Analysis of July 25, 2001 EC Traceability, Labeling, Food and Feed Proposals

The European Commission has announced its adoption of long-awaited proposals on the authorization and labeling of biotech food and feed, as well as traceability of biotech commodities and products.

The following will provide a preliminary summary of the provisions of the two documents, as well as an assessment of their potential impact on U.S. food and beverage processors. A more detailed analysis follows this section.

The proposed regulation governing biotechnology food and feed, formally titled "Proposal for a Regulation of the European Parliament and the Council on genetically modified food and feed,’ establishes a common EU-wide procedure for the authorization of recombinant events intended for food and feed use. At present, such foods are authorized under the Novel Foods Regulation (258/97), while recombinant events are deemed safe for animal feed use if they have been authorized under former Directive 90/220, now 2001/18, on the deliberate release into the environment.

In addition, the proposal introduces mandatory process-based labeling requirements for all food and feed products, including additives and flavorings consisting of, containing or derived from biotechnology, even if they no longer contain protein or DNA. However, the document excludes from its ambit enzymes and processing aids. There are two notable changes from the draft document released in June:

• A 1% threshold has been established for adventitious contamination, including non EU-approved recombinant events, provided they have undergone a risk assessment and been deemed safe by the relevant EU Scientific Committee. In order to achieve an exemption from labeling requirements, however, a manufacturer must be able to demonstrate that the raw materials used in the finished product were obtained from non-recombinant sources, and that the "contamination" is "adventitious" in nature. In addition, the proposals leave open the potential of a future downward revision of the 1% threshold.
• The proposal abolishes the "notification procedure" provided in the Novel Foods Regulation. This procedure provided that biotechnology foods deemed "substantially equivalent" to their conventional counterparts would be exempt from a full-scale scientific risk assessment. The new proposal extends the compulsory full-scale scientific risk assessment requirement to all recombinant events intended for food or animal feed use.

The proposal for a Regulation on the traceability of biotechnology products is formally titled ‘Proposal for Regulation of the European Parliament and of the Council concerning traceability and labelling of genetically modified organisms and traceability of food and feed products produced from genetically modified organisms."

This proposal establishes a full-scale, EU-wide traceability system for all food and feed products, including additives and flavorings, but again excluding processing aids, consisting of, containing or derived from biotechnology.

Under the proposed Regulation, operators will be obliged to transmit and retain information on the identity of the GM product at each stage of the placing on the market. Operators will also be required to retain such information for a period of five years. The text adopted by the Commission is largely consistent with drafts obtained during the past several months.

Both proposals will be subject to the EU co-decision process, which confers veto power upon the European Parliament. The procedure is expected to run its course in approximately two years, with an expected effective date in mid-2003.

On July 25, 2001, the European Commission released revised proposals for Community Regulations that would govern the traceability and labelling of biotechnology organisms and food and feed products derived from biotechnology (the Commission documents use the term "GMO" and "GMOs").¹ The revised proposals expand upon earlier drafts of the regulations, and outline a basic framework for the traceability of products derived from biotechnology. If adopted by the European Parliament and the Council as proposed, the Regulations would require all food producers, manufacturers, and distributors operating within the EC market to implement an extensive system of traceability and labeling for all biotechnology entering the market at any stage, whether as seeds, raw agricultural commodities, or processed foods. Information regarding the purpose, objectives, scope, requirements, and implementation of the proposed Regulations is provided in greater detail below.

Article 1 states that the purpose of the Traceability and Labelling Regulation is to provide "a framework for the traceability of GMOs, and food and feed derived from GMOs, with the objective of facilitating accurate labelling, environmental monitoring and withdrawal of products." The concept of traceability was first introduced into EC legislation under Directive 2001/18/EC, which requires Member States to ensure traceability at all stages of the placing on the market of biotech products. However, the Directive did not provide a complete definition of traceability, outline the objectives of a traceability system or elaborate an approach for the implementation of a traceability system. The drafters of this proposed Regulation have attempted to address these remaining issues and thus craft a harmonized framework for the traceability and labeling of biotech products at all stages of production and marketing.

