John Block: “COOL” Isn’t Cool

By John R. Block

As a farmer, we understand that if you have something that doesn’t work, you fix it. It will just cost you money if you ignore the problem. Somehow, the federal government doesn’t seem to understand that common sense fact.

The Country of Origin Labeling (COOL) law was first passed in 2002. Canada and Mexico have been challenging the law now for 13 years. The World Trade Organization (WTO) just this week ruled it to be a violation of U.S. international trade obligations. We are a member of the WTO and therefore should live within the rules. That is our obligation, and we expect other countries to do the same.

This week, for the third time, the WTO ruled against us. That ruling gives Canada and Mexico the legal right to retaliate. Canada already has a list of proposed restrictions, which will result in a dramatic cut in our exports to Canada and Mexico. That is serious. Canada and Mexico are our number 1 and 2 export markets. Besides, they are our closest neighbors.

Senator Pat Roberts (KS) had this to say: “If Congress doesn’t act swiftly, retaliation will wreak havoc on the U.S. economy.” I think we should be aware that if we don’t fix this law, it will cost us millions of dollars in ag exports as well as other exports.

The law today requires that meat from a calf born in Canada and shipped to the U.S. bare a label that reads “Born in Canada, raised and slaughtered in U.S.”  Just imagine the cost and confusion that can cause.  What about the Montana farmer who imports Canadian calves and mixes his own U.S. calves with the Canadian calves?  By law, he would have to keep track of them and market them separately. The U.S. processing plant would then have to process them separately. That would be the only way to ensure the Canadian label was on the Canadian steak.

Consumers say they have the right to know where that animal has been. Why? It isn’t worth the hassle. USDA just released new study results that point out the COOL labeling policy costs consumers nearly 8 billion dollars over 10 years.

We don’t need to try and change COOL. We’ve tried that before. COOL isn’t cool. Just get rid of it.

John Block was Secretary of the U.S. Department of Agriculture from 1981-1985, where he played a key role in the development of the 1985 Farm Bill.

114th Congress – What to Expect in Ag and Food

By Michael J. Marshall

As the 114th Congress begins in earnest, there is rough sledding ahead this winter over the gulf between the governing philosophies of the President and the new Congress.

Not to belabor the obvious, but early indications are that Republican victories have altered the President’s willingness to deal only very modestly, if at all.  With just two years to go in his final term, President Obama seems determined to push his agenda on a number of fronts. Nevertheless, Americans tend to be eternal optimists, so many are hoping the Administration and Congress will be able to compromise on at least some important issues.  Exactly what is open for negotiation remains to be seen.

In my post-election blog, I asked, “What now?” and answered my own question with, “quite a lot.”  We can’t entirely predict which cards the President will ultimately choose to play.   We’ve already seen him out of the gates early on immigration and Cuba policy, both of which are of great interest to agriculture.

There are a few fig leaves being exchanged.  At the other end of Pennsylvania Avenue, Senate Majority Leader Mitch McConnell (R-KY) doesn’t appear to be too bent out of shape yet.  He is keeping his composure, says he doesn’t take politics personally, and may be interested in sharing Kentucky Bourbon with the President.  Would Joe Biden be there for the Bourbon Summit like he was for the Beer Summit?

My colleagues and I were sitting around last week handicapping the year ahead with our esteemed colleague, former Secretary of Agriculture Jack Block, who served under President Reagan and has seen a few turnovers in this town.  With his own tone of optimism, he advised, in essence, “Pay attention, stay alert, do your work, because when things are moving, you never know when something might actually pass that the President will sign.  Strange things do happen.”

OFW is taking a close look at the prospects for action across a broad range of issues that affect agriculture and food, areas where there has traditionally been bipartisanship, but also ones that may be affected by other reforms. There are a number of issues that have the potential to move.  Here are a few:


Trade is at the top of the agenda on almost everyone’s list, and appears to be within the realm of the possible despite some significant obstacles.  The impact of a U.S.-Asia Trans-Pacific Partnership (TPP) trade deal, a U.S.-Europe Transatlantic Trade and Investment Partnership (TTIP) deal, and/or Fast Track Trade Promotion Authority, which would make it easier for the Executive Branch to negotiate trade agreements, would be enormous in terms of opening markets for the entire food and Ag value chain.

