Country-Of-Origin Labeling: Opportunities for USDA and Industry  
to Implement Challenging Aspects of the New Law (05-AUG-03,	 
GAO-03-780).							 
                                                                 
A provision in the 2002 Farm Bill requires grocery stores to	 
identify certain commodities--beef, pork and lamb, fish and	 
shellfish, fruits and vegetables, and peanuts--by country of	 
origin. This provision also requires that an initial voluntary	 
program be followed by a mandatory program by September 30, 2004.
GAO was asked to identify existing programs that might be useful 
to USDA in crafting the new program, to update a 1998 USDA survey
of major U.S. trading partners' country-of-origin labeling	 
practices, and to assess the reasonableness of the assumptions	 
and methodology USDA used for estimating first year		 
record-keeping costs.						 
-------------------------Indexing Terms------------------------- 
REPORTNUM:   GAO-03-780 					        
    ACCNO:   A07888						        
  TITLE:     Country-Of-Origin Labeling: Opportunities for USDA and   
Industry to Implement Challenging Aspects of the New Law	 
     DATE:   08/05/2003 
  SUBJECT:   Agricultural industry				 
	     Agricultural products				 
	     Agricultural programs				 
	     Federal law					 
	     Food and drug law					 
	     Food industry					 
	     Importing						 
	     Labeling law					 
	     Surveys						 
	     Program evaluation 				 

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GAO-03-780

                                       A

Letter

August 5, 2003 The Honorable Tom Daschle United States Senate The
Honorable Tim Johnson United States Senate A requirement that retail
grocers identify certain agricultural products by country of origin was
included in legislation passed in 2002. 1 According to a key sponsor of
the legislation, a primary purpose of the law is to inform

consumers of the origin of their food and permit them a choice of
purchasing domestic or imported products. Beginning September 30, 2004,
when the new law takes effect, grocery stores will have to clearly mark
the products covered by the law* beef, pork, lamb, fruits and vegetables,
fish,

shellfish, and peanuts* with their country of origin. Stores will also
have to indicate whether fish and shellfish (both domestic and imported)
were farm raised or caught in open waters, such as rivers or oceans. The
new law requires that both domestic and imported items be identified, and
it sets specific criteria that must be met for a covered food to be
labeled as a U. S. product. For example, for meat to carry a *product of
the United States* marking, it must be from an animal exclusively born,
raised, and slaughtered in the United States. The U. S. Department of
Agriculture*s (USDA) Agricultural Marketing

Service (AMS) is responsible for implementing the new country- of- origin
food labeling law. To confirm compliance with the law, AMS may require
anyone who prepares, stores, handles, or distributes a covered food to
maintain a verifiable record keeping audit trail. However, the law
prohibits AMS from introducing a mandatory identification system (such as
animal ear tags) to verify country of origin. AMS may use written
certifications from businesses to verify origin identity; it may also use
existing programs as models for that purpose. To help it administer the
program, AMS may enter into partnerships with states that have existing
enforcement infrastructures. Retailers who intentionally violate the law
face fines of up to $10,000 per violation.

1 Title X, Subtitle I, Sec. 10816 of the Farm Security and Rural
Investment Act of 2002, Pub. L. No. 107- 171, 116 Stat. 533 (2002),
generally referred to as the 2002 Farm Bill. This act amended the
Agricultural Marketing Act of 1946, 7 U. S. C. 1621 (2000).

The law directs AMS to issue guidelines for a voluntary country- of-
origin labeling program, which retailers may use until the mandatory
program goes into effect. Those guidelines, which AMS issued in October
2002, define the scope of the foods to be covered (for example, salted
peanuts are covered but peanut butter is not). 2 They also require
retailers to maintain records for a period of 2 years on the country of
origin of covered foods they sell. 3 Because the voluntary guidelines
included this record keeping provision, AMS was required, under the
Paperwork Reduction Act, to estimate the cost to industry of that new
record keeping responsibility. 4 In November 2002, AMS issued its estimate
that the cost to industry to develop record keeping systems for the
voluntary program and maintain

those records the first year would be about $1.9 billion. 5 AMS based its
estimate on assumptions regarding the number of hours that would be needed
for each industry sector* producers, growers, fishermen, processors,
importers, distributors, and retailers* to design a record

keeping system and maintain the records, and on the hourly rates required
for each industry segment to carry out those activities. 6 In terms of a
precedent for country- of- origin labeling, the Tariff Act of 1930, as
amended, already requires most imported items to be marked with their

country of origin through to the ultimate purchaser. 7 However,
identification of country of origin is only required by the Tariff Act
when imported items are wrapped; such labeling is not required when
imported

2 See Department of Agriculture, *Establishment of Guidelines for the
Interim Voluntary Country of Origin Labeling of Beef, Lamb, Pork, Fish,
Perishable Agricultural Commodities, and Peanuts Under the Authority of
the Agricultural Marketing Act of 1946,* 67 Fed. Reg. 63367 (2002).

3 While the guidelines themselves are voluntary, they state, *for those
retailers and other market participants who choose to adopt [the] *
guidelines, all of the requirements * must be followed.* 67 Fed. Reg. at
63368 (2002).

4 When a new regulation imposes a significant additional paperwork burden
on industry, agencies are required, under section 2 of the Paperwork
Reduction Act, 44 U. S. C. 3506 (2000), to publish and obtain comments on
an estimate of the cost of that burden. 5 Department of Agriculture,
*Notice of Request for Emergency Approval of a New Information
Collection,* 67 Fed. Reg. 70205 (2002). 6 AMS did not estimate all costs
associated with the voluntary program, nor did it develop a cost/ benefit
analysis. AMS will have to develop a cost/ benefit analysis for the
proposed rule to implement the mandatory program.

7 See section 304 of the Tariff Act of 1930, as amended, 19 U. S. C. 1304
(2000).

foods are displayed, loose, in open grocery bins. In January 2000 we
reported that meat packers and processors do not routinely maintain
country- of- origin information, as required under the Tariff Act, on
imported meat after it passes a USDA safety inspection. 8 We also reported
that U. S. Customs Service (now the Bureau of Customs and Border
Protection), which administers tariff requirements, has not been enforcing
those requirements for the meat industry. 9 The new law has provisions
concerning origin identification* for example, new definitions for U. S.
products and the requirement to distinguish between farm- raised and wild

fish and shellfish, whether they are domestic or imported, which differ
from the Tariff Act.

As you requested, this report (1) examines how certain existing federal,
state, and industry programs that include origin identity requirements
address oversight, verification of origin, and enforcement, and assesses
their applicability as models for USDA to use to implement the new

country- of- origin labeling law; (2) identifies which U. S. trading
partner countries require country- of- origin labeling at the retail level
for foods subject to the new labeling law and how these programs are being
implemented; and (3) assesses the reasonableness of USDA*s assumptions and
methodology for estimating the cost to industry of the first year
recordkeeping paperwork burden for the voluntary country- of- origin
labeling program. You also asked us to update a 1998 report by USDA*s
Foreign Agricultural Service* 1998 Foreign Country of Origin Labeling
Survey*

in which the Service surveyed its in- country attaches in 46 countries and
the European Union on country- of- origin labeling practices in their host
countries. As part of this study, we examined the Tariff Act requirements
and Bureau of Customs and Border Protection regulations, which require
origin identity for imported items, as they apply to the foods covered by
the new country- of- origin labeling law. We also examined the following
federal, state, and industry programs, which include origin identity or
related

8 See U. S. General Accounting Office, Beef and Lamb: Implications of
Labeling by Country of Origin, GAO/ RCED- 00- 44 (Washington, D. C.: Jan.
27, 2000). 9 Pursuant to section 403 of the Homeland Security Act of 2002,
Pub. L. No. 107- 296, 116 Stat. 2135, 2178 (2002), the U. S. Customs
Service transferred from the Department of the Treasury to the Department
of Homeland Security. The activities discussed in this report are
organized within the Bureau of Customs and Border Protection.

requirements, for their usefulness as models for country- of- origin
identity under the new law:

 School meals programs, such as the National School Lunch and Breakfast
Programs, in which foods donated by the federal government or purchased
with federal funds should be of U. S. origin.

 The Subsistence Prime Vendor Program, in which foods purchased by the
Department of Defense to feed military troops should be of U. S. origin.

 The National Organic Program, in which foods labeled *organic* must be
grown* or, if from animals, raised* in accordance with the National
Organic Act.

 Seafood Inspection Program, in which the quality certification of
domestic fish and shellfish is maintained through to the commercial buyer/
consumer.

 The Market Access Program, in which advertisements and other promotional
activities paid for with federal funds, must be for agricultural goods
that are 50 percent or more of U. S. origin.

 Food for Peace Program, in which USDA purchases U. S.- grown product
(generally grain) from U. S. farmers for subsequent donation to poor
countries.

 Process Verified Programs, in which USDA verifies that the identity of
meat from animals raised with special handling or feeding, among other
things, is maintained through to the consumer.

 Breed claim/ grading programs, in which the identity of meat from
animals* a breed certification (such as Angus beef)* or carcasses* a grade
certification (such as USDA Prime)* is maintained through to the consumer.

 State programs that require country- of- origin identification for
selected foods (such as Florida which requires imported produce to be
marked with country of origin).

 Local government/ industry- sponsored programs that promote specific
foods linked to origin (such as Vidalia(R) onions, which must be grown in
the proximity of Vidalia County, Georgia). We also contacted the 50 states
to identify state origin identity laws and programs. This report
describes, but does not evaluate, the state programs.

To determine country- of- origin practices of U. S. trading partners and
update the 1998 Foreign Agricultural Service report, we surveyed the
agricultural attaches for the key trading partner countries and the
European Union that were surveyed in 1998, as well as other key trading
partners, for a total of 57 countries. 10 The 57 countries account for
about 94 percent of U. S. trading activity for food and animals. We asked
about the country- of- origin requirements at retail in the host countries
for fruits and vegetables, peanuts, fish and shellfish, and meat. We did
not independently verify country practices or evaluate their programs. The
results of our survey are summarized in this report. In addition, survey
results stratified by food product and by country are included in a
special publication entitled Country- of- Origin Labeling for Certain
Foods* Survey Results (GAO- 03- 781SP), which is available on the Internet
at

http:// www. gao. gov/ cgi- bin/ getrpt? gao- 03- 781SP. Appendix I
describes our scope and methodology in detail.

Results in Brief While the methods and applicability of existing federal,
state, and industry programs vary, several have features that may be
useful to USDA as models for oversight, verification of origin, and
enforcement for the country- oforigin

labeling law. For example, both USDA*s school meals programs and the
Department of Defense*s Subsistence Prime Vendor Program require
contractors to certify that the foods they provide are of U. S. origin (i.
e., from U. S. farmers and livestock producers). To verify the
contractors* certifications for these programs, USDA conducts periodic
plant inspections and audits plant procedures for ensuring that no
imported foods are used; DOD periodically audits contractor performance
but has no procedures in place to verify that foods are of U. S. origin.
USDA*s National

10 The 57 countries include the 15 member countries of the European Union.
The attache to the European Union Commission also completed a survey. In
addition, USDA*s Foreign Agricultural Service asked us to survey 9
countries that have limited trade activity with the United States. We did
not include the responses from those countries in our analyses.

Organic Program uses independent agents* often state or local government
employees or representatives of nonprofit groups* to certify and oversee
compliance by farmers, livestock growers, processors, and handlers.
Participants in the organic program must keep records for 5 years; agents
may recommend that USDA suspend or fine participants who violate program
requirements. AMS*s *process verified programs* for the

livestock and meat industries, such as the Red Angus program, are also
models of using third- party inspections to verify origin; participants
pay up to $5,000 annually for AMS inspections that may go back to an
animal*s birth to confirm that meat is of superior quality and commands a
higher

price. Florida*s labeling program for imported fresh produce may be useful
to USDA as a model for marking options and for using a state*s enforcement
infrastructure to administer a country- of- origin labeling program. Local
government/ industry origin- identity programs, such as Vidalia (R)
onions, are examples of using affidavits from growers to verify

origin. For oversight and enforcement, these market- niche foods rely on
retailers or other producers to spot violators. However, the usefulness of
these programs as models has limitations because none was designed to
address the unique features of the new law. Specifically, the new law
requires that both domestic and imported items be labeled; it defines U.
S. meat, fish, and shellfish differently than existing laws; and it
requires the

further identification of fish and shellfish as being either farm raised
or caught in open waters. In implementing the law, USDA will be further
challenged by the meat industry*s practice of not routinely maintaining
origin identity on imported meat when it is subsequently cut or ground.

Our survey of agricultural attaches showed that of the 57 U. S. trading
partner countries, 48 require country- of- origin labeling for one or more
of the commodities covered by the new law and 44 also require domestic
products to be labeled. Specifically, of the 57 countries, 46 require
labeling at retail for produce (fresh or frozen); 34 for peanuts; 41 for
one or more of the covered meats (fresh or frozen); and 39 for fish/
shellfish (fresh or

frozen). Most of the countries with country- of- origin labeling programs
conduct routine inspections and impose fines for labeling violations.
While European Union legislation mandates country- of- origin labeling
requirements for many of the foods covered under the new U. S. law, the
results of our survey of the agricultural attaches showed that
implementation, enforcement, and verification practices varied among the
15 member countries. Similarly, among the largest U. S. trading partners*
Canada, Mexico, and Japan* practices varied considerably. For foods
subject to the new law, Canada requires country- of- origin labeling at
retail only for imported prepackaged fruits and vegetables, Mexico
requires it for

all imported and domestic prepackaged foods, and Japan requires it for all
imported and domestic loose and prepackaged foods. Finally, their own
practices notwithstanding, certain trading partners have suggested that

new U. S. country- of- origin labeling requirements may have a negative
impact on trade; Mexico specifically suggested that the requirements
amount to a nontariff barrier that conflicts with U. S. trade obligations.