A concrete definition of "traceability" first appears in Article 3(3) of the proposed Regulation. "Traceability" is defined as "the ability to trace GMOs and products derived from GMOs at all stages of its placing on the market through the production and distribution chains." A "GMO" is defined by reference to Article 2(2) of Directive 2000/18/EC² and "derived from GMOs" is defined to mean any product produced from, but not containing or consisting of, biotechnology derived component. Based upon these definitions, any processed food product derived from a biotech source would be subject to labeling and traceability requirements even if it does not contain any detectable biotech component, genetically modified proteins, or genetically modified DNA. There are no thresholds for traceability or labeling included in the proposed Regulation.

The proposed Regulation and its accompanying Explanatory Memorandum also offer some insight into the EC’s objectives in implementing a traceability and labeling system. The stated objective of traceability is to facilitate quality control and the withdrawal of products from the market, in essence providing a "safety net" should any unforeseen risks to human or animal health arise. The identification and tracking of biotech products at each stage of food production and marketing is to be based on the implementation of a certification system, which is intended to operate via a unique code, or a "unique identifier" assigned to each recombinant event, rather than through the use of detection methodologies. The transmission and retention of this information throughout the production and distribution chain is intended to facilitate the labeling of the final product for operators at each stage of marketing and is to provide the means for the inspection and control of labeling claims.

As proposed, the Regulation will apply to the followings goods at all stages of the placing on the market:

• products consisting of or containing GMOs;
• food and food ingredients, including food additives and flavorings, derived from GMOs; and
• feed materials, compound feeding stuffs and feed additives derived from GMOs.

The regulation expressly excludes medicinal products for human and veterinary use authorized under Council Regulation 2309/93 from its scope of application.

The proposed Regulation outlines two distinct sets of traceability and labeling requirements. First, Article 4 elaborates the traceability and labeling requirements for products containing or consisting of Biotechnology. Second, Article 5 sets forth the traceability and labeling requirements for products derived from biotechnology. The proposal emphasizes that the requirements established in Articles 4 and 5 must be met in addition to any other specific requirements outlined in Community legislation.

• Ensure that pre-packaged products consisting of or containing GMOs bear a label stating "This product contains genetically modified organisms";⁴
• Inform operators receiving the product that it consists of or contains GMOs and provide them with the relevant unique code(s) for each GMO;
• Implement a system and procedure to identify from whom and to whom such products are made available; and
• Maintain a system of record-keeping that would enable operators to demonstrate compliance with these provisions to the competent authorities for a period of up to five years from each transaction.

In order to comply with the above requirements, operators must implement the system outlined in Article 8 of the proposed Regulation for the development and assignment of unique codes to recombinant events. Article 8 states that the code is to be an alphanumeric sequence that will be assigned to each GMO on the basis of the organism’s "transformation event", i.e. the specific genetic modification(s) that has been carried out with regard to that organism. Article 8 also charges the Commission with ensuring that the identification system is modified or adapted as necessary to take into account developments in international fora and technical progress.

Article 5 requires that all operators placing products derived from GMOs on the market:

• Inform further operators receiving the product as to each food ingredient, including additives and flavorings, and each feed material or additive that is derived from biotechnology;⁵
• Implement a system and procedure to identify from whom and to whom biotech products are made available; and
• Maintain a system of record-keeping that would enable operators to demonstrate compliance with these provisions to the competent authorities for a period of up to five years from each transaction.

Article 5 does not outline specific labeling requirements for food and feed products derived from biotechnology. However, detailed requirements for the labelling of finished food products for human use are outlined under EC Regulation Nos. 1139/87, 49/2000 and 50/2000.

Article 6 of the revised proposal highlights two circumstances under which some of the record-keeping obligations outlined above would not apply. First, as noted earlier, the ultimate consumer of a biotech or a biotech-derived product is not included in the definition of an "operator." As a result, an operator delivering food to an ultimate consumer is not required to retain documentation detailing to whom the product was sold. Second, in cases where other Community legislation provides for specific identification systems, such as lot or batch numbering for pre-packaged products, operators do not have to inform further operators of the presence of Biotechnology in the product or the relevant code for the GMO in the product. However, operators are still required to implement systems or procedures to identify from whom and to whom the products have been made available and to maintain that information for a period of five years following the transaction.

