American Food Giants Plan for Global Domination

OFFICE MEMO Latest GMA testimony Date: 8/3/98
Testimony of MARY C. SOPHOS
Senior Vice President, Government Affairs
GROCERY MANUFACTURERS OF AMERICA, INC.

before the SUBCOMMITTEE ON TRADE COMMITTEE ON WAYS AND MEANS
on THE TRANSATLANTIC ECONOMIC PARTNERSHIP

July 28, 1998
Mr. Chairman and Members of the Subcommittee:

I appreciate the opportunity to appear before the Subcommittee to discuss
the Transatlantic Economic Partnership or TEP. My name is Mary Sophos and
I am the Senior Vice President of Government Affairs at the Grocery
Manufacturers of America.
GMA is the world's largest association of food, beverage and consumer
product companies. With U.S. sales of more than $430 billion, GMA members
employ more than 2.5 million workers in all 50 states. The association
also leads efforts to increase productivity and efficiency in the food
industry.

We believe the Transatlantic Economic Partnership announced earlier this
year offers an excellent opportunity to reduce regulatory barriers between
the United States and the European Union, as well as provide a foundation
for more comprehensive reductions in both tariff and non-tariff trade
barriers in the next WTO round.

GMA has initiated discussions among interested associations and
corporations in the processed food and consumer products sector in response
to the Administration's request for comments to assist in defining the
scope of the TEP agenda.
Establishment of an open and transparent, market-based international
trading system increasingly has become a priority for GMA and its member
companies. To help facilitate dialogue and reforms, GMA and its sister
organizations around the world have formed the International Alliance of
Food Products Associations.
GMA is also an active member of the US Council for International Business'
(USCIB's) Food and Agriculture Working Group which has developed a white
paper titled "An Open and Efficient Food System." The white paper addresses
the key objectives and elements of an open and efficient food system, and I
would like to submit a copy for the record.
Globalization of the world economy and industry has accelerated since the
early 1980's. It is being driven by international trade and investment and
the integration of the world's financial markets, spurred further by rapid
advances in transportation, telecommunications, and information technology.
Its causes are many and complex, but its effects are clear. Globalization
is a major contributor to world economic growth, prosperity, and higher
living standards.

Globalization has come to the agro-food sector as well. Globalization has
resulted in greater opportunities to export and import agricultural
products from an expanding list of countries. Trade in agricultural
products has climbed steadily, and trade in processed products has been
especially robust. Despite these favorable trends, government intervention
in the agro-food sector is still intrusive. New efforts to reduce
government intervention and liberalize agricultural trade are necessary to
expand the benefits of globalizations in the food and agricultural sector
to a growing and increasingly demanding world population.

.
The TEP offers an excellent opportunity to reduce tariff and non-tariff
barriers between the United States and the European Union. We strongly
recommend that several areas, in particular, be addressed in the context of
TEP discussions.

Biotechnology

In regard to biotechnology, we believe that the TEP efforts should mirror
the substantial efforts of the Transatlantic Business Dialogue. Specific
recommendations are as follows:

1) The US and EU authorities should reach agreement on a clear "pathway"
for the respective regulatory decisions and provide this to all affected
parties and assure that transparency, as a pathway, is used in practice.
2) US and EU authorities should agree on a common data set for risk
assessments and for regulatory decisions.
3) US and EU authorities should develop estimated regulatory approval
timelines for respective US/EU approvals to be used as guidance for
commercial decisions by industry participants.
4) US and EU authorities should reach agreement on the use of the concept
of "substantial equivalence" applied to food safety evaluations.
5) EU authorities are encouraged to clarify the role and process for
involvement of the EU Scientific Committees in regulatory decision making.
6) US and EU authorities should agree on an appropriate regulatory process
for products that are already clearly characterized.
7) Governments should be encouraged to work with industry to enhance
public knowledge about modified crops and food products.
8) US and EU authorities should work to harmonize the safety assessment of
the developing feed approval regulations.

In the short term, the TEP effort should focus on making the relevant US
and EU regulatory processes transparent, predictable, and compatible.

Transparency can be addressed by making the regulatory process clear to
all interested parties, including applicants, other industries, and the
public. This should include documenting procedures, data requirements,
timelines and public involvement opportunities for all to see, understand,
and use.

Predictability can be addressed by clearly spelling out requirements and
timelines for action for both applicants and regulators and committing to
meet those timelines assuming all requirements are satisfied. This would
involve obligations for applicants as well as regulators.

Compatibility can be addressed by working toward the mutual sharing of
data and risk assessments, so that applicants can prepare a common data
package for all approvals and so that regulators are making decisions based
on the same data. Compatibility does not necessarily mean mutual
acceptance of regulatory decisions, or even strict harmonization of
decision making. It does mean that companies operating in the
transatlantic market will operate under consistent technical data
requirements and risk assessment methodologies. It also means that
regulators would independently issue decisions in similar timeframes based
on the same data set. This will greatly facilitate data sharing and future
steps toward harmonization.


