where a firm that 
sells the product is small, but the firm that manufactures it is large 
and manufactures it for other firms as well, in numbers that exceed the 
``low-volume'' standard, it is reasonable to expect that the larger 
company would assist the smaller company in coming into compliance with 
the law by, for example, providing nutrition information for the 
product. Regardless of whether it is reasonable to expect that a firm 
will not place its suppliers or customers in jeopardy of violating the 
law, it is FDA's responsibility to ensure that there is compliance with 
the provisions of the 1993 amendments.
    Section 403(q)(5)(E)(vi)(II) of the act states that a ``food 
product'' means food in any sized package that is manufactured by a 
single manufacturer, bears the same statement of identity, and has 
similar methods of preparation. Thus, if a manufacturer makes 1,000,000 
units of a ``cola'' for six private label soft drink firms, 1,000,000 
must be used as the number of units for each firm for the purposes of 
deciding whether that firm's ``cola'' is eligible for the small 
business exemption for the purposes of section 403(q)(5)(E)(i) or 
403(q)(5)(E)(ii) of the act. It is important to note that in both of 
the latter provisions, the statute is talking about ``units of such 
product [that] were sold in the United States,'' not about the units of 
such product that were sold in the United States by the person seeking 
the exemption.
    7. Several comments addressed FDA's proposal that, in counting 
units, a small business must total all units of all of the various 
sizes in which a food is packaged and all of the ways it is sold 
unpackaged. These comments claimed that this proposed definition of 
``unit'' by the agency basically eliminated the exemption for their 
firms. Noting that the intent of Congress was to mitigate cost to small 
businesses, another comment stated that it would be severely damaged if 
food in any sized package that is manufactured by a single 
manufacturer, no matter what the brand name, is considered a unit of 
that food. One comment complained that FDA's interpretation is blind to 
the cost of changing each label size for low-volume packages, and that 
it overlooked the congressional intent to mitigate the cost of labeling 
conversion for small manufacturers. The comment proposed that the first 
year exemption for small businesses under 300 employees be allowed on 
all packages under 600,000 units of sales per year provided that 
printing films are different. Another comment stated that the proposed 
definition does not take into account exactly what is a ``Package/
Label.'' The comment stated that FDA should allow individual, distinct 
packages of a food product, as defined by the UPC (Universal Product 
Code) number, to be counted separately in determining exemption 
eligibility, rather than the proposed combination of all types of 
products and sizes of packages.
    One comment supported the agency's definition of ``units.'' The 
comment

[[Page 40969]]

stated that it would be absurd and contrary to congressional intent to 
exempt the many identical products made by a private label manufacturer 
on the theory that each individual brand label was produced at levels 
below the regulatory maximum.
    The agency agrees with the latter comment and finds that the others 
present suggestions that are contrary to the 1993 amendments. FDA 
understands the concerns that are being raised by the comments. FDA has 
no desire to implement the 1993 amendments unfairly, but it is its duty 
to enforce the law in accordance with its terms.
    In the counting of units, it is the definition of ``food product'' 
that is controlling. That definition states that a food product 
includes food in any sized package which is manufactured by a single 
manufacturer or which bears the same brand name. Given that being 
manufactured by a single manufacturer is alternative to bearing the 
same brand name, it means that products manufactured by the same 
manufacturer that do not bear the same brand name would still be 
considered a single product as long as they meet the other aspects of 
the definition of ``food product.'' Thus, FDA's definition is fully 
consistent with the act.
    FDA is aware of the various factors that pose economic burdens to 
small businesses that are identified by these comments, but it still 
has an obligation to implement the act as written. In the face of the 
statute, given the use of the words ``in any sized package'' in the 
definition of ``food product,'' it is apparent that Congress decided 
not to take into account the additional factors to which the above 
comments point. Although the agency recognizes that the use of 
different printing films or different UPC numbers would provide greater 
economic relief for small businesses, as noted above, FDA is bound by 
the terms of the act. Neither of these considerations are permitted or 
even addressed in the 1993 amendments. As explained above, FDA's 
approach is fully consistent with, and responds to, the act.
    8. One comment objected to FDA's definition of a unit for soft 
drinks as being the individual bottle rather than the case, noting that 
there might as well not be a small business exemption for their 
industry.
    FDA was well aware of the concern raised by this comment and 
attempted to address it in the small business exemption proposal. In 
that proposal, FDA stated that, if the individual cans or bottles of a 
case or carton were labeled in accordance with the provisions for 
multiunit packages under Sec. 101.9(j)(15), the case or carton could be 
treated as a single unit for the purpose of counting units of food 
product (59 FR 11872 at 11874). To be in compliance with 
Sec. 101.9(j)(15), the individual can or bottle of a multiunit package 
must bear the statement ``This Unit Not Labeled For Retail Sale.'' This 
possibility still exists for producers of soft drinks.
    However, as noted in the small business exemption proposal, soft 
drinks are not normally packaged in this manner, but instead they are 
packaged in bottles or cans that are amenable to sales either as 
individual packages or as part of a carton or a case. Historically, 
consumers have often been able to mix individual flavors of particular 
soft drinks when purchasing them by the carton or case. Thus, FDA 
tentatively concluded in the proposal that the total number of 
individual cans or bottles of a soft drink is controlling for the 
purpose of counting the number of units sold in the United States.
    In considering this comment on how units of soft drinks should be 
counted, the agency has reviewed its tentative conclusions on this 
matter. FDA now finds that there is a basis for counting the cases or 
cartons of cans or bottles of soft drinks as individual units for the 
purposes of the 1993 amendments. FDA agrees that there may be instances 
where a case of soft drinks should be considered to represent a unit. 
In the proposal, FDA stated its tentative finding that the case is a 
convenience used by the manufacturer to deliver 12 or 24 individual 
units to the customer. As noted above, this finding was based on the 
historical practice of the consumer being able to mix units of soft 
drinks when purchasing a case of 24 bottles. However, upon considering 
this matter as part of its review of the comment, FDA recognizes that 
there may be instances where the unit being sold to the consumer is the 
carton or the case of soft drinks. Such situations would be those where 
soft drinks are sold in cartons or cases that are sealed or have 
plastic over-wraps that deter individual sales or mixing of individual 
cans or bottles in the carton or case. FDA agrees that a firm may count 
such sealed cartons or cases as individual units for the purpose of a 
claim under the 1993 amendments, regardless of whether the individual 
units are labeled in accordance with Sec. 101.9(j)(15), if the firm has 
evidence of the extent to which its soft drink is sold by the carton or 
case instead of by the individual can or bottle. FDA notes that if a 
firm intends to rely upon the provisions of the 1993 amendments to 
claim an exemption from the requirements of nutrition labeling for one 
of its products, then it is incumbent upon that firm, for the purpose 
of reporting the number of units, to have knowledge of how the product 
is sold to the consumer.
    9. Two of the comments stated that FDA should clarify how units 
should be counted for a product that is not sold in a package. One 
comment representing foreign firms noted the potential differences in 
marketing in the United States as compared to another country and the 
difficulties a foreign firm faces in learning about U.S. marketing 
practices. The comment suggested that FDA include in the final rule 
that the counting of units could be based upon a person's reasonable 
determination of U.S. marketing practices even if that determination 
deviated somewhat from actual marketing practices in the United States. 
Another comment requested that FDA clearly set forth in the preamble 
accompanying the final regulation how this aspect of the ``unit'' 
definition (i.e., sales of food not in package) will be applied to 
confectionery and similar items sold individually and priced by weight.
    FDA recognizes that estimating the number of units of a product 
that is sold to consumers in an unpackaged form may be difficult for a 
firm seeking to submit a notice claiming exemption under the 1993 
amendments, particularly for a foreign firm. This is especially true 
for candies which were mentioned in these two comments. Depending upon 
the type of candy and its quality, a particular product may be sold at 
retail by the piece (either because it is expensive or for a low price, 
such as penny candy); by the half-pound or by the pound; or by the 
package. In such a case, the candy manufacturer would total the number 
of units sold by the piece or by the half-pound (or the pound) with 
those sold in packages to determine the total number of units of candy 
sold in 12 months. It is incumbent upon the firm that provides an 
approximation of the number of units of a product sold in the United 
States as part of a claim for exemption from nutrition labeling under 
the provisions of the 1993 amendments to have adequate knowledge of the 
sales of that product in the United States. This knowledge is necessary 
for the firm to be able to report accurately in its notice claiming 
exemption the number of units that it sold.
    FDA has modified the instructions contained in Appendix II to 
provide more details on the counting of units of a food that is sold 
unpackaged. The agency has retained in Sec. 101.9(j)(18) language from 
the 1993 amendments as

[[Page 40970]]

the appropriate description of how to count units of a food that is 
sold unpackaged. FDA is concerned that to be more specific in the 
regulations may reduce the degree of flexibility available under the 
definition of ``unit.'' This definition (section 403(q)(5)(E)(vi)(I) of 
the act) provides that ``the term `unit' means the packaging or, if 
there is no packaging, the form in which a food product is offered for 
sale to consumers.'' Many foods are sold to the consumer in an 
unpackaged form, such as by the piece, by the slice, or by a measured 
amount. Thus, to comply with definition of ``unit,'' a small business 
would include in its count of units in a notice claiming an exemption 
under the 1993 amendments both packaged and unpackaged product. The 
agency provided an example of counting units of unpackaged food 
products for flour in the proposal (59 FR 11872 at 11874). As stated in 
the proposal (59 FR 11872 at 11874), the small business should make its 
determination of the specific ``unit'' to use as a basis for reporting 
sales of unpackaged food products according to the normal sales 
practice for that food product in the United States.

