Food Safety: Weak and Inconsistently Applied Controls Allow Unsafe
Imported Food to Enter U.S. Commerce (Testimony, 09/10/98,
GAO/T-RCED-98-271).

GAO discussed: (1) the extent to which federal controls ensure that food
importers present shipments for inspection when required and that
shipments refused entry are destroyed or reexported; and (2) ways to
strengthen these controls.

GAO noted that: (1) the Food and Drug Administration's (FDA) controls
provide little assurance that shipments targeted for inspection are
actually inspected or that shipments found to violate U.S. safety
standards are destroyed or reexported; (2) because importers, rather
than FDA, retain custody over shipments throughout the import process,
some importers have been able to provide substitutes for products
targeted for inspection or products that have been refused entry and
must be reexported or destroyed, according to Customs Service and FDA
officials; (3) moreover, Customs and FDA do not effectively coordinate
their efforts to ensure that importers are notified that their refused
shipments must be reexported or destroyed; (4) Customs' penalties for
violating inspection and disposal requirements may provide little
incentive for compliance because they are too low in comparison with the
value of the imported products or they are not imposed at all; (5) as a
result of these weaknesses, shipments that failed to meet U.S. safety
standards were distributed in domestic commerce; (6) because the Food
Safety and Inspection Service (FSIS) requires unique identification
marks on, and maintains custody of, each shipment of imported foods
under its jurisdiction, GAO did not find similar weaknesses in FSIS'
controls over the shipments reviewed, although GAO did identify some
coordination problems between FSIS and Customs; (7) federal controls
would be strengthened by consistently implementing current procedures
and by adopting new procedures; (8) Customs and FDA officials and
representatives of importer and broker associations identified a number
of ways to improve agencies' controls over incoming shipments,
strengthen interagency coordination, and provide stronger deterrents
against repeat violators; and (9) each of these approaches has
advantages and disadvantages that should be considered before making any
changes.

--------------------------- Indexing Terms -----------------------------

 REPORTNUM:  T-RCED-98-271
     TITLE:  Food Safety: Weak and Inconsistently Applied Controls Allow 
             Unsafe Imported Food to Enter U.S. Commerce
      DATE:  09/10/98
   SUBJECT:  Customs administration
             Safety regulation
             Contaminated foods
             Food inspection
             Interagency relations
             Import regulation
             Consumer protection
             Fines (penalties)
             Health hazards
             Management information systems
IDENTIFIER:  Customs Service Automated Commercial System
             Customs Service/FDA Operation Bad Apple
             
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Cover
================================================================ COVER


Before the Permanent Subcommittee on Investigations,
Committee on Governmental Affairs,
U.S.Senate

For Release on Delivery
Expected at
9:30 a.m.  EDT
Thursday
September 10, 1998

FOOD SAFETY - WEAK AND
INCONSISTENTLY APPLIED CONTROLS
ALLOW UNSAFE IMPORTED FOOD TO
ENTER U.S.  COMMERCE

Statement of Lawrence J.  Dyckman,
Director, Food and Agriculture Issues,
Resources, Community, and Economic
Development Division

GAO/T-RCED-98-271

GAO/RCED-98-271T


(150654)


Abbreviations
=============================================================== ABBREV

  FDA -
  FSIS -
  FDA -
  FFDCA -
  ACS -

============================================================ Chapter 0

Madam Chairman and Members of the Subcommittee: 

We are pleased to be here today to testify on federal agencies'
efforts to prevent unsafe imported foods from entering the U.S. 
market.  With the number of imported food shipments increasing--more
than doubling over the past 6 years--ensuring the safety of these
imported foods becomes more challenging.  As we reported to you in
May,\1 we found weaknesses in federal agencies' controls over
shipments of imported foods that allow unsafe foods to enter domestic
commerce.  The agencies responsible for monitoring imported food
shipments are the U.S.  Department of Agriculture's Food Safety and
Inspection Service (FSIS), which is responsible for meat, poultry,
and some egg products; the Food and Drug Administration (FDA), which
is responsible for all other food products; and the U.S.  Customs
Service (Customs), which refers imported food to FSIS and FDA for
their review before releasing the shipment into U.S.  commerce. 

