[Federal Register Volume 65, Number 49 (Monday, March 13, 2000)]
[Proposed Rules]
[Pages 13512-13658]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 00-5723]



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Part III





Department of Agriculture





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Agricultural Marketing Service



7 CFR Part 205



National Organic Program; Proposed Rule

  Federal Register / Vol. 65, No. 49 / Monday, March 13, 2000 / 
Proposed Rules  

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DEPARTMENT OF AGRICULTURE

Agricultural Marketing Service

7 CFR Part 205

[Docket Number: TMD-00-02-PR2]
RIN 0581-AA40


National Organic Program

AGENCY: Agricultural Marketing Service, USDA.

ACTION: Proposed rule.

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SUMMARY: This proposed rule would establish a National Organic Program 
(NOP or program) under the direction of the Agricultural Marketing 
Service (AMS), an arm of the United States Department of Agriculture 
(USDA). This national program is intended to facilitate interstate 
commerce and marketing of fresh and processed food that is organically 
produced and to assure consumers that such products meet consistent, 
uniform standards. This program will establish national standards for 
the production and handling of organically produced products, including 
a National List of substances approved and prohibited for use in 
organic production and handling. This proposal will establish a 
national-level accreditation program to be administered by AMS for 
State officials and private persons who want to be accredited as 
certifying agents. Under the program, certifying agents will certify 
production and handling operations in compliance with the requirements 
of this regulation and initiate compliance actions to enforce program 
requirements. The proposal includes requirements for labeling products 
as organic and containing organic ingredients. The rule also provides 
for importation of organic agricultural products from foreign programs 
determined to have equivalent organic program requirements. The program 
is proposed under the Organic Foods Production Act of 1990, as amended.

DATES: Comments must be submitted on or before June 12, 2000.

ADDRESSES: Interested persons are invited to submit written comments on 
this proposal to: Keith Jones, Program Manager, National Organic 
Program, USDA-AMS-TMP-NOP, Room 2945-So., Ag Stop 0275, PO Box 96456, 
Washington, DC 20090-6456. Comments also may be sent by fax to (703) 
365-0760 or filed via the Internet through the National Organic 
Program's homepage at: http://www.ams.usda.gov/nop. Written comments to 
this proposed rule submitted by regular mail and faxed comments should 
be identified with docket number TMD-00-02-PR. To facilitate the timely 
scanning and posting of comments to the NOP homepage, multiple page 
comments submitted by regular mail should not be stapled or clipped. 
Commenters should identify the topic and section number of this 
proposal to which the comment refers.
    It is our intention to have all comments to this proposal, whether 
mailed, faxed, or submitted via the Internet, available for viewing on 
the NOP homepage at http://www.ams.usda.gov/nop in a timely manner. 
Comments submitted in response to this proposal will be available for 
viewing at USDA-AMS, Transportation and Marketing, Room 2945-South 
Building, 14th and Independence Ave., SW, Washington, DC, from 9:00 
a.m. to 12:00 p.m. and from 1:00 p.m. to 4:00 p.m., Monday through 
Friday (except official Federal holidays). Persons wanting to visit the 
USDA South Building to view comments received in response to this 
proposal are requested to make an appointment in advance by calling 
(202) 720-3252.

FOR FURTHER INFORMATION CONTACT: Richard Mathews, Senior Agricultural 
Marketing Specialist, USDA-AMS-TM-NOP, Room 2510-So., PO Box 96456, 
Washington, DC 20090-6456; Telephone: (202) 205-7806; Fax: (202) 205-
7808.

SUPPLEMENTARY INFORMATION:

Background of the National Organic Program

    To address problems created by inconsistent organic standards, the 
organic industry attempted to establish a national voluntary organic 
certification program in the late 1980's. However, that effort failed 
to develop a consensus on needed organic standards. Congress was then 
petitioned by an organic industry trade association to establish a 
mandatory national organic program, resulting in the Organic Foods 
Production Act of 1990 (the Act). Congress passed the Act to: (1) 
Establish national standards governing the marketing of certain 
agricultural products as organically produced products; (2) assure 
consumers that organically produced products meet a consistent 
standard; and (3) facilitate commerce in fresh and processed food that 
is organically produced. This proposal is designed to implement the 
Act.
    To help readers better understand this proposal, we have provided 
answers to some frequently asked questions about the proposed rule, 
including some of the issues most commonly raised in public comments.

Is this the final word on National organic standards?

    No. This is only a proposed rule. It is important that you take the 
time to read it carefully and write to USDA to give us your 
recommendations, being as specific as you can. Your comments are due by 
June 12, 2000.
    Your comments do matter. On December 16, 1997, the first proposed 
rule was published in the Federal Register, and 275,603 people wrote to 
us to explain why and how the rule should be rewritten, the largest 
public response to a proposed rule in USDA history. Then, in the 
October 24, 1998 Federal Register, we asked for public comment on 
issues concerning livestock confinement, medications, and the authority 
of certifying agents, and 10,817 people wrote to us. As you read 
through this document, you will get a sense of what these comments said 
because in each section we briefly summarize the relevant comments and 
provide our response to them.
    We expect to publish a final rule later this year, once we know 
what you think about this proposal. The final rule will have, as 
proposed here, an implementation phase-in period so farmers and 
processors won't have to change overnight.