We can expect the Generalized System of Preferences, which cuts tariffs on goods from developing countries, maybe (hopefully) a Miscellaneous Tariff Bill which would cut duties on agricultural goods not made in the U.S., and almost certainly the reauthorization of the African Growth and Opportunity Act (AGOA) later this year.  Expect the Administration and Congressional Democrats to push for more Trade Adjustment Assistance for workers adversely affected by trade as a pre-condition to move these initiatives forward.  The World Trade Organization (WTO) will consider the U.S. appeal of an adverse country of origin labeling (COOL) ruling. That appeal will require the USDA to submit recommendations, and this could be met with Congressional action to bring the U.S. into international compliance.  If so, the Ag world will be at the table as it was during the omnibus process which resulted in favorable language for producers.

Nutrition/Dietary Guidelines

The “independent” Dietary Guidelines Advisory Committee (DGAC) is expected to release its report to the Secretaries of Agriculture and Health and Human Services this month.  The DGAC report is widely expected to contain some controversial nutritional recommendations and, for the first time, recommendations regarding the sustainability of the food supply.  As many OFW clients know, the DGAC guidance has enormous implications across a broad spectrum of federal programs, from our military to school lunch nutrition standards, to menu and nutrition labeling.

We expect robust debates surrounding added sugars, so-called “high-dose caffeine” beverages, meat, whole grain labeling, sodium, and the mandate for fruits, vegetables and whole grains in the school lunch program.


One of the elephants in the room inside the Ag community, and I am not talking Republicans, is the role of climate change, or put another way, the environmental impact and sustainability of foods. Notwithstanding language in the recent omnibus suggesting to the DGAC that sustainability is outside the scope of its mandate, no other issue looms larger in the policy sifter within this Administration than the environmental impact of any given policy.  What is the carbon footprint of your Chicken Caesar Salad?  You should know…and some believe it should be listed on the food label.

Expect sustainability to be one of the bases for the dietary recommendations in the DGAC report.  Even if USDA and HHS decide to dial back the Advisory Committee’s ambitions on sustainability, it’s no stretch to say that some in the Administration support the views of the DGAC.

Also, environmentally speaking, we can expect the EPA to continue to look for administrative ways to stretch the Clean Water Act and the Clean Air Act, putting agricultural production in the cross hairs.  If you find a policy that seems immune to the environmental agenda, you can be pretty sure they are working on it.

Food Safety Modernization Act

FDA will issue several of the key regulations implementing FSMA this year, including final rules on preventive controls, fresh produce safety, and foreign supplier verification.  As FDA begins rolling out final rules and enforcing them, Congressional oversight will assume greater importance.  In addition, if the FSMA final rules are promulgated as, or close to, currently written, several segments of the food industry are likely to seek Congressional action on technical amendments to FSMA.

Tax Reform

There is little doubt that tax reform will at least be attempted by Republicans.  While there are too many hurdles that will keep a comprehensive measure from satisfying the President, the Ag world will be looking to extend tax credits for farmers and, if some form of a reform bill does reach the President’s desk, we can expect many players to work to make some of those provisions more permanent.

GMO Labeling

Following Vermont’s passage of a GMO labeling requirement and several close votes on ballot initiatives, we expect the debate over the need for requiring manufacturers to disclose when their foods contain genetically modified ingredients to intensify in Congress this year. This is one of the biggest policy battles playing out for agricultural producers, food manufacturers and, of course, the biotech community.

Expect Republicans to support Rep. Mike Pompeo’s (R-KS) bipartisan Safe and Affordable Food Labeling Act, which would prevent states from setting their own standards and guarantee the authority to label GMOs remains squarely with FDA.  The competing bill, sponsored by Rep. Peter DeFazio (D-OR), would mandate the labeling of all foods containing genetically modified ingredients, a problematic and costly prospect that would have enormous implications for the agriculture supply chain even as the science has consistently shown no material difference between GMOs and their conventional counterparts.  Moreover, the DeFazio bill doesn’t have federal preemption, so GMO detractors would likely continue the push for a state-by-state patchwork of labeling laws that would severely hamper interstate commerce.  A number of Democrats joined Republicans in rallying around Pompeo’s bill at a Dec. 10 hearing of the House Energy and Commerce Health Subcommittee.  While both bills died at the end of the last Congress, they are widely expected to be reintroduced in the 114th.