When a shipment arrives at a port of entry, Customs notifies FSIS or
FDA, which determine whether the shipment should be held for
inspection or be allowed to enter the U.S.  market.  FDA-regulated
shipments are held by importers at their own warehouses.  All
FSIS-regulated shipments are held at an FSIS-approved import
inspection station.  While specific procedures vary by port, if a
shipment is refused entry because it does not meet U.S.  standards
for food safety, FSIS or FDA, in conjunction with Customs, require
that the importer properly dispose of the shipment by reexporting or
destroying it.  Customs is then responsible for ensuring the
destruction or reexport of the refused shipment.  Customs may
penalize importers for (1) not presenting a shipment for inspection
when ordered to do so by FDA or FSIS, (2) not redelivering an FDA- or
FSIS-refused shipment to Customs for proper disposal in a timely
fashion, or (3) not delivering it at all.\2

In response to our earlier work, you asked us to obtain additional
information on the extent to which federal controls ensure that food
importers present shipments for inspection when required and that
shipments refused entry are destroyed or reexported.  You also asked
us to identify ways to strengthen these controls.  To assess the
extent and effectiveness of federal controls over imported foods, we
reviewed FDA and FSIS import activities and files on selected
imported shipments at various ports to determine the ultimate
disposition of the shipments.\3 At each FDA port reviewed, we
examined the records of FDA import shipments chosen randomly from a
list of refused entries and selected entries that were not made
available for FDA inspection during the 6-month period from September
1997 through February 1998.  At each FSIS port reviewed, we examined
selected records on refused entries in calendar year 1997.  In
addition, we interviewed Customs, FDA, and/or FSIS officials at
various ports.  We also spoke with representatives of customs brokers
and importer associations to discuss opportunities to strengthen
controls.  In order to ensure the accuracy of the information in this
testimony, we met with officials of FDA, FSIS, and Customs, who
generally agreed with the facts presented.  We performed our work in
accordance with generally accepted government auditing standards from
May to September 1998. 

In summary, FDA's current controls provide little assurance that
shipments targeted for inspection are actually inspected or that
shipments found to violate U.S.  safety standards are destroyed or
reexported.  Because importers, rather than FDA, retain custody over
shipments throughout the import process, some importers have been
able to provide substitutes for products targeted for inspection or
products that have been refused entry and must be reexported or
destroyed, according to Customs and FDA officials.  Moreover, Customs
and FDA do not effectively coordinate their efforts to ensure that
importers are notified that their refused shipments must be
reexported or destroyed.  Finally, Customs' penalties for violating
inspection and disposal requirements may provide little incentive for
compliance because they are too low in comparison with the value of
the imported products or they are not imposed at all.  As a result of
these weaknesses, shipments that failed to meet U.S.  safety
standards were distributed in domestic commerce.  Because FSIS
requires unique identification marks on, and maintains custody of,
each shipment of imported foods under its jurisdiction, we did not
find similar weaknesses in FSIS' controls over the shipments we
reviewed, although we did identify some coordination problems between
FSIS and Customs. 

Federal controls would be strengthened by consistently implementing
current procedures and by adopting new procedures.  Customs and FDA
officials and representatives of importer and broker associations
identified a number of ways to improve agencies' controls over
incoming shipments, strengthen interagency coordination, and provide
stronger deterrents against repeat violators.  Each of these
approaches has advantages and disadvantages that should be considered
before making any changes. 


--------------------
\1 Food Safety:  Federal Efforts to Ensure the Safety of Imported
Foods Are Inconsistent and Unreliable (GAO/RCED-98-103, Apr.  30,
1998) and Food Safety:  Federal Efforts to Ensure Imported Food
Safety Are Inconsistent and Unreliable (GAO/T-RCED-98-191, May 14,
1998). 

\2 In this testimony, the term penalty refers to Customs' actions to
collect "liquidated damages" under a bond posted by an importer to
ensure it properly presents shipments for inspection or disposes of
shipments that have been refused entry. 

\3 We reviewed the records of selected FDA shipments at Los Angeles
and San Francisco, California; Seattle and Blaine, Washington; Laredo
and Pharr, Texas; Miami, Florida; and New York, New York.  We
reviewed the records of selected FSIS shipments at Los Angeles and
San Francisco, California; Seattle, Washington; Houston, Texas;
Miami, Florida; and Newark, New Jersey. 


   BACKGROUND
---------------------------------------------------------- Chapter 0:1

FDA and FSIS must approve the release of the products they regulate
before importers can distribute them in the domestic market.  These
agencies inspect products to ensure that they comply with U.S.  food
safety requirements.  FDA electronically screened all 2.7 million
entries of imported foods under its jurisdiction in fiscal year 1997
and physically inspected about 1.7 percent, or 46,000, of them.  FSIS
visually inspected all 118,000 entries of imported meat and poultry
under its jurisdiction in calendar year 1997 and conducted physical
examinations on about 20 percent of them. 