Has there been citizen input on this proposal beyond public comments?

    Yes. The National Organic Standards Board (NOSB) is a 15-member 
citizen board that advises the Secretary on all aspects of the National 
Organic Program and has special responsibility for development of the 
National List. Established by law in 1990, the NOSB includes 3 
environmental representatives, 3 consumer representatives, 4 organic 
farmers/ranchers, 2 organic processors, 1 retailer, 1 scientist, and 1 
certifying agent. Currently, the NOSB comprises 14 members. The 15th 
member, an accredited certifying agent, would be appointed after 
certifying agents are accredited by the Secretary. Since the first NOSB 
was appointed in 1993, the Board has held 19 public meetings, including 
one public teleconference, crisscrossing the country to hear from the 
public before making recommendations to the Secretary on national 
standards. The vast majority of commenters on the first proposed rule 
urged the Secretary to rewrite the proposal in line with NOSB 
recommendations--and this is what we have done. More information on 
NOSB

[[Page 13513]]

members, meeting minutes, and a side-by-side comparison of this 
proposal with NOSB recommendations can be found at www.ams.nop/gov.
    In addition, to be consistent with OMB Circular No, A-119, which 
directs agencies to use voluntary consensus standards, USDA considered 
adoption of the American Organic Standards, Guidelines for the Organic 
Industry as a voluntary consensus standard for use in the National 
Organic Program. In October 1999, the Organic Trade Association 
published the American Organic Standards (AOS). The AOS standards were 
developed over several months with two opportunities for comment from 
interested parties. The introduction states that the standards are 
written as an up-to-date compilation and codification of organic 
standards and certification procedures, as they are understood and 
applies in the United States. Organic Trade Association members are 
expected to follow the guidelines.
    USDA has determined that it would be impractical to use the 
American Organic Standards in lieu of USDA developed standards for the 
following reasons: (1) Not all participants in the organic industry 
elected to participate in developing the AOS; (2) the AOS are new to 
the industry so there has not been sufficient time for the industry to 
assess their effectiveness, and (3) some certifying agents disagree 
with portions of the AOS.

Why do we need national standards for organic food?

    National standards for organic food production are designed to 
bring about greater uniformity in the production, manufacture, and 
marketing of organic products. In the absence of a national standard, 
49 State and private organizations have established individual programs 
and standards for certifying organic agricultural products. The lack of 
consistency between these standards has created problems for farmers 
and handlers of organic products, particularly if they want to sell 
their products in multiple States with different standards. Lack of a 
nationwide standard has also created confusion for consumers, who may 
be uncertain what it really means when a food product is called 
``organic.''
    With a national standard, consumers across the country can go into 
any store and have full confidence that any food product labeled 
``organic'' meets a strict, consistent standard no matter where it was 
made. Use of the word, ``organic,'' on the label of any product that 
does not meet the standard is strictly prohibited.
    Consumers will have that confidence, because this proposal requires 
for the first time that all organic operations be certified by USDA-
approved certifying agents. Up to now, certification has been optional; 
some farmers choose not to be certified at all, and others are 
certified by State or private certifiers using different standards. It 
can be hard for consumers to know if a product has been certified, or, 
if it has, to what standard. Under this proposal, all organic 
operations, except for the very smallest, would be certified to the 
same standard. And all products labeled as ``organic'' would have to 
comply with the production and handling standards in this rule.
    Consumers can also look for the USDA organic seal, which can only 
be used on products that have been certified by USDA-approved 
certifying agents. This seal assures consumers that the maker of the 
product is part of a rigorous certification program and has been 
thoroughly reviewed by professional inspectors trained in organic 
agriculture.
    National standards will also bring greater predictability for 
producers of organic foods. There will be no confusion about whether a 
product satisfies the particular standard of any State, for example, 
because all organic foods will meet the same standards.
    Finally, a national standard for organic food will help our farmers 
and manufacturers sell organic products in other countries. The lack of 
a consistent national organic program has limited access to important 
markets in other countries because of the confusion created by 
multiple, independent standards. A strong national standard will help 
to ensure buyers in other countries that all U.S. organic products meet 
the same standards.

How can I tell how much organic food is in a product?

    This proposal sets strict labeling standards based on the 
percentage of organic content. If a product is 100 percent organic, it 
can, of course, be labeled as such. A product that is at least 95 
percent organic can be described as, for example, ``organic cereal.'' 
If a cereal, for example, contains between 50 and 95 percent organic 
content, it can be described as ``cereal made with organic 
ingredients,'' and up to three organic ingredients can be listed. 
Finally, if the food contains less than 50 percent organic content, the 
term, ``organic,'' may only appear on the ingredient information panel. 
These four new labeling categories will provide consumers with much 
greater information than they have today. [Labeling is covered in 
subpart D.]

What is the National List?

