[Federal Register Volume 63, Number 30 (Friday, February 13, 1998)]
[Proposed Rules]
[Pages 7319-7322]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 98-3725]


 ========================================================================
 Proposed Rules
                                                 Federal Register
 ________________________________________________________________________
 
 This section of the FEDERAL REGISTER contains notices to the public of 
 the proposed issuance of rules and regulations. The purpose of these 
 notices is to give interested persons an opportunity to participate in 
 the rule making prior to the adoption of the final rules.
 
 ========================================================================
 

  Federal Register / Vol. 63, No. 30 / Friday, February 13, 1998 / 
Proposed Rules  

[[Page 7319]]


=======================================================================
-----------------------------------------------------------------------

DEPARTMENT OF AGRICULTURE

Food Safety and Inspection Service

9 CFR Parts 308, 318, and 381

[Docket No. 97-007N]


Notice of Policy Change; Elimination of Prior Approval for 
Proprietary Substances and Nonfood Compounds

AGENCY: Food Safety and Inspection Service, USDA.

ACTION: Notice of policy change; request for comments.

-----------------------------------------------------------------------

SUMMARY: The Food Safety and Inspection Service (FSIS) is revising its 
policy regarding Agency approval of nonfood compounds and proprietary 
substances prior to use in official meat and poultry establishments. 
The compounds and substances currently subject to prior approval 
include maintenance and operating chemicals (sanitizers, cleaning 
compounds, water treatments, lubricants, and pesticides) and 
proprietary food processing chemicals (branding inks, scalding agents, 
rendering agents, and denaturants). FSIS recently proposed to eliminate 
the sanitation regulations requiring prior approval of some of these 
compounds and substances (contained in 9 CFR Parts 308 and 381, Subpart 
H). FSIS now is announcing that it is eliminating the prior approval 
system for all-nonfood compounds and proprietary substances and 
specifically requests comment on alternatives to the current prior 
approval system.

DATES: Comments must be received on or before April 14, 1998.

ADDRESSES: Submit one original and two copies of written comments to 
FSIS Docket Clerk, Docket #97-007N, U.S. Department of Agriculture, 
Food Safety and Inspection Service, Room 102, Cotton Annex, 300 12 St., 
SW, Washington, DC 20250-3700. All comments submitted in response to 
this notice will be available for public inspection in the Docket 
Clerk's Office between 8:30 a.m. and 4:30 p.m., Monday through Friday.

FOR FURTHER INFORMATION CONTACT: Patricia F. Stolfa, Assistant Deputy 
Administrator, Regulations and Inspection Methods, Food Safety and 
Inspection Service, U.S. Department of Agriculture (202) 205-0699.

SUPPLEMENTARY INFORMATION:

Background

    FSIS is planning to discontinue approving nonfood compounds and 
proprietary substances prior to use in official meat and poultry 
products establishments. Nonfood compounds are compounds used in 
official establishments, but which are not expected to become 
components of their products. Nonfood compounds subject to prior 
approval by FSIS include cleaning compounds, compounds for laundry use, 
paint removers, sanitizers, hand washing compounds, pesticides, boiler 
and water treatments, lubricants, solvents, and sewer and drain 
cleaners. Proprietary substances are used in the preparation of 
products. They are considered proprietary because all of their 
ingredients are not identified, either on the containers by common or 
chemical name or by some other means. Proprietary substances subject to 
prior approval by FSIS include: marking agents, such as branding and 
tattoo inks; food processing substances, such as poultry and hog scald 
agents and tripe denuding agents; denaturants; substances to control 
foaming in soups, stews, rendered fats, and curing pickle; and 
substances for cleaning or treating feet or other edible parts.
    FSIS receives annually between 16,000 and 20,000 applications for 
approval of nonfood compounds and proprietary substances. It is 
important to note that many of these applications are requests for 
approval of formulation changes in or new use patterns for compounds 
and substances already approved for use in meat and poultry 
establishments. FSIS approves approximately 9,000 applications per year 
and rejects approximately 1,000. FSIS returns around 40 percent of the 
applications to applicants each year, for a variety of reasons: the 
application paperwork may not be complete; FSIS may request additional 
information, changes in chemical formulation, or revisions to the 
requested use patterns. FSIS annually publishes a list of the approved 
substances and compounds in FSIS Miscellaneous Publication No. 1419, 
``List of Proprietary Substances and Nonfood Compounds'' ( hereafter 
referred to as the List). This publication currently lists 
approximately 115,000 compound and substances produced by about 8,000 
manufacturers.
    FSIS does not test the products submitted for approval but 
evaluates them based on information submitted by manufacturers and 
other information in the Agency's files, including chemical 
formulations and information on proposed uses and labeling. FSIS also 
consults with the Food and Drug Administration (FDA), the Environmental 
Protection Agency (EPA), and the Occupational Safety and Health 
Administration (OSHA) in regard to those Agencies' determinations 
concerning the safety and suitability of the compound for the requested 
use. Generally, FSIS consults with FDA regarding the status of the 
substance or compound as an FDA-approved direct or indirect food 
additive. Also, FSIS sometimes consults with FDA regarding nonfood 
compounds that have been reviewed as drugs, such as hand washing 
agents. FSIS generally consults with EPA concerning that Agency's 
review and registration of pesticides with labeling claims. FSIS may 
consult with OSHA if the intended use of the substance or compound 
raises worker health and safety concerns.
    FSIS's prior approval program obviously is somewhat redundant with 
those of the aforementioned agencies. However, the approval of these 
compounds prior to their intended use provides some assurance to meat 
and poultry processors that use of the compounds and substances will 
not result in the adulteration or contamination of food products, 
providing they are used properly. Prior approval has also ensured that 
certain compounds, such as sanitizers, meet minimum standards of 
effectiveness when used as directed. Consequently, as an additional 
unintended benefit of the prior approval program, the FSIS List has 
served as a marketing tool for chemical manufacturers and distributors; 
inclusion in the List immediately renders a nonfood compound or 
proprietary substance more marketable to meat and poultry processors.