Importers must post bonds with Customs to allow them to move the
shipment from the port.  The bond amount is intended to cover any
duties, taxes, and penalties.  Importers generally obtain continuous
bonds that provide coverage for multiple shipments over a specified
time period.  The amount of a continuous bond is based primarily on a
percentage of duties paid in the previous year.  Importers can also
purchase bonds for single shipments (single-entry bonds) in an amount
3 times the declared value of the shipment.\4 Once Customs reviews
entry documents and verifies the bond, it conditionally releases the
shipment to the importer. 

After the conditional release, FSIS and FDA exercise different
controls over the shipment, according to their statutory and
regulatory authorities.  FSIS generally requires the importers of the
products it regulates to deliver them to approved import inspection
facilities for storage until the products are released or refused
entry.  If FSIS refuses entry, it notifies the importer, who must
arrange for reexport, destruction, or conversion to animal food
within 45 days.  The shipment is not released from FSIS' custody
until the importer presents documents to FSIS showing that
arrangements have been made. 

In contrast, under the Federal Food, Drug, and Cosmetics Act, as
amended (FFDCA), importers are allowed to retain custody of food
imports subject to FDA regulation in their own warehouses throughout
the entire import process, from pick-up at the port of entry to
release, destruction, or reexport.  FDA releases most shipments
without inspection.  If FDA decides to examine a shipment, it asks
the importer to make the shipment available for inspection at a place
of the importer's choosing.  If FDA refuses to allow the shipment to
enter the United States as a result of this inspection, it notifies
Customs and the importer and gives the importer 90 days to reexport
or destroy the refused shipment.  FDA's decision to refuse entry may
occur immediately after inspection or may occur several days or weeks
after a sample is collected, when laboratory results become
available. 

If a shipment is not presented for inspection as requested by FDA or
FSIS or is refused entry by FDA or FSIS, Customs is to notify the
importer through a redelivery notice to (1) make the shipment
available for FDA or FSIS inspection or (2) redeliver the refused
shipment for Customs' supervised reexport or destruction.  Customs
can penalize an importer that fails to (1) make a shipment available
for inspection, (2) destroy or reexport a refused shipment within the
time frame set out in the Customs redelivery notice, or (3) dispose
of the shipment under Customs' supervision.  Customs initially
assesses penalties at the maximum amount allowed--3 times the value
of the shipment declared on the Customs entry form, up to the amount
of available bond coverage.  According to Customs' guidelines,
Customs must follow FDA's penalty recommendation when an importer
fails to redeliver a refused shipment for export or destruction. 
Customs may reduce the penalty when the shipment is returned (1) late
but disposed of under Customs' supervision or (2) on time but not
disposed of under Customs' supervision.  According to Customs
officials, they cannot impose penalties if Customs does not issue a
redelivery notice to the importer within 120 days of the FDA refusal
date. 


--------------------
\4 The declared valued is based on the cost of the goods to the
importer. 


   IMPORTERS CAN CIRCUMVENT FDA
   AND CUSTOMS INSPECTION AND
   DISPOSAL REQUIREMENTS
---------------------------------------------------------- Chapter 0:2

Weak and inconsistently applied controls have allowed some
FDA-regulated imported foods that violate U.S.  food safety
requirements to enter domestic commerce.  This occurs when either (1)
importers circumvent required inspections or fail to properly dispose
of shipments refused entry or (2) federal agencies do not work
together to ensure that these shipments are disposed of properly. 
Although importers are subject to penalties for circumventing
inspection and disposal orders, we found such penalties may not
effectively deter violations because the penalties are too low and at
times are not imposed at all and therefore fail to serve as a
deterrent. 


      IMPORTERS' CUSTODY OVER
      PRODUCTS ALLOWS UNSAFE
      PRODUCTS TO ENTER DOMESTIC
      COMMERCE
-------------------------------------------------------- Chapter 0:2.1

Unscrupulous importers bypass FDA inspections of imported food
shipments or circumvent requirements for reexporting or destroying
food shipments that were refused entry, according to Customs and FDA
officials at the ports we visited.  This occurs, in large part,
because, under FFDCA, importers are allowed to maintain custody of
their shipments throughout the import process.  Additionally, (1) FDA
does not require shipments to have unique identifying marks that
would aid in ensuring that other products are not substituted for
those targeted for inspection or disposal and (2) importers, under
FFDCA, are allowed a long period of time to redeliver refused
shipments to Customs for disposal, which facilitates substitution by
unscrupulous importers. 