USDA used assumptions that are questionable and not well supported in
developing its $1.9 billion estimate for the first year cost to industry
to develop and maintain record- keeping systems for the voluntary country-
oforigin labeling program. The key assumptions pertain to (1) the extent
to which businesses are already keeping the necessary records, (2) the
types and number of businesses that would have to keep records, (3) the
number of hours that each affected business would have to spend in
developing and

maintaining a record keeping system, and (4) the cost per hour of
developing and maintaining such a system. With regard to existing records,
USDA assumed that all the record keeping would be a new burden, which is
not always the case. For example, grocery stores are already maintaining
country- of- origin records on certain fruits and vegetables for a period
of 2 years as required under another law. In determining the number of
businesses covered by the law, USDA made an arbitrary assumption that
about 90 percent of all farmers, ranchers, and fishermen (2 million) would
be subject to record keeping; others, including authors of a University of
Florida study, believe the figure is much lower. Furthermore, USDA could
provide no documentation to support its estimates for the number of hours
needed to develop and maintain a record- keeping system, and it assumed an
hourly rate of $50 for processors to carry out these tasks, which was

more than double the hourly rates it used in recent estimates for other
programs. Shortly after USDA published its estimate, it compiled and
published examples of routine documents and records that businesses may

already maintain that may be useful for verifying compliance for each
covered food and each industry sector in that food*s production. In
comments to USDA on the estimate, industry groups provided information on,
among other things, hourly rates and the time they believe they will need
to set up and maintain an origin data system. Many commenters said

USDA*s hourly rates and time estimates were too low, while others said
they were too high. Although no grocery stores have participated in the
voluntary program, some meat processing companies, in anticipation of the
law*s implementation, have alerted their suppliers to keep records on
where cattle that will go to slaughter after September 2004 were born and
raised. Finally, a new requirement proposed by the Food and Drug
Administration under authority of the Bioterrorism Act of 2002* that

nearly all businesses in the food industry maintain certain records* may
affect the cost to industry to comply with the country- of- origin
labeling law and both industry*s and USDA*s efforts to implement the law.
We are making several recommendations to (1) help industries comply with
the new country- of- origin labeling law, (2) bring the meat industry into

compliance with existing Tariff Act requirements, (3) ensure an accurate
estimate of the record- keeping burden under the final program rules, and
(4) create a level playing field for the retail sale of certain covered
foods. In commenting on a draft of this report, USDA said that the report
provides some useful guidance and input in implementing the complex
country- oforigin labeling legislation. USDA disagreed with one
recommendation* that it should consult with the Bureau of Customs and
Border Protection to develop an approach for informing the meat industry
of its responsibilities under Tariff Act requirements* because it does not
believe it has the authority to enforce the Tariff Act. We are not
recommending that it enforce the Tariff Act but, rather, that it consult
on an approach for informing meat packers and processors of their
responsibilities under the Tariff Act. We believe the recommendation is
important because, as a result of the long- standing practice in the meat
industry of ignoring Tariff Act rules, consumers do not have the same
information on imported meat that they routinely have for other imported
items. We discussed this recommendation with the Bureau of Customs and
Border Protection,

which concurred on the value of USDA consulting on an approach to inform
the meat industry of its Tariff Act responsibilities.

Background The Farm Security and Rural Investment Act of 2002, commonly
known as the 2002 Farm Bill, amends the Agricultural Marketing Act of 1946
by

adding Subtitle D* Country of Origin Labeling. That subtitle, which we
refer to as the country- of- origin labeling law, applies to the following
foods: 11

 muscle cuts of beef, lamb, and pork;  ground beef, ground lamb, and
ground pork;  farm- raised fish and shellfish;

11 See Pub. L. No. 107- 171, Title X, Subtitle I, Section 10816 (2002).

 wild fish and shellfish (referred to in this report as fish and
shellfish caught in open waters);

 perishable agricultural commodities (referred to in this report as
fruits and vegetables); and

peanuts. The new law uses the definitions of a *perishable agricultural
commodity* and *retailer* found in the Perishable Agricultural Commodities
Act of 1930, 7 U. S. C. 499a (2000). The 1930 act defines  perishable
agricultural commodity as fresh or frozen fruits and

vegetables of every kind and character and a  retailer as a dealer
engaged in the business of selling a perishable

agricultural commodity at retail that has annual invoice costs of
perishable commodities in excess of $230,000. AMS licenses retail food
stores that are subject to the Perishable Agricultural Commodities Act.
According to AMS, approximately 31,000 outlets* typically grocery stores*
are considered retailers under the Perishable Agricultural Commodities Act
and would be subject to the country- of- origin labeling law. Because the
law applies to stores that have annual invoices for perishable
agricultural commodities* fruits and vegetables* of more than $230, 000,
some larger fruit and vegetable stands/ stores would be subject to the
labeling law, according to AMS

officials; however, large butcher shops and fish markets would not be
subject to the new law, because they would not have sufficient invoices in
fruits and vegetables. 12 Butcher shops and fish markets do not have to
provide consumers with information on the origin of the foods they sell.
Those businesses also would not incur the costs associated with
maintaining origin information and labeling that grocery stores will incur
for meat, fish, and shellfish under the new labeling law. 12 Small
convenience stores and gasoline marts would not be subject to the labeling
law

because they would not have sufficient activity in fruits and vegetables,
according to AMS officials.

The new country- of- origin labeling law establishes criteria for food
covered by the law to be designated as having a U. S. country of origin.
Specifically, to be labeled a U. S. product:

 beef, pork, and lamb must come exclusively from an animal that is
exclusively born, raised, and slaughtered in the United States; 13 
fruits, vegetables, and peanuts must be exclusively produced in the United
States;  farm- raised fish and shellfish must be hatched, raised,
harvested, and processed in the United States; and

 wild fish and shellfish must be harvested in waters of the United
States, a territory of the United States, a state, or by a U. S.- flagged
or U. S. registered vessel and processed in the United States, a territory
of the United States, a state, or aboard a U. S.- flagged or U. S.-
registered vessel.

The Tariff Act*s country- of- origin marking requirement for imported
articles applies to the foods covered by the new law. For covered foods,
both fresh and frozen, that are imported in consumer- ready packages, the
Tariff Act rules require that the country of origin be marked on the
individual packages, as well as on the carton or other container in which
the packages were transported. In addition, under U. S. Customs Service
rulings in 1983 and 1991, when produce items are removed from the marked
containers and put loose into open bins in the produce section, the
grocery store does not have to identify the items or the display bins by
the items* country of origin. 14 If the usual marking rules referred to in
these rulings concerning produce were applied by the Bureau of Customs and
Border Protection, a grocery store that took unpackaged meat and seafood
and displayed it loose in display cases would not have to identify the
items

by country of origin. As a result, fresh fruits, vegetables, peanuts,
meat, fish, and shellfish; frozen shellfish; and live lobsters sold loose
by item or weight would not require labeling. However, the crates, bags,
or other

13 Beef would also be a U. S. product under the new law if it were from an
animal exclusively born and raised in Alaska or Hawaii and transported for
a period not to exceed 60 days through Canada to the United States and
then slaughtered in the United States.

14 See U. S. Customs ruling HRL 722992. This ruling was interpreted in
Customs ruling HRL 733798 not to require marking because open bins or
display racks were not determined to constitute *containers.*

containers in which these imported food items are transported must be
marked with country of origin. Tariff Act rules also require that imported
foods that are repackaged in consumer- ready packages must be marked with
their country of origin.

In April 1999 we issued a report that examined the potential implications
and benefits of country- of- origin labeling for fresh produce. 15 Our
report noted that grocery stores usually know the country of origin of the
imported produce that they display in open bins, because they have the
marked boxes or cartons in which the items were imported. We noted that
state inspectors in Florida, a state that requires country- of- origin
labeling for imported fresh produce, checked shipping boxes against the
labeling signs that grocers placed on produce bins to verify the accuracy
of the labels.

In our January 2000 report on the potential implications of country-
oforigin labeling for muscle cuts of beef and lamb, we found that meat
packers and processors did not routinely maintain country- of- origin
information on imported meat as required under the Tariff Act. We found
that this was due in part to the fact that the Bureau of Customs and
Border Protection does not generally enforce the act*s labeling
requirement for meat after inspection at the border. We also said it might
be due to the fact that USDA has given meat packers and processors
different guidance on the need to maintain country- of- origin
information. More specifically, USDA, which administers the Federal Meat
Inspection Act, requires that the country of origin appear in English on
all carcasses or containers of meat entering the United States. However,
unlike Tariff Act rules, which require an imported product to maintain its
import identity through to the

ultimate purchaser, USDA considers imported meat to be part of the
domestic meat supply once it passes a USDA safety inspection. Any
subsequent cutting, blending, or grinding may be done without maintaining
country- of- origin identity. Thus, grocery stores may not know whether
the meat they sell is domestic or imported, let alone the country of
origin of a particular package of meat. In fact, a package of fresh ground
beef that carries a USDA inspection sticker may contain meat from domestic
or imported cattle, or both. 15 See U. S. General Accounting Office, Fresh
Produce: Potential Consequences of Countryof-

Origin Labeling, GAO/ RCED- 99- 112 (Washington, D. C.: Apr. 21, 1999).

Under the Tariff Act, animals maintain their foreign country identity.
With regard to livestock, however, USDA considers imported livestock to be
part of the domestic herd after the Animal and Plant Health Inspection
Service inspects and releases the animals. 16 Both Tariff Act rules and
USDA regulations consider the meat from an imported animal to be domestic
if the animal was slaughtered in a U. S. facility. Existing Programs May

Several federal, state, and industry programs have features that may be Be
Useful As Models to

useful as models to USDA for addressing oversight, verifying origin, and
enforcing the new country- of- origin labeling law. However, the
usefulness Some Extent, but They

of these programs as models is limited because none of them was designed
Do Not Adequately

to address the unique features of the new law, such as the law*s
definitions Address Unique

of U. S. products. Implementing the law across the meat industry is
further complicated by the industry*s practice of not routinely
maintaining the

Features of the New country- of- origin identity of imported meat after it
has been cut or ground

Law in a U. S. facility. Federal Programs Have

USDA*s school meals programs and the Department of Defense*s Features That
May Be

Subsistence Prime Vendor Program are examples of large programs that
Useful As Models

use certifications to verify the origin of food. Both programs also have
wellestablished oversight and enforcement procedures. A number of other
USDA programs, as well as the National Oceanic and Atmospheric
Administration*s Seafood Inspection Program, have origin identity and
related requirements. These programs use various means to verify origin,
including third- party verifications and self- certifications; many also
use oversight and enforcement options to ensure compliance. The smaller
programs, such as process verified and meat grade and certification
programs, demonstrate that the meat industry is able to maintain product
identity when it is in its interest to do so. Such programs may be useful
to USDA in bringing the meat industry into compliance when the mandatory

regulations become effective. Table 1 describes selected features of
federal programs that have origin identity or related requirements for
foods.

16 The Animal and Plant Health Inspection Service border inspection
activities discussed in this report are now organized within the Bureau of
Customs and Border Protection in the Department of Homeland Security.

Tabl e 1: Programs That Have Origin Identity or Related Requirements for
Foods Program Description

School meals programs (such as the National USDA requires that the fresh
fruits and vegetables that it purchases for these programs School Lunch
and Breakfast Programs) must be domestically grown, processed, and packed,
and that meats must be from domestic livestock. a Food suppliers certify
in their contracts with AMS that the foods

they provide will be domestic and that they will maintain records, such as
invoices and production and inventory records that confirm that the food
is domestic. Suppliers that handle both imported and domestic products
must have written plans* segregation plans* that describe in detail how
they will ensure that only domestic products will be provided to the
programs. For example, for meat products, AMS conducts oversight visits to
each supplier three times a year; these visits include examination of
origin records. If violations are found, AMS may reject the food, suspend
or debar the contractor, terminate the contract, impose fines, or take
legal action, including criminal prosecution. Subsistence Prime Vendor
Program The Department of Defense requires that food purchased for U. S.
troops must be domestic. About 50 large wholesale suppliers* known as
prime vendors* certify in their contracts that they and their
subcontractors will provide only domestic food. The

department performs compliance audits at least annually, which, although
primarily focused on food quality, use observations and interviews with
contract officials to verify that food was produced or processed in the
United States. With respect to enforcement, the department can refuse the
food or use a different prime vendor, but cannot assess fines.

National Organic Program Foods labeled as organic must be produced in
accordance with the Organic Foods Production Act of 1990. b The program
uses third- party verification, in the form of USDAapproved certifying
agents, to verify that the food meets the organic rules. These certifying
agents perform annual inspections and review the participants* written
annual plans for ensuring compliance with organic rules. Any person,
including a retailer, who knowingly sells or labels a nonorganic product
as "organic" may be subject to fines of up to $10,000 per violation (7 U.
S. C. 6519 (2000)).

Market Access Program Federal funds help finance advertisements and other
promotional activities for agricultural products that are at least 50
percent U. S. in origin. Program participants self- certify that their
agricultural products meet the U. S. origin requirement. USDA*s Foreign
Agricultural Service audits participants at least every 2 years, focusing
primarily

on the eligibility of program expenses. Payments made for ineligible
expenses must be reimbursed. Food for Peace Program The U. S. government
sells agricultural commodities* for example, wheat, rice,

cornmeal, feed grains, vegetable oil, soybeans, and soybean meal* to
developing countries under long- term credit arrangements. Participant
growers and processors self- certify that the commodities are 100 percent
U. S. in origin. USDA does not verify compliance with origin requirements
for the commodities.

USDA Process Verified Program Through this fee- for- service program, USDA
verifies quality claims made by producers and marketers of livestock and
fruits and vegetables. AMS, at a cost of about $5, 000 annually per
participant, conducts independent, third- party audits of participants*
production and manufacturing processes to confirm that they maintain
consistent quality. For livestock, companies have their marketing claims,
such as breed or feeding practice claims, verified by USDA; they can then
market as *USDA Process Verified* to their customers. In some cases,
verification includes tracking animals back to the farms where they were
born and raised. Companies that do not adhere to their approved procedures
may be suspended from participating.

(Continued From Previous Page)

Program Description

Meat Grading and Certification Programs AMS inspectors grade and/ or
certify meat at the request of meatpackers on a fee- for- service basis.
Certification services, such as breed claims (e. g., *Certified Angus
Beef*), consist of evaluating meat for compliance with specification and
contractual requirements. Grading, such as *USDA Prime* or *USDA Choice,*
involves visual inspections using USDA standards. These premium grade and
certification identities

follow the meat through the distribution chain to the retail level,
including restaurants and retail markets.

Seafood Inspection Program: The National Oceanic and Atmospheric
Administration, on a fee- for- service basis, inspects and quality- grades
domestic fish and shellfish. According to program officials, the inspected
seafood is sold primarily to foreign markets that require this third-
party certification of quality. Source: GAO analysis of federal program
information. a Almost all public and some private nonprofit schools are
subsidized by USDA for each complete school meal served, regardless of
household income; lunches and breakfasts for children from lowincome
households receive greater subsidies. b See Organic Foods Production Act
of 1990, 7 U. S. C. 6501 (2000).

Appendix II contains additional information on these federal programs,
including program scope, objectives, oversight, and enforcement.

