Regulation and the U.S.–China Dynamic

New regulations adopted by the United States will affect the international food supply chain

by By Eric D. Hargan and Kevin Qian

In the past, within living memory, food processing was largely a localized system with production facilities located near the source of the food product supply, the two linked by short and relatively simple logistics. Today the global food processing industry is estimated at more than $2 trillion in annual sales, with approximately 25% directly involving international import/export sourcing. Highly perishable foodstuffs like produce or seafood can reach processing facilities from other continents. New geopolitical demands are driven by food product safety fears about Salmonella contamination or terrorism, and these demands have created an extremely complex food supply and regulation dynamic.

Failure to understand the regulatory landscape can have dramatic repercussions on the food supply chain. Food product exporters must be well informed about food safety and the customs rules and regulations of every country to which their products are shipped, particularly any chemical tolerance, quarantine, or inspection requirements. The uninformed can incur significant, unexpected expenses, ranging from storage charges for quarantine to actual loss of a shipment that is rejected by inspectors or customs and safety officials.

China’s Importance in the Food Chain

China’s export of food to the United States clearly illustrates these dynamics. Of the $80 billion in food that the United States imports each year, about 15% of total U.S. food consumption, food and food products from China play an increasingly important role. China and the United States recognized the continuing increase in Chinese food imports with the negotiation of a Memorandum of Agreement in 2007. The agreement covered food and feed and called for wide-ranging initiatives by the two governments.

Nearly 3.5% of the total food supply sourced outside the United States comes from China, which has more food facilities registered with the U.S. Food and Drug Administration than either Canada or Mexico.

The European Union, Canada, and Mexico are the top food exporters to the United States, but China’s share is growing rapidly. In the past decade, the value of Chinese processed food and commodity imports has more than tripled, according to the U.S. Department of Agriculture (USDA). Nearly 3.5% of the total food supply sourced outside the United States comes from China, which has more food facilities registered with the U.S. Food and Drug Administration (FDA) than either Canada or Mexico. In the last year, the FDA established three new offices in Beijing, Shanghai, and Guangzhou, and dedicated food regulatory staff there.

Chinese food exporters need to understand the details and implications of the U.S. food regulation approach, which focuses on quality at the production end and compliance at the import end.

U.S. Production Standards

All food manufacturing facilities exporting to the United States must comply with the FDA’s good manufacturing practices (GMPs), which include standards for worker sanitation, plant construction, and cleanliness. When the FDA conducts surveillance and investigation of a food processing facility for GMP compliance, it may review everything from production history and firm management to direct observation of “objectionable conditions” and “deficiencies,” terms used in FDA Form 483 inspection reports. Inspection is carried out by a complex regulatory system that includes the FDA center that regulates most processed food products, the Center for Food Safety and Applied Nutrition, and FDA’s Office of Regulatory Affairs, as well as the USDA’s Food Safety and Inspection Service and the Animal and Plant Health Inspection Service, which inspect meat and poultry.

The FDA may reject any food for import if it appears to be adulterated, misbranded, or in violation of the law. The agency may also require food that is noncompliant to be relabeled, reconditioned, refused, detained, seized, or destroyed. This rejection can be based on examination, the food producer’s prior history, or even the appearance of being in violation of FDA standards. Therefore, food producers in China and other countries who export to the United States should meet, as closely as possible, FDA production and safety standards in their own country.

Even though U.S. regulatory requirements are often confusing, Chinese food supply companies must meet U.S. sanitation and safety standards if they want to expand their presence in the American market.

In its inspections, the FDA now uses a standard for food safety, formerly used for food aesthetics, called “otherwise unfit for food.” Due to increasing public demand for food safety, as well as changing expectations at the FDA, food producers in China and other countries must now exercise more collective responsibility throughout the supply chain. They must know the origin of food commodities, verify production compliance with all applicable U.S. laws, and supply all required documentation, including the food manufacturer registration number.