Recognizing this problem, Customs has conducted and is still
conducting operations at a number of ports to detect importers that
attempt to circumvent inspection and disposal requirements.  For
example, in a San Francisco operation that started in October 1996
and was known as "Shark Fin," Customs and FDA found that importers
had diverted trucks en route to inspection stations so that suspect
products could be substituted with acceptable products.  According to
Customs investigators, the operation revealed that six importers were
sharing the same acceptable product when they had to present a
shipment for inspection--a practice known as "banking." In a
follow-up operation in San Francisco, known as "Operation Bad Apple"
and started in July 1997, Customs and FDA found a number of
substitution and other problems, such as invoices that falsely
identified the product.  Customs' concerns were further validated
when this second operation found that 40 of the 131 importers
investigated had import shipments with discrepancies, such as product
substitution and false product identification.  According to a
Customs official, 10 of the importers were previously identified as
suspicious, while the other 30 importers had been considered reliable
until the investigation. 

Identifying the substitution of products prior to inspection is
difficult and labor-intensive, according to FDA and Customs port
officials.  Because FDA-regulated imports do not have unique
identification marks that associate a shipment with the import entry
documents filed with Customs, extra efforts are required to identify
substitution, such as marking or documenting the products at the port
before they are released to the importer, then checking the products
when they are presented for inspection.  FDA and Customs officials
believed that placing additional staff at the ports for such efforts,
as in the San Francisco operations, could not be sustained as a
normal practice, given the resources required and other priorities. 

Substitution problems have also occurred after inspections, when
importers are ordered to redeliver refused shipments to the port for
destruction or reexport.  Three of the eight ports we reviewed
routinely examined FDA-regulated shipments delivered for reexport or
destruction to detect substitution, according to Customs and FDA
officials.  At two of these ports--New York and Blaine--Customs found
that substitution had occurred on outbound shipments.  For example,
in New York, Customs instituted a procedure in 1997 to physically
examine selected food shipments that were refused entry and were
scheduled for reexport.  Officials began this procedure after
periodic examinations found that some importers had substituted
garbage for the refused shipments that were being reexported.  For
the 9-month period of October 1, 1997, through June 30, 1998, Customs
found discrepancies in 31 of the 105 FDA-refused shipments it
examined.  Nine of the discrepancies were for product substitution
and 22 were for shortages--only part or none of the refused shipment
was in the redelivered containers.  For example, in one instance, the
importer presented hoisin sauce for reexport that had a later
production date than the date of the entry into the United States on
the original refused shipment.  Customs officials believed that the
importer distributed the original refused shipment into domestic
commerce and substituted the hoisin sauce to avoid detection and
penalty. 

At the other five ports, Customs does not systematically examine the
shipments delivered for disposal to detect substitution or only
examines them for destruction.  For example, at Laredo, Customs
officials said they only review the documents provided by the
importer and do not examine the shipment to verify that the products
being reexported or destroyed are the same products that were refused
entry.  At Miami, Seattle, and Los Angeles, Customs or FDA officials
may examine some products presented for destruction, but, as at the
Laredo port, only review the documents provided by the importer to
verify the export of refused shipments.  At San Francisco, a Customs
official told us that he reviews the paperwork on the refused
shipment and the paperwork on the shipment presented for destruction
or reexport.  None of the five ports routinely physically examined
the export shipments to ensure they contained the products that were
refused entry and listed on the export documents.  Customs officials
told us they do not have enough time for inspectors to verify each
shipment presented for destruction or reexport, given the number of
refused shipments and other priorities. 

A number of factors contribute to FDA's and Customs' problems in
ensuring that targeted shipments are actually inspected and that
refused entries are properly disposed of.  First, under FFDCA,
importers are allowed to maintain custody of their shipments
throughout the import process, thus providing importers with the
opportunity to circumvent controls. 

Second, imported food shipments under FDA's jurisdiction are not
required to contain unique identification marks.  As a result, it is
difficult to verify whether the FDA-regulated shipments presented for
inspection were the actual shipments being imported or whether
refused shipments were destroyed or reexported.  Furthermore, when
FDA determines that a shipment is unsafe, FDA does not mark the
shipment to show it was refused entry.  In contrast, FSIS requires
that imported food shipments under its jurisdiction contain unique
identifying marks and are retained under its custody until disposal,
and when it refuses entry, it stamps each carton "U.S.  Refused
Entry." Without such markings, Customs and FDA have less assurance
that an importer will not substitute products either before
inspection or, in the case of refusal, before redelivery for export
or destruction.  Furthermore, there is no assurance that an importer
will not reimport a refused shipment at a later date. 

