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Report to Congressional Requesters:

August 2003:

COUNTRY-OF-ORIGIN LABELING:

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

[Hyperlink, http://www.gao.gov/cgi-bin/getrpt?GAO-03-780] GAO-03-780:

GAO Highlights:

Highlights of GAO-03-780, a report to Congressional Requesters 

Why GAO Did This Study:

A provision in the 2002 Farm Bill requires grocery stores to identify 
certain commoditiesbeef, pork and lamb, fish and shellfish, fruits 
and vegetables, and peanutsby country of origin. This provision also 
requires that an initial voluntary program be followed by a mandatory 
program by September 30, 2004. GAO was asked to identify existing 
programs that might be useful to USDA in crafting the new program, to 
update a 1998 USDA survey of major U.S. trading partners country-of-
origin labeling practices, and to assess the reasonableness of the 
assumptions and methodology USDA used for estimating first year record-
keeping costs.

What GAO Found:

Several existing programs may be useful to USDA as models in 
implementing the new country-of-origin labeling law, including USDAs 
school meals programs and the Department of Defenses Subsistence 
Prime Vendor Program, which rely on contract certifications and 
compliance visits to verify origin. Floridas experience with its 
labeling program may be useful in providing marking options and for 
using a states existing enforcement infrastructure to help administer 
the new law. Within industry, the fee-for-service meat grading 
programs and origin-identity programs, such as Vidalia onions, use 
affidavits from growers/producers to verify origin. However, as 
models, these programs have limitations because none was designed to 
address features of the new law that will present implementation 
challenges to USDA and industry, including how the law defines 
domestic meat and fish. The meat industrys practice of not 
routinely maintaining origin identity for imported meat presents a 
further challenge. 

Most of the USDA attachs for 57 U.S. trading partners that we 
surveyed reported that their host countries require country-of-origin 
labeling for one or more of the commodities covered by the new law. 
Most countries with programs conduct routine inspections and impose 
fines for labeling violations. Additionally, practices also varied 
among the nations larger trading partnersCanada, Mexico, and Japan. 
Their own practices notwithstanding, some trading partners view new 
U.S. identity requirements as possible trade barriers. Survey results 
stratified by food product and by country are included in a special 
publication entitled Country-of-Origin Labeling for Certain Foods
Survey Results (GAO-03-781SP), which is available on the Internet at 
http://www.gao.gov/cgi-bin/getrpt?gao-03-781SP. 

The assumptions underlying USDAs $1.9 billion estimate for the first-
year paperwork burden on industry under the voluntary program are 
questionable and not well supported. They pertain to such things as 
the extent to which businesses were already keeping records and the 
cost per hour of developing and maintaining a record-keeping system. 
USDA has since compiled and published examples of routine records that 
businesses may already maintain that may be useful to verify 
compliance. Lastly, FDA proposes a record-keeping mechanism for nearly 
all food businesses to protect the food supply from intentional 
tampering, which may be useful for keeping origin records.

What GAO Recommends:

GAO is recommending that USDA collaborate with industry to identify 
alternatives for accomplishing such requirements as developing and 
maintaining records documenting country of origin of covered products, 
develop an accurate estimate for record-keeping costs, consult with 
the Bureau of Customs and Border Protection to develop an approach for 
informing the meat industry of its labeling responsibilities for 
imported meat under Tariff Act rules, and consider requesting Congress 
to make butcher shops and fish markets subject to the law through a 
technical amendment in order to provide a level playing field for the 
retail sale of meat, fish, and shellfish.

www.gao.gov/cgi-bin/getrpt?GAO-03-780.

To view the full product, including the scope and methodology, click 
on the link above. For more information, contact Erin Lansburgh at 202-
512-3017 or Lansburghj@gao.gov.

[End of section]

Contents:

Letter: 

Results in Brief: 

Background: 

Existing Programs May Be Useful As Models to Some Extent, but They Do 
Not Adequately Address Unique Features of the New Law: 

Most U.S. Trading Partner Countries Require Country-of-Origin Labeling 
at Retail for Foods Covered by the U.S. Labeling Law: 

USDA Used Questionable Assumptions in Its Estimate of the First Year 
Record-Keeping Costs for Compliance with the Voluntary Country-of-
Origin Labeling Program: 

Conclusions: 

Recommendations for Executive Action: 

Agency Comments and Our Response: 

Appendixes:

Appendix I: Scope and Methodology: 

Appendix II: Federal Programs that Require Origin Information: 

School meals programs (such as the National School Lunch and Breakfast 
Programs): 

The Subsistence Prime Vendor Program: 

The National Organic Program: 

The Market Access Program: 

The Food For Peace Program: 

Meat Grading and Certification: 

USDA Process Verified Program: 

Seafood Inspection Program: 

Appendix III: State Programs that Require Country-of-Origin 
Identification at Retail for Foods Covered by the New U.S. Labeling 
Law: 

Alabama: 

Arkansas: 

Florida: 

Louisiana: 

Maine: 

Mississippi: 

North Dakota: 

Wyoming: 

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

Appendix V: GAO Contacts and Staff Acknowledgments: 

GAO Contacts: 

Acknowledgments: 

Tables: 

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

Table 2: Selected Information on State-Implemented Country-of-Origin 
Labeling Programs: 

Table 3: Percentage of Covered Foods Imported in 2001, by Volume: 

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

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

Figures: 

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

Figure 2: Activities Involved in Bringing Beef to Consumers: 

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

Abbreviations: 

AMS: Agricultural Marketing Service:

FDA: Food and Drug Administration:

GAO: General Accounting Office:

USDA: U.S. Department of Agriculture:

Letter August 5, 2003: 

The Honorable Tom Daschle  
United States Senate:

The Honorable Tim Johnson 
United States Senate:

A requirement that retail grocers identify certain agricultural 
products by country of origin was included in legislation passed in 
2002.[Footnote 1] According to a key sponsor of the legislation, a 
primary purpose of the law is to inform consumers of the origin of 
their food and permit them a choice of purchasing domestic or imported 
products. Beginning September 30, 2004, when the new law takes effect, 
grocery stores will have to clearly mark the products covered by the 
law--beef, pork, lamb, fruits and vegetables, fish, shellfish, and 
peanuts--with their country of origin. Stores will also have to 
indicate whether fish and shellfish (both domestic and imported) were 
farm raised or caught in open waters, such as rivers or oceans. The new 
law requires that both domestic and imported items be identified, and 
it sets specific criteria that must be met for a covered food to be 
labeled as a U.S. product. For example, for meat to carry a "product of 
the United States" marking, it must be from an animal exclusively born, 
raised, and slaughtered in the United States.

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

The law directs AMS to issue guidelines for a voluntary country-of-
origin labeling program, which retailers may use until the mandatory 
program goes into effect.Those guidelines, which AMS issued in October 
2002, define the scope of the foods to be covered (for example, salted 
peanuts are covered but peanut butter is not).[Footnote 2] They also 
require retailers to maintain records for a period of 2 years on the 
country of origin of covered foods they sell.[Footnote 3] Because the 
voluntary guidelines included this record keeping provision, AMS was 
required, under the Paperwork Reduction Act, to estimate the cost to 
industry of that new record keeping responsibility.[Footnote 4] In 
November 2002, AMS issued its estimate that the cost to industry to 
develop record keeping systems for the voluntary program and maintain 
those records the first year would be about $1.9 billion.[Footnote 5] 
AMS based its estimate on assumptions regarding the number of hours 
that would be needed for each industry sector--producers, growers, 
fishermen, processors, importers, distributors, and retailers--to 
design a record keeping system and maintain the records, and on the 
hourly rates required for each industry segment to carry out those 
activities.[Footnote 6]

In terms of a precedent for country-of-origin labeling, the Tariff Act 
of 1930, as amended, already requires most imported items to be marked 
with their country of origin through to the ultimate 
purchaser.[Footnote 7] However, identification of country of origin is 
only required by the Tariff Act when imported items are wrapped; such 
labeling is not required when imported foods are displayed, loose, in 
open grocery bins. In January 2000 we reported that meat packers and 
processors do not routinely maintain country-of-origin information, as 
required under the Tariff Act, on imported meat after it passes a USDA 
safety inspection.[Footnote 8] We also reported that U.S. Customs 
Service (now the Bureau of Customs and Border Protection), which 
administers tariff requirements, has not been enforcing those 
requirements for the meat industry.[Footnote 9] The new law has 
provisions concerning origin identification--for example, new 
definitions for U.S. products and the requirement to distinguish 
between farm-raised and wild fish and shellfish, whether they are 
domestic or imported, which differ from the Tariff Act.

As you requested, this report (1) examines how certain existing 
federal, state, and industry programs that include origin identity 
requirements address oversight, verification of origin, and 
enforcement, and assesses their applicability as models for USDA to use 
to implement the new country-of-origin labeling law; (2) identifies 
which U.S. trading partner countries require country-of-origin labeling 
at the retail level for foods subject to the new labeling law and how 
these programs are being implemented; and (3) assesses the 
reasonableness of USDA's assumptions and methodology for estimating the 
cost to industry of the first year record-keeping paperwork burden for 
the voluntary country-of-origin labeling program. You also asked us to 
update a 1998 report by USDA's Foreign Agricultural Service--1998 
Foreign Country of Origin Labeling Survey--in which the Service 
surveyed its in-country attachs in 46 countries and the European Union 
on country-of-origin labeling practices in their host countries.

As part of this study, we examined the Tariff Act requirements and 
Bureau of Customs and Border Protection regulations, which require 
origin identity for imported items, as they apply to the foods covered 
by the new country-of-origin labeling law. We also examined the 
following federal, state, and industry programs, which include origin 
identity or related requirements, for their usefulness as models for 
country-of-origin identity under the new law:

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

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

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

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

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

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

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

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

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

* Local government/industry-sponsored programs that promote specific 
foods linked to origin (such as Vidalia onions, which must be grown in 
the proximity of Vidalia County, Georgia).

We also contacted the 50 states to identify state origin identity laws 
and programs. This report describes, but does not evaluate, the state 
programs.

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

Appendix I describes our scope and methodology in detail.

Results in Brief:

While the methods and applicability of existing federal, state, and 
industry programs vary, several have features that may be useful to 
USDA as models for oversight, verification of origin, and enforcement 
for the country-of-origin labeling law. For example, both USDA's school 
meals programs and the Department of Defense's Subsistence Prime Vendor 
Program require contractors to certify that the foods they provide are 
of U.S. origin (i.e., from U.S. farmers and livestock producers). To 
verify the contractors' certifications for these programs, USDA 
conducts periodic plant inspections and audits plant procedures for 
ensuring that no imported foods are used; DOD periodically audits 
contractor performance but has no procedures in place to verify that 
foods are of U.S. origin. USDA's National Organic Program uses 
independent agents--often state or local government employees or 
representatives of nonprofit groups--to certify and oversee compliance 
by farmers, livestock growers, processors, and handlers. Participants 
in the organic program must keep records for 5 years; agents may 
recommend that USDA suspend or fine participants who violate program 
requirements. AMS's "process verified programs" for the livestock and 
meat industries, such as the Red Angus program, are also models of 
using third-party inspections to verify origin; participants pay up to 
$5,000 annually for AMS inspections that may go back to an animal's 
birth to confirm that meat is of superior quality and commands a higher 
price. Florida's labeling program for imported fresh produce may be 
useful to USDA as a model for marking options and for using a state's 
enforcement infrastructure to administer a country-of-origin labeling 
program. Local government/industry origin-identity programs, such as 
Vidalia onions, are examples of using affidavits from growers to 
verify origin. For oversight and enforcement, these market-niche foods 
rely on retailers or other producers to spot violators. However, the 
usefulness of these programs as models has limitations because none was 
designed to address the unique features of the new law. Specifically, 
the new law requires that both domestic and imported items be labeled; 
it defines U.S. meat, fish, and shellfish differently than existing 
laws; and it requires the further identification of fish and shellfish 
as being either farm raised or caught in open waters. In implementing 
the law, USDA will be further challenged by the meat industry's 
practice of not routinely maintaining origin identity on imported meat 
when it is subsequently cut or ground.