E. Definition of ``Food Product''

    10. Although some comments commended FDA for its definition of 
``similar method of preparation,'' discussed in the preamble of the 
small business exemption proposal (59 FR 11872 at 11875), some comments 
asked for further clarification of the definition, in particular as it 
related to nutritive value. One comment stated that the definition of 
``food product'' must be limited to the factors referred to in the 1993 
amendments. The comment added that the 1993 amendments link the 
definition of ``food product'' to the food's statement of identity and 
neither explicitly nor implicitly permit the use of nutritive value as 
a factor in distinguishing one food product from another. Other 
comments, however, encouraged the use of the concept of ``nutritive 
value.''
    One comment stated that FDA should incorporate into the regulation 
the preamble language that explains the intended meaning of ``similar 
preparation methods,'' including an explanation of criteria that will 
allow businesses to determine when the lack of similarity of their 
products' nutritional profiles is such that they must consider products 
to be different than each other. One comment stated that products that 
have the same common or usual name, have identical nutrition profiles, 
but that are subjected to different scheduled processes because of the 
size of their container, should be counted as the same product. The 
comment added that products that are basically the same but have 
differing names for differing shapes/forms, such as taco shells and 
chalupa shells, which are both forms of tortilla shells, should be 
counted as the same product.
    Another comment stated that FDA should clarify that variations of a 
product with formulation differences, such as different flavors, are 
considered different ``food products'' for purposes of the small 
business exemption. The comment stated that the preamble to the 
proposal stated that the term ``similar preparation methods'' included 
``all aspects in the manufacture of the food product, from the initial 
steps of determining the ingredients to be used, i.e., formulation * * 
*'' (59 FR 11872 at 11875). The comment stated that this statement 
should be set forth in the final regulatory text itself, along with 
language to the effect that even minor formulation differences, such as 
differences in flavor ingredients in some cases, result in two 
different food products, regardless of whether the formulation 
differences result in differences in nutrient profiles between the two 
different food products. The comment noted that for many firms and many 
products there will be no way of determining whether two similar 
products have the same nutrient profile without nutrient analyses of 
each product. The comment added that requiring small businesses to 
undertake such analyses solely for the purpose of ascertaining whether 
they qualify for the small business exemption would undermine much of 
the benefit of the exemption and be contrary to the congressional 
intent.
    After considering the various comments seeking clarification of the 
term ``similar method of manufacture,'' FDA has decided to adopt the 
definition for ``food product'' that it proposed. Also, after reviewing 
the comments, FDA is emphasizing that consideration of nutritive value 
is not a necessary consideration in the definition of ``similar 
preparation methods.'' The comments appear to have misinterpreted FDA's 
intent as it relates to the use of ``nutritive value'' of foods.
    Although the legislative history for the 1993 amendments discusses 
what is meant by ``statement of identity,'' it provides no insight into 
what factors led Congress to establish ``similar preparation methods'' 
as the third factor in the definition of ``food product.'' The agency 
intended that the concept of ``nutritive value'' could be used by firms 
as an informal guideline in determining whether the manufacturing 
processes for food products meet the parameter of ``similar preparation 
method.'' FDA had presumed that firms would be faced with situations 
where there were minor differences in the method of preparation that 
would lead them to question whether the food products should be counted 
as being the same. FDA was stating that a firm could use nutritive 
value as a determinant in resolving this question. The agency did not 
mean to imply that if two foods prepared by dissimilar processes were 
found to have the same nutritive value they should be considered to be 
the same food product. Further, FDA did not intend that firms should 
analyze foods to determine nutritional value to determine whether they 
should be considered to be different foods because to expect firms to 
do so would be contrary to the intent of the 1993 amendments.
    The agency has included an additional discussion in Appendix II 
concerning the term ``similar preparation methods'' to assist firms 
that submit notices to FDA under the 1993 amendments. However, the 
agency is not providing further explanation of the meaning of the term 
``similar preparation methods'' in the regulations. FDA is concerned 
that any attempt to elaborate on a definition of ``similar preparation 
methods'' would only result in a regulation that is more restrictive 
than the statutory definition.
    FDA agrees with the comment that urged that minor differences in 
scheduled processes or differences in shapes for the same product 
should not be considered as resulting in different products. FDA does 
agree, however, that differences in formula, even differences that 
involve different flavors, would be sufficient to consider foods having 
such differences to be different food products.
    11. One comment requested that FDA clarify in any final rule that 
similar foods whose preparation methods result in different nutritional 
profiles represent only one example of different ``food products'' for 
exemption eligibility purposes. The comment stated that the agency 
should make clear that other significant differences in preparation 
that do not affect nutrient content, such as kosher preparation, can 
also serve to differentiate ``food products'' for exemption eligibility 
purposes. The comment also noted that certain such differences, like 
kosher preparation, but for being symbolically rather than expressly 
declared in labeling, also would differentiate products in terms of a 
distinguishing statement of identity (e.g., ``kosher green beans'' as 
compared to ``green beans''), thereby contravening the second

[[Page 40971]]

element of the ``food product'' definition.
    As discussed in response to the previous comment, this comment 
misinterprets the way in which FDA had meant for the concept of 
nutritive value to be used. FDA had never intended that the concept of 
nutritional value should be used as a basis for concluding that food 
products with differing methods of preparation but the same levels of 
nutrients should be considered the same food product for the purpose of 
counting units. However, the comment raises the issue of whether both 
perceived and real differences in the method of preparation should be 
considered in distinguishing between food products.
    A determination of whether real and perceived differences 
distinguish particular foods can only be made on a case-by-case basis. 
It is not possible to provide guidelines that would cover every case. 
FDA believes that real differences, such as differences in formulation 
or differences in preparation, would be used to distinguish a 
``Kosher'' product as a different food product. However, there may be 
steps in the production of a ``Kosher'' product that would not 
distinguish it from a nonkosher product; e.g., the comment mentioned 
rabbi inspection as a step that distinguishes kosher food products from 
other food products. FDA does not agree that rabbi inspection would be 
sufficient to result in differing food products for the purposes of the 
1993 amendments. As noted above, such distinctions will have to be made 
on a case by-case-basis.
    12. One comment suggested that identically formulated products in 
different size packages or types of packages should be considered 
different ``food products'' for purposes of the small business 
exemption.
    This suggested approach is contrary to the wording in the 1993 
amendments themselves. The definition of food product states: `` `food 
product' means food in any sized package'' (section 
403(q)(5)(E)(vi)(II) of the act). This wording makes clear that, for 
the purpose of counting units of a food product, all of the various 
sizes and forms in which a food product is sold are to be combined. 
Thus, FDA cannot modify the definition for ``food product'' in the 
manner suggested in the comment because to do so would be contrary to 
the 1993 amendments themselves. (See comment 7 in section II.D. of this 
document.)

F. Calculation of the Average Number of FTE's

    13. Three comments raised questions concerning the proposed 
provision that the average number of FTE's should be based upon the 
total number of individuals employed by the firm and by all of its 
affiliates, both domestic and foreign. Two comments stated that, for 
the purpose of calculating the average number of FTE's, the employees 
that are considered should be limited to those of the firm claiming the 
exemption and not of separately incorporated affiliates. One of the 
comments contended that including employees of unrelated businesses 
would severely undermine the purpose and scope of the amendment. The 
comment stated that a fundamental assumption of the amendment is that 
each product is an independent ``profit center,'' and, accordingly, 
nutrition information is only mandated when it is economically feasible 
given the economies pertaining to the production and sale of an 
individual food item. Although family owned retail confectioners often 
are involved in other business enterprises, the comment continued, the 
size or nature of those outside business interests is irrelevant to 
whether the retail confectioner can cover the cost of nutrition 
labeling of a particular item.
    One comment stated that, in the explanation of the term ``FTE,'' 
FDA added a discussion that links this definition with the definition 
of ``person.'' The comment stated that the effect is to require that 
the employees of a domestic company be combined with those of an 
affiliate company regardless of whether their operations are related to 
sales of food products in the United States. The comment stated that 
there is nothing in the 1993 amendments that points to or requires this 
conclusion. The comment argued that the relevant issue is how many 
employees were employed in the United States, not overseas and not in 
unrelated positions.
    FDA disagrees with the conclusion that is reached in these 
comments. Each of the above comments raises the same basic argument, 
that the calculation of the average number of FTE's should be based 
only on the employees of the company submitting a notice claiming an 
exemption under the 1993 amendments and then only on those employees 
involved in the production of the food product for sale in the United 
States. Although the comments state that nothing in the 1993 amendments 
supports the approach proposed by FDA, they do not provide specific 
citations to language in the 1993 amendments or the legislative history 
of the 1993 amendments that support their conclusions. One comment said 
that a fundamental assumption of the 1993 amendments is that each 
product is a ``profit center'' but did not offer a citation to where 
this assumption is either explicit or implicit in the 1993 amendments. 
FDA concludes that the approach suggested by the comments is contrary 
to the clear meaning of the 1993 amendments.
    In introducing H.R. 2900 (the bill that became the 1993 
amendments), Congressman Waxman stated:

certain small businesses will have extreme difficulty complying with 
the NLEA by May 8, 1994. * * * Under the amendments, qualifying 
businesses will be given 1 to 3 additional years to comply with the 
NLEA. After May 8, 1997, any business with fewer than 100 employees 
can qualify for an exemption for any products for which it sells 
fewer than 100,000 cans or other units per year.

(139 Congressional Record H6358 (August 6, 1993).)