    The National List of Allowed and Prohibited Substances (known as 
the National List) identifies specific substances that may or may not 
be used in organic production and handling operations. The National 
List is developed by the NOSB, through consultation with outside 
experts, and forwarded to the Secretary for approval. The list 
identifies those synthetic substances, which would otherwise be 
prohibited, that may be used in organic production based on the 
recommendations of the NOSB. Only those synthetic substances found on 
the National List may be used. The National List also identifies those 
natural substances that may not be used in organic production, as 
determined by the Secretary based on the NOSB recommendations.
    The first proposal included some substances on the National List 
that were not recommended by the NOSB. This proposal contains no 
substances on the approved list that were not found in the NOSB 
recommendations.
    This proposal also includes restrictions or other conditions on the 
use of allowed substances, also known as ``annotations,'' as 
recommended by the NOSB. Such annotations have been used by existing 
State and private certification programs to further ensure that allowed 
substances are used in a manner that is consistent with organic 
production. (The National List is covered in subpart G, Secs. 205.600 
through 205.607.)

Does this proposal prohibit use of genetic engineering in organic 
production?

    Yes. This proposal prohibits the use of genetic engineering 
(included in the broad definition of ``excluded methods'' in this 
proposal, based on the definition recommended by the National Organic 
Standards Board) in the production of all foods and ingredients that 
carry the organic label.
    275,603 commenters on the first proposal nearly universally opposed 
the use of this technology in organic production systems. Based on this 
overwhelming public opposition, this proposal prohibits its use in the 
production of all organic foods even though there is no current 
scientific evidence that use of excluded methods presents unacceptable 
risks to the environment or human health. While these methods have been 
approved for use in general agricultural production and may offer 
certain benefits for the

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environment and human health, consumers have made clear their strong 
opposition to their use in organically grown food. Since the use of 
excluded methods in the production of organic foods runs counter to 
consumer expectations, foods produced with these methods will not be 
permitted to carry the organic label. (Excluded methods are defined in 
subpart A and discussed further under Production and Handling (subpart 
C), Labeling (subpart D), and the National List (subpart G).)

Will genetic engineering be allowed in the production of foods that 
contain both organic and nonorganic ingredients?

    No. For products with mostly organic content--those products where 
more than half of the ingredients are organic and that have the word, 
``organic,'' on the main product label-- excluded methods must not be 
used in the production of any ingredients. Only those products, in 
which fewer than half of the ingredients are organic and in which the 
organic ingredients are only identified on the ingredient panel, could 
contain nonorganic ingredients produced through excluded methods.
    We believe consumers have expressed a clear expectation that these 
methods should not be used in the production of any ingredients 
contained in mostly organic products. Because prominent use of the 
word, ``organic,'' on the label of such products reinforces that 
expectation, we have chosen to prohibit use of excluded methods in 
production of both the organic and nonorganic ingredients.
    We recognize that this policy will place additional burdens on 
organic food processors and certifying agents because the ability to 
meet these requirements will depend largely on practices used in 
conventional agricultural markets. For organic food processors, it may 
be harder to find sources of nonorganic ingredients that are produced 
without use of excluded methods. Similarly, certifying agents may face 
greater difficulty because they will be required to ensure that 
handlers have complied with this requirement. However, we believe that 
the need to meet strong consumer expectations outweighs these concerns. 
Furthermore, we anticipate that as marketplace practices or standards 
evolve, these practices will be the basis for implementing this 
provision, providing handlers and certifying agents recognize criteria 
with which to evaluate sources of nonorganic ingredients in products 
containing both organic and nonorganic ingredients.

Does this proposal prohibit use of irradiation in organic production?

    Yes. This proposal prohibits the use of irradiation in the 
production of all foods and ingredients that carry the organic label. 
275,603 commenters on the first proposal almost universally opposed the 
use of this technology in organic production systems. Based on this 
overwhelming public opposition, this proposal prohibits its use in the 
production of all organic foods even though there is no current 
scientific evidence that use of irradiation presents unacceptable risks 
to the environment or human health and may, in fact, offer certain 
benefits. Because this rule is a marketing standard and consumers have 
expressed a clear expectation that irradiation should not be used in 
the production of organic foods, foods produced with this technology 
will not be permitted to carry the organic label.
    The prohibition on irradiation extends to nonorganic ingredients 
used in mostly organic ingredients--those products where more than half 
of the ingredients are organic and that have the word, ``organic,'' on 
the main product label. Only those products, in which fewer than half 
of the ingredients are organic and in which the organic ingredients are 
only identified on the ingredient panel, could contain irradiated 
nonorganic ingredients. We do not believe that this prohibition on 
irradiation in nonorganic ingredients will place undue burden on either 
handlers or certifiers because of current labeling requirements for 
irradiated products.

Does this proposal prohibit use of sewage sludge in organic production?

    Yes. This proposal prohibits the use of sewage sludge in the 
production of all foods and ingredients that carry the organic label. 
This prohibition extends to nonorganic ingredients used in the 
production of mostly organic foods--those products in which more than 
half of the ingredients are organic and that have the word, 
``organic,'' on the main product label. Only those products, in which 
fewer than half of the ingredients are organic and which the organic 
ingredients are only identified on the ingredient panel, could contain 
nonorganic ingredients produced using sewage sludge.
    275,603 commenters on the first proposal almost universally opposed 
the use of this technology in organic production systems. Based on this 
overwhelming public opposition, this proposal prohibits its use in the 
production of all organic foods, even though there is no current 
scientific evidence that use of sewage sludge in the production of 
foods presents unacceptable risks to the environment or human health. 
We believe consumers have expressed a clear expectation that sewage 
sludge should not be used in the production of any ingredients 
contained in mostly organic products. Because prominent use of the 
word, ``organic,'' on the label of such products reinforces that 
expectation, we have chosen to prohibit use of sewage sludge in 
production of both the organic and nonorganic ingredients. We recognize 
that this policy may place additional burdens on organic food 
processors and certifying agents. However, we believe that the need to 
meet strong consumer expectations outweighs these concerns.

