China Food and Food Packaging Laws​

From The Year of the Dog to The Year of the Pig: China's Food and Food Packaging Laws Year-in-Review In 2018, the food and food packaging industry witnessed many changes within China's regulatory system, beginning with the National People's Congress (NPC) - China's national legislative body - embarking on a massive restructure of its organizational bodies, which extended to many of its food regulatory agencies.[1] Details of China's reshuffle was reported in Keller and Heckman's China Regulatory Matters (CRM) newsletter in March 2018 -China's National People's Congress Passes Reshuffle Plan to Establish New Food and Food-Related Agencies.[2] Since then, structural reforms and nomenclature changes have been taking place among and within different governmental agencies at both national and local levels, including the State Administration for Market Regulation (SAMR), General Administration of Customs (GAC), and National Health Commission (NHC), bringing substantial changes to how the food industry will be administered in practice. Now that the reshuffle is fully in place at the central level, we expect to see a continuous roll-out of regulations and standards in 2019 to accommodate the restructured food regulatory system. Let's take a closer look at what we have seen in 2018 and how things may play out in 2019. I. Food Safety Standards Under Further Development In 2018, the Chinese Government kept pace with its commitment to optimize its food standard system by developing and amending many of its food safety standards, including general areas like test methods, nutrition, and labeling, to more specific standards like dairy products, infant formula, and food additives. Revisions to the standards that are most likely to capture the attention of the food industry include the Standard for the Use of Food Additives (GB 2760-2014), General Standard for the Labeling of Prepackaged Foods (GB7718-2011), and Standard for the Nutritional Labeling of Prepackaged Foods (GB 28050-2011). The authority is addressing specific areas that are likely to have a broad and sweeping impact on many products exported to China. For example, the food labeling standard, GB7718-2011, is being amended to address claims that are becoming more prevalent, such as "no artificial color added," and "free of food additives," which often can be viewed as misleading or confusing to consumers. A new provision has been proposed to regulate these types of claims that tout the negative presence of ingredients. Date marking on food packaging also can be problematic on many levels, including food importers who are not permitted to re-sticker or make date alterations when the original date has an error. To help accommodate the industry, the revised standard may allow certain flexibility to make corrections by adding a sticker or re-printing the correct date under prescribed conditions. On the nutrition labeling front, the standard drafting group working on GB28050-2011 is considering several modifications to the current nutrition labeling requirements. For instance, it has been proposed to expand the scope of nutrients subject to a mandatory declaration from the current scheme of energy, i.e., protein, fat, carbohydrate and sodium, to capture four core nutrients, i.e., vitamin A, calcium, sugar and saturated fat. The amendment of GB28050 may introduce a new "healthy choice" logo based upon the science behind classification and ranking of foods per their nutritional composition, the so-called "nutrient profiling" which was initiated by the World Health Organization (WTO) to prevent disease and promote health. Other areas that are covered in the draft include measure units of nutrients, requirements of nutrient content claims, comparative claims, and function claims. A revised draft General Standard for the Use of Food Additives, GB 2760-XX, was released in December 2017,[3] to reflect the developments of the industry and the food additive regulations over the past five years. Notably, food additives that have been approved since 2014 will be incorporated into the revised standard. Some flavoring substances that are no longer used by industry have been proposed to be removed from the standard. It can be anticipated that the format of the food additives standard may also be improved to be more searchable/user-friendly. We anticipate that interested stakeholders will be given another opportunity to submit comments on the above standards, once there is WTO notification before they are officially finalized. II. Regulations on Special Foods to Be Strengthened Special foods, as defined in China's Food Safety Law, refer to health food, infant and young children formula, and food for special medical purposes (FSMP). Supervision of health food is ranked as a high priority on SAMR's 2019 agenda. As stated by SAMR via a video conference on January 24, 2019,[4], whistleblowers are encouraged to report non-compliant health food products and the monetary value of the fine on violators will be increased. False claims remain an issue within the health food industry. The government has, therefore, strengthened its inspection on health food labeling and advertising and published guiding documents to help the industry achieve compliant status. [5] China has a dual system to regulate health foods, i.e., "registration" and "notification", based on the subject