    The 1993 amendments state as criteria under which a product would 
be exempt from the requirements for mandatory nutrition labeling that 
``the person who claims for such product an exemption from such 
paragraphs employed fewer than an average of 100 full-time equivalent 
employees'' (section 403(q)(5)(E)(i)(II), or 300 or 200 in the cases of 
subparagraphs I and II or III of section 403(q)(5)(E)(ii) of the act, 
respectively). In describing the notice to be filed to claim an 
exemption under the 1993 amendments, section 403(q)(5)(E)(iii) of the 
act states that the notice shall ``state the average number of full-
time equivalent employees such person employed during the 12 months 
preceding the date such person claims such exemption.'' In providing 
for the exemption of low-volume food products from nutrition labeling, 
the 1993 amendments state that ``the term `person' includes all 
domestic and foreign affiliates of the corporation'' (section 
403(q)(5)(E)(vi)(III) of the act). As noted above, the ``Statement of 
Explanation'' for H.R. 2900 also explains: ``Section 
403(q)(5)(E)(vi)(III) defines person, in the case of a corporation, to 
include all domestic and foreign affiliates of the corporation. The FDA 
should consider the regulations issued by the Small Business 
Administration on this issue.'' FDA is unaware of any further 
discussion on the calculation of the average number of FTE's in the 
1993 amendments or related legislative history. Contrary to what was 
suggested by one comment, there is no indication that FTE's should only 
be determined based on those employees that are related to the

[[Page 40972]]

production of the food that is the subject of the notice. In fact, the 
clear implication is to the contrary. Both the 1993 amendments and 
their legislative history state that the term ``person'' includes both 
domestic and foreign affiliates.
    FDA finds that the above references in the 1993 amendments and 
their legislative history are unambiguous as to the calculation of the 
average number of FTE's for a firm or other person submitting notice 
claiming an exemption under the 1993 amendments. Thus, the notice 
claiming an exemption must state the average number of FTE's of the 
firm or person submitting the notice, including the employees of all 
domestic and all foreign affiliates as defined in 13 CFR 121.410. 
Further, because neither the 1993 amendments nor their legislative 
history make a distinction with respect to the business of the 
affiliates, the average number of FTE's must be reported based on all 
the employees of all affiliates regardless of the nature of the 
business of the affiliate. Given the language of the 1993 amendments 
and their legislative history, FDA finds that no other interpretation 
of how the average number of FTE's is to be determined is reasonable.
    14. One comment stated that the average number of FTE's should be 
based on actual hours worked in a year, 1,824 (i.e., the time that a 
person that is actually on the job) instead of the proposed 2,080. The 
comment provided the following explanation of the derivation of 1,824 
hours as the amount of actual hours worked in a year:

    An hourly person paid only for amount of time on the job is on 
the job only 1,824 hours (2,080-80 annual, -80 sick, -96 for 12 
holidays = 1,824 hours). Using 2,080 hours instead of 1,824 would 
allow a firm to omit the declaration of a ``ninth'' employee for 
every eight full-time employees.

Another comment stated that FDA should retain its proposed method for 
determining the number of employees and should maintain the 2,080 hour 
denominator for the calculation.
    There are any number of approaches that FDA could have used to 
define ``full-time'' for use in calculating the average number of 
FTE's. For any particular situation, however, each possible denominator 
might over- or undercount the actual number of persons. For example, a 
firm may hire large numbers of part-time employees for which it does 
not provide vacation or sick leave hours. Other firms may have more 
generous or less generous annual leave provisions. Still other 
companies may recognize fewer or more holidays. For this reason, FDA 
tentatively decided to simply take the standard full-time work week 
established by the Department of Labor, 40 hours, and multiply by the 
number of weeks in a year, 52, to obtain the number to be used in the 
denominator for calculating the average number of full-time employees. 
Although FDA recognizes the concern of the comment that suggested using 
1,824 hours as the denominator, the use of 1,824 could result in a 
hardship to those small businesses that provide less amount of time for 
leave or holidays per employee than suggested by the comment in that it 
would lead to an overcounting of employees. The agency concludes that 
use of 2,080 as the denominator provides an equitable approach for a 
formula to be used in determining the average number of full-time 
equivalents and is retaining this value in its regulations.
    15. One comment stated that FDA should consider as employees only 
those persons for whom the small business pays income and social 
security taxes. The comment stated that the calculation of average 
number of FTE's should not include all ``individuals that render 
service'' to a company, which would include lawyers, mail carriers, and 
accountants that are not under the direct employ of the small business. 
The comment stated that FDA should narrow the definition of employee, 
and that, in case of doubt, the approach of the Internal Revenue 
Service could provide guidance. Another comment stated that FDA should 
reconsider who it counts as employees to exclude contract distribution 
personnel. The comment explained that many small businesses use route 
salesmen to service retail establishments. These route salesmen were 
described by the comment as independent small businessmen who receive 
compensation from the manufacturers usually as a percentage of the 
sales. The comment stated that firms should not be precluded from 
qualifying for the exemption because they chose this form of 
distribution for their products.
    The small business exemption proposal stated that the average 
number of FTE's ``shall be determined by dividing the total number of 
hours of salary paid directly to individuals, or companies that employ 
those individuals, that render service to the person.'' In proposing 
the definition in this way, FDA was attempting to ensure that persons 
calculating the average number of FTE's considered all employees (e.g., 
all owners, officers, the secretarial staff, and part-time employees) 
of the firm and not just those that are directly involved full-time in 
the production and sales of food products. The agency had seen this as 
a potential problem because some of the early notices submitted to the 
agency had reported ``0,'' ``Zero,'' or ``None'' as the average number 
of FTE's.
    After reviewing the comments and the language of the proposed 
definition for an FTE, FDA finds that the explanation for the 
calculation of the average number of FTE's was overly broad and subject 
to confusion. For example, FDA agrees that it is not normally necessary 
to include in the determination of FTE's individuals that perform 
services for the small business as part of the responsibilities of 
their employment, such as the mailman, fireman, policeman, or even 
grocery store clerk. FDA finds that such individuals need not be 
included in the count of the average number of FTE's unless they work 
for an affiliate of the firm.
    The agency has modified the definition of the term an FTE in 
Sec. 101.9(j)(18)(vi)(D) to narrow it to refer simply to ``employees'' 
instead of all individuals that render service to the firm. To ensure 
that there is no misunderstanding of which employees to count, FDA is 
also modifying the discussion of the calculation and reporting of the 
average number in Appendix II to refer to the ``employees of the person 
and of all of its affiliates.''

G. Small Business Food Labeling Exemption Notice

    16. Two comments suggested changes in the model form that the 
agency included as Appendix I to the proposal. One comment suggested 
that the agency include a place on the form for the telephone and FAX 
numbers of the firm. The comment stated that the form or instructions 
should also contain the address to which the form is to be mailed. The 
other comment stated that the small business food labeling exemption 
notice should be modified, printed, and made available to the public. 
The comment suggested use of a form prepared by the National 
Association for the Specialty Food Trade, Inc. (NASFT) because it 
claimed that the NASFT form is less confusing than the one that the 
agency provided. The comment stated that the model form should make a 
clear statement referencing the provisions of 18 U.S.C. 1001 that 
prohibit the submission of false information to the Federal Government. 
The comment also stated that FDA should make the modified form publicly 
available.
    FDA has modified the form in line with the comments and has 
included the modified form in Appendix I to this

[[Page 40973]]

