Potential Drawback Opportunity for Distilled Spirits

“Drawback” is U.S. Customs program that allows importers to get their duty payments refunded by Customs if they export the same or a similar product.  There are lots of permutations and it’s quite a bit of “paperwork” to qualify, but the upside is significant.

Under the recently enacted Trade Facilitation and Trade Enforcement Act (TFTEA), drawback is being simplified and will be effective Feb 24, 2018.  The importing community is still waiting for certain Customs regulations on this, including whether distilled spirits will be eligible for “substitution” drawback.  Customs has historically denied substitution drawback to distilled spirits.Customs will be issuing a notice of proposed rulemaking in September on substation drawback. It remains to be seen whether distilled spirits are included.  There will be a time for public comments after the notice is issued.If Customs omits distilled spirits, we anticipate the industry will lobby Congress to extend drawback via legislation.

The drawback revised regulations will provide various opportunities for the distilled spirits industry, including submitting comments and government relations efforts.  In the meantime, we are waiting on the Federal Register Notice in September.

WTO and FAO Issue Publication on Trade and Food Standards

The World Trade Organization (WTO) and the UN Food and Agriculture Organization (FAO) recently issued a joint publication, Trade and Food Standards, which discusses the development of international standards and the need for additional regulations and involvement by all countries.

Currently, the global food trade is valued at $1.7 trillion.  The FAO has 188 member countries and guidelines covering almost 200 food products and more than 300 food additives.  The U.S. alone imports food from 150 countries and food products often traverse a complex supply chain to reach the U.S.

The WTO and FAO emphasized that now is the time for additional international standards due to the rise in e-commerce, new production technology, and new international trade agreements. Furthermore, the agencies have organized a partnership to advise developing countries on controlling their supply chains and inspection and certification systems.

 

Cattle Groups Sue USDA to Compel Country of Origin Labeling (COOL); Launching Newest Standoff in Longstanding COOL Dispute

Two groups representing U.S. cattle producers recently brought suit against the United States Department of Agriculture (USDA) based on the agency’s March 2016 decision to revoke regulations requiring that beef and pork products be labeled with their country of origin.  According to the plaintiffs, Ranchers-Cattlemen Action Legal Fund and Cattle Producers of Washington, USDA’s decision to revoke country of origin labeling (COOL) regulations for beef and poultry products violates the Meat Inspection Act and the Tariff Act of 1930, and goes beyond what was required by a recent decision by the World Trade Organization (WTO) that sparked the repeal.  The action is the latest twist in a longstanding conflict that embroils food regulations, free trade principles, and the First Amendment.

In 2009, USDA issued a final rule that required beef, pork and other commodities slaughtered in another country to bear country of origin labeling at the time of retail sale.  After the WTO ruled that the initial regulations violated WTO standards, USDA issued a revised rule in 2013, which would have required product labels to individually designate where the animal was “born,” “raised,” and “slaughtered,” as those terms were defined under the rule.  The labeling requirements were again challenged – both by Mexico and Canada at the WTO under free trade principles, and by the American Meat Institute and several other meat and livestock organizations on First Amendment grounds, as previously discussed here.  While the D.C. Circuit ultimately upheld the compelled speech requirements under the First Amendment, the WTO again found the regulations to be inconsistent with U.S. obligations under the WTO.

In response to the latest WTO ruling, Congress passed legislation that removed language from the 2002 Farm Bill related to COOL requirements and, in March 2016, USDA issued a final rule that amended COOL regulations to remove muscle cut beef and pork, and ground beef and pork from mandatory COOL requirements.  According to the complaint filed last week, USDA’s final rule went too far and ignored preexisting COOL requirements under the Meat Inspection Act and the Tariff Act of 1930.  Plaintiffs alleged that “[r]ather than act with precision and respond to the WTO’s and Congress’ concerns in a way that also complied with preexisting laws, USDA used a broad brush and deleted beef and pork from its labeling requirements.”

According to the complaint, the WTO’s decision related to labeling requirements for foods derived from imported livestock, and did not affect label requirements for imported beef and pork products (i.e., livestock that had already been slaughtered).  And, while Congress removed cattle, hogs, beef, and pork from products requiring labeling under the 2002 Farm Bill, Congress did not alter longstanding obligations under the Meat Inspection Act and the Tariff Act.  Plaintiffs ask the court to set aside USDA’s regulations to the extent that they fail to require that imported beef and pork comply with COOL requirements under the Meat Inspection Act and Tariff Act of 1930.

