Washington Insider--Friday

Sin Tax on Soda

Here's a quick monitor of Washington farm and trade policy issues from DTN's well-placed observer.

US, India Trade Negotiations Continue Over WTO Poultry Dispute

Trade officials from the U.S. and India continue working to conclude an agreement that could mean India would not have to pay a $450 million per year penalty for failing to comply with a World Trade Organization ruling, according to an Indian official.

If an agreement is reached, a compliance panel will be established, the official said. That panel will determine how much compensation -- if any -- India would have to pay the U.S.

The two countries are trying to settle a dispute over poultry imports from the U.S. That dispute started when India banned the import of frozen chicken legs from the U.S. to stop the spread of avian influenza. A WTO panel confirmed in June 2015 an earlier ruling that India's ban was not based on international scientific standards, was more trade restrictive than necessary, and unfairly discriminated against U.S. imports. The country was given until June 2016 to lift the ban and follow international standards.

The U.S. recently asked the WTO dispute settlement body to allow $450 million in annual retaliatory trade measures against India until New Delhi complies with the WTO ruling to lift the ban.

At a special meeting of the dispute settlement body July 19, India objected to the $450 million figure, and the matter was referred to arbitration. That has taken longer than normal arbitration actions.

"The arbitrator should have ideally come out with a decision by August 19, but it is highly unlikely a decision will be taken this month," a Geneva-based official told Bloomberg BNA. It's more likely the two countries will come to an agreement on their own before the arbitration proceeds, officials said.

India told the WTO it believes it is conforming to the WTO ruling. India's Department of Animal Husbandry issued a measure July 8 allowing India to import poultry products from the U.S. that comply with international standards set by the Terrestrial Animal Health Code of the World Organization for Animal Health (OIE). India also said the U.S. request to suspend concessions had no legal basis, a Commerce Department official from the Ministry of Commerce and Industry said.

The matter will now be taken up directly by Prime Minister Narendra Modi when he meets U.S. Secretary of State John Kerry during the upcoming Strategic and Commercial Dialogue to be held in New Delhi on Aug. 30-31, according to the Indian trade official.

FDA Releases Food Safety Act Guidance

A few months after the Food and Drug Administration completed the last of seven final rules implementing the Food Safety Modernization Act (FSMA), the agency has now released draft guidance documents designed to help companies comply with the sweeping 2011 law.

The guidance documents instruct companies operating processing, packing and storage facilities for human and animal foods on how to meet the requirements of the law's preventative controls rules, finalized last September. Businesses can expect more guidance documents to come in the future, FDA officials said.

FSMA requires food makers to draft and implement a safety plan, and sets deadlines for companies to meet preventative controls requirements. Large human food facilities must meet preventative controls and Current Good Manufacturing Practice requirements by Sept. 19, while animal food facilities must meet only CGMP standards by the same date. Smaller facilities have additional time to comply.

Draft Guidance for Industry No. 235 gives information to companies making animal food on how to comply with safety rules in areas such as personnel, sanitation, plant operation and water supply, among others.

Draft Guidance for Industry No. 239 covers facilities that take human food byproducts such as wheat middlings or vegetable pulp and use them in animal food. That guidance provides information on what parts of FSMA's Preventative Controls for Animal Food rule apply to the byproduct from human food.

The final draft guidance covers the classification of activities such as harvesting, packing, holding or manufacturing for farms and facilities, describing which rules apply to a specific business. The guidance states that, in general, businesses that only perform activities within the "farm" definition are not subject to the FSMA Preventative Controls for Human Food rule. However, when activities involved covered produce, farms may be subject to the FSMA Produce Safety Rule.

The public comment period for the drafts began August 25. FDA is planning to host a webinar in September to discuss the draft guidance documents in more detail, the agency said in a statement.

Washington Insider: Sin Tax on Soda

Foodies have long wished for a way to cure the unwashed of their lack of attention to food culture. So, it is not much of a surprise that the New York Times, along with several urban dailies, is eagerly reporting that taxing sugary drinks causes people to drink less of them. The Times story focus is a new study out of Berkeley, Calif., that "adds to the evidence that our intuition is right."

A study of the results of a Berkeley, California, 2014 soda tax was published in The American Journal of Public Health on Tuesday. It concluded that Berkeley residents reported drinking more water in response to the tax is "a sign that they were replacing sugar-sweetened beverages with something healthier."

The study examined several low-income communities in Berkeley, San Francisco and Oakland and found that after the tax was imposed, consumption of sugary drinks fell by 21% in the Berkeley neighborhoods but rose by 4% in the other two cities.

The research was criticized immediately for its lack of rigor and the Times noted that in-person surveys "may not always be accurate." Still, the Times is forgiving of that approach in this case on the grounds that "its results are consistent with research from Mexico, which passed a nationwide soda tax in 2014." In that country, sugary drink sales fell by about 17% among the poorest households.

While the study says it will be for "other research" to clarify the precise size of the effect, it claims to have confirmed that a soda tax encourages low-income consumers to choose different beverages.

"At least in one city, we have found evidence that a sugar-sweetened beverage tax reduced consumption in disadvantaged communities," said Jennifer Falbe, a postdoctoral research fellow at the University of California at Berkeley's School of Public Health, and one of the paper's authors.

The soft drink industry criticized the study for its survey methodology, and noted that even the recorded drop in consumption was unlikely to influence public health.

"The authors of this street survey acknowledge that it had a number of flaws and there is no indication that the tax had or will have a measurable impact on public health," said William Dermody, a vice president for policy at the American Beverage Association, an industry trade group.

Still, "because Berkeley was the first American city to pass such a tax, the health effects of the policy are only theoretical." Studies using mathematical models show that soda taxes are likely to have small but measurable effects on public health. But the precise effects will most likely depend on which people cut back in response to a tax, and whether people make up for lost calories in some other part of their diet, the Times concludes.

The researchers said they can't be sure that the reduced consumption of sugary drinks was solely a result of the tax, which amounted to less than a 1-cent-per-ounce price increase at the cash register.

When Berkeley passed its soda tax, it was alone among cities in the United States using the policy. But that has changed. Philadelphia passed a soda tax this year, and several other American cities are putting similar taxes on the ballot this fall. Among them are two of Berkeley's neighbors, Oakland and San Francisco.

Barry Popkin, a professor of nutrition at the University of North Carolina at Chapel Hill, who worked on the Mexico research, says the Berkeley results may presage a bigger effect in Philadelphia, a city where sugary soft drink consumption is more common and where there are many more low-income residents who may be sensitive to such a price increase.

So, what are we to think of all this? Should the study be condemned because it uses a "not always accurate method?" Perhaps, but the beverage industry certainly can take care of itself and can be expected to fully expose any such shortcomings.

Perhaps a more important criticism concerns the use of "sin taxes" to regulate behavior, especially in this case since the tool is so thoroughly regressive. So, is the Berkeley experience a step into that world?

Clearly, it is harder to decide in the case of "obesity linked" foods because the obesity epidemic is so costly and widespread. Still, it is worth a note of caution concerning what the next taxable sin will be -- perhaps meats, especially hamburger? There are many, many candidates and the process of identifying these should be watched carefully as it proceeds, Washington Insider believes.

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