[Federal Register Volume 61, Number 47 (Friday, March 8, 1996)]
[Proposed Rules]
[Pages 9420-9422]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 96-5484]



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DEPARTMENT OF COMMERCE

National Oceanic and Atmospheric Administration

50 CFR Part 260

[Docket No. 950915231-6051-02; I.D. 120195B]
RIN 0648-AI45


Privatization of In-plant Seafood Inspections and Related 
Services

AGENCY: National Marine Fisheries Service, National Oceanic and 
Atmospheric Administration (NOAA), Commerce.

ACTION: Notice of availability; public meetings.

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SUMMARY: On September 22, 1995, NOAA published a notice of inquiry in 
the Federal Register regarding in-plant seafood inspections and related 
services under the Agricultural Marketing Act of 1946 (the Act). It 
outlined an action NOAA was considering to provide direct inspection 
services by a private, for-profit entity, with continued NOAA 
oversight, and invited written recommendations and comments. The 
document also noted that NOAA had contracted for a study to determine 
the feasibility of implementing the plan. This document provides a 
summary of the comments and recommendations, the results of the study, 
describes NOAA's future actions, and announces meetings.

DATES: See SUPPLEMENTARY INFORMATION for meeting dates.

ADDRESSES: For copies of the feasibility study, contact the Director, 
Office of Industry Services, 1315 East-West Highway, Room 12553, Silver 
Spring, MD 20910. See SUPPLEMENTARY INFORMATION for meeting locations.

FOR FURTHER INFORMATION CONTACT: Sam McKeen, Director, Office of 
Industry Services at (301) 713-2355.

SUPPLEMENTARY INFORMATION: On September 22, 1995, NOAA published a 
notice of inquiry in the Federal Register (60 FR 49242), regarding the 
way it delivers in-plant seafood inspections and related services under 
the Act. The inquiry outlined an option NOAA was considering and 
invited written comments and suggestions. Under that option, direct 
inspection services would be provided by private parties with continued 
NOAA oversight. The inquiry recommended that comments take into account 
the following criteria that would fundamentally affect the viability of 
a privatized inspection program: (1) fair treatment of Government 
inspectors currently providing the services; (2) minimum modification 
of relationships with customers subscribing to the current program, and 
assurance that the internal operations of these customers need not be 
changed to accommodate a privatized system; (3) continued recognition 
by foreign governments of official indicia as indicating safety, 
wholesomeness and acceptability of products to which the indicia are 
affixed or to which they relate; (4) acceptance of the integrity of the 
privatized inspection program by harvesters, processors, wholesalers, 
retailers and consumers; and (5) likelihood of the continued economic 
viability of the private entity (or entities) providing the services 
into the indefinite future.
    The approach that NOAA described in some detail involved the 
establishment of a private, employee-owned Corporation (the 
Corporation) that would acquire the voluntary seafood inspection 
program (the Program) and operate it subject to the oversight of NOAA. 
NOAA employees could become employees of the Corporation if they so 
elected, and would acquire an ownership interest therein by means of an 
Employee Stock Ownership Plan (ESOP). The Corporation would not 
necessarily be the only authorized entity to provide privatized 
inspection services. Other entities could apply to the Secretary of 
Commerce for authorization, and if they met applicable requirements 
(e.g., number of certified inspectors, percent of income from one 
source), they would also be authorized to conduct the services.
    The inquiry also mentioned NOAA's plan to contract for a study to 
determine the feasibility of establishing an ESOP. It stated that if 
the study, discussions with affected or interested persons, or comments 
resulting from the inquiry indicate that the five criteria essential 
for the success of a privatized system are not likely to be met by the 
preferred option, NOAA will pursue other options for reinventing the 
way it delivers the service to the public.
    Under NOAA Administrative Order 205-11, 7.01, dated December 17, 
1990, the Under Secretary for Oceans and Atmosphere has delegated 
authority to sign material for publication in the Federal Register to 
the Assistant Administrator for Fisheries, NOAA.
    This document has been determined to be not significant for 
purposes of E.O. 12866.