FDA: Still in Action on Food Safety Violations

Vigorous food safety enforcement for basic violations continues under the leadership of new FDA Commissioner, Dr. Scott Gottlieb. On June 20, on the heels of an adverse FDA inspection, FDA announced that the U.S. Marshals Service had seized the food products held by Professional Warehouse and Distribution, Inc., at a food warehouse facility in St. Paul, Minnesota. The related complaint filed by the U.S. Department of Justice on behalf of the FDA in the U.S. District Court for the District of Minnesota alleges that the products are adulterated under the Federal Food, Drug, and Cosmetic Act in reliance on 21 U.S.C. §342(a)(4). The seized products are worth approximately $73,000 and include barley flour, spices, pasta, dried beans, tea and cookies.

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FDA Announces Delay in Compliance Dates for Revised Nutrition Fact Requirements

The FDA announced today that it was delaying implementation of the final rule promulgated in May 2016 that revised regulations governing Nutrition Facts labels on food and dietary supplements.  The rule initially set a general compliance date of July 26, 2018, although manufacturers with annual food sales of less than $10 million were given an additional year to comply.

The Agency announced the postponement of the effective date by revising online guidance by adding a new subsection on compliance dates entitled, “FDA Intends to Extend Compliance Dates for Nutrition Facts Label Final Rules.”  The Guidance now explains that “industry and consumer groups provided the FDA with feedback regarding the compliance dates” and “[a]fter careful consideration, the FDA determined that additional time would provide manufacturers covered by the rule with necessary guidance from FDA, and would help them be able to complete and print updated nutrition facts panels for their products before they are expected to be in compliance.”

The Agency did not elaborate on the new timeframe for implementation, although it did note that “FDA will provide details of the extension through a Federal Register Notice at a later time.”  As discussed here, the rule requires a revamped Nutrition Facts format that would increase the type size of certain nutrition information, require mandatory declarations for “added sugars,” Vitamin D and potassium, impose a new definition of “dietary fiber,” and revise serving sizes for certain food products.  Last month, the Agency announced that it was extending compliance dates for menu labeling requirements from May 2017 to May 2018.

We will continue to monitor for and post updates regarding the new timeframe for implementation as soon as they become available.

Senate Expected to Vote on Gottlieb Nomination Next Week

Today, Senate Majority Leader Mitch McConnell (R-KY) filed cloture on the nomination of Dr. Scott Gottlieb to be the next FDA Commissioner.  A cloture vote to end debate will occur Monday afternoon, with 50 votes needed to advance the nomination.  It will be followed by a final vote on the nomination, which typically occurs after 30 hours of “post-cloture” debate, but it could be shortened by agreement.  Assuming this timing, the final confirmation vote on Dr. Gottlieb’s nomination likely would occur on Tuesday or Wednesday of next week.

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FDA Commissioner Nominee Gottlieb’s Written Responses Signal Support for Food Safety and Science-Based Approach to Consumer Communications

Dr. Scott Gottlieb, recently submitted written responses to questions posed by members of the Senate Health, Education, Labor and Pensions Committee as a follow up to his hearing on April 5.  As a follow up to our April 13 post, below are selected Q&A exchanges based on questions submitted by Senators Elizabeth Warren (D-MA) and Patty Murray (D-WA).

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Senate Hearing on FDA Commissioner Nominee Scott Gottlieb Provides Insights on the Future of Food Safety and Labeling

Last Wednesday, April 5, the Senate Committee on Health, Education, Labor, & Pensions held a hearing on the nomination of Scott Gottlieb, MD, as Commissioner of the Food and Drug Administration.  As part of the hearing, Gottlieb was questioned on an array of topics from his prior service at FDA to his alleged financial interests in pharmaceutical companies.  He was also asked to comment on a number of issues relating to food safety, labeling, and the overall approach that he envisions for FDA as a public health agency.  Highlights of his responses on those issues are below.

On FSMA Implementation: Gottlieb considers FSMA to be necessary to ensure the safety of the nation’s food supply and stated that he plans to protect and promote public health as Congress intended when writing the law. As regular readers of our blog know, food safety and the federal GMO labeling law have been rare examples of bipartisan cooperation in recent years.

On Understanding the Financial Demands on Industry:  Gottlieb was asked whether he would ensure that proper guidance is available for implementation of the recent revisions to regulations governing nutrition facts labeling and whether he would consider postponing the deadline for new labels.  He was not specific about the possibility of extending the compliance date.  However, he did note that:

I’m philosophically in favor of trying to make sure we do these things efficiently not only because it imposes undue costs on manufacturers if they’re constantly updating their [nutrition facts] labels but we also have to keep in mind it causes confusion for consumers if the labels are constantly changing, so you want to consolidate the label changes . . . as a matter of public health so the information is conveyed accurately and efficiently to consumers.  So this is something that I do care about and I look forward to working on it if I’m confirmed.

