Food Labeling; Nutrition Labeling, Small Business Exemption

DEPARTMENT OF HEALTH AND HUMAN SERVICES

Food and Drug Administration

21 CFR Part 101

[Docket No. 94N-0031]

RIN 0910-AA19

Food Labeling; Nutrition Labeling, Small Business Exemption

AGENCY: Food and Drug Administration, HHS.

ACTION: Final rule.

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SUMMARY: The Food and Drug Administration (FDA) is amending its food

labeling regulations to modify the basis on which low-volume food

products of small businesses are exempted from the requirements for

nutrition labeling. The regulations also establish a notification

procedure for small businesses to claim exemption for qualifying food

products. This final rule is in response to the Nutrition Labeling and

Education Act Amendments of 1993 (the 1993 amendments), and it is

intended to provide an understanding of how the small business food

labeling exemption provisions of the 1993 amendments operate.

DATES: The effective date of this rule is October 7, 1996.

Submit written comments on the information collection requirements

by October 7, 1996. This information collection has been approved by

the Office of Management and Budget (OMB) for 90 days, under OMB

control no. 0910-0324.

ADDRESSES: Submit written comments on the information collection

requirements to the Dockets Management Branch (HFA-305), Food and Drug

Administration, 12420 Parklawn Dr., rm. 1-23, Rockville, MD 20857.

FOR FURTHER INFORMATION CONTACT: Gerad L. McCowin, Center for Food

Safety and Applied Nutrition (HFS-151), Food and Drug Administration,

200 C St. SW., Washington, DC 20204, 202-205-4561.

SUPPLEMENTARY INFORMATION:

I. Background

A. Procedural

On November 8, 1990, the Nutrition Labeling and Education Act of

1990 (Pub. L. 101-535) (the 1990 amendments) was enacted. This new law

amended the Federal Food, Drug, and Cosmetic Act (the act) in a number

of important ways. One of the most notable aspects of the 1990

amendments is that they added section 403(q) to the act (21 U.S.C.

343(q)). This section, as amended by the Nutrition Labeling and

Education Act Amendments of 1993 (Pub. L. 103-80) (the 1993 amendments)

and the Dietary Supplement Health and Education Act of 1994 (Pub. L.

103-417) (the DSHEA), provides that, with certain exceptions, a food,

including both conventional foods and dietary supplements, is

misbranded unless its label or labeling bears certain nutrition

information (nutrition labeling).

Among the exceptions that Congress made to the nutrition labeling

requirement was one for small businesses based upon the value of their

gross sales (section 403(q)(5)(D) of the act). Following the expression

of concerns by small businesses about the narrow coverage of the

exemption and about the problems that relatively small firms would have

in meeting the requirements of the new law, Congress passed the 1993

amendments establishing a new exemption for low-volume food products of

small businesses under section 403(q)(5)(E) of the act. This section

provides that low-volume products of small businesses need not be

nutrition labeled.

What constitutes a low-volume food product is defined in the act by

the number of units of the product sold per year; what constitutes a

small business is defined by the number of full-time equivalent

employees (FTE's) that the firm employs. For a food product to be

exempt under this section, a small business must file a notice with FDA

claiming the exemption and providing information as to: (1) The average

number of FTE's for itself and all of its affiliates and (2) the

approximate number of units of its sales in the United States for each

product for which an exemption is claimed. For products that were on

the market before May 8, 1994, the 1993 amendments provide a gradual

phase-down of what constitutes a low-volume food product of a small

business. The number of units decreases from ``fewer than 600,000'' for

the 12-month period before May 8, 1994; to ``fewer than 400,000'' for

the 12-month period before May 8, 1995; to ``fewer than 200,000'' for

the 12-month period before May 8, 1996; and to ``fewer than 100,000''

thereafter. The number of FTE's starts at ``fewer than 300'' through

May 8, 1995, decreases to ``fewer than 200'' for the year before May 8,

1996, and down to ``fewer than

[[Page 40964]]

100'' thereafter. Products that initially come onto the market after

May 8, 1994, are subject to the ``fewer than 100,000 unit and 100 FTE''

limit.

Thus, the 1993 amendments provide additional time before low-volume

food products of small businesses must conform with the requirements

for nutrition labeling. By doing so, the 1993 amendments permit small

businesses to use up stocks of labels, thereby reducing the costs of

label inventory disposal, and to avoid having to compete for design and

printing resources with larger firms. By providing that no food product

from a firm having fewer than 100 employees and for which there are

sales of fewer than 100,000 units per year will have to be nutrition

labeled (at least until after May 8, 2002), the 1993 amendments save

small firms the expense of nutrient analysis and preparation of new

labels for those products.

Under the provisions of the 1993 amendments, as noted above,

persons that claim an exemption for a low-volume food product must file

an annual notice with FDA claiming the exemption. For products on the

market before May 8, 1994, the first such notice was due May 7, 1994,

and a second notice was due on May 7, 1995 (section 403(q)(5)(E)(iii)

of the act). Although the filing of the notice is necessary for an

exemption, it does not entitle a firm to an exemption. Under section

403(q)(5)(E)(I)(I) and (q)(5)(E)(ii) of the act, a product is not

exempt if its labeling provides nutrition information or bears a

nutrient content or health claim.

One other aspect of the small business exemption is relevant for

background purposes. In providing the new exemption for low-volume food

products of small businesses (section 403(q)(5)(E) of the act),

Congress noted that FDA had misinterpreted its intent as related to the

small business exemption in the 1990 amendments, which is based upon

total gross sales, by applying it to manufacturers, packers, and

distributors in addition to retailers (section 403(q)(5)(D)). However,

recognizing that FDA had issued regulations that small businesses were

relying on, Congress provided that section 403(q)(5)(D) of the act

would apply to all firms through May 7, 1995, but only to firms that

sell directly to the consumer (i.e., retailers) after that date

(Statement of Explanation, H.R. 2900, 139 Congressional Record H6358

(August 6, 1993)).

The 1993 amendments were self-effectuating in establishing the

provisions for exemption from nutrition labeling for low-volume foods

of small businesses. In passing the 1993 amendments, Congress was

concerned that action be taken quickly. In discussing the need for

quick action, Senator Bumpers noted that: ``To come into compliance

with the May 1994, effective date of the Nutrition Labeling and

Education Act requirements, small businesses must in the very near

future begin to incur the cost of initiating product analysis and

labeling redesign.'' (139 Congressional Record S10818 (August 6, 1993.)

Further, in introducing H.R. 2900 (the bill that became the 1993

amendments) for consideration, Senator Kennedy stated that: ``No action

or response by the FDA is required for the exemption to be in place.

Businesses with fewer than 10 employees, which sell fewer than 10,000

units of products, are (not) required to file any notice with the

FDA.'' (139 Congressional Record S10817 (August 6, 1993).) The

provisions of the 1993 amendments became effective upon their enactment

on August 13, 1993.

Although FDA recognized that the 1993 amendments were self-

effectuating, it concluded that rulemaking would be useful in providing

a common understanding of how the exemption provisions operate. Thus,

to facilitate implementation of the 1993 amendments, FDA published in

the Federal Register of March 14, 1994, a proposal entitled ``Food

Labeling; Nutrition Labeling, Small Business Exemption'' (hereinafter

referred to as ``the small business exemption proposal'') (59 FR 11872)

to: (1) Modify Sec. 101.9(j)(1)(21 CFR 101.9(j)(1)) and

Sec. 101.36(f)(1) (21 CFR 101.36(f)(1)), which provide for a small

business exemption based upon gross sales, to reflect the provisions of

the new law, (2) incorporate the provisions for exemption of low-volume

food products of small businesses, and (3) establish procedures for the

filing with FDA of notices from small businesses claiming exemptions

for low-volume food products.

FDA received 30 letters, each containing one or more comments, to

the small business exemption proposal. The responses were received from

trade and retail associations, Federal and State government agencies,

and industry. A number of the comments supported various aspects of the

proposal. Several comments addressed issues outside the scope of this

proposal, which will not be responded to here. A number of comments

suggested modifications in, or were opposed to, various provisions of

the small business exemption proposal. A summary of the arguments and

changes suggested by these latter comments, and the agency's responses,

are provided below.

B. FDA's Experience with the Filing of Notices

Before responding to the comments, it may be informative to discuss

FDA's experience with the notices that have been submitted claiming

exemptions under the 1993 amendments. FDA began receiving notices

almost immediately after enactment of the 1993 amendments with

approximately 150 notices being received by March 14, 1994, when it

published the small business exemption proposal. Approximately, 3,600

more notices were received by May 7, 1994, the date when all such

notices were to have been filed for products already on the market. The

agency has continued to receive notices from firms claiming exemption

for products that had been on the market before May 8, 1994, as well as

notices for new firms and new products.

Although not required by the 1993 amendments to approve or even

review the notices, FDA has maintained a file on each notice and has

attempted to acknowledge receipt of the notice. One of FDA's first

steps following receipt of a notice has been to record the name and

address of the firm in a computer data base. In establishing and

maintaining its file of notices claiming an exemption, FDA has reviewed

each notice to determine whether it contained the basic information on

the number of employees and the number of units of food products sold

by the firm in the United States. Finally, FDA has issued a letter

acknowledging receipt of the notice for each notice that appeared to

contain complete information and appeared to, in fact, be qualified for

the exemption.

One of the intended uses of the computer data base information on

firms that had submitted notices to the agency was to develop for FDA

field offices and State enforcement agencies a list of firms that had

submitted notices claiming an exemption under the provisions of the

1993 amendments. Enforcement action under the 1990 amendments was

delayed until after August 8, 1994, by enactment of Pub. L. 103-261 on

May 26, 1994. This public law extended the time period for compliance

with the provisions of section 403(q) of the act until after August 8,

1994, for certain food products. By August 8, 1994, FDA had received

approximately 6,000 notices claiming exemption under the 1993

amendments. Between that time and the present, FDA has received

approximately 3,000 notices from

[[Page 40965]]

additional firms claiming exemptions under the 1993 amendments.

In August 1994, FDA made its data base of the names and addresses

of each firm that had submitted a notice under the provisions of the

1993 amendments available to its field offices and State enforcement

agencies through a computer bulletin board system called ``FDA PRIME

CONNECTION,'' which is maintained by the agency. FDA also placed

information concerning the names and addresses of foreign firms and

American importers filing notices on a second bulletin board system

called ``FIARS'' (``FDA Import Alert Retrieval System'') that is

available to FDA's import offices. FDA's enforcement offices were

advised to review these listings to determine whether a firm had

submitted a notice under the 1993 amendments if a product appeared to

be out of compliance with the nutrition labeling requirements of the

act.

As stated above, under the 1993 amendments, the notice claiming an

exemption must be resubmitted every 12 months. The anniversary date for

most such notices, i.e., those covering products on the market before

May 8, 1994, is May 7th of each year. By May 7, 1995, FDA had received

just over 1,100 notices claiming a continued exemption for food

products for the time period of May 8, 1995, to May 7, 1996, under the

provisions of section 403(q)(5)(E)(ii)(II) of the act. In the beginning

of June, the agency sent a letter to each firm that had not yet renewed

its exemption reminding it of the need to submit a new exemption notice

to claim exemption for eligible products for the time period of May 8,

1995, to May 7, 1996. The reminder letter asked that the notices be

submitted to the agency by July 10, 1995. By July 31, 1995, FDA had

received a total of approximately 4,000 notices for the time period of

May 8, 1995, to May 7, 1996. A small number of firms responded to the

June reminder letters by stating that they were out of business or had

revised the labels of their products to comply with the requirements

for nutrition labeling.

A small number of the notices submitted to the agency were

deficient, or inconsistent with the provisions of the 1993 amendments,

in one or more aspects. A small number of the notices were deficient in

that they did not supply information on the average number of FTE's or

the number of units of product sold in the United States. Others were

deficient in that they did not name the products sold in the United

States for which the firm was claiming exemption. Some notices were

inconsistent with the provisions of the 1993 amendments in that the

average number of FTE's was 300 or more, or the number of units sold in

the United States was 600,000 or more. To the extent that its resources

permitted, FDA contacted by telephone or by mail those firms that had

submitted notices that were deficient or contained information

inconsistent with the provisions of the 1993 amendments. In some cases,

products appeared to be ineligible for the exemption without further

clarification; e.g., a bakery claimed an exemption for ``cookies'' and

listed total sales of less than one million units. Upon questioning

concerning the information in the notice, the firm advised that it

produces several different types of cookies, none with sales of greater

than 100,000 units. While resolving such questions, FDA has retained

the firm's name and address in the data bases for exempt firms and for

products. There were some instances where FDA advised firms submitting

notices that one or more products listed in their notice were not

exempt from nutrition labeling because either they did not qualify as a

small business or the product was not a low-volume food product. In

such a case the firm or the product were removed from the computer

listing of exempt firms or exempt products.