The worldwide debate over GMOs also rages on.  Biotechnology is a vital tool that the world will need to meet the challenge of global food security, international development goals, the eradication of hunger and extreme poverty, and ironically the environmentalists’ interest in greener agriculture.  While there could be compromise in the area of food labeling, further progress seems unlikely until the scientific facts and public perceptions of GMOs are reconciled.

Feed the Future

The President’s Feed the Future initiative, looking to improve global food security in Africa by boosting agricultural productivity and alleviating extreme poverty and hunger, should be reauthorized with bipartisan support this year.    This will provide a moment of bipartisan comity.

Budget and Appropriations

On top of everything else, budget and appropriations likely completed “in regular order,” as they say around Washington will mean that for the first time in a long time, the President will propose and the Congress will pass spending bills.  Appropriations will follow authorizations of government operations.  The process will be open to amendment and that means everything is on the table, including agricultural entitlements. There will be a reconciliation process when the House and Senate meet to work out differences.

Right off the bat we expect that the numbers that will be given to the Ag Committee will suggest that cuts are coming.  We anticipate a lot of shuffling ahead of this to lessen the impact on one program or the other, but there will not be easy solutions.

Budget positioning will be crucial to our clients as cuts will be needed to conform to the top line.  We expect food stamps (SNAP) and crop insurance to be targeted along with several other programs that the committee will look at in order to fit under the caps.

Happy New Year.  2015 has strong potential to break the pattern of the past several years in many respects.  We’re off to an aggressive start and we can expect it to continue as both the President and Republicans forge ahead and try to demonstrate they can lead.

10 Things to Watch in 2015

By John Dillard

2014 was certainly an interesting year to be involved in agriculture. We got to see supply and demand in full effect. Good weather sent grain prices tumbling while continuing tight supplies have kept cattle prices soaring. The Republicans made strong gains and will enter 2015 with control of both the House and Senate.

While I have not spent the $27.68 necessary to acquire a crystal ball on Amazon, I do feel the need to join the crowded field of writers, bloggers and seers that are making predictions for the upcoming year. Accordingly, I have compiled a list of the 10 legal and policy issues that I see facing agriculture in 2015.

1.  Drones

2014 was supposed to be the year when the Federal Aviation Administration (FAA) would release its proposed rules for integrating commercial drones into the national airspace. Because of this, I received a little flack for leaving drones off of last year’s list. However, FAA has continued to blow past every deadline that it has set for itself. Hopefully, this can be attributed to the agency trying to get the job done right the first time.

I am confident that FAA will release its proposed regulations for small drones (< 55 lbs.) some time in early 2015. The agency has acknowledged that it considers agricultural uses relatively low-risk and it understands that many farmers are moving ahead with adopting the technology regardless of the absence of regulations. Once FAA proposes its regulations for small drones, we’ll have a better idea of how the final rules will look in terms of operator qualifications, aircraft requirements, and allowable operations. This will be welcome news for those looking to capitalize on this new technology and the farmers and consultants that have been “recreationally” monitoring their crops for the past couple years.

2. The “Waters of the U.S.” Rule

While many hoped that Congress would use the recent “CROmnibus” (ugh) bill to stop EPA and the U.S. Corps of Engineers from implementing a broad definition of “waters of the United States,” the legislation failed to do so. This means that EPA and the Corps will continue to move forward on this measure. The agencies received almost half a million comments during the public comment period, with most in opposition to the new power grab. EPA and the Corps are expected to finalize the rule sometime in the first half of 2015. Once the rule is finalized, there will almost certainly be a lawsuit filed to enjoin the rule.

Read the rest of John’s article, “10 Things to Watch in 2015” at

Mandatory Country-of-Origin Labeling: A Short-Sighted, Protectionist Scheme

By Philip C. Olsson and John G. Dillard

November 23rd was a significant date for the livestock and meat industry. After more than a decade of lobbying, litigating, and haranguing, all fresh cuts of beef, pork, lamb and chicken sold in retail establishments must bear a label stating the country (or countries) where each animal supplying meat in the package was born, raised, and slaughtered. Known as mandatory Country-of-Origin Labeling (mCOOL), this new, onerous labeling requirement is a long-sought victory for the protectionist fringe of the U.S. beef cattle industry.