Comments

    The inquiry generated 88 responses during the formal comment 
period, most of which addressed the general concept of privatization. 
The responses included comments from seafood processors, seafood trade 
organizations, food marketing organizations, consumer advocacy groups, 
and interested agencies of the Federal Government. Responders 
categorized themselves as follows:
     Seafood processors/wholesalers/distributors - 32
     Employees - 29
     State and Federal Government agencies - 7
     Seafood retailers - 6
     Trade associations - 4
     Consumer groups - 2
     Members of congress - 2
     Private consultants - 2
     Private citizens - 2
    A total of 86 comments opposed privatization (whether by ESOP or 
other, related means). Several responders who are current participants 
in the program stated that if the program were privatized, they would 
drop out of the program and hire their own inspectors. Comments that 
specifically addressed the ESOP proposal opposed it. Of the comments 
opposing transfer of the inspection function to the private sector, 59 
did not discuss other options that might be preferable to the current 
situation. A further 13 of the negative comments recommended 
transferring the program to the U.S. Department of Agriculture or the 
U.S. Food and Drug Administration. Discussions with those agencies 
regarding transfer of the program were conducted prior to publication 
of the notice of inquiry in the Federal Register. Neither agency was 
interested in taking over the 

[[Page 9421]]
program. NOAA has, therefore, concluded that attempting to pursue that 
option further would not be useful. An additional 14 commenters who 
opposed transferring the program to a for-profit entity suggested 
formation of a ``government enterprise'' as a mechanism to ensure that 
the criteria outlined in the inquiry could be met while allowing a 
change in program structure to increase its efficiency.
    Two comments supporting privatization were received from private 
inspection entities, one of which was a not-for-profit organization 
currently involved in standards-setting and inspection activities 
pursuant to government programs throughout the world. That organization 
expressed interest in assuming administration and operation of the 
entire voluntary seafood program.
    Generally, each response opposing the proposal addressed concerns 
categorized and quantified as follows along with some of the comments:
    (1) The integrity of the program would be in jeopardy--44 comments
    Concerns revolve around the integrity of a private company funded 
by the very industry it inspects. This may be a conflict of interests. 
Federal inspectors are perceived to be objective.
    (2) Acceptance by foreign markets either would not occur or was 
doubtful--38 comments
    ``Failure to maintain foreign confidence in our U.S. inspection 
program could result in serious economic problems for U.S. industry * * 
*this puts nearly 500 jobs and approximately $200 million of annual 
business [of the commenter] unnecessarily at risk.''
    (3) The cost of the service would increase--34 comments
    Commenters feel that Commerce fees have been based on a realistic 
non-profit basis and that private inspection is bound to cost more. The 
felt that seafood is already expensive; it would be impossible to 
absorb the extra costs and difficult to pass these additional costs 
along to the public.
    (4) The proposal is contrary to the purpose of reinventing 
government--53 comments
    One of the commenters stated that the proposal is not consistent 
with the clear intent of the Federal Workforce Restructure Act of 1994, 
H.R. 3345, that was signed into law with the clear mandate of promising 
``the American people that we would create a Government that works 
better and costs less.'' (Bill Clinton, March 30, 1994)
    (5) A private entity conducting inspection services would not be 
accepted by consumers--23 comments
    Commenters are concerned about losing the ability to use the 
Federal inspection marks. They feel that it is the best way to 
communicate to their customers that their products meet Federal quality 
standards.
    (6) The proposal would result in unfair treatment of inspectors and 
their livelihood may be compromised--23 comments
    Commenters are concerned whether employee wages and total benefits 
would be equal to their current wages and benefits; inspectors would 
receive credit for seniority; privatization would offer equal pay and 
benefits; and whether employees would be treated fairly. They felt that 
failure to provide equal pay and benefits would lead to disruption in 
the work place.
    (7) The economic viability of the program would be lost--20 
comments
    One commenter stated that if privatization of the inspection 
services occurs, their USDC inspection programs, or equivalent would 
have to be discontinued.

The Feasibility Study

    The feasibility study analyzed seven options based on the degree to 
which they satisfied several criteria which, by NOAA's instruction, 
were unweighted in terms of importance. These criteria were based on 
those identified in the Federal Register document published on 
September 22, 1995. The study then summarized the feasibility of 
implementing these options. The options were devolution (turning 
inspection services over to the states), government corporation, 
contracting out, turning the program over to a non-profit corporation 
or to one of three types of private for-profit corporations. The study 
contractor researched existing ESOPs and other corporations and 
reviewed the program's legislative authorities and requirements. The 
study contractor interviewed inspectors, industry members who 
participate in the voluntary inspection program, and trade 
associations. The final report was formally presented to NOAA on 
November 30, 1995.
    The contractor noted in its letter transmitting the final report 
that if preserving program integrity and minimizing negative impact on 
the inspection program customers are priorities, the analysis suggests 
that the Government Corporation option would be preferred. If, on the 
other hand, Commerce/NOAA's priority is to the maximize the financial 
access of the new organization and achieve the target employee 
reduction (the original impetus for the privatization analysis), the 
ESOP/Strategic Investor option (described in the document published in 
the Federal Register on September 22, 1995) best satisfies this 
combination of criteria. The report recommended that NOAA further 
analyze these two preferred options to determine which best satisfies 
the outlined criteria. Copies of the report are available from this 
office (see ADDRESSES).