Does this proposal set standards for livestock production?

    Yes. The proposal sets the first comprehensive standards for 
production of organic animals and meat products. Under this proposal, 
use of antibiotics would be prohibited in organic livestock production. 
The standards also prohibit the routine confinement of animals and 
require that ruminant animals have access to outdoor land and pasture, 
although temporary confinement would be allowed under certain, limited 
circumstances. Animals under organic management must also receive 100-
percent organically grown feed. (Organic livestock management issues 
are discussed in greater detail under subpart C, 205.236 through 
205.239.)

Does this proposal prohibit ``ecolabeling''?

    No. This proposal only regulates use of the term, ``organic,'' on 
product labels. Other labels would be allowed as long as they are 
truthful and not misleading and meet general food labeling 
requirements. The labeling requirements of this proposal are intended 
to assure that the term, ``organic,'' and other similar terms or 
phrases are not used in a way that misleads consumers. Should we find 
that terms or phrases are being used to represent ``organic'' when the 
products are not produced to the requirements of this regulation, we 
would proceed to restrict their use. (Labeling is covered in subpart 
D.)

Are organic foods pesticide-free?

    No. Organic farmers can use natural pesticides to control weeds and 
insects and maintain the high quality of organic products that 
consumers have come to expect. Use of synthetic chemical pesticides, 
however, is prohibited unless specifically allowed on the National List 
as recommended by the

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National Organic Standards Board and approved by the Secretary. (The 
National List is covered in subpart G, sections 205.600 through 
205.607.)

Who needs to be certified?

    As a general rule, all organic production and handling operations 
must be certified. The Act and this proposal, however, do provide for 
some exceptions. For example, organic operations with less than $5,000 
in annual sales of organic products do not require certification. 
Similarly, organic operations that handle only those products with less 
than 50 percent organic content or that restrict labeling of organic 
ingredients to the ingredient information panel do not require 
certification. Finally, we are not requiring certification of most 
grocery stores and restaurants (referred to in this proposal as 
``retail food establishments'') at this time.
    Even where operations do not require certification, however, all 
organic food products must meet the national standards as described in 
this proposal. In that way, consumers can be confident that all 
products labeled as ``organic'' meet the national standards, even if 
they did not require certification under the NOP. (Certification is 
covered in subpart E; the exceptions from certification are found in 
subpart B.)

Will organic farmers have to pay fees?

    Organic farmers and other organic operations will have to pay fees 
for organic certification but will not be charged any fees by USDA. 
Fees for certification services will be set by the private or State 
certifying agents. The proposal also requires that certifying agents 
make their schedule of fees publicly available so that organic 
operations can plan appropriately and so that they can make informed 
choices where multiple certifying agents are available. USDA will also 
review fees charged by certifying agents to ensure that they are 
reasonable and that they are being applied fairly to all organic 
operations. Under this proposal, USDA would only charge fees for 
reviewing (``accrediting'') certifying agents. These fees will 
primarily be based on the actual costs of the accreditation work done 
by USDA staff so that certifying agents with smaller and less complex 
programs will pay lower fees. The proposal also provides for a 
reduction in the accreditation fees during the first 18 months of the 
program to provide an incentive for certifying agents to become 
accredited under the new national program as soon as possible. (Fees 
are covered in subpart G, Secs. 205.640 through 205.642.)

How do I become an accredited certifying agent?

    All certifying agents must be accredited by USDA. Certifying agents 
may apply for accreditation effective with publication of the final 
rule and are encouraged to apply as soon after publication of the final 
rule as possible. USDA will provide additional information on applying 
for accreditation on or about the date of publication of the final 
rule. This information will be available on the NOP website and by mail 
upon request.
    Applications for accreditation will be handled on a first-come-
first-served basis. Those that apply within the first 6 months 
following publication of the final rule and are determined by the 
Administrator to meet the requirements for accreditation will be 
notified of their status in writing on or about 12 months after 
publication of the final rule. This approach is being taken because of 
the market advantage that could be realized by accredited certifying 
agents if USDA did not announce the accreditations simultaneously. 
(Accreditation is covered in subpart F.)

What are the roles and responsibilities of certifying agents in the 
National Organic Program?