Prior to the implementation of the mCOOL legislation, beef and beef products were subject to the generic country of origin labeling requirements which apply to all processed products, both foods and non-foods, that is that the label should designate the place of most recent substantial transformation as the place of origin. For beef and pork, where the animals were born and/or fed in Canada or Mexico, but slaughtered and processed in the United States, this traditional rule has allowed the United States to be designated as the country of origin.

We are all familiar with the country of origin labeling which applies to fruits and vegetables, each of which usually bears a small, sticky label identifying the single country where it was cultivated, harvested and processed. It is not unusual to visit a supermarket’s produce department and see tomatoes from the United States, Canada, Guatemala, Mexico and the Netherlands displayed separately, side-by-side.

On its face, the mCOOL regulation appears rather innocuous. Retailers are simply required to denote the country where the derivative animal was born, raised, and slaughtered. However, the behind the scenes efforts that are necessary to allow retailers to comply with this labeling requirement are anything but simple. Prior to the implementation of mCOOL, meat processors “commingled” meat products with different country of origin designations in a single shipment to retail customers. On a given day, a large packing plant might process 2,000 carcasses of similar age and quality with anywhere from 100 to 800 of those carcasses attributable to animals born and/or fed in Canada or Mexico. Since these carcasses are not separated out on the production line, the various cuts of meat from these carcasses are commingled when they are packaged for shipment to retailers.  This has been a standard industry practice because, unlike various physical attributes such as age, leanness and fat cover, political boundaries do not have a material bearing on the quality, safety, or taste of meat products. However, despite a long history of “commingling” products with different country of origin designations, the new mCOOL rule does away with this practice.

The ban on commingling will cause dramatic reverberations for the beef and swine industry that will unnecessarily increase costs that will be passed along to consumers. Feedlots will be required to maintain additional records and segregate livestock based on country of origin. Processing plants will have to do separate production runs based on an animal’s country of origin designation. These processing plants will also have to use extra cold storage space to allow for segregation of finished product by country of origin. Retailers will want to purchase product with consistent country of origin labeling, which will mean that packing houses will need to contract for and process meat with the same geographical origin, day after day and month after month. This will be a strong incentive for retailers to demand that packers provide beef and pork from a single country of origin, which will lead to the loss of work and  jobs at packing houses near the borders with Canada and Mexico, which have traditionally shipped commingled products to their retailer customers. The alternative for the retailer would be to build extra SKUs into their inventory management systems to account for the different labels under the new mCOOL Rule, something which would likely be both cumbersome and costly.

These extra costs are not the unintended consequences that were overlooked when the commingling ban was put into place. Instead, these extra costs are the rather deliberate consequences forced on the livestock and meat industry via the seemingly innocuous mCOOL regulation. That is because the costs of compliance with mCOOL provide a clear incentive to avoid processing Mexican and Canadian livestock. Retailers do not want to provide extra shelf space for different label designations, packers do not want to have separate production runs or extra storage space, and stockyards do not want to undertake the burden of segregating livestock with various countries of origin. The new mCOOL regime picks winners and losers, and the clear winner is meat from animals that are born, raised, and slaughtered in the United States.

Many do not see a problem with this. American beef and pork producers grow a great product and take pride in their work. mCOOL helps to protect them from competition with our neighbors to the north and south. However, this is a short-sighted view which will cause harm to livestock demand that will greatly outweigh any benefits resulting from discriminating against foreign livestock. The U.S. cannot raise all of the beef and pork that its packers process domestically. Packers, especially those near our northern and southern borders, rely on Canadian and Mexican cattle and swine to even out seasonal fluctuations in supply. With a reduced market for meat not bearing a “Born, Raised, and Slaughtered in the United States” label, these packers will have to pay a premium for domestic livestock – exactly as the crafters of mCOOL intended. Large packers may follow Tyson’s lead and decide to not slaughter Canadian cattle at all. Smaller, single-plant packers will have to decide whether they can remain in business with this cost squeeze.

