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    GOVERNMENT ISSUES: Watching Washington

    Weekend transaction settlements, pharmaceutical foot-dragging, and late shipments are Capitol Hill's hot buttons for retailers.

    Prescription Drug Availability

    White House plan should benefit employees, customers.

    In an effort to continue providing employees with access to health care coverage at reasonable cost, food retailers are calling for reforms in the Drug Price Competition and Patent Term Restoration Act of 1984 (P.L. 98-417) by closing loopholes in the Hatch-Waxman law.

    The 1984 statute extends patent protection for new brand-name medications for up to an additional five years to compensate pharmaceutical manufacturers for the time lost in obtaining market approval from the Food & Drug Administration.

    The proposed reforms to Hatch-Waxman aim to increase the availability of generic medicines by curtailing the brand-name manufacturers' ability to prolong its patent protections through stalling lawsuits. According to the Federal Trade Commission, large drug companies use a 30-month moratorium multiple times to impede the release of generic drugs. Under FDA's past interpretations of the Hatch-Waxman law and the Orange Book patent listing process, drug manufacturers have been able to file additional patents for packaging, ingredient combinations, and other minor improvements in order to get 30-month stays in court that delay patent expirations.

    The Bush proposal would prevent the large manufacturers from repeatedly using the stalling tactic, and allow a one-time 30-month hold on patents for each drug.

    The Congressional Budget Office estimates that the changes to the 1984 law will save consumers and employers approximately $60 billion over the next 10 years, and will not discourage pharmaceutical companies from making future investments in the development of next-generation innovative drugs.

    "As an industry that has approximately 3.5 million employees, our members are becoming increasingly concerned over the runaway costs of prescription drugs," says John Motley III, s.v.p. of public and government affairs at the Food Marketing Institute. "If this disturbing trend continues unabated, it will undermine the ability of self-insured companies to provide their associates with health care and coverage, and it may in fact force companies to increase employee premiums, raise their co-payments, or reduce benefits in order to offset these rising costs."

    But Peter Shumlin, chairman of the National Legislative Association on Prescription Drug Prices, a multi-state coalition, says Bush's proposal is already outdated. He says the only way to ensure affordable prices is for Congress to establish uniform drug prices. "What we have to do is establish a fair price," Shumlin says. "Pharmaceutical prices are the single largest area of growth in citizens' budgets and state budgets."

    FMI's support for H.R. 5311 and H.R. 5272 is further predicated on the fact that many of its members operate approximately 12,000 pharmacy departments, accounting for nearly 14 percent of the outpatient prescription drug market. "Recognizing that rising drug costs adversely affect all consumers—especially seniors with limited incomes, the underinsured, and uninsured—we must make a concerted effort to increase the availability of more affordable generic drugs," says Motley.

    Bill Novelli, executive director and c.e.o. of the American Association of Retired Persons, agrees. "These proposed rules should provide significant relief for millions of citizens, especially older Americans who will now have more affordable alternatives to costly brand name pharmaceuticals," he said in a statement released last month.

    Weekend settlements

    Report sees little benefit for either retailers or consumers.

    A General Accounting Office report released last month concluded that weekend settlement of financial transactions would provide small benefits to retailers and consumers and little if any benefit to the economy as a whole.

    The report, conducted for Rep. Spencer Bachus (R-Ala.), chairman of the Subcommittee on Financial Institutions and Consumer Credit, examined the potential implications of a recent proposal aimed at increasing payment system efficiency by instituting weekend settlement of financial transactions.

    Currently, the settlement—the final step in the transfer of ownership involving the physical exchange of payment or securities—occurs only during the business week. Although retail industry executives interviewed for the report stated that weekend interest earnings were the main potential benefit for business, GAO's estimate of the forgone interest earnings for the grocery industry, which generates 53 percent of its sales on weekends, indicated that if weekend settlement were adopted, investment of grocery funds would provide only small interest earnings.

    According to the report, although weekend settlement would enable retailers to gain accelerated availability of credit card receipts—potentially reducing the amount of cash held in their stores—the benefits would represent transfers of benefit primarily from consumers or depository institutions to retailers rather than new income, creating no stimulus for economic growth.

    Weekend settlement would also result in significantly increased operational costs for payment service providers, which would have to open on weekends and boost their computer and staffing systems. According to a statement by Bachus, the report helps lay the groundwork for a debate next year on improving and modernizing other aspects of the check-clearing process, which, in turn, may eventually make weekend settlement more cost-effective. "There is broad bipartisan support in the House for a recently introduced bill to facilitate greater electronic processing of checks, which has the potential to significantly reduce administrative expenses for banks and lower costs for consumers," he says.