final rule. The agency contacted the NASFT to gain its agreement that 
the agency could incorporate parts of NASFT's form into the form 
supplied by FDA. FDA has modified the form to include spaces for a 
telephone number and a FAX number. In reviewing notices, FDA has found 
that use of the telephone is frequently an expeditious way of resolving 
questions that arise. The agency has also made the address to which the 
form should be sent more prominent in the instructions.
    FDA has also modified the form to include specific spaces for the 
date that the form was prepared and for the name of a contact person. 
The agency has found that information on the date of preparation is 
important to help keep multiple notice submissions separate. The name 
of a specific contact person for a firm has helped the agency to 
resolve rapidly questions that have arisen during its review of a 
notice.
    Because it has received numerous inquiries as to whether a form 
exists for the submission of the notice, FDA is providing a model form 
in Appendix I of this document, along with instructions for completing 
it in Appendix II of this document. This model form may be used by 
firms to claim exemptions. FDA advises, however, that it is not 
necessary to use this form.
    The agency also advises that the small business exemption for a 
food product will be in effect once a notice has been filed with FDA, 
even though it may be necessary for the Office of Food Labeling to work 
with the firm that is filing the notice to address deficiencies in it. 
Although no action by the agency is required, FDA will attempt to 
review all notices to ensure that they are complete and to notify 
companies of the receipt of the notice, and whether additional 
information needs to be submitted.
    FDA is initiating the steps necessary to obtain approval from the 
Office of Management and Budget (OMB) for printing and distribution of 
the ``model form'' as an official Government form. OMB approval is 
required under provisions of the Paperwork Reduction Act of 1995.
    17. One comment stated that the section of the notice requesting 
information on the manufacturer of a product, if it is other than the 
person claiming the exemption, is irrelevant and should not be 
required. The comment stated that adding irrelevant information 
increases the paperwork burden, forces companies to give the Government 
unnecessary information, and enlarges the scope of the 1993 amendments. 
The comment suggested that FDA may be asking for the name of the 
manufacturer because it hopes to exclude from the small business 
exemption small companies that have product made by a copacker.
    The 1993 amendments require that the firm filing a notice provide 
information on the total number of units that it sold in the United 
States in the preceding year. As a number of comments stated, and as 
FDA agrees, a firm can only be held responsible for knowing, and 
reporting, the number of units that it sold, not the total number of 
units of a product sold in the United States by all firms that might 
sell the product. However, as noted above in response to comment 5 in 
section II.D. of this document, whether a food product is eligible for 
exemption under the 1993 amendments depends not on the total number of 
units sold in the United States by the firm claiming the exemption, but 
it depends on the total number of units sold in the United States by 
all firms that sold the food product. In the case of a manufacturer or 
exclusive sales agent, the total number of units sold in the United 
States may well be the number reported by the firm claiming the 
exemption. In the case of an own-label distributor, the total number of 
units sold in the United States may include sales by firms other than 
the firm claiming the exemption.
    FDA has included space in the model form for the listing of the 
manufacturer, if it is not the person submitting the notice, to enable 
the agency, if necessary, to identify instances in which the total 
number of units of a food product sold in the United States might 
exceed the applicable number for eligibility for exemption under the 
1993 amendments. FDA seeks this information not to unfairly harass 
small businesses, but to ensure that there is a level playing field so 
that firms are not at a competitive disadvantage. Equally importantly, 
FDA is seeking the information to ensure that consumers have access to 
nutritional information on products when they have a right to it.
    In its discussion with firms that were preparing notices to claim 
exemption under the 1993 amendments, FDA has become aware that firms 
may not always know the identity of the manufacturer of the product, 
particularly if it is an imported product. If this is the case, FDA is 
asking the person that submits a notice under the 1993 amendments to 
identify the firm from which they received the product if he or she is 
unaware of the identity of the manufacturer of the product.
    18. Some comments stated that FDA should allow additional time for 
firms to submit the notice claiming the exemption. One comment 
suggested 6 months in view of the short time span between the 
publication of the proposal and the May 7, 1994, filing date for 
notices. One comment raised a concern about the requirement that 
notices be filed by May 7th of each year and the attendant lack of 
flexibility. Another comment stated that no firm should have to refile 
for exemption before May 8, 1995.
    These comments seem to be based on a belief that FDA has more 
flexibility in the establishment of the date for filing of the notice 
claiming an exemption than is actually provided by the 1993 amendments. 
Most of the concerns raised by these comments have become moot with the 
passage of time. The concern about the inflexibility of the May 7 date 
for the submission of notices apparently arose from the agency's 
statement in the preamble that ``[A]ll notices must be filed by May 7, 
1994, for the 12-month period beginning May 8, 1994, the date that the 
new mandatory labeling regulations become effective'' (59 FR 11872 at 
11876). FDA advises that the May 7, 1994, date derives directly from 
section 403(q)(5)(E)(iii) of the act, which requires that the notice 
claiming exemption under the 1993 amendments be submitted ``prior to 
the beginning of the period during which the exemption under subclause 
(i) or (ii) is to be in effect.'' Thus, May 7 was established as the 
date for submitting the claim for exemption for the 12-month periods 
beginning May 8th of 1994, 1995, or 1996. The agency has no authority 
to change this requirement.
    FDA notes that a person is not restricted to the May 7 date for the 
submission of a notice claiming an exemption under the provisions of 
section 403(q)(5)(E)(i) of the act. Such a notice may be submitted on 
any date as long as it is submitted before the beginning of the period 
during which the exemption is to be in effect.
    19. Two comments stated that it should be permissible to submit a 
claim for an exemption within a reasonable time after the marketing of 
a new food product has begun.
    As noted above, a food is misbranded if it does not bear nutrition 
labeling and is not exempt under one of the exemptions provided by the 
1990 and the 1993 amendments. Because the exemption for a firm's low-
volume food products provided by the 1993 amendments is not in effect 
until the firm has submitted a notice to FDA claiming the exemption 
(with the exception of firms other than importers that have less than 
10 employees and do not sell more than 10,000 units of the

[[Page 40974]]

particular food product), a low-volume food product from a small 
business would be misbranded if marketed without nutrition labeling 
before the notice claiming exemption has been submitted.
    The 1993 amendments do not give FDA the authority to provide for a 
reasonable time after a product has been marketed for the submission of 
a notice claiming an exemption under the 1993 amendments. If a firm 
begins marketing a product without nutrition labeling before submitting 
such a notice, the product is subject to regulatory action. As noted 
above, FDA supplies its field personnel and State enforcement agencies 
with a listing of all firms that have filed notice for exemption under 
the 1993 amendments. Firms that wait to submit a notice until after 
they have begun marketing a product run the risk of regulatory action 
because their name does not appear on that list.
    FDA recognizes that many small businesses may not have adequate 
resources to be aware of all of the requirements for nutrition labeling 
on their products or for claiming an exemption. Thus, during the past 
year, FDA has exercised discretion and restraint with respect to firms 
that have marketed products before having filed the necessary notice 
claiming exemption. While the agency intends to continue to exercise 
such restraint, the agency urges firms that expect to market a food 
product that will not bear nutrition labeling because it is exempt 
under section 403(q)(5)(E) of the act to notify the agency of this fact 
before marketing the product.
    20. In the small business exemption proposal, FDA described 
generally the approach that it intended to take to review and verify 
the various notices that it received from small businesses claiming the 
exemption for low-volume food products (59 FR 11872 at 11876). The 
agency asked for comments on this general approach, stating that it 
might provide in the final rule specific requirements for the 
verification of notices, including a provision for inspection.
    Several comments asked that FDA clarify how it would verify the 
appropriateness of notices claiming an exemption under the 1993 
amendments. Most of these comments stated that a firm should be able to 
supply the necessary verification by mail. Several comments expressed 
their belief that no additional recordkeeping requirements should be 
imposed.
    In its review of the approximately 13,000 notices that it has 
received since enactment of the 1993 amendments, FDA has attempted to 
follow the general approach to reviewing and verifying notices that it 
outlined in the proposal. The agency has considered notices to be 
acceptable, regardless of their format or approach, as long as they 
supplied the basic information, that is, the name and address of the 
firm claiming the exemption, an estimate of the number of employees, a 
listing of the products for which exemption was claimed, including 
brand names, and the approximate number of units of each of those 
products sold by the firm in the United States. Although the 1993 
amendments do not require review and approval of the claim by FDA for 
the exemption to be in effect, FDA is briefly reviewing each notice. 
This review is directed at four areas: (1) Did the notice provide an 
estimate of the number of employees; (2) did the notice provide the 
identity of the specific food products for which an exemption was 
claimed; (3) did the notice provide the approximate number of units of 
each food product that the firm sold in the United States in the 12 
months preceding the period for the exemption; and, (4) based on the 
information in the notice, did the product appear to be a low-volume 
food product (e.g., were total annual sales in the United States 
between May 8, 1993, and May 7, 1994, less than 600,000 units)?
    In its review, FDA has used a flexible approach to resolve 
questions concerning the information contained in the notices. In the 
first year, for approximately 90 percent of the notices, FDA found the 
information in the notice itself to be adequate to justify the claimed 
exemption. In the remainder, where questions arose concerning the 
notices, FDA used two approaches for resolving questions. If the notice 
raised a fairly straight-forward question, such as the number of 
employees because the number was not included in the notice, the agency 
called the firm by telephone if a telephone number was available and 
asked that the firm supply the missing information, either over the 
telephone or by mail. For more complex questions, such as whether the 
notice included products that did not qualify as low-volume food 
products, e.g., it listed products bearing brand names for large 
national corporations, the agency contacted the firm either by 
telephone or by letter and requested that the firm modify its notice to 
include only those products that qualified as low-volume food products 
based on total sales in the United States.
    As noted above, the agency found it necessary during the first year 
under the provisions of the 1993 amendments to ask for verification or 
additional information for only a small percentage of the notices 
submitted. Based on its experience to date, FDA finds that there is no 
need to provide specific requirements in the final rule for the 
verification of notices. As was stated in the small business exemption 
proposal, companies should be prepared to provide information to FDA to 
support their notices of exemption should FDA question the validity of 
any information contained in those notices (59 FR 11872 at 11876).
    21. A number of comments disagreed with the preamble discussion 
that the 1993 amendments provide FDA access to firms' records for 
verification of exemption notices and emphasized that FDA should not 
use the 1993 amendments as a basis for gaining unintended access to 
records.
    Section 403(q)(5)(E)(iii)(IV) of the act provides that the notice 
shall contain such information as the Secretary of Health and Human 
Services (the Secretary) may require to verify the information that is 
required to be in the notice if the Secretary has questioned the 
validity of such information. In the preamble to the small business 
exemption proposal, FDA stated that it might provide in the final rule 
that companies claiming the exemption will be required to permit 
inspection of supporting documentation. Because it has not had 
sufficient experience to have developed a clear view of what such an 
approach would involve, FDA is not including a requirement concerning 
inspection of records in the regulations set forth below.
    Although FDA continues to hold that the use of an inspection is an 
appropriate means for obtaining verification information, it agrees 
that section 403(q)(5)(E)(iii)(IV) of the act does not give it free 
access to all records of a firm. There must be some question about the 
validity of information in a notice claiming an exemption under section 
403(q)(5)(E) of the act for the agency to obtain such access. Secondly, 
the information sought must have a nexus to: (1) The number of 
employees of the firm, (2) the number of units of product sold in the 
United States, and (3) proof that the product is a low-volume food 
product. Any other review of records is not authorized by the 1993 
amendments.
    The agency will normally first try to verify the validity of the 
information, or otherwise resolve the question that arises, by 
telephone or mail. However, contrary to the assertion of some comments, 
there is nothing in the 1993 amendments that prohibits FDA from 
obtaining through inspection the information necessary to verify the 
validity of information in a notice. It is

[[Page 40975]]