Article 9 of the proposed Regulation leaves the task of carrying out inspections and other control measures to ensure compliance with the regulation to the Member States. The establishment of penalties in case of non-compliance is also left to the Member States, although the states must notify the Commission of their penalty provisions within 180 days of publication of this regulation in the Official Journal of the European Communities.

8. Implications of the Regulations for U.S. Commodity Exporters

While the proposed Regulation does not specifically address imports into the EU, the explanatory memorandum makes clear that importers will be required to comply with the regulation. As operators trading in biotech products, U.S. exporters will be required to provide the recipient of the product with documentation declaring that the product contains a recombinant event and provide the "unique code" for each transformation event included in the shipment. U.S. exporters will also be required to identify from whom they received a covered product and to whom they made it available, unless the recipient of the covered product is the final consumer, and to retain all documentation, samples and other information required for a period of 5 years following the date of the transaction.

U.S. exporters will also be affected by the Commission’s authority to develop guidance on sampling and testing and the establishment of thresholds for the adventitious presence of GMOs. This provision of the Regulation will particularly impact the importation of bulk shipments of commodity crops that may contain unknown mixtures of biotech commodities. The explanatory memorandum to the proposed Regulation observes that operators importing such shipments into the EU will have to specify the identity of these products in terms of the genetic events they might contain. If this information is not available from the exporter, the importer will have to determine the identity of the genetic event in the product, which is likely to require sampling and analytical testing.

As noted above, operators trading in products derived from biotechnology must document each of the ingredients, feed materials and additives that are part of the product and are derived from biotechnology. However, operators are not required to transmit the unique codes, as the Commission has concluded that unforeseen environmental effects are unlikely to arise from the placing on the market of products derived from biotechnology where processing results in non-viable genetic material. Operators dealing in biotech-derived finished foods will bear the same record keeping obligations as the operators trading in products containing or consisting of biotechnology. They will have to inform the recipient of the identity of each ingredient, material or additive derived from biotechnology and keep records regarding the identity of those from whom and to whom the finished products have been made available. Finished food manufacturers will also have to comply with the labelling provisions detailed in EC Regulation Nos. 1139/98, 49/2000 and 50/2000.

The proposals have the potential to create major disruptions in trade in finished food products between the United States and the EU Member States, with a very real possibility that a template is now in place for developing countries to take essentially the same action, or a variant. The proposals, subject of a protracted dispute between the EU and the US for several years, since the revision of EU 90/220 sent signals that the Commission was abandoning substantial equivalence and content-based labeling in favor of precaution and process-based labeling.

In effect, the Commission has done just that, and explained its actions repeatedly throughout the Explanatory Memorandum to both documents as justified by the "Precautionary Principle," the perceived right to invoke "Other Legitimate Factors," and the provisions of the Convention on Biological Diversity’s Biosafety Protocol, which was never supposed to apply to food products, but now clearly was the basis for the entire EU revision process, including the initial changes to Directive 90/220 that set these directives into motion.

Although the proposals are subject to the EU co-decision procedure, which confers upon the European Parliament veto power, all indications from sources in Brussels are that any changes implemented by the Parliament are likely to make the proposals more rather than less onerous. The past two years have demonstrated several truths:

• Although some of the parties in the Commission with whom U.S. government and industry have negotiated realized, albeit late, that these proposals would do severe damage to the food economy, they were unable to persuade their colleagues of the potential for harm.
• The assumption that the unfeasibility of the proposals would ultimately cause their undoing was overly optimistic: those who promoted the changes demonstrated little concern for whether U.S. industry could comply, and some are probably hoping that it cannot comply.
• Many of the parties arrayed in favor of labeling are less concerned with consumer choice and more intent upon securing trade advantage: this is nowhere more evident than in the blatantly discriminatory exemption of enzymes and processing aids from the scope of the labeling provisions. If the concern for the consumer’s right to know that the process of recombination was used truly is paramount, regardless of the detectability of protein or DNA, then the proposal would have included enzymes and processing aids. The fact that, among others, French wine and cheese manufacturers are dependent on these aids makes a mockery of the supposed commitment to the preservation of free trade.