State Country- of- Origin Eight states have implemented country- of-
origin labeling programs, and Labeling Programs Also

each includes at least one of the commodities covered by the new
countryof- origin labeling law. 17 Based on our discussions with program
officials in Have Features That May Be eight states and our review of
program documents, one state has countryof- Useful as Models to USDA

origin labeling programs for meat and shellfish, three have programs for
fish only, two have programs for meat only, and two have programs for
fruits and vegetables (see table 2). 18 Two of the states* Florida and
Maine* have had more than 10 years* experience operating labeling
programs. Although their programs are limited in scope relative to the new
national program, their first- hand experiences may be helpful to USDA,
particularly with regard to marking/ labeling options, initial
implementation issues, and using states* enforcement infrastructures to
administer a country- of- origin program.

17 For this report, a state- implemented country- of- origin labeling
program is one that is active statewide and includes oversight by some
level of state (or state- delegated) government. We also identified four
states* Idaho, Kansas, South Dakota, and Tennessee* that have

country- of- origin labeling laws that have not been implemented. 18 We
did not independently evaluate the state laws/ programs.

Tabl e 2: Selected Information on State- Implemented Country- of- Origin
Labeling Programs State Products covered Product labeling

Alabama Catfish U. S./ state or *imported* Arkansas Fish U. S./ state or
import country

name Florida Produce, bee pollen, and

Import country name honey Louisiana (two Meat U. S. or *imported* or
import

programs) country name Shrimp, crawfish, crab, and

Import country name a crabmeat Maine Produce Import country name b

Mississippi Catfish U. S./ state or *imported* North Dakota Meat U. S. or
import country name Wyoming Meat Import country name Source: GAO analysis
of state country- of- origin labeling programs. a Louisiana labeling rules
also indicate that imported meat can be labeled imported or indicate the

country of origin. b In Maine, domestic potatoes must be labeled as a U.
S. product; apples grown in Maine must be

labeled as a Maine product.

Also as shown in table 2, all of the states require retailers to label the
covered imported foods* five with the country of origin, two with the word
*imported,* and, in Louisiana, which has two separate programs, the
shellfish program names the country of origin and the meat program uses
the word *imported* or names the country of origin. Four state programs
and Louisiana*s meat program also require covered U. S. foods to be
labeled, and Maine requires U. S. apples and potatoes to be labeled. Some
require the foods to be identified as American or from the United States;
others allow the food to be identified by its state of origin.

Most states provide some flexibility in how the country of origin can be
shown. For example, Florida allows labeling to appear on the item or in
the display areas near the food; signage can be handwritten or printed and
of varying size. Figure 1 shows examples of labels and marking options
used on imported produce in Florida grocery stores.

Figure 1: Examples of Labels on Imported Produce in Florida Grocery Stores

Most of the eight states use their state department of agriculture staff
to conduct compliance inspections at retailers, while the rest use their
health departments or other state staff. Inspections are generally carried
out at least once a year, in conjunction with other labeling and
sanitation inspections. In Florida grocery stores, we observed inspectors
examining shipping containers in storage areas to verify the accuracy of
labels on display cases in the produce areas. Some states require
retailers or distributors to maintain records for covered commodities.

With regard to enforcement, all eight states have the authority to take
some action against a retailer who violates the labeling requirements, and
six have the authority to impose fines. During 2002, three states*
Alabama, Florida, and Mississippi* fined retailers and others for
violating their country- of- origin labeling requirements. See appendix
III for more information on the eight states* country- of- origin labeling
programs.

Some State and Industry We also found a number of state- and industry-
supported marketing

Marketing Programs May Be programs for foods that provide examples of
using affidavits and

Useful as Models to USDA certifications from growers or producers to
support product origin. For

oversight and enforcement, at least a portion of these programs relies on
retailers, growers, producers, or others to spot violations. Some aspects
of these state and industry programs may be useful as models to USDA. For
example, more than half of the states have marketing programs for products
grown or produced locally. These programs make promotional materials or
slogans available to producers from their states. In order to participate
in these programs, many states require participants to register with their
state*s department of agriculture. For example, Alaska requires
participants to complete an application that includes an affidavit of
eligibility stating that the participant takes full responsibility for
proper use of the state logo, *Alaska Grown,* in accordance with the
policy requirements of the program. Arizona also requires participants to
request and receive written permission to use the state logo, *Arizona
Grown.* Breach of any of the provisions of the Arizona program may result
in termination of the participant*s use of the promotional materials.

Oversight and enforcement for a number of these state programs rely on
retailers, growers, producers, and others to spot violators and report
them to state program officials. An official from one state told us that
the state*s program does not include inspections; however, the official
knew of no instances where the state logo was used without permission.
Programs also

exist for products produced in areas within a state. For example,
Vidalia(R) is a trademark for a variety of sweet yellow onions grown in a
20- county production area in Georgia. The Georgia Department of
Agriculture registers all Vidalia (R) onion producers and packagers each
year and has the authority to collect license fees for use of the
trademark. Producers must apply for a license from the Georgia Department
of Agriculture to sell Vidalia (R) onions and to use the Vidalia (R) mark.
On the application, which is submitted annually, a grower must state the
type of onions planted, total number of acres, and location. According to
a director of markets, complaints of misuse of the Vidalia (R) label are
investigated as soon as possible; any penalties assessed are based on the
number of violations, their seriousness, and the circumstances involved.

With regard to industry marketing programs, the majority of states in the
U. S. have a beef quality assurance program that alerts buyers that the
meat has met certain quality criteria. The goal of this type of voluntary
program is to ensure safe and nutritious beef for the consuming public and
to maximize consumer confidence. The national guidelines for these
programs, issued by the National Cattlemen*s Beef Association, include
standards on feed additives, medical treatment, and record keeping for

program participants. Records must be kept for 2 years. In the South
Dakota beef quality assurance program, a receiving log is kept that
includes the verified source of delivered cattle. Another industry program
with producer certifications involves the use of affidavits by beef
producers to certify that their livestock did not consume feed containing
specific

materials and additives. This program began because of demand from large
purchasers who wanted to purchase animals that were grown on feed meeting
selected standards.

Unique Features of the New While federal, state, and industry programs may
be useful as models to Law and Meat Industry

USDA up to a point, they do not adequately address the unique features of
Practices Present

the new country- of- origin labeling law. In particular, the new law
requires Implementation Challenges

that both domestic and imported items must be identified by their country
of origin and defines domestic meat, fish, and shellfish differently than
under Tariff rules or in existing programs. In addition, the new law also

requires that imported and domestic fish and shellfish be further
differentiated as farm raised or *wild* (caught in open waters).
Implementing a program of this scope and size will be challenging for
USDA. Implementing it for meat will be further complicated by meat
industry practices.

By requiring that both domestic and imported items be identified, the law
puts a new compliance burden on U. S. industries involved with the covered
foods, including their production and distribution streams. As shown in
table 3, the United States imported over 83 percent of fish and shellfish,
by

volume, in 2001* the most recent year for which USDA has compiled these
data. However, for the rest of the covered foods, the United States
produced more than it imported.

Tabl e 3: Percentage of Covered Foods Imported in 2001, by Volume Covered
food Percentage imported

Beef 11.6 Pork 5.1 Lamb 39.8 Fish and shellfish* fresh and frozen 83.3
Fruit* fresh and frozen 23.1 Vegetables* fresh and frozen 16.6 Peanuts 9.1
Source: USDA*s Economic Research Service.

But the extent of the new burden is not clear. According to many industry
representatives, the burden will be substantial. Others believe it will be
small compared to the benefit to consumers of knowing where their food
comes from. Currently, consumers have that information on many foods.

For example, imported canned foods and foods that are imported in
consumer- ready packaging, such as imported leg of lamb, are marked with
their countries of origin. The new country- of- origin law brings in most
other foods that are not necessarily origin- identified today. Of the few
remaining foods, including poultry, a bill has been introduced that
proposes to make poultry and goat subject to the new country- of- origin
labeling law. 19 Regarding definitions of a U. S. product, the new
country- of- origin labeling

law defines U. S. and imported meat, fish, and shellfish differently than
those foods have traditionally been defined under Tariff Act rules and
federal programs. For example, under Tariff rules, meat from an animal

19 HR 2270, introduced on May 22, 2003, would amend the Agricultural
Marketing Act of 1946.

born or raised for some period of time outside the United States is
considered to be part of the domestic meat supply if the animal is
slaughtered in the United States. Similarly, under Tariff Act rules, fish
or shellfish caught in foreign waters or by a foreign- documented ship are
considered domestic if they are processed in the United States or aboard a
U. S. flagged ship, according to Bureau of Customs and Border Protection
officials. In these examples, the meat, fish, and shellfish do not satisfy
the new law*s *born, raised, and slaughtered* or *harvested and processed*
criteria to be considered domestic. As noted earlier, the new law
stipulates that to be a U. S. product

 meat must be *exclusively from an animal that is exclusively born,
raised, and slaughtered in the United States;*

 farm- raised fish must be *hatched, raised, harvested, and processed in
the United States;* and

 *wild* fish must be *harvested in waters of the United States, a
territory of the United States, or a State,* or by a U. S. flagged or U.
S. registered ship and *processed in the United States, a territory of the
United States,

or a State, including the waters thereof* or aboard a U. S.- flagged or U.
S.- registered ship.

USDA*s school meals programs and the Department of Defense*s Subsistence
Prime Vendor Program define *domestic* foods differently. USDA uses the
Tariff rule*s definitions for domestic meat, fish, and

shellfish, while the Department of Defense uses a slightly different
definition for meat that describes imported meat that is further cut or
ground in a U. S. facility as *domestic.* With regard to the new law*s
requirement to identify fish and shellfish* both domestic and imported* as
either farm raised or caught in open waters (wild), fishermen know the
origin of their catch. We were told by the seafood manager of a grocery
chain distribution facility for one chain of grocery stores that for some
species, such as salmon, some individuals in the distribution channels
that have a long history of handling fresh seafood may be able to
distinguish farm raised from wild fish based on appearance, but that would
not be the case, generally. Therefore, unless the fisherman identifies the
fish and shellfish with origin information, the processors, handlers, and/
or grocers will have no way to determine origin.

Finally, with regard to practices in the meat industry, in January 2000 we
reported that meat packers and processors do not routinely maintain
country- of- origin information on imported meat as required under the
Tariff Act. As our 2000 report stated, this is due in part to the fact
that the Bureau of Customs and Border Protection does not generally
enforce the act*s labeling requirement for imported meat after inspection
at the border. We believe it is also due to the fact that USDA*s Food
Safety and Inspection

Service has given meat packers and processors different guidance on the
need to maintain country- of- origin information. Unlike Tariff Act rules,
which require an imported product to maintain its import identity through

to the ultimate purchaser, USDA considers imported meat to be part of the
domestic meat supply once it passes a USDA safety inspection; any
subsequent cutting, blending, or grinding may be done without regard to
country- of- origin identity. Figure 2 shows the activities involved in
bringing imported beef, beef from imported cattle, and beef from domestic
cattle to

consumers.

Figure 2: Activities Involved in Bringing Beef to Consumers

Most U. S. Trading Most of the 57 U. S. trading partner countries,
including the 15- member

Partner Countries countries of the European Union, whose practices we
surveyed through

USDA*s agricultural attaches require country- of- origin labeling for one
or Require Country- ofOrigin more commodities covered under the new U. S.
law. 20 However, key trading Labeling at

partners have indicated that they may view new U. S. marking requirements
Retail for Foods

as possible trade barriers. Covered by the U. S. Labeling Law

Most U. S. Trading Partners Of the 57 U. S. trading partner countries, 48
require country- of- origin Require Country- of- Origin

labeling for one or more of the commodities covered by the new law and 44
Labeling for Some Foods

also require domestic products to be labeled. Our survey of USDA attaches
for these countries showed that 46 countries require labeling at retail
for produce (fresh or frozen); 34 for peanuts; 41 for one or more of the
covered meats (fresh or frozen); and 39 for fish or shellfish (fresh or
frozen). See table 4.

20 We did not analyze or independently verify the foreign laws/ programs.

Tabl e 4: Summary of Country- of- Origin Labeling Practices for 57 U. S.
Trading Partners: Scope, Oversight, and Enforcement, by Product Category
Labeling required

Imported Domestic Routine

Enforcement actions Product category products products inspections or
penalties

Fish/ shellfish/ seafood* fresh (farm raised) 30 27 27 29 Fish/ shellfish/
seafood* fresh (wild) 27 24 24 26 Fish/ shellfish/ seafood* frozen 37 29
31 37 Fruits and vegetables* fresh (loose) 26 24 25 26 Fruits and
vegetables* fresh (packaged) 38 34 33 36 Fruits and vegetables* frozen 34
28 27 34 Meat* cuts 35 33 30 35 Meat* frozen 41 36 33 40 Meat* ground 34
31 27 33 Peanuts*( loose) 17 11 15 16 Peanuts*( packaged/ canned) 34 27 28
33 Source: GAO.

Note: The European Union countries* requirements for meat apply only to
beef.

Among U. S. trading partners, however, country- of- origin labeling
requirements vary. Several countries require labeling for all foods
covered by the new U. S. law, including, for example, Argentina,
Australia, and Japan. In Argentina and Japan, both domestic and imported
foods must be labeled, while in Australia, domestic foods sold loose do
not have to be

labeled. Other U. S. trading partners have country- of- origin labeling
requirements for only some of the products in our survey. For example,
Canada requires country- of- origin labeling at retail only for
prepackaged

imported fruits and vegetables, while Mexico requires such labeling for
both imported and domestic prepackaged foods.

The agricultural attaches reported that most countries surveyed do have
routine inspections to check for compliance with their country- of- origin
labeling regulations. In addition to inspections, many countries have

enforcement penalties and fines. For example, after incidents of
mislabeling in Japan, the government increased the penalty for violations

to a maximum of 100,000, 000 yen, or approximately $833,000. 21 In
contrast, in Austria the maximum penalty is 7,267 Euros (about $8,400). 22
In addition, in certain countries the penalties for mislabeling food
products can include destruction of the product, the loss of a business
license, or imprisonment.

The European Union legislation imposes country- of- origin labeling
regulations for fruits and vegetables, fish and shellfish, and beef.
According to the responses to our survey, a few member countries,
including Finland, France, and Spain additionally include country- of-
origin labeling requirements for peanuts. Most of the member countries
have routine inspections; however, enforcement actions appear to differ
among the countries. For example, in Denmark, if routine inspections
reveal that a food is not correctly labeled, the inspector can issue a
warning or a fine at his discretion. In contrast, in Portugal, if the
country- of- origin indication is missing, government officials seize the
food. If the supplier can prove the product origin, the product can be
relabeled and reintroduced in the market; if origin cannot be proven, the
food must be destroyed.