    Certifying agents are the ``front line'' representatives of USDA 
and play a critical role in the oversight and enforcement of the 
national organic standards program. Once accredited by USDA, certifying 
agents are empowered to make key decisions regarding the status of 
organic operations. Certifying agents review the organic plans of 
organic operations and are authorized to grant certification to those 
operations that meet the strict national organic standards. Certifying 
agents are also responsible for the continuing oversight of organic 
operations-- reviewing annual updates of organic plans, conducting 
residue analyses, and conducting other monitoring activities.
    In cases in which a certifying agent finds that an organic 
operation does not meet the national standards, the agent is empowered 
to issue notices of noncompliance and to initiate suspension or 
revocation of certification. Organic operations can appeal such 
decisions to USDA but unless the organic operation appeals the 
certifying agent's decision or can correct the problems identified by 
the certifying agent, the agent's decision will stand. (Accreditation 
is covered in subpart F; Compliance is covered in subpart G, 
Secs. 205.660 through 205.668; and Appeals are covered in subpart G, 
Secs. 205.680 through 205.681.]

How will USDA ensure that the National standards are applied fairly and 
consistently by all certifying agents?

    Because this proposal gives certifying agents such an important 
role in enforcing the national standards, USDA oversight of those 
certifying agents is particularly important. Under this proposal, all 
certifying agents, both private and in State organic programs, would 
have to be accredited by USDA before they could begin to certify 
organic operations. It is this accreditation process, in which USDA 
reviews all certifying agents to make sure they understand and can 
accurately apply the national organic standards, that is USDA's main 
tool to ensure that the standards are applied fairly and consistently 
by all certifying agents.
    The accreditation process is really one of ongoing oversight by 
USDA. Accreditation must be renewed every 5 years so that we can be 
sure certifying agents continue to meet the program standards. USDA 
will conduct one or more site visits of certifying agents during the 
period of accreditation as another mechanism of monitoring their 
compliance. Finally, certified operations may file complaints with USDA 
if they believe they have been treated unfairly or if a certifying 
agent is otherwise not following the program requirements. We will 
investigate these complaints for possible enforcement action.

Can States have organic standards that are more strict than the 
National standard?

    Yes. Some States may have unique environmental or other concerns 
that they believe require extra conditions above the national standard. 
In those cases, States would apply to USDA to have their special State 
program approved by the Secretary.
    However, no State would be allowed to set up a program that does 
not at least meet the national standard. And States would not be 
allowed to use their programs to keep out or otherwise discriminate 
against organic products made in another State. (State Programs are 
covered in subpart G, Secs. 205.620 through 205.622.)

What is the timeframe for implementation?

    The final rule in this rulemaking process will establish a 
procedure and a timeframe for implementing the NOP. We expect that the 
interim period between publication of the final rule in this rulemaking 
process and the effective date of the program (actual implementation of 
regulations) will be 18 months. The following is a

[[Page 13516]]

preliminary list of several administrative and program issues that must 
be implemented during that period. Certifying agent applications will 
be evaluated and accreditation granted. Certifying agents will, in 
turn, certify production and handling operations to the requirements of 
these regulations. Equivalency discussions will be held with foreign 
governments and foreign certifying agents. Guidelines and practice 
standards on production and handling practices must be finalized and 
distributed by the NOP. A petition process for recommending amendments 
to the National List must be developed and distributed. The NOSB will 
continue to review materials for the National List. State programs may 
have to make adjustments in their organic certification programs for 
consistency with the standards of this program. Producers should use 
the interim period to prepare their production operations to comply 
with the relevant requirements of this program. Handlers should use the 
interim period to prepare for necessary changes in the labeling of 
their products.

Prior Documents in This Proceeding

    This proposed rule is issued pursuant to the Organic Food 
Production Act of 1990 (Act or OFPA), as amended (7 U.S.C. 6501 et 
seq.). This proposal replaces the proposed rule published in the 
Federal Register December 16, 1997. Comments to the first proposal were 
considered in the preparation of this proposed rule.
    The following notices related to the NOSB and the development of 
this proposed regulation have been published in the Federal Register. 
Five notices of nominations for membership on the NOSB were published 
between April 1991 and June 1999 (56 FR 15323, 59 FR 43807, 60 FR 
40153, 61 FR 33897, 64 FR 33240). Two notices of extension of time for 
submitting nominations were published on September 22, 1995, and 
September 23, 1996 (60 FR 49246, 61 FR 49725). Seventeen notices of 
meetings of the NOSB were published between March 1992 and October 1999 
(57 FR 7094, 57 FR 27017, 57 FR 36974, 58 FR 85, 58 FR 105, 58 FR 171, 
59 FR 58, 59 FR 26186, 59 FR 49385, 60 FR 51980, 60 FR 15532, 61 FR 
43520, 63 FR 7389, 63 FR 64451, 64 FR 3675, 64 FR 28154, 64 FR 54858). 
One notice of public hearings on organic livestock and livestock 
products was published on December 30, 1993 (58 FR 69315). One notice 
specifying a procedure for submitting names of substances for inclusion 
on the National List was published on March 27, 1995 (60 FR 15744). A 
rule proposing the NOP was published on December 16, 1997 (62 FR 
65850). An extension of the time period for submitting comments to the 
proposed rule was published on February 9, 1998 (63 FR 6498). One 
request for comments on Issue Papers was published on October 28, 1998 
(63 FR 57624). A notice of a program to assess organic certifying 
agencies was published on June 9, 1999 (64 FR 30861).
    This preamble includes a discussion of the proposed rule and 
supplementary information, including the Regulatory Impact Assessment, 
Regulatory Flexibility Act Analysis, Federalism Impact Statement, and 
Paperwork Reduction Act Analysis. The Civil Rights Impact Analysis is 
not included as an attachment but may be obtained by writing at the 
address provided above or via the Internet through the National Organic 
Program's homepage at: http://www.ams.usda.gov/nop.