FDA's intent only to use an inspection to obtain verifying information 
if it is the way that is most likely to produce the information 
necessary to verify the validity of the notice. FDA has yet to resort 
to inspection of records as an approach to verifying the information in 
a notice.
    22. Several comments stated that the proposed verification process 
appeared to be burdensome. Some comments stated that any question 
concerning eligibility could be promptly and efficiently addressed by 
requesting written verifying information. The comments noted that the 
1993 amendments contemplate that firms will be entitled to the 
exemption simply by claiming it, absent an FDA request for supporting 
documentation. The comments stated that, if there is a need for 
supporting documentation to resolve doubt about the propriety of the 
claimed exemption, FDA may simply demand that the information be 
provided, or else the exemption will be revoked.
    These comments are mistaken in their concern that the proposed 
verification process is overly burdensome. However, as noted above, 
until it has more experience in what is necessary to verify the 
validity of a notice, FDA is not revising the regulations to specify 
how it will verify the accuracy of notices, or what information is 
necessary for such verification. As noted above, the agency found it 
necessary during the first year to ask for verification or additional 
information for only a small percentage of the notices submitted. FDA 
agrees with the various comments that supplemental information to 
verify the validity of a notice should be limited to that information 
that is already maintained by the firm and should not require the 
development of new records.
    23. A number of comments addressed the requirement for a 
certification statement as part of the notice. One comment stated that 
the requirement was burdensome because it would impose business costs 
and legal liability not contemplated by Congress and not provided for 
by the amendments. Another comment stated that the certification 
requirement should be deleted, noting a number of factors that mitigate 
against the need for the certification statement, including the fact 
that FDA can request verification, that anybody providing false 
information commits a punishable criminal offense, and that FDA can 
declare the product misbranded. One comment stated that a firm should 
not be put in the position of having to certify that second-hand 
information, such as the amount of production of a copacker, that it 
cannot verify, is true and accurate. One comment stated that the 
certification requirement should be eliminated, particularly the part 
about notifying FDA when it becomes ineligible, because it exceeds 
statutory authority provided by the amendments, is contrary to 
congressional intent, and imposes burdens on small businesses. One 
comment stated that FDA should clarify that a company would only be at 
risk of criminal prosecution if it had intentionally and knowingly 
provided false information.
    FDA included the certification statement as a requirement of the 
notice claiming an exemption under the 1993 amendments as a 
confirmation to the agency of the expected; that is, that the 
information being submitted to the agency complied with the 
requirements of 18 U.S.C. 1001 and contained only valid information. 
FDA disagrees with the comments that this requirement creates 
additional liabilities for the firms or is burdensome. Most comments 
were aware of 18 U.S.C. 1001 and the prohibition that it contains on 
the submission of false information to a Government agency. This 
prohibition exists regardless of whether a notice contains a signed 
certification from the firm.
    Moreover, the certification statement serves as the initial 
verification of the validity of the information in a notice. As 
evidenced by the tone of some of the comments, firms will take greater 
care to ensure the validity of the information in a notice if a 
responsible individual has to certify to the accuracy of the 
information. FDA notes that some of the forms that it has received that 
were devised by firms and associations contain more expansive 
certification statements than that proposed by FDA. Some of these 
certifications, for example, contained a statement that there was no 
nutrition information or claims on the label for any of the products 
included in the notice.
    FDA notes that the greatest concern seems to be over the 
requirement that a firm notify FDA when a product is no longer eligible 
for the exemption. FDA included this commitment as part of the 
certification requirement to ensure that the firm is aware of the 
provision in the 1993 amendments that the firm has 18 months after its 
product no longer qualifies for the exemption to bring the label into 
compliance. The requirement that a firm notify FDA if it becomes 
ineligible for the exemption is thus fully consistent with the act and 
the agency's authority to adopt regulations for its efficient 
enforcement. (See section 701(a) of the act.)
    The agency emphasizes that it is asking firms to certify the 
accuracy of the information that they are submitting as it relates to 
the operations of their firm only. This information should be readily 
available to the firm in records maintained during the normal course of 
its business. Contrary to what was stated by one comment, FDA is not 
asking a firm to certify to information unknown to it such as the 
volume of sales of a copacker that produces product for the firm.
    24. One comment stated that FDA should take pains to explain its 
plans for protecting confidential business information included in 
notices.
    FDA advises that any trade secret or confidential commercial 
information submitted in notices is protected by the safeguards against 
inappropriate release that are provided by the agency's regulations in 
part 20 (21 CFR part 20) for the release of information under the 
Freedom of Information Act.

H. Miscellaneous Issues

    25. One comment stated that FDA should not single out imports for 
enforcement of noncompliance.
    FDA advises that it has been acting to ensure that there is 
compliance with the new labeling regulations in as evenhanded a manner 
as possible with respect to both foreign and domestic firms. The agency 
initiated its enforcement efforts for domestic products on August 8, 
1994, the date after which the nutrition labeling and nutrient content 
claim requirements of the act became applicable (see Pub. L. 103-261, 
enacted May 26, 1994). FDA initiated its import enforcement efforts on 
September 19, 1994. The approach that the agency's district offices 
take when they encounter a noncompliant label is similar for both 
domestic product and imported products. Copies of the agency's domestic 
and import enforcement assignments explaining the approaches being 
taken have been placed on public display under this docket number.
    26. One comment stated that FDA's proposal places too much emphasis 
on enforcement, and that FDA should maintain a flexible enforcement 
policy; e.g., a small company whose notice is deficient (or which is 
found to exceed a ceiling) should be given a complete written 
explanation of the deficiency and a reasonable time to submit a 
compliance plan.
    FDA has been maintaining a flexible, lenient enforcement policy, 
particularly as regards companies whose notice is found to be 
deficient. The first step that the agency takes upon receipt of a 
notice is to place the name and address of the firm in its computer 
data base of firms that have filed a notice and to make that

[[Page 40976]]

information available to its field offices by entering the information 
into the PRIME Connection and FIARS computer bulletin boards. As noted 
above, the agency next issues a letter acknowledging the receipt of the 
notice, unless it has a question concerning the information in the 
notice. If there is a deficiency in the information in the notice, or 
the agency has some other question concerning it, the agency either 
calls or writes the firm to ask for clarification of the information. 
During this time, the name and address of the firm remain on the 
listing of firms that have submitted a notice claiming exemption under 
the 1993 amendments.
    27. One comment stated that the agency should adopt specific 
procedures to maintain a list of exempt firms and provide effective 
means of disseminating the list to districts. This action should be 
taken, the comment said, to minimize the possibility of needless 
detention of products for which an exemption has been filed. A foreign 
firm also commented that FDA should adopt a policy that would permit 
the manufacturer or its importer to include a statement on the 
particular import documents that it has filed for a particular 
exemption, and that such a statement should bar the district from 
detaining the imported product.
    Before launching its enforcement efforts for domestic and imported 
products, FDA developed a computerized data base listing the firms that 
have submitted a notice claiming an exemption under the 1993 amendments 
by name and address. As stated above, FDA made this data base available 
to its district offices and to State enforcement agencies through an 
FDA computer bulletin board system called ``PRIME Connection.'' A 
similar data base listing the names and addresses of foreign firms and 
recognized importers that filed a notice to claim an exemption for 
their products was made available to FDA's import offices under FDA's 
FIARS system. FDA has periodically updated these lists since they were 
established. Additionally, FDA advises that it has recommended that, 
and has permitted, statements that a particular product qualifies for 
an exemption under the 1993 amendments be included in the shipping 
records for an imported product. The presence of such additional 
information with the shipping records is considered by FDA in 
determining whether to release a particular import. Because each import 
must be considered on a case-by-case basis, however, the presence of 
such a statement will not serve as a de facto bar to detention.
    28. Several comments suggested steps that the agency should take to 
permit the continued use by small businesses of nutrition labeling in 
compliance with FDA's former provisions for the voluntary nutrition 
labeling of food. Most of these comments supported the use of 
Sec. 101.9(g)(9) for small businesses to request, and FDA to grant, 
alternative approaches that would enable them to use up labeling that 
used the former type of nutrient labeling. Some comments suggested that 
FDA should extend the exemption of the 1993 amendments in the proposed 
regulation for low-volume food products to cover such products.
    Other comments stated that FDA should consider establishing a 
special rule permitting labels with pre-1990 amendments nutrition 
information to be used by processors that otherwise would qualify for 
the small business exemption. One comment noted that if it is barred 
from using labels bearing pre-1990 amendments nutrition information, it 
will be required to bear an economic loss for these label stocks, which 
would be extreme for a company of its size. Other comments noted that 
denying an extension to firms that had voluntarily cooperated in the 
past would be unjust. Some comments suggested that limits be created on 
the use of such pre-1990 amendments labeling; e.g., a certification 
that the labeling was purchased before January 6, 1993, and that 
compliance with the new requirements will be achieved by the end of the 
extension period or the next printing whichever comes first; that there 
are no claims; that there is no competitive advantage from improper 
listing of serving sizes, calories from fat, saturated fat, 
cholesterol, and sodium; and that the product was not introduced into 
the marketplace since the new nutrition labeling regulations were 
issued (since January 6, 1993).
    Since issuance of the small business exemption proposal, FDA has 
received a number of requests for permission under Sec. 101.9(g)(9) to 
exhaust inventories of labels containing nutrition information that was 
in compliance with FDA's regulations that were in effect before the 
effective date of the 1990 amendments. FDA has required that these 
requests contain information showing that the firm and the product 
would be eligible for exemption under the provisions of the 1993 
amendments but for the fact that the product's label bears the former 
nutrition labeling. FDA has also asked that the requests include a copy 
of the label for each product for which permission was being sought to 
exhaust the old label, along with an estimate of the remaining 
inventory of the label stocks and the estimated time required to 
exhaust the inventory.
    Within its limited resources, FDA has reviewed and granted 
permission to firms to exhaust labels that contain only the former 
voluntary nutrition information. In granting permission to exhaust 
inventories of labeling by a specific date, FDA has advised the firms 
that the label for the product is to be corrected by either removing 
the old nutrition information or bringing the label into compliance 
with new Sec. 101.9. FDA has advised firms requesting permission to 
continue the use of labels containing nutrient content or health claims 
that such permission would not be granted.
    The process provided by Sec. 101.9(g)(9) appears to be adequate to 
address the issue of granting permission to small businesses to exhaust 
their stocks of old labeling. Also, FDA notes that it is using most of 
the ``limits'' suggested by the one comment in evaluating requests for 
additional time to exhaust inventories of labels under 
Sec. 101.9(g)(9). However, the suggested limits on granting permission 
to exhaust labels printed after January 6, 1993, or for products 
introduced after January 6, 1993, have largely been rendered moot by 
the passage of time. Thus, FDA concludes that a special rule permitting 
labels with pre-1990 amendments nutrition information is unnecessary. 
Also, FDA advises that it does not have authority to extend the 
exemption provided by the 1993 amendments to cover products bearing 
pre-1990 amendment nutrition information. Such products are 
specifically excluded from the exemption by section 403(q)(5)(E(i)(2) 
and (ii) of the 1993 amendments.