product's composition and target function claim(s). While the authority has developed catalogs to specific substances that can be used in health food, more substances are currently under review which may be approved in the future. It should be noted that the testing protocols for certain health functions were abolished in 2018 [6] which has resulted in difficulty and uncertainty for the industry to apply for approval of health food as it involves submission of test results on product safety and efficacy. Industry has been calling for clarity from the authority to expedite the review and approval of health foods. III. Challenges and Opportunities for Imported Foods Remain Cross Border E-Commerce (CBEC) opens a new door to facilitate the export of food to China. The government announced that the current CBEC regulatory mechanism will remain after 2018.[7] Foreign brands exported to China via CBEC will continue to enjoy the advantages brought by this mode of commerce. However, Chinese authorities emphasize that CBEC products must be compliant in terms of safety and quality. Regardless of whether a food product is imported through CBEC or traditional modes, products exported to China continue to face potential challenges from the "Professional Consumer", so-called bounty hunters, who bring complaints or suits against food companies, alleging food non-compliance, typically focusing on food labeling, for monetary gains. This is because under Article 148 of China's Food Safety Law[8], when damage results from a non-compliant food product, the consumer can be entitled to compensation up to 10 times of the product's purchase price. In 2018, we saw an increase of cases brought against food producers and operators who were ultimately relieved from the burden of unreasonable claims for punitive damage. More and more courts are recognizing that the time and resources being used to protect consumers who are purchasing products to seek monetary gain is taking away from efforts that should be used to protect a bone fide purchaser. More details of importing foods via CBEC can be found in our CRM - Beijing Confirms Cross Border E-Commerce is Here to Stay.[9] IV. Food packaging To help industry better understand and implement the food packaging GB Standards, in 2018 China's National Center for Food Safety Risk Assessment (CFSA) published a guidance book titled, Implementation Guidance on Migration Testing Standards for Food Contact Materials and Articles, which contains comprehensive and practical interpretations and guidance for the implementation of GB 31604.1-2015 (General Rules for Migration Testing on Food Contact Materials and Articles) and GB 5009.156-2016 (General Rules for Migration Testing Pre-treatment Methods for Food Contact Materials and Articles). In 2018 we also saw significant development in domestic production licensing requirements for food contact materials. Currently, there are 24 categories of industrial products that are designated by the State Council as being subject to production licensing (or "QS" licensing, as opposed to "SC" licensing which applies to the production of food and food additives).[10] In November 2018, SAMR published the long-awaited General Rules for the Implementation of Production Licensing for Industrial Products and the corresponding product-specific detailed implementation rules.[11] The QS licensing system is granted upon different categories including food packaging materials, for example, plastic packaging, tools, paper package, g and containers. More details about QS licensing rules in relation to food contact materials will be separately discussed in future CRM newsletters. It should be noted that the Chinese authority continues to heighten its supervision of food contact materials. For example, earlier this year a juice vending machine manufacturer was heavily fined after determining that a food-contact metal component inside the machine did not comply with the new GB Standard on food-contact metal materials and articles. [12] Accordingly the industry should ensure strict compliance with China's applicable GB standards to avoid any potential adverse impact on their business activities. V. Outlook for 2019 Chinese food authorities are expected to remain vigilant in improving its food safety management system in 2019. In February, the State Council released a notice [13] imposing food safety accountability on the Communist Party leaders at local levels, which signals the commitment to enhance the enforcement over food safety. From the legislative perspective, SAMR and NHC have made their work plans for 2019, including setting up priorities to develop certain food safety standards, e.g., Limits of Organic Pollutants in Food, Hygienic Requirements for Food Production and Management Process, and updating the existing food regulations, e.g., Administrative Provisions on Food Labeling and Measures for the Supervision and Administration of Food Safety. We expect 2019 to be a year in which we will see more regulations to enhance China's mission to improve food safety. Accordingly, the food and food packaging industry should be vigilant about keeping up with these changes to ensure it can continue to prosper in an industry that is filled with opportunities and a consumer thirst for new products. We will continue to keep you apprised of these developments throughout the year. Link to original article