Third, under FFDCA, importers of FDA-regulated products are given 90
days to redeliver refused shipments for proper disposal, which is
twice the amount of time that FSIS regulations give importers of
FSIS-refused shipments.  According to Customs and FDA officials,
allowing an importer up to 90 days to dispose of refused products
while retaining custody of the shipment provides more time for the
importer to arrange for substitution.  That is, unscrupulous
importers will distribute into domestic commerce shipments refused
entry and substitute for reexport a shipment that arrives at a later
date. 


      CUSTOMS AND FDA OFTEN DO NOT
      COORDINATE EFFORTS TO
      PREVENT UNACCEPTABLE
      PRODUCTS FROM ENTERING THE
      U.S.  MARKET
-------------------------------------------------------- Chapter 0:2.2

At five of the eight ports we examined, Customs and FDA do not
effectively coordinate their efforts to ensure that importers are
ordered to redeliver refused shipments for disposal.  At two of these
ports--Los Angeles and New York--Customs was unaware of FDA's refusal
notices for 61 to 68 percent of the shipments we reviewed.  At the
other three--Laredo, Pharr, and Seattle--the lack of coordination
appears to be less problematic.  Nonetheless, as a result of these
coordination problems at the five ports, Customs had not issued
notices of redelivery to the importers.  In contrast, at Miami, San
Francisco, and Blaine, Customs and FDA officials coordinate their
efforts to issue refusal notices and redelivery notices through joint
agency teams or regular reconciliation of records.  (See app.  I for
information we collected on each port's FDA-refused shipments.)

Refused shipments that are not properly disposed of are likely to
have entered domestic commerce.  For example, according to a New York
Customs official, over three-quarters of the cases we reviewed in
which Customs did not have an FDA refusal notice--48 out of 63--were
presumably released into commerce because Customs did not issue a
notice to the importer to redeliver the shipment.  In Los Angeles, we
found that Customs had not issued a redelivery notice and had no
records of disposal for 21 out of 54 shipments we reviewed.\5 Some of
these refused shipments that may have been released into commerce
posed serious health risks:  11 of the 48 New York cases and 8 of the
21 Los Angeles cases were refused by FDA because they contained
salmonella, a bacteria that can cause serious illness. 

It is unclear why Customs was not aware of all the imported food
shipments refused entry by FDA.  While FDA officials told us they
either mailed or hand-delivered notices of refusal to Customs,
Customs officials said they did not receive them.  Nonetheless,
Customs should have been aware of a coordination problem because
importers sometimes returned shipments for disposal after receiving a
refusal notice from FDA but without having received a Customs
redelivery notice.  For example, at New York, we found indications
that importers returned shipments for destruction or reexport in 15
of the 63 cases in which Customs did not issue a redelivery notice. 

At Miami, San Francisco, and Blaine, Customs and FDA officials work
together to ensure that required redelivery notices are issued on
FDA-refused entries.  In Miami, a joint Customs-FDA team sends out a
single notice to the importer stating that the shipment has been
refused entry and that the importer must return it for proper
disposal within 90 days.  In San Francisco and Blaine, the agencies
reconcile their refusal and redelivery notice records each week.  As
a result of their efforts, we found that Customs was aware of FDA's
refusal notices at these three ports in about 95 percent of the cases
we reviewed. 

Although we found that Customs was frequently not aware of
FSIS-refused shipments, we did not find comparable problems of
imported food products being distributed domestically after they had
been refused entry.  According to FSIS officials, when FSIS rejects a
shipment, it only notifies the importer of the refusal.  The
importer, in turn, must notify Customs of the refusal and obtain
Customs' authorization to destroy or export the shipment, but this
information often does not reach Customs' files.  In Seattle, for
example, of the 15 FSIS cases we reviewed, Customs could not locate
files for 7 cases, and only 3 of the remaining 8 case files at
Customs contained records of FSIS refusals or Customs notices of
redelivery.  Despite this apparent lack of coordination, we found
records at the FSIS import inspection facility that indicated the
refused shipments were disposed of properly.  We believe that FSIS'
controls over import shipments--requiring unique markings on each
carton, retaining custody of shipments until they are approved for
release or properly disposed of, and stamping "U.S.  Refused Entry"
on rejected shipments--reduced opportunities to bypass import
controls. 


--------------------
\5 When we brought this problem to Customs' attention at Los Angeles
and New York and asked what action could be taken on these cases, the
officials said they would not issue redelivery notices for any of the
shipments with refusals older than 120 days because Customs cannot
impose liquidated damage penalties for violations after that time. 