[[Page 7320]]

    However, this prior approval program is inconsistent with the new 
food safety strategy and approach set forth in FSIS Docket No. 93-016F, 
``Pathogen Reduction; Hazard Analysis and Critical Control Point 
(HACCP) Systems'' (61 FR 38806). Under these new regulations, every 
official meat and poultry establishment will be required to develop and 
implement HACCP, a science-based process control system designed to 
improve the safety of meat and poultry products. Establishments will be 
responsible for developing and implementing HACCP plans incorporating 
the controls necessary and appropriate to produce safe meat and poultry 
products. Consequently, establishments, not FSIS, will be responsible 
for determining whether the nonfood compounds and proprietary 
substances they use are safe and effective.
    By terminating the prior approval program for nonfood compounds and 
proprietary substances and discontinuing publication of the List, FSIS 
will be able to redirect resources to better implement inspection under 
the HACCP regulations. FSIS will maintain, however, a small staff with 
expertise in nonfood compounds and proprietary substances. That staff 
will keep abreast of developments in this sector of chemical 
manufacturing, maintain liaison with outside organizations that have an 
interest in the area, and issue technical guidance, particularly to 
small meat and poultry plants, from time to time, as circumstances 
dictate.
    FSIS will, of course, continue to require that meat and poultry 
products be neither adulterated nor misbranded through the misuse of 
proprietary additives and nonfood compounds. Enforcement activities in 
this regard will include, but are not limited to: organoleptic 
inspection of establishment premises and product; sampling for chemical 
residues as necessary; review of establishment records, including 
sanitation standard operating procedures, HACCP plans, and the use 
directions, pest control certifications, and other materials furnished 
to establishments by chemical manufacturers and suppliers; and requests 
for formulation information from chemical manufacturers themselves. In 
light of this, FSIS anticipates that establishments considering 
purchasing and using nonfood compounds and proprietary substances will 
demand formulation and other information from chemical manufacturers as 
part of their decision-making in the private marketplace. Manufacturers 
failing to provide such information could expect to lose their market 
share.
    FSIS already has proposed to eliminate regulatory requirements for 
prior approval of certain nonfood compounds and proprietary substances 
in FSIS Docket No. 96-037P, ``Sanitation Requirements for Official Meat 
and Poultry Establishments'' (62 FR 45045; August 25, 1997). In that 
document, the Agency has proposed to clarify and consolidate the 
sanitation requirements for meat and poultry establishments, eliminate 
unnecessary differences between those regulations, make the existing 
sanitation regulations more compatible with the HACCP and sanitation 
Standard Operating Procedures (SOP) requirements, and convert command-
and-control requirements to performance standards. As part of this 
comprehensive revision, FSIS proposed to eliminate the sanitation 
regulations that require certain equipment, processes, and nonfood 
compounds be approved by FSIS prior to use in meat or poultry 
establishments (contained in 9 CFR parts 308 and 381, subpart H). 
Compounds and substances currently requiring prior approval under the 
sanitation regulations include pesticides used in meat establishments 
(Sec. 308.3 (h)); disinfectants for implements used in dressing 
diseased meat carcasses (Sec. 308.8 (b)); and germicides, insecticides, 
rodenticides, detergents, and wetting agents used in poultry 
establishments (Sec. 381.60).