II. The Final Rule

A. Provisions Rendered Moot by Passage of Time

Certain provisions contained in the small business exemption

proposal are subject to timeframes, after which they no longer have an

effect. Proposed Sec. 101.9(j)(1)(i) would have provided an exemption

until May 7, 1995, for food offered for sale by a manufacturer, packer,

or distributor based upon the firm's gross sales. Proposed

Sec. 101.9(j)(18)(i)(A) would have provided an exemption for low-volume

food products for the time period of May 8, 1994, to May 7, 1995. The

passage of time has rendered both of these proposed provisions moot.

Accordingly, FDA is not incorporating Sec. 101.9(j)(1)(i) and

(j)(18)(i)(A) as proposed on March 14, 1994 (59 FR 11880), and is

renumbering the remaining paragraphs in Sec. 101.9(j)(1) and (j)(18) in

this final rule. Because Sec. 101.9(j)(1)(ii) is identical to the

existing regulation, it will not be set out in this final rule.

B. Dietary Supplements

On January 4, 1994, before it issued the small business exemption

proposal, FDA issued final rules on nutrition labeling and nutrient

content claims for dietary supplements. At that time, the act provided

an exemption from nutrition labeling for dietary supplements of

vitamins or minerals but not for dietary supplements of herbs or other

nutritional substances. Thus, in the small business exemption proposal,

FDA included provisions for conventional foods and dietary supplements

of herbs and other nutritional substances under proposed

Sec. 101.9(j)(18) and for dietary supplements of vitamins and minerals

under proposed Sec. 101.36(f)(2).

The DSHEA amended section 403(q)(5)(F) of the act to eliminate the

distinction between dietary supplements of vitamins or minerals and

dietary supplements of herbs and other nutritional substances. In

addition, even though the nutrition labeling and nutrient content claim

requirements for dietary supplements were to go into effect on July 1,

1995, in the wake of the DSHEA, FDA published a notice on February 9,

1995 (60 FR 7711), in which it stated that, given the need to modify

its regulations on nutrition labeling and nutrient content claims for

dietary supplements to respond to the DSHEA, it did not intend to

enforce those regulations until after December 31, 1996. The agency

published a document proposing appropriate changes to its regulations

for the nutrition labeling and nutrient content claims for dietary

supplements on December 28, 1995 (60 FR 67194).

FDA notes that the DSHEA does not alter the exemption for low-

volume food products created by the 1993 amendments as they relate to

the submission of notices to claim exemption for dietary supplements.

The agency has received some notices claiming exemption for dietary

supplements under the provisions of the 1993 amendments even though the

agency has yet to enforce the labeling requirements with respect to

this class of products. FDA is unaware of any basis for not moving

forward to establish provisions for the exemption of dietary

supplements under the 1993 amendments. None of the comments on the

small business exemption proposal raised a question about its

application to dietary supplements. To streamline the regulations and

to be consistent with the manner in which other exemptions and special

labeling provisions are listed under Sec. 101.36(g)(21 CFR 101.36(g)),

FDA has modified Sec. 101.36(f) to cross-reference the small business

exemption in Sec. 101.9(j)(1) and the exemption for low-volume food

products of small businesses in Sec. 101.9(j)(18), rather than codify

those exemptions in Sec. 101.36.

[[Page 40966]]

C. Definition of ``Person''

1. Two comments stated that the agency should clarify that the

exemption is available to private label packers and distributors as

well as to manufacturers. The comments urged that FDA state that a

``person'' entitled to apply for the low-volume food product small

business exemption includes a manufacturer, a packer, or a distributor

of such food products. The comments stated that the clarification that

they suggested is consistent with the law and with the preamble to the

proposal and would prevent confusion over the exclusion of

manufacturers, packers, and distributors from the exemption based on

gross sales.

FDA agrees that the 1993 amendments should be interpreted to give

as much relief to small businesses as can fairly be provided. FDA

recognizes that, by tracking the language of the 1993 amendments and

using the term ``person'' in the proposal, the agency may not have made

clear that all types of small businesses are eligible to submit a

notice for the exemption for low-volume foods. The agency has modified

Sec. 101.9(j)(18) to clarify that a small business, whether it is a

manufacturer, a packer, a distributor, including an importer or a

retailer that introduces the food into interstate commerce, is eligible

to claim an exemption for a low-volume food product under the 1993

amendments.

2. One comment stated that the ``person'' claiming the exemption

for a product should not be limited to the manufacturer or the company

whose name is on the label of the food product. The comment argued that

the person that is the exclusive sales agent for a firm's products also

should be able to file the notice. The comment argued that, because the

1993 amendments consistently refer to the person who claims an

exemption for a food product, the exemption need not be linked to the

manufacturer of the product but can be claimed by the firm that makes

sales of the food product in the United States. The comment stated that

the focus of the 1993 amendments is on making accountable the person

who presents the product to the consumer. The comment identified three

provisions of the 1993 amendments that it stated supported its

position:

(1) The law does not mandate that one affiliate (manufacturing)

instead of another (marketing) file the notice,

(2) The very small business exemption from the notice requirement

applies to a person who sells fewer than 10,000 units of a food product

in a year, and

(3) A notice may be filed by importers, who of course are not

manufacturers of the products they handle.

The comment concluded that the exclusive sales agent knows the

total number of units of a food product sold in the United States and

can make an accurate statement of those sales on the notice.

As noted in response to the preceding comment, FDA agrees that the

law does not mandate that the ``person'' filing the claim be the

manufacturer or the company whose name is on the label. The agency

agrees that an exclusive sales agent can file a notice claiming an

exemption for a low-volume food product under the 1993 amendments.

This comment interprets the intent of the 1993 amendments too

narrowly, however, by linking the exemption directly to the seller of

the food product, as opposed to the manufacturer, repacker, or

distributor. The 1993 amendments are silent in defining what type of

small business constitutes the ``person'' that may submit a notice

claiming an exemption for a low-volume food product. The only specific

requirement that relates to that person is that the average number of

FTE's of the person, and of all of its affiliates, be fewer than the

number established as the standard by the statute (i.e., less than 300

between 1994 and 1995, less than 200 between 1995 and 1996, and less

than 100 after that date or less than 100 for any product initially

introduced into interstate commerce on or after May 8, 1994). The

modification to Sec. 101.9(j)(18) that FDA has made in response to

comment 1 in section II.C.1. of this document will adequately address

the concerns of this comment.

3. Several comments addressed the relationship of affiliated firms

to those firms claiming an exemption under the provisions of the 1993

amendments. One comment stated that the guiding notion in defining

``affiliate'' should be whether one entity actually exercises control

over a small food company. It stated that indirect and unexercised

control should not create the status of affiliate. The comments argued

that tenuous relationships linking far flung affiliates, and standard

contractual arrangements that permit small food companies to exist,

should not be considered an affiliation.

The Statement of Explanation presented by Mr. Waxman in presenting

the bill that became the 1993 amendments explains that:

Section 403(q)(5)(E)(vi)(III) defines person, in the case of a

corporation, to include all domestic and foreign affiliates of the

corporation. The FDA should consider the regulations issued by the

Small Business Administration on this issue. 13 CFR. 131.401 (sic)

(1993).

(139 Congressional Record H6358 (August 6, 1993).)

Section 121.401 of Title 13 of the Code of Federal Regulations (13

CFR 121.401) sets out the provisions established by the Small Business

Administration (SBA) concerning affiliation. (FDA presumes that the

reference in the Congressional Record to 13 CFR 131.401 was a

typographical error because that section does not involve the question

of affiliation.) 13 CFR 121.401 provides a general rule on the

determination of affiliation plus more specific instructions on how to

determine whether affiliation exists between two firms. Among other

things, 13 CFR 121.401 states that size determinations shall include

the applicant concern and all its domestic and foreign affiliates.

Moreover, all affiliates, regardless of whether organized for profit,

must be included. Concerns are affiliates of each other when either

directly or indirectly one concern controls or has the power to control

the other; or a third party or parties controls or has the power to

control both; or an identity of interest between or among parties

exists such that affiliation may be found. In determining whether

affiliation exists, consideration shall be given to all appropriate

factors, including common ownership, common management, and contractual

relationships.

FDA agrees with the comment that stated that standard contractual

arrangements, to the extent that they do not create an identity of

interest, should not be considered as evidence of affiliation. However,

the other comments on affiliation are inconsistent with the provisions

of 13 CFR 121.401. The other comments argued that affiliation is not

present if an entity is not actually exercising control over the

affiliate. The SBA regulation provides, however, that concerns are

affiliates of each other when one ``controls or has the power to

control.'' None of the comments attempted to explain how their

suggested interpretations of the term ``affiliation'' were consistent

with 13 CFR 121.401.

Because the suggestion for the interpretation of affiliation

presented in the comments is not consistent with the congressional

intent, as evidenced by the Statement of Explanation, FDA concludes

that modification of the meaning of ``affiliation'' as suggested by the

comments would be improper, and the agency is not making the suggested

change. To reduce the potential for confusion over the use of the term

[[Page 40967]]

``affiliate'' in its regulation, however, FDA is modifying the

definition of the term ``person'' in Sec. 101.9(j)(18)(vi)(C) to

include a reference to 13 CFR 121.401 as defining ``affiliate.''

4. One comment stated that FDA should not expand upon Congress'

definition of ``person'' to include, for companies that are not

corporations, all affiliates of that company.

FDA recognizes that the 1993 amendments specifically refer to

corporations when stating that: ``the term `person' in the case of a

corporation includes all domestic and foreign affiliates of the

corporation.'' Accepting the view that the 1993 amendments are silent

with respect to how entities other than corporations are to be treated,

the fact remains that section 201(e) of the act (21 U.S.C. 321(e))

states that the ``term `person' includes individual, partnership,

corporation, and association.'' Even though the 1993 amendments are

silent as to how persons other than corporations should be treated,

there is nothing that suggests that those persons should be treated

differently than corporations. None of the comments presented any basis

for treating these other persons differently than corporations.

Therefore, FDA concludes that the best approach would be to treat all

persons the same. Thus, in Sec. 101.9(j)(18)(vi)(C), the term

``person,'' as relates to an entity that is not a corporation, includes

all affiliates as defined in 13 CFR 121.401 for purposes of section

403(q)(5)(E) of the act.

D. Definition of ``Unit''

5. Some comments stated that whether a food is a low-volume food

product should be based upon the number of units of a food product for

which the packer or distributor is responsible, regardless of the

number of similar units produced by its manufacturer for other persons.

These comments stated that FDA has inadequately explained in the

proposal how the number of units criterion and the definition of ``food

product'' should be applied to private label food products. They stated

that a private label packer or distributor that is a small business

should be able to apply for, and claim the benefit of, the small

business exemption based on the number of units of food products the

packer or distributor sells annually under its own private label. They

reasoned that this approach would be consistent with the agency's

explanation of the application of the small business exemption based

upon gross sales, where the name of the firm on the label determines

responsibility for the label for the purpose of determining the firm

that must have sales of less than $500,000 for purposes of section

403(q)(5)(D) of the act, which was passed as part of the original 1990

amendments. The comments stated that FDA's interpretation of

eligibility for exemption under the 1993 amendments should be

consistent with its interpretation under the 1990 amendments.

Having evaluated these comments and the notices that it has

received over the past year, FDA concludes that there are some basic

misunderstandings about the products that are eligible for exemption

under the 1993 amendments, particularly with respect to how to count

units in determining whether a product is a low-volume food product.

The comments also evidence a belief that the agency has considerable

leeway in its interpretation of the 1993 amendments. To the contrary,

the 1993 amendments are highly specific and prescriptive in providing

an exemption from the requirements of mandatory nutrition labeling for

low-volume food products of small businesses and leave little room for

interpretation by FDA.

It is not clear that those submitting the comments understand fully

the differences between the exemption for small businesses under the

1990 amendments and the exemption under the 1993 amendments. In

presenting guidance on the 1990 small business exemption in ``Food

Labeling QUESTIONS AND ANSWERS'' (Office of Food Labeling, FDA, August,

1993), FDA stated that, for a food to be eligible for the exemption,

the firm that was responsible for the labeling of the food, i.e., the

firm whose name appeared on the label of the food product, would be the

firm whose total gross sales would be considered; that is, the firm

whose gross sales must be less than $500,000 for the product in

question to be eligible for exemption.

Under section 403(q)(5)(E) of the act, which was added by the 1993

amendments, however, whether a food product is eligible for exemption

is based on two factors, neither of which involves the value of the

firm's gross sales. One factor is the number of employees of the firm

that is submitting the notice claiming the exemption (see the

discussion above under section II.C. of this document on the definition

of ``person'' and the discussion under section II.F. of this document

on ``calculation of average number of FTE's.'' The other is the number

of units of the product that is sold in the United States. The latter

factor is the one that is not well-understood by the comments.

Under section 403(q)(5)(E) of the act, whether a food product is a

low-volume food product, and, thus, eligible for the exemption, is not

dependent on the identity of the firm claiming the exemption. This

determination depends only on the total number of units of that

specific food product that are sold in the United States (see, e.g.,

section 403(q)(5)(E)(I)(IV) of the act).

