Fresh Produce: Potential Consequences of Country-of-Origin Labeling
(Testimony, 04/28/99, GAO/T-RCED-99-172).

Pursuant to a congressional request, GAO discussed the labelling
requirements for fresh produce, focusing on: (1) the potential costs
associated with the compliance and enforcement of a mandatory
country-of-origin labelling requirement at the retail level for fresh
produce; (2) the potential trade issues associated with such a
requirement; (3) the potential impact of such a requirement on the
ability of the federal government and the public to respond to outbreaks
of illness caused by contaminated fresh produce; and (4) consumers'
views of country-of-origin labelling.

GAO noted that: (1) the magnitude of compliance and enforcement costs
for mandatory country-of-origin labelling for fresh produce at the
retail level would depend on several factors, including the extent to
which labelling practices would have to be changed; (2) in addition,
enforcement would be difficult; (3) labelling could be viewed by other
countries as a trade barrier if, for example, they are concerned that
additional costs may be incurred by their exporters; (4) because of the
time lag time between the outbreak of an illness and the identification
of the cause, labelling would be of limited value in responding to
produce-related outbreaks of illnesses; and (5) surveys indicate that
most people favor country-of-origin labelling; however, they rate
information on freshness, nutrition, handling and storage, and
preparation tips as more important.

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

 REPORTNUM:  T-RCED-99-172
     TITLE:  Fresh Produce: Potential Consequences of Country-of-Origin
	     Labeling
      DATE:  04/28/99
   SUBJECT:  Labeling law
	     Food and drug law
	     Importing
	     Safety standards
	     Consumer protection
	     Agricultural products
	     Health hazards
	     Cost effectiveness analysis
	     International trade restriction
	     Contaminated foods
IDENTIFIER:  North American Free Trade Agreement
	     NAFTA
	     Florida
	     Maine
	     Texas

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Cover
================================================================ COVER

Before the Subcommittee on Livestock and Horticulture, Committee on
Agriculture, House of Representatives

For Release
on Delivery
Expected at
10 a.m.  EDT
Wednesday
April 28, 1999

FRESH PRODUCE - POTENTIAL
CONSEQENCES OF COUNTRY-OF-ORIGIN
LABELING

Statement of Robert E.  Robertson,
Associate Director, Food and Agriculture Issues,
Resources, Community, and Economic
Development Division

GAO/T-RCED-99-172

GAO/RCED-99-172T

(150138)

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

  CDC -
  FDA -
  NAFTA -
  USDA -
  USTR -
  WTO -

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

Mr.  Chairman and Members of the Subcommittee: 

We are pleased to be here today to discuss our recent reportï¿½Fresh
Produce:  Potential Consequences of Country-of-Origin Labeling
(GAO/RCED-99-112, Apr.  21, 1999).  As you know, in the past few
years several legislative proposals have been introduced that would
require fresh produce to be labeled at the retail level by its
country of origin.  As requested by the Senate and House conferees
for the Omnibus Consolidated and Emergency Supplemental
Appropriations Act, 1999, our report reviewed a number of issues
associated with the potential costs and benefits of a mandatory
labeling requirement.\1 Specifically, our reportï¿½as well as our
testimony today--provides information on (1) the potential costs
associated with the compliance and enforcement of a mandatory
country-of-origin labeling requirement at the retail level for fresh
produce, (2) the potential trade issues associated with such a
requirement, (3) the potential impact of such a requirement on the
ability of the federal government and the public to respond to
outbreaks of illness caused by contaminated fresh produce, and (4)
consumers' views of country-of-origin labeling.\2

In summary: 

  -- The magnitude of compliance and enforcement costs for mandatory
     country-of-origin labeling for fresh produce at the retail level
     would depend on several factors, including the extent to which
     current labeling practices would have to be changed.  In
     addition, enforcement would be difficult. 

  -- Labeling could be viewed by other countries as a trade barrier
     if, for example, they are concerned that additional costs may be
     incurred by their exporters. 

  -- Because of the time lag between the outbreak of an illness and
     the identification of the cause, labeling would be of limited
     value in responding to produce-related outbreaks of illnesses. 

  -- Surveys indicate that most people favor country-of-origin
     labeling; however, they rate information on freshness,
     nutrition, handling and storage, and preparation tips as more
     important. 

I will now provide some background information and discuss these
issues in greater detail. 

--------------------
\1 Our report was requested in Conference Report 105-825,
accompanying H.R.  4328, which became the Omnibus Consolidated and
Emergency Supplemental Appropriations Act, 1999 (P.L.  105-277, Oct. 
21, 1998). 

\2 In conducting our review, we assumed that the retailer would be
responsible for ensuring that produce is labeled as to its country of
origin and that the term ï¿½labelï¿½ means any label, mark, sticker,
stamp, placard, or other clear visible sign. 

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

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

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

   Figure 1:  Source of Fresh and
   Frozen Imported Produce, 1997,
   by Dollar Value

   (See figure in printed
   edition.)

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

Three states--Florida, Maine, and Texas--have enacted
country-of-origin labeling laws for fresh produce.  Florida requires
all imported fresh produce to be labeled, Maine requires labeling of
produce imported from countries identified as having specific
pesticide violations,\5 and Texas requires labeling for fresh
grapefruit. 

