Remarks as Prepared for the U.S. – India Business Council Meeting with Importers and Exporters

Good morning. Thank you, Bob Wood, for that warm introduction.

I’m delighted to have the chance to speak with you. As many of you know, I was just in India this past January. My primary mission was to discuss the safety of food, drugs, and consumer products with members of the Indian government and private sector. So I think today is a great opportunity to share a little about what I saw and what I learned.

It was my first time to visit India. I found the country to be a remarkable, vibrant, and entrepreneurial place. I’m sure that comes as no surprise to anyone here.

Before I left, I consulted with the India Ambassador to the United States. He explained that “Everything you have heard about India is true.” He told me about all the different cultures, the dozens of languages, and the disparities between the urban and rural areas — all of which I then saw for myself.

I was particularly struck by the density of the population. You probably know that India is about one-third the size of the United States. But it also has four times the population. That means that 15 percent of the world’s population lives on 2.4 percent of the land mass. That is a crowded place.

Also, you might know that almost a third of the population in India is under 15 years old. And 70 percent of the population lives in one of 550,000 villages.

You are undoubtedly aware that a majority of the Indian population is involved in farming. The role of the small farmer is a significant aspect of the challenges India’s economy faces going forward.

When I was in Vietnam a couple of years ago, I saw a nation subdivided into plots of less than an acre. 43 million farmers work the land by hand there. They only grow their own food and a little more to sell.

I asked the Vietnamese Agriculture Minister why so few people had mechanized their farms. He replied, “What would those 43 million people do if they couldn’t farm?”

As you know, the Indian government wrestles with the same question — except the number of small farmers is more like 700 million.

On my last night in India, I had dinner at the home of our U.S. Ambassador to India, David Mulford, with a group of people he had invited. One was a well-respected economist whose clear thinking I immediately admired. In response to a government official’s defense of protectionist policies aimed at protecting the small farmer, she said “What you’re leaving out is they can change.”

Indeed, people can and will change. I have an agricultural heritage. Fifty years ago, my grandfather and his neighbors farmed an area of land that supported 21 families. As his generation began to die, my family bought the land. And now, fewer than three full-time workers are needed to farm it. As a result, my grandfather’s descendants have been able to seek education and earn their living in new and amazingly productive ways.

And now, as people the world over are discovering, the globalization of markets requires us to change even more. Some will adapt and survive. Others will lead and thrive.

Ensuring the safety of imports is one area where the markets all around the world are in the middle of finding a new equilibrium.

The product-safety problem is the natural consequence of a maturing of the global marketplace. These issues have been slowly ripening for several years now. They are a direct reflection of the profound growth in the amount of trade between nations. Our government regulatory systems were not designed for the pressure they are under. Scaling the old way up is an inadequate response. So we are taking a different approach and inventing tools to deal with new problems.

In the United States, we get imports from 825,000 different sources, through over 300 ports-of-entry. This is a very large, very complex sector of our economy. We’re going to import $2 trillion worth of goods just this year. And it’s growing. There’re some estimates that would suggest that by 2015 we’ll see three times the amount of imports we have today.

In recent years we’ve seen a rash of problems with our imports and food supply — from tainted cantaloupes to potentially poisonous toothpaste to toxic toys. These import safety problems came to a head last summer. So President Bush wisely appointed a working group at the highest levels of our federal government to examine the issue and offer solutions.

He charged us with determining what the federal response to all of this should be and what we need to do to protect our imports and food supply. We divided the problem into two parts.

The first part was to establish teams that went deep into the federal government. They carried out what might have been the most robust inspection of our import safety system ever made.

The teams asked questions about our current legal authorities and bureaucratic structures. They asked, “What changes do we need to make in order to respond to this new environment? What are the limitations? What new legal powers do we need? What level of financial resources do we need to make this work?

The second part was to fan out across the country and actually see the challenges and talk to the people who live and work with them every day. I personally went to seaports and border crossings to Canada and Mexico. I went to freight hubs. I went to distribution facilities. I went to wholesalers and retailers. I went to food and drug processors. I saw laboratories. I spent time at the Food and Drug Administration within my department. I spent time with inspectors from the Department of Agriculture and the Bureau of Customs and Border Protection.

It was a fascinating experience to see the totality of this system. And we were able to draw a few conclusions that we detailed in a report in November.

One, we simply cannot inspect our way to product safety. There’s just too much volume. To inspect every shipment would bring the global economy to a crawl — and consumers would not even have their expectations met.

And two, our product safety system is good now, but it won’t be adequate into the future.

In the past, our strategy basically has been to stand at the border and to try to catch things that are unsafe or low-quality as they come into the country.

Our new strategy is that we have to roll the borders back and make certain that safety is built into every product, along every step of the supply chain.

In India, I saw an example of how the market is already moving in this direction.

On one of the days during my trip, I traveled to the Cochin region in the state of Kerala. It’s been the center of the world’s spice trade for hundreds of years. Its soil and climate are perfect, and its culture has been defined by the customs and organization that arose around the spice trade.

At lunch in the city of Cochin, I met with a group of business owners who belong to the Spice Board. The Spice Board is an entity organized by the National Ministry of Commerce to facilitate and promote Indian spices. What I took away from my meeting with them was that they get it. They understand how they need to adapt to the changing demands of the world marketplace in order to thrive.

