[Federal Register Volume 65, Number 2 (Tuesday, January 4, 2000)]
[Rules and Regulations]
[Pages 201-202]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 00-44]



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 Rules and Regulations
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  Federal Register / Vol. 65, No. 2 / Tuesday, January 4, 2000 / Rules 
and Regulations  

[[Page 201]]


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DEPARTMENT OF AGRICULTURE

Food Safety and Inspection Service

9 CFR Parts 303 and 381

[Docket No. 99-055R]


Exemption of Retail Operations from Inspection Requirements

AGENCY: Food Safety and Inspection Service, USDA.

ACTION: Interim final interpretative rule with an opportunity for 
comment.

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SUMMARY: The Food Safety and Inspection Service is advising interested 
persons that, in determining whether an establishment is a retail store 
or restaurant or a similar retail-type establishment that is exempt 
from requirements for inspection under the Federal Meat Inspection Act 
or the Poultry Products Inspection Act, the Agency will not consider 
sales of products that simply ``pass through'' the establishment 
without any processing or handling other than storage and activities 
incidental to storage. The effect of this interpretation is to exclude 
the value of those products in deciding whether, under the Agency's 
regulations, sales to hotels, restaurants, and similar institutions 
disqualify the establishment from exemption as a retail store. The 
Agency is providing an opportunity to comment on its interpretation in 
advance of upcoming rulemaking on the exemption of retail operations 
from inspection requirements.

FOR FURTHER INFORMATION CONTACT: Philip Derfler, Deputy Administrator, 
Office of Policy, Program Development and Evaluation, Food Safety and 
Inspection Service, Washington, DC 20250-3700; (202) 720-2710.

DATES: This interpretative rule is effective January 4, 2000. Comments 
may be submitted by February 3, 2000.

ADDRESSES: Submit one original and two copies of written comments to 
FSIS Docket Clerk, Docket No. 99-055R, U.S. Department of Agriculture, 
Food Safety and Inspection Service, Room 102, Cotton Annex, 300 12th 
Street, SW, Washington, DC 20250-3700. All comments submitted 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.

SUPPLEMENTARY INFORMATION: The Food Safety and Inspection Service 
(FSIS) administers a regulatory program under the Federal Meat 
Inspection Act (FMIA) (21 U.S.C. 601 et seq.) and the Poultry Products 
Inspection Act (PPIA) (21 U.S.C. 451 et seq.) that is designed to 
protect the health and welfare of consumers by preventing the 
distribution of products that are unwholesome, adulterated, or 
misbranded. Both the FMIA and the PPIA include requirements for federal 
inspection, and they prohibit selling or transporting, offering for 
sale or transportation, or receiving for transportation, in commerce, 
products that are adulterated or misbranded and products that are 
required to be inspected, unless they have been inspected and passed 
(21 U.S.C. 458(a)(2) and 610(c)). Intrastate operations and 
transactions are effectively subject to the same requirements and 
prohibitions, pursuant to a State inspection program or designation for 
federal inspection (21 U.S.C. 454(c)(1) and 661(c)(1)).
    Both the FMIA and the PPIA provide that the statutory provisions 
requiring inspection of the slaughter of livestock or poultry and the 
preparation or processing of products thereof do not apply to 
``operations of types traditionally and usually conducted at retail 
stores and restaurants, when conducted at any retail store or 
restaurant or similar retail-type establishment for sale in normal 
retail quantities or service * * * to consumers at such establishments 
if such establishments are subject to such inspection provisions only 
under this paragraph'' (i.e., establishments that are subject to 
federal inspection because they are located in designated States and 
territories) (21 U.S.C. 454(c)(2) and 661(c)(2)). In Sec. 303.1(d) and 
Sec. 381.10(d), respectively (9 CFR 303.1(d) and 381.10(d)), FSIS 
addresses the conditions under which Federal or state inspection 
requirements do not apply to retail operations.
    A recent FSIS notice advised the public that the Agency is 
reviewing its regulations on the exemption of retail operations from 
requirements for inspection under the FMIA or the PPIA (64 FR 55694, 
October 14, 1999). The notice advised that the Agency intends to 
initiate notice-and-comment rulemaking on the application of inspection 
requirements and on handling conditions necessary to ensure that 
products delivered to consumers are not adulterated or misbranded (see 
21 U.S.C. 454, 455, 463(a), 464, 603 through 606, 623, 624, and 661). 
As part of this review, the Agency has reevaluated USDA's historical 
treatment of products that simply pass through an establishment without 
any processing or handling (e.g., unwrapping or rewrapping) other than 
storage and activities, such as the unloading of vehicles, that are 
incidental to storage.
    The FMIA defines ``prepared'' as ``slaughtered, canned, salted, 
rendered, boned, cut up, or otherwise manufactured or processed'' (21 
U.S.C. 601(l)), and for purposes of the PPIA, ``processed'' means 
slaughtered, canned, salted, stuffed, rendered, boned, cut up, or 
otherwise manufactured or processed'' (21 U.S.C. 453(w)). The statutory 
provisions that require the inspection of slaughter and product 
preparation or processing (21 U.S.C. 455 and 603 through 606) do not 
require the inspection of storage and related activities. Other 
statutory provisions apply to businesses that involve product sales and 
storage, such as warehouses (see, e.g., 21 U.S.C. 460(b)(2) and (e), 
463(a), 624, 642(a)(2), and 645).
    Because products that simply ``pass through'' an establishment do 
not undergo any processing or handling other than storage and 
activities incidental to storage, sales of these products should not be 
considered in determining whether an establishment's operations are 
exempt from requirements for Federal or state inspection. Currently, 
this question can arise when a store that otherwise meets the 
requirements for exemption under Sec. 303.1(d)(2) or Sec. 381.10(d)(2) 
has sales to hotels, restaurants, or similar institutions. Under the 
regulations (paragraphs (d)(2)(iii)(b) and (d)(2)(vi) of Secs. 303.1 
and 381.10), sales of meat or poultry products to hotels, restaurants,