A specific food product is defined by three parameters: (1) Its

being from a single manufacturer or bearing the same brand name; (2)

bearing the same statement of identity; and (3) having a similar method

of preparation (section 403(q)(5)(E)(vi)(II) of the act). This

definition means that, in counting the number of units of a food

product, e.g., a cake mix, for purposes of claiming an exemption, firms

must consider: (1) The total number of units of the cake mix produced

by the manufacturer for sale to consumers in the United States

regardless of the brand name under which it is packaged and (2) the

total number of units of the cake mix labeled under one brand name,

regardless of the number of manufacturers that produced it. If either

number exceeds the low-volume criteria, the product is not eligible for

the exemption.

Presume, for example, that a manufacturer produces one million

packages or units of a cake mix for sale in the United States. The cake

mix is not a low-volume food product and, thus is not eligible for

exemption under the 1993 amendments, even if the manufacturer ships all

of the product in equal quantities to 20 small businesses, and each

puts its own brand name on the cake mix that it sells. Alternatively,

if one million packages of a cake mix are made in equal quantities by

20 different manufacturers, but all bear the same brand name, the cake

mix is not eligible for exemption under the 1993 amendments, even if

each of the manufacturers has less than 100 employees, because, again,

it is not a low-volume food product.

On the other hand, a food product could be eligible for the

exemption even though it is manufactured by a large firm, if the food

product qualifies as a low-volume food product. If a manufacturer with

too many employees to qualify for the exemption were to make a product

under another firm's brand name, the product may qualify as a low-

volume food product if the sales of that private formula food product

are less than the applicable number defining a low-volume food product.

In the case of the cake mix, for example, presume that a small

business with only 15 employees contracts with 1 large copacker or

manufacturer to

[[Page 40968]]

make 50,000 units annually of that small business's special private

formula cake mix which is not available to any other firm. In such a

case, the private formula cake mix would be exempt under the 1993

amendments upon the submission of a notice by the small business

claiming an exemption, regardless of the number of employees of the

copacker and regardless of the amounts of other products that the

copacker produces. The cake mix would be exempt because the firm

claiming the exemption is small (15 employees), and the cake mix is a

low-volume food product (neither the total number of units produced for

sale in the United States, nor the total number of units sold under the

brand name in question, exceed 50,000).

In summary, contrary to the assertions by the comments, under the

1993 amendments (section 403(q)(5)(E) of the act), and in contrast to

the small business exemption established in the 1990 amendments

(section 403(q)(5)(D) of the act), the size of the company listed on

the label of a food product is not necessarily determinative of whether

that product is exempt from the nutrition labeling requirement. While

that firm must be a small business (that is, have less than the

requisite number of employees) to be eligible to claim an exemption,

the number of products sold in the United States must be below the

requisite levels for the product to be eligible for the exemption, and

that number may include products sold by companies other than the

company that is seeking the exemption. A product qualifies for the

exemption under section 403(q)(5)(E) of the act only if the company

submitting the notice is small, and the product is a low-volume food

product.

6. Several comments stated that the suggested method for counting

products from a private label manufacturer that was in the small

business exemption proposal was inappropriate. One comment suggested

that the 600,000-unit exemption be based on the sales/production of the

firm that takes control of (i.e., owns) the label and packaging on

which nutrition information would otherwise be included. According to

the comments, in many cases, that firm will be the private-label

manufacturer; in other cases, that firm will be the distributor and

marketer.

Another comment stated that a private label distributor should be

able to claim an exemption if the number of units sold in the United

States under the distributor's own label meets the statutory

requirement. The comment explained that it would defeat the purpose of

the exemption to require a distributor to aggregate all units of a food

produced by a common manufacturer and sold by other firms. Such an

interpretation, according to the comment, would require a small

distributor that sells a food in a low-volume to provide nutrition

labeling, contrary to Congress's intent to relieve the burden on such

firms. The comment noted that the approach that it was suggesting is

the only feasible way in which the exemption provision can be

administered because a distributor cannot know how many units of the

food produced by the particular manufacturer were sold in the United

States by other distributors under other brand names. Another comment

stated that the proposed requirement that a private label manufacturer

count all production in determining whether it is eligible for the

exemption is inconsistent with the 1993 amendments and may produce a

hardship on ``mom and pop stores'' that cannot produce product on their

own, particularly if each has to supply labels to the manufacturer for

labeling of the product.

FDA agrees that the intent of the 1993 amendments was to provide

relief for small businesses. In considering the intent of the 1993

amendments, it is important to remember that Congress amended a section

of the act (section 403(q)) that was added by the 1990 amendments. The

overall intent of the 1990 amendments is to ensure that nutrition

information is available on almost all foods marketed in the United

States. The 1993 amendments were enacted to provide relief for small

businesses from the economic burden of having to nutrition label low-

volume food products. This fact does not mean, however, that Congress

intended to exempt all products that bear the name of small businesses.

Rather, Congress sought to exempt those products that, because of the

size of the firm that sold them and the number of units of the product

that were sold, would likely be discontinued by the firm because the

costs of relabeling would be too great to make continued marketing of

the product economically feasible. Thus, Congress tailored the

qualifications for an exemption to meet these goals.

Congress apparently felt that, in circumstances where a firm that

sells the product is small, but the firm that manufactures it is large

and manufactures it for other firms as well, in numbers that exceed the

``low-volume'' standard, it is reasonable to expect that the larger

company would assist the smaller company in coming into compliance with

the law by, for example, providing nutrition information for the

product. Regardless of whether it is reasonable to expect that a firm

will not place its suppliers or customers in jeopardy of violating the

law, it is FDA's responsibility to ensure that there is compliance with

the provisions of the 1993 amendments.

Section 403(q)(5)(E)(vi)(II) of the act states that a ``food

product'' means food in any sized package that is manufactured by a

single manufacturer, bears the same statement of identity, and has

similar methods of preparation. Thus, if a manufacturer makes 1,000,000

units of a ``cola'' for six private label soft drink firms, 1,000,000

must be used as the number of units for each firm for the purposes of

deciding whether that firm's ``cola'' is eligible for the small

business exemption for the purposes of section 403(q)(5)(E)(i) or

403(q)(5)(E)(ii) of the act. It is important to note that in both of

the latter provisions, the statute is talking about ``units of such

product [that] were sold in the United States,'' not about the units of

such product that were sold in the United States by the person seeking

the exemption.

7. Several comments addressed FDA's proposal that, in counting

units, a small business must total all units of all of the various

sizes in which a food is packaged and all of the ways it is sold

unpackaged. These comments claimed that this proposed definition of

``unit'' by the agency basically eliminated the exemption for their

firms. Noting that the intent of Congress was to mitigate cost to small

businesses, another comment stated that it would be severely damaged if

food in any sized package that is manufactured by a single

manufacturer, no matter what the brand name, is considered a unit of

that food. One comment complained that FDA's interpretation is blind to

the cost of changing each label size for low-volume packages, and that

it overlooked the congressional intent to mitigate the cost of labeling

conversion for small manufacturers. The comment proposed that the first

year exemption for small businesses under 300 employees be allowed on

all packages under 600,000 units of sales per year provided that

printing films are different. Another comment stated that the proposed

definition does not take into account exactly what is a ``Package/

Label.'' The comment stated that FDA should allow individual, distinct

packages of a food product, as defined by the UPC (Universal Product

Code) number, to be counted separately in determining exemption

eligibility, rather than the proposed combination of all types of

products and sizes of packages.

One comment supported the agency's definition of ``units.'' The

comment

[[Page 40969]]

stated that it would be absurd and contrary to congressional intent to

exempt the many identical products made by a private label manufacturer

on the theory that each individual brand label was produced at levels

below the regulatory maximum.

The agency agrees with the latter comment and finds that the others

present suggestions that are contrary to the 1993 amendments. FDA

understands the concerns that are being raised by the comments. FDA has

no desire to implement the 1993 amendments unfairly, but it is its duty

to enforce the law in accordance with its terms.

In the counting of units, it is the definition of ``food product''

that is controlling. That definition states that a food product

includes food in any sized package which is manufactured by a single

manufacturer or which bears the same brand name. Given that being

manufactured by a single manufacturer is alternative to bearing the

same brand name, it means that products manufactured by the same

manufacturer that do not bear the same brand name would still be

considered a single product as long as they meet the other aspects of

the definition of ``food product.'' Thus, FDA's definition is fully

consistent with the act.

FDA is aware of the various factors that pose economic burdens to

small businesses that are identified by these comments, but it still

has an obligation to implement the act as written. In the face of the

statute, given the use of the words ``in any sized package'' in the

definition of ``food product,'' it is apparent that Congress decided

not to take into account the additional factors to which the above

comments point. Although the agency recognizes that the use of

different printing films or different UPC numbers would provide greater

economic relief for small businesses, as noted above, FDA is bound by

the terms of the act. Neither of these considerations are permitted or

even addressed in the 1993 amendments. As explained above, FDA's

approach is fully consistent with, and responds to, the act.

8. One comment objected to FDA's definition of a unit for soft

drinks as being the individual bottle rather than the case, noting that

there might as well not be a small business exemption for their

industry.

FDA was well aware of the concern raised by this comment and

attempted to address it in the small business exemption proposal. In

that proposal, FDA stated that, if the individual cans or bottles of a

case or carton were labeled in accordance with the provisions for

multiunit packages under Sec. 101.9(j)(15), the case or carton could be

treated as a single unit for the purpose of counting units of food

product (59 FR 11872 at 11874). To be in compliance with

Sec. 101.9(j)(15), the individual can or bottle of a multiunit package

must bear the statement ``This Unit Not Labeled For Retail Sale.'' This

possibility still exists for producers of soft drinks.

However, as noted in the small business exemption proposal, soft

drinks are not normally packaged in this manner, but instead they are

packaged in bottles or cans that are amenable to sales either as

individual packages or as part of a carton or a case. Historically,

consumers have often been able to mix individual flavors of particular

soft drinks when purchasing them by the carton or case. Thus, FDA

tentatively concluded in the proposal that the total number of

individual cans or bottles of a soft drink is controlling for the

purpose of counting the number of units sold in the United States.

In considering this comment on how units of soft drinks should be

counted, the agency has reviewed its tentative conclusions on this

matter. FDA now finds that there is a basis for counting the cases or

cartons of cans or bottles of soft drinks as individual units for the

purposes of the 1993 amendments. FDA agrees that there may be instances

where a case of soft drinks should be considered to represent a unit.

In the proposal, FDA stated its tentative finding that the case is a

convenience used by the manufacturer to deliver 12 or 24 individual

units to the customer. As noted above, this finding was based on the

historical practice of the consumer being able to mix units of soft

drinks when purchasing a case of 24 bottles. However, upon considering

this matter as part of its review of the comment, FDA recognizes that

there may be instances where the unit being sold to the consumer is the

carton or the case of soft drinks. Such situations would be those where

soft drinks are sold in cartons or cases that are sealed or have

plastic over-wraps that deter individual sales or mixing of individual

cans or bottles in the carton or case. FDA agrees that a firm may count

such sealed cartons or cases as individual units for the purpose of a

claim under the 1993 amendments, regardless of whether the individual

units are labeled in accordance with Sec. 101.9(j)(15), if the firm has

evidence of the extent to which its soft drink is sold by the carton or

case instead of by the individual can or bottle. FDA notes that if a

firm intends to rely upon the provisions of the 1993 amendments to

claim an exemption from the requirements of nutrition labeling for one

of its products, then it is incumbent upon that firm, for the purpose

of reporting the number of units, to have knowledge of how the product

is sold to the consumer.

9. Two of the comments stated that FDA should clarify how units

should be counted for a product that is not sold in a package. One

comment representing foreign firms noted the potential differences in

marketing in the United States as compared to another country and the

difficulties a foreign firm faces in learning about U.S. marketing

practices. The comment suggested that FDA include in the final rule

that the counting of units could be based upon a person's reasonable

determination of U.S. marketing practices even if that determination

deviated somewhat from actual marketing practices in the United States.

Another comment requested that FDA clearly set forth in the preamble

accompanying the final regulation how this aspect of the ``unit''

definition (i.e., sales of food not in package) will be applied to

confectionery and similar items sold individually and priced by weight.

FDA recognizes that estimating the number of units of a product

that is sold to consumers in an unpackaged form may be difficult for a

firm seeking to submit a notice claiming exemption under the 1993

amendments, particularly for a foreign firm. This is especially true

for candies which were mentioned in these two comments. Depending upon

the type of candy and its quality, a particular product may be sold at

retail by the piece (either because it is expensive or for a low price,

such as penny candy); by the half-pound or by the pound; or by the

package. In such a case, the candy manufacturer would total the number

of units sold by the piece or by the half-pound (or the pound) with

those sold in packages to determine the total number of units of candy

sold in 12 months. It is incumbent upon the firm that provides an

approximation of the number of units of a product sold in the United

States as part of a claim for exemption from nutrition labeling under

the provisions of the 1993 amendments to have adequate knowledge of the

sales of that product in the United States. This knowledge is necessary

for the firm to be able to report accurately in its notice claiming

exemption the number of units that it sold.

