Fresh Produce: Potential Implications of Country-of-Origin Labeling
(Statement/Record, 05/26/99, GAO/T-RCED-99-200).

Pursuant to a congressional request, GAO discussed the labeling
requirements for fresh produce, focusing 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.

GAO noted that: (1) 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
labeling practices would have to be changed; (2) in addition,
enforcement would be difficult; (3) 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; (4) 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; (5) surveys indicate that most
people favor country-of-origin labeling; and (6) however, they rate
information on freshness, nutrition, handling and storage, and
preparation tips as more important.

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

 REPORTNUM:  T-RCED-99-200
     TITLE:  Fresh Produce: Potential Implications of Country-of-Origin
	     Labeling
      DATE:  05/26/99
   SUBJECT:  Labeling law
	     Importing
	     Safety standards
	     Consumer protection
	     International trade restriction
	     Health hazards
	     Agricultural products
	     Food and drug law
	     Contaminated foods
IDENTIFIER:  North American Free Trade Agreement
	     NAFTA
	     Florida
	     Texas
	     Maine

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FRESH PRODUCE: Potential Implications of Country-of-Origin
Labeling GAO/T-RCED-99-200 United States General Accounting Office

GAO Testimony Before the Committee on Agriculture, Nutrition, and

Forestry, U. S. Senate To be Released at 9 a. m. EDT Wednesday May
26, 1999

FRESH PRODUCE Potential Implications of Country- of- Origin
Labeling

Statement for the Record by Robert E. Robertson, Associate
Director, Food and Agriculture Issues, Resources, Community, and
Economic Development Division

GAO/T-RCED-99-200

  GAO/T-RCED-99-200

Mr. Chairman and Members of the Committee: We appreciate the
opportunity to present this statement for the record, which
discusses our recent report Fresh 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 These issues
would also be relevant considerations for meat labeling.
Specifically, our report as 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.

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 label means any label, mark, sticker,
stamp, placard, or other clear visible sign.

GAO/T-RCED-99-200 Page 1

Background 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

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 containers. 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.

GAO/T-RCED-99-200 Page 2

Figure 1: Source of Fresh and Frozen Imported Produce, 1997, by
Dollar Value 2%

Guatemala

3%

Netherlands  4%

Costa Rica

12%

Chile

13%

Other

15%

Canada

51%

Mexico 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

GAO/T-RCED-99-200 Page 3

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.

Uncertainties Exist About Costs Associated With Compliance and
Enforcement

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.

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.

GAO/T-RCED-99-200 Page 4

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

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

GAO/T-RCED-99-200 Page 5

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

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.

GAO/T-RCED-99-200 Page 6

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.

Labeling Would Provide Limited Benefits in Responding to Outbreaks
of Foodborne Illnesses

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.

GAO/T-RCED-99-200 Page 7

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

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

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.

GAO/T-RCED-99-200 Page 8

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

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 a little more to get U. S. produce. 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

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

GAO/T-RCED-99-200 Page 9

group has 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.

(150149)

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

GAO/T-RCED-99-200 Page 10

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