Our survey of agricultural attachs showed that of the 57 U.S. trading 
partner countries, 48 require country-of-origin labeling for one or 
more of the commodities covered by the new law and 44 also require 
domestic products to be labeled. Specifically, of the 57 countries, 46 
require labeling at retail for produce (fresh or frozen); 34 for 
peanuts; 41 for one or more of the covered meats (fresh or frozen); and 
39 for fish/shellfish (fresh or frozen). Most of the countries with 
country-of-origin labeling programs conduct routine inspections and 
impose fines for labeling violations. While European Union legislation 
mandates country-of-origin labeling requirements for many of the foods 
covered under the new U.S. law, the results of our survey of the 
agricultural attachs showed that implementation, enforcement, and 
verification practices varied among the 15 member countries. Similarly, 
among the largest U.S. trading partners--Canada, Mexico, and Japan--
practices varied considerably. For foods subject to the new law, Canada 
requires country-of-origin labeling at retail only for imported 
prepackaged fruits and vegetables, Mexico requires it for all imported 
and domestic prepackaged foods, and Japan requires it for all imported 
and domestic loose and prepackaged foods. Finally, their own practices 
notwithstanding, certain trading partners have suggested that new U.S. 
country-of-origin labeling requirements may have a negative impact on 
trade; Mexico specifically suggested that the requirements amount to a 
nontariff barrier that conflicts with U.S. trade obligations.

USDA used assumptions that are questionable and not well supported in 
developing its $1.9 billion estimate for the first year cost to 
industry to develop and maintain record-keeping systems for the 
voluntary country-of-origin labeling program. The key assumptions 
pertain to (1) the extent to which businesses are already keeping the 
necessary records, (2) the types and number of businesses that would 
have to keep records, (3) the number of hours that each affected 
business would have to spend in developing and maintaining a record 
keeping system, and (4) the cost per hour of developing and maintaining 
such a system. With regard to existing records, USDA assumed that all 
the record keeping would be a new burden, which is not always the case. 
For example, grocery stores are already maintaining country-of-origin 
records on certain fruits and vegetables for a period of 2 years as 
required under another law. In determining the number of businesses 
covered by the law, USDA made an arbitrary assumption that about 90 
percent of all farmers, ranchers, and fishermen (2 million) would be 
subject to record keeping; others, including authors of a University of 
Florida study, believe the figure is much lower. Furthermore, USDA 
could provide no documentation to support its estimates for the number 
of hours needed to develop and maintain a record-keeping system, and it 
assumed an hourly rate of $50 for processors to carry out these tasks, 
which was more than double the hourly rates it used in recent estimates 
for other programs. Shortly after USDA published its estimate, it 
compiled and published examples of routine documents and records that 
businesses may already maintain that may be useful for verifying 
compliance for each covered food and each industry sector in that 
food's production. In comments to USDA on the estimate, industry groups 
provided information on, among other things, hourly rates and the time 
they believe they will need to set up and maintain an origin data 
system. Many commenters said USDA's hourly rates and time estimates 
were too low, while others said they were too high. Although no grocery 
stores have participated in the voluntary program, some meat processing 
companies, in anticipation of the law's implementation, have alerted 
their suppliers to keep records on where cattle that will go to 
slaughter after September 2004 were born and raised. Finally, a new 
requirement proposed by the Food and Drug Administration under 
authority of the Bioterrorism Act of 2002--that nearly all businesses 
in the food industry maintain certain records--may affect the cost to 
industry to comply with the country-of-origin labeling law and both 
industry's and USDA's efforts to implement the law.

We are making several recommendations to (1) help industries comply 
with the new country-of-origin labeling law, (2) bring the meat 
industry into compliance with existing Tariff Act requirements, (3) 
ensure an accurate estimate of the record-keeping burden under the 
final program rules, and (4) create a level playing field for the 
retail sale of certain covered foods. In commenting on a draft of this 
report, USDA said that the report provides some useful guidance and 
input in implementing the complex country-of-origin labeling 
legislation. USDA disagreed with one recommendation--that it should 
consult with the Bureau of Customs and Border Protection to develop an 
approach for informing the meat industry of its responsibilities under 
Tariff Act requirements--because it does not believe it has the 
authority to enforce the Tariff Act. We are not recommending that it 
enforce the Tariff Act but, rather, that it consult on an approach for 
informing meat packers and processors of their responsibilities under 
the Tariff Act. We believe the recommendation is important because, as 
a result of the long-standing practice in the meat industry of ignoring 
Tariff Act rules, consumers do not have the same information on 
imported meat that they routinely have for other imported items. We 
discussed this recommendation with the Bureau of Customs and Border 
Protection, which concurred on the value of USDA consulting on an 
approach to inform the meat industry of its Tariff Act 
responsibilities.

Background:

The Farm Security and Rural Investment Act of 2002, commonly known as 
the 2002 Farm Bill, amends the Agricultural Marketing Act of 1946 by 
adding Subtitle D--Country of Origin Labeling. That subtitle, which we 
refer to as the country-of-origin labeling law, applies to the 
following foods:[Footnote 11]

* muscle cuts of beef, lamb, and pork;

* ground beef, ground lamb, and ground pork;

* farm-raised fish and shellfish;

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

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

* peanuts.

The new law uses the definitions of a "perishable agricultural 
commodity" and "retailer" found in the Perishable Agricultural 
Commodities Act of 1930, 7 U.S.C. 499a (2000). The 1930 act defines:

* perishable agricultural commodity as fresh or frozen fruits and 
vegetables of every kind and character and a:

* retailer as a dealer engaged in the business of selling a perishable 
agricultural commodity at retail that has annual invoice costs of 
perishable commodities in excess of $230,000.

AMS licenses retail food stores that are subject to the Perishable 
Agricultural Commodities Act. According to AMS, approximately 31,000 
outlets--typically grocery stores--are considered retailers under the 
Perishable Agricultural Commodities Act and would be subject to the 
country-of-origin labeling law. Because the law applies to stores that 
have annual invoices for perishable agricultural commodities--fruits 
and vegetables--of more than $230,000, some larger fruit and vegetable 
stands/stores would be subject to the labeling law, according to AMS 
officials; however, large butcher shops and fish markets would not be 
subject to the new law, because they would not have sufficient invoices 
in fruits and vegetables.[Footnote 12] Butcher shops and fish markets 
do not have to provide consumers with information on the origin of the 
foods they sell. Those businesses also would not incur the costs 
associated with maintaining origin information and labeling that 
grocery stores will incur for meat, fish, and shellfish under the new 
labeling law.

:

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

* beef, pork, and lamb must come exclusively from an animal that is 
exclusively born, raised, and slaughtered in the United 
States;[Footnote 13]

* fruits, vegetables, and peanuts must be exclusively produced in the 
United States;

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

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

The Tariff Act's country-of-origin marking requirement for imported 
articles applies to the foods covered by the new law. For covered 
foods, both fresh and frozen, that are imported in consumer-ready 
packages, the Tariff Act rules require that the country of origin be 
marked on the individual packages, as well as on the carton or other 
container in which the packages were transported. In addition, under 
U.S. Customs Service rulings in 1983 and 1991, when produce items are 
removed from the marked containers and put loose into open bins in the 
produce section, the grocery store does not have to identify the items 
or the display bins by the items' country of origin.[Footnote 14] If 
the usual marking rules referred to in these rulings concerning produce 
were applied by the Bureau of Customs and Border Protection, a grocery 
store that took unpackaged meat and seafood and displayed it loose in 
display cases would not have to identify the items by country of 
origin. As a result, fresh fruits, vegetables, peanuts, meat, fish, and 
shellfish; frozen shellfish; and live lobsters sold loose by item or 
weight would not require labeling. However, the crates, bags, or other 
containers in which these imported food items are transported must be 
marked with country of origin. Tariff Act rules also require that 
imported foods that are repackaged in consumer-ready packages must be 
marked with their country of origin.

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

In our January 2000 report on the potential implications of country-of-
origin labeling for muscle cuts of beef and lamb, we found that meat 
packers and processors did not routinely maintain country-of-origin 
information on imported meat as required under the Tariff Act. We found 
that this was due in part to the fact that the Bureau of Customs and 
Border Protection does not generally enforce the act's labeling 
requirement for meat after inspection at the border. We also said it 
might be due to the fact that USDA has given meat packers and 
processors different guidance on the need to maintain country-of-origin 
information. More specifically, USDA, which administers the Federal 
Meat Inspection Act, requires that the country of origin appear in 
English on all carcasses or containers of meat entering the United 
States. However, unlike Tariff Act rules, which require an imported 
product to maintain its import identity through to the ultimate 
purchaser, USDA considers imported meat to be part of the domestic meat 
supply once it passes a USDA safety inspection. Any subsequent cutting, 
blending, or grinding may be done without maintaining country-of-origin 
identity. Thus, grocery stores may not know whether the meat they sell 
is domestic or imported, let alone the country of origin of a 
particular package of meat. In fact, a package of fresh ground beef 
that carries a USDA inspection sticker may contain meat from domestic 
or imported cattle, or both.

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

Existing Programs May Be Useful As Models to Some Extent, but They Do 
Not Adequately Address Unique Features of the New Law:

Several federal, state, and industry programs have features that may be 
useful as models to USDA for addressing oversight, verifying origin, 
and enforcing the new country-of-origin labeling law. However, the 
usefulness of these programs as models is limited because none of them 
was designed to address the unique features of the new law, such as the 
law's definitions of U.S. products. Implementing the law across the 
meat industry is further complicated by the industry's practice of not 
routinely maintaining the country-of-origin identity of imported meat 
after it has been cut or ground in a U.S. facility.

Federal Programs Have Features That May Be Useful As Models:

USDA's school meals programs and the Department of Defense's 
Subsistence Prime Vendor Program are examples of large programs that 
use certifications to verify the origin of food. Both programs also 
have well-established oversight and enforcement procedures. A number of 
other USDA programs, as well as the National Oceanic and Atmospheric 
Administration's Seafood Inspection Program, have origin identity and 
related requirements. These programs use various means to verify 
origin, including third-party verifications and self-certifications; 
many also use oversight and enforcement options to ensure compliance. 
The smaller programs, such as process verified and meat grade and 
certification programs, demonstrate that the meat industry is able to 
maintain product identity when it is in its interest to do so. Such 
programs may be useful to USDA in bringing the meat industry into 
compliance when the mandatory regulations become effective. Table 1 
describes selected features of federal programs that have origin 
identity or related requirements for foods.

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

Program: School meals programs (such as the National School Lunch and 
Breakfast Programs); Description: USDA requires that the fresh fruits 
and vegetables that it purchases for these programs must be 
domestically grown, processed, and packed, and that meats must be from 
domestic livestock.[A] Food suppliers certify in their contracts with 
AMS that the foods they provide will be domestic and that they will 
maintain records, such as invoices and production and inventory records 
that confirm that the food is domestic. Suppliers that handle both 
imported and domestic products must have written plans--segregation 
plans--that describe in detail how they will ensure that only domestic 
products will be provided to the programs. For example, for meat 
products, AMS conducts oversight visits to each supplier three times a 
year; these visits include examination of origin records. If violations 
are found, AMS may reject the food, suspend or debar the contractor, 
terminate the contract, impose fines, or take legal action, including 
criminal prosecution. 

Program: Subsistence Prime Vendor Program; Description: The Department 
of Defense requires that food purchased for U.S. troops must be 
domestic. About 50 large wholesale suppliers--known as prime vendors--
certify in their contracts that they and their subcontractors will 
provide only domestic food. The department performs compliance audits 
at least annually, which, although primarily focused on food quality, 
use observations and interviews with contract officials to verify that 
food was produced or processed in the United States. With respect to 
enforcement, the department can refuse the food or use a different 
prime vendor, but cannot assess fines. 