FDA has modified the instructions contained in Appendix II to

provide more details on the counting of units of a food that is sold

unpackaged. The agency has retained in Sec. 101.9(j)(18) language from

the 1993 amendments as

[[Page 40970]]

the appropriate description of how to count units of a food that is

sold unpackaged. FDA is concerned that to be more specific in the

regulations may reduce the degree of flexibility available under the

definition of ``unit.'' This definition (section 403(q)(5)(E)(vi)(I) of

the act) provides that ``the term `unit' means the packaging or, if

there is no packaging, the form in which a food product is offered for

sale to consumers.'' Many foods are sold to the consumer in an

unpackaged form, such as by the piece, by the slice, or by a measured

amount. Thus, to comply with definition of ``unit,'' a small business

would include in its count of units in a notice claiming an exemption

under the 1993 amendments both packaged and unpackaged product. The

agency provided an example of counting units of unpackaged food

products for flour in the proposal (59 FR 11872 at 11874). As stated in

the proposal (59 FR 11872 at 11874), the small business should make its

determination of the specific ``unit'' to use as a basis for reporting

sales of unpackaged food products according to the normal sales

practice for that food product in the United States.

E. Definition of ``Food Product''

10. Although some comments commended FDA for its definition of

``similar method of preparation,'' discussed in the preamble of the

small business exemption proposal (59 FR 11872 at 11875), some comments

asked for further clarification of the definition, in particular as it

related to nutritive value. One comment stated that the definition of

``food product'' must be limited to the factors referred to in the 1993

amendments. The comment added that the 1993 amendments link the

definition of ``food product'' to the food's statement of identity and

neither explicitly nor implicitly permit the use of nutritive value as

a factor in distinguishing one food product from another. Other

comments, however, encouraged the use of the concept of ``nutritive

value.''

One comment stated that FDA should incorporate into the regulation

the preamble language that explains the intended meaning of ``similar

preparation methods,'' including an explanation of criteria that will

allow businesses to determine when the lack of similarity of their

products' nutritional profiles is such that they must consider products

to be different than each other. One comment stated that products that

have the same common or usual name, have identical nutrition profiles,

but that are subjected to different scheduled processes because of the

size of their container, should be counted as the same product. The

comment added that products that are basically the same but have

differing names for differing shapes/forms, such as taco shells and

chalupa shells, which are both forms of tortilla shells, should be

counted as the same product.

Another comment stated that FDA should clarify that variations of a

product with formulation differences, such as different flavors, are

considered different ``food products'' for purposes of the small

business exemption. The comment stated that the preamble to the

proposal stated that the term ``similar preparation methods'' included

``all aspects in the manufacture of the food product, from the initial

steps of determining the ingredients to be used, i.e., formulation * *

*'' (59 FR 11872 at 11875). The comment stated that this statement

should be set forth in the final regulatory text itself, along with

language to the effect that even minor formulation differences, such as

differences in flavor ingredients in some cases, result in two

different food products, regardless of whether the formulation

differences result in differences in nutrient profiles between the two

different food products. The comment noted that for many firms and many

products there will be no way of determining whether two similar

products have the same nutrient profile without nutrient analyses of

each product. The comment added that requiring small businesses to

undertake such analyses solely for the purpose of ascertaining whether

they qualify for the small business exemption would undermine much of

the benefit of the exemption and be contrary to the congressional

intent.

After considering the various comments seeking clarification of the

term ``similar method of manufacture,'' FDA has decided to adopt the

definition for ``food product'' that it proposed. Also, after reviewing

the comments, FDA is emphasizing that consideration of nutritive value

is not a necessary consideration in the definition of ``similar

preparation methods.'' The comments appear to have misinterpreted FDA's

intent as it relates to the use of ``nutritive value'' of foods.

Although the legislative history for the 1993 amendments discusses

what is meant by ``statement of identity,'' it provides no insight into

what factors led Congress to establish ``similar preparation methods''

as the third factor in the definition of ``food product.'' The agency

intended that the concept of ``nutritive value'' could be used by firms

as an informal guideline in determining whether the manufacturing

processes for food products meet the parameter of ``similar preparation

method.'' FDA had presumed that firms would be faced with situations

where there were minor differences in the method of preparation that

would lead them to question whether the food products should be counted

as being the same. FDA was stating that a firm could use nutritive

value as a determinant in resolving this question. The agency did not

mean to imply that if two foods prepared by dissimilar processes were

found to have the same nutritive value they should be considered to be

the same food product. Further, FDA did not intend that firms should

analyze foods to determine nutritional value to determine whether they

should be considered to be different foods because to expect firms to

do so would be contrary to the intent of the 1993 amendments.

The agency has included an additional discussion in Appendix II

concerning the term ``similar preparation methods'' to assist firms

that submit notices to FDA under the 1993 amendments. However, the

agency is not providing further explanation of the meaning of the term

``similar preparation methods'' in the regulations. FDA is concerned

that any attempt to elaborate on a definition of ``similar preparation

methods'' would only result in a regulation that is more restrictive

than the statutory definition.

FDA agrees with the comment that urged that minor differences in

scheduled processes or differences in shapes for the same product

should not be considered as resulting in different products. FDA does

agree, however, that differences in formula, even differences that

involve different flavors, would be sufficient to consider foods having

such differences to be different food products.

11. One comment requested that FDA clarify in any final rule that

similar foods whose preparation methods result in different nutritional

profiles represent only one example of different ``food products'' for

exemption eligibility purposes. The comment stated that the agency

should make clear that other significant differences in preparation

that do not affect nutrient content, such as kosher preparation, can

also serve to differentiate ``food products'' for exemption eligibility

purposes. The comment also noted that certain such differences, like

kosher preparation, but for being symbolically rather than expressly

declared in labeling, also would differentiate products in terms of a

distinguishing statement of identity (e.g., ``kosher green beans'' as

compared to ``green beans''), thereby contravening the second

[[Page 40971]]

element of the ``food product'' definition.

As discussed in response to the previous comment, this comment

misinterprets the way in which FDA had meant for the concept of

nutritive value to be used. FDA had never intended that the concept of

nutritional value should be used as a basis for concluding that food

products with differing methods of preparation but the same levels of

nutrients should be considered the same food product for the purpose of

counting units. However, the comment raises the issue of whether both

perceived and real differences in the method of preparation should be

considered in distinguishing between food products.

A determination of whether real and perceived differences

distinguish particular foods can only be made on a case-by-case basis.

It is not possible to provide guidelines that would cover every case.

FDA believes that real differences, such as differences in formulation

or differences in preparation, would be used to distinguish a

``Kosher'' product as a different food product. However, there may be

steps in the production of a ``Kosher'' product that would not

distinguish it from a nonkosher product; e.g., the comment mentioned

rabbi inspection as a step that distinguishes kosher food products from

other food products. FDA does not agree that rabbi inspection would be

sufficient to result in differing food products for the purposes of the

1993 amendments. As noted above, such distinctions will have to be made

on a case by-case-basis.

12. One comment suggested that identically formulated products in

different size packages or types of packages should be considered

different ``food products'' for purposes of the small business

exemption.

This suggested approach is contrary to the wording in the 1993

amendments themselves. The definition of food product states: `` `food

product' means food in any sized package'' (section

403(q)(5)(E)(vi)(II) of the act). This wording makes clear that, for

the purpose of counting units of a food product, all of the various

sizes and forms in which a food product is sold are to be combined.

Thus, FDA cannot modify the definition for ``food product'' in the

manner suggested in the comment because to do so would be contrary to

the 1993 amendments themselves. (See comment 7 in section II.D. of this

document.)

F. Calculation of the Average Number of FTE's

13. Three comments raised questions concerning the proposed

provision that the average number of FTE's should be based upon the

total number of individuals employed by the firm and by all of its

affiliates, both domestic and foreign. Two comments stated that, for

the purpose of calculating the average number of FTE's, the employees

that are considered should be limited to those of the firm claiming the

exemption and not of separately incorporated affiliates. One of the

comments contended that including employees of unrelated businesses

would severely undermine the purpose and scope of the amendment. The

comment stated that a fundamental assumption of the amendment is that

each product is an independent ``profit center,'' and, accordingly,

nutrition information is only mandated when it is economically feasible

given the economies pertaining to the production and sale of an

individual food item. Although family owned retail confectioners often

are involved in other business enterprises, the comment continued, the

size or nature of those outside business interests is irrelevant to

whether the retail confectioner can cover the cost of nutrition

labeling of a particular item.

One comment stated that, in the explanation of the term ``FTE,''

FDA added a discussion that links this definition with the definition

of ``person.'' The comment stated that the effect is to require that

the employees of a domestic company be combined with those of an

affiliate company regardless of whether their operations are related to

sales of food products in the United States. The comment stated that

there is nothing in the 1993 amendments that points to or requires this

conclusion. The comment argued that the relevant issue is how many

employees were employed in the United States, not overseas and not in

unrelated positions.

FDA disagrees with the conclusion that is reached in these

comments. Each of the above comments raises the same basic argument,

that the calculation of the average number of FTE's should be based

only on the employees of the company submitting a notice claiming an

exemption under the 1993 amendments and then only on those employees

involved in the production of the food product for sale in the United

States. Although the comments state that nothing in the 1993 amendments

supports the approach proposed by FDA, they do not provide specific

citations to language in the 1993 amendments or the legislative history

of the 1993 amendments that support their conclusions. One comment said

that a fundamental assumption of the 1993 amendments is that each

product is a ``profit center'' but did not offer a citation to where

this assumption is either explicit or implicit in the 1993 amendments.

FDA concludes that the approach suggested by the comments is contrary

to the clear meaning of the 1993 amendments.

In introducing H.R. 2900 (the bill that became the 1993

amendments), Congressman Waxman stated:

certain small businesses will have extreme difficulty complying with

the NLEA by May 8, 1994. * * * Under the amendments, qualifying

businesses will be given 1 to 3 additional years to comply with the

NLEA. After May 8, 1997, any business with fewer than 100 employees

can qualify for an exemption for any products for which it sells

fewer than 100,000 cans or other units per year.

(139 Congressional Record H6358 (August 6, 1993).)

The 1993 amendments state as criteria under which a product would

be exempt from the requirements for mandatory nutrition labeling that

``the person who claims for such product an exemption from such

paragraphs employed fewer than an average of 100 full-time equivalent

employees'' (section 403(q)(5)(E)(i)(II), or 300 or 200 in the cases of

subparagraphs I and II or III of section 403(q)(5)(E)(ii) of the act,

respectively). In describing the notice to be filed to claim an

exemption under the 1993 amendments, section 403(q)(5)(E)(iii) of the

act states that the notice shall ``state the average number of full-

time equivalent employees such person employed during the 12 months

preceding the date such person claims such exemption.'' In providing

for the exemption of low-volume food products from nutrition labeling,

the 1993 amendments state that ``the term `person' includes all

domestic and foreign affiliates of the corporation'' (section

403(q)(5)(E)(vi)(III) of the act). As noted above, the ``Statement of

Explanation'' for H.R. 2900 also explains: ``Section

403(q)(5)(E)(vi)(III) defines person, in the case of a corporation, to

include all domestic and foreign affiliates of the corporation. The FDA

should consider the regulations issued by the Small Business

Administration on this issue.'' FDA is unaware of any further

discussion on the calculation of the average number of FTE's in the

1993 amendments or related legislative history. Contrary to what was

suggested by one comment, there is no indication that FTE's should only

be determined based on those employees that are related to the

[[Page 40972]]

production of the food that is the subject of the notice. In fact, the

clear implication is to the contrary. Both the 1993 amendments and

their legislative history state that the term ``person'' includes both

domestic and foreign affiliates.

FDA finds that the above references in the 1993 amendments and

their legislative history are unambiguous as to the calculation of the

average number of FTE's for a firm or other person submitting notice

claiming an exemption under the 1993 amendments. Thus, the notice

claiming an exemption must state the average number of FTE's of the

firm or person submitting the notice, including the employees of all

domestic and all foreign affiliates as defined in 13 CFR 121.410.

Further, because neither the 1993 amendments nor their legislative

history make a distinction with respect to the business of the

affiliates, the average number of FTE's must be reported based on all

the employees of all affiliates regardless of the nature of the

business of the affiliate. Given the language of the 1993 amendments

and their legislative history, FDA finds that no other interpretation

of how the average number of FTE's is to be determined is reasonable.

14. One comment stated that the average number of FTE's should be

based on actual hours worked in a year, 1,824 (i.e., the time that a

person that is actually on the job) instead of the proposed 2,080. The

comment provided the following explanation of the derivation of 1,824

hours as the amount of actual hours worked in a year:

An hourly person paid only for amount of time on the job is on

the job only 1,824 hours (2,080-80 annual, -80 sick, -96 for 12

holidays = 1,824 hours). Using 2,080 hours instead of 1,824 would

allow a firm to omit the declaration of a ``ninth'' employee for

every eight full-time employees.