The readily predictable effects will be several:

• There will be increased costs to U.S. manufacturers related to securing, collating, transmitting and maintaining records for each and every product and ingredient which contains or which may be derived from biotechnology, regardless of whether protein or DNA is detectable. It is important to remember that the "adventitious contamination" threshold loophole, for labeling purposes, is now closed. Unless a manufacturer knows to a certainty that its product or ingredient has only been subjected to adventitious "contamination" (and is prepared to document that fact), rather than having been produced in part or in whole as a result of genetic recombination, labeling is a virtual requirement. Ultimately, the result will be increases in production costs and, very likely, consumer prices. Any manufacturer that is dependent on biotech sourced materials loses competitive advantage in proportion to that dependence.
• The legal penalties for failure to comply are not yet clear, but the commercial penalties will be far more severe. Given the degree of attention this initiative has received, and the lack of acceptance accorded to the old regulatory system, EU member state officials will have little choice but to enforce compliance if they are to maintain their credibility with the public. In any event, activist groups will be watching closely, and taking their own action, in concert with the media, to ensure compliance. The consequences of failure to comply are just as, if not more serious, in their effect on relations with distributors and consumers as are the expected fines. The margin for error relative to this issue will approach zero, and each and every U.S. brand will be placed under a microscope.
• The formal release of these proposals will give additional momentum to activist groups and like-minded regulators in a number of developing markets. Many countries are in the process of developing labeling regulations, and the EU proposals are almost certain to be copied by other countries anxious to avoid seeming to be lax in managing this issue. The results, if carried to their logical conclusion, would create large "biotech free zones" throughout the world, in an environment in which U.S. farmers, grain handlers and ingredient suppliers are powerless to provide adequate supply. The resulting demand for "GM free" soy, corn and canola, among other products, will also result in increased raw material prices, such increases proportionate to the number and size of the countries adopting similar provisions.

The long-term implications are potentially more grave, and far more difficult to predict. As onerous as are the provisions themselves, the principles on which the proposals are based are even more dangerous. In one series of actions, the EC has:

• rejected the doctrine of substantial equivalence;
• reinterpreted the Biosafety Protocol;
• invoked the Precautionary Principle;
• invoked factors other than science and food safety in making a decision that will affect untold of dollars in food exports, and
• undermined thoroughly its credibility by first insisting that the process was sufficient to trigger labeling, and then in the same document exempting enzymes and processing aids that might be derived from recombinant sources.

The Commission has effectively forced the U.S. to make an issue of the decisions, which are almost certainly violations of the SPS and TBT Agreements and tend to undermine the foundations of the World Trade Organization. Worse, they throw into doubt the credibility, the viability and the relevance of such science-based institutions as the Codex Alimentarius Commission, which is in the midst of addressing these issues. Finally, the precedent is unacceptable. Regardless of the importance to a given manufacturer of biotech labeling regulations, the bases upon which these proposals are made are far more critical as a matter of principle. If these justifications are allowed to stand in support of these proposed regulations, they are transferable to virtually any product, ingredient or technology that may be objectionable to one interest group or another. This action directly affects American technological innovation and competitiveness, and extends far beyond the realm of food. Both the "Precautionary Principle" and the doctrine of "Other Legitimate Factors" are ripe for use across a spectrum of industries, and the consequences are limited only by the imaginations of politically-motivated risk managers. For these reasons, allowing these proposals to continue toward their logical conclusion is not an option for the United States.