Supporters of mCOOL are careful not to designate these labeling requirements as a protectionist measure. Instead, they frame mCOOL as a measure that provides consumers with more detailed information regarding where their food comes from. mCOOL supporters have received a relative pass from the popular press regarding the specifics of the regulation because the supporters have couched the regulation as furthering the consumer’s “right to know.” Ironically, many of the strongest advocates for mCOOL were also parties and amici in Ranchers Cattlemen Action Legal Fund United Stock Growers of America v. United States Department of Agriculture 415 F.3d 1078 (9th Cir, 2005), where the Court of Appeals struck down an injunction which these parties had obtained from the United States District Court in Billings Montana (2004 WL 1047837), to keep the Canadian border closed to imports of Canadian cattle. It seems clear that many of the producer parties and amici are protectionists at heart. Their protestations regarding the consumer’s “right to know” about where cattle and hogs are born or fed are unpersuasive, because nothing in current law has prevented voluntary labeling of U.S. product to provide such information on a voluntary basis. If consumers were really interested in knowing these things, they would have created a market for this kind of more detailed labeling.

The fundamental flaw in the mCOOL supporters’ logic is the presumption that competition in the beef industry is a contest between U.S. producers and foreign producers; the real competition in the beef industry is between beef and cheaper forms of protein. While mCOOL does shield domestic producers from foreign competition, it does not insulate beef producers from the consumers that decide whether to purchase their product or not. mCOOL will tighten beef and pork supplies. This will, in turn, increase the price of meat for consumers. Faced with higher prices, consumers often turn to lower cost forms of protein, choosing pork, chicken, or turkey over beef. The retail price of beef is already high due to elevated grain prices and short supplies recovering from the 2012 drought – the added costs of mCOOL will only serve to further nudge beef prices higher and further weaken demand. Ultimately, some of the most ardent supporters of mCOOL, disaffected beef producers, may prove to be the biggest victims of mCOOL.

John Block: Farm Bill Conflict

By John R. Block

We don’t have a budget yet. We don’t have a farm bill. House Ag Committee Chairman Frank Lucas (R-OK) hopes to have a draft bill by week’s end. Debbie Stabenow (D-MI), Senate Ag Committee Chair, acknowledges there are a lot of differences to be worked out, but she has hope. They are both hoping.

The most difficult gap to bridge is the level of cuts in the food stamp program. The House cuts $40 billion over 10 years. The Senate cuts $4 billion. That is a difference of $36 billion. Not even close.

Then, we have the country of origin labeling battle. This has been going on for years. Canada and other countries challenged our rule that meat be labeled with the country of origin. The World Trade Organization agreed with Canada. Now, USDA is trying to change the wording in hopes it will pass WTO review. Canada says the new requirement is even more objectionable. I think COOL is a really bad rule.

But, here is the problem. We have hogs born and raised in Canada that are shipped into the U.S. for slaughter. We also have hogs born in the U.S., shipped to Canada to be fed to market weight, and then shipped back to the U.S. for slaughter. To comply with the COOL rule, the processor would have to segregate the animals coming in to be slaughtered. Couldn’t mix the U.S. hogs with those from Canada. Processing lines would have to be segregated. This is all a costly waste of money and facilities. Plus, it’s not fair to the Canadian producers that want to sell in the United States.  Country of origin labeling is not “COOL.”

Another sticking point may be the sugar program. Our sugar program is a throw-back to the old days. In the early ’80s, USDA would make loans to producers for grain, dairy products, etc. If the price didn’t rise above that loan rate for the farmer to pay back the loan, the government just took the grain. Of course, that meant USDA was stuck with millions of dollars worth of grain that wasn’t worth the dollars loaned. Today, USDA is sitting on 300,000 tons of sugar, and will lose millions of dollars.

Most of our farm programs have long-since gotten away from this. Sugar should do the same. Let the markets work.

The last issue I will bring up today is Rep. Steve King’s (R-IA) amendment to stop states from passing laws that restrict trade between states. A specific example is California law that will not allow imports of eggs into California unless the laying hens’ cages meet California cage standards. If legislation like that is allowed to stand, different states with different standards can tie our country in knots.

Chicken eggs will be just the beginning. What’s next – pork, beef, or wine?

John Block was Secretary of the U.S. Department of Agriculture from 1981-1985, where he played a key role in the development of the 1985 Farm Bill.

Former Secretary Block Comments on Farm Bill

By John R. Block

Will we get a farm bill or won’t we get a farm bill? No one knows at this point. There are still a number of unanswered questions.

The biggest fight is over how much to cut the spending on food stamps. We have 50 million people receiving food stamps now and growing. House Republicans want to change the eligibility with work requirements which could save 40 billion dollars over 10 years. The Senate only wants to save 4 billion dollars. That is a 36 billion dollar difference.