Metric Only Labeling

The United States is still transitioning to the metric system and
currently requires both metric and inch/pound units of measurement on
product labels. Most internationally competitive multinational companies
therefore apply dual dimensions and redistribute inventory including raw
materials and finished products on a global scale in response to market
demand. The impact of metric-only labeling in the EU would be that product
prepared for the US or EU market could no longer be re-deployed to the
opposite continent without changes to packaging, labeling, and product
information - all at substantial cost to the manufacturer.

Recognizing the globalization of markets that has occurred since the 1979
Directive was promulgated to include the metric-only provision, the
European Commission services (DGIII) proposed an amendment that would
enable a 10 year delay of metric-only labeling until January 1, 2010. Ten
years was chosen because of an earlier precedent and the concern that a
longer period would not be politically acceptable in the European
Parliament. The proposed amendment has been forwarded to Commissioner
Bangemann's Cabinet for his approval. There are indications that Mr.
Bangemann will approve an extension but is considering even less than 10
years. The 10-year extension should be approved.


Eco-labeling

On March 23, 1992, the EC approved an EU-wide eco-labeling scheme. The
scheme is a voluntary program which permits a manufacturer to obtain an
eco-label for a product when its production and life-cycle meets general
and specific criteria established for that particular product.
Eco-labels like those currently being awarded in the EU are generally not
based on sound-science, but are awarded on subjective criteria developed by
local stakeholders. As such, they generally reflect local cultural values
and environmental concerns and discriminate against international
competition. While the consumer product industry does not oppose providing
consumers with environmental information, seal-type approaches, like those
embraced by the EU and several of its member states, are known to cause
trade distortions. For the purposes of these comments, we will refer to
objectionable labels as eco-seals.

The USTR acknowledged the discriminatory nature of the EU program by
placing it in its 1997 "301 Report" stating that, "while improvements in
the transparency of procedures and opportunity for foreign participation in
the EU's program have been reported, concerns remain that the EU program
favors European industry, thus leading to trade concerns."

Historically, products sold by large international companies have
generally offered consumers better value, relative to those offered by
local companies, when both cost and performance are taken into
consideration. The heavy promotions of eco-seals, especially by retailers
in Scandinavia, provide an advantage to local formulators by narrowing the
performance and economic differences between products. The resulting
market impact occurs in two key areas:

Innovation and Performance: In general, international companies have
greater resources to do research and development than domestic
manufacturers, giving their products an over-all performance advantage.
Eco-seals reduce this innovation advantage by constraining new technologies
to only those that meet limited eco-seal requirements. Thus, inventions
and innovations that can improve performance are discouraged.

Economy of Scale: Economy of scale generally enables international
manufacturers to hold down costs. However, in order to meet criteria for
seals available in Sweden, most international companies have been "forced"
to maintain two formulas in Europe; one for the majority of the continent
and one for Scandinavia/Sweden. Maintaining dual formulas adds complexity
and cost to the manufacturing process. Domestic manufacturers do not have
to bear these added costs.

Despite the fact that many detergents in Sweden carry the seal,
eco-labeling authorities and others have failed to publish any evidence
that the seals have improved the environment. Further, consumers do not
appear to have gained any real product benefits from purchasing detergents
with eco-seals because of their higher production costs, and lower
performance.

Seal-type approaches to eco-labeling are misleading to consumers, since
they are generally awarded for only one or two environmental attributes,
but are perceived by consumers to denote overall environmental
preferability. Countries should commit to using national legal regulatory
authorities relating to false advertising to ensure that seal-type labels
are truthful, based on appropriate scientific information, and not
misleading to consumers. Further, "participation" in these programs should
include the right to appeal to independent national false advertising
authorities on the grounds that the seal is not truthful, not based on
sound-science, or misleading to consumers.




Extended Producer Responsibility

In 1991, the German legislature approved a Packaging Ordinance requiring
manufacturers or retailers to take back their packaging or ensure that 1)
80 percent of it is collected rather than thrown away, and 2) 80 percent of
the amount collected is recycled or reused. Several European countries
have since followed Germany's example, and in 1994 the European Commission
adopting a packaging directive endorsing the concept of "manufacturers
responsibility" (94/62/EC). EU member states as well as those countries
aspiring to EU membership now will begin to adopt solid waste management
programs embodying the manufacturers' responsibility philosophy to be
consistent with the tenor of the EU's Packaging Directive.