Industry cooperation from farm to table, to coin a phrase, has always been desirable. It is now mandatory. In addition, the food chain should be extended to include commodity traders, shippers, freight handlers, insurers and reinsurers. Given EC official Anthony van der Haegen’s comments recently to the effect that the U.S. system is excellent, but not designed for compliance with the impending EC regulatory framework, it is now clear that many in Commission and in Parliament have little understanding of the enormous complexity of the U.S. grain handling system. Grain can be, and is, warehoused for years at its origin, consolidated with shipments from numerous other locations, shipped to one destination and converted, or "flipped," to yet another on the high seas. It is often then warehoused by the importer and re-exported.

Clearly, now, parallel markets for biotech and non-biotech grain must be created, because the costs will be different. For this reason, commodity traders should be brought into immediate discussions with the food and commodities industries, so that they might be briefed and their opinions sought.

The Administration, in order to avoid implicit agreement with the principles on which these proposals were made, should withdraw support for the Biosafety Protocol. Even though the U.S. is not a member, U.S. officials continue to participate in the meetings. The Commission’s proposals make frequent and emphatic reference to the Biosafety Protocol, and absent a clear and public repudiation of a document that already has been used to justify this regime, the U.S. risks feeding the confusion in developing countries. Already Mexico, Saudi Arabia, Sri Lanka and several other countries have inferred a link between commodity shipping documentation and food labeling.

The Australia/New Zealand economic impact assessment should be used as a template for a wider and more comprehensive study of the potential impact of the EC proposals, in time to build a base of opposition in the European Parliament. The results should and will be heavily publicized, and might provide the first real opportunity to provide practical public education of the real costs of such initiatives.

The USTR should, at the earliest opportunity, to file a case with the WTO, on three bases:

The U.S. has a convincing argument relative to the TBT Agreement, since under Codex, consumers only have the right to know what could harm them, and because voluntary labeling is available for qualities that pertain to consumer preference (such as halal, kosher and organic). The Commission’s proposals make the specious claim that failure to label biotech foods would somehow "mislead" the consumer, and that the costs are "negligible." Both of these assertions are easily refuted.

The U.S. has persuasive arguments in the SPS arena as well, since biotech food is safe and no proof to the contrary has ever been found. The "Precautionary Principle," despite the protestations to contrary of many in the Commission, appears nowhere in the SPS Agreement. Traceability itself is based on an amorphous, unquantifiable and unspecified prospective risk to human or environmental health that requires drastic pre-emptive action. Such a philosophical construct was damaging enough when applied to BSE; it would be ruinous if and when it is applied to biotech commodities and food products.

The U.S. also has an irresistible argument regarding the relationship between environmental treaties and the WTO. The Preamble of the Biosafety Protocol itself warrants legal challenge, and the WTO is likely to be loath to surrender its prerogatives to the Convention on Biological Diversity.

A WTO case claiming billions in damages may well be winnable. That it should be attempted ought to be beyond dispute. The ramifications for the U.S. food and commodity industries are profound, especially given the potential that these proposals will form the basis for similar initiatives elsewhere, particularly in large developing-country markets. Worse, the precedent will have been established that will make each successive instance of non-science based regulation, based on ethereal sociopolitical principles, more easily digestible than the last.

It should be clearly and unequivocally established, before the WTO and the court of world opinion, that the EC, absent some convincing and legitimate justification, acted in the interests of protectionism. It is surely no coincidence that EC has become more and more bold in promoting this regime as Poland and Hungary,with their considerable grain supplies, have moved ever closer to membership in the EC. Nor is it a coincidence that the furious battle to demonize biotechnology has coincided with a perceived need by beleaguered EU Member Country regulators to deflect the fear of BSE, a real, quantifiable and locally created problem, onto biotechnology, with all of the attendant anti-globalization, anti-multinational corporation and anti-WTO baggage. Finally, and perhaps most persuasive, the point should be made and made again that the proposals are neither credible nor legal, since their bases are the consumer’s fundamental right to know that the process of genetic recombination was used, but at the same time the labeling of enzymes and processing aids was specifically and pointedly exempted. This is wholly consistent with the spirit on which the proposals were based, and does as much to undermine the Commission’s credibility as any other single factor.

Endnotes