Another comment stated that FDA should retain its proposed method for

determining the number of employees and should maintain the 2,080 hour

denominator for the calculation.

There are any number of approaches that FDA could have used to

define ``full-time'' for use in calculating the average number of

FTE's. For any particular situation, however, each possible denominator

might over- or undercount the actual number of persons. For example, a

firm may hire large numbers of part-time employees for which it does

not provide vacation or sick leave hours. Other firms may have more

generous or less generous annual leave provisions. Still other

companies may recognize fewer or more holidays. For this reason, FDA

tentatively decided to simply take the standard full-time work week

established by the Department of Labor, 40 hours, and multiply by the

number of weeks in a year, 52, to obtain the number to be used in the

denominator for calculating the average number of full-time employees.

Although FDA recognizes the concern of the comment that suggested using

1,824 hours as the denominator, the use of 1,824 could result in a

hardship to those small businesses that provide less amount of time for

leave or holidays per employee than suggested by the comment in that it

would lead to an overcounting of employees. The agency concludes that

use of 2,080 as the denominator provides an equitable approach for a

formula to be used in determining the average number of full-time

equivalents and is retaining this value in its regulations.

15. One comment stated that FDA should consider as employees only

those persons for whom the small business pays income and social

security taxes. The comment stated that the calculation of average

number of FTE's should not include all ``individuals that render

service'' to a company, which would include lawyers, mail carriers, and

accountants that are not under the direct employ of the small business.

The comment stated that FDA should narrow the definition of employee,

and that, in case of doubt, the approach of the Internal Revenue

Service could provide guidance. Another comment stated that FDA should

reconsider who it counts as employees to exclude contract distribution

personnel. The comment explained that many small businesses use route

salesmen to service retail establishments. These route salesmen were

described by the comment as independent small businessmen who receive

compensation from the manufacturers usually as a percentage of the

sales. The comment stated that firms should not be precluded from

qualifying for the exemption because they chose this form of

distribution for their products.

The small business exemption proposal stated that the average

number of FTE's ``shall be determined by dividing the total number of

hours of salary paid directly to individuals, or companies that employ

those individuals, that render service to the person.'' In proposing

the definition in this way, FDA was attempting to ensure that persons

calculating the average number of FTE's considered all employees (e.g.,

all owners, officers, the secretarial staff, and part-time employees)

of the firm and not just those that are directly involved full-time in

the production and sales of food products. The agency had seen this as

a potential problem because some of the early notices submitted to the

agency had reported ``0,'' ``Zero,'' or ``None'' as the average number

of FTE's.

After reviewing the comments and the language of the proposed

definition for an FTE, FDA finds that the explanation for the

calculation of the average number of FTE's was overly broad and subject

to confusion. For example, FDA agrees that it is not normally necessary

to include in the determination of FTE's individuals that perform

services for the small business as part of the responsibilities of

their employment, such as the mailman, fireman, policeman, or even

grocery store clerk. FDA finds that such individuals need not be

included in the count of the average number of FTE's unless they work

for an affiliate of the firm.

The agency has modified the definition of the term an FTE in

Sec. 101.9(j)(18)(vi)(D) to narrow it to refer simply to ``employees''

instead of all individuals that render service to the firm. To ensure

that there is no misunderstanding of which employees to count, FDA is

also modifying the discussion of the calculation and reporting of the

average number in Appendix II to refer to the ``employees of the person

and of all of its affiliates.''

G. Small Business Food Labeling Exemption Notice

16. Two comments suggested changes in the model form that the

agency included as Appendix I to the proposal. One comment suggested

that the agency include a place on the form for the telephone and FAX

numbers of the firm. The comment stated that the form or instructions

should also contain the address to which the form is to be mailed. The

other comment stated that the small business food labeling exemption

notice should be modified, printed, and made available to the public.

The comment suggested use of a form prepared by the National

Association for the Specialty Food Trade, Inc. (NASFT) because it

claimed that the NASFT form is less confusing than the one that the

agency provided. The comment stated that the model form should make a

clear statement referencing the provisions of 18 U.S.C. 1001 that

prohibit the submission of false information to the Federal Government.

The comment also stated that FDA should make the modified form publicly

available.

FDA has modified the form in line with the comments and has

included the modified form in Appendix I to this

[[Page 40973]]

final rule. The agency contacted the NASFT to gain its agreement that

the agency could incorporate parts of NASFT's form into the form

supplied by FDA. FDA has modified the form to include spaces for a

telephone number and a FAX number. In reviewing notices, FDA has found

that use of the telephone is frequently an expeditious way of resolving

questions that arise. The agency has also made the address to which the

form should be sent more prominent in the instructions.

FDA has also modified the form to include specific spaces for the

date that the form was prepared and for the name of a contact person.

The agency has found that information on the date of preparation is

important to help keep multiple notice submissions separate. The name

of a specific contact person for a firm has helped the agency to

resolve rapidly questions that have arisen during its review of a

notice.

Because it has received numerous inquiries as to whether a form

exists for the submission of the notice, FDA is providing a model form

in Appendix I of this document, along with instructions for completing

it in Appendix II of this document. This model form may be used by

firms to claim exemptions. FDA advises, however, that it is not

necessary to use this form.

The agency also advises that the small business exemption for a

food product will be in effect once a notice has been filed with FDA,

even though it may be necessary for the Office of Food Labeling to work

with the firm that is filing the notice to address deficiencies in it.

Although no action by the agency is required, FDA will attempt to

review all notices to ensure that they are complete and to notify

companies of the receipt of the notice, and whether additional

information needs to be submitted.

FDA is initiating the steps necessary to obtain approval from the

Office of Management and Budget (OMB) for printing and distribution of

the ``model form'' as an official Government form. OMB approval is

required under provisions of the Paperwork Reduction Act of 1995.

17. One comment stated that the section of the notice requesting

information on the manufacturer of a product, if it is other than the

person claiming the exemption, is irrelevant and should not be

required. The comment stated that adding irrelevant information

increases the paperwork burden, forces companies to give the Government

unnecessary information, and enlarges the scope of the 1993 amendments.

The comment suggested that FDA may be asking for the name of the

manufacturer because it hopes to exclude from the small business

exemption small companies that have product made by a copacker.

The 1993 amendments require that the firm filing a notice provide

information on the total number of units that it sold in the United

States in the preceding year. As a number of comments stated, and as

FDA agrees, a firm can only be held responsible for knowing, and

reporting, the number of units that it sold, not the total number of

units of a product sold in the United States by all firms that might

sell the product. However, as noted above in response to comment 5 in

section II.D. of this document, whether a food product is eligible for

exemption under the 1993 amendments depends not on the total number of

units sold in the United States by the firm claiming the exemption, but

it depends on the total number of units sold in the United States by

all firms that sold the food product. In the case of a manufacturer or

exclusive sales agent, the total number of units sold in the United

States may well be the number reported by the firm claiming the

exemption. In the case of an own-label distributor, the total number of

units sold in the United States may include sales by firms other than

the firm claiming the exemption.

FDA has included space in the model form for the listing of the

manufacturer, if it is not the person submitting the notice, to enable

the agency, if necessary, to identify instances in which the total

number of units of a food product sold in the United States might

exceed the applicable number for eligibility for exemption under the

1993 amendments. FDA seeks this information not to unfairly harass

small businesses, but to ensure that there is a level playing field so

that firms are not at a competitive disadvantage. Equally importantly,

FDA is seeking the information to ensure that consumers have access to

nutritional information on products when they have a right to it.

In its discussion with firms that were preparing notices to claim

exemption under the 1993 amendments, FDA has become aware that firms

may not always know the identity of the manufacturer of the product,

particularly if it is an imported product. If this is the case, FDA is

asking the person that submits a notice under the 1993 amendments to

identify the firm from which they received the product if he or she is

unaware of the identity of the manufacturer of the product.

18. Some comments stated that FDA should allow additional time for

firms to submit the notice claiming the exemption. One comment

suggested 6 months in view of the short time span between the

publication of the proposal and the May 7, 1994, filing date for

notices. One comment raised a concern about the requirement that

notices be filed by May 7th of each year and the attendant lack of

flexibility. Another comment stated that no firm should have to refile

for exemption before May 8, 1995.

These comments seem to be based on a belief that FDA has more

flexibility in the establishment of the date for filing of the notice

claiming an exemption than is actually provided by the 1993 amendments.

Most of the concerns raised by these comments have become moot with the

passage of time. The concern about the inflexibility of the May 7 date

for the submission of notices apparently arose from the agency's

statement in the preamble that ``[A]ll notices must be filed by May 7,

1994, for the 12-month period beginning May 8, 1994, the date that the

new mandatory labeling regulations become effective'' (59 FR 11872 at

11876). FDA advises that the May 7, 1994, date derives directly from

section 403(q)(5)(E)(iii) of the act, which requires that the notice

claiming exemption under the 1993 amendments be submitted ``prior to

the beginning of the period during which the exemption under subclause

(i) or (ii) is to be in effect.'' Thus, May 7 was established as the

date for submitting the claim for exemption for the 12-month periods

beginning May 8th of 1994, 1995, or 1996. The agency has no authority

to change this requirement.

FDA notes that a person is not restricted to the May 7 date for the

submission of a notice claiming an exemption under the provisions of

section 403(q)(5)(E)(i) of the act. Such a notice may be submitted on

any date as long as it is submitted before the beginning of the period

during which the exemption is to be in effect.

19. Two comments stated that it should be permissible to submit a

claim for an exemption within a reasonable time after the marketing of

a new food product has begun.

As noted above, a food is misbranded if it does not bear nutrition

labeling and is not exempt under one of the exemptions provided by the

1990 and the 1993 amendments. Because the exemption for a firm's low-

volume food products provided by the 1993 amendments is not in effect

until the firm has submitted a notice to FDA claiming the exemption

(with the exception of firms other than importers that have less than

10 employees and do not sell more than 10,000 units of the

[[Page 40974]]

particular food product), a low-volume food product from a small

business would be misbranded if marketed without nutrition labeling

before the notice claiming exemption has been submitted.

The 1993 amendments do not give FDA the authority to provide for a

reasonable time after a product has been marketed for the submission of

a notice claiming an exemption under the 1993 amendments. If a firm

begins marketing a product without nutrition labeling before submitting

such a notice, the product is subject to regulatory action. As noted

above, FDA supplies its field personnel and State enforcement agencies

with a listing of all firms that have filed notice for exemption under

the 1993 amendments. Firms that wait to submit a notice until after

they have begun marketing a product run the risk of regulatory action

because their name does not appear on that list.

FDA recognizes that many small businesses may not have adequate

resources to be aware of all of the requirements for nutrition labeling

on their products or for claiming an exemption. Thus, during the past

year, FDA has exercised discretion and restraint with respect to firms

that have marketed products before having filed the necessary notice

claiming exemption. While the agency intends to continue to exercise

such restraint, the agency urges firms that expect to market a food

product that will not bear nutrition labeling because it is exempt

under section 403(q)(5)(E) of the act to notify the agency of this fact

before marketing the product.

20. In the small business exemption proposal, FDA described

generally the approach that it intended to take to review and verify

the various notices that it received from small businesses claiming the

exemption for low-volume food products (59 FR 11872 at 11876). The

agency asked for comments on this general approach, stating that it

might provide in the final rule specific requirements for the

verification of notices, including a provision for inspection.

Several comments asked that FDA clarify how it would verify the

appropriateness of notices claiming an exemption under the 1993

amendments. Most of these comments stated that a firm should be able to

supply the necessary verification by mail. Several comments expressed

their belief that no additional recordkeeping requirements should be

imposed.

In its review of the approximately 13,000 notices that it has

received since enactment of the 1993 amendments, FDA has attempted to

follow the general approach to reviewing and verifying notices that it

outlined in the proposal. The agency has considered notices to be

acceptable, regardless of their format or approach, as long as they

supplied the basic information, that is, the name and address of the

firm claiming the exemption, an estimate of the number of employees, a

listing of the products for which exemption was claimed, including

brand names, and the approximate number of units of each of those

products sold by the firm in the United States. Although the 1993

amendments do not require review and approval of the claim by FDA for

the exemption to be in effect, FDA is briefly reviewing each notice.

This review is directed at four areas: (1) Did the notice provide an

estimate of the number of employees; (2) did the notice provide the

identity of the specific food products for which an exemption was

claimed; (3) did the notice provide the approximate number of units of

each food product that the firm sold in the United States in the 12

months preceding the period for the exemption; and, (4) based on the

information in the notice, did the product appear to be a low-volume

food product (e.g., were total annual sales in the United States

between May 8, 1993, and May 7, 1994, less than 600,000 units)?