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

Program: Market Access Program; Description: Federal funds help finance 
advertisements and other promotional activities for agricultural 
products that are at least 50 percent U.S. in origin. Program 
participants self-certify that their agricultural products meet the 
U.S. origin requirement. USDA's Foreign Agricultural Service audits 
participants at least every 2 years, focusing primarily on the 
eligibility of program expenses. Payments made for ineligible expenses 
must be reimbursed. 

Program: Food for Peace Program; Description: The U.S. government sells 
agricultural commodities--for example, wheat, rice, cornmeal, feed 
grains, vegetable oil, soybeans, and soybean meal--to developing 
countries under long-term credit arrangements. Participant growers and 
processors self-certify that the commodities are 100 percent U.S. in 
origin. USDA does not verify compliance with origin requirements for 
the commodities. 

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

Program: Meat Grading and Certification Programs; Description: AMS 
inspectors grade and/or certify meat at the request of meatpackers on a 
fee-for-service basis. Certification services, such as breed claims 
(e.g., "Certified Angus Beef"), consist of evaluating meat for 
compliance with specification and contractual requirements. Grading, 
such as "USDA Prime" or "USDA Choice," involves visual inspections 
using USDA standards. These premium grade and certification identities 
follow the meat through the distribution chain to the retail level, 
including restaurants and retail markets. 

Program: Seafood Inspection Program:; Description: The National Oceanic 
and Atmospheric Administration, on a fee-for-service basis, inspects 
and quality-grades domestic fish and shellfish. According to program 
officials, the inspected seafood is sold primarily to foreign markets 
that require this third-party certification of quality. 

Source: GAO analysis of federal program information.

[A] Almost all public and some private nonprofit schools are subsidized 
by USDA for each complete school meal served, regardless of household 
income; lunches and breakfasts for children from low-income households 
receive greater subsidies.

[B] See Organic Foods Production Act of 1990, 7 U.S.C. 6501 (2000).

[End of table]

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

State Country-of-Origin Labeling Programs Also Have Features That May 
Be Useful as Models to USDA:

Eight states have implemented country-of-origin labeling programs, and 
each includes at least one of the commodities covered by the new 
country-of-origin labeling law.[Footnote 17] Based on our discussions 
with program officials in eight states and our review of program 
documents, one state has country-of-origin labeling programs for meat 
and shellfish, three have programs for fish only, two have programs for 
meat only, and two have programs for fruits and vegetables (see table 
2).[Footnote 18] Two of the states--Florida and Maine--have had more 
than 10 years' experience operating labeling programs. Although their 
programs are limited in scope relative to the new national program, 
their first-hand experiences may be helpful to USDA, particularly with 
regard to marking/labeling options, initial implementation issues, and 
using states' enforcement infrastructures to administer a country-of-
origin program.

Table 2: Selected Information on State-Implemented Country-of-Origin 
Labeling Programs:

State: Alabama; Products covered: Catfish; Product labeling: U.S./state 
or "imported".

State: Arkansas; Products covered: Fish; Product labeling: U.S./state 
or import country name.

State: Florida; Products covered: Produce, bee pollen, and honey; 
Product labeling: Import country name.

State: Louisiana (two programs); Products covered: Meat; Product 
labeling: U.S. or "imported" or import country name.

Products covered: StateMaine: Shrimp, crawfish, crab, and crabmeat; 
Product labeling: StateMaine: Import country name[A].

State: Maine; Products covered: Produce; Product labeling: Import 
country name[B].

State: Mississippi; Products covered: Catfish; Product labeling: U.S./
state or "imported".

State: North Dakota; Products covered: Meat; Product labeling: U.S. or 
import country name.

State: Wyoming; Products covered: Meat; Product labeling: Import 
country name.

Source: GAO analysis of state country-of-origin labeling programs.

[A] Louisiana labeling rules also indicate that imported meat can be 
labeled imported or indicate the country of origin.

[B] In Maine, domestic potatoes must be labeled as a U.S. product; 
apples grown in Maine must be labeled as a Maine product.  

[End of table]

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

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

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

[See PDF for image]

[End of figure]

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

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

Some State and Industry Marketing Programs May Be Useful as Models to 
USDA:

We also found a number of state-and industry-supported marketing 
programs for foods that provide examples of using affidavits and 
certifications from growers or producers to support product origin. For 
oversight and enforcement, at least a portion of these programs relies 
on retailers, growers, producers, or others to spot violations. Some 
aspects of these state and industry programs may be useful as models to 
USDA.

For example, more than half of the states have marketing programs for 
products grown or produced locally. These programs make promotional 
materials or slogans available to producers from their states. In order 
to participate in these programs, many states require participants to 
register with their state's department of agriculture. For example, 
Alaska requires participants to complete an application that includes 
an affidavit of eligibility stating that the participant takes full 
responsibility for proper use of the state logo, "Alaska Grown," in 
accordance with the policy requirements of the program. Arizona also 
requires participants to request and receive written permission to use 
the state logo, "Arizona Grown." Breach of any of the provisions of the 
Arizona program may result in termination of the participant's use of 
the promotional materials.

Oversight and enforcement for a number of these state programs rely on 
retailers, growers, producers, and others to spot violators and report 
them to state program officials. An official from one state told us 
that the state's program does not include inspections; however, the 
official knew of no instances where the state logo was used without 
permission. Programs also exist for products produced in areas within a 
state. For example, Vidalia is a trademark for a variety of sweet 
yellow onions grown in a 20-county production area in Georgia. The 
Georgia Department of Agriculture registers all Vidalia onion 
producers and packagers each year and has the authority to collect 
license fees for use of the trademark. Producers must apply for a 
license from the Georgia Department of Agriculture to sell Vidalia 
onions and to use the Vidalia mark. On the application, which is 
submitted annually, a grower must state the type of onions planted, 
total number of acres, and location. According to a director of 
markets, complaints of misuse of the Vidalia label are investigated as 
soon as possible; any penalties assessed are based on the number of 
violations, their seriousness, and the circumstances involved.

With regard to industry marketing programs, the majority of states in 
the U.S. have a beef quality assurance program that alerts buyers that 
the meat has met certain quality criteria. The goal of this type of 
voluntary program is to ensure safe and nutritious beef for the 
consuming public and to maximize consumer confidence. The national 
guidelines for these programs, issued by the National Cattlemen's Beef 
Association, include standards on feed additives, medical treatment, 
and record keeping for program participants. Records must be kept for 2 
years. In the South Dakota beef quality assurance program, a receiving 
log is kept that includes the verified source of delivered cattle. 
Another industry program with producer certifications involves the use 
of affidavits by beef producers to certify that their livestock did not 
consume feed containing specific materials and additives. This program 
began because of demand from large purchasers who wanted to purchase 
animals that were grown on feed meeting selected standards.

Unique Features of the New Law and Meat Industry Practices Present 
Implementation Challenges:

While federal, state, and industry programs may be useful as models to 
USDA up to a point, they do not adequately address the unique features 
of the new country-of-origin labeling law. In particular, the new law 
requires that both domestic and imported items must be identified by 
their country of origin and defines domestic meat, fish, and shellfish 
differently than under Tariff rules or in existing programs. In 
addition, the new law also requires that imported and domestic fish and 
shellfish be further differentiated as farm raised or "wild" (caught in 
open waters). Implementing a program of this scope and size will be 
challenging for USDA. Implementing it for meat will be further 
complicated by meat industry practices.

By requiring that both domestic and imported items be identified, the 
law puts a new compliance burden on U.S. industries involved with the 
covered foods, including their production and distribution streams. As 
shown in table 3, the United States imported over 83 percent of fish 
and shellfish, by volume, in 2001--the most recent year for which USDA 
has compiled these data. However, for the rest of the covered foods, 
the United States produced more than it imported.

Table 3: Percentage of Covered Foods Imported in 2001, by Volume:

Covered food: Beef; Percentage imported: 11.6.

Covered food: Pork; Percentage imported: 5.1.

Covered food: Lamb; Percentage imported: 39.8.

Covered food: Fish and shellfish-fresh and frozen; Percentage imported: 
83.3.

Covered food: Fruit-fresh and frozen; Percentage imported: 23.1.

Covered food: Vegetables-fresh and frozen; Percentage imported: 16.6.

Covered food: Peanuts; Percentage imported: 9.1.

Source: USDA's Economic Research Service.

[End of table]

But the extent of the new burden is not clear. According to many 
industry representatives, the burden will be substantial. Others 
believe it will be small compared to the benefit to consumers of 
knowing where their food comes from. Currently, consumers have that 
information on many foods. For example, imported canned foods and foods 
that are imported in consumer-ready packaging, such as imported leg of 
lamb, are marked with their countries of origin. The new country-of-
origin law brings in most other foods that are not necessarily origin-
identified today. Of the few remaining foods, including poultry, a bill 
has been introduced that proposes to make poultry and goat subject to 
the new country-of-origin labeling law.[Footnote 19]

Regarding definitions of a U.S. product, the new country-of-origin 
labeling law defines U.S. and imported meat, fish, and shellfish 
differently than those foods have traditionally been defined under 
Tariff Act rules and federal programs. For example, under Tariff rules, 
meat from an animal born or raised for some period of time outside the 
United States is considered to be part of the domestic meat supply if 
the animal is slaughtered in the United States. Similarly, under Tariff 
Act rules, fish or shellfish caught in foreign waters or by a foreign-
documented ship are considered domestic if they are processed in the 
United States or aboard a U.S. flagged ship, according to Bureau of 
Customs and Border Protection officials. In these examples, the meat, 
fish, and shellfish do not satisfy the new law's "born, raised, and 
slaughtered" or "harvested and processed" criteria to be considered 
domestic. As noted earlier, the new law stipulates that to be a U.S. 
product:

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

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

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

USDA's school meals programs and the Department of Defense's 
Subsistence Prime Vendor Program define "domestic" foods differently. 
USDA uses the Tariff rule's definitions for domestic meat, fish, and 
shellfish, while the Department of Defense uses a slightly different 
definition for meat that describes imported meat that is further cut or 
ground in a U.S. facility as "domestic.":

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

Finally, with regard to practices in the meat industry, in January 2000 
we reported that meat packers and processors do not routinely maintain 
country-of-origin information on imported meat as required under the 
Tariff Act. As our 2000 report stated, this is due in part to the fact 
that the Bureau of Customs and Border Protection does not generally 
enforce the act's labeling requirement for imported meat after 
inspection at the border. We believe it is also due to the fact that 
USDA's Food Safety and Inspection Service has given meat packers and 
processors different guidance on the need to maintain country-of-origin 
information. Unlike Tariff Act rules, which require an imported product 
to maintain its import identity through to the ultimate purchaser, USDA 
considers imported meat to be part of the domestic meat supply once it 
passes a USDA safety inspection; any subsequent cutting, blending, or 
grinding may be done without regard to country-of-origin identity. 
Figure 2 shows the activities involved in bringing imported beef, beef 
from imported cattle, and beef from domestic cattle to consumers.

Figure 2: Activities Involved in Bringing Beef to Consumers:

[See PDF for image] 

[End of figure] 

Most U.S. Trading Partner Countries Require Country-of-Origin Labeling 
at Retail for Foods Covered by the U.S. Labeling Law:

Most of the 57 U.S. trading partner countries, including the 15-member 
countries of the European Union, whose practices we surveyed through 
USDA's agricultural attachs require country-of-origin labeling for one 
or more commodities covered under the new U.S. law.[Footnote 20] 
However, key trading partners have indicated that they may view new 
U.S. marking requirements as possible trade barriers.