Key Trading Partners Have Although many U. S. trading partner countries
have country- of- origin Country- of- Origin Labeling

labeling programs for one or more commodities covered by the new U. S.
Programs but See New U. S.

law, certain countries, including Canada, Mexico, and Australia, have
Requirements as Possible expressed concern that new U. S. identity
requirements may have a negative

impact on trade. These countries are among our largest trading partners in
Trade Barriers

agricultural commodities, as shown in table 5. 21 This conversion was
provided to us by the Foreign Agricultural Service attache for Japan on
March 18, 2003. 22 This conversion was calculated using the May 2003
monthly conversion rate published by the Federal Reserve Board.

Tabl e 5: Top 10 U. S. Agricultural Trading Partner Countries, by Dollar
Value (in thousands)

Country U. S. imports U. S. exports Tot al

Canada $10, 347, 720 $8, 653,774 $19,001, 494

Mexico 5, 518,418 7,251,596 12,770, 014

Japan 373,663 8,367,629 8,741, 292

China 1, 001,354 2,067,125 3,068, 479

Netherlands 1, 750,406 1,173,414 2,923, 820

Korea 151,069 2,674,184 2,825, 253

Italy 1, 789,921 545,623 2,335, 544

Australia 1, 894,019 338,000 2,232, 019

Tai wan 174,757 1,953,229 2,127, 986

France 1, 486,239 390,467 1,876, 706

Source: U. S. Department of Agriculture*s Foreign Agricultural Service.

In written comments to USDA, Canadian officials stated that the U. S.
country- of- origin labeling law would restrict trade, especially in the
red meat sector. For example, according to the officials, currently some
U. S. ranchers import cattle from Mexico and Canada to raise them for
slaughter. If, to reduce compliance costs, U. S. retailers choose to not
handle beef with

more than one country of origin (e. g., cattle born in Canada and raised
and slaughtered in the United States), the market for these cattle would
disappear. Of the foods covered by the new U. S. law, Canada requires
country- of- origin labeling at retail only for prepackaged imported fresh
fruits and vegetables.

The government of Mexico is also concerned about the impact of a U. S.
country- of- origin labeling law. Although Mexico requires country- of-
origin labeling for imported and domestic prepackaged foods that are
covered by the new U. S. law, it does not require such labeling for
imported fresh fruits, vegetables, and peanuts sold loose and imported
unpackaged meat cuts, fish, and shellfish. Specifically, Mexican officials
wrote in comments to USDA that U. S. country- of- origin labeling
requirements would impose an unnecessary, burdensome, complicated, and
expensive requirement on producers, exporters, importers, and retailers,
thereby erecting barriers to trade in Mexican produce, meat, and seafood
destined for the United States. As such, according to Mexican officials,
the regulations amount to a

nontariff barrier that conflicts with U. S. trade obligations under the
North American Free Trade Agreement and the World Trade Organization. In

addition, the officials noted that small suppliers in Mexico have neither
the staff nor the expertise to comply with the U. S. country- of- origin
labeling requirements.

Australian government officials have also expressed opposition to a
mandatory U. S. country- of- origin labeling law. Australia requires
countryof- origin labeling for all imported foods covered by the new U. S.
law, but not for domestic foods sold loose or unpackaged. In comments to
USDA, the Australian government wrote that these regulations could act as
barriers to trade by discriminating against imported products in favor of

domestic products and by imposing significant compliance costs on overseas
producers. As a result, U. S. consumers will have fewer choices when
purchasing food and perhaps higher priced domestic foods. In addition,
Australian officials believe that the U. S. country- of- origin labeling
regulations conflict with the more liberal stance taken by the U. S.
concerning other agricultural issues.

Japan requires country- of- origin labeling for all foods covered by the
U. S. law. Following the May 2003 discovery that a breeding cow had died
of bovine spongiform encephalopathy (BSE)* commonly known as mad cow
disease* in Alberta, Canada, Japan wrote to USDA regarding the country of
origin of beef imported from the United States. Specifically, in a June
10, 2003, letter, Japan instructed USDA that the United States cannot
export beef or beef products to Japan that come from cattle born, raised,
or slaughtered in Canada. The letter stated that, effective July 1, 2003,
beef

and beef products exported to Japan from the United States must be
accompanied by the USDA health certificate for the animal from which the
meat was derived, indicating where the animal was born, raised, and

slaughtered. USDA asked Japan to postpone the effective date pending
discussions among the countries* Japan, Canada, and the United States. On
June 25, 2003, Japan announced that it agreed to postpone the effective
date until September 1, 2003. A detailed presentation of the responses to
our survey of the agricultural attaches for each of the 57 countries is
being released as a special publication entitled Country- of- Origin
Labeling for Certain Foods* Survey Results (GAO- 03- 781SP), which is
available on the Internet at http:// www. gao. gov/ cgi- bin/ getrpt? gao-
03- 781SP.

USDA Used Many of the assumptions that USDA used in developing its
estimate of the

Questionable first year record- keeping costs for compliance with the
voluntary countryof-

origin labeling program are questionable and not well supported. The
Assumptions in Its

key assumptions for USDA*s estimate that these first- year costs for
Estimate of the First

developing and maintaining a record keeping system would be about $1.97
billion pertain to the following: 23 Year Record- Keeping

Costs for Compliance  the types and numbers of businesses that would have
to keep records,

with the Voluntary  the extent to which businesses were already keeping
the necessary Country- of- Origin

records, Labeling Program

 the number of hours that each affected business would have to spend in
developing and maintaining a record- keeping system, and

 the cost per hour of developing and maintaining a record- keeping
system. In each area we have questions about what USDA assumed and/ or the
support for its assumptions.

The number of businesses required to keep records may be overstated. USDA
made several assumptions and estimates pertaining to the number of
businesses that would be required to maintain country- oforigin records.
Taken together, these assumptions produce an upper bound for the number of
businesses that might be affected. However, different assumptions would
produce a lower number. For example, USDA assumed

that nearly all producers would be required to maintain country- of-
origin records even if they produced commodities not covered by the
labeling law (e. g., grain producers), or produced covered commodities
that were not sold through retail outlets in a form to which the labeling
law applies (or not through retail outlets at all, such as by
restaurants). USDA officials told us that they could not determine how
many producers would not be required to maintain country- of- origin
records, in part because many may

23 USDA*s estimate pertains to the cost of complying with voluntary
guidelines. As such, it also is based on the assumption that all affected
businesses will choose to comply. Since compliance is voluntary, it is
possible that no one will comply, and that the actual cost of the
voluntary guidelines will be zero. AMS officials, including the
Administrator, told us that* as of July 28, 2003* they were not aware of
any retailers participating in the voluntary program.

market both covered and non- covered commodities. So, after adding
together the number of commercial farms and ranches in the United States
(about 2.16 million) and an estimate of the number of commercial fishing
vessels (100, 000), USDA arbitrarily assumed that 10 percent of this total
might not be required to maintain country- of- origin records. For
purposes of estimating costs, this number was then rounded to 2 million
affected producers. However, based on comments that USDA received on its
estimate, there may be many more than 10 percent that would not be
required to maintain country- of- origin records. For example, using USDA

data, the authors of a study by the University of Florida International
Agricultural Trade and Policy Center concluded that the number of
producers of covered commodities, excluding fishing vessels, was about

1.34 million. 24 Using that figure and other assumptions, the study
arrived at a much lower cost estimate. 25 We do not know exactly how many
producers would be affected by the labeling law. However, to the extent to
which some producers would not be required to maintain country- of- origin
records because they either do not produce covered commodities (e. g.,
potatoes used in potato chips) or their foods are not sold at retail
grocery stores subject to the new law (e. g., they are marketed to
restaurants or institutions) in a form for which the labeling law applies,
then USDA*s estimate may overstate the record- keeping costs of compliance
with the

law. 26 Some records on country of origin might already exist. In
developing its cost estimate of the record- keeping burden, USDA assumed
that all affected businesses would have to establish new record- keeping
systems because it believed that at that time country- of- origin
information was not required to be maintained by other federal statutes or
regulations. As a result, USDA attributed all of the costs of maintaining
these records to the new law. However, some of the record keeping may
represent costs that businesses were already incurring. For example, since
the release of USDA*s estimates, USDA officials have acknowledged to us
that the Perishable Agricultural Commodities Act requires that retailers
maintain

24 USDA used an estimate of approximately 100,000 fishing vessels that it
believes could be affected by the country- of- origin labeling provision.
The Department of Commerce*s National Marine Fisheries Service developed
this estimate for USDA.

25 John Van Sickle et al., *Country of Origin Labeling: A Legal and
Economic Analysis.* University of Florida Institute of Food and
Agricultural Science, May 2003. 26 USDA officials believe that the number
of producers that may fall into these categories for which the labeling
law does not apply is small.

records on fruits and vegetables that they sell for 2 years, the same
period required by the voluntary country- of- origin labeling law. USDA
agrees that those records may include information on country of origin and
that the existing record- keeping system may be useful for the new law. In
addition, ranchers in many states are maintaining records on their
livestock because

certain processors want this type of information. To the extent that
businesses are already maintaining some of the records that the country-
oforigin labeling law requires, then USDA*s estimate overstates the
incremental costs properly attributable to the law. USDA has acknowledged
that the record- keeping burden would be smaller than it originally
estimated if some business records that verify country of origin are
already being maintained because of some other federal requirement.

USDA said that the purpose of the comment period on its cost estimate was
to bring any examples of such other requirements to its attention.

The number of hours required for record keeping is uncertain.

Although USDA has indicated that it relied on prior experience with other
programs in developing its estimate of the number of hours that each type
of business would need to spend in the first year to develop and maintain
a record- keeping system to comply with the country- of- origin labeling
law, USDA had no specific estimate from other programs to serve as its
basis. In

particular, USDA has written that it drew upon its experience with the
development, operation, and auditing of documented source verification
programs operated under the USDA Process Verified Program in determining
the average number of hours that producers, processors, and

retailers, respectively, would spend complying with the country- of-
origin labeling law. However, USDA officials told us that USDA does not
possess documentation detailing the number of hours required to set up and
maintain record- keeping systems under that program. In the absence of
hard data, USDA officials told us that they relied on professional
judgment. In addition, USDA officials told us that USDA does not have any
documentation of any discussions with industry participants concerning the
amount of time required for compliance with the country- of- origin
labeling law. Our review of comments on USDA*s estimate shows that many

industry representatives believe that USDA underestimated the number of
hours that will be needed to set up and maintain a record- keeping system;
others characterized the record- keeping burden as minimal because they
already maintain records that may satisfy the new requirements. Therefore,
we question the reliability of the estimates developed for complying with
the record- keeping requirements of the law.

USDA*s estimates of hourly costs for record keeping exceed estimates it
used for other programs. USDA used higher estimates of the hourly cost of
complying with the record- keeping requirements of the

country- of- origin labeling law than it used in developing similar
estimates for other programs and it has no documented evidence to justify
these differences. According to the information sheet that USDA prepared
on its estimated costs for complying with the labeling law, USDA used
higher hourly wage rates than those reported by USDA*s National
Agricultural Statistics Service and the Department of Labor*s Bureau of
Labor Statistics because of its experience with the industry in the
operation of programs aimed at tracking the origin of food products
through a system. Specifically, USDA estimated that the hourly cost for
producers would be $25, while it would be $50 for processors and other
handlers and for retailers. In contrast, for the organic rule, USDA
estimated that the hourly cost for producers and handlers to maintain
records would be $23, while for the mandatory price- reporting rule USDA
estimated that the hourly cost for processors, packers, and importers to
maintain records would be $20. USDA officials told us that they estimated
a higher hourly cost to maintain

records for the country- of- origin labeling law because they believe that
a computer system operator would be needed to maintain records to comply
with that law because most food handlers and retailers handle a large
variety of products produced at different locations. 27 However, those
officials also told us that USDA does not have any documented evidence to
support using estimates that are so much higher than those it used for
other

rules and that USDA did not obtain industry concurrence that these higher
estimates are appropriate. Accordingly, there is substantial uncertainty
regarding the likely cost of complying with the country- of- origin
labeling law. If the hourly cost turns out to be more similar to the
estimated cost for other USDA programs, then, other things being equal,
the cost of complying with the record- keeping requirements of the
labeling law will be substantially lower than what USDA has estimated for
first- year record keeping.

To determine what information is contained in the records that accompany
food to grocery stores, among other things, we visited food distribution
centers and grocery stores in Florida and New Jersey and a grocery store
in the District of Columbia. Officials at the distribution centers told us
that existing records for receiving, storing, and shipping fresh produce
and

27 For the mandatory price- reporting rule, USDA estimated an hourly cost
of $50 for establishing the record- keeping system, but a $20 hourly cost
for maintaining the records.

meat provide such information as the number of cases of product and the
cost per case, but do not provide country- of- origin information for each
box or carton of a product. Similarly, at three grocery stores we visited,
officials told us that the records they currently receive from their

distributors do not contain country- of- origin information, although the
containers may be labeled. Both the distribution center and grocery
officials believe that the record- keeping changes that may be needed to
comply with the mandatory country- of- origin labeling law present
challenges and will increase their costs. The officials also foresee other
challenges from the need to segregate foods from different countries
throughout the entire cycle* from the receipt of the food at the
distribution centers down to the grocery store displays. Currently,
distribution centers are designed to receive, store, and ship full pallets
of products whenever possible. Under the new law, distribution center
officials believe that they will need to segregate products, which may
require them to increase the number of pallets needed to store the
segregated food and require additional warehouse space. The officials also
told us that their labor costs would likely increase because of the
additional time needed to keep foods segregated throughout the
distribution cycle. Similarly, at the grocery store level, officials told
us that segregating the covered foods by country of origin would require
additional display shelves and would increase the costs for signs and
label- printing equipment, as well as possibly increasing

labor costs for additional time and effort. Officials at one store told us
that labeling such store- prepared items as mixed fruit salads by country
of origin will take longer both for preparation and for labeling,
resulting in higher costs.

The costs that industry will incur for segregating and storing foods and
for labeling products are not part of the paperwork burden and are not
reflected in AMS*s estimate. AMS will have to estimate these and other
industry costs, as well as federal costs to oversee and enforce the
countryof- origin labeling law, as part of the cost/ benefit analysis that
must accompany the proposed rule implementing the law. AMS expects to
issue the proposed rule in the fall of 2003.

Shortly after USDA published its estimate, it compiled and published
examples of routine documents and records that businesses may already
maintain that may be useful for verifying compliance for each covered food
and each industry sector in that food*s production. (See figure 3 for an
example for the peanut industry.) In addition to the myriad written
comments AMS received from industry on the estimate and the voluntary
guidelines, AMS also reached out to industry in a series of *listening*

meetings that senior AMS officials held across the country in an effort to
better understanding industry*s concerns with record keeping and the
voluntary program.