--------------------
\3 U.S.  Customs ruling HRL 722992.  This ruling was interpreted in
Customs ruling HRL 733798 to not require marking because open bins or
display racks were not determined to constitute ï¿½containers.ï¿½

\4 The European Union is composed of Austria, Belgium, Denmark,
Finland, France, Germany, Greece, Ireland, Italy, Luxembourg, the
Netherlands, Portugal, Spain, Sweden, and the United Kingdom. 

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

   UNCERTAINTIES EXIST ABOUT COSTS
   ASSOCIATED WITH COMPLIANCE AND
   ENFORCEMENT
---------------------------------------------------------- Chapter 0:2

The magnitude of compliance and enforcement costs for a
country-of-origin labeling requirement at the retail level would
depend on several factors, including the extent to which current
labeling practices would have to be changed. 

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

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

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

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

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

   A LABELING LAW COULD HAVE
   ADVERSE TRADE IMPLICATIONS
---------------------------------------------------------- Chapter 0:3

Depending on what it might require and how it might be implemented, a
law mandating country-of-origin labeling for fresh produce could have
adverse trade implications.  U.S.  trading partners might challenge
the law's consistency with international trade obligations or take
steps to increase their own country-of-origin labeling requirements. 
Moreover, according to USDA officials, enacting a labeling law could
make it more difficult for the United States to oppose foreign
countries' labeling requirements that it finds objectionable. 

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

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

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

While U.S.  representatives have worked informally and cooperatively
to oppose certain foreign country-of-origin labeling requirements,
the United States has not formally challenged any such requirements
within the WTO.  WTO officials said they were unaware of any formal
challenges to any country's country-of-origin labeling requirement. 
However, USDA and WTO officials agreed that the absence of any formal
challenge does not necessarily indicate that existing
country-of-origin labeling requirements are consistent with WTO
rules.  Moreover, the absence of formal challenges to existing laws
does not preclude these laws from being challenged in the future. 
Finally, because the United States is such a large importer and
exporter of fresh produce, officials with USDA and the Department of
State pointed out that a U.S.  labeling law is more likely to be
formally challenged than are other countries' laws. 

--------------------
\6 The WTO was established in 1995, as a result of the Uruguay Round
(1986-94) of the General Agreement on Tariffs and Trade.  WTO
facilitates the implementation, administration, and operation of
multiple agreements that govern trade among its member countries. 
NAFTA is a multilateral trade agreement that contains obligations
governing trade among Canada, Mexico, and the United States.  NAFTA
negotiations began in 1991, and the agreement entered into force in
1994. 

\7 In addition, country-of-origin labeling is covered as a technical
regulation subject to the WTO Agreement on Technical Barriers to
Trade.  This agreement provides guidelines for developing and
applying technical regulations. 

   LABELING WOULD PROVIDE LIMITED
   BENEFITS IN RESPONDING TO
   OUTBREAKS OF FOODBORNE
   ILLNESSES
---------------------------------------------------------- Chapter 0:4

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

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

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

   ALTHOUGH CONSUMERS FAVOR
   LABELING, OTHER INFORMATION IS
   MORE IMPORTANT TO THEM
---------------------------------------------------------- Chapter 0:5

According to nationwide surveys sponsored by the fresh produce
industry, between 74 and 83 percent of consumers favor mandatory
country-of-origin labeling for fresh produce, although they rate
information on freshness, nutrition, and handling and storage as more
important.\8 In fact, consumers ranked information on
country-of-origin fifth out of the six factors in a 1996 survey, as
shown in figure 2.\9

   Figure 2:  Importance of
   Different Types of
   Produce-Labeling Information to
   Consumers

   (See figure in printed
   edition.)

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

Surveys also indicate that most consumers would prefer to buy U.S. 
produce if all other factors--price, taste, and appearance--were
equal.  And, one survey found that about half of all consumers would
be willing to pay ï¿½a little more to get U.S.  produce.ï¿½\10

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

In addition, survey responses show that consumers believe that U.S. 
produce is safer than imported produce; however, USDA, FDA, and CDC
officials told us that sufficient data are not available to make this
determination.  Consumers Union--a nationally recognized consumer
groupï¿½has used data collected by USDA's Agricultural Marketing
Service to compare the extent to which multiple pesticide residues
were found in selected domestic and imported fresh produce.\11 For
its analysis, Consumers Union developed a toxicity index, which it
used to compare the pesticide residues.  According to this analysis,
pesticide residues on imported peaches, winter squash, apples, and
green beans had lower toxicity levels than those found on their
domestically grown counterparts.  In contrast, the pesticide residues
on domestically grown tomatoes and grapes were less toxic than their
imported counterparts.  The study acknowledges that almost all of the
pesticide residues on the samples were within the tolerance levels
allowed by the Environmental Protection Agency.  We did not
independently determine the validity of the toxicity index developed
by Consumers Union or verify its analysis or results.  However,
according to FDA officials, pesticide residues present a lower health
risk than the disease-causing bacteria that can be found on food. 

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

\9 Survey conducted for The Packer newspaper in 1996. 

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

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

-------------------------------------------------------- Chapter 0:5.1

This concludes my statement.  We would be glad to respond to your
questions. 

*** End of document. ***