Most U.S. Trading Partners Require Country-of-Origin Labeling for Some 
Foods:

Of the 57 U.S. trading partner countries, 48 require country-of-origin 
labeling for one or more of the commodities covered by the new law and 
44 also require domestic products to be labeled. Our survey of USDA 
attachs for these countries showed that 46 countries require labeling 
at retail for produce (fresh or frozen); 34 for peanuts; 41 for one or 
more of the covered meats (fresh or frozen); and 39 for fish or 
shellfish (fresh or frozen). See table 4.

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

Product category: Fish/shellfish/seafood--fresh (farm raised); 
Labeling required: Imported products: 30; Labeling required: 
Domestic products: 27; Routine inspections: 27; Enforcement 
actions or penalties: 29.

Product category: Fish/shellfish/seafood--fresh (wild); 
Labeling required: Imported products: 27; Labeling required: Domestic 
products: 24; Routine inspections: 24; Enforcement actions or 
penalties: 26.

Product category: Fish/shellfish/seafood--frozen; Labeling 
required: Imported products: 37; Labeling required: Domestic products: 
29; Routine inspections: 31; Enforcement actions or penalties: 
37.

Product category: Fruits and vegetables--fresh (loose); 
Labeling required: Imported products: 26; Labeling required: Domestic 
products: 24; Routine inspections: 25; Enforcement actions or 
penalties: 26.

Product category: Fruits and vegetables--fresh (packaged); 
Labeling required: Imported products: 38; Labeling required: Domestic 
products: 34; Routine inspections: 33; Enforcement actions or 
penalties: 36.

Product category: Fruits and vegetables--frozen; Labeling 
required: Imported products: 34; Labeling required: Domestic products: 
28; Routine inspections: 27; Enforcement actions or penalties: 
34.

Product category: Meat--cuts; Labeling required: Imported 
products: 35; Labeling required: Domestic products: 33; 
Routine inspections: 30; Enforcement actions or penalties: 35.

Product category: Meat--frozen; Labeling required: Imported 
products: 41; Labeling required: Domestic products: 36; 
Routine inspections: 33; Enforcement actions or penalties: 40.

Product category: Meat--ground; Labeling required: Imported 
products: 34; Labeling required: Domestic products: 31; 
Routine inspections: 27; Enforcement actions or penalties: 33.

Product category: Peanuts--(loose); Labeling required: 
Imported products: 17; Labeling required: Domestic products: 11; 
Routine inspections: 15; Enforcement actions or penalties: 16.

Product category: Peanuts--(packaged/canned); Labeling 
required: Imported products: 34; Labeling required: Domestic products: 
27; Routine inspections: 28; Enforcement actions or penalties: 
33.

Source: GAO.

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

[End of table]

Among U.S. trading partners, however, country-of-origin labeling 
requirements vary. Several countries require labeling for all foods 
covered by the new U.S. law, including, for example, Argentina, 
Australia, and Japan. In Argentina and Japan, both domestic and 
imported foods must be labeled, while in Australia, domestic foods sold 
loose do not have to be labeled. Other U.S. trading partners have 
country-of-origin labeling requirements for only some of the products 
in our survey. For example, Canada requires country-of-origin labeling 
at retail only for prepackaged imported fruits and vegetables, while 
Mexico requires such labeling for both imported and domestic 
prepackaged foods.

The agricultural attachs reported that most countries surveyed do have 
routine inspections to check for compliance with their country-of-
origin labeling regulations. In addition to inspections, many countries 
have enforcement penalties and fines. For example, after incidents of 
mislabeling in Japan, the government increased the penalty for 
violations to a maximum of 100,000,000 yen, or approximately $833,000.
[Footnote 21] In contrast, in Austria the maximum penalty is 7,267 
Euros (about $8,400).[Footnote 22] In addition, in certain countries 
the penalties for mislabeling food products can include destruction of 
the product, the loss of a business license, or imprisonment.

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

Key Trading Partners Have Country-of-Origin Labeling Programs but See 
New U.S. Requirements as Possible Trade Barriers:

Although many U.S. trading partner countries have country-of-origin 
labeling programs for one or more commodities covered by the new U.S. 
law, certain countries, including Canada, Mexico, and Australia, have 
expressed concern that new U.S. identity requirements may have a 
negative impact on trade. These countries are among our largest trading 
partners in agricultural commodities, as shown in table 5.

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

Country: Canada; U.S. imports: $10,347,720; U.S. exports: $8,653,774; 
Total: $19,001,494.

Country: Mexico; U.S. imports: 5,518,418; U.S. exports: 7,251,596; 
Total: 12,770,014.

Country: Japan; U.S. imports: 373,663; U.S. exports: 8,367,629; Total: 
8,741,292.

Country: China; U.S. imports: 1,001,354; U.S. exports: 2,067,125; 
Total: 3,068,479.

Country: Netherlands; U.S. imports: 1,750,406; U.S. exports: 1,173,414; 
Total: 2,923,820.

Country: Korea; U.S. imports: 151,069; U.S. exports: 2,674,184; Total: 
2,825,253.

Country: Italy; U.S. imports: 1,789,921; U.S. exports: 545,623; Total: 
2,335,544.

Country: Australia; U.S. imports: 1,894,019; U.S. exports: 338,000; 
Total: 2,232,019.

Country: Taiwan; U.S. imports: 174,757; U.S. exports: 1,953,229; Total: 
2,127,986.

Country: France; U.S. imports: 1,486,239; U.S. exports: 390,467; Total: 
1,876,706.

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

[End of table]

In written comments to USDA, Canadian officials stated that the U.S. 
country-of-origin labeling law would restrict trade, especially in the 
red meat sector. For example, according to the officials, currently 
some U.S. ranchers import cattle from Mexico and Canada to raise them 
for slaughter. If, to reduce compliance costs, U.S. retailers choose to 
not handle beef with more than one country of origin (e.g., cattle born 
in Canada and raised and slaughtered in the United States), the market 
for these cattle would disappear. Of the foods covered by the new U.S. 
law, Canada requires country-of-origin labeling at retail only for 
prepackaged imported fresh fruits and vegetables.

The government of Mexico is also concerned about the impact of a U.S. 
country-of-origin labeling law. Although Mexico requires country-of-
origin labeling for imported and domestic prepackaged foods that are 
covered by the new U.S. law, it does not require such labeling for 
imported fresh fruits, vegetables, and peanuts sold loose and imported 
unpackaged meat cuts, fish, and shellfish. Specifically, Mexican 
officials wrote in comments to USDA that U.S. country-of-origin 
labeling requirements would impose an unnecessary, burdensome, 
complicated, and expensive requirement on producers, exporters, 
importers, and retailers, thereby erecting barriers to trade in Mexican 
produce, meat, and seafood destined for the United States. As such, 
according to Mexican officials, the regulations amount to a nontariff 
barrier that conflicts with U.S. trade obligations under the North 
American Free Trade Agreement and the World Trade Organization. In 
addition, the officials noted that small suppliers in Mexico have 
neither the staff nor the expertise to comply with the U.S. country-of-
origin labeling requirements.

Australian government officials have also expressed opposition to a 
mandatory U.S. country-of-origin labeling law. Australia requires 
country-of-origin labeling for all imported foods covered by the new 
U.S. law, but not for domestic foods sold loose or unpackaged. In 
comments to USDA, the Australian government wrote that these 
regulations could act as barriers to trade by discriminating against 
imported products in favor of domestic products and by imposing 
significant compliance costs on overseas producers. As a result, U.S. 
consumers will have fewer choices when purchasing food and perhaps 
higher priced domestic foods. In addition, Australian officials believe 
that the U.S. country-of-origin labeling regulations conflict with the 
more liberal stance taken by the U.S. concerning other agricultural 
issues.

Japan requires country-of-origin labeling for all foods covered by the 
U.S. law. Following the May 2003 discovery that a breeding cow had died 
of bovine spongiform encephalopathy (BSE)--commonly known as mad cow 
disease--in Alberta, Canada, Japan wrote to USDA regarding the country 
of origin of beef imported from the United States. Specifically, in a 
June 10, 2003, letter, Japan instructed USDA that the United States 
cannot export beef or beef products to Japan that come from cattle 
born, raised, or slaughtered in Canada. The letter stated that, 
effective July 1, 2003, beef and beef products exported to Japan from 
the United States must be accompanied by the USDA health certificate 
for the animal from which the meat was derived, indicating where the 
animal was born, raised, and slaughtered. USDA asked Japan to postpone 
the effective date pending discussions among the countries--Japan, 
Canada, and the United States. On June 25, 2003, Japan announced that 
it agreed to postpone the effective date until September 1, 2003.

A detailed presentation of the responses to our survey of the 
agricultural attachs for each of the 57 countries is being released as 
a special publication entitled Country-of-Origin Labeling for Certain 
Foods--Survey Results [Hyperlink, http://www.gao.gov/cgi-bin/
getrpt?GAO-03-781SP], which is available on the Internet 
at [Hyperlink, http://www.gao.gov/cgi-bin/getrpt?gao-03-781SP]. 

USDA Used Questionable Assumptions in Its Estimate of the First Year 
Record-Keeping Costs for Compliance with the Voluntary Country-of-
Origin Labeling Program:

Many of the assumptions that USDA used in developing its estimate of 
the first year record-keeping costs for compliance with the voluntary 
country-of-origin labeling program are questionable and not well 
supported. The key assumptions for USDA's estimate that these first-
year costs for developing and maintaining a record keeping system would 
be about $1.97 billion pertain to the following:[Footnote 23]

* the types and numbers of businesses that would have to keep records,

* the extent to which businesses were already keeping the necessary 
records,

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

* the cost per hour of developing and maintaining a record-keeping 
system.

In each area we have questions about what USDA assumed and/or the 
support for its assumptions.

The number of businesses required to keep records may be overstated. 
USDA made several assumptions and estimates pertaining to the number of 
businesses that would be required to maintain country-of-origin 
records. Taken together, these assumptions produce an upper bound for 
the number of businesses that might be affected. However, different 
assumptions would produce a lower number. For example, USDA assumed 
that nearly all producers would be required to maintain country-of-
origin records even if they produced commodities not covered by the 
labeling law (e.g., grain producers), or produced covered commodities 
that were not sold through retail outlets in a form to which the 
labeling law applies (or not through retail outlets at all, such as by 
restaurants). USDA officials told us that they could not determine how 
many producers would not be required to maintain country-of-origin 
records, in part because many may market both covered and non-covered 
commodities. So, after adding together the number of commercial farms 
and ranches in the United States (about 2.16 million) and an estimate 
of the number of commercial fishing vessels (100,000), USDA arbitrarily 
assumed that 10 percent of this total might not be required to maintain 
country-of-origin records. For purposes of estimating costs, this 
number was then rounded to 2 million affected producers. However, based 
on comments that USDA received on its estimate, there may be many more 
than 10 percent that would not be required to maintain country-of-
origin records. For example, using USDA data, the authors of a study by 
the University of Florida International Agricultural Trade and Policy 
Center concluded that the number of producers of covered commodities, 
excluding fishing vessels, was about 1.34 million.[Footnote 24] Using 
that figure and other assumptions, the study arrived at a much lower 
cost estimate.[Footnote 25] We do not know exactly how many producers 
would be affected by the labeling law. However, to the extent to which 
some producers would not be required to maintain country-of-origin 
records because they either do not produce covered commodities (e.g., 
potatoes used in potato chips) or their foods are not sold at retail 
grocery stores subject to the new law (e.g., they are marketed to 
restaurants or institutions) in a form for which the labeling law 
applies, then USDA's estimate may overstate the record-keeping costs of 
compliance with the law.[Footnote 26]

Some records on country of origin might already exist. In developing 
its cost estimate of the record-keeping burden, USDA assumed that all 
affected businesses would have to establish new record-keeping systems 
because it believed that at that time country-of-origin information was 
not required to be maintained by other federal statutes or regulations. 
As a result, USDA attributed all of the costs of maintaining these 
records to the new law. However, some of the record keeping may 
represent costs that businesses were already incurring. For example, 
since the release of USDA's estimates, USDA officials have acknowledged 
to us that the Perishable Agricultural Commodities Act requires that 
retailers maintain records on fruits and vegetables that they sell for 
2 years, the same period required by the voluntary country-of-origin 
labeling law. USDA agrees that those records may include information on 
country of origin and that the existing record-keeping system may be 
useful for the new law. In addition, ranchers in many states are 
maintaining records on their livestock because certain processors want 
this type of information. To the extent that businesses are already 
maintaining some of the records that the country-of-origin labeling law 
requires, then USDA's estimate overstates the incremental costs 
properly attributable to the law. USDA has acknowledged that the 
record-keeping burden would be smaller than it originally estimated if 
some business records that verify country of origin are already being 
maintained because of some other federal requirement. USDA said that 
the purpose of the comment period on its cost estimate was to bring any 
examples of such other requirements to its attention.