III. Economic Impact

    FDA has examined the impacts of this final rule as required by 
Executive Order 12866 and the Regulatory Flexibility Act (Pub. L. 96-
354). Executive Order 12866 directs agencies to assess all costs and 
benefits of available regulatory alternatives and, when regulation is 
necessary, to select regulatory approaches that maximize net benefits 
(including potential economic, environmental, public health and safety 
effects; distributive impacts; and equity). The Regulatory Flexibility 
Act requires agencies to analyze options for regulatory relief for 
small businesses.
    The agency reported in the small business exemption proposal its 
finding that the net effect of this rule is the benefit that it creates 
by reducing labeling costs for exempted companies. This benefit is the 
result of statutory provisions and not FDA discretion.

[[Page 40977]]

There are two types of costs of this regulation: (1) Costs of lost 
nutrition benefits because nutrition information is not available and 
(2) costs to comply with the notification requirement.
    FDA has estimated that the volume of food product eligible for 
exemption constitutes less than one percent of the United States diet, 
and that any lost nutrition benefits are likely to be small. Also, the 
agency estimated that in the first year approximately 4,500 firms 
claiming exemption would file notices at a cost of approximately 
$1,656,000. The agency estimated that in the following 2 years the 
number of firms filing notices would reduce to approximately 4,000 at a 
cost of approximately $1,472,640 and approximately 3,200 at a cost of 
approximately $1,177,640, respectively. However, in the first year that 
the 1993 amendments have been in effect, the agency has received 
approximately 9,000 notices claiming an exemption for one or more low-
volume food products. Assuming that the number of firms filing an 
exemption will decrease for the next 2 years at the same rate as 
previously estimated, then the costs to comply with the notification 
requirements are estimated to be approximately $3,312,000 the first 
year, approximately $2,947,000 the second year, and approximately 
$2,358,000 in subsequent years as the number of firms filing notices 
decreases. Federal costs for implementing the notification system are 
estimated (as in the proposal) to be approximately $207,000. The total 
costs of notification will be less than $4 million for the first year 
and decrease substantially in subsequent years.
    On the other hand, FDA estimates that the cost savings to small 
businesses that were exempted from labeling to be between $275 and $360 
million. These costs are estimated based on the Regulatory Impact 
Analysis (RIA) (58 FR 2927, January 6, 1993) done for rules 
implementing the 1990 amendments. In the RIA, FDA estimated relabeling 
costs of approximately $3,000 per stock keeping unit (SKU). This rule 
is expected to save costs for between 90,000 and 120,000 SKU's. Because 
of this positive effect on the economy, this rule is economically 
significant under Executive Order 12866, but because the rule will not 
have any adverse effect on small business, the agency believes that, 
under the Regulatory Flexibility Act, the rule will not have a 
significant impact on a substantial number of small entities. 
However,the preceding discussion of the costs and cost savings to small 
business would constitute a final regulatory flexibility analysis under 
the Regulatory Flexibility Act.
    None of the comments to the small business exemption proposal 
presented any information, nor is the agency aware of any information, 
that would serve as a basis for significantly increasing the estimated 
costs of this regulation or significantly decreasing the estimated cost 
savings.

IV. Congressional Review

    This final rule has been classified as a major rule subject to 
congressional review. The effective date is October 7, 1996. If, 
however, at the conclusion of the congressional review process the 
effective date has been changed, FDA will publish a document in the 
Federal Register to establish the actual effective date or to issue a 
notice of termination of the final rule action.

V. Environmental Impact

    The agency has previously considered the environmental effects of 
the action being taken in this final rule. As announced in the small 
business exemption proposal published in the Federal Register of March 
14, 1994 (59 FR 11872), the agency has determined under 21 CFR 
25.24(a)(8) and (a)(11) that these actions are of a type that do not 
individually or cumulatively have a significant effect on the human 
environment. No comments questioned this determination. Therefore, 
neither an environmental assessment nor an environmental impact 
statement is required.

VI. Paperwork Reduction Act

    This final rule contains information collections that are subject 
to review by OMB under the Paperwork Reduction Act of 1995 (Pub. L. 
104-13). This information collection has been approved by OMB for 90 
days, under 5 CFR 1320.13 and OMB control No. 0910-0324. Persons are 
not required to respond to a collection of information unless it 
displays a currently valid OMB control number.
    Because OMB approval of this information collection is valid for 
only 90 days, FDA is also taking the appropriate steps to obtain a 
regular approval. Section 3506(c)(2)(A) of the Paperwork Reduction Act 
of 1995 (44 U.S.C. 3506(c)(2)(A)) requires Federal agencies to provide 
a 60-day notice in the Federal Register concerning each collection of 
information. ``Collection of information'' is defined in 44 U.S.C. 
3502(3) and 5 CFR 1320.3(c). In accordance with 5 CFR part 1320, the 
title, description, and respondent description of the information 
requirement are shown below with an estimate of the annual collection 
and information burden. Included in the estimate is the time for 
reviewing instructions, gathering necessary information, and completion 
and submission of the notice.
    Title: Food Labeling; Nutrition Labeling, Small Business Exemption.
    Description: The final rule provides the procedures for the 
submission of a notice of a claim by a company for an exemption from 
FDA's regulations for mandatory nutrition labeling. FDA action on the 
notice will include review of notices for completeness and 
acknowledgment that the notice had been received and was or was not 
adequate. Additionally, FDA will provide to its field personnel and 
State enforcement agencies a listing of firms that have submitted a 
notice to FDA along with a listing of the products claimed to be 
exempt.
    The 1993 amendments revise the basis for a small business exemption 
provided by section 403(q)(5)(E) of the act. This new provision 
provides an exemption for a food product based on the number of 
employees and the total number of units sold in the United States on an 
annual basis. Under the 1993 amendments, to qualify for an exemption, a 
person must file the notice mentioned in the preceding paragraph with 
FDA before the time period for the claimed exemption. Sections 
101.9(j)(18)(iv) and 101.36(f)(2) reflect the information identified in 
section 403(q)(5)(E) of the act, as necessary, as part of the notice 
for a claimed small business exemption.
    Descriptions of Respondents: Persons and small businesses, 
particularly small businesses.

                               Estimated Annual Reporting and Recordkeeping Burden                              
----------------------------------------------------------------------------------------------------------------
                                                                                                        Total   
                                                                                Average                 annual  
                                                          Annual      Annual     burden     Annual    operating 
                       Section                          number of   frequency  hours per    burden       and    
                                                       respondents              response    hours    maintenance
                                                                                                        costs   
----------------------------------------------------------------------------------------------------------------
101.9 and 101.36.....................................      10,000           1          8     80,000  $3,312,000 
----------------------------------------------------------------------------------------------------------------


[[Page 40978]]