    The report also points out some lower cost alternatives. For example, some depository institutions provide advance availability for weekend deposits. Some banking institutions also offer "fully analyzed" accounts where the average daily account balances of the retailers are calculated and daily interest earnings are determined based on those figures.

    Country of origin labeling

    USDA issues guidelines; food industry responds.

    The U.S. Department of Agriculture last month issued Interim Voluntary Country of Origin Labeling guidelines for certain commodities as required in the 2002 Farm Bill.

    "Under the guidelines, fresh and frozen muscle cuts of beef, veal, lamb, pork, fish, fresh and frozen fruits and vegetables, and peanuts may be labeled at retail to indicate their country of origin," says Agricultural Marketing Service Administrator A.J. Yates. "These guidelines provide uniform criteria for participating retailers."

    Foodservice establishments, such as restaurants, lunchrooms, cafeterias, food stands, bars, lounges, or similar enterprises selling prepared food to the public, are not covered.

    Under the guidelines, a retailer can label a covered commodity with "United States Country of Origin" if certain criteria are met. For beef, the covered commodities must be derived exclusively from animals born, raised, and slaughtered in the United States, including animals that were born and raised in Alaska or Hawaii and transported for no more than 60 days through Canada to the U.S. and slaughtered in the U.S.

    Covered commodities for lamb and pork must be derived exclusively from animals born, raised, and slaughtered in the U.S. Farm-raised fish and shellfish covered commodities must be derived exclusively from fish or shellfish hatched, harvested, and processed in the U.S. Covered commodities for wild fish and shellfish must be derived exclusively from fish or shellfish either harvested in U.S. waters or by a U.S.-flagged vessel and processed in the U.S. or aboard a U.S.-flagged ship. Fresh and frozen fruits, vegetables, and peanut covered commodities must be derived exclusively from produce or peanuts grown, packed, and, if applicable, processed in the U.S.

    The guidelines also provide guidance for products of mixed origin, such as ground beef, including products produced both in foreign markets and in the U.S. as well as labeling for blended or mixed products.

    The department also is required by the 2002 Farm Bill to publish a regulation for mandatory country of origin labeling by Sept. 30, 2004. Development of this mandatory regulation will begin in April 2003 and will likely be based on these voluntary guidelines as well as related input. Submissions on the utility of the voluntary guidelines are encouraged during the next 180 days.

    Food retailers are responding unfavorably to the bill.

    According to FMI president Tim Hammonds, the guidelines place an excessive burden on the entire food production and distribution chain, and will discourage voluntary labeling by retailers. "Food retailers are being asked to keep records of the country of origin of more than 500 products in each store for two years," he says. "The country in which each processing stage occurs for every single fresh or frozen vegetable, every fresh or frozen piece of fruit, every fresh or ground cut of beef, pork, or lamb, every piece of fish, and every peanut will need to be identified and documented."

    Some food retailers are taking a wait-and-see approach before voicing any concerns, however. "We think the guidelines are an excellent starting point," Albertsons spokeswoman Jeannette Dewe told The Idaho Statesman, though the company has not yet decided when it will implement labeling at its stores. "We will be taking a closer look to make sure we understand them and raise any concerns that we may have."

    Although Hammonds believes the guidelines place a particularly unfair burden on the smallest operators, the association is gratified the guidelines require the entire food production chain to be engaged to implement the program.

    Port closures

    Retailers feel ripple effects weeks after labor lockout ends at West Coast ports.

    Weeks after longshoremen returned to the docks after the 12-day lockout, a logjam of ships persisted at 29 ports in Oregon, Washington, and California, and massive numbers of containers were waiting to be unloaded.

    The White House announced that President Bush had formed a board of inquiry to make an assessment of the economic damage of the port lockout and determine whether the two sides are negotiating in good faith. "The impact on the broader economy of the impasse is of tremendous concern," says Hammonds of FMI. He adds, "A prolonged closure of the ports will negatively affect every industry sector and every business in America in one way or another as shortages take hold just before the holiday shopping season."

    According to a report by Forbes, increasing tensions may lead to more trouble on the docks when the court-mandated 80-day "cooling off" period expires at year-end.

    As a result, companies are planning for the worst, trying to reroute first quarter shipments via East Coast ports or Mexico.

    Dole Food Co., Inc., in an effort to minimize the economic impact to the company and its customers, filed a complaint in Federal District Court in Los Angeles seeking the release of cargo and equipment detained at the Los Angeles port since the lockout. To date, Dole estimates that approximately 8.4 million pounds of bananas and other perishable commodities were at risk of spoilage.

    Dole plans to divert loaded vessels bound for Los Angeles to alternative ports in Mexico. "We hope the parties will come to an agreement," Dole spokeswoman Freya Maneki told Reuters. "If they don't, we are prepared to return to Ensenada."

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