Compliance with Executive Order 12866

    This action has been reviewed for compliance with Executive Order 
12866. As this action is determined to be significant for purposes of 
Executive Order 12866, the Office of Management and Budget has reviewed 
it. FSIS has estimated that the adoption of this action is likely to 
generate net social benefits.
    Executive Order 12866 requires identification and, if possible, 
quantification and monetization of incremental benefits and costs of 
this action. FSIS has identified two types of incremental benefits in 
the form of avoidance of costs that are currently being incurred by 
chemical manufacturers/distributors and by FSIS. These benefits are 
discussed below.
    First, the action would eliminate the requirement that the chemical 
manufacturers file applications and obtain approval for nonfood 
compounds and proprietary substances prior to use. As stated above, 
FSIS receives between 16,000 and 20,000 applications per year. The 
economic burden of requesting FSIS approval of nonfood compounds and 
proprietary substances includes the administrative, mailing, and labor 
costs associated with preparing the required Agency forms. FSIS 
estimates that it takes about 25 minutes to prepare each submission. 
Assuming an hourly earnings rate of $20-$25 for each person preparing 
requests for prior approval, the annual economic burden is between 
$150,000 and $187,000. The elimination of this burden associated with 
the adoption of the proposed action would, therefore, translate into an 
incremental benefit of $150,000 and $187,000.
    Second, FSIS incurs considerable costs in processing and approval 
or disapproval of the products. FSIS could re-allocate these resources 
to better implement the new HACCP requirements. One measure of this 
allocative efficiency is the amount of savings in administrative costs 
if FSIS were to eliminate the approval/disapproval program without 
redirecting resources to administration of the performance-based 
standards. The value of this allocative efficiency could not, however, 
be quantified because of uncertainty and unavailability of the required 
data. The required budgetary data overlap with the data for other 
regulatory functions of FSIS.
    To sum up, the value of incremental benefits of the proposed action 
could be monetized only partially and amounts to $150,000 to $187,000 
per year.

Social Costs

    The incremental benefits of the proposed action need be compared 
with the incremental social costs to obtain the net social benefit (if 
the benefits exceed the costs) or the net social cost (if the costs 
exceed the benefits). FSIS has identified two types of social costs. 
The first type of social cost is the additional marketing expense that 
would be incurred by the industry. Currently, the industry is not 
required to incur much of this expense, because, as noted earlier, 
inclusion of the industry's products in FSIS's List serves as a 
marketing tool. After FSIS discontinues publication of the List, the 
chemical industry might have to develop additional methods to advertise 
and publicize its products for marketing. These marketing expenditures 
would represent incremental costs to society. Ideally, these costs 
should be quantified and juxtaposed against the value of incremental 
benefits referred to above. Unfortunately, FSIS could not quantify 
these costs because currently the industry does not incur these costs 
so that the required data are not available.

[[Page 7321]]

    The second type of cost item is the expenditure on research 
required to develop and test nonfood compounds and proprietary 
substances that are demonstrably safe and effective. FSIS anticipates, 
however, that the elimination of the FSIS prior approval would not 
significantly change these costs. Chemical manufacturers will continue 
to be required to demonstrate the safety and efficacy of their products 
to FDA, EPA, and/or OSHA, as required. Because FDA, EPA, and OSHA will 
review the safety and efficacy of these compounds and substances in 
food processing environments, FSIS assumes that chemical manufacturers 
will continue to conduct the same sort of research to determine whether 
or not their products are safe and effective.
    Furthermore, FSIS expects that meat and poultry establishments will 
request, as a condition of purchase, that chemical manufacturers 
somehow certify the safety and efficacy of their products. 
Establishments will keep on file any information provided by chemical 
manufacturers (written approvals from other agencies, letters of 
guaranty, etc.) as part of sanitation SOP, HACCP, or other records. 
FSIS inspectors may ask to review such information if they have 
questions about the composition or use of nonfood compounds and 
proprietary substances. FSIS anticipates, therefore, that manufacturers 
will continue to conduct research on nonfood compounds and proprietary 
substances in order to demonstrate their safety and efficacy to meat 
and poultry establishments, as well as to Federal Agencies.
    It is acknowledged that the chemical manufacturing and distributing 
industry's costs of marketing would increase, but such an increase 
would bring about greater economic efficiency as it would internalize 
their costs by elimination of the external subsidy that was provided by 
FSIS. The industry's cost of research and development to demonstrate 
safety and efficacy of nonfood compounds and proprietary substances 
would not decrease because the industry would be required to continue 
this practice to comply with similar requirements by EPA, FDA or OSHA. 
Therefore, the only increase in the cost would be the additional 
expenditures on marketing the products. Moreover, this cost increase 
would be voluntary on the chemical manufacturers and distributors and 
would not be required by the proposed action.
    Conceptually, it is possible that the value of subsidy provided by 
FSIS by publishing the List is greater than the marketing cost to be 
incurred by the chemical manufacturers and distributors. This is 
because publication of the List increases the value of information 
provided to the public at large. Such a provision tends to encourage 
entry of newer firms into the meat and poultry industries to compete 
with the existing firms. The non-publication of the List would, 
therefore, reduce the value of this information and hence reduce the 
social benefit. In practice, we could not quantify or monetize the 
value of this information to the society at large because of non-
availability of data.