Figure 3: Documents/ Records That USDA Has Identified As Routinely
Maintained in the Peanut Industry That May Be Useful to Verify Compliance
with the Country- of- Origin Labeling Law

Peanuts Farm Operator / Producer / Custom Broker Importer Buying /
Warehouse * Storage Operator Sheller / Handler / Custom Blancher- Remiller
/

Processor / Crusher- Accumulators Responsibility Responsibility Provide
enough information for an auditor to verify

Maintain the integrity of the identification system. Maintain the
integrity of the identification system.

the County, State and/ or Country where the product Segregate peanuts
according to the country

Identify and segregate individual lots as to the was grown.

designation. Segregate and control throughout the country of origin.
Properly label or identify all

system and properly label product according to peanuts

the country designation. Examples of Records and Activities that may be
useful. Official Inspection Certificates Warehouse storage receipts
Conformations and memorandums of Purchase F& V- 95 Worksheet Daily
inventories by lots and sales Harvest Records Weight tickets Invoices on
purchases Delivery Tickets Receiving records Receiving records Weight
Tickets Official Inspection Certificates Sales tickets Pesticide
application record F& V- 95 Notesheets Account of Sales Sales tickets
Invoices and Purchases Remilling / Blanching/ Transfer Records Warehouse
storage receipts Ledger records of purchases Daily inventories by lots U.
S. Customs Entry Forms Unloading tickets Ledger records of purchase
Purchase Records U. S. Customs Entry Forms Mill Out- turn records Lost and
damage claims documents UPC codes Production and Sales Contracts PLU
labeling information

U. S. Customs Entry Forms Official Inspection Certification and Positive
Lot and Identification Tags and Seals

The examples of documents and records listed in this table, although
extensive, are not inclusive of all documents and records that may be
useful to verify compliance with the Country of Origin Labeling provisions
of the 2002 Farm Bill. Additionally, maintaining documents and records
such as those listed as examples will not necessarily ensure compliance.
The documents listed are examples only and are for the sole purpose of
providing information for producers, processors, and retailers to consider
when establishing records for verification purposes. During a compliance
audit conducted by USDA, auditors will review any and all documents to the
extent necessary to arrive at an accurate decision on the level of
compliance.

Source: USDA.

Many of the industry associations and individual businesses that commented
to USDA on the cost estimate provided information on, among other things,
hourly rates and the time they believe they will need to set up

and maintain a country- of- origin record- keeping system. The respondents
expressed a wide range of opinions about the cost estimate; some believed
that the costs were greatly overstated and that little additional effort
would be required by retailers. Others wrote that the hourly rates and
time involved in implementing the new requirements had been greatly
understated by USDA. Although, as of July 28, 2003, no grocery stores have
participated in the voluntary program, some meat processing companies, in
anticipation of the law*s implementation, have alerted their suppliers to
keep records on where cattle that will be the source of meat on grocery
shelves as of September 30, 2004, were born, raised, and slaughtered.
Lastly, a new requirement proposed by the Department of Health and

Human Services* Food and Drug Administration (FDA), under the authority of
the Bioterrorism Act of 2002, may affect industry*s compliance costs and
facilitate USDA and industry*s implementation efforts with regard to the

new country- of- origin labeling law. 28 Specifically, in May 2003, the
department published a Notice of Proposed Rulemaking that would require
the establishment and maintenance of records by nearly all businesses in
the food industry, including processors, importers, handlers,
distributors, and retailers. 29 The records involved will allow FDA to
identify the immediate previous source and the immediate subsequent
recipient of most food. The purpose of the rule is to significantly
improve FDA*s ability to respond to and help contain the serious adverse
health consequences in the event of accidental or deliberate food
contamination. In effect, FDA

will have information from farm to table, or from point of import to
table, on most food. Both import and domestic origin records would be a
piece of the required information for certain points and may be a
reasonable adjunct to add at the other points in the farm to table
continuum. FDA must issue the final rules by December 12, 2003. The rules
take effect by June 12, 2004, for larger businesses (500 employees or
more); by December 12, 2004, for smaller businesses (from 11 to 499
employees); and by June 12, 2005, for the very small businesses (10 or
fewer full- time employees).

28 See the Public Health Security and Bioterrorism Preparedness and
Response Act of 2002* commonly known as the Bioterrorism Act of 2002* Pub.
L. No. 107- 188 (2002). 29 Meat, meat products, and egg products, which
are exclusively regulated by USDA, are excluded from FDA*s regulation.

Conclusions Existing programs that include an origin requirement may be
useful to AMS, up to a point, as models for overseeing compliance,
verifying origin,

and enforcing the new country- of- origin labeling law. In fact, these
programs may be quite useful for implementing the program for fruits,
vegetables, and peanuts, which generally comply with Tariff rules, because
grocery stores generally know the country of origin of these foods.
However, for meat, fish, and shellfish, we do not believe the existing

programs will be particularly useful. This is largely due to the law*s
unique definitions of a U. S. product for these items and its requirement
to distinguish between fish and shellfish that are farm raised and those
that are caught in open waters. Any procedures AMS puts in place to
implement country- of- origin labeling will inevitably impose an
additional burden on the U. S. meat, fish, and shellfish industries, and
to a lesser extent on the

fruit, vegetable, and peanut industries, if they are to provide assurance
that country- of- origin identity is maintained. To address the origin
identity gaps with minimal burden on the industries, USDA will benefit
from knowing exactly what origin information is available at the various
stages of the process for each of the covered foods. This information, as
well as information on options for labeling foods, and other alternative
industry practices, can best be learned directly from the industries.

In addition, the extent to which the meat industry deviates from Tariff
rules when it processes imported meat further complicates AMS*s
responsibilities. Indeed, the earlier in the process that imported meat
loses its identity, the more onerous the problem AMS and the industry face
to ensure origin identity for meat. As we first reported in 2000, we
believe the responsibility for the industry*s deviation from Tariff rules
is due in part to

USDA*s Food Safety and Inspection Service giving meat packers and
processors different guidance on the need to maintain country- of- origin
information. As a result, consumers, who already have origin information
on imported items, including imported foods, do not routinely have this
information on imported meat.

We also conclude that the examples that AMS is providing to industry of
documents that may be used to verify origin* and its efforts to reach out
to industry in meetings across the country* are good exercises from
several perspectives. Primarily, they provide a benefit to the industries
to better understand their record- keeping burden associated with country-
of- origin labeling. But perhaps just as importantly, they give AMS a
better understanding of the industries and the steps that each covered
commodity

goes through to reach grocery stores. With this understanding, AMS can
design a final rule that will afford both a reasonable assurance that
countryof- origin identity is there for consumers and enable AMS to better
estimate the paperwork burden on industry, when it prepares the estimate
under the Paperwork Reduction Act, for the final rule.

Finally, because the new law uses the definition of a retailer as
contained in the Perishable Agricultural Commodities Act of 1930, which
based the definition on annual invoices for perishable agricultural
commodities, many fruit and vegetable stands are subject to the new
country- of- origin identity requirements, while large butcher shops and
fish markets are exempt. As a result, consumers may not have information
they value on origin identity when they purchase meat, fish, and shellfish
from butcher shops and fish markets; those businesses also would not incur
the costs associated with maintaining origin information and labeling,
which grocery stores will incur for meat, fish, and shellfish.

Recommendations for To help industry comply with the country- of- origin
labeling law*s

Executive Action definitions for U. S. products and other new
requirements, we recommend

that the Secretary of Agriculture direct AMS to  recognize and address,
in the final rules, the extent to which the new

law*s definition of U. S. products, particularly for meat, fish, and
shellfish, differ from the definitions in the Tariff Act of 1930; and

 collaborate with industry to identify, to the extent practicable,
different options or alternative practices for, among other things,
developing and maintaining record- keeping systems and labeling covered
foods. Because the meat industry has not consistently adhered to the
Tariff Act*s requirements for maintaining country- of- origin identity
after imported meat has been cut or ground, we further recommend that the
Secretary of Agriculture direct the Food Safety and Inspection Service to
consult with the Bureau of Customs and Border Protection to develop an
approach for

informing meat packers and processors of their responsibilities under
Tariff Act requirements, with regard to maintaining the identity of
imported meat. In addition, to ensure an accurate estimate of the
paperwork burden on industry for developing a record- keeping system and
maintaining records

on country of origin for the final rule, we recommend that the Secretary
of

Agriculture direct AMS to work with industry associations to compile more
accurate data on hourly rates, approximate number of hours, as well as the
approximate numbers of growers, livestock producers, food processors, and
other sectors subject to the new law. Finally, to create a level playing
field for the retail sale of meat, fish, and

shellfish, we recommend that the Secretary of Agriculture consider
proposing that Congress include large butcher shops and fish markets among
retailers subject to the country- of- origin labeling law through a
technical correction to the law. Agency Comments and

We provided USDA a draft of this report for review and comment in Our
Response

meetings attended by officials from AMS, including the Administrator, and
from the Food Safety and Inspection Service. We also discussed a relevant
recommendation with the Bureau of Customs and Border Protection and
provided relevant draft segments to the Department of Defense.

USDA believes that the report provides some useful guidance and input in
implementing the complex country- of- origin labeling legislation.
However, USDA did not agree with our recommendation for the Food Safety
and

Inspection Service to consult with the Bureau of Customs and Border
Protection to develop an approach for informing meat packers and
processors of their responsibilities under Tariff Act. According to USDA,
the Food Safety and Inspection Service cannot do this because it does not
have authority to enforce the Tariff Act. We agree that the Food Safety
and Inspection Service does not have authority to enforce the Tariff Act.
We are not recommending that it do so; rather, we are recommending that it
consult with the Bureau of Customs and Border Protection so that together
they can develop an approach to bring the meat industry into compliance
with Tariff Act rules regarding imported meat. USDA further asserts that,
under the Federal Meat Inspection Act, once imported meat products undergo
safety- related inspection activities, they are *deemed and treated as
domestic*. Notwithstanding the requirements of the Federal Meat Inspection
Act, the Tariff Act still requires that imported items be marked

with their country of origin through to the ultimate purchaser* who,
generally, would be the consumer. USDA*s assertion does not address the
fact that the meat industry fails to routinely follow Tariff requirements
for imported meat. USDA also asserts that any guidance it provides can
only relate to the Federal Meat Inspection Act and that we do not
sufficiently explain that act and its complexity. While a detailed
analysis of the Federal Meat Inspection Act is beyond the scope of this
study, we believe the

explicit guidance that the Food Safety and Inspection Service provides to
meat packers and processors under that act* that following safety- related
inspection activities, imported meat is deemed domestic* is the point of
confusion with regard to industry*s compliance with Tariff rules. We
believe our recommendation is important because consultation between the
Food Safety and Inspection Service and the Bureau of Customs and Border
Protection could produce an approach to provide consumers with information
they should already have under Tariff rules on the import origin of their
meat.

With regard to our recommendation for AMS to *collaborate with industry to
identify, to the extent practicable, different options or alternative
practices for, among other things, developing and maintaining
recordkeeping systems and labeling covered foods,* USDA agreed that there
would be benefit to this but expressed concern that the new country-
oforigin labeling law does not provide AMS with authority to require a
specific record- keeping system. We do not intend for AMS to be that
prescriptive. Rather, our intent is that AMS build on the type of broad
general guidance that it is already providing industry; specifically, in
identifying existing industry records that may be useful for meeting
recordkeeping

requirements. Similarly, we envision that, based in part on its
collaboration with industry, AMS could provide broad general guidance on
other aspects of the law, such as signage alternatives for labeling
covered foods.

USDA had no comment on our recommendation that AMS consider proposing that
large butcher shops and fish markets be subject to the country- of- origin
labeling law, which we believe would create a more level playing field for
the retail sale of meat, fish, and shellfish. USDA concurred with the
other two recommendations. Finally, USDA stressed that the $1. 9 billion
estimate for the record- keeping burden under the voluntary program

does not reflect the full costs of implementing the law. We agree. We
added language to clarify that this is not the total cost* but only the
cost of the paperwork burden on industry* and that AMS will also have to
develop a cost/ benefit analysis for the proposed rule it plans to issue
this Fall. USDA also provided technical suggestions, which we incorporated
into the report as appropriate.

The Deputy Executive Director of Trade Compliance and Facilitation, Office
of Field Operations, Bureau of Customs and Border Protection, concurred on
the value of having USDA consult with the Bureau on developing an approach
for informing meat packers and processors of their

responsibilities under Tariff Act requirements, with regard to maintaining
the identity of imported meat. Lastly, the Department of Defense, through
the Primary Action Officer for this study, confirmed that the Department
concurred with the report*s treatment of the Subsistence Prime Vendor

Program. We conducted our review from September 2002 through July 2003 in
accordance with generally accepted government auditing standards. As
agreed with your offices, unless you publicly announce the contents of
this report earlier, we plan no further distribution until 30 days from
the date of this letter. At that time, we will send copies of this report
to congressional committees with jurisdiction over food safety issues; the
Secretary of Agriculture; the Secretary of State; the Secretary of
Defense; the Secretary of Commerce; the Office of the U. S. Trade
Representative; the Director, Office of Management and Budget; the
Commissioner of the Bureau of Customs and Border Protection; and other
interested parties. We also will make copies available to others upon
request. In addition, the

report will be available at no charge on the GAO Web site at http:// www.
gao. gov.

If you have any questions about this report, please contact me or Erin
Lansburgh at (202) 512- 3841. Key contributors to this report are listed
in appendix V.

Lawrence J. Dyckman Director, Natural Resources and Environment

Appendi Appendi xes x I

Scope and Methodology As you requested, this report (1) examines how
certain existing federal, state, and industry programs that include origin
identity requirements address oversight, verification of origin, and
enforcement, and assesses their applicability as models for USDA to use to
implement the new

country- of- origin labeling law; (2) identifies which U. S. trading
partner countries require country- of- origin labeling at the retail level
for foods subject to the new labeling law and how these programs are being
implemented; and (3) assesses the reasonableness of USDA*s assumptions and
methodology for estimating the cost of the first year record- keeping
paperwork burden to industry for the voluntary country- of- origin
labeling program. You also asked us to update a 1998 report by USDA*s
Foreign Agricultural Service* 1998 Foreign Country of Origin Labeling
Survey*

in which the Service surveyed its in- country attaches on the country-
oforigin labeling practices in 46 countries and the European Union.