Producers in China must also be prepared to deal with the growing regulatory shift to computer-assisted risk analysis, which includes systems such as the FDA’s Prior Notice System Interface and the anticipated Predictive Risk-Based Evaluation for Dynamic Import Compliance Targeting system. To pass such computer-assisted assessments, food exporters must be able to track and document, to the satisfaction of the FDA, the path of food products “from farm to fork.” This information is vital for compliance with the second half of the food regulatory equation: proper documentation for import into the U.S.

Import Standards

In May 2009, the FDA finalized a rule and compliance policy guide explaining the new requirements for food imported, or offered for import, into the United States. These new rules build on the FDA’s authority to reject imported food products. Differences between the FDA rules and those of the Customs and Border Protection (CBP) agency can be confusing and challenging for Chinese exporters.

The new rules require that the FDA be given prior notice of the importation of food: a minimum of two hours for arrival by road, four hours for arrival by air or rail, and eight hours for arrival by water. Maximum notice times range from 15 to 30 days.

The new rules also require facilities to register with the FDA if they manufacture, process, pack, or hold food for human or animal consumption in the United States. For example, food that is not in its natural state may not be imported into the United States unless the FDA receives the name of the manufacturer and either the registration number, city, and country of the manufacturer, or the full address and the reason the registration number is not provided. The FDA’s list of acceptable reasons for not providing a registration number is very limited.

Failure to provide prior notice of imports can result in the United States refusing entry of the food. If entry is denied, the food will be held at the port of entry, unless the CBP agrees that it may be exported under its supervision, or either the FDA or CBP directs delivery to another location. The FDA can also bring civil or criminal charges in federal court or seek debarment of an importer. Importers should remember that if they attempt to bring in food articles from a food manufacturer that is not registered (so that the importer cannot provide its registration number), entry might be refused because the identity of the facility is incomplete. Clearly, importers must know the identity of the manufacturer and its registration number.

The CBP’s requirement that the “country of origin” of the food be identified can be confusing. “Country of production” and “country of origin” are not the same. For example, if beans grown in the United States are sent to China to be canned and then exported back to the United States, the CBP “country of origin” is the United States, but the FDA “country of production” is China. In this case, the FDA defines the “article of food” as canned beans.

Another looming issue is that of food additives, a challenge illustrated by the melamine issue of 2006-2007. FDA approval is required for food additives. Even though many additives are generally recognized as safe, like sugar and spices, or are previously approved, some exporters fail to recognize that the standard applies to them. Some do not understand the stringency of the standard. A tough approval standard requires demonstrating with reasonable certainty that the additive presents no harm to consumers. More sophisticated scientific standards are making these approvals harder to obtain, and consumer attitudes also play a greater role than ever before. Consumer petitions or preferences, such as eating more foods that contain a certain additive, may lead the FDA to reconsider its prior approval of a specific additive.

Regulatory Integration

Even though U.S. regulatory requirements are often confusing, Chinese food supply companies must meet U.S. sanitation and safety standards if they want to expand their presence in the American market. The International Conference on Harmonisation of compliance standards, which focuses on the United States, Japan, and the European Union, is conducting outreach to producers in countries such as China, India, and Brazil to foster greater integration of regulatory standards among countries. In addition, the presence of FDA food experts in China will help transform the China-U.S. food system into an integrated whole.

As China and other countries begin integrating their food regulatory standards with those of the United States, the FDA is unlikely to accept as definitive the agency decisions of other countries. Even though the FDA is pursuing the use of third-party certification, which could include the Chinese government as a certifier for safety and manufacturing compliance overseas, it is much more likely that the FDA will cooperate with, and rely upon, other countries’ agencies in formulating its own decisions. Either way, food safety is the primary concern. The FDA’s regulation of the entire chain—from production to distribution to consumption—is one that food producers from China and every other country must accommodate in order to be a player in the U.S. market. ■