On the farm side of this bill, there is broad agreement that crop insurance should be the foundation of the farm safety net. However, there is still debate over how much the government should subsidize the insurance. Another difference between the House and Senate is that the Senate insists that participants in crop insurance be required to meet certain conservation standards. The House says no. We have too much regulation now.

Country of origin labeling (COOL) is such a serious problem between U.S. and Canada that the farm bill could try to settle that dispute. Getting rid of COOL is the best answer. Also, our cotton program is a real headache. If we don’t make some change in it, we will continue to pay Brazil millions of dollars each year because our cotton program violates WTO rules.

There are a lot of individuals who want to influence the outcome of this bill. Secretary Vilsack says, “It is a bill that the White House is quite interested in and quite involved in.”

Senator Pat Roberts offered this advice to House Ag Committee Chairman Lucas: “Do the best you can, Frank. When you are leading the posse, it’s always good to take a look back when you’re riding point to see if the posse is still there.”

We all know that herding cats is not easy. Getting a farm bill will require a lot of give and take.

My advice is – keep it as simple as possible, make sure it is in compliance with WTO rules. Ensure that the supports in the bill do not distort farmer decisions. Farmers should plant for the market, not the farm bill.

Get it done!

John Block was Secretary of the U.S. Department of Agriculture from 1981-1985, where he played a key role in the development of the 1985 Farm Bill.

Livestock & Meat Groups Want COOL Relief Pending WTO Review

By John G. Dillard

On Monday, a group of trade associations representing the spectrum of America’s beef and pork production system issued an urgent plea to USDA Secretary Tom Vilsack and the Office of the U.S. Trade Representative Ambassador Froman. The coalition wants USDA’s Agricultural Marketing Service (AMS) to hold off on enforcing new country of origin labeling requirements until the World Trade Organization (WTO) has an opportunity to hear Canada and Mexico’s challenge to the new regulations.

The groups requesting the delay represent the meat industry, grocers, and livestock producers. They assert that implementation of AMS’s new COOL labeling requirements, which will ban commingling of products with different countries of origin will be disruptive at many different levels of the meat production value chain. The groups indicate they are concerned that the new labeling scheme is vulnerable to a challenge before the WTO, which would require AMS to re-write the COOL Rule again.

Read the rest of this post on John Dillard’s Blog – Ag in the Courtroom.

FDA Proposed Reg will be “Game Changer” for Auditing and Certification Organizations

By Bruce Silverglade

Get ready, set, go!  After years of delay, FDA is now on a fast-track to finalize its proposed regulation on accreditation of third-party auditors in accordance with the Food Safety Modernization Act (FSMA), 78 Fed. Reg. 45,781 (July 29, 2013) Accreditation of Third-Party Auditors and Certification Bodies.  The agency also issued a proposed rule on the Foreign Supplier Verification Program, (FSVP) that, as a practical matter, turns some food importers into de facto public health officials, who will likely rely on third-party auditors and certifiers to ensure that imported food is safe to enter the U.S.

A FDA “public meeting” for stakeholders is scheduled for September 19-20; written comments are due by November 26; and the agency is under a federal court Order to finalize the proposed regulation (and other FSMA rules) by June 2015.

Those in the business of auditing and certifying food production facilities may be in for some big changes if FDA’s proposed regulation is finalized “as is.”  Hopefully, the agency will be persuaded by comments it receives.  The White House Office of Management and Budget OMB), and the House Appropriations Committee, will also have a major role in influencing whatever FDA attempts to finalize.

FDA characterizes the use of auditing and certification as “voluntary.”  However, as a practical matter, private-sector auditing and certification services are essential to the operation of FSVP, a defining portion of FSMA, which places a burden on importers to assure food safety.  Auditing and certification will also play a central role in the yet to be proposed Voluntary Qualified Importer Program that is set out in FSMA and which permits FDA to give import preferences to foods subject to third-party audits and certifications.

Ominously, at the end of its preamble to its proposed regulation, FDA cites the U.S. government’s obligations under the World Trade Organization Agreement to treat domestically produced food the same as imported food and states that: “We realize that the same principles that are features of a rigorous and credible program for audits of foreign firms would likewise hold great merit for audits of domestic food facilities.”  78 Fed. Reg. at 45823.  So in short, the proposed regulations for auditing and certifying imports may become the de facto rules for auditing and certifying domestically produced foods.