The number of hours required for record keeping is uncertain. Although 
USDA has indicated that it relied on prior experience with other 
programs in developing its estimate of the number of hours that each 
type of business would need to spend in the first year to develop and 
maintain a record-keeping system to comply with the country-of-origin 
labeling law, USDA had no specific estimate from other programs to 
serve as its basis. In particular, USDA has written that it drew upon 
its experience with the development, operation, and auditing of 
documented source verification programs operated under the USDA Process 
Verified Program in determining the average number of hours that 
producers, processors, and retailers, respectively, would spend 
complying with the country-of-origin labeling law. However, USDA 
officials told us that USDA does not possess documentation detailing 
the number of hours required to set up and maintain record-keeping 
systems under that program. In the absence of hard data, USDA officials 
told us that they relied on professional judgment. In addition, USDA 
officials told us that USDA does not have any documentation of any 
discussions with industry participants concerning the amount of time 
required for compliance with the country-of-origin labeling law. Our 
review of comments on USDA's estimate shows that many industry 
representatives believe that USDA underestimated the number of hours 
that will be needed to set up and maintain a record-keeping system; 
others characterized the record-keeping burden as minimal because they 
already maintain records that may satisfy the new requirements. 
Therefore, we question the reliability of the estimates developed for 
complying with the record-keeping requirements of the law.

USDA's estimates of hourly costs for record keeping exceed estimates it 
used for other programs. USDA used higher estimates of the hourly cost 
of complying with the record-keeping requirements of the country-of-
origin labeling law than it used in developing similar estimates for 
other programs and it has no documented evidence to justify these 
differences. According to the information sheet that USDA prepared on 
its estimated costs for complying with the labeling law, USDA used 
higher hourly wage rates than those reported by USDA's National 
Agricultural Statistics Service and the Department of Labor's Bureau of 
Labor Statistics because of its experience with the industry in the 
operation of programs aimed at tracking the origin of food products 
through a system. Specifically, USDA estimated that the hourly cost for 
producers would be $25, while it would be $50 for processors and other 
handlers and for retailers. In contrast, for the organic rule, USDA 
estimated that the hourly cost for producers and handlers to maintain 
records would be $23, while for the mandatory price-reporting rule USDA 
estimated that the hourly cost for processors, packers, and importers 
to maintain records would be $20. USDA officials told us that they 
estimated a higher hourly cost to maintain records for the country-of-
origin labeling law because they believe that a computer system 
operator would be needed to maintain records to comply with that law 
because most food handlers and retailers handle a large variety of 
products produced at different locations.[Footnote 27] However, those 
officials also told us that USDA does not have any documented evidence 
to support using estimates that are so much higher than those it used 
for other rules and that USDA did not obtain industry concurrence that 
these higher estimates are appropriate. Accordingly, there is 
substantial uncertainty regarding the likely cost of complying with the 
country-of-origin labeling law. If the hourly cost turns out to be more 
similar to the estimated cost for other USDA programs, then, other 
things being equal, the cost of complying with the record-keeping 
requirements of the labeling law will be substantially lower than what 
USDA has estimated for first-year record keeping.

To determine what information is contained in the records that 
accompany food to grocery stores, among other things, we visited food 
distribution centers and grocery stores in Florida and New Jersey and a 
grocery store in the District of Columbia. Officials at the 
distribution centers told us that existing records for receiving, 
storing, and shipping fresh produce and meat provide such information 
as the number of cases of product and the cost per case, but do not 
provide country-of-origin information for each box or carton of a 
product. Similarly, at three grocery stores we visited, officials told 
us that the records they currently receive from their distributors do 
not contain country-of-origin information, although the containers may 
be labeled. Both the distribution center and grocery officials believe 
that the record-keeping changes that may be needed to comply with the 
mandatory country-of-origin labeling law present challenges and will 
increase their costs. The officials also foresee other challenges from 
the need to segregate foods from different countries throughout the 
entire cycle--from the receipt of the food at the distribution centers 
down to the grocery store displays. Currently, distribution centers are 
designed to receive, store, and ship full pallets of products whenever 
possible. Under the new law, distribution center officials believe that 
they will need to segregate products, which may require them to 
increase the number of pallets needed to store the segregated food and 
require additional warehouse space. The officials also told us that 
their labor costs would likely increase because of the additional time 
needed to keep foods segregated throughout the distribution cycle. 
Similarly, at the grocery store level, officials told us that 
segregating the covered foods by country of origin would require 
additional display shelves and would increase the costs for signs and 
label-printing equipment, as well as possibly increasing labor costs 
for additional time and effort. Officials at one store told us that 
labeling such store-prepared items as mixed fruit salads by country of 
origin will take longer both for preparation and for labeling, 
resulting in higher costs.

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

Shortly after USDA published its estimate, it compiled and published 
examples of routine documents and records that businesses may already 
maintain that may be useful for verifying compliance for each covered 
food and each industry sector in that food's production. (See figure 3 
for an example for the peanut industry.) In addition to the myriad 
written comments AMS received from industry on the estimate and the 
voluntary guidelines, AMS also reached out to industry in a series of 
"listening" meetings that senior AMS officials held across the country 
in an effort to better understanding industry's concerns with record 
keeping and the voluntary program.

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

[See PDF for image] 

[End of figure] 

Many of the industry associations and individual businesses that 
commented to USDA on the cost estimate provided information on, among 
other things, hourly rates and the time they believe they will need to 
set up and maintain a country-of-origin record-keeping system. The 
respondents expressed a wide range of opinions about the cost estimate; 
some believed that the costs were greatly overstated and that little 
additional effort would be required by retailers. Others wrote that the 
hourly rates and time involved in implementing the new requirements had 
been greatly understated by USDA. Although, as of July 28, 2003, no 
grocery stores have participated in the voluntary program, some meat 
processing companies, in anticipation of the law's implementation, have 
alerted their suppliers to keep records on where cattle that will be 
the source of meat on grocery shelves as of September 30, 2004, were 
born, raised, and slaughtered.

Lastly, a new requirement proposed by the Department of Health and 
Human Services' Food and Drug Administration (FDA), under the authority 
of the Bioterrorism Act of 2002, may affect industry's compliance costs 
and facilitate USDA and industry's implementation efforts with regard 
to the new country-of-origin labeling law.[Footnote 28] Specifically, 
in May 2003, the department published a Notice of Proposed Rulemaking 
that would require the establishment and maintenance of records by 
nearly all businesses in the food industry, including processors, 
importers, handlers, distributors, and retailers.[Footnote 29] The 
records involved will allow FDA to identify the immediate previous 
source and the immediate subsequent recipient of most food. The purpose 
of the rule is to significantly improve FDA's ability to respond to and 
help contain the serious adverse health consequences in the event of 
accidental or deliberate food contamination. In effect, FDA will have 
information from farm to table, or from point of import to table, on 
most food. Both import and domestic origin records would be a piece of 
the required information for certain points and may be a reasonable 
adjunct to add at the other points in the farm to table continuum. FDA 
must issue the final rules by December 12, 2003. The rules take effect 
by June 12, 2004, for larger businesses (500 employees or more); by 
December 12, 2004, for smaller businesses (from 11 to 499 employees); 
and by June 12, 2005, for the very small businesses (10 or fewer full-
time employees).

Conclusions:

Existing programs that include an origin requirement may be useful to 
AMS, up to a point, as models for overseeing compliance, verifying 
origin, and enforcing the new country-of-origin labeling law. In fact, 
these programs may be quite useful for implementing the program for 
fruits, vegetables, and peanuts, which generally comply with Tariff 
rules, because grocery stores generally know the country of origin of 
these foods.

However, for meat, fish, and shellfish, we do not believe the existing 
programs will be particularly useful. This is largely due to the law's 
unique definitions of a U.S. product for these items and its 
requirement to distinguish between fish and shellfish that are farm 
raised and those that are caught in open waters. Any procedures AMS 
puts in place to implement country-of-origin labeling will inevitably 
impose an additional burden on the U.S. meat, fish, and shellfish 
industries, and to a lesser extent on the fruit, vegetable, and peanut 
industries, if they are to provide assurance that country-of-origin 
identity is maintained. To address the origin identity gaps with 
minimal burden on the industries, USDA will benefit from knowing 
exactly what origin information is available at the various stages of 
the process for each of the covered foods. This information, as well as 
information on options for labeling foods, and other alternative 
industry practices, can best be learned directly from the industries.

In addition, the extent to which the meat industry deviates from Tariff 
rules when it processes imported meat further complicates AMS's 
responsibilities. Indeed, the earlier in the process that imported meat 
loses its identity, the more onerous the problem AMS and the industry 
face to ensure origin identity for meat. As we first reported in 2000, 
we believe the responsibility for the industry's deviation from Tariff 
rules is due in part to USDA's Food Safety and Inspection Service 
giving meat packers and processors different guidance on the need to 
maintain country-of-origin information. As a result, consumers, who 
already have origin information on imported items, including imported 
foods, do not routinely have this information on imported meat.

We also conclude that the examples that AMS is providing to industry of 
documents that may be used to verify origin--and its efforts to reach 
out to industry in meetings across the country--are good exercises from 
several perspectives. Primarily, they provide a benefit to the 
industries to better understand their record-keeping burden associated 
with country-of-origin labeling. But perhaps just as importantly, they 
give AMS a better understanding of the industries and the steps that 
each covered commodity goes through to reach grocery stores. With this 
understanding, AMS can design a final rule that will afford both a 
reasonable assurance that country-of-origin identity is there for 
consumers and enable AMS to better estimate the paperwork burden on 
industry, when it prepares the estimate under the Paperwork Reduction 
Act, for the final rule.

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

Recommendations for Executive Action:

To help industry comply with the country-of-origin labeling law's 
definitions for U.S. products and other new requirements, we recommend 
that the Secretary of Agriculture direct AMS to:

* recognize and address, in the final rules, the extent to which the 
new law's definition of U.S. products, particularly for meat, fish, and 
shellfish, differ from the definitions in the Tariff Act of 1930; and:

* collaborate with industry to identify, to the extent practicable, 
different options or alternative practices for, among other things, 
developing and maintaining record-keeping systems and labeling covered 
foods.

Because the meat industry has not consistently adhered to the Tariff 
Act's requirements for maintaining country-of-origin identity after 
imported meat has been cut or ground, we further recommend that the 
Secretary of Agriculture direct the Food Safety and Inspection Service 
to consult with the Bureau of Customs and Border Protection to develop 
an approach for informing meat packers and processors of their 
responsibilities under Tariff Act requirements, with regard to 
maintaining the identity of imported meat.

In addition, to ensure an accurate estimate of the paperwork burden on 
industry for developing a record-keeping system and maintaining records 
on country of origin for the final rule, we recommend that the 
Secretary of Agriculture direct AMS to work with industry associations 
to compile more accurate data on hourly rates, approximate number of 
hours, as well as the approximate numbers of growers, livestock 
producers, food processors, and other sectors subject to the new law.

Finally, to create a level playing field for the retail sale of meat, 
fish, and shellfish, we recommend that the Secretary of Agriculture 
consider proposing that Congress include large butcher shops and fish 
markets among retailers subject to the country-of-origin labeling law 
through a technical correction to the law.

