Are you seriously going to tell us that even 5 percent of the people buying bread would know what the chemical names mean?

What's wrong with the bakers simply providing a list of ingredients to stores instead of putting them on every single wrapper?

These questions only scratch the surface. We have invited you here to present your case in support of these regulations.

Gentlemen, it better be an awfully good one.

If you are ready to proceed with your statement, those who are going to testify, I would appreciate your standing up so I can swear the witnesses in.

Do you swear to tell the whole truth and nothing but the truth, so help you, God?

Messrs. HILE, ROBERTS, QUINN and MCNAMARA. I do.

TESTIMONY OF JOSEPH P. HILE, ASSOCIATE COMMISSIONER FOR COMPLIANCE; ACCOMPANIED BY HOWARD R. ROBERTS, Ph. D., DIRECTOR, BUREAU OF FOODS; TAYLOR M. QUINN, ACTING ASSOCIATE DIRECTOR FOR COMPLIANCE, BUREAU OF FOODS; AND STEPHEN MCNAMARA, ACTING GENERAL COUNSEL, FOOD AND DRUG ADMINISTRATION

Mr. Russo. Do you want to identify yourselves for the record, please.

Mr. HILE. I am Joseph P. Hile, Associate Commissioner for Compliance of the Food and Drug Administration. First, I would like to introduce my colleagues at the table. Dr. Howard Roberts, Acting Director of our Bureau of Foods, Mr. Taylor Quinn, Acting Associate Director for Compliance, Bureau of Foods, and Mr. Stephen McNamara, Acting General Counsel.

Let me say at the outset that we in FDA agree with the baking industry and this subcommittee that the informative labeling demanded by today's consumers should, to the greatest extent possible, be provided without causing undue economic hardship on the industry and subsequently increased cost to consumers.

Mr. Chairman, we welcome this opportunity to appear before you and other members of the subcommittee to discuss recent actions taken by the Food and Drug Administration (FDA) which affect the bakery industry.

Mr. Chairman, with your permission, and because of the heavy dayto-day involvement of our Bureau of Foods in these particular matters, I am asking Acting Director Roberts to discuss them in further detail at this time.

Dr. ROBERTS. I have read the transcript of the hearing before your subcommittee on July 13 at which representatives of the Independent Bakers Association (IBA) and other baking industry representatives testified. In that testimony, the industry representatives endorsed the intent of our ingredient labeling regulation, published in January of 1976, but questioned the detailed requirements. As you know, these regulations require that all ingredients be listed on the label of all foods, including bakery products. The industry representatives indicated that in their opinion these requirements would not provide useful information to the consumer. In addition, they stated that the

economic implications are disturbing and damaging, particularly for the independent baker.

Background: Therefore, before discussing the status and impact of the subject labeling regulations, I believe it would be helpful to provide some background on FDA's authority and policies with respect to the labeling of food products.

First, I would note that the Congress has directed FDA, through sections 401 and 403 of the Federal Food, Drug, and Cosmetic Act to require careful and detailed labeling of food products so that the consumer can make intelligent decisions in the marketplace about what he or she wants or does not want to eat. In particular, the act requires that all foods composed of two or more ingredients be labeled with the common or usual names of those ingredients. However, a specific ingredient, unless it has become widely known in another way-by so-called "common or usual" name-is often accurately identified only by its chemical name.

An exception is provided by the act for spices, flavorings and colorings. The presence of such ingredients need only be labeled generically as spices, flavorings or colorings. Another exception is those foods for which a standard of identity has been issued-enriched bread is an example. For standardized foods, the act permits FDA to require the labeling by common or usual name of optional ingredients but not mandatory ingredients.

In accord with the law, FDA regulations have provided, essentially, that all ingredients, not specifically exempt by the act be labeled in descending order of predominance. One final note relative to the law is that the act permits the Secretary to grant exemptions by regulation when it can be domonstrated that compliance is impracticable or results in deception or unfair competition.

Until recent years, interpretations or exemptions to labeling requirements were issued informally by letter from the Agency. For the purpose of identification, these were called Trade Correspondence. For example, trade correspondence-94 (TC-94) was issued in 1940 and allowed certain ingredients in bakery products-shortening, leavening agents, yeast nutrients and dough conditioners-to be listed in the ingredient statement as such, without naming the specific ingredients of these products.

In your letter of invitation, you requested that we provide certain information which I am pleased to submit for the record. This includes:

1. The total cost of work on this regulation-21 CFR 101.4-to date-man hours, travel expenses, consultant fees, et cetera; 2. A copy of any small business impact study done:

3. A list of contacts made with industry officials concerning this rule.

The fourth item of information requested, the number of consumer complaints which prompted this regulation, is not available in specific numbers.

Mr. SKELTON. Just a moment, sir, are you going to submit this to us? Dr. ROBERTS. We will submit that for the record.

Mr. SKELTON. When? Now? Today?

Dr. ROBERTS. I don't believe we have this with us, but we will submit it. We have part of it with us.

Mr. SKELTON. Will you please submit the rest to our counsel, and what you have please submit immediately.