To determine how existing federal, state, and industry programs that
include origin identity requirements address oversight, verification of
origin, and enforcement, and assess their applicability as models for USDA
to use to implement the new country- of- origin labeling law, we
interviewed officials and/ or reviewed documents from USDA*s Agricultural
Marketing Service, Farm Service Agency, Food Safety and Inspection
Service, Animal and Plant Health Inspection Service, and Food and
Nutrition Service; the Department of Defense*s Defense Logistics Agency;
the Food and Drug Administration; National Oceanic and Atmospheric
Administration; and the Bureau of Customs and Border Protection in the
Department of Homeland Security (formerly the U. S. Customs Service in the
Department of Treasury). We reviewed the new country- of- origin
legislation and other

related documents, including USDA*s voluntary country- of- origin labeling
guidelines and comments submitted on those guidelines, comments from
USDA*s listening sessions, congressional testimony, and examples of
records and documents that may be helpful for verification purposes. We
also visited two distribution facilities for supermarket chains (one in
each

of two states), three grocery stores (one in each of two states and one in
the District of Columbia), and a meat packer processor that has a contract
with USDA under the school meals programs. These locations were selected
based on their proximity to our offices in Washington, D. C. and Atlanta,
Ga, where the GAO analysts who conducted this study were located.

The federal programs we examined were identified in the legislation
itself, in the request letter for this study, and in discussions with USDA
and Food and Drug Administration officials who are knowledgeable about
origin

identity programs related to foods. To identify and collect information
about state origin identity programs, we contacted all 50 states through
the National Association of State Departments of Agriculture. We also
interviewed state officials about origin programs in the following
offices: the Alabama Department of Agriculture and Industries; the
Arkansas State Plant Board; the Alaska Department of Natural Resources;
the Delaware Department of Agriculture; the Florida Department of
Agriculture and Consumer Services; the Georgia Department of Agriculture;
the Hawaii Department of Agriculture; the Illinois Department of
Agriculture; the Iowa Department of Agriculture and Land Stewardship; the
Kansas Department of Agriculture; the Kentucky Department of Agriculture;
the Louisiana Department of Agriculture and Forestry; the Maine Department
of Agriculture, Food and Rural Resources; the Massachusetts Department of
Food and Agriculture; the Mississippi Department of Agriculture and
Commerce; the Missouri Department of Agriculture; the Nevada Department of
Agriculture; the New Hampshire Department of Agriculture, Markets, and
Food; the North Carolina Department of Agriculture and Consumer Services;
the North Dakota Department of Health; the Oklahoma Department of
Agriculture, Food, and Forestry; the Pennsylvania Department of
Agriculture; the Tennessee Department of Agriculture; the Texas Department
of Agriculture; the Virginia Department of Agriculture and Consumer
Services; the Vermont Department of Agriculture, Food and Markets; the
West Virginia Department of Agriculture; and the Wyoming Department of
Agriculture. In addition, we reviewed legal and program documents
associated with state country- of- origin and other labeling programs. We
collected descriptive information about state country- oforigin labeling
programs, such as their scope, labeling requirements, inspection
activities, and enforcement penalties associated with the programs. During
our review, we also identified a number of other state, local, and
industry programs that included labeling or tracking of product origin;
however, we did not identify all such programs. We did not evaluate the
state, local, or industry programs included in our review.

We also interviewed officials and/ or reviewed documents from the American
Meat Institute and visited a beef packing plant that supplies beef
products to schools through the school meals programs to examine how

imported animals and the meats produced from them were segregated
throughout slaughtering, cutting, chilling, and other meat grading and
certification activities that take place at meat plants. We also
interviewed officials and reviewed documents from the Food Marketing
Institute and visited food distribution facilities in Florida and New
Jersey and grocery

stores in Florida, New Jersey, and the District of Columbia to examine the

process for how the covered commodities are currently received, stored,
distributed, and displayed at the retail level and existing record-
keeping practices. In addition, we interviewed officials from the National
Fisheries Institute, the Ranchers- Cattlemen Action Legal Fund, the United
Stockgrowers of America, the Organization for Competitive Markets, the
Livestock Marketing Association, the American Frozen Food Institute, the

National Food Processors Association, and the American Peanut Council and
Southern Peanut Farmers Federation. To identify which U. S. trading
partner countries require country- of- origin labeling at the retail level
for foods subject to the new labeling law and how these programs are being
implemented, we surveyed the Foreign Agricultural Service attaches in 57
countries. 1 These included 45 of the 46 that the Foreign Agricultural
Service surveyed in 1998. 2 We omitted Bosnia,

which was included in the 1998 survey, because it is a recipient of food
and aid and not a major agricultural trading partner. The 57 also included
7, all major produce trading partners, which we surveyed for our 1999
report

Fresh Produce: Potential Consequences of Country- of- Origin Labeling. 3
We included another 5 countries that were among the top 40 agricultural
trading partners in 2001, but had not been included earlier. The 57
countries account for about 94 percent of U. S. foreign trading activity
for food and animals. We received responses on all 57 countries. The
countries we surveyed are listed in appendix IV.

Before sending our survey, we pretested it with Foreign Agricultural
Service officials in three countries. During these pretests, we
interviewed the respondents to ensure that (1) the questions were clear
and unambiguous, (2) the terms we used were precise, and (3) the survey
did not place an undue burden on the staff completing it. The survey
instrument had questions regarding the country- of- origin requirements at
retail in the host countries for fruits and vegetables, peanuts, fish and

1 The 57 countries include the 15 member countries of the European Union.
We also surveyed the U. S. Mission to the European Union. 2 In addition,
we surveyed nine countries as suggested by the Foreign Agricultural
Service that have limited trade activity with the United States. Bahamas,
Bahrain, Barbados, Bermuda, Cayman Islands, Iceland, Jamaica, Kenya, and
the Netherlands Antilles. We received responses from five of the nine
countries and provided those responses to the

Foreign Agricultural Service. We did not include the responses in the
analysis for this report, which focuses on the activities among our major
trading partners.

3 GAO/ RCED* 99- 112 (Washington, D. C.: Apr. 21, 1999)

shellfish, and meat. The information presented in this report regarding
foreign countries* labeling requirements, oversight, verification, and
enforcement is based on information obtained from the survey and
interviews. We did not analyze foreign countries* labeling laws or
regulations, independently verify countries* practices, or evaluate their
programs. The detailed results from our survey are available in a special
publication entitled Country- of- Origin Labeling for Certain Food* Survey
Results (GAO- 03- 781SP), which is available on the Internet at http://
www. gao. gov/ cgi- bin/ getrpt? gao- 03- 781SP.

To assess the reasonableness of USDA*s assumptions and methodology for
estimating the cost of the first year record- keeping paperwork burden to
industry for the voluntary country- of- origin labeling program, we

interviewed officials from USDA*s Agricultural Marketing Service and
reviewed agency documents including the Federal Register notices on the
Guidelines for the Interim Country of Origin Labeling Program and the Cost
Estimate of Paperwork Burden for record keeping under the Voluntary
Program; comments received from industry, consumer groups, trading partner
countries, and others in response to the Federal Register notices;
questions and answers on the cost estimate published on the Agricultural
Marketing Service*s Web page; the rules and regulations for implementing
the Perishable Agricultural Commodities Act; other USDA documents; and the
University of Florida International Agricultural Trade and Policy Center*s
report entitled Country of Origin Labeling: A Legal and Economic Analysis;
the Federal Register Notice and Rules regarding the Cost Estimate of the
Livestock Mandatory Reporting Program; and the Regulatory Impact
Assessment for the Final Rule Implementing the National Organic Program.
We conducted our review from September 2002 to July 2003 in accordance

with generally accepted government auditing standards.

State Programs that Require Country- of- Origin Identification at Retail
for Foods Covered by

Appendi x II

the New U. S. Labeling Law In contacting the 50 states, we identified 8
states with country- of- origin labeling programs that we considered
implemented. We considered a labeling program to be implemented if it was
active throughout the entire state and also had oversight by some level of
state (or state- delegated) government. We did not audit the state
programs; rather, we collected information about these programs through
discussions with officials from

the respective state agriculture and health departments. This appendix
provides information about the scope of the programs, labeling options,
inspections at the retail level, and enforcements actions for
noncompliance with program requirements for 8 state programs, as provided
in discussions with officials in each of the respective states.

Alabama Alabama has a country- of- origin labeling program for catfish. At
retail, both imported and domestic catfish must be labeled according to
origin.

Labeling for imported catfish must state "imported catfish." Labeling for
domestic catfish must also indicate the source of the catfish: farm-
raised, river or lake, or ocean. In addition, Alabama*s definition of
catfish includes

the order Siluriformes or family Anarhichadidae that include basa as a
catfish. Basa is an imported fish that is frequently labeled as catfish.
Retailers selling catfish products that are not wrapped or in a container

may comply with labeling requirements by placing a sign on the display
case or refrigeration unit reasonably visible to the consumer. Anyone
selling river or lake catfish exclusively and directly to the consumer may

place a sign reasonably visible to the consumer identifying the source of
the catfish instead of labeling each individual container or package of
catfish.

Alabama Department of Agriculture and Industry staff perform inspections
of retail stores for compliance with country- of- origin labeling
requirements. These inspections are done in conjunction with other
labeling and food safety inspections. Inspections of retail stores are
conducted approximately three times a year. Generally, inspections include
reviews of display cases and storage areas, plus paperwork, if necessary.
Alabama*s country- of- origin labeling program does not include a
requirement that retailers maintain documents related to product origin.
Penalties for noncompliance start with a warning, and subsequent
violations can result in a civil fine of $500. During 2002, inspectors
issued 11 fines totaling $5,500 for various labeling violations.

Arkansas Arkansas has a program for fish. The suppliers, distributors, and
retailers must label all packages of imported and domestic fish/ catfish.
Furthermore, catfish products must be specifically labeled by the

processor, distributor or retailer to identify the source of production,
such as *Farm- Raised Catfish,* *River or Lake Catfish,* *Imported
Catfish,* or *Ocean Catfish.* Amendments to the law in 2003, by the
Arkansas General Assembly, state that the term *catfish* may only be used
when identifying any species of the scientific family Ictaluridae.

Arkansas Bureau of Standards investigators inspect retail stores,
processors, and packagers for compliance with program requirements. Staff
conducting the inspections are already in retail stores checking for
accuracy of labels concerning the weight and quantity of packaged meats
and goods. These random inspections consist of checking display labels
against paper records. These records consist mainly of affidavits signed
by catfish suppliers that certify the origin of the product and that the
product was packaged and processed in sanitary conditions. Retailers found
to be in violation of the law can be assessed civil penalties. The law
provides for

a graduated system of penalties starting with a fine of $500* 1, 000 for a
first offense, $800* 2,000 for a second offense within 3 years of the
first, and $1, 500* 2,500 for a third offense within 3 years.

Florida Florida has a country- of- origin labeling program for fresh
produce, packages of bee pollen, and honey, at the retail level. Only
imported

products must be labeled under the Florida program. Labeling for these
products must indicate the country of origin. The industry complies with
the labeling program for imported products through a variety of means.
Hand- lettered signs are placed in retail bins, individual stickers are
placed on products naming the country of origin, and some stores use
permanent printed signage. Other stores use signs in which lettered
product items and origin information can easily be slipped into slots on
the edges of display bins.

Florida*s Department of Agriculture and Consumer Services staff routinely
inspect more than 40,000 retail, processing, and food establishments
annually, with approximately 15,000 to 20,000 having imported produce
sales. Florida food safety inspectors visit all food retailers about three
times per year, to inspect such items as store cleanliness, food storage
temperatures, meat handling procedures, and country- of- origin labeling
of produce. Florida*s country- of- origin labeling program does not
include a

paperwork retention requirement. Inspections at retail stores involve
verification of signs or labels of origin in the retail display areas with
shipping containers in the storage and unpacking areas at each location.
Penalties for noncompliance with Florida*s labeling law start with a

warning to the retailer, and repeat violators are assessed administrative
fines beginning at $200 and increasing if noncompliance continues. In some
instances, calls are made to corporate headquarters, to ensure that the
corporate managers are aware of the law and the need for compliance. State
law provides for fines of $5,000 per violation, up to $20,000 per day. In
one instance, a violator was fined $10,000 for repacking imported produce

and presenting it as domestic. During 2002, inspectors issued 171 fines
totaling about $57,000.

Louisiana Louisiana has a program for fresh and frozen meat, including
ground meat. Louisiana expanded the program to include shrimp, crawfish,
crab, and crabmeat. For meat, both imported and domestic products must be
labeled. Retailers must label meat as American, imported, or a blend of
American and imported meats. American meat is defined as meat processed at
an American packing plant. If a store sells only American meat, it may put
up a sign or placard stating this and does not have to label individual
items or displays. For shrimp, crawfish, crab, and crabmeat, only imported
products

must be labeled to indicate the country of origin. When foreign shrimp,
crawfish, crab, and crabmeat are combined with domestic products, the
marking or label must clearly show the country of origin of the foreign
products. The country of origin must be displayed on the container if the
shrimp, crawfish, crab, or crabmeat is in package form. A sign designating
the country of origin may be used for shrimp, crawfish, crab, and crabmeat

sold in bulk from a display case. Louisiana Department of Agriculture and
Forestry officials inspect retail stores for compliance with the state*s
country- of- origin labeling regulations in conjunction with other
inspections, such as those for compliance with its general labeling laws.
Inspections of retail stores are conducted at regular intervals.
Inspections include reviews of display cases, storage areas, and
paperwork, if required. Louisiana*s country- of- origin labeling program
does require distributors to maintain documents related to country of
origin on crawfish and shrimp. Penalties for noncompliance with the
state*s country- of- origin labeling requirements start with a warning
letter and may include a civil fine not to exceed $500 per violation/ day.
During 2002, inspectors did not issue any fines for noncompliance with

Louisiana*s country- of- origin labeling requirements.

Maine Maine has a country- of- origin labeling program for fresh produce
at the retail level. With the exception of apples and potatoes, only
imported

products must be labeled under the Maine program. Labeling for these
products must include the country of origin. Both domestic and imported
apples and potatoes are required to be labeled. Fresh produce may be
labeled individually, on the package, on the bin or with a placard near
the produce, or it can be displayed in the original shipping container.

Maine Department of Agriculture, Food and Rural Resources staff perform
inspections at the retail level. Inspections are performed in retail
stores at least once a year. If violations are identified, then the store
is inspected more frequently. Inspectors view produce displays for proper
labeling. The country of origin can be shown by either a display placard
or by individual labels on produce. If inspectors have a question about
the source of an item, they check the shipping boxes in storage areas. If
further clarification is needed, the inspectors can also review shipping
invoices. Officials said that invoices tend to include the source of the
product. Maine*s country- oforigin labeling program does not require
retailers to maintain documents related to product origin. Penalties for
noncompliance with Maine*s country- of- origin labeling requirements may
include a civil fine of not more than $100. During 2002, inspectors did
not issue any fines for noncompliance with Maine*s country- of- origin
labeling requirements.

Mississippi Mississippi has a country- of- origin labeling program for
catfish at the retail level. Both imported and domestic catfish must be
labeled at retail.