      CURRENT PENALTIES ARE NOT
      EFFECTIVE DETERRENTS
-------------------------------------------------------- Chapter 0:2.3

Customs' penalties for failure to redeliver refused shipments do not
effectively deter violations because they are either too low compared
with the value of the product or not imposed at all, according to
Customs and FDA officials at the ports we reviewed.\6 According to
these officials, importers often view these penalties as part of the
cost of doing business.  Some officials believe importers consider
the amount of the penalty from one violation will be covered by the
gains made from other shipments that manage to enter commerce. 

Although violations for failure to redeliver shipments for which
Customs issued a redelivery notice are initially assessed at 3 times
the declared value of the shipment, an importer could still profit
from the sale of a refused shipment even after buying the product and
paying a full penalty for failure to redeliver.  For example, we
found that the wholesale market price for a 10-pound carton of
Guatemalan snow peas ranged from $13 to $15, while the declared value
of a 10-pound carton in one refused shipment was $0.75 per carton and
the assessed penalty was $2.25 per carton.  Thus, in this case, the
wholesale value was four to five times the maximum penalty. 

In some cases, Customs did not impose the maximum allowable
penalty--3 times the shipment's declared value--because the penalty
exceeded the value of the bond that the importer had posted.\7

At least 16 of the 162 penalty cases identified by Customs in Miami
and 7 of the 50 cases we reviewed in New York had lower penalties
imposed because of insufficient bond coverage.  In Miami, for
example, the importer of a shipment of swordfish that was refused
entry for excessive levels of mercury but not redelivered as required
could have been assessed a penalty in excess of $110,000, but the
importer was actually assessed a penalty of only $50,000--the value
of the bond.  Customs and FDA officials said the bond amount may not
cover the maximum penalty because most importers obtain continuous
bonds, whose value is set as a percentage of duties paid in the prior
year and is not tied to the declared value of the entries in the
current year.  According to Customs officials in Miami and New York,
if the importer has a history of violations, Customs may require the
importer to post single-entry bonds for additional entries. 

At three ports--Los Angeles, San Francisco, and Seattle--Customs did
not assess as severe a penalty as agency guidelines suggested because
officials at these ports were unable to identify repeat offenders and
penalize them accordingly.  For example, port officials in Seattle
said the computer system that records violation information is
difficult to access for identifying repeat offenders, given other
priorities.  Prior to April 1998, Customs officials for the Laredo
and Pharr ports said they could not identify repeat offenders for the
same reasons.  However, New York, Miami, and Blaine maintained their
own records on violations and repeat offenders and usually followed
Customs guidelines when assessing penalties on repeat offenders in
the cases we reviewed. 

Finally, Customs officials said they cannot impose penalties in many
cases we reviewed because the agency did not issue a redelivery
notice to the importer within 120 days of the FDA refusal date.  For
example, in Los Angeles, we found that 11 cases had refusal notices
over 120 days but did not have redelivery notices.  Although some
importers reexport or destroy their shipments after receiving only
the FDA refusal notice, importers that do not redeliver the refused
product will not incur a penalty.  From their experience, Customs
officials believe that in such cases importers distribute the
product. 


--------------------
\6 Even though these deterrents may not be effective, FDA and Customs
have other general authority to prevent the entry into the country or
distribution into commerce of adulterated products.  This authority
includes the seizure of products, prohibitions on distribution, and
other actions.  See, for example, 21 U.S.C.  sections 332, 333, and
334; and 19 U.S.C.  section 1595a(b).  However, according to FDA and
Customs officials, these actions are only taken in egregious cases. 

\7 The maximum penalty that can be imposed is either three times a
shipment's declared value or the value of the importer's posted bond,
whichever is the lowest amount. 


   OPPORTUNITIES ARE AVAILABLE TO
   IMPROVE CONTROLS OVER IMPORTED
   FOODS
---------------------------------------------------------- Chapter 0:3

Customs and FDA officials and importer association representatives
suggested ways to strengthen controls over imported foods as they
move through Customs' and FDA's import procedures.  Some of the more
promising suggestions are discussed below.  Each of these suggested
approaches has advantages and disadvantages, costs, or limitations
that would have to be considered before any changes are made. 


      FDA COULD REQUEST CUSTOMS TO
      MAINTAIN CONTROL OF CERTAIN
      SHIPMENTS UNTIL THEY ARE
      RELEASED
-------------------------------------------------------- Chapter 0:3.1

For certain importers that FDA believes are more likely than others
to violate import controls because they have a history of
violations,\8 Customs and FDA could work together to ensure that
substitution does not occur before either inspection or disposal. 
For example, FDA could target importers, and Customs could order that
these importers' shipments be delivered by bonded truckers to an
independent, Customs-approved, bonded warehouse pending inspection. 
Although FDA can request Customs to require importers to present
shipments for inspection at a bonded warehouse, it does not routinely
use this authority and make such requests.  In Los Angeles, for
example, FDA officials said they have had Customs make an importer
present a shipment to a bonded warehouse only once in the past 2
years.  Given their concerns about importers circumventing federal
controls over imported foods, Customs and FDA officials at San
Francisco and Miami are considering implementing variations on this
option.  For example, in Miami, Customs and FDA officials are
developing a program to require importers of FDA-refused shipments to
deliver them into the custody of a centralized examination station, a
type of bonded warehouse, for disposal, rather than allowing the
importer to retain custody. 