[Information requested follows:]

COST OF WORK ON THE JANUARY 6, 1976 REGULATIONS REGARDING FOOD LABELING AND LABEL DECLARATION OF INGREDIENT REQUIREMENTS

The total cost of work on these regulations to date is approximately $37,000. There were no travel expenses or consultant fees involved in the promulgation of these regulations.

SMALL BUSINESS IMPACT STUDY

The Food and Drug Administration, operating under guidelines based on Executive Orders No. 11821 and 11949, OMB Circular A-107, and DHEW guidelines, assesses the economic impact of Agency-initiated legislative proposals and Agency proposed regulations. The original Executive Order (No. 11821) was effective November 27, 1974. Executive agencies are not required to review for economic impact regulations and legislation proposed prior to this date.

There are six criterion and their thresholds that are used in assessing the economic impact of proposed regulations or legislation. If any of the thresholds are exceeded, then the proposed regulation or legislation is said to have a major economic impact, and this necessitates the preparation of an inflation Impact Statement. This statement considers benefits, costs, and alternative actions. One of the criteria is "substantial changes in the competitive structure of an industry with value of shipments exceeding $100 million annually." It is at this point in the economic impact assessment process that the effect of an action on small businesses is taken into account. However, since the food labeling proposal which affects bakery products as well as other foods, to which you referred, was published prior to Executive Order No. 11821, no economic impact assessment of this proposed action was done. Nevertheless, this is not to say that Executive Order No. 11518 was not fulfilled. This order does not require the formal documentation that is required by Executive Order 11821 and the ensuing OMB Circular No. A-107. For example, see Section 2 of Executive Order No. 11518. Attached is a copy of the current FDA guidelines for the preparation of inflation impact assessments and analyses.

INFLATION IMPACT GUIDELINES

[Memorandum]

To: Bureau Directors; Director, NCTR.

From: Assistant Commissioner for Planning and Evaluation (HFP-1), Department of Health, Education, and Welfare, Public Health Service, Food and Drug Administration.

Date: June 16, 1976.

Subject: Revised Inflation Impact Guidelines.

On April 8, 1976, the Department of Health, Education, and Welfare issued final inflation impact guidelines as approved by the Office of Management and Budget. In line with this event, the attached guidelines immediately replace the interim guidelines issued on December 17, 1975. However, Tab B of the interim guidelines should be retained as it provides examples of inflation assessments (IIA's) and copies of Executive Order No. 11821 and OMB Circular No. A-107. The enclosed guidelines are essentially the same as the previous guidelines except for the following differences, which primarily deal with the inflation impact criteria:

The cost criterion has been modified by adding the caveat that the per unit cost or price increase must be one percent or more. This is in addition to the previous requirement of a total impact on industry, government, and consumers exceeding $100 million in any one year or an impact on any one industry exceeding $80 million in any one year.

The productivity criterion has been tied more closely to the cost criterion. The new threshold for the productivity criterion is productivity decreases which require cost increases for industry, government and consumers which exceed $100 million in any one year in order to offset them and therefore maintain productivity. For example, the productivity threshold would be exceeded by a regulation

requiring a net addition of over 10,000 employees in public and private sectors to sustain current levels of production if these employees had an average salary of $10,000 (likewise 5,000 employees at an average salary of $20,000 etc.). The threshold in the previous (interim) guidelines was a net increase of 10,000 employees in public and private sectors in order to offset productivity decreases.

The supply criterion has been made more specific. It now reads that there is & shortage if there is a decrease of 3 percent or more in the supply of important services and/or materials provided that the change exceed $100 million (or 10,000 people) in any year, and provided that the change cannot be achieved without substantial disruption of services to consumers.

A new criterion has been added which deals with employment. Since the threshold is a decrease of approximately 90,000 workers, this criterion is not likely to be of importance for any regulations promulgated by FDA.

Finally, an opinion has been issued by General Counsel that a Notice of Opportunity for Hearing proposing the withdrawal of approved new human drug or new animal drug applications that will result in a change in regulations requires inflation impact review. These notices must contain the appropriate disclaimer if it has been determined that the action will not cause a major inflation impact, or the certification and summary of the inflation impact statement if it has been determined that the action will cause a major inflation impact. This opinion is a formalization of a policy which is already being followed, and, therefore, no increase in workload is expected to result.

GERALD L. BARKDOLL.

Enclosures.

INFLATION IMPACT GUIDELINES

Requirements for guidelines.-FDA is required to consider the inflation impact of its initiated legislative proposals and major rules and regulations. This requirement is founded on Executive Order 11821 of November 27, 1974, which ordered all executive branch agencies to consider the inflation impact of such actions.

OMB, on January 28, 1975, issued Circular No. A-107 which stated (1) that each of the agencies was to develop criteria for identifying initiatives which could have a major inflation impact and (2) that the areas of inflation impact of concern were: costs and prices of goods and services, competition, productivity, supplies of important materials, employment and energy consumption.