Insider Guessing Can Still Land You in Jail​

The most basic story of insider trading goes something like this: a corporate insider learns secret company information in the course of doing her job. She then goes out and trades on it, making (or saving) a bunch of money.  This is not allowed!  The information was the company's, not the insider's, and when she misappropriated it to her own benefit in her trading activity, she violated the law. But what does it mean to learn secret company information?  Usually, this issue is also straightforward enough.  The insider has received testing results for a product, or has worked on an upcoming merger, or has seen the earnings report in advance of release.  But what if the insider hasn't been told something, but instead makes an educated deduction that turns out to be right?  Is insider guessing illegal? This issue recently came up in the case of Jun Ying.  Ying was an executive at Equifax, a major credit ratings agency that suffered a massive data breach.  Equifax asked Ying, a credit information officer, to help respond to a breach.  Critically, the company told Ying that the breach dealt with a specific customer.  However, after he started the work, Ying came to suspect that the breach was actually of Equifax—a suspicion he memorialized in a text to a coworker.  He then researched how much Experian's stock had dropped after its own data breach, exercised all of his available Equifax stock options, and sold the stock—saving himself from a loss of about $117,000 when the news of the breach was later made public.  The U.S. Department of Justice ("DOJ") and the Securities and Exchange Commission ("SEC") accused Ying of insider trading. Now, Equifax never told Ying about the breach.  In fact, the company explicitly lied to him about it.  The company had told other officers and employees about the breach (and notified them about trading restrictions in light of this knowledge).  Ying argued to the federal court in the Northern District of Georgia that his actions did not, as a matter of law, constitute insider trading.  In December, the court disagreed and allowed the indictment to stand.  Now, this month, Ying has entered a guilty plea to the insider trading charge, so he will not be able to test his defense in front of a jury.  Ying will be sentenced in June; the federal Sentencing Guidelines recommend a punishment of 15 to 21 months' imprisonment. More than a month before Ying executed his trade, and days after the data breach was discovered, Equifax's Chief Financial Officer and three other executives sold company stock for more than $1.8 million.  None of these individuals face criminal charges or SEC action.  The SEC and DOJ rarely bring cases involving insiders who trade on non-public information they have deduced, but Ying's case demonstrates that the reach of insider trading laws are broader than what might be intuitive.  There is also an important lesson for employers.  Companies limit information internally for all sorts of reasons, such as containing reputational damage—but one reason is to avoid exposing employees to potential accusations of insider trading or tipping.  It is entirely possible that Equifax was motivated, at least in part, to not fully inform Ying in order to protect him.  Unfortunately for all involved, their information shield was insufficient to protect a perceptive employee from himself. Link to original article 

FDA Announces Enforcement Discretion for Certain Commodities Related to Produce Safety Rule​

The FSMA final Produce Safety Rule was published on November 27, 2015 (80 FR 74353) and establishes science-based minimum standards for the safe growing, harvesting, packing, and holding of produce. Our detailed summary of the rule is available here. In a recently released guidance for industry, “Produce Safety Rule: Enforcement Policy for Entities Growing, Harvesting, Packing, or Holding Hops, Wine Grapes, Pulse Crops, and Almonds,” the Agency announced it will exercise enforcement discretion for Produce Safety Rule requirements for specific commodities: hops, wine grapes, pulse crops, and almonds. After receiving input from industry groups and conducting its own analysis, the Agency concluded that these commodities have unique production circumstances and intended uses which reduce the likelihood for foodborne pathogens to pose a risk. Ultimately, this announcement of enforcement discretion means that the Agency will not expect entities growing, harvesting, packing or holding these commodities to meet any of the Produce Safety Regulation requirements with respect to these commodities. However, in the guidance, the Agency noted that it may consider pursuing rulemaking to address the unique circumstances of each commodity and may revise the exercise of enforcement discretion if, for example, new information becomes available regarding safety concerns associated with the production and consumption of these commodities. Link to original article 