Agency Comments and Our Response:

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

USDA believes that the report provides some useful guidance and input 
in implementing the complex country-of-origin labeling legislation. 
However, USDA did not agree with our recommendation for the Food Safety 
and Inspection Service to consult with the Bureau of Customs and Border 
Protection to develop an approach for informing meat packers and 
processors of their responsibilities under Tariff Act. According to 
USDA, the Food Safety and Inspection Service cannot do this because it 
does not have authority to enforce the Tariff Act. We agree that the 
Food Safety and Inspection Service does not have authority to enforce 
the Tariff Act. We are not recommending that it do so; rather, we are 
recommending that it consult with the Bureau of Customs and Border 
Protection so that together they can develop an approach to bring the 
meat industry into compliance with Tariff Act rules regarding imported 
meat. USDA further asserts that, under the Federal Meat Inspection Act, 
once imported meat products undergo safety-related inspection 
activities, they are "deemed and treated as domestic". Notwithstanding 
the requirements of the Federal Meat Inspection Act, the Tariff Act 
still requires that imported items be marked with their country of 
origin through to the ultimate purchaser--who, generally, would be the 
consumer. USDA's assertion does not address the fact that the meat 
industry fails to routinely follow Tariff requirements for imported 
meat. USDA also asserts that any guidance it provides can only relate 
to the Federal Meat Inspection Act and that we do not sufficiently 
explain that act and its complexity. While a detailed analysis of the 
Federal Meat Inspection Act is beyond the scope of this study, we 
believe the explicit guidance that the Food Safety and Inspection 
Service provides to meat packers and processors under that act--that 
following safety-related inspection activities, imported meat is deemed 
domestic--is the point of confusion with regard to industry's 
compliance with Tariff rules. We believe our recommendation is 
important because consultation between the Food Safety and Inspection 
Service and the Bureau of Customs and Border Protection could produce 
an approach to provide consumers with information they should already 
have under Tariff rules on the import origin of their meat.

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

USDA had no comment on our recommendation that AMS consider proposing 
that large butcher shops and fish markets be subject to the country-of-
origin labeling law, which we believe would create a more level playing 
field for the retail sale of meat, fish, and shellfish. USDA concurred 
with the other two recommendations. Finally, USDA stressed that the 
$1.9 billion estimate for the record-keeping burden under the voluntary 
program does not reflect the full costs of implementing the law. We 
agree. We added language to clarify that this is not the total cost--
but only the cost of the paperwork burden on industry--and that AMS 
will also have to develop a cost/benefit analysis for the proposed rule 
it plans to issue this Fall. USDA also provided technical suggestions, 
which we incorporated into the report as appropriate.

The Deputy Executive Director of Trade Compliance and Facilitation, 
Office of Field Operations, Bureau of Customs and Border Protection, 
concurred on the value of having USDA consult with the Bureau on 
developing an approach for informing meat packers and processors of 
their responsibilities under Tariff Act requirements, with regard to 
maintaining the identity of imported meat. Lastly, the Department of 
Defense, through the Primary Action Officer for this study, confirmed 
that the Department concurred with the report's treatment of the 
Subsistence Prime Vendor Program.

We conducted our review from September 2002 through July 2003 in 
accordance with generally accepted government auditing standards.

As agreed with your offices, unless you publicly announce the contents 
of this report earlier, we plan no further distribution until 30 days 
from the date of this letter. At that time, we will send copies of this 
report to congressional committees with jurisdiction over food safety 
issues; the Secretary of Agriculture; the Secretary of State; the 
Secretary of Defense; the Secretary of Commerce; the Office of the U.S. 
Trade Representative; the Director, Office of Management and Budget; 
the Commissioner of the Bureau of Customs and Border Protection; and 
other interested parties. We also will make copies available to others 
upon request. In addition, the report will be available at no charge on 
the GAO Web site at [Hyperlink, http://www.gao.gov].

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

Lawrence J. Dyckman 
Director, Natural Resources and Environment:

Signed by Lawrence J. Dyckman: 

[End of section]

Appendixes: 

Appendix I: Scope and Methodology:

As you requested, this report (1) examines how certain existing 
federal, state, and industry programs that include origin identity 
requirements address oversight, verification of origin, and 
enforcement, and assesses their applicability as models for USDA to use 
to implement the new country-of-origin labeling law; (2) identifies 
which U.S. trading partner countries require country-of-origin labeling 
at the retail level for foods subject to the new labeling law and how 
these programs are being implemented; and (3) assesses the 
reasonableness of USDA's assumptions and methodology for estimating the 
cost of the first year record-keeping paperwork burden to industry for 
the voluntary country-of-origin labeling program. You also asked us to 
update a 1998 report by USDA's Foreign Agricultural Service--1998 
Foreign Country of Origin Labeling Survey--in which the Service 
surveyed its in-country attachs on the country-of-origin labeling 
practices in 46 countries and the European Union.  

To determine how existing federal, state, and industry programs that 
include origin identity requirements address oversight, verification of 
origin, and enforcement, and assess their applicability as models for 
USDA to use to implement the new country-of-origin labeling law, we 
interviewed officials and/or reviewed documents from USDA's 
Agricultural Marketing Service, Farm Service Agency, Food Safety and 
Inspection Service, Animal and Plant Health Inspection Service, and 
Food and Nutrition Service; the Department of Defense's Defense 
Logistics Agency; the Food and Drug Administration; National Oceanic 
and Atmospheric Administration; and the Bureau of Customs and Border 
Protection in the Department of Homeland Security (formerly the U.S. 
Customs Service in the Department of Treasury). We reviewed the new 
country-of-origin legislation and other related documents, including 
USDA's voluntary country-of-origin labeling guidelines and comments 
submitted on those guidelines, comments from USDA's listening sessions, 
congressional testimony, and examples of records and documents that may 
be helpful for verification purposes. We also visited two distribution 
facilities for supermarket chains (one in each of two states), three 
grocery stores (one in each of two states and one in the District of 
Columbia), and a meat packer processor that has a contract with USDA 
under the school meals programs. These locations were selected based on 
their proximity to our offices in Washington, D.C. and Atlanta, Ga, 
where the GAO analysts who conducted this study were located.  

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

We also interviewed officials and/or reviewed documents from the 
American Meat Institute and visited a beef packing plant that supplies 
beef products to schools through the school meals programs to examine 
how imported animals and the meats produced from them were segregated 
throughout slaughtering, cutting, chilling, and other meat grading and 
certification activities that take place at meat plants. We also 
interviewed officials and reviewed documents from the Food Marketing 
Institute and visited food distribution facilities in Florida and New 
Jersey and grocery stores in Florida, New Jersey, and the District of 
Columbia to examine the process for how the covered commodities are 
currently received, stored, distributed, and displayed at the retail 
level and existing record-keeping practices. In addition, we 
interviewed officials from the National Fisheries Institute, the 
Ranchers-Cattlemen Action Legal Fund, the United Stockgrowers of 
America, the Organization for Competitive Markets, the Livestock 
Marketing Association, the American Frozen Food Institute, the National 
Food Processors Association, and the American Peanut Council and 
Southern Peanut Farmers Federation.  

To identify which U.S. trading partner countries require country-of-
origin labeling at the retail level for foods subject to the new 
labeling law and how these programs are being implemented, we surveyed 
the Foreign Agricultural Service attachs in 57 countries.[Footnote 
30]These included 45 of the 46 that the Foreign Agricultural Service 
surveyed in 1998. We omitted Bosnia, which was included in the 1998 
survey, because it is a recipient of food and aid and not a major 
agricultural trading partner. The 57 also included 7, all major produce 
trading partners, which we surveyed for our 1999 report Fresh Produce: 
Potential Consequences of Country-of-Origin Labeling.[Footnote 31] We 
included another 5 countries that were among the top 40 agricultural 
trading partners in 2001, but had not been included earlier. The 57 
countries account for about 94 percent of U.S. foreign trading activity 
for food and animals. We received responses on all 57 countries. The 
countries we surveyed are listed in appendix IV. 

Before sending our survey, we pretested it with Foreign Agricultural 
Service officials in three countries. During these pretests, we 
interviewed the respondents to ensure that (1) the questions were clear 
and unambiguous, (2) the terms we used were precise, and (3) the survey 
did not place an undue burden on the staff completing it. The survey 
instrument had questions regarding the country-of-origin requirements 
at retail in the host countries for fruits and vegetables, peanuts, 
fish and shellfish, and meat. The information presented in this report 
regarding foreign countries' labeling requirements, oversight, 
verification, and enforcement is based on information obtained from the 
survey and interviews. We did not analyze foreign countries' labeling 
laws or regulations, independently verify countries' practices, or 
evaluate their programs. The detailed results from our survey are 
available in a special publication entitled Country-of-Origin Labeling 
for Certain Food-Survey Results [Hyperlink, http://www.gao.gov/cgi-
bin/getrpt?GAO-03-781SP], which is available on the Internet at 
[Hyperlink, http://www.gao.gov/cgi-bin/getrpt?GAO-03-
781SP].  

To assess the reasonableness of USDA's assumptions and methodology for 
estimating the cost of the first year record-keeping paperwork burden 
to industry for the voluntary country-of-origin labeling program, we 
interviewed officials from USDA's Agricultural Marketing Service and 
reviewed agency documents including the Federal Register notices on the 
Guidelines for the Interim Country of Origin Labeling Program and the 
Cost Estimate of Paperwork Burden for record keeping under the 
Voluntary Program; comments received from industry, consumer groups, 
trading partner countries, and others in response to the Federal 
Register notices; questions and answers on the cost estimate published 
on the Agricultural Marketing Service's Web page; the rules and 
regulations for implementing the Perishable Agricultural Commodities 
Act; other USDA documents; and the University of Florida International 
Agricultural Trade and Policy Center's report entitled Country of 
Origin Labeling: A Legal and Economic Analysis; the Federal Register 
Notice and Rules regarding the Cost Estimate of the Livestock Mandatory 
Reporting Program; and the Regulatory Impact Assessment for the Final 
Rule Implementing the National Organic Program.  

We conducted our review from September 2002 to July 2003 in accordance 
with generally accepted government auditing standards.

[End of section]

Appendix II: Federal Programs that Require Origin Information:

This appendix provides additional information on the following federal 
programs that have origin identity or related requirements for foods.

* School meals programs:

* Subsistence Prime Vendor Program:

* National Organic Program:

* Market Access Program:

* Food for Peace Program:

* Meat grading and certification programs:

* USDA Process Verified Program:

* Seafood Inspection Program:

School meals programs (such as the National School Lunch and Breakfast 
Programs):

The school meals programs, administered by the U.S. Department of 
Agriculture's (USDA) Food and Nutrition Service, operate in over 99,000 
public and nonprofit private schools and residential childcare 
institutions. Total funding for the programs were more than $6 billion 
in cash reimbursements and commodities for fiscal year 2002. Each day, 
the School Lunch Program provides meals to about 28 million children. 
The meals programs were established under the National School Lunch Act 
of 1946, 42 U.S.C. 1751 (2000).  

USDA provides both cash reimbursements to participating schools and 
entitlement commodities purchased by USDA's Agricultural Marketing 
Service and Farm Service Agency. The Agricultural Marketing Service 
purchases meat, fish, poultry, eggs, and fruit and vegetable products; 
the Farm Service Agency purchases other items, including peanut 
products, flour, grain, dairy products, oils, and shortening. About 20 
percent of the dollar value of the food served in school lunches comes 
from USDA's commodity purchase programs. State and local school food 
authorities obtain the remaining 80 percent of food either through 
direct purchases from manufacturers or distributors or contracts with 
food service management companies that procure the foods for them.  