Net Social Benefits

    FSIS believes that the incremental costs of marketing would be less 
than the incremental benefits identified and monetized above. These 
benefits include the benefits to the industry in the form of savings 
from the expenses of avoiding the economic burden of mailing and filing 
the Agency forms. Furthermore, the internalization of marketing costs 
by the firms in the industry would bring about a more competitive 
industry where product prices would more accurately reflect the 
marginal costs of production. The current system of publishing the List 
is tantamount to subsidization of the industry by FSIS. This subsidy 
brings about inefficiencies in the industry. Adoption of the proposed 
action would remove this subsidy and bring about a more competitive and 
efficient industry. A competitive industry is more likely to bring 
about greater product innovations in the chemical industry to ensure 
safer meat and poultry products. Also, the transparency in the chemical 
industry where prices reflect marginal costs would enable the chemical 
industry to make more informed choices.
    To sum up, FSIS believes the incremental benefits are likely to 
exceed the incremental costs so that there are net social benefits 
associated with the proposed action. Also, the distribution burden of 
the incremental costs and benefits is not likely to be inequitable 
because, while the marketing costs for chemical manufacturers and 
distributors would increase, these businesses would also realize the 
benefits of reduced costs of filing forms required for approval of 
their products by FSIS.

Compliance with Regulatory Flexibility Act

    FSIS certifies that the proposed action will not bring about a 
significant economic impact on a substantial number of small entities 
in the chemical manufacturing and distribution industry. The costs of 
developing and testing their products would not increase because, as 
noted earlier, these firms already incur similar development and 
testing costs to comply with health and safety requirements of FDA, 
EPA, and OSHA. Furthermore, production and distribution of proprietary 
substances and nonfood compounds is such a small segment of total 
production of these firms that it is not listed separately as a 4-digit 
industry in the Standard Industrial Classification (SIC) Manual 
published by the Office of Management and Budget (1987). For example, 
some of the proprietary substances and nonfood compounds are grouped in 
SIC 2842 with over a dozen other products.
    FSIS also assures that there will not be any adverse economic 
impact on small meat and poultry plants as a result of discontinuation 
of publication of the List. This assurance is based on two reasons. As 
noted earlier, the manufacturers and distributors of proprietary 
substances and nonfood compounds will be required to continue their 
research and testing of their products to comply with FDA, EPA, and 
OSHA requirements. Small meat and poultry plants would also rely on 
documentation submitted by the chemical manufacturers and distributors 
to these agencies for meeting of their products. Also, in the long run, 
competition should ensure that chemical manufacturers and distributors 
maintain or improve the safety and efficacy features of their products 
so as to preserve or increase their market shares.
    There will be no adverse economic impact on small communities, 
cities, and municipalities because these entities are not engaged 
either in production or distribution of proprietary substances and 
nonfood compounds, or in the meat and poultry products.

Alternatives to the Proposed Action

No Action

    FSIS considered continuing the current prior approval program 
requirements, i.e., taking no action, but has decided against it 
because the prior approval requirements are inconsistent with HACCP, 
economically inefficient, and somewhat inequitable. The HACCP 
requirements clearly define industry's responsibility for the safety of 
meat and poultry products, but provide the industry with greater 
flexibility to innovate and to customize their processes to the nature 
and volume of their production. The current prior approval requirements 
are inconsistent with HACCP and economically inefficient because they 
are based on a ``command and control'' regulatory

[[Page 7322]]

system that often fails to provide incentives to entrepreneurs to 
innovate new products, processes, and technologies which can result in 
safer meat and poultry products. Also, as noted earlier, the 
incremental costs of continuing the current system are likely to exceed 
the incremental benefits. The existing program is inequitable because 
it imposes the same amount of administrative burden on small and large 
chemical manufacturers and distributors; the relative burden is greater 
on small plants because, unlike large size plants, they cannot spread 
the costs over a larger quantity of output.