This approach has the advantage of preventing the targeted importers
from bypassing inspection controls and of ensuring the proper
disposal of the targeted importers' shipments that were refused
entry.  Furthermore, this approach would serve as a deterrent to
importers likely to violate requirements because they would have to
pay the additional costs associated with unloading a shipment and
storing it at a bonded warehouse.\9 Moreover, this approach would not
require any change in Customs' authority.  Customs currently uses
bonded warehouses for its own inspections and could, at FDA's
request, require targeted importers to use bonded warehouses. 

This approach also has several limitations.  First, it does not cover
all importers.  While ideally it would be preferable to monitor all
importers, it may not be practicable because the costs to law-abiding
importers would also increase.  Second, even if Customs and FDA
focused only on problem importers, the agencies would need to develop
a coordinated system to identify them.  Similarly, this approach
would depend on effective coordination after such identification--FDA
would need to request Customs to maintain control of a shipment, and
Customs would have to act accordingly.  As we have noted, effective
coordination between FDA and Customs does not always occur. 


--------------------
\8 FDA is developing through its automated import screening system
the capability to identify importers that have a history of food
safety-related violations. 

\9 Estimates for unloading a 40-foot container range from $350 to
$1,000, and storage costs range from $75 to $700 per week, depending
on the location. 


      TARGETED SHIPMENTS COULD BE
      MARKED IN ORDER TO TRACE
      THEM THROUGHOUT THE IMPORT
      PROCESS
-------------------------------------------------------- Chapter 0:3.2

Customs and FDA could take steps to better ensure that importers with
a history of violations are not substituting products before
inspection and are not returning the actual refused cargo for
destruction or reexport by adopting variations on controls used by
FSIS for meat and poultry imports.  To help prevent substitution
before inspection, FDA could require the shipments of importers or
products with a history of violations to have unique identification
marks on each product container and on entry documents filed with
Customs.  To help ensure that shipments refused entry are destroyed
or reexported, FDA could stamp "refused entry" on each
carton/container in shipments that it finds do not meet U.S.  food
safety requirements.\10

Requiring certain targeted shipments to have unique identification
marks would have the advantage of enabling FDA inspectors to better
verify that the products presented for inspection were the same
products identified on Customs entry documents and help Customs
inspectors verify that shipments refused entry were disposed of
properly.  Similarly, stamping refused entries would increase the
likelihood that they were actually destroyed or reexported and reduce
the likelihood that reexported products would reenter the country at
a later time. 

However, these procedures might be difficult to implement.  Requiring
unique identification marks on imports (1) would require FDA to
develop and implement a marking and labeling system for the wide
variety of imported food products from many different countries that
it regulates and (2) might negatively affect trade.  Furthermore, a
requirement to stamp refused entries would be labor-intensive for FDA
because FDA, unlike FSIS, does not always have custody of the
shipments at the time of refusal and would have to travel to the
storage location to stamp the cartons. 


--------------------
\10 FDA does not have explicit statutory authority to require unique
identification marks on each product container or on entry documents
filed with Customs nor to stamp "refused entry" on each
carton/container.  We are unaware of any FDA formal determinations
that it would have implicit authority for these actions under its
statutory authorities. 


      CUSTOMS AND FDA COULD WORK
      TOGETHER TO ENSURE THAT
      IMPORTERS ARE ISSUED
      REDELIVERY NOTICES
-------------------------------------------------------- Chapter 0:3.3

Customs and FDA could develop a method of ensuring that importers
whose shipments are refused entry into the United States are issued
notices to redeliver their cargo.  Two approaches were suggested to
us.  First, Customs could retrieve information from its own database
on FDA's refusals.  Customs records all import shipments in its
Automated Commercial System (ACS), and FDA communicates its refusal
notice to the importer through ACS.  Currently, however, Customs'
system is not programmed to identify FDA refusals. 

Second, in lieu of the first approach, or until this approach is
implemented, Customs and FDA could work out a manual system, such as
reconciling FDA refusal and Customs redelivery notices. 