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

Program Compliance and Enforcement:

For meat, potential suppliers must apply for and receive approval from 
AMS to be eligible to supply meat for AMS's commodity meat purchase 
program. The meat suppliers are required to maintain records including, 
but not limited to, invoices, production, and inventory records 
evidencing product origin, and to make such records available for 
review. These suppliers comprise an Approved USDA Domestic Product 
Suppliers List. Slaughterhouses and processors identify themselves as 
either "domestic only" (i.e., they handle only products manufactured 
from livestock raised in the U.S. or its territories) or "segregation 
plan" facilities (they handle products derived from both domestic and 
imported livestock). Imported livestock are defined as livestock 
imported for immediate slaughter that arrive at the plant in sealed 
trucks. The segregation plan prepared by suppliers and contractors 
handling both imported and domestic livestock must clearly describe how 
the company will ensure that no meat from imported animals is 
inadvertently included in school meals programs' supplies; AMS must 
approve the plan before the company can become a contractor for USDA 
feeding programs.  

AMS audits both "domestic only" and "segregation plan" facilities three 
times a year with its staff of 20 auditors. When violations are found, 
AMS can take enforcement actions including remedial actions (e.g., 
provide training), rejecting the meat, suspension or termination of the 
contract, debarment, liability for damages, or criminal prosecution. 
The annual compliance cost to AMS is about $112,500. These costs, which 
include oversight of school meal meat contractors, are funded by user 
fees paid by the meat suppliers. Currently, AMS auditors perform about 
250 meat supplier compliance audits per year at an average cost of 
about $450 per audit. The cost per audit is based on an hourly fee that 
is assessed for the time required to prepare for, conduct, and report 
the results of the assessments, and the time required to complete all 
related travel.

Similarly, suppliers seeking to provide fruit and vegetable products to 
AMS for the school meals programs must complete an annual certification 
statement that all products are grown, processed, and packed in the 
United States. AMS uses five to six auditors who audit these suppliers 
based on a combination of random sample and risk assessment.

The Subsistence Prime Vendor Program:

Since the early 1990s, the Department of Defense has used the "Prime 
Vendor" program to provide all food items, including food service 
equipment and operating supplies for U.S. land-based troops as well as 
for the U.S. Navy fleet and the U.S. Coast Guard. For food items, a 
partnership was created between the Defense Logistics Agency's Defense 
Supply Center in Philadelphia and a number of small and large full-line 
commercial food distributors known as Prime Vendors. There are 
currently about 50 Prime Vendors--located across the continental United 
States and foreign countries--that provide food items to military 
commands. Under the Prime Vendor Program, the department can take 
advantage of existing food distribution systems to obtain needed items 
much more quickly and inexpensively than through maintaining its own 
system, according to department officials. Inspectors spot-check 
deliveries at their destination for condition, identity, and quantity, 
including a visual check for domestic source requirements. The Berry 
Amendment has been included in Department of Defense appropriations 
bills for many years and codified into law; it requires that all food 
served to U.S.-based troops be of wholly domestic origin, including 
such ingredients as spices.[Footnote 32]

Program Compliance and Enforcement:

The Department of Defense annually audits Prime Vendors to ensure that 
food products meet contract specifications for quality and compliance 
with applicable statutes as well. The department has an auditing budget 
of approximately $430,000 annually; audits generally take about 2 days 
to complete. Audit teams are comprised of personnel from both the 
Department of Defense and other cognizant federal agencies, such as the 
National Marine Fisheries Service for audits of seafood or USDA for 
such items as poultry and beef. The audit team checks to ensure that 
food packaging bears the appropriate label. If the particular food item 
was not required to bear labeling showing the manufacturer or 
processor, the Prime Vendor or supplier is requested to provide 
confirmation of domesticity. Generally, this is accomplished through an 
interview with the Prime Vendor. If violations are found, the 
department notifies the Prime Vendor to immediately discontinue 
supplying the noncompliant items.  

This will have to change, however, because section 8136 of the fiscal 
year 2003 Department of Defense appropriations act (Pub. L. No. 107-248 
(2002)) added a requirement for foods procured for U.S.-based troops. 
Specifically, seafood must be wholly domestic (i.e., caught on a U.S. 
flag vessel and processed in the United States). In addition, the Berry 
Amendment, as codified, exempts (1) certain groupings of items--such as 
tea in bulk, green coffee beans, and olive oil--that are not grown or 
produced domestically in sufficient quantities and (2) other foreign-
grown products that are processed in the United States. Periodically, 
the Department of Defense and congressional representatives and 
potential suppliers have expressed concern about the requirement to 
purchase only domestic products.

The National Organic Program:

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

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

Program Compliance and Enforcement:

If an allegation is brought against an operator, the certifying agent 
will review the allegation. If the certifying agent believes a 
violation has occurred, the operator is sent a letter detailing the 
allegation. The operator is given time to comply; if the situation is 
not corrected, a revocation or suspension will be issued. In addition, 
civil penalties of up to $10,000 may be levied.  

The Market Access Program:

USDA's Foreign Agricultural Service uses funds from the Commodity 
Credit Corporation to administer the Market Access Program.[Footnote 
33] The program's purpose is to encourage the creation, maintenance, 
and expansion of commercial export markets for U.S. agricultural 
commodities through such activities as consumer advertising and 
participation in trade fairs. Program funds are authorized through 
agreements using a cost-share assistance approach that provides for 
partial reimbursement of eligible promotional expenses to eligible 
trade organizations that implement a foreign market development 
program. Participants may receive assistance for either generic or 
brand promotion activities; for example, program funds have been used 
to promote a market for U.S. blueberries and a large orange juice 
cooperative. An eligible commodity must contain at least 50 percent 
domestic content.

Program Compliance and Enforcement:

In addition to the domestic content requirements, participants must 
submit travel and expense reports within required time frames. Records 
must be maintained for not less than 3 years after completion or 
termination of the agreement or not more than 5 full calendar years 
following the year of the transaction that is evidenced by such an 
account or record that took place, whichever is sooner. The Foreign 
Agricultural Service conducts compliance reviews of participants; each 
year approximately 50 percent of the participants' records are 
reviewed, which accounts for approximately 90 percent of the dollars 
awarded. All participants' records are reviewed at least every 2 years, 
according to officials. Typical problems identified by these audits are 
ineligible expense submissions--such as excessive travel expenses or 
charges for product samples and business cards--or math errors. 
According to program officials, these situations are rectified by 
participant reimbursements for overpayment.

The Food For Peace Program:

The Food For Peace Program (known also as Title I, P.L. 480),[Footnote 
34]administered by the Foreign Agricultural Service, provides for U.S. 
government sales of agricultural commodities to developing countries 
under long-term credit arrangements. Program commodities are used to, 
for example, combat hunger and malnutrition; promote broad-based 
equitable and sustainable development; and encourage the development of 
private enterprise and democratic participation in developing 
countries. The Farm Service Agency purchases the commodities supplied 
under the program, including wheat, rice, corn meal, vegetable oil, 
soybean meal, and soybeans. None of the agricultural commodities 
covered under the country-of-origin labeling requirements in the 2002 
Farm Bill are currently included in the program.  

Under this program, all agricultural products a participating company 
provides are to be produced in the United States. Specific language 
outlining this requirement is clearly stated in each announcement. For 
example, the announcement explains that the provided commodities are to 
be of domestic origin, defined as being "manufactured, processed, 
mined, harvested, or otherwise prepared for sale or distribution from 
components originating the United States." All commodities supplied by 
U.S. companies must be 100 percent domestic in origin; the only 
exception is if the commodity is not available "at a fair and 
reasonable price" on the domestic market.

Program Compliance and Enforcement:

As part of the contract requirements, the suppliers attest that the 
products they provide are of domestic origin. Generally, USDA does not 
verify that products provided are actually of domestic origin only.  

Meat Grading and Certification:

The Agricultural Marketing Act of 1946, as amended,[Footnote 35] 
authorizes the Secretary of Agriculture to provide voluntary federal 
meat grading and certification services that facilitate the marketing 
of meat and meat products. AMS administers the programs; its 
regulations provide that grading and certification services will be 
furnished for both domestic and imported meat. Federal meat grading 
serves a number of functions, including aid to livestock producers in 
identifying and receiving prices commensurate with the quality and 
quantity of the livestock they produce and providing consumers, 
retailers, and institutions with a uniform supply of meat of the 
desired quality. Grading services consist of the evaluation of carcass 
beef, lamb, and pork for compliance with the grades of the appropriate 
official U.S. standard. Certification services consist of the 
evaluation of meat and meat products for compliance with specification 
and contractual requirements. Commercial meat purchasers, including 
restaurants and exporters, regularly use these services to ensure that 
the quality and yields of the products they purchase comply with their 
stated requirements.

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

Program Compliance and Enforcement:

AMS staff conduct about 800 reviews annually of USDA graded meat sold 
at restaurants and retail establishments to ensure the proper use of 
USDA nomenclature for beef and lamb products, referred to as P.L. 272 
reviews.[Footnote 36] If violations are noted, appropriate remedial, 
administrative, and, if necessary, legal action can be taken to ensure 
compliance. AMS provides meat-grading services to industry on a "cost 
recovery" basis, which includes graders' salaries, as well as the costs 
of supervision and management of the system. On average, grading 
services cost the beef industry about 38 cents per carcass. AMS's meat 
grading services fee also covers the cost of its P.L. 272 meat grading 
reviews, which cost about $120,000 annually (800 reviews at an average 
cost of about $150 per review).

USDA Process Verified Program:

The USDA Process Verified Program is a voluntary program that provides 
livestock and meat producers an opportunity to assure customers of 
their ability to provide consistent quality products by having their 
written manufacturing processes confirmed through independent third-
party audits. These suppliers are able to have marketing claims such as 
breed, feeding practices, or other raising and processing claims 
verified by USDA and marketed as "USDA Process Verified." Some USDA-
approved process verified programs track every animal from birth to the 
retail meat case. There are seven approved USDA Process Verified 
Programs--five pork and two beef.  

Program Compliance and Enforcement:

Process verified meat suppliers are required to maintain records 
including, but not limited to, a complete copy of the applicant's 
program documentation, including examples of all labels, tags, or other 
instruments used to identify animals or products; completed examples of 
all forms used in the program; and copies of all letters from 
consulting veterinarians, feed manufacturers, and tag manufacturers. 
Suppliers must agree to make such records available for review; all 
program documents must be retained for a period of at least 1 year. All 
approved programs are subject to unannounced annual compliance reviews 
by AMS auditors. An annual review costs about $5,000 and is conducted 
on a fee-for-service basis. AMS may suspend a company from the process 
verified program for a variety of reasons, including deliberate 
misrepresentation of the eligibility of livestock or products 
distributed under an approved program, failure to follow applicant's 
approved policies and procedures, and failure to respond to corrective 
actions in the time frame provided.  

Seafood Inspection Program:

The Seafood Inspection Program, administered by the National Oceanic 
and Atmospheric Administration within the Department of Commerce, is a 
voluntary fee-for-service program. The activities of the Seafood 
Inspection Program are authorized under the Agricultural Marketing Act 
of 1946, as amended. The Seafood Inspection Program routinely evaluates 
the safety, wholesomeness, proper labeling, and quality of fish and 
fishery products, as well as determining the adequacy of sanitation and 
hygienic practices of the processing facility and the safety of the 
processes used in the manufacture of food. These functions are similar 
to the functions performed by the inspection personnel of USDA and FDA 
toward ensuring that the consumer is provided with safe, wholesome, and 
properly labeled food of acceptable quality.  

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

Both farm-raised and wild fish and shellfish can be inspected. The 
Seafood Inspection Program inspects about 18 percent of the U.S. 
domestic seafood supply. Users of these services include vessel owners, 
importers/exporters, processors, distributors, retailers, and food 
service operators. The Seafood Inspection Program publishes a bi-annual 
listing of fish establishments and products of businesses that are 
under inspection contract with the Seafood Inspection Program. Some 
U.S. trading partners, such as the nations of the European Union, 
require that seafood inspection/certification be performed by 
government personnel. In fiscal year 2002, the cost of the Seafood 
Inspection Program was approximately $13.8 million.