Could a Federal Data Privacy Law be a Reality in 2019?​

From the continual evolution of the California Consumer Protection Act (CCPA) to the potential ramifications of a Brexit “no-deal” on data transfers, 2019 may be a defining point in data privacy and cybersecurity.  Nowhere is this increased attention more pronounced than the growing support for US federal data privacy legislation. With growing public concern regarding the protection of personal data, primarily related to recent massive data breaches and the emergence of increasingly sophisticated technologies, but also spurred on by regulators in other jurisdictions, most notably the European Union, it is quite possible the United States Congress will pursue federal data privacy Legislation in the 116th Congress.  Proponents argue the current system of US data privacy laws, with each state having its own data privacy laws (a sectoral approach), is confusing and yields inconsistent application. For example, under the same set of circumstances pertaining to a data breach, some states’ laws may trigger breach notification obligations whereas other states’ laws would not require notification.  Accordingly, any company contending with a nationwide data breach event must review, confirm and attend to compliance obligations for all 50 states, with potentially many different compliance obligations.  Proponents believe a federal policy designating a single standard would simplify compliance and lessen confusion.  As evidence that a uniform data protection law can support needed certainty, supporters point to the European Union’s General Data Protection Regulation (GDPR). Recognizing public attention and concern over data privacy, the House and Senate Commerce and Judiciary Committees have held hearings on topics related to consumer data privacy and requested input from industry experts. In September and October of 2018, Senator John Thune (R-SD), the then-chairman of the Senate Committee on Commerce, Science, and Transportation, held hearings on safeguards related to consumer data privacy. In November 2018, Senator Ron Wyden (D-OR) released a draft Consumer Data Protection Act, which was drafted to expand the Federal Trade Commission’s  (FTC) regulatory and enforcement powers to, among other things, establish minimum national data privacy and cybersecurity standards. The draft would also create a system that would allow consumers to stop third parties from tracking online activity and sharing data.   Notably, Sen. Wyden’s legislation included provisions that would allow criminal penalties for senior executives whose companies ran afoul of the law. Shortly thereafter, Senator Brian Schatz (D-HI) released the draft Data Care Act, which would require a website, applications, and other online providers to establish practices to reasonably secure individual identifying data and promptly inform users of data breaches that involve sensitive information.  Pursuant to the proposed Act, these online providers would be subject to duties of “care, loyalty, and confidentiality” in the handling of personal data.  The proposed Act would also grant the FTC enhanced power, including rule-making power, to implement the Act as a violation of the Act would be treated as a violation of an FTC rule with fine authority. Recently, on January 16, 2019, Senator Marco Rubio (R-FL) announced a new privacy bill, the American Data Dissemination Act (ADDA).  In contrast to the Consumer Data Protection Act and the Data Care Act, ADDA does not expand FTC authority to create and implement laws.  Instead, ADDA would require Congress to pass applicable laws presented by the FTC, with the FTC ultimately gaining rule-making power if Congress is unable to pass a law within two years of ADDA going into effect.  Most notably, the Act would supersede state privacy regulations, which could result in a greater emphasis on privacy rights at the federal level. Not only are members of Congress increasingly interested in monitoring and proposing federal data privacy legislation, members of the private sector are interested as well.  For example, on January 14, the Information Technology & Innovation Foundation (ITIF), a technology think-tank (supported by Amazon and Google) proposed a “grand bargain” proposal on federal data privacy legislation. This plan supports a single breach standard and would preempt and state laws.  Further evidencing private sector support, Intel also disseminated a draft of a data privacy bill. On February 27, 2019, the Senate Commerce Committee held a hearing, titled “Policy Principles for a Federal Data Privacy Framework,” to examine what Congress should do to address risks to consumers and implement data protections for all Americans.  The hearing included robust debates surrounding transparency pertaining to the use of consumers’ personal information and the ability of consumers to control how companies use their personal information. We discussed this hearing in an earlier blog post. With the House controlled by Democrats and the Senate under Republican control, it is difficult to determine what shape federal data privacy legislation will take in the 116th Congress, and indeed whether any progress will be made. Nonetheless, it appears this will be a very active area in the coming months, and with our sophisticated Data Privacy and Cybersecurity Practice and leading Public Policy practice, Squire Patton Boggs is situated to monitor and advise on this developing and all-important area of legislation. Link to original article

VA Vendors Beware: Mind the Company You Keep; It’s Time for a Compliance Checkup​