Gottlieb’s remarks demonstrate a welcome acknowledgment of the extensive compliance costs associated with revisions to nutrition labeling requirements, and the capacity to lessen the regulatory burden on industry by streamlining changes and providing guidance to industry on how to comply.

On Commitment to Science-Based Policies:  Gottlieb assured senators he would take a science-based approach and would study issues raised related to genetically modified fish and guidance on seafood consumption for pregnant and nursing women. The FDA most recently issued advice in January 2017 that ranked fish in terms of its safety of consumption for expectant mothers with special attention to the amount of mercury.  The guidance, however, did not address the effects of other contaminants, as well as the nutritional benefits of fish, which has created confusion among consumers because the agency’s initial guidance in 2014 was different.

On Antibiotic Resistance: Gottlieb referred to his time as a physician and the loss of patients to antibiotic-resistant infections to express his understanding of the ongoing problem. He recognized that congressional statutes have been the driving force behind the FDA taking steps to address the issue, both on the development side and with the use of anti-infectives in animal feed.  The use of antibiotics in animals can allow resistant bacteria to contaminate the food supply, which makes the study of anti-infectives in animal feed all the more crucial in deterring the rise of antibiotic resistance.

The Senate has a two-week recess, which means they likely will not vote on this nomination until the week of April 24. Gottlieb’s nomination is expected to be confirmed.

Oregon Attorney General Announces $545,000 Settlement with Retailer

The Oregon AG recently announced a $545,000 settlement with the Vitamin Shoppe over allegations that the store violated Oregon state law by selling dietary supplements containing ingredients that FDA has deemed unsafe or unlawful. The new settlement agreement places significant burdens on the Vitamin Shoppe to monitor developments on ingredient status. The burdens are the same regardless of whether the Vitamin Shoppe sells a product under one of its own brands – or if it sells a product that was manufactured, labeled, and sold to it by a third party vendor.

Under the terms of the agreement, if the Vitamin Shoppe “receives or learns of” a “written notice” from FDA that an ingredient may be unsafe or unlawful, it must “take immediate action to suspend the sale of such products or products known to contain the ingredients.” If the Vitamin Shoppe becomes aware of any other “public announcement, warning, alert, publication, notice, or report” suggesting that the U.S. government, Australia, Canada, Britain, or the EU might consider a dietary ingredient unsafe or unlawful under the FDCA, then the Vitamin Shoppe must conduct a “reasonable due diligence review,” which may result in a decision not to sell any products containing the ingredient.

This settlement is notable for at least two reasons:

  1. It identifies FDA warning letters sent to the Vitamin Shoppe or anyone else as “written notice” that FDA has deemed an ingredient unsafe or unlawful.  Warning letters, however, state only allegations and are not considered “guidance” under FDA’s rule on “good guidance practices.”  Well after a warning letter is issued, the lawfulness of a particular dietary ingredient can be the subject of much ongoing debate, and even the FDA’s official guidance document on ingredient status remains in flux after years of debate.
  2. The settlement represents an aggressive stance by Oregon on a retailer’s liability for product formulation and labeling by third parties.  As we’ve discussed before, there isn’t a whole lot of precedent for regulators going after the retailer, rather than the product seller.

The Oregon Attorney General is currently in litigation against another retailer over similar allegations related to the legal status and safety of a dietary ingredient.

Kelley Drye Ad Law publishes News & Views: Dietary Supplement Advertising, which covers developments ranging from FTC and FDA regulation, class actions, Customs developments, and Prop 65. Subscribe to future issues by filling out your information and checking the Dietary Supplements Practice Group box here.

State AGs and the New Administration

As we discussed in recent interviews with Nutritional Outlook and Natural Products Insider, FTC enforcement against supplement companies is likely to evolve into something  much more reasonable under the new administration.  State attorney general activity, however, is likely to become more aggressive – or at least more widespread.  State regulators may perceive a need to fill in gaps or may see an opportunity for revenue that will be missed by federal regulators.

States to keep an eye on in coming months include Indiana, Oregon, Missouri, Hawaii, Tennessee, Maine, and as discussed more below, Iowa.  These states have either become more active in supplement cases recently or have expressed an interest in increased regulation of the industry.  New York and California have been, and remain, active in enforcement against dietary supplement companies.

As part of our Ad Law group’s new webinar series, we’ll be hosting a discussion focused on state regulation and enforcement on April 26, 2017.  Also, on May 3, 2017, Kelley Drye will host an event focused on the first 100 days of the Trump Administration.  A panel session will include state attorneys general who will provide regulatory updates and insights on enforcement.

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This post comes from Dietary Supplement Advertising, our newsletter produced to help marketers of dietary supplements stay out in front of regulatory challenges. Find the latest issue here. Access our Publication Sign Up page and select Dietary Supplements to subscribe.

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