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

Program Compliance and Enforcement:

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

[End of section]

Appendix III: State Programs that Require Country-of-Origin 
Identification at Retail for Foods Covered by the New U.S. Labeling 
Law:

In contacting the 50 states, we identified 8 states with country-of-
origin labeling programs that we considered implemented. We considered 
a labeling program to be implemented if it was active throughout the 
entire state and also had oversight by some level of state (or state-
delegated) government. We did not audit the state programs; rather, we 
collected information about these programs through discussions with 
officials from the respective state agriculture and health departments. 
This appendix provides information about the scope of the programs, 
labeling options, inspections at the retail level, and enforcements 
actions for noncompliance with program requirements for 8 state 
programs, as provided in discussions with officials in each of the 
respective states.  

Alabama:

Alabama has a country-of-origin labeling program for catfish. At 
retail, both imported and domestic catfish must be labeled according to 
origin. Labeling for imported catfish must state "imported catfish." 
Labeling for domestic catfish must also indicate the source of the 
catfish: farm-raised, river or lake, or ocean. In addition, Alabama's 
definition of catfish includes the order Siluriformes or family 
Anarhichadidae that include basa as a catfish. Basa is an imported fish 
that is frequently labeled as catfish. Retailers selling catfish 
products that are not wrapped or in a container may comply with 
labeling requirements by placing a sign on the display case or 
refrigeration unit reasonably visible to the consumer. Anyone selling 
river or lake catfish exclusively and directly to the consumer may 
place a sign reasonably visible to the consumer identifying the source 
of the catfish instead of labeling each individual container or package 
of catfish.

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

Arkansas:

Arkansas has a program for fish. The suppliers, distributors, and 
retailers must label all packages of imported and domestic fish/
catfish. Furthermore, catfish products must be specifically labeled by 
the processor, distributor or retailer to identify the source of 
production, such as "Farm-Raised Catfish," "River or Lake Catfish," 
"Imported Catfish," or "Ocean Catfish." Amendments to the law in 2003, 
by the Arkansas General Assembly, state that the term "catfish" may 
only be used when identifying any species of the scientific family 
Ictaluridae.  

Arkansas Bureau of Standards investigators inspect retail stores, 
processors, and packagers for compliance with program requirements. 
Staff conducting the inspections are already in retail stores checking 
for accuracy of labels concerning the weight and quantity of packaged 
meats and goods. These random inspections consist of checking display 
labels against paper records. These records consist mainly of 
affidavits signed by catfish suppliers that certify the origin of the 
product and that the product was packaged and processed in sanitary 
conditions. Retailers found to be in violation of the law can be 
assessed civil penalties. The law provides for a graduated system of 
penalties starting with a fine of $500-1,000 for a first offense, $800-
2,000 for a second offense within 3 years of the first, and $1,500-
2,500 for a third offense within 3 years.

Florida:

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

Florida's Department of Agriculture and Consumer Services staff 
routinely inspect more than 40,000 retail, processing, and food 
establishments annually, with approximately 15,000 to 20,000 having 
imported produce sales. Florida food safety inspectors visit all food 
retailers about three times per year, to inspect such items as store 
cleanliness, food storage temperatures, meat handling procedures, and 
country-of-origin labeling of produce. Florida's country-of-origin 
labeling program does not include a paperwork retention requirement. 
Inspections at retail stores involve verification of signs or labels of 
origin in the retail display areas with shipping containers in the 
storage and unpacking areas at each location. Penalties for 
noncompliance with Florida's labeling law start with a warning to the 
retailer, and repeat violators are assessed administrative fines 
beginning at $200 and increasing if noncompliance continues. In some 
instances, calls are made to corporate headquarters, to ensure that the 
corporate managers are aware of the law and the need for compliance. 
State law provides for fines of $5,000 per violation, up to $20,000 per 
day. In one instance, a violator was fined $10,000 for repacking 
imported produce and presenting it as domestic. During 2002, inspectors 
issued 171 fines totaling about $57,000.

Louisiana:

Louisiana has a program for fresh and frozen meat, including ground 
meat. Louisiana expanded the program to include shrimp, crawfish, crab, 
and crabmeat. For meat, both imported and domestic products must be 
labeled. Retailers must label meat as American, imported, or a blend of 
American and imported meats. American meat is defined as meat processed 
at an American packing plant. If a store sells only American meat, it 
may put up a sign or placard stating this and does not have to label 
individual items or displays. For shrimp, crawfish, crab, and crabmeat, 
only imported products must be labeled to indicate the country of 
origin. When foreign shrimp, crawfish, crab, and crabmeat are combined 
with domestic products, the marking or label must clearly show the 
country of origin of the foreign products. The country of origin must 
be displayed on the container if the shrimp, crawfish, crab, or 
crabmeat is in package form. A sign designating the country of origin 
may be used for shrimp, crawfish, crab, and crabmeat sold in bulk from 
a display case.

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

Maine:

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

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

Mississippi:

Mississippi has a country-of-origin labeling program for catfish at the 
retail level. Both imported and domestic catfish must be labeled at 
retail. Imported products do not have to be labeled with the country-
of-origin, but must indicate that they are imported. Labeling for 
domestic catfish should include either the state of origin or indicate 
that the catfish is a product of the United States. Labeling for 
domestic catfish must also indicate the source of the catfish--whether 
it was farm raised or river caught. In addition, Mississippi's 
definition of catfish is limited to two families of fish, but not 
others that include basa. Basa is an imported fish that is frequently 
labeled as catfish. Retailers selling catfish products not wrapped or 
in a container may comply with labeling requirements by placing a sign 
on the display case or refrigeration unit reasonably visible to the 
consumer. Any person selling river or lake catfish exclusively and 
directly to the consumer may place a sign reasonably visible to the 
consumer identifying the source of their catfish instead of labeling 
each individual container or package of catfish.

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

North Dakota:

North Dakota has a program for fresh beef, lamb, and pork, including 
ground products, sold at the retail level. Both imported and domestic 
beef, lamb, and pork must be labeled. Imported meats are labeled with 
their country of origin before they are delivered to the retail 
location. Meat received from a U.S. packing plant is considered a 
domestic product. Meat products must be labeled at the retail level 
with a clearly visible printed or written indication placed in the 
immediate vicinity of the food product.  

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

Wyoming: 

Wyoming has a country-of-origin labeling program for meat, including 
poultry, at the wholesale and retail level. Ground meat is not required 
to be labeled under Wyoming's program. Every retailer and wholesaler 
who sells or offers meat for sale in Wyoming through an establishment 
or processing plant that is the product of any foreign country shall 
clearly label the meat as imported and include the country of origin. 
Meat processed in the United States is considered a domestic product. 
For imported meat sold unpackaged in a retail case, a visible placard 
stating the country of origin may be used instead of a label.  

Wyoming Department of Agriculture staff conduct inspections for 
compliance with the program in conjunction with food safety inspections 
required at the retail and wholesale levels. All establishments are 
risk-assessed and then inspections are carried out accordingly. At a 
minimum, establishments are inspected at least once a year, which 
includes compliance with country-of-origin labeling requirements. 
Inspectors inspect meat and containers of raw meat received by the 
establishment or processing plant to verify that meat that is the 
product of a foreign country is clearly labeled. Wyoming does not have 
fines associated with its country-of-origin labeling program. If 
inspectors find a retail location is not in compliance, the inspector 
informs store personnel of the requirement to label imported meat. In 
order to fine a retailer, the department would have to take the 
retailer to court. This has not been done since the program's 
inception.  

[End of section]

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

We surveyed the following 57 countries, which include the 15-member 
European Union:

Argentina; Australia; Austria; Belgium; Brazil; Canada; Chile; China; 
Colombia; Costa Rica; Czech Republic; Denmark; Dominican Republic; 
Ecuador; Egypt; El Salvador; Estonia; Finland; France; Germany; 
Greece; Guatemala; Honduras; Hong Kong; Hungary; India; Indonesia; 
Ireland; Israel; Italy; Japan; Korea; Latvia; Luxembourg; Malaysia; 
Mexico; Netherlands; New Zealand; Norway; Panama; Peru; Philippines; 
Portugal; Russia; Saudi Arabia; Singapore; South Africa; Spain; 
Sweden; Switzerland; Taiwan; Thailand; Turkey; United Arab Emirates; 
United Kingdom; Venezuela; and Vietnam.

[End of table]

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

[End of section]

Appendix V: GAO Contacts and Staff Acknowledgments:

GAO Contacts:

Lawrence J. Dyckman (202) 512-3841 J. Erin Lansburgh (202) 512-3017:

Acknowledgments:

In addition to those named above, Clifford Diehl, James Dishmon, 
Natalie Herzog, Diane Berry, Nancy Bowser, Jay Cherlow, Oliver 
Easterwood, Lynn Musser, and Walter Vance made key contributions to 
this report.  

(360270):

FOOTNOTES

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

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

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

[4] When a new regulation imposes a significant additional paperwork 
burden on industry, agencies are required, under section 2 of the 
Paperwork Reduction Act, 44 U.S.C. 3506 (2000), to publish and obtain 
comments on an estimate of the cost of that burden.

[5] Department of Agriculture, "Notice of Request for Emergency 
Approval of a New Information Collection," 67 Fed. Reg. 70205 (2002). 

[6] AMS did not estimate all costs associated with the voluntary 
program, nor did it develop a cost/benefit analysis. AMS will have to 
develop a cost/benefit analysis for the proposed rule to implement the 
mandatory program. 

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

[8] See U.S. General Accounting Office, Beef and Lamb: Implications of 
Labeling by Country of Origin, GAO/RCED-00-44 (Washington, D.C.  Jan. 
27, 2000). 

[9] Pursuant to section 403 of the Homeland Security Act of 2002, Pub. 
L. No. 107-296, 116 Stat. 2135, 2178 (2002), the U.S. Customs Service 
transferred from the Department of the Treasury to the Department of 
Homeland Security. The activities discussed in this report are 
organized within the Bureau of Customs and Border Protection. 

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

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

[12] Small convenience stores and gasoline marts would not be subject 
to the labeling law because they would not have sufficient activity in 
fruits and vegetables, according to AMS officials. 

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

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

[15] See U.S. General Accounting Office, Fresh Produce: Potential 
Consequences of Country-of-Origin Labeling, GAO/RCED-99-112 
(Washington, D.C.  Apr. 21, 1999).

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

[17] For this report, a state-implemented country-of-origin labeling 
program is one that is active statewide and includes oversight by some 
level of state (or state-delegated) government. We also identified four 
states--Idaho, Kansas, South Dakota, and Tennessee--that have country-
of-origin labeling laws that have not been implemented.

[18] We did not independently evaluate the state laws/programs.

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

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

[21] This conversion was provided to us by the Foreign Agricultural 
Service attach for Japan on March 18, 2003.

[22] This conversion was calculated using the May 2003 monthly 
conversion rate published by the Federal Reserve Board.

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

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

[25] John Van Sickle et al., "Country of Origin Labeling: A Legal and 
Economic Analysis." University of Florida Institute of Food and 
Agricultural Science, May 2003.

[26] USDA officials believe that the number of producers that may fall 
into these categories for which the labeling law does not apply is 
small. 

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

[28] See the Public Health Security and Bioterrorism Preparedness and 
Response Act of 2002--commonly known as the Bioterrorism Act of 2002--
Pub. L. No. 107-188 (2002).

[29] Meat, meat products, and egg products, which are exclusively 
regulated by USDA, are excluded from FDA's regulation.

[30] The 57 countries include the 15 member countries of the European 
Union. We also surveyed the U.S. Mission to the European Union. 

[31] GAO/RCED-99-112 (Washington, D.C.  Apr. 21, 1999)

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

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

[34] See 7 U.S.C. 1691 (2000).

[35] See 7 U.S.C. 1621 (2000).

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

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