For example, they are committed to the safety of their exports as a matter of brand protection and market enhancement. They have created a certification process that assures that spice leaving India in a few categories has met a set standard. It’s a template for how many different industries and countries should handle product safety.

That afternoon, I traveled outside the city to visit a spice processing operation — a joint venture between an Indian firm and the Baltimore-based McCormick. McCormick has a large market share in the American spice business. They had bought into this particular plant about a decade ago.

The plant’s processes were interesting, but I found the relationships between McCormick’s growers and customers to be the most fascinating part of the visit.

Upon arriving, I noticed some large burlap bags of red chili peppers stacked outside, ready for shipment to the port of Cochin. Each one of the bags had a yellow cloth message tag sewn onto it. The plant managers told me that the company requires all the farmers who sell to McCormick to put their names on the tags, where the chili peppers came from, and the date on which they were picked.

The McCormick people told me they had implemented this system the previous year as a result of a traceability requirement their customers in the United States and elsewhere had been asking for.

Now, the farmers who provide peppers and other crops to McCormick only have an acre or two of land each. Many of them have little formal education — but all of them are part of a powerful political constituency. Unlike in many parts of the world, in India, as you all know, poor people vote. So political officials have to be sensitive to their desires.

I realized that the state of Kerala or the Indian federal government could have never imposed a traceability requirement on these small farmers. But when customers made it a condition of doing business, the farmers either accepted it or they started doing business someplace else. And since McCormick is the most reliable partner in the spice market, almost all of them adapted.

I refer to this attitude as the Red Pepper Principle of Product Safety. Markets — not mandates — are what drive improvements and innovations.

Of course, sometimes market changes can take years. Many people resist adapting. But, over time, many join with others to achieve economies of scale. Ultimately, they implement new practices that improve the quality — and sale prices — of their products.

Now, while India and the United States are good friends and close trading partners, not all economies around the world are so similar.

One of the things that we on President Bush’s Cabinet-level Working Group on Import Safety came to realize is that any effective solutions must work across different perspectives, economic systems, and regulatory regimes. For example, different parts of governments see import safety from different perspectives. A border protection agent views it as a law enforcement challenge. A public health official sees it as a health problem. A trade negotiator wants to know how it will affect commerce.

Our task is not always to get different systems of government to change, or different parts to shift their focus. Instead, we’re going to have to find common goals, international standards, and interoperable systems to bridge any differences.

Here’s an example of what I mean. About 20 years ago, the cargo and shipping business began to create a series of standard crate sizes: 20 and 40 and 45 feet. And now, if you go to any place in the world, you will see these same sizes handled by an interoperable system. It moves very rapidly, smoothly, and efficiently because we have standards that bridge different systems.

We need to have not only standards of cargo; we need standards in products. If people are producing spices in India, they need to know that they’re producing them according to a standard that will be acceptable not just in India, but in the European Union and the United States as well.

Coming up with the right standards is hard, messy work. The only way to get it done is to collaborate with one another.

But the way you make collaboration work is by being open and transparent about what you’re doing. Transparency breeds trust. Trust breeds speed. And in a global market, speed is life. Anything that slows the flow of goods down — including unnecessary inspections — damages competitiveness. Competitiveness and safety can co-exist only when one knows who to trust.

The key to product safety in the future will be transparent, interoperable systems in which people know who does and who doesn’t produce goods that are safe and effective. The role of government is to support — not dictate — that process.

We probably won’t get it entirely right the first time. There’s no one report, no one agreement that will solve this problem completely. This is a maturing problem; it will require a flexible solution. Change on a global scale occurs in increments. Continuous improvement is how you make it lasting and effective.

And we’re continuing to pursue incremental improvements.

Today, with approval from the State Department, I am pleased to announce the establishment of the first overseas Food and Drug Administration positions at diplomatic posts in the People’s Republic of China. Over the next two years, we plan to station eight full-time FDA staff along with five locally-employed staff at the United States embassy in Beijing and the United States Consulates General in Shanghai and Guangzhou.

These experts will fulfill the first step in our Beyond our Borders initiative to locate FDA staff overseas to facilitate inspections and build capacity among foreign regulators.

We are looking forward to the Chinese government’s expected agreement to this plan, and the granting of the necessary diplomatic visas and other credentials for our staff.

We are also hoping to open similar offices in India and in several other countries in the future.

In an age when borders aren’t necessarily barriers, the globalized economy demands nothing less than regulatory interoperability, transparent information exchange, and close cooperation among regulatory bodies — especially on product quality and enforcement issues.

The work of these experts — along with the historic Memoranda of Agreement I signed last December with Chinese government agencies — shows how serious we are in rising to these challenges. We are committed to ensuring that Americans have access to safe food, drugs, and medical devices — regardless of where the products were manufactured.

As global markets shift, all of us have three choices. We can fight change and fail. We can accept it and survive. Or we can lead and prosper.

The United States and India have accomplished a great deal together in the past. I am confident that product safety is one issue that, by working bilaterally, we will lead and prosper into the future. Thank you.

Last revised: January 12, 2009