Department of Veterans Affairs (VA) acquisitions are about to get a lot more attention – from the VA Office of Inspector General (OIG), the U.S. Department of Justice (DOJ), and possibly Congress, as well. The U.S. Government Accountability Office (GAO) recently published a report (GAO-19-157SP) updating its “High Risk List,” which lists 35 government agencies and programs that may be particularly vulnerable to fraud, waste, abuse, and mismanagement, adding “VA Acquisition Management” to the list of the usual suspects. If, as Aesop opined, “a man is known by the company he keeps,” then the VA has now joined a notorious group. VA vendors should be aware of this development, because any attempt by the VA to “get well” will likely come with heightened compliance obligations for VA vendors. GAO identified seven reasons for its “high risk” assessment of VA Acquisition Management: (1) outdated acquisition regulations and policies;(2) lack of an effective medical supplies procurement strategy;(3) inadequate acquisition training;(4) contracting officer workload challenges;(5) lack of reliable data systems;(6) limited contract oversight and incomplete contract file documentation; and(7) leadership instability. GAO noted that the VA has not conducted a comprehensive update to the VA Acquisition Regulations (VAAR) since 2008. The VAAR and related internal guidance instruct contracting officers how to conduct procurements, including how to apply contracting preferences, such as the “Veterans First” priority favoring small businesses owned and controlled by service-disabled and other veterans. The GAO report found that VA contracting officers are often unsure how to apply the Veterans First policy, especially in the wake of the 2016 U.S. Supreme Court decision in Kingdomware Technologies, Inc. v. United States. Moreover, much of the training the VA currently provides is inadequate and discretionary, leading to very uneven understanding throughout the VA. In addition to inadequate regulations and training, GAO recommended the VA conduct a fraud risk assessment of the entire Veterans First program. GAO observed that VA contracting officers commonly fail to keep complete contract files or to exercise proper contract oversight, pointing to unmanageable workloads as a probable cause. Being overloaded may cause contracting officers to omit mandatory clauses in veteran-owned set-aside contracts, and even when the appropriate clauses are included, VA contracting officers may not be separately monitoring compliance with critical requirements like the “Limitations on Subcontracting” clause. See FAR 52.219-14; see also 13 C.F.R. § 125.6. Compliance with “Limitations on Subcontracting” requirements is already a hot issue within the VA, with the VA issuing a June 2018Class Deviation to help improve monitoring and compliance. SeeVAAR 852.219-74. GAO’s report also highlighted as problematic the Medical Surgical Prime Vendor – Next Generation (MSPV-NG) Program that manages the product formulary from which VA medical facilities purchase supplies. The GAO report critiqued MSPV-NG as failing to meet its cost avoidance goals due to lack of stakeholder acceptance and utilization by medical centers. The report also noted that 20% of Veterans Health Administration contracting actions are done on an emergency basis, which is inherently more expensive for taxpayers, accounting for $1.9 billion in 2016 spending. The MSPV-NG Program is currently undergoing a major overhaul, which we discussed in a previous blog post (available here). GAO’s report could prompt the VA OIG and DOJ to increase scrutiny of VA procurement contracts, leading to an uptick in investigations and enforcement actions against VA vendors. Current and prospective vendors should take this opportunity to review their VA contracts to ensure compliance, particularly with key clauses such as the “Limitations on Subcontracting” clause called out in the GAO report. Vendors may also want to tighten their internal compliance systems and training, both of which become highly relevant in the event of an OIG or DOJ investigation. Finally, the VA regulatory landscape is undergoing major changes that will likely accelerate in response to GAO’s recommendations, with the VA already implementing a full-scale (albeit incremental) update to the VAAR. It will be important for even long-time VA vendors to stay apprised of regulatory changes in the coming months and years. If people are indeed known by the company they keep, please remember the Sheppard Mullin team is someone you want to have in your corner. Whether helping you design or update your federal compliance program, answering concerns about current contracts, or leading your response to a Civil Investigative Demand or a federal subpoena, we can help. As Benjamin Franklin once said, “an ounce of prevention is worth a pound of cure.” Link to original article


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