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Trump Administration’s Regulatory Rollback Should Come with a Warning Label: Cutting Some Regulations May Be Harmful to Your Bottom Line

Supermarket-949913_1920By Jill M. Hutchison

On January 30, President Trump signed the Presidential Executive Order on Reducing Regulation and Controlling Regulatory Costs.  Executive Order 13371.  The stated aim of the Order is to “manage the costs associated with the governmental imposition of private expenditures required to comply with Federal regulations” by identifying regulations for elimination.  Order Section 1.  Much of the early coverage of this Executive Order has focused on environmental regulations and labor rules, pondering the impact to workers, the environment, and public safety in exchange for a presumably less burdensome, lower-cost regulatory environment for businesses.  However, a significant cut in the regulations of each agency is not a panacea that will result in a “gain” on the business side of the ledger for all industries.  Fewer regulations, particularly regulations related to labeling, may make some aspects of the consumer products industry more complicated and costly, not less.

The Executive Order sets a “Regulatory Cap” for 2017, requiring that “[u]nless prohibited by law, whenever an executive department or agency (agency) publicly proposes for notice and comment or otherwise promulgates a new regulation, it shall identify at least two existing regulations to be repealed.”  Order Section 2.  The Executive Order defines “regulation” to mean “an agency statement of general or particular applicability and future effect designed to implement, interpret, or prescribe law or policy or to describe the procedure or practice requirements of an agency . . . .”  Order Section 4.

A major benefit of federal regulations on issues like product composition and labeling is that they preempt inconsistent state and local regulations and avoid related state law claims. The Nutrition Labeling and Education Act, 21 U.S.C. §§ 341 et seq., for instance, expressly preempts state and local requirements for food labeling that are not identical to the requirements established under the NLEA.  Where the Food and Drug Administration has issued a regulation on a particular aspect of labeling, such as setting a standard of identity or prescribing when a particular labeling claim may be made, state law claims related to that label claim are preempted.  See, e.g., Turek v. General Mills, Inc., 662 F.3d 423 (7th Cir. 2011) (finding that state law consumer protection claims alleging that “35% of your daily fiber” was misleading in a product where fiber was from a “non-natural” source were preempted by the FDA’s adoption of a regulation setting out contours of when and how fiber-related statements can appear on a label and affirming dismissal of claims.  Cf. Riegel v. Medtronic, Inc., 552 U.S. 312 (2008) (holding that state law labeling and design defect claims were preempted by the Medical Device Amendments Act of 1976, 21 U.S.C. §§ 360 et seq., for devices that had undergone the FDA’s premarket approval process).  Where the FDA has not issued regulations addressing common labeling statements, state law claims alleging that a company misled consumers or otherwise violated state consumer protection statutes by using that term may proliferate, as claims arising out of “all natural” labels did for many years. 

Moreover, states may try to address the absence of a federal definition by promulgating their own requirements for when companies may use a term.  For example, in 2016, New York Governor Andrew Cuomo proposed a plan for developing definitions for terms like “all natural” and statements that would appear on food labels in that state.  See, e.g., Jeremy Creelan, New York Governor Andrew Cuomo Proposes To Define Terms on Food Labels Such As “All Natural” (January 19, 2016).

State and local regulations that require companies to affix different warning labels to products to be sold in different states, or to provide a more expensive ingredient or component in one area, can pose a logistical burden and drive up costs for companies and consumers.  The various product and packaging modifications imposed by the State of California are the most conspicuous examples of this.  California’s unique regulatory requirements range from the prominent and frequently-applied Proposition 65 warnings that a product contains a substance with known cancer or reproductive risks, to the Title 20 requirement that portable lamps sold in California include a compact fluorescent light bulb in the box to facilitate energy efficiency.  See Jill Hutchison, What a Change in IARC’s Classification Means for Products That Have Been Branded (Possibly, Probably) Cancer-Causing (October 13, 2016); Janice Chamberlain and Jenny Heinzen York, California’s Title 20 poses challenges for lamp sellers (March 9, 2010).  States with smaller markets contribute to the discord as well.  For instance, a Vermont law requiring prominent labeling of products containing genetically engineered ingredients went into effect in July 2016.  However, Vermont’s GMO labeling law was preempted several weeks later by the Safe and Accurate Food Labeling Act, Pub. L. 114-216, which requires the FDA to regulate labeling and distribution of bioengineered foods. According to a policy paper posted on Speaker of the House Paul Ryan’s website, the Safe and Accurate Food Labeling Act was intended to “ensur[e] that food labeling is the sole purview of the federal government,” “guarantees that state labeling mandates do not mislead consumers,” and “will prevent the costly price hikes associated with a patchwork of state labeling laws.”  A Better Way: Our Vision for a Confident America, p. 15 (June 14, 2016).  As Judge Posner noted in Turek, 662 F.3d at 426, “It is easy to see why Congress would not want to allow states to impose disclosure requirements of their own on packaged food products, most of which are sold nationwide.  Manufacturers might have to print 50 different labels . . . .”

Administration officials say that agencies will propose the regulations for revocation, and that revocations will be approved by the White House, according to news sources such as Bloomberg.  It remains to be seen whether the White House will recognize the value of regulations in some instances and retain regulations that actually smooth the operation of nationwide consumer products businesses and expansion of smaller companies into additional markets, or whether the benchmark set by this one-in-two-out approach will leave beneficial regulations on the cutting room floor. 

Just as they watch for proposed new regulations and may offer comments to help shape the final rule, companies should keep a close eye on regulations that agencies propose for repeal and be ready to lobby in support of regulations that help avoid the burden of inconsistent state and local regulations.