    Since enactment of the 1993 amendments, FDA has received notices 
from approximately 9,000 firms. Although FDA is uncertain how many 
other firms may take advantage of the exemption provided by the 1993 
amendments to file notice, it expects a maximum of 10,000 respondents 
to file for the exemption. The agency expects that the number of 
respondents and corresponding annual burden hours will decrease over 
succeeding years as the basis for the exemption changes. By May 1997, 
FDA estimates that approximately 5,000 companies may be filing notices 
to claim the exemption with a corresponding annual burden hours of 
approximately 40,000 hours. There are no capital costs created by this 
final rule. As noted above in section III. Economic Impact, FDA 
estimates that the total operating and maintenance costs to respondents 
to submit notices to the agency during the first year to be 
approximately $3,312,000. The agency does not believe that this 
regulation requires any capital expenditures to comply with the 
requirements for submitting a notice.
    In the small business exemption proposal, FDA requested comments 
regarding the estimated burden, including suggestions for reducing the 
burden. Nine responses were received that contained one or more 
comments concerning the information collection provisions that would be 
established by the small business exemption proposal. A number of these 
comments suggested modifications in, or were opposed to, various 
provisions of the information collection portion of the small business 
exemption proposal. A summary of the arguments and changes suggested by 
these latter comments, and the agency's responses, are provided above. 
None of the comments addressed FDA's estimates of the cost and hour 
burden associated with the information collection.
    As required by section 3507(d) of the Paperwork Reduction Act of 
1995, FDA has submitted copies of the final rule to OMB for its review 
of the recordkeeping requirements. In addition, the agency solicits 
public comment on: (1) Whether the proposed collection of information 
is necessary for the proper performance of the functions of the agency, 
including whether the information will have practical utility; (2) the 
accuracy of the agency's estimate of the burden of the proposed 
collection of information, including the validity of the methodology 
and assumptions used; (3) ways to enhance the quality, utility, and 
clarity of the information to be collected; and (4) ways to minimize 
the burden of the collection of information on respondents, including 
through the use of automated collection, techniques, or other forms of 
information technology (e.g., permitting electronic submission of 
responses).
    Individuals and organizations may submit comments on the 
information collection requirements of this final rule by October 7, 
1996. These comments should be submitted to the Dockets Management 
Branch (address above).
    Under the Paperwork Reduction Act of 1995, persons are not required 
to respond to a collection of information unless it displays a 
currently valid OMB control number. This final rule contains 
information collection requirements that have been submitted to OMB for 
approval. FDA will publish a notice in the Federal Register of OMB's 
decision to approve, modify, or disapprove the information collection 
requirements established in this final rule prior to the effective date 
of such requirements.
    FDA advises that the statutory requirements of the 1993 amendments 
for the filing of a notice with FDA take precedence over the provisions 
of the Paperwork Reduction Act of 1995. Thus, if small businesses 
desire to avail themselves of the exemption from nutrition labeling 
that is provided by the 1993 amendments, they must file notice with FDA 
as required by section 403(q)(5)(e)(i)(III) or (q)(5)(e)(ii) of the 
act. Products that are not the subject of such notice will be 
misbranded unless they bear nutrition labeling as required by section 
403(q) of the act regardless of whether OMB has approved the 
information requirements included in this final rule.

List of Subjects in 21 CFR Part 101

    Food labeling, Nutrition, Reporting and recordkeeping requirements.

    Therefore, under the Federal Food, Drug, and Cosmetic Act and under 
authority delegated to the Commissioner of Food and Drugs, 21 CFR part 
101 is amended as follows:

PART 101--FOOD LABELING

    1. The authority citation for 21 CFR part 101 continues to read as 
follows:

    Authority: Secs. 4, 5, 6 of the Fair Packaging and Labeling Act 
(15 U.S.C. 1453, 1454, 1455); secs. 201, 301, 402, 403, 409, 701 of 
the Federal Food, Drug, and Cosmetic Act (21 U.S.C. 321, 331, 342, 
343, 348, 371).

    2. Section 101.9 is amended by revising paragraph (j)(1)(i) and by 
adding new paragraph (j)(18) to read as follows:


Sec. 101.9   Nutrition labeling of food.

* * * * *
    (j) * * *
    (1)(i) Food offered for sale by a person who makes direct sales to 
consumers (e.g., a retailer) who has annual gross sales made or 
business done in sales to consumers that is not more than $500,000 or 
has annual gross sales made or business done in sales of food to 
consumers of not more than $50,000, Provided, That the food bears no 
nutrition claims or other nutrition information in any context on the 
label or in labeling or advertising. Claims or other nutrition 
information subject the food to the provisions of this section.
* * * * *
    (18) Food products that are low-volume (that is, they meet the 
requirements for units sold in paragraphs (j)(18)(i) or (j)(18)(ii) of 
this section); that, except as provided in paragraph (j)(18)(iv) of 
this section, are the subject of a claim for an exemption that provides 
the information required under paragraph (j)(18)(iv) of this section, 
that is filed before the beginning of the time period for which the 
exemption is claimed, and that is filed by a person, whether it is the 
manufacturer, packer, or distributor, that qualifies to claim the 
exemption under the requirements for average full-time equivalent 
employees in paragraphs (j)(18)(i) or (j)(18)(ii) of this section; and 
whose labels, labeling, and advertising do not provide nutrition 
information or make a nutrient content or health claim.
    (i) For food products first introduced into interstate commerce 
before May 8, 1994, the product shall be exempt for the period:
    (A) Between May 8, 1995, and May 7, 1996, if, for the period 
between May 8, 1994, and May 7, 1995, the person claiming the exemption 
employed fewer than an average of 300 full-time equivalent employees 
and fewer than 400,000 units of that product were sold in the United 
States; and
    (B) Between May 8, 1996, and May 7, 1997, if for the period between 
May 8, 1995, and May 7, 1996, the person claiming the exemption 
employed fewer than an average of 200 full-time equivalent employees 
and fewer than 200,000 units of that product were sold in the United 
States.
    (ii) For all other food products, the product shall be eligible for 
an exemption for any 12-month period if, for the preceding 12 months, 
the person claiming the exemption employed fewer than an average of 100 
full-time equivalent employees and fewer than 100,000 units of that 
product were sold in the United States, or in the case of a food 
product that was not sold in the 12-month period preceding the period

[[Page 40979]]

for which exemption is claimed, fewer than 100,000 units of such 
product are reasonably anticipated to be sold in the United States 
during the period for which exemption is claimed.
    (iii) If a person claims an exemption under paragraphs (j)(18)(i) 
or (j)(18)(ii) of this section for a food product and then, during the 
period of such exemption, the number of full-time equivalent employees 
of such person exceeds the appropriate number, or the number of food 
products sold in the United States exceeds the appropriate number, or, 
if at the end of the period of such exemption, the food product no 
longer qualifies for an exemption under the provisions of paragraphs 
(j)(18)(i) or (j)(18)(ii) of this section, such person shall have 18 
months from the date that the product was no longer qualified as a low-
volume product of a small business to comply with this section.
    (iv) A notice shall be filed with the Office of Food Labeling (HFS-
150), Center for Food Safety and Applied Nutrition, Food and Drug 
Administration, 200 C St. SW., Washington, DC 20204 and contain the 
following information, except that if the person is not an importer and 
has fewer than 10 full-time equivalent employees, that person does not 
have to file a notice for any food product with annual sales of fewer 
than 10,000 total units:
    (A) Name and address of person requesting exemption. This should 
include a telephone number or FAX number that can be used to contact 
the person along with the name of a specific contact;
    (B) Names of the food products (including the various brand names) 
for which exemption is claimed;
    (C) Name and address of the manufacturer, distributor, or importer 
of the food product for which an exemption is claimed, if different 
than the person that is claiming the exemption;
    (D) The number of full-time equivalent employees. Provide the 
average number of full-time equivalent individuals employed by the 
person and its affiliates for the 12 months preceding the period for 
which a small business exemption is claimed for a product. The average 
number of full-time equivalent employees is to be determined by 
dividing the total number of hours of salary or wages paid to employees 
of the person and its affiliates by the number of hours of work in a 
year, 2,080 hours (i.e., 40 hours x 52 weeks);
    (E) Approximate total number of units of the food product sold by 
the person in the United States in the 12-month period preceding that 
for which a small business exemption is claimed. Provide the 
approximate total number of units sold, or expected to be sold, in a 
12-month period for each product for which an exemption is claimed. For 
products that have been in production for 1 year or more prior to the 
period for which exemption is claimed, the 12-month period is the 
period immediately preceding the period for which an exemption is 
claimed. For other products, the 12-month period is the period for 
which an exemption is claimed; and
    (F) The notice shall be signed by a responsible individual for the 
person who can certify the accuracy of the information presented in the 
notice. The individual shall certify that the information contained in 
the notice is a complete and accurate statement of the average number 
of full-time equivalent employees of this person and its affiliates and 
of the number of units of the product for which an exemption is claimed 
sold by the person. The individual shall also state that should the 
average number of full-time equivalent employees or the number of units 
of food products sold in the United States by the person exceed the 
applicable numbers for the time period for which exemption is claimed, 
the person will notify FDA of that fact and the date on which the 
number of employees or the number of products sold exceeded the 
standard.
    (v) FDA may by regulation lower the employee or units of food 
products requirements of paragraph (j)(18)(ii) of this section for any 
food product first introduced into interstate commerce after May 8, 
2002, if the agency determines that the cost of compliance with such 
lower requirement will not place an undue burden on persons subject to 
it.
    (vi) For the purposes of this paragraph, the following definitions 
apply:
    (A) Unit means the packaging or, if there is no packaging, the form 
in which a food product is offered for sale to consumers.
    (B) Food product means food in any sized package which is 
manufactured by a single manufacturer or which bears the same brand 
name, which bears the same statement of identity, and which has similar 
preparation methods.
    (C) Person means all domestic and foreign affiliates, as defined in 
13 CFR 121.401, of the corporation, in the case of a corporation, and 
all affiliates, as defined in 13 CFR 121.401, of a firm or other 
entity, when referring to a firm or other entity that is not a 
corporation.
    (D) Full-time equivalent employee means all individuals employed by 
the person claiming the exemption. This number shall be determined by 
dividing the total number of hours of salary or wages paid directly to 
employees of the person and of all of its affiliates by the number of 
hours of work in a year, 2,080 hours (i.e., 40 hours x 52 weeks).
    3. Section 101.36 is amended by revising paragraph (f) to read as 
follows:


Sec. 101.36   Nutrition labeling of dietary supplements of vitamins and 
minerals.

