FTC: Made In The USA Comments Concerning Allen W. Matthys, PhD--P894219
August 11, 1997
Office of the Secretary
RE: Made in USA Policy Comment FTC File No. P894219 (62 Federal Register 25020, May 7, 1997)
The National Food Processors Association (NFPA) appreciates this opportunity to provide brief comments on the above referenced public notice regarding the Federal Trade Commission's (FTC) Guide for the Use of U.S. Origin Claims. NFPA recognizes the importance of providing material facts about a product to enable consumers to make informed purchasing decisions and agrees that U.S. origin claims should not be deceptive or misleading. However, NFPA does not support FTC's approach to country of origin labeling in the published Guides. NFPA strongly believes that U.S. agencies should strive for consistency in regulatory standards and, unless contrary to public health and welfare, harmonize with existing international standards. NFPA believes that U.S. Custom's substantial transformation test is appropriate for determining country of origin for food products. Further, NFPA finds that the guidance proposed by the Federal Trade Commission (FTC) is confusing regarding labeling of food products.
NFPA is the voice of the $430 billion food processing industry on scientific and public policy issues involving food safety, nutrition, technical and regulatory matters and consumer affairs. NFPA's three laboratory centers, its scientists and professional staff represent food industry interests on government and regulatory affairs and provide research, technical services, education, communications and crisis management support for the association's U.S. and international members, who produce processed and packaged foods, drinks and juices. NFPA members export and import food products and have an interest in international trade policy. In addition, NFPA members are strongly supportive of the international harmonization efforts of Codex Alimentarius for food products.
The Guidance Focuses Exclusively on Manufactured Products
While NFPA understands that the Guides apply "to claims for any product sold in the United States. " including, it is assumed, processed food products, the definitions, examples and explanations contained within the Guides exclusively relate to manufactured goods. While NFPA recognizes that most "Made in USA" claims are made for manufactured consumer goods, some food processors are also interested in identifying their products as a "Product of USA" and would therefore likely refer to the FTC for guidance. If this guidance is intended to apply to processed food products, NFPA suggests inclusion of references to raw agricultural materials and to processed or manufactured food products. For example, "Total cost(s)" is defined as the "total cost of all manufacturing materials, direct manufacturing labor and manufacturing overhead" A more inclusive definition may be, "manufacturing or raw materials" or "manufacturing materials, or agricultural commodities" which do not imply that all the inputs are manufactured. In addition, it would be appropriate to include some processed food products as examples.
NFPA Supports Substantial Transformation As the Appropriate Origin Test.
Section 304 of the Tariff Act of 1930 provides that all articles of foreign origin imported into the United States must be labeled to indicate the country of origin to the ultimate purchaser of the product. When additional work or materials are added in a second country, U.S. Customs applies a test of substantial transformation for purposes of marking. A substantial transformation occurs when the article acquires a new name, character or use.
NFPA believes that this concept is appropriate for food products and strongly advocates retaining the substantial transformation test to determine the country of origin. A processed food product, whether modified through product formulation, a mixture of several ingredients, or preservation to extend a product's shelf life, takes on a new identity with new names and uses. Substantial transformation occurs when food ingredients from perishable commodities are transformed into finished, shelf-stable consumer products. Food processing changes the nature, character and use of the raw commodities and it is this processing that transforms raw materials into a U.S. product. Furthermore, consumers seek food products that are processed and prepared under food quality and safety regulations in which they have confidence. The country in which the final transformation occurs and which is responsible for producing a safe food product, confers the origin which is most meaningful and easily understood by the consumers.
The Proposal is Inconsistent With Other U.S. Agencies
In July 1996, The U.S. International Trade Commission published Country of Origin Marking: Review of Laws, Regulations and Practices, Publication 2975, Investigation No. 332.366. This publication points out the inconsistencies in various country of origin labeling requirements. Customs, in its published notice for NAFTA country of origin rules, (61 Federal Register 28933, June 6, 1996) also stressed the importance of harmonized country-of-origin marking standards. Whereas origin, in the NAFTA rules, is governed by a tariff shift classification, the NAFTA rules were intended by Customs to be a simple codification of the substantial transformation test. (However, NFPA agrees with the FTC that this codification has led to "divergent determinations" and has been the subject of controversy. NFPA has, in fact provided testimony and comments opposing the NAFTA application as expensive and confusing for food labeling requirements.) Contrary to the recommendations of the ITC and U.S. Customs, this new FTC guidance introduces even more inconsistencies in U.S. regulations.
The Proposal Is Inconsistent With International Standards
As recognized in the FTC publication, the World Trade Organization (WTO) is currently engaged in an effort to harmonize international rules of origin, the goal of which is for all countries to apply the same non-preferential standards. The harmonization effort is scheduled to be completed within 1998 and the WTO is expected to adopt a substantial transformation standard for determining origin. Codex Alimentarius also upholds the concept of substantial transformation for food products. The FTC guidance is inconsistent with these international standards.
NFPA disagrees with the Commission's statement, "there is in fact no direct conflict between Customs Service and FTC requirements." NFPA recognizes that the FTC regulates voluntary claims for domestic products, whereas U.S. Customs regulations govern foreign product. Nevertheless, different standards are being applied to domestic product than to imported products. NFPA believes that such differing requirements are contrary to the spirit and intent of the national treatment standards under the World Trade Organization Agreement on Technical Barriers to Trade. It is conceivable to NFPA that some exporters to the U.S. may perceive this as discriminatory treatment. This may be the case, for example, when a food product contains raw materials of U.S. origin, which were finished or packaged at minimal costs abroad. The manufacturer may wish to use a "product of USA" label because it would be a competitive advantage in the global marketplace. However, that product may not have been processed in accordance with U.S. food safety standards.
The FTC has recognized that these inconsistencies between other international regulations would create an economic burden on the U.S. industry by necessitating additional labeling inventories for domestic and exported products (when they may not otherwise be required). For processed food products, most of the U.S.' key trading partners require country of origin labeling. Most international regulations accept the Codex standard of substantial transformation. In many countries, U.S. food products containing the U.S. FDA label is acceptable without modification or with minor modifications. Under the guidelines proposed by the FTC, a canned pizza sauce made from Mexican tomatoes would not conform to the "Made in USA" guidelines for domestic products but would conform to the substantial transformation standards for international trade and would become a "Product of the USA." NFPA acknowledges that FTC believes it has addressed this situation by creating a exception in Section XIII whereby "Origin USA" can be included on the label of domestic product that may not otherwise comply provided the product is also exported in "more than a de minimis quantity" and the product is accompanied by stickers or hangtags offering an explanation of the foreign content. NFPA points out that the economic burden of sticker labeling or hangtags would be similar to the creation of an additional labeling inventory and handling requirements may be even more burdensome. NFPA believes that such a requirement would have a negative impact on exports of U.S. processed food products.
In conclusion, NFPA is concerned that by introducing these Guides, the FTC has only contributed to the inconsistencies and confusion currently surrounding the various country of origin regulations. NFPA recommends that FTC withdraw the Guides until after the completion of the efforts by the WTO Agreement on Rules of Origin in 1998 and then work jointly with members of Congress and the U.S. Customs Service to enact rules that appropriately harmonize with other international standards. Considering the increasing importance of trade to the U.S. and world economies, NFPA believes it is imperative that U.S. Agencies recognize the global affects of their regulatory actions and demonstrate leadership in efforts to harmonize standards to facilitate that trade.
Thank you for consideration of these comments.
Allen W. Matthys, PhD.
Cc: Foreign Agriculture Service