Imported products do not have to be labeled with the country- of- origin,
but must indicate that they are imported. Labeling for domestic catfish
should include either the state of origin or indicate that the catfish is
a product of the United States. Labeling for domestic catfish must also
indicate the

source of the catfish* whether it was farm raised or river caught. In
addition, Mississippi*s definition of catfish is limited to two families
of fish, but not others that include basa. Basa is an imported fish that
is frequently labeled as catfish. Retailers selling catfish products not
wrapped or in a container may comply with labeling requirements by placing
a sign on the display case or refrigeration unit reasonably visible to the
consumer. Any

person selling river or lake catfish exclusively and directly to the
consumer may place a sign reasonably visible to the consumer identifying
the source of their catfish instead of labeling each individual container
or package of catfish.

Mississippi Department of Agriculture and Commerce staff inspect retail
stores for compliance with the law as part of their regular inspections
under the food sanitation law. Inspections of retail stores are performed
approximately once a year. Inspectors review display labels for country-
oforigin labeling and storage areas. Retailers are required to keep
records of their purchases of catfish and other fish for a period of 2
years after such purchases and sales have occurred. These records do not
have to be maintained at the retail store. The penalty for noncompliance
with the country- of- origin labeling requirements of Mississippi*s law is
a civil fine of up to $1,000 for each violation. During 2002, the
department found 11 violations at one location and issued a fine of
$1,800.

North Dakota North Dakota has a program for fresh beef, lamb, and pork,
including ground products, sold at the retail level. Both imported and
domestic beef, lamb, and pork must be labeled. Imported meats are labeled
with their

country of origin before they are delivered to the retail location. Meat
received from a U. S. packing plant is considered a domestic product. Meat
products must be labeled at the retail level with a clearly visible
printed or written indication placed in the immediate vicinity of the food
product.

The North Dakota Department of Health is responsible for inspections at
the retail level and the North Dakota Department of Agriculture conducts
inspections at meat packers and processors. Inspections for compliance
with country- of- origin labeling requirements are conducted at least once
every 2 years in conjunction with the routine health inspections at retail
locations. Health inspections in seven counties are performed by county
staff in cooperation with the department and are conducted two to three
times a year. There are no document retention requirements specific to
this program. Anyone found in violation of the law is turned over to the
county state*s attorneys office for filing of a complaint and possible
legal action. To date, no such actions have been taken.

Wyoming Wyoming has a country- of- origin labeling program for meat,
including poultry, at the wholesale and retail level. Ground meat is not
required to be

labeled under Wyoming*s program. Every retailer and wholesaler who sells
or offers meat for sale in Wyoming through an establishment or processing
plant that is the product of any foreign country shall clearly label the
meat as imported and include the country of origin. Meat processed in the
United States is considered a domestic product. For imported meat sold

unpackaged in a retail case, a visible placard stating the country of
origin may be used instead of a label. Wyoming Department of Agriculture
staff conduct inspections for compliance with the program in conjunction
with food safety inspections required at the retail and wholesale levels.
All establishments are riskassessed and then inspections are carried out
accordingly. At a minimum, establishments are inspected at least once a
year, which includes compliance with country- of- origin labeling
requirements. Inspectors

inspect meat and containers of raw meat received by the establishment or
processing plant to verify that meat that is the product of a foreign
country is clearly labeled. Wyoming does not have fines associated with
its countryof- origin labeling program. If inspectors find a retail
location is not in compliance, the inspector informs store personnel of
the requirement to label imported meat. In order to fine a retailer, the
department would have to take the retailer to court. This has not been
done since the program*s inception.

Federal Programs that Require Origin

Appendi x III

Information This appendix provides additional information on the following
federal programs that have origin identity or related requirements for
foods.  School meals programs  Subsistence Prime Vendor Program 
National Organic Program  Market Access Program  Food for Peace Program
 Meat grading and certification programs  USDA Process Verified Program
 Seafood Inspection Program

School meals programs The school meals programs, administered by the U. S.
Department of

(such as the National Agriculture*s (USDA) Food and Nutrition Service,
operate in over 99,000

public and nonprofit private schools and residential childcare
institutions. School Lunch and

Total funding for the programs were more than $6 billion in cash Breakfast
Programs) reimbursements and commodities for fiscal year 2002. Each day,
the School Lunch Program provides meals to about 28 million children. The
meals programs were established under the National School Lunch Act of
1946, 42 U. S. C. 1751 (2000).

USDA provides both cash reimbursements to participating schools and
entitlement commodities purchased by USDA*s Agricultural Marketing Service
and Farm Service Agency. The Agricultural Marketing Service purchases
meat, fish, poultry, eggs, and fruit and vegetable products; the Farm
Service Agency purchases other items, including peanut products, flour,
grain, dairy products, oils, and shortening. About 20 percent of the
dollar value of the food served in school lunches comes from USDA*s
commodity purchase programs. State and local school food authorities

obtain the remaining 80 percent of food either through direct purchases
from manufacturers or distributors or contracts with food service
management companies that procure the foods for them.

All federal purchases for the program must be of domestic origin. For meat
or meat products, domestic origin is defined in USDA guidelines for
suppliers as produced in the United States, from livestock raised in the
United States, its territories, possessions, Puerto Rico, or in the Trust
Territories of the Pacific Islands. However, the animals do not have to be
born in the United States. For example, meat from animals born in Mexico

or Canada and raised for some portion of time in the United States can be
sold to AMS for use in school meals programs. Program Compliance and For
meat, potential suppliers must apply for and receive approval from
Enforcement

AMS to be eligible to supply meat for AMS*s commodity meat purchase
program. The meat suppliers are required to maintain records including,
but not limited to, invoices, production, and inventory records evidencing
product origin, and to make such records available for review. These
suppliers comprise an Approved USDA Domestic Product Suppliers List.

Slaughterhouses and processors identify themselves as either *domestic
only* (i. e., they handle only products manufactured from livestock raised
in the U. S. or its territories) or *segregation plan* facilities (they
handle products derived from both domestic and imported livestock).
Imported livestock are defined as livestock imported for immediate
slaughter that arrive at the plant in sealed trucks. The segregation plan
prepared by

suppliers and contractors handling both imported and domestic livestock
must clearly describe how the company will ensure that no meat from
imported animals is inadvertently included in school meals programs*
supplies; AMS must approve the plan before the company can become a

contractor for USDA feeding programs. AMS audits both *domestic only* and
*segregation plan* facilities three times a year with its staff of 20
auditors. When violations are found, AMS can take enforcement actions
including remedial actions (e. g., provide training), rejecting the meat,
suspension or termination of the contract, debarment, liability for
damages, or criminal prosecution. The annual

compliance cost to AMS is about $112,500. These costs, which include
oversight of school meal meat contractors, are funded by user fees paid by
the meat suppliers. Currently, AMS auditors perform about 250 meat
supplier compliance audits per year at an average cost of about $450 per
audit. The cost per audit is based on an hourly fee that is assessed for
the time required to prepare for, conduct, and report the results of the
assessments, and the time required to complete all related travel.

Similarly, suppliers seeking to provide fruit and vegetable products to
AMS for the school meals programs must complete an annual certification
statement that all products are grown, processed, and packed in the United

States. AMS uses five to six auditors who audit these suppliers based on a
combination of random sample and risk assessment.

The Subsistence Prime Since the early 1990s, the Department of Defense has
used the *Prime Vendor Program

Vendor* program to provide all food items, including food service
equipment and operating supplies for U. S. land- based troops as well as
for the U. S. Navy fleet and the U. S. Coast Guard. For food items, a
partnership was created between the Defense Logistics Agency*s Defense
Supply Center in Philadelphia and a number of small and large full- line
commercial food distributors known as Prime Vendors. There are currently
about 50

Prime Vendors* located across the continental United States and foreign
countries* that provide food items to military commands. Under the Prime
Vendor Program, the department can take advantage of existing food
distribution systems to obtain needed items much more quickly and

inexpensively than through maintaining its own system, according to
department officials. Inspectors spot- check deliveries at their
destination for condition, identity, and quantity, including a visual
check for domestic source requirements. The Berry Amendment has been
included in Department of Defense appropriations bills for many years and
codified into law; it requires that all food served to U. S.- based troops
be of wholly domestic origin, including such ingredients as spices. 1

Program Compliance and The Department of Defense annually audits Prime
Vendors to ensure that

Enforcement food products meet contract specifications for quality and
compliance with

applicable statutes as well. The department has an auditing budget of
approximately $430,000 annually; audits generally take about 2 days to
complete. Audit teams are comprised of personnel from both the Department
of Defense and other cognizant federal agencies, such as the National
Marine Fisheries Service for audits of seafood or USDA for such

items as poultry and beef. The audit team checks to ensure that food
packaging bears the appropriate label. If the particular food item was not
required to bear labeling showing the manufacturer or processor, the Prime

1 See section 832 of the National Defense Authorization Act for Fiscal
Year 2002, Pub. L. No. 107- 107 (2001) (to be codified at 10 U. S. C.
2533a).

Vendor or supplier is requested to provide confirmation of domesticity.
Generally, this is accomplished through an interview with the Prime
Vendor. If violations are found, the department notifies the Prime Vendor
to immediately discontinue supplying the noncompliant items.

This will have to change, however, because section 8136 of the fiscal year
2003 Department of Defense appropriations act (Pub. L. No. 107- 248
(2002)) added a requirement for foods procured for U. S.- based troops.
Specifically, seafood must be wholly domestic (i. e., caught on a U. S.
flag

vessel and processed in the United States). In addition, the Berry
Amendment, as codified, exempts (1) certain groupings of items* such as
tea in bulk, green coffee beans, and olive oil* that are not grown or
produced domestically in sufficient quantities and (2) other foreign-
grown products that are processed in the United States. Periodically, the
Department of Defense and congressional representatives and potential
suppliers have expressed concern about the requirement to purchase only
domestic products.

The National Organic The National Organic Program labeling requirements
apply to raw, fresh

Program products, and processed foods that contain organic ingredients.
Foods that

are sold, labeled, or represented as organic must be produced and
processed following the organic program standards. The program is intended
to assure consumers that the organic foods they purchase are produced,
processed, and certified to consistent national organic standards.
Labeling is based on the percentage of organic ingredients in a product
and labels must include the USDA- approved certifying agent seal
identifying that the organic products came from approved organic growers/
handlers.

The program went into effect on October 21, 2002, and required that
organic products be labeled all the way down to the retail level. The
regulations also require that to be labeled organic, products had to be
produced and handled by approved entities certified by USDA as accredited
certifying agents. Certifying agents may be for- profit, not- forprofit,
or governmental entities, but they are not employees of USDA.

Program Compliance and If an allegation is brought against an operator,
the certifying agent will

Enforcement review the allegation. If the certifying agent believes a
violation has

occurred, the operator is sent a letter detailing the allegation. The
operator

is given time to comply; if the situation is not corrected, a revocation
or suspension will be issued. In addition, civil penalties of up to $10,
000 may be levied.

The Market Access USDA*s Foreign Agricultural Service uses funds from the
Commodity Credit

Corporation to administer the Market Access Program. 2 The program*s
Program

purpose is to encourage the creation, maintenance, and expansion of
commercial export markets for U. S. agricultural commodities through such
activities as consumer advertising and participation in trade fairs.
Program

funds are authorized through agreements using a cost- share assistance
approach that provides for partial reimbursement of eligible promotional
expenses to eligible trade organizations that implement a foreign market
development program. Participants may receive assistance for either
generic or brand promotion activities; for example, program funds have

been used to promote a market for U. S. blueberries and a large orange
juice cooperative. An eligible commodity must contain at least 50 percent
domestic content. Program Compliance and

In addition to the domestic content requirements, participants must submit
Enforcement

travel and expense reports within required time frames. Records must be
maintained for not less than 3 years after completion or termination of
the agreement or not more than 5 full calendar years following the year of
the transaction that is evidenced by such an account or record that took
place, whichever is sooner. The Foreign Agricultural Service conducts

compliance reviews of participants; each year approximately 50 percent of
the participants* records are reviewed, which accounts for approximately
90 percent of the dollars awarded. All participants* records are reviewed
at least every 2 years, according to officials. Typical problems
identified by these audits are ineligible expense submissions* such as
excessive travel

expenses or charges for product samples and business cards* or math
errors. According to program officials, these situations are rectified by
participant reimbursements for overpayment.

2 The Commodity Credit Corporation is a government owned and operated
entity within USDA that was created to stabilize, support, and protect
farm income prices. It also helps maintain balanced and adequate supplies
of agricultural commodities and aids in their orderly distribution.

The Food For Peace The Food For Peace Program (known also as Title I, P.
L. 480), 3 Program

administered by the Foreign Agricultural Service, provides for U. S.
government sales of agricultural commodities to developing countries under
long- term credit arrangements. Program commodities are used to, for
example, combat hunger and malnutrition; promote broad- based equitable
and sustainable development; and encourage the development of private
enterprise and democratic participation in developing countries. The Farm
Service Agency purchases the commodities supplied under the program,
including wheat, rice, corn meal, vegetable oil, soybean meal, and
soybeans. None of the agricultural commodities covered under the country-
of- origin labeling requirements in the 2002 Farm Bill are currently
included in the program.

Under this program, all agricultural products a participating company
provides are to be produced in the United States. Specific language
outlining this requirement is clearly stated in each announcement. For

example, the announcement explains that the provided commodities are to be
of domestic origin, defined as being *manufactured, processed, mined,
harvested, or otherwise prepared for sale or distribution from components
originating the United States.* All commodities supplied by U. S.
companies must be 100 percent domestic in origin; the only exception is if
the commodity is not available *at a fair and reasonable price* on the
domestic market.

Program Compliance and As part of the contract requirements, the suppliers
attest that the products

Enforcement they provide are of domestic origin. Generally, USDA does not
verify that

products provided are actually of domestic origin only. Meat Grading and

The Agricultural Marketing Act of 1946, as amended, 4 authorizes the
Certification

Secretary of Agriculture to provide voluntary federal meat grading and
certification services that facilitate the marketing of meat and meat
products. AMS administers the programs; its regulations provide that
grading and certification services will be furnished for both domestic and
imported meat. Federal meat grading serves a number of functions,

3 See 7 U. S. C. 1691 (2000). 4 See 7 U. S. C. 1621 (2000).

including aid to livestock producers in identifying and receiving prices
commensurate with the quality and quantity of the livestock they produce
and providing consumers, retailers, and institutions with a uniform supply
of meat of the desired quality. Grading services consist of the evaluation
of carcass beef, lamb, and pork for compliance with the grades of the
appropriate official U. S. standard. Certification services consist of the

evaluation of meat and meat products for compliance with specification and
contractual requirements. Commercial meat purchasers, including
restaurants and exporters, regularly use these services to ensure that the
quality and yields of the products they purchase comply with their stated
requirements.