[[Page 202]]

and similar institutions do not disqualify an establishment from 
exemption as a retail store so long as they do not exceed either of two 
maximum limits: 25 percent of the dollar value of total product sales 
and the total calendar year dollar limitation. (The Administrator 
adjusts the dollar limitation, which currently is $41,000 under the 
FMIA and $39,000 under the PPIA (63 FR 41540, August 4, 1998), when the 
Consumer Price Index indicates a change of more than $500 in the price 
of the same volume of product.) FSIS applies these limits when it 
investigates complaints alleging that retail stores claiming exemption 
under Sec. 303.1(d) or Sec. 381.10(d) have been operating in violation 
of the conditions prescribed in the regulations (see paragraph (d)(3) 
of Secs. 303.1 and 381.10).
    Because FSIS's conclusion rests on its views about the scope of the 
FMIA and PPIA requirements for inspection (21 U.S.C. 455 and 603 
through 606), the Agency has decided that it should begin applying its 
interpretation now with respect to sales of products that clearly have 
not undergone any processing or handling other than storage and 
activities incidental to storage, rather than waiting until the 
anticipated rulemaking on the exemption regulations. The effect of this 
interpretative rule is to exclude the value of products such as 
properly labeled packages of bacon and cans of poultry stew that ``pass 
through'' an establishment in deciding whether sales to hotels, 
restaurants, and similar institutions exceed either of the two maximum 
limits. Future calculations of the total dollar value of an 
establishment's sales to hotels, restaurants, and similar institutions 
and the proportion of its total product sales that institutional sales 
represent will not include the value of products so identified.
    Not counting sales of products that clearly ``pass through'' an 
establishment without undergoing any processing or handling other than 
storage and activities incidental to storage essentially returns FSIS 
to USDA's practice during the early years of the retail exemption 
regulations. However, USDA then based the practice on a decision that 
these sales were traditional and usual for retail stores. That decision 
was challenged in 1975, and in January 1976, when commenters did not 
provide ``evidence to support a conclusion that such sales of 
prepackaged inspected products to nonhousehold consumers had been a 
traditional and usual retail operation,'' USDA withdrew a proposed rule 
that would have codified rules for applying the exclusion (40 FR 
15906).
    The basis for FSIS's action today is different, as explained above. 
In fact, FSIS views the ``traditionally and usually'' criterion in the 
retail operations exemption (21 U.S.C. 454(c)(2) and 661(c)(2)) as only 
restricting the types of preparation or processing operations--those 
``types traditionally and usually conducted at retail stores and 
restaurants''--that an establishment may conduct. This is not the issue 
here. Other criteria in the statutory exemption address the product 
sales aspects of retail operations.
    FSIS does recognize that the views of various members of the public 
may differ on the circumstances under which products should be treated 
as ``passing through'' an establishment. Therefore, it is providing the 
public with an opportunity to submit comments for consideration by the 
Agency during development of its proposed rule on the exemption of 
retail operations from inspection requirements. Pending any changes in 
the regulations as a result of further rulemaking, the Agency will 
address questions about particular products on a case-by-case basis.

Additional Public Notification

    FSIS has considered the potential civil rights impact of this 
interpretative rule on minorities, women, and persons with 
disabilities. Public involvement in all segments of rulemaking and 
policy development is important. Consequently, in an effort to better 
ensure that minorities, women, and persons with disabilities are aware 
of this interpretative rule and are informed about the mechanism for 
providing comments, FSIS will announce it and provide copies of this 
Federal Register publication in the FSIS Constituent Update.
    FSIS provides a weekly FSIS Constituent Update, which is 
communicated via fax to over 300 organizations and individuals. In 
addition, the update is available on line through the FSIS web page 
located at http://www.fsis.usda.gov. The update is used to provide 
information regarding FSIS policies, procedures, regulations, Federal 
Register notices, FSIS public meetings, recalls, and any other types of 
information that could affect or would be of interest to our 
constituents/stakeholders. The constituent fax list consists of 
industry, trade, and farm groups, consumer interest groups, allied 
health professionals, scientific professionals, and other individuals 
that have requested to be included. Through these various channels, 
FSIS is able to provide information to a much broader, more diverse 
audience. For more information and to be added to the constituent fax 
list, fax your request to the Congressional and Public Affairs Office, 
at (202) 720-5704.

    Done at Washington, DC, on: December 27, 1999.
Thomas J. Billy,
Administrator.
[FR Doc. 00-44 Filed 1-3-00; 8:45 am]
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