In its review, FDA has used a flexible approach to resolve

questions concerning the information contained in the notices. In the

first year, for approximately 90 percent of the notices, FDA found the

information in the notice itself to be adequate to justify the claimed

exemption. In the remainder, where questions arose concerning the

notices, FDA used two approaches for resolving questions. If the notice

raised a fairly straight-forward question, such as the number of

employees because the number was not included in the notice, the agency

called the firm by telephone if a telephone number was available and

asked that the firm supply the missing information, either over the

telephone or by mail. For more complex questions, such as whether the

notice included products that did not qualify as low-volume food

products, e.g., it listed products bearing brand names for large

national corporations, the agency contacted the firm either by

telephone or by letter and requested that the firm modify its notice to

include only those products that qualified as low-volume food products

based on total sales in the United States.

As noted above, the agency found it necessary during the first year

under the provisions of the 1993 amendments to ask for verification or

additional information for only a small percentage of the notices

submitted. Based on its experience to date, FDA finds that there is no

need to provide specific requirements in the final rule for the

verification of notices. As was stated in the small business exemption

proposal, companies should be prepared to provide information to FDA to

support their notices of exemption should FDA question the validity of

any information contained in those notices (59 FR 11872 at 11876).

21. A number of comments disagreed with the preamble discussion

that the 1993 amendments provide FDA access to firms' records for

verification of exemption notices and emphasized that FDA should not

use the 1993 amendments as a basis for gaining unintended access to

records.

Section 403(q)(5)(E)(iii)(IV) of the act provides that the notice

shall contain such information as the Secretary of Health and Human

Services (the Secretary) may require to verify the information that is

required to be in the notice if the Secretary has questioned the

validity of such information. In the preamble to the small business

exemption proposal, FDA stated that it might provide in the final rule

that companies claiming the exemption will be required to permit

inspection of supporting documentation. Because it has not had

sufficient experience to have developed a clear view of what such an

approach would involve, FDA is not including a requirement concerning

inspection of records in the regulations set forth below.

Although FDA continues to hold that the use of an inspection is an

appropriate means for obtaining verification information, it agrees

that section 403(q)(5)(E)(iii)(IV) of the act does not give it free

access to all records of a firm. There must be some question about the

validity of information in a notice claiming an exemption under section

403(q)(5)(E) of the act for the agency to obtain such access. Secondly,

the information sought must have a nexus to: (1) The number of

employees of the firm, (2) the number of units of product sold in the

United States, and (3) proof that the product is a low-volume food

product. Any other review of records is not authorized by the 1993

amendments.

The agency will normally first try to verify the validity of the

information, or otherwise resolve the question that arises, by

telephone or mail. However, contrary to the assertion of some comments,

there is nothing in the 1993 amendments that prohibits FDA from

obtaining through inspection the information necessary to verify the

validity of information in a notice. It is

[[Page 40975]]

FDA's intent only to use an inspection to obtain verifying information

if it is the way that is most likely to produce the information

necessary to verify the validity of the notice. FDA has yet to resort

to inspection of records as an approach to verifying the information in

a notice.

22. Several comments stated that the proposed verification process

appeared to be burdensome. Some comments stated that any question

concerning eligibility could be promptly and efficiently addressed by

requesting written verifying information. The comments noted that the

1993 amendments contemplate that firms will be entitled to the

exemption simply by claiming it, absent an FDA request for supporting

documentation. The comments stated that, if there is a need for

supporting documentation to resolve doubt about the propriety of the

claimed exemption, FDA may simply demand that the information be

provided, or else the exemption will be revoked.

These comments are mistaken in their concern that the proposed

verification process is overly burdensome. However, as noted above,

until it has more experience in what is necessary to verify the

validity of a notice, FDA is not revising the regulations to specify

how it will verify the accuracy of notices, or what information is

necessary for such verification. As noted above, the agency found it

necessary during the first year to ask for verification or additional

information for only a small percentage of the notices submitted. FDA

agrees with the various comments that supplemental information to

verify the validity of a notice should be limited to that information

that is already maintained by the firm and should not require the

development of new records.

23. A number of comments addressed the requirement for a

certification statement as part of the notice. One comment stated that

the requirement was burdensome because it would impose business costs

and legal liability not contemplated by Congress and not provided for

by the amendments. Another comment stated that the certification

requirement should be deleted, noting a number of factors that mitigate

against the need for the certification statement, including the fact

that FDA can request verification, that anybody providing false

information commits a punishable criminal offense, and that FDA can

declare the product misbranded. One comment stated that a firm should

not be put in the position of having to certify that second-hand

information, such as the amount of production of a copacker, that it

cannot verify, is true and accurate. One comment stated that the

certification requirement should be eliminated, particularly the part

about notifying FDA when it becomes ineligible, because it exceeds

statutory authority provided by the amendments, is contrary to

congressional intent, and imposes burdens on small businesses. One

comment stated that FDA should clarify that a company would only be at

risk of criminal prosecution if it had intentionally and knowingly

provided false information.

FDA included the certification statement as a requirement of the

notice claiming an exemption under the 1993 amendments as a

confirmation to the agency of the expected; that is, that the

information being submitted to the agency complied with the

requirements of 18 U.S.C. 1001 and contained only valid information.

FDA disagrees with the comments that this requirement creates

additional liabilities for the firms or is burdensome. Most comments

were aware of 18 U.S.C. 1001 and the prohibition that it contains on

the submission of false information to a Government agency. This

prohibition exists regardless of whether a notice contains a signed

certification from the firm.

Moreover, the certification statement serves as the initial

verification of the validity of the information in a notice. As

evidenced by the tone of some of the comments, firms will take greater

care to ensure the validity of the information in a notice if a

responsible individual has to certify to the accuracy of the

information. FDA notes that some of the forms that it has received that

were devised by firms and associations contain more expansive

certification statements than that proposed by FDA. Some of these

certifications, for example, contained a statement that there was no

nutrition information or claims on the label for any of the products

included in the notice.

FDA notes that the greatest concern seems to be over the

requirement that a firm notify FDA when a product is no longer eligible

for the exemption. FDA included this commitment as part of the

certification requirement to ensure that the firm is aware of the

provision in the 1993 amendments that the firm has 18 months after its

product no longer qualifies for the exemption to bring the label into

compliance. The requirement that a firm notify FDA if it becomes

ineligible for the exemption is thus fully consistent with the act and

the agency's authority to adopt regulations for its efficient

enforcement. (See section 701(a) of the act.)

The agency emphasizes that it is asking firms to certify the

accuracy of the information that they are submitting as it relates to

the operations of their firm only. This information should be readily

available to the firm in records maintained during the normal course of

its business. Contrary to what was stated by one comment, FDA is not

asking a firm to certify to information unknown to it such as the

volume of sales of a copacker that produces product for the firm.

24. One comment stated that FDA should take pains to explain its

plans for protecting confidential business information included in

notices.

FDA advises that any trade secret or confidential commercial

information submitted in notices is protected by the safeguards against

inappropriate release that are provided by the agency's regulations in

part 20 (21 CFR part 20) for the release of information under the

Freedom of Information Act.

H. Miscellaneous Issues

25. One comment stated that FDA should not single out imports for

enforcement of noncompliance.

FDA advises that it has been acting to ensure that there is

compliance with the new labeling regulations in as evenhanded a manner

as possible with respect to both foreign and domestic firms. The agency

initiated its enforcement efforts for domestic products on August 8,

1994, the date after which the nutrition labeling and nutrient content

claim requirements of the act became applicable (see Pub. L. 103-261,

enacted May 26, 1994). FDA initiated its import enforcement efforts on

September 19, 1994. The approach that the agency's district offices

take when they encounter a noncompliant label is similar for both

domestic product and imported products. Copies of the agency's domestic

and import enforcement assignments explaining the approaches being

taken have been placed on public display under this docket number.

26. One comment stated that FDA's proposal places too much emphasis

on enforcement, and that FDA should maintain a flexible enforcement

policy; e.g., a small company whose notice is deficient (or which is

found to exceed a ceiling) should be given a complete written

explanation of the deficiency and a reasonable time to submit a

compliance plan.

FDA has been maintaining a flexible, lenient enforcement policy,

particularly as regards companies whose notice is found to be

deficient. The first step that the agency takes upon receipt of a

notice is to place the name and address of the firm in its computer

data base of firms that have filed a notice and to make that

[[Page 40976]]

information available to its field offices by entering the information

into the PRIME Connection and FIARS computer bulletin boards. As noted

above, the agency next issues a letter acknowledging the receipt of the

notice, unless it has a question concerning the information in the

notice. If there is a deficiency in the information in the notice, or

the agency has some other question concerning it, the agency either

calls or writes the firm to ask for clarification of the information.

During this time, the name and address of the firm remain on the

listing of firms that have submitted a notice claiming exemption under

the 1993 amendments.

27. One comment stated that the agency should adopt specific

procedures to maintain a list of exempt firms and provide effective

means of disseminating the list to districts. This action should be

taken, the comment said, to minimize the possibility of needless

detention of products for which an exemption has been filed. A foreign

firm also commented that FDA should adopt a policy that would permit

the manufacturer or its importer to include a statement on the

particular import documents that it has filed for a particular

exemption, and that such a statement should bar the district from

detaining the imported product.

Before launching its enforcement efforts for domestic and imported

products, FDA developed a computerized data base listing the firms that

have submitted a notice claiming an exemption under the 1993 amendments

by name and address. As stated above, FDA made this data base available

to its district offices and to State enforcement agencies through an

FDA computer bulletin board system called ``PRIME Connection.'' A

similar data base listing the names and addresses of foreign firms and

recognized importers that filed a notice to claim an exemption for

their products was made available to FDA's import offices under FDA's

FIARS system. FDA has periodically updated these lists since they were

established. Additionally, FDA advises that it has recommended that,

and has permitted, statements that a particular product qualifies for

an exemption under the 1993 amendments be included in the shipping

records for an imported product. The presence of such additional

information with the shipping records is considered by FDA in

determining whether to release a particular import. Because each import

must be considered on a case-by-case basis, however, the presence of

such a statement will not serve as a de facto bar to detention.

28. Several comments suggested steps that the agency should take to

permit the continued use by small businesses of nutrition labeling in

compliance with FDA's former provisions for the voluntary nutrition

labeling of food. Most of these comments supported the use of

Sec. 101.9(g)(9) for small businesses to request, and FDA to grant,

alternative approaches that would enable them to use up labeling that

used the former type of nutrient labeling. Some comments suggested that

FDA should extend the exemption of the 1993 amendments in the proposed

regulation for low-volume food products to cover such products.

Other comments stated that FDA should consider establishing a

special rule permitting labels with pre-1990 amendments nutrition

information to be used by processors that otherwise would qualify for

the small business exemption. One comment noted that if it is barred

from using labels bearing pre-1990 amendments nutrition information, it

will be required to bear an economic loss for these label stocks, which

would be extreme for a company of its size. Other comments noted that

denying an extension to firms that had voluntarily cooperated in the

past would be unjust. Some comments suggested that limits be created on

the use of such pre-1990 amendments labeling; e.g., a certification

that the labeling was purchased before January 6, 1993, and that

compliance with the new requirements will be achieved by the end of the

extension period or the next printing whichever comes first; that there

are no claims; that there is no competitive advantage from improper

listing of serving sizes, calories from fat, saturated fat,

cholesterol, and sodium; and that the product was not introduced into

the marketplace since the new nutrition labeling regulations were

issued (since January 6, 1993).

Since issuance of the small business exemption proposal, FDA has

received a number of requests for permission under Sec. 101.9(g)(9) to

exhaust inventories of labels containing nutrition information that was

in compliance with FDA's regulations that were in effect before the

effective date of the 1990 amendments. FDA has required that these

requests contain information showing that the firm and the product

would be eligible for exemption under the provisions of the 1993

amendments but for the fact that the product's label bears the former

nutrition labeling. FDA has also asked that the requests include a copy

of the label for each product for which permission was being sought to

exhaust the old label, along with an estimate of the remaining

inventory of the label stocks and the estimated time required to

exhaust the inventory.

Within its limited resources, FDA has reviewed and granted

permission to firms to exhaust labels that contain only the former

voluntary nutrition information. In granting permission to exhaust

inventories of labeling by a specific date, FDA has advised the firms

that the label for the product is to be corrected by either removing

the old nutrition information or bringing the label into compliance

with new Sec. 101.9. FDA has advised firms requesting permission to

continue the use of labels containing nutrient content or health claims

that such permission would not be granted.

The process provided by Sec. 101.9(g)(9) appears to be adequate to

address the issue of granting permission to small businesses to exhaust

their stocks of old labeling. Also, FDA notes that it is using most of

the ``limits'' suggested by the one comment in evaluating requests for

additional time to exhaust inventories of labels under

Sec. 101.9(g)(9). However, the suggested limits on granting permission

to exhaust labels printed after January 6, 1993, or for products

introduced after January 6, 1993, have largely been rendered moot by

the passage of time. Thus, FDA concludes that a special rule permitting

labels with pre-1990 amendments nutrition information is unnecessary.