* * * * *
    (f) Dietary supplements are subject to the exemptions specified as 
follows in:
    (1) Section 101.9(j)(1) for dietary supplements that are offered 
for sale by a person who makes direct sales to consumers (i.e., a 
retailer) who has annual gross sales or business done in sales to 
consumers that is not more than $500,000 or has annual gross sales made 
or business done in sales of food to consumers of not more than 
$50,000, and whose labels, labeling, and advertising do not provide 
nutrition information or make a nutrient content or health claim; or
    (2) Section 101.9(j)(18) for dietary supplements that are low-
volume products (that is, they meet the requirements for units sold in 
Sec. 101.9(j)(18)(i) or (j)(18)(ii)); that, except as provided in 
Sec. 101.9(j)(18)(iv), are the subject of a claim for an exemption that 
provides the information required under Sec. 101.9(j)(18)(iv); that is 
filed before the beginning of the time period for which the exemption 
is claimed; and that is filed by a person that qualifies to claim the 
exemption under the requirements for average full-time equivalent 
employees in Sec. 101.9(j)(18)(i) or (j)(18)(ii); and whose labels, 
labeling, or advertising do not provide nutrition information or make a 
nutrient content or health claim.
* * * * *
    Dated: April 4, 1996.
David A. Kessler,
Commissioner of Food and Drugs.
Donna E. Shalala,
Secretary of Health and Human Services.
    Note: The following Appendixes will not appear in the annual 
Code of Federal Regulations.

Appendix I--Model Small Business Food

Labeling Exemption Notice

(Please type or clearly print)

1. Name of firm

----------------------------------------------------------------------

2. Address of firm:

Street address---------------------------------------------------------
----------------------------------------------------------------------

City State-------------------------------------------------------------
Zip or postal code-----------------------------------------------------
Country----------------------------------------------------------------

[[Page 40980]]

Telephone--------------------------------------------------------------
FAX--------------------------------------------------------------------

3. Type of firm (Check all that apply)

Manufacturer-----------------------------------------------------------
Packer/Repacker--------------------------------------------------------
Distributor------------------------------------------------------------
Importer---------------------------------------------------------------
Retailer---------------------------------------------------------------

4. Twelve-month time period for which you are claiming exemption

  FROM: ____ / ____ / ____

          MM   DD   YY

  TO: ____ / ____ / ____

          MM   DD   YY

5. Average number of full-time equivalent employees for 12-month 
period______
6. Report of units sold (use continuation sheets if necessary)

Product
----------------------------------------------------------------------
----------------------------------------------------------------------
----------------------------------------------------------------------
----------------------------------------------------------------------

No. of units
----------------------------------------------------------------------
----------------------------------------------------------------------
----------------------------------------------------------------------
----------------------------------------------------------------------

Manufacturer
----------------------------------------------------------------------
----------------------------------------------------------------------
----------------------------------------------------------------------
----------------------------------------------------------------------

7. Name and address of manufacturer(s) or distributor(s) of 
product(s) in Item 6 if different from firm claiming exemption. (Use 
continuation sheets if necessary.)
B  Name of manufacturer or distributor
----------------------------------------------------------------------
Address----------------------------------------------------------------
----------------------------------------------------------------------

C  Name of manufacturer or distributor

Address----------------------------------------------------------------
----------------------------------------------------------------------
8. Contact person
----------------------------------------------------------------------
9. The undersigned certifies that the above information is a true 
and accurate representation of the operations of ________ (Name of 
firm). The undersigned will notify the Office of Food Labeling of 
the date on which the average number of full-time equivalent 
employees or the number of units of food products sold in the United 
States exceeds the applicable number for exemption which is being 
claimed herein.

Signature--------------------------------------------------------------
Name (Type or clearly print)-------------------------------------------
----------------------------------------------------------------------
Title------------------------------------------------------------------
Date-------------------------------------------------------------------

Appendix II--Model Small Business Food

Labeling Exemption Notice

Instructions for completion

(Please type or clearly print)

    1. Name of firm: Enter the recognized legal name of your firm.
    2. Firm address: Enter the mailing address for the principal 
location of your firm. Also, provide the telephone and FAX numbers.
    3. Type of firm: Place a check mark or ``x'' in each block that 
is applicable to your firm. For example, if your firm manufactures 
all products that it sells place a check mark after 
``Manufacturer.'' If your firm also distributes a product that is 
manufactured by another firm, also place a check mark after 
``Distributor.''
    4. Twelve-month time period for which you are claiming 
exemption: Enter the specific time period for which you are 
requesting exemption for your products. For products initially 
introduced into interstate commerce before May 8, 1994, this time 
period will be from May 8 of the current year to May 7 of next year: 
e.g., ``FROM 05/08/95 TO 05/07/96.'' For new products, the time 
period should start with the date on which sales in the United 
States are expected to begin: e.g., ``FROM 11/01//95 TO 10/31/96.''
    5. Average number of full-time equivalent employees for 12-month 
period: Enter the average number of full-time equivalent employees 
of your firm and of all of its affiliates for the year preceding the 
year for which an exemption is claimed under Item 4. The average 
number should include all employees of your firm and of its 
affiliates (e.g., owners; officers; and all other personnel such as 
secretarial, production, and distribution employees). Firms are 
affiliates of each other when, either directly or indirectly: (1) 
One firm has the power to control the other, (2) a third party 
controls or has the power to control both, or (3) an identity of 
interest exists such that affiliation may be found.
    The average number of full-time equivalent employees is to be 
determined by using the following formula: Total number of employee/
hours paid divided by 2,080 hours = average number of full-time 
equivalent employees. For example, 254,998 paid employee/hours 
 2,080 = 122. If the total number of actual employees for 
your firm and its affiliates is less than 100, you may enter the 
total number of actual employees instead of calculating the average 
number of full-time employees; e.g., if your firm has 24 employees 
that work full-time and 12 employees that work part-time, you may 
report 36 total actual employees instead of calculating the average 
number of full-time equivalent employees.
    6. Report of units sold (Continuation sheets using the same 
format for Item 6 may be used if necessary):
    Product: Under the column for product, enter the name, including 
the brand name, for each food product for which your firm is 
claiming an exemption. A food product is a food in any sized package 
which is manufactured by a single manufacturer or which bears the 
same brand name; which bears the same statement of identity; and 
which has a similar preparation method. In considering whether food 
products have similar preparation methods, consider all steps that 
go into the preparation of the food products, from the initial 
formulation steps to any finishing steps; for example, products 
having differing ingredients would be considered different food 
products and counted separately in determining the number of units.
    No. of Units: Provide the approximate sales of your firm, in 
terms of units, for the product for the year immediately preceding 
the time period for the exemption entered under Item 4. For example, 
if the time period for which you are claiming exemption for a food 
product is May 8, 1996, to May 7, 1997, provide an approximation of 
your sales of that product from May 8, 1995, to May 7, 1996. If the 
product was not sold for the entire 12 months preceding the time 
period for the exemption entered under Item 4, provide an 
approximation of the sales expected to be made during the time 
period in Item 4. For example, if the time period being claimed in 
Item 4 is November 1, 1995, to October 31, 1996, for a product that 
is going to be sold beginning November 5, 1995, provide an 
approximation of sales for the period from November 1, 1995, to 
October 31, 1996.
    The approximate total number of units is the summation of the 
number of units of the various package sizes of the food product in 
the form in which it is sold to consumers; for example, the total of 
all 2-pound bags of flour plus all 5-pound bags of flour plus all 
10-pound bags of flour should be provided as the number of units 
sold by your firm in the United States. There may also be occasions 
where a food is sold in bulk or by individual pieces rather than in 
packaging; e.g., flour may be sold in bulk displays at grocery 
stores. In such a case, the number of units should be determined on 
the basis of the typical sales practice for the specific food 
product; e.g., if 2,000 pounds of flour are sold from bulk displays 
at grocery stores, and the typical practice for sales to consumers 
is to price the flour on a per pound basis, then the bulk sales 
would represent 2,000 units. If the firm sells the same product in 
package form, then the bulk sales, 2,000 units in the above example, 
should be added to the sum of the number of packages of the flour 
sold to determine the total number of units of flour sold by the 
firm in the United States.
    Manufacturer: Under the column designated ``Manufacturer'' enter 
the letter that corresponds with the name of the manufacturer of the 
product. The letter ``A'' is used to designate the firm submitting 
the notice if it is the manufacturer of the product. If the firm 
submitting the notice is not the manufacturer of the product, use 
the letter from Item 7 (B or C), or from the continuation sheets for 
Item 7, that corresponds to the name and address of the manufacturer 
of the product.
    7. Name and address of manufacturer(s) or distributor(s) of 
product(s) in Item 6 if different from firm claiming exemption: 
Continuation sheets may be used if necessary. Provide the name and 
addresses of the manufacturers of the food products for which 
exemption is being claimed if they are different from the firm 
claiming the exemption. If the name of the manufacturer is unknown, 
provide the name of the firm from which the product is purchased. 
Insert the letter corresponding to the name of the manufacturer 
(``A'' corresponds to the firm submitting the notice) or distributor 
in the appropriate block for the name of the product under Item 6.

[[Page 40981]]

    8. Contact person: Enter the name of a person that can act as a 
contact for your firm if any questions arise concerning the 
information included in the notice.
    9. Certification: The form is to be signed by a responsible 
individual for the firm that can certify to the authenticity of the 
information presented on the form. The individual signing the form 
will commit to notify the Office of Food Labeling when the numbers 
of full-time equivalent employees or total numbers of units of 
products sold in the United States exceed the applicable number for 
an exemption.
    The completed form should be mailed to: Office of Food Labeling 
(HFS-150), Food and Drug Administration, 200 C St., SW, Washington, 
DC 20204. Questions concerning a claim may be directed to the Office 
of Food Labeling at the above address or to 202-205-4561.

[FR Doc. 96-20075 Filed 8-6-96; 8:45 am]
BILLING CODE 4160-01-P