National Organic Program Overview

Subpart A--Definitions

Proposal Description
    This subpart defines various terms used in this part. These 
definitions are intended to enhance conformance with the regulatory 
requirements through a clear understanding of the meaning of key terms.
    We have amended terms and definitions carried over from the first 
proposal where necessary to make their wording consistent with the 
language used in this proposal. We have removed the definition for the 
following terms because the terms are not used in this proposal or have 
been determined to be unnecessary: Active ingredient in any input other 
than pesticide formulations, active ingredient in pesticide 
formulations, agroecosystem, botanical pesticides, breeding, chapter, 
cation balancing agent, certification activities, certification 
applicant, certified facility, chapter, confirmation of accreditation, 
contaminant, critical control point, cytotoxic mode of action, 
degradation, detectable residue level, extract, farm, foliar nutrient, 
formulated product, fungicide, generic name, incidental additive, inert 
ingredient in any input other than pesticide formulations, 
intentionally applied, made with certain organic ingredients, mating 
disrupter, micronutrient, nonactive residues, nonorganic agricultural 
ingredient or product, petition, preliminary evaluation, processing 
methods, production aid, production input, proper manuring, 
putrefaction, site evaluation, soil amendment, split operation, 
subtherapeutic, suspension of accreditation, synergist, synthetic 
volatile solvent, treated, untreated seeds, USDA seal, and weed. We 
received comments on some of the definitions that have been deleted. We 
have not addressed these comments here because the relevant definitions 
have been deleted.
Definitions--Changes Based On Comments
    This subpart differs from our first proposal in several respects as 
follows:
    (1) We have amended the term, ``audit trail,'' by replacing the 
category, ``organic'' or ``made with certain organic ingredients,'' 
with ``100 percent organic,'' ``organic,'' or ``made with organic 
(specified ingredients),'' or agricultural product containing less than 
50 percent organic ingredients identified as organic in an ingredients 
statement. We have taken this action to clarify the definition as 
requested by several commenters.
    (2) We have amended the term, ``buffer area,'' to ``buffer zone'' 
and amended the term by replacing ``a certified farm or portion of a 
farm'' with ``a certified production operation or portion of a 
production operation.'' A few commenters suggested including a minimum 
size for the buffer zone and specifying that buffer zones must be 
uncropped vegetated areas. The appropriate size and type of a buffer 
zone is highly site-specific and cannot be rigidly specified for all 
locations without placing unreasonable burdens on some producers. 
Several commenters supported determination of the appropriate buffer 
zone size and type by the producer in consultation with the certifying 
agent. Additional information on this issue can be found at subpart C, 
Crop Production, Changes Requested But Not Made, item 1.
    (3) We have amended the definition of the term, ``certification or 
certified,'' to make the language in the definition consistent with the 
language of this proposal. We have also removed the language concerning 
the information to be found on a certificate. Commenters suggested 
amending the definition by adding the words, ``annual'' and ``based on 
an on-site inspection and comprehensive review of the operation.'' 
Other commenters recommended deleting the reference to products on a 
certificate because it is the operation, not the product, that is 
certified. We have not made the suggested additions because the issues 
are adequately addressed in the regulations. We have removed the 
language concerning information found on a certificate because this 
information

[[Page 13517]]