Also, FDA advises that it does not have authority to extend the

exemption provided by the 1993 amendments to cover products bearing

pre-1990 amendment nutrition information. Such products are

specifically excluded from the exemption by section 403(q)(5)(E(i)(2)

and (ii) of the 1993 amendments.

III. Economic Impact

FDA has examined the impacts of this final rule as required by

Executive Order 12866 and the Regulatory Flexibility Act (Pub. L. 96-

354). Executive Order 12866 directs agencies to assess all costs and

benefits of available regulatory alternatives and, when regulation is

necessary, to select regulatory approaches that maximize net benefits

(including potential economic, environmental, public health and safety

effects; distributive impacts; and equity). The Regulatory Flexibility

Act requires agencies to analyze options for regulatory relief for

small businesses.

The agency reported in the small business exemption proposal its

finding that the net effect of this rule is the benefit that it creates

by reducing labeling costs for exempted companies. This benefit is the

result of statutory provisions and not FDA discretion.

[[Page 40977]]

There are two types of costs of this regulation: (1) Costs of lost

nutrition benefits because nutrition information is not available and

(2) costs to comply with the notification requirement.

FDA has estimated that the volume of food product eligible for

exemption constitutes less than one percent of the United States diet,

and that any lost nutrition benefits are likely to be small. Also, the

agency estimated that in the first year approximately 4,500 firms

claiming exemption would file notices at a cost of approximately

$1,656,000. The agency estimated that in the following 2 years the

number of firms filing notices would reduce to approximately 4,000 at a

cost of approximately $1,472,640 and approximately 3,200 at a cost of

approximately $1,177,640, respectively. However, in the first year that

the 1993 amendments have been in effect, the agency has received

approximately 9,000 notices claiming an exemption for one or more low-

volume food products. Assuming that the number of firms filing an

exemption will decrease for the next 2 years at the same rate as

previously estimated, then the costs to comply with the notification

requirements are estimated to be approximately $3,312,000 the first

year, approximately $2,947,000 the second year, and approximately

$2,358,000 in subsequent years as the number of firms filing notices

decreases. Federal costs for implementing the notification system are

estimated (as in the proposal) to be approximately $207,000. The total

costs of notification will be less than $4 million for the first year

and decrease substantially in subsequent years.

On the other hand, FDA estimates that the cost savings to small

businesses that were exempted from labeling to be between $275 and $360

million. These costs are estimated based on the Regulatory Impact

Analysis (RIA) (58 FR 2927, January 6, 1993) done for rules

implementing the 1990 amendments. In the RIA, FDA estimated relabeling

costs of approximately $3,000 per stock keeping unit (SKU). This rule

is expected to save costs for between 90,000 and 120,000 SKU's. Because

of this positive effect on the economy, this rule is economically

significant under Executive Order 12866, but because the rule will not

have any adverse effect on small business, the agency believes that,

under the Regulatory Flexibility Act, the rule will not have a

significant impact on a substantial number of small entities.

However,the preceding discussion of the costs and cost savings to small

business would constitute a final regulatory flexibility analysis under

the Regulatory Flexibility Act.

None of the comments to the small business exemption proposal

presented any information, nor is the agency aware of any information,

that would serve as a basis for significantly increasing the estimated

costs of this regulation or significantly decreasing the estimated cost

savings.

IV. Congressional Review

This final rule has been classified as a major rule subject to

congressional review. The effective date is October 7, 1996. If,

however, at the conclusion of the congressional review process the

effective date has been changed, FDA will publish a document in the

Federal Register to establish the actual effective date or to issue a

notice of termination of the final rule action.

V. Environmental Impact

The agency has previously considered the environmental effects of

the action being taken in this final rule. As announced in the small

business exemption proposal published in the Federal Register of March

14, 1994 (59 FR 11872), the agency has determined under 21 CFR

25.24(a)(8) and (a)(11) that these actions are of a type that do not

individually or cumulatively have a significant effect on the human

environment. No comments questioned this determination. Therefore,

neither an environmental assessment nor an environmental impact

statement is required.

VI. Paperwork Reduction Act

This final rule contains information collections that are subject

to review by OMB under the Paperwork Reduction Act of 1995 (Pub. L.

104-13). This information collection has been approved by OMB for 90

days, under 5 CFR 1320.13 and OMB control No. 0910-0324. Persons are

not required to respond to a collection of information unless it

displays a currently valid OMB control number.

Because OMB approval of this information collection is valid for

only 90 days, FDA is also taking the appropriate steps to obtain a

regular approval. Section 3506(c)(2)(A) of the Paperwork Reduction Act

of 1995 (44 U.S.C. 3506(c)(2)(A)) requires Federal agencies to provide

a 60-day notice in the Federal Register concerning each collection of

information. ``Collection of information'' is defined in 44 U.S.C.

3502(3) and 5 CFR 1320.3(c). In accordance with 5 CFR part 1320, the

title, description, and respondent description of the information

requirement are shown below with an estimate of the annual collection

and information burden. Included in the estimate is the time for

reviewing instructions, gathering necessary information, and completion

and submission of the notice.

Title: Food Labeling; Nutrition Labeling, Small Business Exemption.

Description: The final rule provides the procedures for the

submission of a notice of a claim by a company for an exemption from

FDA's regulations for mandatory nutrition labeling. FDA action on the

notice will include review of notices for completeness and

acknowledgment that the notice had been received and was or was not

adequate. Additionally, FDA will provide to its field personnel and

State enforcement agencies a listing of firms that have submitted a

notice to FDA along with a listing of the products claimed to be

exempt.

The 1993 amendments revise the basis for a small business exemption

provided by section 403(q)(5)(E) of the act. This new provision

provides an exemption for a food product based on the number of

employees and the total number of units sold in the United States on an

annual basis. Under the 1993 amendments, to qualify for an exemption, a

person must file the notice mentioned in the preceding paragraph with

FDA before the time period for the claimed exemption. Sections

101.9(j)(18)(iv) and 101.36(f)(2) reflect the information identified in

section 403(q)(5)(E) of the act, as necessary, as part of the notice

for a claimed small business exemption.

Descriptions of Respondents: Persons and small businesses,

particularly small businesses.

Estimated Annual Reporting and Recordkeeping Burden

----------------------------------------------------------------------------------------------------------------

Total

Average annual

Annual Annual burden Annual operating

Section number of frequency hours per burden and

respondents response hours maintenance

costs

----------------------------------------------------------------------------------------------------------------

101.9 and 101.36..................................... 10,000 1 8 80,000 $3,312,000

----------------------------------------------------------------------------------------------------------------

[[Page 40978]]

Since enactment of the 1993 amendments, FDA has received notices

from approximately 9,000 firms. Although FDA is uncertain how many

other firms may take advantage of the exemption provided by the 1993

amendments to file notice, it expects a maximum of 10,000 respondents

to file for the exemption. The agency expects that the number of

respondents and corresponding annual burden hours will decrease over

succeeding years as the basis for the exemption changes. By May 1997,

FDA estimates that approximately 5,000 companies may be filing notices

to claim the exemption with a corresponding annual burden hours of

approximately 40,000 hours. There are no capital costs created by this

final rule. As noted above in section III. Economic Impact, FDA

estimates that the total operating and maintenance costs to respondents

to submit notices to the agency during the first year to be

approximately $3,312,000. The agency does not believe that this

regulation requires any capital expenditures to comply with the

requirements for submitting a notice.

In the small business exemption proposal, FDA requested comments

regarding the estimated burden, including suggestions for reducing the

burden. Nine responses were received that contained one or more

comments concerning the information collection provisions that would be

established by the small business exemption proposal. A number of these

comments suggested modifications in, or were opposed to, various

provisions of the information collection portion of the small business

exemption proposal. A summary of the arguments and changes suggested by

these latter comments, and the agency's responses, are provided above.

None of the comments addressed FDA's estimates of the cost and hour

burden associated with the information collection.

As required by section 3507(d) of the Paperwork Reduction Act of

1995, FDA has submitted copies of the final rule to OMB for its review

of the recordkeeping requirements. In addition, the agency solicits

public comment on: (1) Whether the proposed collection of information

is necessary for the proper performance of the functions of the agency,

including whether the information will have practical utility; (2) the

accuracy of the agency's estimate of the burden of the proposed

collection of information, including the validity of the methodology

and assumptions used; (3) ways to enhance the quality, utility, and

clarity of the information to be collected; and (4) ways to minimize

the burden of the collection of information on respondents, including

through the use of automated collection, techniques, or other forms of

information technology (e.g., permitting electronic submission of

responses).

Individuals and organizations may submit comments on the

information collection requirements of this final rule by October 7,

1996. These comments should be submitted to the Dockets Management

Branch (address above).

Under the Paperwork Reduction Act of 1995, persons are not required

to respond to a collection of information unless it displays a

currently valid OMB control number. This final rule contains

information collection requirements that have been submitted to OMB for

approval. FDA will publish a notice in the Federal Register of OMB's

decision to approve, modify, or disapprove the information collection

requirements established in this final rule prior to the effective date

of such requirements.

FDA advises that the statutory requirements of the 1993 amendments

for the filing of a notice with FDA take precedence over the provisions

of the Paperwork Reduction Act of 1995. Thus, if small businesses

desire to avail themselves of the exemption from nutrition labeling

that is provided by the 1993 amendments, they must file notice with FDA

as required by section 403(q)(5)(e)(i)(III) or (q)(5)(e)(ii) of the

act. Products that are not the subject of such notice will be

misbranded unless they bear nutrition labeling as required by section

403(q) of the act regardless of whether OMB has approved the

information requirements included in this final rule.

List of Subjects in 21 CFR Part 101

Food labeling, Nutrition, Reporting and recordkeeping requirements.

Therefore, under the Federal Food, Drug, and Cosmetic Act and under

authority delegated to the Commissioner of Food and Drugs, 21 CFR part

101 is amended as follows:

PART 101--FOOD LABELING

1. The authority citation for 21 CFR part 101 continues to read as

follows:

Authority: Secs. 4, 5, 6 of the Fair Packaging and Labeling Act

(15 U.S.C. 1453, 1454, 1455); secs. 201, 301, 402, 403, 409, 701 of

the Federal Food, Drug, and Cosmetic Act (21 U.S.C. 321, 331, 342,

343, 348, 371).

2. Section 101.9 is amended by revising paragraph (j)(1)(i) and by

adding new paragraph (j)(18) to read as follows:

Sec. 101.9 Nutrition labeling of food.

* * * * *

(j) * * *

(1)(i) Food offered for sale by a person who makes direct sales to

consumers (e.g., a retailer) who has annual gross sales made or

business done in sales to consumers that is not more than $500,000 or

has annual gross sales made or business done in sales of food to

consumers of not more than $50,000, Provided, That the food bears no

nutrition claims or other nutrition information in any context on the

label or in labeling or advertising. Claims or other nutrition

information subject the food to the provisions of this section.

* * * * *

(18) Food products that are low-volume (that is, they meet the

requirements for units sold in paragraphs (j)(18)(i) or (j)(18)(ii) of

this section); that, except as provided in paragraph (j)(18)(iv) of

this section, are the subject of a claim for an exemption that provides

the information required under paragraph (j)(18)(iv) of this section,

that is filed before the beginning of the time period for which the

exemption is claimed, and that is filed by a person, whether it is the

manufacturer, packer, or distributor, that qualifies to claim the

exemption under the requirements for average full-time equivalent

employees in paragraphs (j)(18)(i) or (j)(18)(ii) of this section; and

whose labels, labeling, and advertising do not provide nutrition

information or make a nutrient content or health claim.

(i) For food products first introduced into interstate commerce

before May 8, 1994, the product shall be exempt for the period:

(A) Between May 8, 1995, and May 7, 1996, if, for the period

between May 8, 1994, and May 7, 1995, the person claiming the exemption

employed fewer than an average of 300 full-time equivalent employees

and fewer than 400,000 units of that product were sold in the United

States; and

(B) Between May 8, 1996, and May 7, 1997, if for the period between

May 8, 1995, and May 7, 1996, the person claiming the exemption

employed fewer than an average of 200 full-time equivalent employees

and fewer than 200,000 units of that product were sold in the United

States.

(ii) For all other food products, the product shall be eligible for

an exemption for any 12-month period if, for the preceding 12 months,

the person claiming the exemption employed fewer than an average of 100

full-time equivalent employees and fewer than 100,000 units of that

product were sold in the United States, or in the case of a food

product that was not sold in the 12-month period preceding the period

[[Page 40979]]

for which exemption is claimed, fewer than 100,000 units of such

product are reasonably anticipated to be sold in the United States

during the period for which exemption is claimed.

(iii) If a person claims an exemption under paragraphs (j)(18)(i)

or (j)(18)(ii) of this section for a food product and then, during the

period of such exemption, the number of full-time equivalent employees

of such person exceeds the appropriate number, or the number of food

products sold in the United States exceeds the appropriate number, or,

if at the end of the period of such exemption, the food product no

longer qualifies for an exemption under the provisions of paragraphs

(j)(18)(i) or (j)(18)(ii) of this section, such person shall have 18

months from the date that the product was no longer qualified as a low-

volume product of a small business to comply with this section.