Waste management programs embodying manufacturers' responsibility present
significant opportunities for technical trade barriers to arise. Following
are just some examples:
* De Facto Product Standards -- Unilateral bans on specific materials
(e.g., brominated flame-retardants in electronic goods); Mandated process
and production methods (PPMs) (e.g., recycling rates in paper manufacturing).
* Labeling Requirements -- Labeling of transport packaging (e.g.,
requirements differ in Portugal from those in Germany); Recyclability
labeling (e.g., requirements in EU proposal differ from those under
consideration in ISO 14000).
* Fees -- Producer Responsibility Management fees differ (e.g., fee to
participate in EPR/EPR-like programs differs in Germany, France, Belgium,
etc.).
* Low-Volume Product/Packaging -- Difficulty in managing low-volume
materials imported from abroad (e.g., jute coffee bags from Brazil, wool
bale strapping from Australia).

In October 1996, the President's Council on Sustainable Development held a
workshop on the issue and emerged with a consensus around the concept of
"shared responsibility." Shared responsibility shifts the focus of
responsibility from manufacturers alone to all stakeholders. In many
areas, solid waste management programs that embody shared responsibility
have achieved results approaching to, and in some cases surpassing the
results of mandated manufacturing responsibility programs.
To encourage the use of voluntary cooperative programs and to ensure
potential technical barriers to trade are analyzed prior to any waste
management program is adopted and implemented, the industry supports the
use of the Organization for Economic Cooperation and Development's (OECD)
five criteria for evaluating the adoption of manufacturers responsibility
programs, which are as follows: 1.) Environmental Effectiveness; 2.)
Economic Efficiency; 3.) Innovative Advancement; 4.) Political
Acceptability, and 5.) Ease of Administration. Representatives of the
food, beverage and consumer products industry have participated in the
ongoing OECD dialogue on the issue, and are working closely with the U.S.
Environmental Protection Agency to host the next OECD workshop on the issue
(December 1998/Washington, DC) as well.



Product Formulation

It is often necessary to manufacture separate product formulations for
trade between the U.S. and the EU. Alleviating this burden is a necessity.
To accomplish this goal would require broad acceptance of food ingredients
as well as standards of identity. I would suggest three areas, in
particular, where regulators should focus:

1) Reduction in product compositional standards of identity to the
greatest extent possible. 2) Where compositional standards of identity are
needed, harmonization of EU member states' requirements should occur to the
greatest extent possible.
3) An increased use of Codex Alimentarius to establish product standards
of identity where existing standards present trade impediments.

Nutritional Claims

Transatlantic trade is also complicated by a lack of harmonization of
nutritional and health benefit claims manufacturers provide on product
labels to communicate information to consumers. Therefore, efforts must
also focus on moving toward equivalent labeling systems in order to
facilitate trade.


Food Additive Approvals

U.S. products exported to the EU frequently must be reformulated to comply
with European food additive regulations. The EU takes a very restrictive
approach towards regulating food additives. Only those food additives on a
limited list of approved additives may be used in the European Union. To
minimize transatlantic trade disruptions it is essential for the US and EU
to agree upon:

1) The US and EU authorities should reach agreement on a clear "pathway"
for the respective regulatory decisions and provide this to all affected
parties, and ensure that transparency, as a pathway, is used in practice.
2) US and EU authorities should agree on a common data set for risk
assessments and of regulatory decisions.
3) US and EU authorities should develop estimated regulatory approval
timelines for respective US/EU approvals to be used as guidance for
commercial decisions by industry participants.
4) EU authorities are encouraged to clarify the role and process for
involvement of the EU Scientific Committees in regulatory decision making.


Turning to the question of specific WTO complaints involving the US and
the EU, I would first like to reaffirm GMA's view that overall the dispute
settlement system established under the WTO works quite well. With respect
to the two US-EU disputes involving food products, specifically the bananas
and hormones cases, GMA is pleased that the panel found in favor of the US,
and expects the EU to implement the panel recommendations within the
15-month time period established through WTO arbitration. Moreover, it is
important to remember that safeguards have been built into the dispute
settlement process in the event the US and EU disagree as to whether the
measures taken by the EU in fact comply with the panel recommendations.
First, in such circumstances the US can and should exercise its right under
Article 21.5 of the WTO Dispute Settlement Understanding to refer the
compliance issue to a panel. Where possible, the original panel will be
reconvened and will complete its review within 90 days. Second, should the
measures adopted by the EU fail to comply with the panel's recommendations,
the US can retaliate appropriately.

Mr. Chairman, the TEP is a valuable process, which GMA strongly endorses.
First, it provides a forum for removing regulatory impediments in areas of
highest interest to industry. Second, like the early liberalization
process within APEC (on which we testified before this Subcommittee in May)
the TEP can help build momentum leading in to upcoming multi-lateral
negotiations like the 1999 Agricultural Round, which GMA members consider
to be of the highest importance. Of course, the U.S. will be an
ineffective negotiator without fast track negotiating authority. Fast
track is the key that starts the engine. Without it, the United States
will be virtually stalled when negotiations begin next year.

Mr. Chairman, I appreciate the opportunity to appear before you in this
capacity and will be happy to answer any questions that you or your
colleagues may have.

Webmaster: steve@greenpeople.org