User Fees

    FSIS considered the alternative of setting up a system of user fees 
charged to chemical manufacturers and distributors to cover the costs 
of approval or disapproval of the products. FSIS did not propose this 
alternative for several reasons. One is that the incremental costs of 
setting up such a system would probably exceed the incremental 
benefits. The incremental costs of this alternative would include the 
costs of setting up an administrative system of user charges for over 
100,000 proprietary substances and nonfood compounds. The user fees 
should recover the total costs of administration of the program. These 
costs cannot be identified, let alone quantified, making it virtually 
impossible to set up a structure of user fees.
    Alternatively, the user fees could be based on the value of 
benefits to the firms in the industry or to society at large. This 
approach would require quantification of the benefits. As noted above, 
only a small part of the benefits to chemical manufacturers and 
distributors could be quantified, so that this amount would fail to 
cover comprehensive costs of the program.
    Finally, FSIS did not propose this alternative because the Agency 
does not have legislative authority to levy user charges to recover the 
costs of such a program. Although the Agricultural Marketing Service 
(AMS) has authority to levy user fees, it is not responsible for 
ensuring the safety of meat, poultry, and egg products. The 
Agricultural Reorganization Act of 1994 (Public Law 103-354) 
consolidated food safety responsibility with respect to these products 
under FSIS. Therefore, AMS is unlikely to be suitable to administer a 
user fee-funded program with a food safety objective.

Prior Approval by Third Parties

    FSIS considered the feasibility of allowing industry recognized, 
non-government organizations or laboratories to test and certify 
nonfood compounds and proprietary substances for safety and efficacy. 
Chemical manufacturers could voluntarily submit samples of their 
products to third-party organizations, or qualified independent 
laboratories (e.g., Underwriters Laboratories) for testing and 
consequent approval or disapproval. The theoretical rationale for this 
option is that competing firms in compliance with the standards or 
exceeding them would have ample incentive to publicize the fact that 
their product(s) are approved by third party organizations and/or 
independent laboratories.
    However, FSIS sees several disadvantages to this alternative. 
First, there is the potential for conflict of interest. For example, a 
laboratory testing and approving nonfood compounds and proprietary 
substances for a particular chemical manufacturer could be testing 
other products for that same manufacturer; hence there could be a 
perception that, to maintain its business, it would readily approve the 
proprietary substances and nonfood compounds.
    Second, the complexity of the task of approving 16,000 to 20,000 
products per year would probably require numerous laboratories 
specializing in different substances; the economies of scale associated 
with a standardized testing and rating system would not be realized.
    Finally, the incremental costs of the approval/disapproval process 
to the laboratory or organization would likely exceed the incremental 
benefits of revenues from the fees earned by the laboratory 
organization, unless the fees were set so high that they covered the 
total costs plus a reasonable profit. If the fees were set too high, 
they could drive many small and marginal manufacturers and distributors 
of proprietary substances and nonfood compounds out of the market. Such 
an outcome would render this industry less competitive.
    Nevertheless, FSIS specifically requests comments on whether an 
industry-recognized, non-government organization or laboratory could 
provide prior approval or a similar service to chemical manufacturers 
and distributors of nonfood compounds and proprietary substances. It is 
possible that a centralized, technically expert, third party could play 
an effective role in facilitating the marketing and appropriate use of 
nonfood compounds and proprietary substances. Economic theory suggests 
that, where the primary users and beneficiaries of a Federal service 
are a relatively circumscribed group, that group should bear the cost 
of the service. Therefore, FSIS requests comments on whether prior 
approval should be provided by a non-government agency, what type of 
prior approval system that would be appropriate and feasible within a 
user fee system, and whether interest in obtaining such a service is 
sufficient to support its costs.

Conclusion

    In conclusion, FSIS is eliminating its prior approval program for 
nonfood compounds and proprietary substances. This prior approval 
program is somewhat redundant with the reviews performed by other 
Federal agencies and inconsistent with FSIS's HACCP regulations. FSIS 
is requesting comment on possible alternatives to its prior approval 
program for nonfood compounds and proprietary substances, including the 
feasibility of industry-recognized, non-government organizations or 
laboratories providing prior approval or similar services to chemical 
manufacturers .

    Done in Washington, DC, February 4, 1998.
Thomas J. Billy,
Administrator, Food Safety Inspection Service.
[FR Doc. 98-3725 Filed 2-12-98; 8:45 am]
BILLING CODE 3410-DM-P