Some of the largest problems that could literally change the auditing and certification industry are FDA’s proposed reporting and notification requirements.  The results of “Consultative Audits” (traditionally referred to in the industry as “second-party audits”) need not be automatically reported to FDA.  (FDA may obtain access to them under the emergency provisions of the Bioterrorism Act  if the agency has a reasonable belief that an article of food presents a threat of serious adverse health consequences).  That’s a good thing because the purpose of a consultative audit is to confidentially advise a food production facility to fix problems before they cause serious injury.  This is in contrast to the purpose of what the industry traditionally refers to as a “third-party” audit, now known under FSMA and FDA’s proposed  rule as a “regulatory audit.”  Under FSMA, the primary purpose of this type of  audit is to obtain a certification acceptable to FDA under FSMA’s FSVP and VQIP programs.

Disclosing confidential advice typically given by an auditor to a food company would cause the current system to implode; few companies would want to use FDA accredited auditors if they were required to “blow the whistle” on a food company’s good faith, behind the scenes efforts, to correct problems and make improvements.

Under the proposed regulation, FDA states that an accredited auditor conducting a “consultative audit” must notify FDA if it finds a “serious risk to public health,” including risk levels akin to those matters that give rise to both Class I and Class II recalls.

FDA’s proposed regulation, as it now stands, would have the unintended effect of providing incentives for food production facilities to use unaccredited auditors who have no regulatory obligation to report to FDA risks discovered during a consultative audit.  FDA specifically requests comments on the issue, 78 Fed. Reg. 45815.  That means FDA knows that the proposal suffers from infirmities and that the agency may be on weak legal ground if it attempts to finalize the provision in its current form.

Further blows to all-important confidentiality include a provision in FDA’s proposed regulation that requires laboratory testing results conducted during a consultative audit (whether conducted by an accredited third-party auditing and certification company’s own labs or another FDA accredited laboratory) to be sent directly to FDA.  This proposed requirement could similarly result in unintended consequences by providing food companies an incentive to use unaccredited auditors for consultative audits in order to keep results and recommendations confidential.

Ideally, FDA’s proposed regulation should support and encourage expansion of reasonably regulated auditing and certification services as contemplated by the drafters of FSMA.  However, broad reporting requirements and submission to FDA of laboratory reports for consultative (not just regulatory audits resulting in certification under FSMA may have the opposite effect and cripple the most credible members of the auditing and certifying industry, as some food production facilities move to use unaccredited entities for consultative purposes.

The fact that statements made to an accredited auditor carries the same legal liability, including the possibility of criminal prosecution, as statements made to FDA itself doesn’t help.  Auditing and certification companies, as well as food companies, have good reason to fully participate in the rulemaking process.

The process has now officially begun and will continue through next year.  FDA’s first “public meeting” on the matter is not just an exercise in government transparency and public participation.  FDA relied on statements made at previous “public meetings” to justify key parts of its proposed regulation.  FDA will likely do the same to justify whatever it comes up with for a final regulation.  Agency justifications are essential because if a final regulation is challenged in federal court, the court will look at the agency’s justification to determine if FDA engaged in “reasoned decision-making.”

By weighing in now, and remaining persistent during the rulemaking process, those with a stake in the outcome of FDA’s final regulation will have the best chance of making sure the agency makes sound public policy choices and avoids final rules that have unintended consequences.

Canada, Mexico Think U.S. Labeling Requirements are un-COOL

By John G. Dillard

The United States has irked its neighbors with a meat labeling mandate that may have the effect of discriminating against Canadian and Mexican livestock.  The Canadian and Mexican governments believe that USDA’s new mandatory Country-of-Origin-Labeling (mCOOL) Rule is a thinly-veiled technical trade barrier that will be devastating to their respective livestock sectors, which are dependent on U.S. trade.

Sample COOL label, as mandated by USDA.

Sample COOL label, as mandated by USDA.