NOAA's Future Action

    In light of the comments received on the proposal to transfer 
inspection responsibilities under the voluntary seafood inspection 
program to a private, for-profit entity, NOAA has decided that it would 
be more in keeping with the spirit of the National Performance Review 
(NPR) and the interests of seafood producers and consumers to look to a 
different type of enterprise to continue this important work. The range 
of acceptable options has shifted as a result of the comments received. 
A for-profit, private enterprise is no longer under consideration. 
Possible options now appear to range from Government enterprise to a 
not-for-profit, private enterprise combining recognized experience and 
integrity with the technical and financial ability to assume 
responsibility for the entire program. The Government enterprise could 
take the form of a Government corporation or a ``performance- based, 
consumer-oriented'' agency extracted from NMFS supervision, directly 
responsible to the Administrator of NOAA or his/her designee and 
relieved from unnecessary bureaucratic constraints.
    The Government corporation would be a separate, legal entity, 
created by Congress pursuant to the Government Corporation Control Act 
of 1945. The Government Corporation Control Act is not a general 
incorporation statute, so that each Government corporation possesses 
only those powers set forth in its charter, which itself must be an Act 
of Congress. The feasibility study recommended some charter provisions 
for a Government corporation that would be useful. These included 
authority to retain and use revenues without fiscal year limitation, 
exemption from the Federal Property and Administrative Services Act, 
and exemption from employee limitations without changing the Federal 
status of the employees.
    The NPR is developing a series of initiatives in the context of 
constrained resources where good customer service will be an 
imperative. Creating performance-based agencies is one of these 
initiatives. The NPR is assisting agencies to change their internal 
cultures to create these performance-based, customer-oriented 
organizations. 

[[Page 9422]]
The performance-based, customer-oriented organization would no longer 
be a component of the National Marine Fisheries Service, but would 
remain a Government agency within NOAA, providing services to the 
public under the policy oversight of the Administrator or his/her 
designee. It would be headed by a chief executive officer who would be 
accountable for achieving results. The new agency would have statutory 
authority to vary the rules for procurement, employees, etc., that 
ordinarily apply to federal agencies. Creation of a performance-based 
agency, like the creation of a Government corporation, would require 
Congressional action.
    Implementation of the not-for-profit option, would require 
legislation authorizing NOAA to enter into a binding, long-term 
arrangement with a selected, private entity. The legislation would also 
establish conditions relating to the qualifications of the private 
sector partner, the rights of employees to transfer to the private 
entity, the legal acceptability of the examinations and certifications 
of the private entity, measures to ensure the integrity of the system, 
etc.
    As indicated in the inquiry, the support of current customers and 
other interested persons is essential to the ``reinvention'' of the 
seafood inspection program in the time frame planned. NOAA desires to 
accomplish this ``reinvention'' in the simplest possible way that is 
acceptable to industry and consumers. Therefore, it will conduct 
additional meetings with interested persons and organizations at 
various locations in the United States according to the following 
schedule to provide all interested persons an opportunity to present 
further views on the remaining options. Prior to these meetings, a 
draft discussion paper detailing one of the Government enterprise 
options, this document and information about the specific meeting 
locations will be mailed to those who attended earlier meetings or 
received earlier correspondence from this agency on this issue. Other 
interested parties may obtain this information by contacting this 
office (see ADDRESSES).
    The meeting dates and locations are as follows:
    March 25, 1996--St. Petersburg, FL; March 26--Miami, FL; March 27--
Mobile, AL; March 28--Indianola, MS; April 1--Boston, MA; April 3--
Chicago, IL; April 4--Norfolk, VA; April 5-- Philadelphia, PA; April 
9--Los Angeles, CA; April 10--Seattle, WA.

    Dated: February 29, 1996.
Gary Matlock,
Program Management Officer, National Marine Fisheries Service.
[FR Doc. 96-5484 Filed 3-7-96; 8:45 am]
BILLING CODE 3510-22-F