Either of these approaches has the obvious advantage of ensuring that
Customs is promptly aware of all FDA refusals so that it can issue
redelivery notices.  The database approach, however, would require
some reprogramming of ACS to enable Customs to access FDA's refusals
as well as training of Customs officials to ensure that they know how
to use the software.  The second approach would also address the
coordination problem but would require more staff time. 


      THE CONGRESS COULD REDUCE
      THE 90-DAY PERIOD IMPORTERS
      OF FDA-REGULATED FOODS ARE
      ALLOWED FOR REDELIVERY
-------------------------------------------------------- Chapter 0:3.4

The Congress could reduce the time allowed for redelivery of
FDA-regulated shipments to require importers to dispose of refused
shipments more quickly and more in line with the other agencies.  By
statute, importers of FDA-regulated foods are allowed 90 days to
redeliver products after being issued the notice of refusal, in
contrast to importers of FSIS-regulated foods, which are allowed a
45-day redelivery period.  FDA officials at two ports said the longer
time period is intended to give importers enough time to arrange
export shipping of refused shipments.  In New York, however, Customs
officials said some importers use the longer time period to obtain
products to substitute for the refused shipments. 

The advantage of this approach would be to reduce the opportunity for
importers to distribute the products into domestic commerce or to
prepare substitute products for disposal.  However, importers would
have less time to consolidate refused entries with other exports,
which may increase their shipping costs.  Reducing the redelivery
period would also require changes in FDA's statutory authority. 


      PENALTIES COULD BE
      STRENGTHENED TO SERVE AS A
      MORE EFFECTIVE DETERRENT FOR
      REPEAT VIOLATORS
-------------------------------------------------------- Chapter 0:3.5

Under Customs' current practices, penalties can be lower than the
wholesale market value of a shipment and therefore not effectively
prevent refused imported foods from entering domestic commerce.  To
create a more effective deterrent, Customs could take one or more of
the following suggested actions. 

First, Customs could increase the continuous bond requirement for
importers with a history of violations so that the bond would cover
potentially higher penalties.  Rather than base the calculation for
continuous bonds primarily on duties paid in the previous year,
Customs could adjust the formula to include the history of violations
and damages assessed during the earlier period.  Second, Customs
could require importers with a history of violations to post
separate, single-entry bonds for each import shipment.  The
single-entry bond amount is 3 times the declared value of the
shipment.  Finally, Customs could impose higher penalties on repeat
violators, as allowed by its own guidelines, by providing the means
for Customs staff to identify importers with a history of violations. 
Currently, Customs cannot always identify repeat offenders. 

These approaches have the advantage of creating a more significant
monetary disincentive to importers considering circumventing federal
controls.  The first two approaches would impose higher costs on
repeat violators because they involve added expenses in increasing
the level of a continuous bond or purchasing individual bonds for
each shipment.  The final approach would enable Customs to follow its
own guidelines when assessing penalties on repeat violators. 

The first two approaches, however, would require additional work by
Customs staff at each port to review and set bond requirements.  The
last approach would require Customs to correct deficiencies in its
penalty database to allow Customs staff to identify repeat violators. 


-------------------------------------------------------- Chapter 0:3.6

This concludes my prepared testimony.  I would be happy to respond to
any questions that you and Members of the Subcommittee may have. 


GAO'S ANALYSIS OF FOOD SHIPMENTS
ENTERING THE UNITED STATES FROM
SEPTEMBER 1997 THROUGH FEBRUARY
1998 THAT WERE REFUSED ENTRY BY
THE FOOD AND DRUG ADMINISTRATION
=========================================================== Appendix I

                                           Refused entries for which
                                           Customs had no information
                                              and did not issue a
                                               redelivery notice
                                          ----------------------------
                         Total   Refused                       Entries
                       entries   entries             Entries       not
                      refused\       GAO     Total  redelive  redelive
Port of entry                a  reviewed   entries       red       red
--------------------  --------  --------  --------  --------  --------
Blaine, WA                  40        25         1         1         0
Laredo, TX                 147        50         2         0         2
Los Angeles, CA            315        88        54        33        21
Miami, FL                  228        91         2         1         1
New York, NY               326        93        63        15        48
Pharr, TX                  100        36         5         5         0
San Francisco, CA          205        71         6         0         6
Seattle, WA                 64        33         6         3         3
======================================================================
Total                    1,425       487       139        58        81
----------------------------------------------------------------------
\a Customs refers to an entire shipment as an "entry," while FDA
breaks down the contents of a shipment into "entry lines." As used in
this table, "entries" refers to FDA's entry lines. 


*** End of document. ***