In an effort to pressure USDA to not implement the new mCOOL rule, Canada and Mexico have requested the World Trade Organization (WTO) to establish a compliance panel to sign off on a number of politically-charged retaliatory tariffs that they can bring to bear if USDA does not scrap the new rule.  This is the latest development in an ongoing controversy that has chilled livestock trade between our neighbors for the last few years.

mCOOL’s Origins

The 2002 Farm Bill contained a provision requiring USDA to develop rules that require certain meat packages to bear a label indicating the country of origin for meat sold at retail establishments.  However, Congress did not authorize funding for USDA to carry out this rulemaking.  The 2008 Farm Bill amended the labeling provision to its current form, which created four COOL categories (Product of US, Multiple Countries of Origin, Imported for Immediate Slaughter, and Foreign Country of Origin).

Based on these new categorizations and a lift on the funding ban, USDA released a final rule in 2009.  The 2009 Rule required labels stating “Product of the U.S” if the packaging contained strictly meat from livestock that were born, raised and slaughtered in the United States.  If the packaging contained meat with commingled origins, the packaging was required to state “Product of the U.S./Canada” or “Product of U.S./Mexico.”

The Canadian and Mexican governments did not take kindly to the 2009 mCOOL Rule.  They filed a complaint with the WTO, arguing that USDA’s rule discriminated against foreign livestock by favoring U.S.-origin meat products.  The WTO panel agreed.  In June 2012, the WTO appellate body issued a report finding that the 2009 rule was not in compliance with the United States’ obligations under the WTO.  They ordered USDA to issue new regulations that would bring it into compliance.

The 2013 mCOOL Rule

USDA followed the order to issue new mCOOL regulations, but it’s not apparent that it took the WTO’s ruling to heart.  The new mCOOL Rule further discriminates against foreign livestock by banning the practice of comingling products with a different country or origin in a single package.  Under the new rule, U.S.-only products must bear a label stating “Born, Raised, and Slaughtered in the United States.”  Packaging containing meat products from Canadian or Mexican cattle that are fed and slaughtered in the U.S. must be labeled “Born in Canada (or Mexico), Raised and Slaughtered in the U.S.”  Foreign fed cattle shipped to the U.S. for slaughter must be labeled “Born and raised in Canada (or Mexico), Slaughtered in the U.S.”

The labeling requirements and the ban on commingling of packaged product is likely to create a logistical nightmare for some packers and retailers.  Packers near our northern and southern borders will be required to segregate livestock and maintain several different production runs based on the COOL label categorizations.  Distributors and retailers will also be required to handle a bevy of new SKUs to accommodate the new labeling requirements.  Many experts believe that the end result of the labeling scheme will be that packers will favor U.S.-origin livestock, and aggressively discount foreign-born livestock to reduce the costs of compliance with the 2013 mCOOL Rule.

In addition to facing scrutiny under the WTO, the logistical difficulties of implementation and compliance with the 2013 mCOOL Rule are also the subject of litigation in the U. S. District Court for the District of Columbia.  In the case, American Meat Institute v. USDA, a group of trade associations representing packers, domestic livestock producers, and Mexican and Canadian livestock producers are seeking to overturn the 2013 mCOOL Rule.  (Disclosure: OFW Law represents a client in this matter).  The groups oppose the new rule on the basis that the law compels commercial speech in violation of the First Amendment and that it is “arbitrary and capricious” under the Administrative Procedure Act.  A federal judge heard oral arguments for a preliminary injunction in this case on August 27th.  We expect to hear a decision on the case within the next two weeks.

WTO: Round 2

Anticipating heavy losses to their respective livestock industries, the Canadian and Mexican governments compiled an extensive list of retaliatory tariffs that they wish to enact.  In addition to instituting tariffs on U.S. livestock and meat products, the Canadian government has identified products from influential legislator’s districts, in hopes of exerting maximum pain on those with the power to repeal mCOOL.  This list includes wheat products, such as cereal, bread and pasta, cheese, sugar, some steel products, jewelry, and wooden furniture.  The Mexican government is expected to announce similar politically-motivated tariffs in the near future.

Before the Canadian and Mexican government can implement these retaliatory measures, they must receive approval by the WTO.  They have requested that the WTO’s Dispute Settlement Body (DSB) form a compliance panel to evaluate their proposed tariffs.  The DSB, which meets this Friday (8/30), will decide whether to form a compliance committee.  If the Canadian and Mexican governments receive approval for retaliatory tariffs, it will likely be 18 to 24 months before they are implemented.

With the proposed tariffs looming in the future, Congress and USDA may begin to question whether mCOOL is more trouble than it is worth.  Or at least that is the hope of our neighbors and trade partners.