HEW, as the agency responding to OMB, on April 1, 1975, issued interim guidelines for conducting inflation impact review. Then, on April 8, 1976, the Department issued final guidelines as approved by OMB. These final Department guidelines emphasize, as did the interim guidelines, that the requirement for evaluating inflation impact is for information only. The review is not a clearance process and the documentation requirements are solely to ensure that the possible mitigation of inflation impact has been considered. The interim Department guidelines provided the framework within which FDA issued initial guidelines on May 15, 1975. Modifications of the interim guidelines by the Department as well as experience gained by FDA in the inflation impact review process led to the need for developing and issuing revised Agency guidelines on December 17, 1975. The Agency guidelines herein are a consequence of the issuance of final guidelines by the Department.

Overview of guidelines.-The purposes of issuing these guidelines are to explain the process for internal FDA use in complying with this Agency's responsibilities for inflation impact review of proposed regulations, and to clarify the working relationships of the Bureaus and various units in the Office of the Commissioner in this process. Guidelines for proposed legislation are issued separately. The inflation impact review process is diagrammed in Exhibit 1 and explained in detail in the following sections of these guidelines. The process is briefly summarized in the following paragraph.

All agency regulations and proposed rulemakings subject to Executive Order 11821 are required to be assessed for possible inflation impact prior to publication in the Federal Register. Criteria developed by HEW are used in the assessment to determine whether or not the proposed action has a major inflation impact. If the proposed action is estimated to not cause a major inflation impact, then the rationale for that determination is formalized in written Inflation Im

1 For ease of discussion, the word "Bureaus", when used herein, includes Bureaus and NCTR.

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pact Assessment (IIA) which is referenced in the preamble to the proposal and made publicly available through the Hearing Clerk's office. If the proposed action is estimated to cause a major inflation impact then: the Department must be notified; an Inflation Impact Statement (IIS) including cost/benefit analyses of alternatives must be prepared; a certification of impact is included in the Federal Register notice with the proposal; the IIS is made publicly available through the Hearing Clerk's office; and both a summary of the IIS and a copy of the proposal is sent to the Council on Wage and Price Stability (CWPS) for information. During the comment period and prior to publication of a final order a determination is made as to whether to revise, amend, or leave unchanged the IIA or IIS.

This memorandum is organized to present these guidelines as clearly and completely as possible. The main body describes the process for reviewing inflation impact within FDA procedurally and organizationally, and defines the various responsibilities in the review. Tab A, A Guide for Assessing Inflation Impact, offers a number of "rules of thumb" for early identification of those proposals which could have a major inflation impact. Tab B defines and illustrates the format to be used in preparing Inflation Impact Assessments and Tab C contains the final guidelines issued by HEW on April 8, 1976.

Identifying actions requiring inflation impact assessments (IIA's) or statements (IIS's).-All regulatory actions of the Agency published in the Federal Register do not require inflation impact review. This section of the guidelines speaks to the definition of which actions are included for review and for those reviewed actions which are major and which are not.

Identify Items with Purview of Inflation Impact Review.-Executive Order 11821 and OMB Circular A-107 speak exclusively to proposed Agency initiatives as being evaluated for inflation impact. Consequently, many actions taken by the Agency, even where they may appear in the Federal Register, do not require inflation impact review. These excluded items include:

Emergency actions pertaining to public health or safety (e.g., a recall). Budgetary proposals, internal administrative actions, individual grant or contract awards, or individual enforcement actions pursuant to existing regulations.

Legislative proposals not initiated by HEW (e.g., the Medical Device bill). Technical changes and updating of regulations not involving substantive changes in requirements, and revocation of obsolete regulations. (For example, a proposal to delete a regulation may be published concurrently with a notice of opportunity for a hearing on withdrawal of a new animal drug application. Revocation of the regulation is merely to remove a regulation which will become obsolete when the application is withdrawn. In addition, occasionally existing regulations are revised to ease requirements to the affected industry through the proposal route.)

Changes in regulations which do not go through a "proposal" phase. (For example, New Animal Drug Applications, where approved, constitute changes in regulations where the change has not been proposed through the Federal Register. Such actions are entirely excluded from inflation impact review. Likewise, action taken on a petition which has not been published as a proposal in the Federal Register does not need to be reviewed for inflation impact.)

All proposals published prior to November 27, 1974, the date of the Executive Order. The Executive Order is not retroactive, and speaks only to proposals, so this exemption applies also to Final Orders where the proposal was published prior to November 27, 1974.

The above exclusions are of a general nature and apply to the Agency as a whole. Individual Bureaus may have unique actions which do not easily fit these general categories, and are not normally considered to be true proposed regulations. Such actions may qualify as exclusions and the Bureau may contact OPE for advice. The General Counsel will be contacted in the more difficult cases where a determination of exclusion cannot readily be made.

2

There is a large group of item specifically included in inflation impact review. These include proposed regulations and proposed legislation initiated by the Agency, petitions 3 submitted to the Agency, and every Notice of Opportunity for

2 Guidelines covering legislative proposals are published separately.

3 The General Counsel is preparing a notice which will require most sponsors of voluntarily submitted petitions to submit data for use in inflation impact review. This action would not absolve the Agency from considering inflation impact, but would shift the burden of data collection to outside parties.