Under current regulations, a country- of- origin labeling mark must appear
on imported carcasses before they can be graded. However, the mark is not
required to remain on the cuts after processing, and the marks are
sometimes removed during trimming. Meat packing plants segregate meat
carcasses once they have been graded. For example, beef carcasses
generally move through the fabrication phase of the plant segregated by
grade such as prime, choice, and select. Some slaughter plants also have
segregation plans for various certification programs including breed
claims such as *Certified Angus Beef.*

Program Compliance and AMS staff conduct about 800 reviews annually of
USDA graded meat sold at

Enforcement restaurants and retail establishments to ensure the proper use
of USDA

nomenclature for beef and lamb products, referred to as P. L. 272 reviews.
5 If violations are noted, appropriate remedial, administrative, and, if
necessary, legal action can be taken to ensure compliance. AMS provides
meat- grading services to industry on a *cost recovery* basis, which
includes graders* salaries, as well as the costs of supervision and
management of the system. On average, grading services cost the beef
industry about 38 cents per carcass. AMS*s meat grading services fee also
covers the cost of its P. L. 272 meat grading reviews, which cost about
$120,000 annually (800 reviews at an average cost of about $150 per
review).

5 Public Law 272 amended, in 1955, at 69 stat. 553, the Agricultural
Marketing Act of 1946.

USDA Process Verified The USDA Process Verified Program is a voluntary
program that provides

Program livestock and meat producers an opportunity to assure customers of
their

ability to provide consistent quality products by having their written
manufacturing processes confirmed through independent third- party audits.
These suppliers are able to have marketing claims such as breed, feeding
practices, or other raising and processing claims verified by USDA and
marketed as *USDA Process Verified.* Some USDA- approved process verified
programs track every animal from birth to the retail meat case. There are
seven approved USDA Process Verified Programs* five pork and two beef.

Program Compliance and Process verified meat suppliers are required to
maintain records including,

Enforcement but not limited to, a complete copy of the applicant*s program

documentation, including examples of all labels, tags, or other
instruments used to identify animals or products; completed examples of
all forms used in the program; and copies of all letters from consulting
veterinarians, feed manufacturers, and tag manufacturers. Suppliers must
agree to make such records available for review; all program documents
must be retained for a

period of at least 1 year. All approved programs are subject to
unannounced annual compliance reviews by AMS auditors. An annual review
costs about $5, 000 and is conducted on a fee- for- service basis. AMS may
suspend a company from the process verified program for a variety of
reasons, including deliberate misrepresentation of the eligibility of
livestock or products distributed under an approved program, failure to
follow applicant*s approved policies and procedures, and failure to
respond to corrective actions in the time frame provided.

Seafood Inspection The Seafood Inspection Program, administered by the
National Oceanic

Program and Atmospheric Administration within the Department of Commerce,
is a

voluntary fee- for- service program. The activities of the Seafood
Inspection Program are authorized under the Agricultural Marketing Act of
1946, as amended. The Seafood Inspection Program routinely evaluates the
safety, wholesomeness, proper labeling, and quality of fish and fishery
products, as well as determining the adequacy of sanitation and hygienic
practices of

the processing facility and the safety of the processes used in the
manufacture of food. These functions are similar to the functions
performed by the inspection personnel of USDA and FDA toward ensuring that
the consumer is provided with safe, wholesome, and properly labeled food
of acceptable quality.

The National Oceanic and Atmospheric Administration employs about 130
federal inspectors. Services can be provided nationwide and in U. S.
territories, as well as in foreign countries. In addition to the federal
inspectors, the National Oceanic and Atmospheric Administration has
agreements with 16 states under which specific state government employees
are cross- licensed to inspect seafood for the Seafood Inspection Program.
The official forms and certificates issued by Seafood Inspection Program
inspectors are accepted as prima facie evidence in any U. S. court.

Both farm- raised and wild fish and shellfish can be inspected. The
Seafood Inspection Program inspects about 18 percent of the U. S. domestic
seafood supply. Users of these services include vessel owners, importers/
exporters, processors, distributors, retailers, and food service
operators. The Seafood Inspection Program publishes a bi- annual listing
of fish establishments and

products of businesses that are under inspection contract with the Seafood
Inspection Program. Some U. S. trading partners, such as the nations of
the European Union, require that seafood inspection/ certification be
performed by government personnel. In fiscal year 2002, the cost of the

Seafood Inspection Program was approximately $13.8 million. Businesses
participating in the Seafood Inspection Program can request several types
of inspections, including quality grading. Products meeting specific
quality requirements may bear an official mark or statement. For example,
if a product is to be quality graded, it may be marked with the *U. S.
Grade A* seal. Participating businesses may advertise the qualifying
inspection marks. Program Compliance and

According to Seafood Inspection Program officials, there are relatively
few Enforcement

violations by participants in the Seafood Inspection Program. However,
occasionally Seafood Inspection Program inspectors discover that a company
has attempted to misrepresent or falsify claims; for example, a company
may falsely indicate that a product meets European Union requirements when
it does not. The National Oceanic and Atmospheric Administration*s Office
of General Counsel provides guidance on a case- bycase basis for the
appropriate response to an alleged offense. The National Oceanic and
Atmospheric Administration may seek the imposition of administrative
corrective action and/ or criminal penalties by the proper federal, state,
or local authorities.

U. S. Trading Partner Countries Surveyed and Their Country- of- Origin
Requirements for

Appendi x IV

Certain Foods We surveyed the following 57 countries, which include the
15- member European Union: Argentina Italy Australia Japan Austria Korea
Belgium Latvia Brazil Luxembourg Canada Malaysia Chile Mexico China
Netherlands

Colombia New Zealand Costa Rica Norway Czech Republic Panama Denmark Peru
Dominican Republic Philippines Ecuador Portugal Egypt Russia El Salvador
Saudi Arabia Estonia Singapore Finland South Africa France Spain Germany
Sweden Greece Switzerland Guatemala Taiwan Honduras Thailand Hong Kong
Turkey Hungary United Arab Emirates India United Kingdom Indonesia
Venezuela Ireland Vietnam Israel

Survey results stratified by food product and by country are included in a
special publication entitled Country- of- Origin Labeling for Certain
Food* Survey Results (GAO- 03- 781SP), which is available on the Internet
at http:// www. gao. gov/ cgi- bin/ getrpt? gao- 03- 781SP.

Appendi x V

GAO Contacts and Staff Acknowledgments GAO Contacts Lawrence J. Dyckman
(202) 512- 3841 J. Erin Lansburgh (202) 512- 3017 Acknowledgments In
addition to those named above, Clifford Diehl, James Dishmon, Natalie

Herzog, Diane Berry, Nancy Bowser, Jay Cherlow, Oliver Easterwood, Lynn
Musser, and Walter Vance made key contributions to this report.

(360270)

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Report to Congressional Requesters

August 2003 COUNTRY- OF- ORIGIN LABELING Opportunities for USDA and
Industry to Implement Challenging Aspects of the New Law

GAO- 03- 780

Contents Letter 1

Results in Brief 5 Background 8 Existing Programs May Be Useful As Models
to Some Extent, but

They Do Not Adequately Address Unique Features of the New Law 12 Most U.
S. Trading Partner Countries Require Country- of- Origin

Labeling at Retail for Foods Covered by the U. S. Labeling Law 23 USDA
Used Questionable Assumptions in Its Estimate of the First

Year Record- Keeping Costs for Compliance with the Voluntary Country- of-
Origin Labeling Program 28 Conclusions 35 Recommendations for Executive
Action 36 Agency Comments and Our Response 37

Appendixes

Appendix I: Scope and Methodology 40

Appendix II: State Programs that Require Country- of- Origin
Identification at Retail for Foods Covered by the New U. S. Labeling Law
44 Alabama 44 Arkansas 45 Florida 45 Louisiana 46 Maine 47 Mississippi 47
North Dakota 48 Wyoming 48

Appendix III: Federal Programs that Require Origin Information 50 School
meals programs (such as the National School Lunch and

Breakfast Programs) 50 The Subsistence Prime Vendor Program 52 The
National Organic Program 53 The Market Access Program 54 The Food For
Peace Program 55 Meat Grading and Certification 55 USDA Process Verified
Program 57 Seafood Inspection Program 57

Appendix IV: U. S. Trading Partner Countries Surveyed and Their Country-
of- Origin Requirements for Certain Foods 59

Appendix V: GAO Contacts and Staff Acknowledgments 60 GAO Contacts 60
Acknowledgments 60

Tables Table 1: Programs That Have Origin Identity or Related Requirements
for Foods 13

Table 2: Selected Information on State- Implemented Country- of- Origin
Labeling Programs 15 Table 3: Percentage of Covered Foods Imported in
2001, by Volume 19

Table 4: Summary of Country- of- Origin Labeling Practices for 57 U. S.
Trading Partners: Scope, Oversight, and Enforcement, by Product Category
24 Table 5: Top 10 U. S. Agricultural Trading Partner Countries, by

Dollar Value (in thousands) 26 Figures Figure 1: Examples of Labels on
Imported Produce in Florida

Grocery Stores 16 Figure 2: Activities Involved in Bringing Beef to
Consumers 22 Figure 3: Documents/ Records That USDA Has Identified As

Routinely Maintained in the Peanut Industry That May Be Useful to Verify
Compliance with the Country- of- Origin Labeling Law 33

Abbreviations

AMS Agricultural Marketing Service FDA Food and Drug Administration GAO
General Accounting Office USDA U. S. Department of Agriculture

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Several existing programs may be useful to USDA as models in implementing
the new country- of- origin labeling law, including USDA*s school meals
programs and the Department of Defense*s Subsistence Prime Vendor Program,
which rely on contract certifications and compliance visits to verify
origin. Florida*s experience with its labeling program may be useful in
providing marking options and for using a state*s existing enforcement
infrastructure to help administer the new law. Within industry, the fee-
forservice meat grading programs and origin- identity programs, such as
Vidalia (R) onions, use affidavits from growers/ producers to verify
origin. However, as

models, these programs have limitations because none was designed to
address features of the new law that will present implementation
challenges to USDA and industry, including how the law defines *domestic*
meat and fish. The meat industry*s practice of not routinely maintaining
origin identity for imported meat presents a further challenge. Most of
the USDA attaches for 57 U. S. trading partners that we surveyed

reported that their host countries require country- of- origin labeling
for one or more of the commodities covered by the new law. Most countries
with programs conduct routine inspections and impose fines for labeling
violations. Additionally, practices also varied among the nation*s larger
trading partners* Canada, Mexico, and Japan. Their own practices
notwithstanding, some trading partners view new U. S. identity
requirements as possible trade barriers. Survey results stratified by food
product and by country are included in a special publication entitled
Country- of- Origin Labeling for Certain Foods* Survey Results (GAO- 03-
781SP), which is available on the Internet at http:// www. gao. gov/ cgi-
bin/ getrpt? gao- 03- 781SP. The assumptions underlying USDA*s $1.9
billion estimate for the first- year

paperwork burden on industry under the voluntary program are questionable
and not well supported. They pertain to such things as the extent to which
businesses were already keeping records and the cost per hour of
developing and maintaining a record- keeping system. USDA has since
compiled and published examples of routine records that businesses may
already maintain that may be useful to verify compliance. Lastly, FDA
proposes a recordkeeping

mechanism for nearly all food businesses to protect the food supply from
intentional tampering, which may be useful for keeping origin records.

Timeline for Implementing the Country- of- Origin Labeling Law May 13,
2002 2002 Farm Bill with Country- of- Origin Labeling Law October 11, 2002
Voluntary Country- of- Origin Labeling Guidelines November 21, 2002
Estimate of Paperwork Burden for Voluntary Program Fall 2003 Proposed
Final Rule to Implement Labeling Law to be issued

September 30, 2004 Final Rule to Implement Country- of- Origin Labeling
required September 30, 2004 Country- of- Origin Labeling Law takes effect
in grocery stores Source: GAO. A provision in the 2002 Farm Bill requires
grocery stores to identify certain commodities* beef, pork

and lamb, fish and shellfish, fruits and vegetables, and peanuts* by
country of origin. This provision also requires that an initial voluntary
program be followed by a mandatory program by September

30, 2004. GAO was asked to identify existing programs that might be useful
to USDA in crafting the new program, to update a 1998 USDA survey of major
U. S. trading partners* country- of- origin labeling practices, and to
assess the reasonableness of the assumptions and methodology USDA used for
estimating first year record- keeping costs.

GAO is recommending that USDA collaborate with industry to identify
alternatives for accomplishing such requirements as developing and
maintaining records documenting country of origin of covered products,
develop an accurate estimate for recordkeeping costs, consult with the
Bureau of Customs and Border Protection to develop an approach

for informing the meat industry of its labeling responsibilities for
imported meat under Tariff Act rules, and consider requesting Congress to
make butcher shops and fish markets subject to the law through a technical
amendment in order to provide a level playing field for the retail sale of
meat, fish, and shellfish.

www. gao. gov/ cgi- bin/ getrpt? GAO- 03- 780. To view the full product,
including the scope and methodology, click on the link above. For more
information, contact Erin Lansburgh at 202- 512- 3017 or Lansburghj@ gao.
gov. Highlights of GAO- 03- 780, a report to

Congressional Requesters

August 2003

COUNTRY- OF- ORIGIN LABELING

Opportunities for USDA and Industry to Implement Challenging Aspects of
the New Law

Page i GAO- 03- 780 Country- of- Origin Labeling

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Appendix I

Appendix I Scope and Methodology

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Appendix I Scope and Methodology

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Appendix I Scope and Methodology

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Appendix II

Appendix II State Programs that Require Country- ofOrigin Identification
at Retail for Foods Covered by the New U. S. Labeling Law

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Appendix II State Programs that Require Country- ofOrigin Identification
at Retail for Foods Covered by the New U. S. Labeling Law

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Appendix II State Programs that Require Country- ofOrigin Identification
at Retail for Foods Covered by the New U. S. Labeling Law

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Appendix II State Programs that Require Country- ofOrigin Identification
at Retail for Foods Covered by the New U. S. Labeling Law

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Appendix II State Programs that Require Country- ofOrigin Identification
at Retail for Foods Covered by the New U. S. Labeling Law

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Appendix III

Appendix III Federal Programs that Require Origin Information

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Appendix III Federal Programs that Require Origin Information

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Appendix III Federal Programs that Require Origin Information

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Appendix III Federal Programs that Require Origin Information

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Appendix III Federal Programs that Require Origin Information

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Appendix IV

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Appendix V

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