is adequately addressed in the regulations.
    (4) We have amended the definition of ``certifying agent'' to 
clarify that the term only applies to State-entity and private-entity 
certifying agents. We have taken this action because there was some 
confusion among commenters over whether the original definition 
included a State program's governing State official.
    (5) We have amended the definition of ``commercially available'' by 
removing the phrase, ``to be feasibly and economically used.'' We have 
taken this action because we agree with commenters that use of the 
phrase provides an opportunity for producers and handlers to avoid use 
of preferred inputs. We have also clarified that ``commercially 
available'' applies to processors by including the words, ``or 
processing ingredient.'' Additional information on this issue can be 
found at subpart C, Production and Handling (General), Changes 
Requested But Not Made, item 2.
    (6) We have amended the definition of ``compost'' by referring to 
compost as ``the product of a carefully managed process through which 
microorganisms break down plant and animal materials into more 
available forms suitable for application to the soil.'' We also state 
that ``composting'' must use methods to raise the temperature of raw 
materials to the levels needed to stabilize nutrients and kill 
pathogens. Specific instructions on the production of compost for use 
in organic production has been referenced to the National Resources 
Conservation Service's (NRCS) practice standard for a composting 
facility (Code 317). The NRCS practice Standard provides a field tested 
and verifiable procedure for producing compost. We have made these 
changes because commenters suggested that we clarify the meaning of 
compost. Several commenters stated that the definition should include 
rules about what kinds of materials are acceptable for use in compost. 
Additional information on this issue can be found at subpart C, 
Production and Handling (General), Changes Based On Comments, item 4.
    (7) We have amended the definition of ``crop rotation'' by adding a 
statement about the relationship of crop rotation to perennial crops as 
suggested by an industry association.
    Several commenters suggested inserting references to the use of 
legumes and sod as essential to crop rotation. The benefits achieved 
through the use of legumes and sod could be fulfilled through many 
types of rotation plans, which could only be developed according to the 
site-specific climate, soil type, and type of crops or livestock 
produced on a given operation. In the interest of flexibility this 
proposal does not specify what specific crops have to be included in a 
crop rotation. The issue addressed in this suggestion is addressed in 
the crop rotation practice standard at Sec. 205.205. Additional 
information on crop rotation can be found at subpart C, Production, 
Changes Based On Comments, item 5.
    (8) We have amended the definition of ``disease vectors'' by adding 
that disease vectors include plants and animals that transmit disease 
organisms or pathogens which may attack crops or livestock. A few 
commenters pointed out that the definition as originally proposed was 
technically inaccurate because it did not address the transmission of 
disease organisms to crops or livestock.
    (9) We have rewritten the definition of ``employee'' to provide 
that an employee is any person providing paid or volunteer services for 
a certifying agent. A few States requested that the definition clearly 
reference volunteers. A trade association recommended expanding the 
definition to include any person who works for a certifying agent. We 
have included volunteers in this proposal because of their substantial 
use by some certifying agents. Other States suggest changing 
``certification decisions'' to ``certification activities'' to include 
any person who is involved in the certification process. We have 
addressed the commenters' concern by referring to services provided by 
the employee for the certifying agent. A few States stated that the 
definition needs to clarify who is the employer of an independent 
inspector. An independent inspector would not be included in the 
definition of employee. Such persons are considered to be contractors. 
Some States expressed concern regarding the use of volunteers from 
certified production and handling operations. Section 205.501(a)(11) 
requires that a certifying agent prevent conflicts of interest by not 
permitting any employee, inspector, contractor, or other personnel to 
accept payment, gifts, or favors of any kind, other than prescribed 
fees, from any business inspected, except that a certifying agent that 
is a not-for-profit organization with an Internal Revenue Code tax 
exemption may accept voluntary labor from certified operations. Under 
this exception all volunteers would be excluded from work, discussions, 
and decisions in all stages of the certification process and the 
monitoring of certified production or handling operations for all 
entities in which such person has or has held a commercial interest, 
including an immediate family interest or the provision of consulting 
services, within the prior 12-month period. Additional information on 
conflicts of interest can be found at subpart F, Changes Based On 
Comments, items 4 and 5, and subpart F, Changes Requested But Not Made, 
items 5, 6, 7, and 8; subpart F, Additional Provisions, item 2.
    (10) We have rewritten the definition of ``fertilizer'' to provide 
for the inclusion of minor nutrients and trace elements with the three 
primary nutrients (nitrogen, phosphorus, potassium) contained in a 
substance or a blended substance utilized in a soil fertility program. 
This is a generic definition of fertilizer. Issues concerning what 
substances may be present in a fertilizer for organic production are 
addressed in subpart C of this proposal.
    (11) We have amended the definition of ``handle'' by providing that 
the term shall not include the sale, transportation, or delivery of 
crops or livestock by the producer thereof to a handler. This change 
was made because we found merit in a certifying agent's concern that 
farmers were turned into handlers by definition. This was not our 
intent.
    (12) We have amended the definition of ``inspector'' to make terms 
used in the definition consistent with terms used in this proposal and 
to remove the phrase, ``who is qualified.'' A State certifying agent 
suggested deleting the phrase, ``who is qualified,'' because the issue 
of inspector qualification is more appropriately addressed in the 
regulations. We concur that the definition of ``inspector'' does not 
need to address the issue of qualifications, especially in light of the 
fact that certifying agents are required by these regulations to use 
qualified inspectors.
    (13) We have amended the definition of ``livestock'' by adding 
reference to the production of fiber, feed, and other agricultural-
based consumer products and by providing that ``livestock'' shall not 
include fish or bees for the production of food, fiber, feed, or other 
agricultural-based consumer products. A trade association and several 
States recommended adding fibers to the definition. We have added 
fiber, feed, and other agricultural-based consumer products to the 
definition to capture all types of consumer products that would be 
produced from livestock. We have excluded aquatic animals from the 
definition of livestock pending future development of detailed practice 
standards for specific aquatic animals. We have also excluded bees from 
the definition of livestock pending future National Organic Standards 
Board (NOSB or Board) review and recommendations on apiculture.