(iv) A notice shall be filed with the Office of Food Labeling (HFS-

150), Center for Food Safety and Applied Nutrition, Food and Drug

Administration, 200 C St. SW., Washington, DC 20204 and contain the

following information, except that if the person is not an importer and

has fewer than 10 full-time equivalent employees, that person does not

have to file a notice for any food product with annual sales of fewer

than 10,000 total units:

(A) Name and address of person requesting exemption. This should

include a telephone number or FAX number that can be used to contact

the person along with the name of a specific contact;

(B) Names of the food products (including the various brand names)

for which exemption is claimed;

(C) Name and address of the manufacturer, distributor, or importer

of the food product for which an exemption is claimed, if different

than the person that is claiming the exemption;

(D) The number of full-time equivalent employees. Provide the

average number of full-time equivalent individuals employed by the

person and its affiliates for the 12 months preceding the period for

which a small business exemption is claimed for a product. The average

number of full-time equivalent employees is to be determined by

dividing the total number of hours of salary or wages paid to employees

of the person and its affiliates by the number of hours of work in a

year, 2,080 hours (i.e., 40 hours x 52 weeks);

(E) Approximate total number of units of the food product sold by

the person in the United States in the 12-month period preceding that

for which a small business exemption is claimed. Provide the

approximate total number of units sold, or expected to be sold, in a

12-month period for each product for which an exemption is claimed. For

products that have been in production for 1 year or more prior to the

period for which exemption is claimed, the 12-month period is the

period immediately preceding the period for which an exemption is

claimed. For other products, the 12-month period is the period for

which an exemption is claimed; and

(F) The notice shall be signed by a responsible individual for the

person who can certify the accuracy of the information presented in the

notice. The individual shall certify that the information contained in

the notice is a complete and accurate statement of the average number

of full-time equivalent employees of this person and its affiliates and

of the number of units of the product for which an exemption is claimed

sold by the person. The individual shall also state that should the

average number of full-time equivalent employees or the number of units

of food products sold in the United States by the person exceed the

applicable numbers for the time period for which exemption is claimed,

the person will notify FDA of that fact and the date on which the

number of employees or the number of products sold exceeded the

standard.

(v) FDA may by regulation lower the employee or units of food

products requirements of paragraph (j)(18)(ii) of this section for any

food product first introduced into interstate commerce after May 8,

2002, if the agency determines that the cost of compliance with such

lower requirement will not place an undue burden on persons subject to

it.

(vi) For the purposes of this paragraph, the following definitions

apply:

(A) Unit means the packaging or, if there is no packaging, the form

in which a food product is offered for sale to consumers.

(B) Food product means food in any sized package which is

manufactured by a single manufacturer or which bears the same brand

name, which bears the same statement of identity, and which has similar

preparation methods.

(C) Person means all domestic and foreign affiliates, as defined in

13 CFR 121.401, of the corporation, in the case of a corporation, and

all affiliates, as defined in 13 CFR 121.401, of a firm or other

entity, when referring to a firm or other entity that is not a

corporation.

(D) Full-time equivalent employee means all individuals employed by

the person claiming the exemption. This number shall be determined by

dividing the total number of hours of salary or wages paid directly to

employees of the person and of all of its affiliates by the number of

hours of work in a year, 2,080 hours (i.e., 40 hours x 52 weeks).

3. Section 101.36 is amended by revising paragraph (f) to read as

follows:

Sec. 101.36 Nutrition labeling of dietary supplements of vitamins and

minerals.

* * * * *

(f) Dietary supplements are subject to the exemptions specified as

follows in:

(1) Section 101.9(j)(1) for dietary supplements that are offered

for sale by a person who makes direct sales to consumers (i.e., a

retailer) who has annual gross sales or business done in sales to

consumers that is not more than $500,000 or has annual gross sales made

or business done in sales of food to consumers of not more than

$50,000, and whose labels, labeling, and advertising do not provide

nutrition information or make a nutrient content or health claim; or

(2) Section 101.9(j)(18) for dietary supplements that are low-

volume products (that is, they meet the requirements for units sold in

Sec. 101.9(j)(18)(i) or (j)(18)(ii)); that, except as provided in

Sec. 101.9(j)(18)(iv), are the subject of a claim for an exemption that

provides the information required under Sec. 101.9(j)(18)(iv); that is

filed before the beginning of the time period for which the exemption

is claimed; and that is filed by a person that qualifies to claim the

exemption under the requirements for average full-time equivalent

employees in Sec. 101.9(j)(18)(i) or (j)(18)(ii); and whose labels,

labeling, or advertising do not provide nutrition information or make a

nutrient content or health claim.

* * * * *

Dated: April 4, 1996.

David A. Kessler,

Commissioner of Food and Drugs.

Donna E. Shalala,

Secretary of Health and Human Services.

Note: The following Appendixes will not appear in the annual

Code of Federal Regulations.

Appendix I--Model Small Business Food

Labeling Exemption Notice

(Please type or clearly print)

1. Name of firm

----------------------------------------------------------------------

2. Address of firm:

Street address---------------------------------------------------------

----------------------------------------------------------------------

City State-------------------------------------------------------------

Zip or postal code-----------------------------------------------------

Country----------------------------------------------------------------

[[Page 40980]]

Telephone--------------------------------------------------------------

FAX--------------------------------------------------------------------

3. Type of firm (Check all that apply)

Manufacturer-----------------------------------------------------------

Packer/Repacker--------------------------------------------------------

Distributor------------------------------------------------------------

Importer---------------------------------------------------------------

Retailer---------------------------------------------------------------

4. Twelve-month time period for which you are claiming exemption

FROM: ____ / ____ / ____

MM DD YY

TO: ____ / ____ / ____

MM DD YY

5. Average number of full-time equivalent employees for 12-month

period______

6. Report of units sold (use continuation sheets if necessary)

Product

----------------------------------------------------------------------

----------------------------------------------------------------------

----------------------------------------------------------------------

----------------------------------------------------------------------

No. of units

----------------------------------------------------------------------

----------------------------------------------------------------------

----------------------------------------------------------------------

----------------------------------------------------------------------

Manufacturer

----------------------------------------------------------------------

----------------------------------------------------------------------

----------------------------------------------------------------------

----------------------------------------------------------------------

7. Name and address of manufacturer(s) or distributor(s) of

product(s) in Item 6 if different from firm claiming exemption. (Use

continuation sheets if necessary.)

B Name of manufacturer or distributor

----------------------------------------------------------------------

Address----------------------------------------------------------------

----------------------------------------------------------------------

C Name of manufacturer or distributor

Address----------------------------------------------------------------

----------------------------------------------------------------------

8. Contact person

----------------------------------------------------------------------

9. The undersigned certifies that the above information is a true

and accurate representation of the operations of ________ (Name of

firm). The undersigned will notify the Office of Food Labeling of

the date on which the average number of full-time equivalent

employees or the number of units of food products sold in the United

States exceeds the applicable number for exemption which is being

claimed herein.

Signature--------------------------------------------------------------

Name (Type or clearly print)-------------------------------------------

----------------------------------------------------------------------

Title------------------------------------------------------------------

Date-------------------------------------------------------------------

Appendix II--Model Small Business Food

Labeling Exemption Notice

Instructions for completion

(Please type or clearly print)

1. Name of firm: Enter the recognized legal name of your firm.

2. Firm address: Enter the mailing address for the principal

location of your firm. Also, provide the telephone and FAX numbers.

3. Type of firm: Place a check mark or ``x'' in each block that

is applicable to your firm. For example, if your firm manufactures

all products that it sells place a check mark after

``Manufacturer.'' If your firm also distributes a product that is

manufactured by another firm, also place a check mark after

``Distributor.''

4. Twelve-month time period for which you are claiming

exemption: Enter the specific time period for which you are

requesting exemption for your products. For products initially

introduced into interstate commerce before May 8, 1994, this time

period will be from May 8 of the current year to May 7 of next year:

e.g., ``FROM 05/08/95 TO 05/07/96.'' For new products, the time

period should start with the date on which sales in the United

States are expected to begin: e.g., ``FROM 11/01//95 TO 10/31/96.''

5. Average number of full-time equivalent employees for 12-month

period: Enter the average number of full-time equivalent employees

of your firm and of all of its affiliates for the year preceding the

year for which an exemption is claimed under Item 4. The average

number should include all employees of your firm and of its

affiliates (e.g., owners; officers; and all other personnel such as

secretarial, production, and distribution employees). Firms are

affiliates of each other when, either directly or indirectly: (1)

One firm has the power to control the other, (2) a third party

controls or has the power to control both, or (3) an identity of

interest exists such that affiliation may be found.

The average number of full-time equivalent employees is to be

determined by using the following formula: Total number of employee/

hours paid divided by 2,080 hours = average number of full-time

equivalent employees. For example, 254,998 paid employee/hours

2,080 = 122. If the total number of actual employees for

your firm and its affiliates is less than 100, you may enter the

total number of actual employees instead of calculating the average

number of full-time employees; e.g., if your firm has 24 employees

that work full-time and 12 employees that work part-time, you may

report 36 total actual employees instead of calculating the average

number of full-time equivalent employees.

6. Report of units sold (Continuation sheets using the same

format for Item 6 may be used if necessary):

Product: Under the column for product, enter the name, including

the brand name, for each food product for which your firm is

claiming an exemption. A food product is a food in any sized package

which is manufactured by a single manufacturer or which bears the

same brand name; which bears the same statement of identity; and

which has a similar preparation method. In considering whether food

products have similar preparation methods, consider all steps that

go into the preparation of the food products, from the initial

formulation steps to any finishing steps; for example, products

having differing ingredients would be considered different food

products and counted separately in determining the number of units.

No. of Units: Provide the approximate sales of your firm, in

terms of units, for the product for the year immediately preceding

the time period for the exemption entered under Item 4. For example,

if the time period for which you are claiming exemption for a food

product is May 8, 1996, to May 7, 1997, provide an approximation of

your sales of that product from May 8, 1995, to May 7, 1996. If the

product was not sold for the entire 12 months preceding the time

period for the exemption entered under Item 4, provide an

approximation of the sales expected to be made during the time

period in Item 4. For example, if the time period being claimed in

Item 4 is November 1, 1995, to October 31, 1996, for a product that

is going to be sold beginning November 5, 1995, provide an

approximation of sales for the period from November 1, 1995, to

October 31, 1996.

The approximate total number of units is the summation of the

number of units of the various package sizes of the food product in

the form in which it is sold to consumers; for example, the total of

all 2-pound bags of flour plus all 5-pound bags of flour plus all

10-pound bags of flour should be provided as the number of units

sold by your firm in the United States. There may also be occasions

where a food is sold in bulk or by individual pieces rather than in

packaging; e.g., flour may be sold in bulk displays at grocery

stores. In such a case, the number of units should be determined on

the basis of the typical sales practice for the specific food

product; e.g., if 2,000 pounds of flour are sold from bulk displays

at grocery stores, and the typical practice for sales to consumers

is to price the flour on a per pound basis, then the bulk sales

would represent 2,000 units. If the firm sells the same product in

package form, then the bulk sales, 2,000 units in the above example,

should be added to the sum of the number of packages of the flour

sold to determine the total number of units of flour sold by the

firm in the United States.

Manufacturer: Under the column designated ``Manufacturer'' enter

the letter that corresponds with the name of the manufacturer of the

product. The letter ``A'' is used to designate the firm submitting

the notice if it is the manufacturer of the product. If the firm

submitting the notice is not the manufacturer of the product, use

the letter from Item 7 (B or C), or from the continuation sheets for

Item 7, that corresponds to the name and address of the manufacturer

of the product.

7. Name and address of manufacturer(s) or distributor(s) of

product(s) in Item 6 if different from firm claiming exemption:

Continuation sheets may be used if necessary. Provide the name and

addresses of the manufacturers of the food products for which

exemption is being claimed if they are different from the firm

claiming the exemption. If the name of the manufacturer is unknown,

provide the name of the firm from which the product is purchased.

Insert the letter corresponding to the name of the manufacturer

(``A'' corresponds to the firm submitting the notice) or distributor

in the appropriate block for the name of the product under Item 6.

[[Page 40981]]

8. Contact person: Enter the name of a person that can act as a

contact for your firm if any questions arise concerning the

information included in the notice.

9. Certification: The form is to be signed by a responsible

individual for the firm that can certify to the authenticity of the

information presented on the form. The individual signing the form

will commit to notify the Office of Food Labeling when the numbers

of full-time equivalent employees or total numbers of units of

products sold in the United States exceed the applicable number for

an exemption.

The completed form should be mailed to: Office of Food Labeling

(HFS-150), Food and Drug Administration, 200 C St., SW, Washington,

DC 20204. Questions concerning a claim may be directed to the Office

of Food Labeling at the above address or to 202-205-4561.

[FR Doc. 96-20075 Filed 8-6-96; 8:45 am]

BILLING CODE 4160-01-P