[[Page 13518]]

Additional information on this issue can be found at subpart C, 
Livestock Production, Changes Based On Comments, items 3 and 4.
    (14) We have amended the definition of ``market information.'' A 
commenter suggested that the definitions of the terms, ``labeling'' and 
``market information,'' were difficult to distinguish from one another 
and needed clarification. We have added language to make a distinction 
between the two terms. ``Market information'' now includes the phrase, 
``distributed, broadcasted, or made available outside of retail 
outlets.'' This phrase indicates that any information distributed, 
broadcasted, or made available outside of retail outlets to assist in 
the sale or promotion of a product falls under the ``market 
information'' category. ``Labeling'' includes any information displayed 
or made available in retail outlets on or about the product.
    (15) We have amended the definition of ``organic'' to clarify that 
the term, ``organic,'' is used as a labeling term. Commenters, 
including several States, stated that the definition repeated the 
proposed requirements for allowing the use of ``organic'' on a product 
label. They suggested amending the definition to clarify that the term, 
``organic,'' is used as a labeling term. We made the suggested change 
because we agree that the definition unnecessarily repeated regulatory 
information and that use of the term, ``organic,'' is intended as a 
labeling term.
    (16) We have amended the definition of ``producer'' to clarify that 
the term includes the production of fiber and other agricultural-based 
consumer products. Several States suggested that the definition of 
``producer'' be amended to clarify that a producer could also be 
growing or producing a fiber product. We agree that this clarification 
is needed and have also added reference to ``other agricultural-based 
consumer products'' to further clarify that the term includes all 
agricultural-based consumer products produced by a producer.
    (17) We have changed the definition of ``routine use of 
parasiticide'' to the definition recommended by the NOSB. Commenters 
suggested removing ``without cause'' from the definition in the first 
proposal and adding such phrases as ``without an indication of illness 
from parasites,'' ``administration with need based on the presence of a 
diagnosed problem with parasites,'' and ``with or without cause.'' The 
NOSB's definition solves the problems caused by the use of the phrase, 
``without cause.'' Additional information on this issue can be found at 
subpart C, Livestock Production, Changes Based On Comments, item 9.
    (18) We have amended the definition of ``slaughter stock'' by 
changing ``human consumption'' to ``consumption by humans and other 
animals.'' A few commenters recommended deleting the word, ``human,'' 
to indicate that organic livestock may also be used to produce pet 
food. We agree that slaughter stock may be used in the production of 
products for consumption by humans and other animals.
    (19) We have amended the term, ``soil quality,'' and its definition 
by referencing ``water'' in the term and the definition. This change 
was made because of the reference to ``soil and water quality'' in 
Sec. 205.200 of this proposal. Several State commenters stated that the 
definition of ``soil quality'' was too vague and would pose problems in 
enforcing a requirement that addressed the effect of various practices 
on soil quality. Other commenters requested expansion of the definition 
to include a discussion of why soil quality is important and what 
functions healthy soil serves in an organic production system. Another 
State suggested expanding the definition to include water quality, 
since there were several references in the regulations to effects on 
soil or water quality. The importance of soil quality has been 
addressed under subpart C of this proposal. We acknowledge that the 
phrase, ``soil and water quality,'' is used in subpart C and have, 
therefore, expanded the term, ``soil quality,'' to ``soil and water 
quality'' and amended the definition accordingly. We have also added a 
new phrase to the previous definition to acknowledge that one important 
criterion of soil and water quality is the control of environmental 
contaminants. The determination of which observable indicators to 
monitor and how to interpret the observations will be subject to 
documentation in the organic system plan and consultation between the 
producer and the certifying agent. Guidance will be provided to 
certifying agents through program manuals. Additional information on 
this issue can be found at subpart C, Production and Handling 
(General), Changes Based On Comments, item 2.
    (20) We have amended the term, ``governing State official,'' to 
``State program's governing State official'' and retained the 
definition to clarify the difference between a State certifying agent 
and a governing State official. We have used the term, ``State 
program's governing State official,'' throughout this proposal. A trade 
association and a State recommended removing the word, 
``certification,'' from the definition. We have not made this change 
because the term is meant to identify the person responsible for 
administering the State's organic certification program. By ``State 
organic certification program,'' we mean the law, regulations, and any 
policies and procedures established by the State to govern the organic 
certification of producers or handlers by State or private certifying 
agents.
    (21) We have amended the definition of ``unavoidable residual 
environmental contamination.'' Commenters stated that USDA should set 
levels rather than make case-by-case decisions regarding residual 
environmental contamination. They suggested that background levels 
could be used to determine whether land exceeds the level. Another 
commenter requested a clear statement of ``unavoidable'' and 
``contamination'' to facilitate enforcement. Some States stated that 
there should be a level that is unacceptable for organic agriculture. A 
commenter suggested that the definition read, ``The presence of a 
material prohibited in organic production, processing, or handling in 
soil, crop, or food that occurs as a result of factors beyond the 
control of the producer, processor, or handler.'' Another commenter 
suggested that the definition read, ``Background levels of prohibited 
substances at a site which are clearly beyond the control of a 
certified organic farm operator through notices to neighbors, careful 
avoidance of abnormally precontaminated sites, and establishment of 
buffer zones.'' In this proposal, we have defined ``unavoidable 
residual environmental contamination'' as ``background levels of 
naturally occurring or synthetic chemicals that are persistent in the 
soil or present in organically produced agricultural products that are 
below established tolerances.''
Definitions--Changes Requested But Not Made
    This subpart retains from our first proposal terms and their 
definitions on which we received comments as follows:
    (1) A few commenters requested that the definition of 
``Administrator'' be revised to provide that authority to administer 
the National Organic Program may be delegated to a State official. We 
have not made the recommended change because the definition of 
``Administrator'' merely addresses the top official of the Agricultural 
Marketing Service (AMS) and any AMS official to whom the Administrator 
may delegate authority. The definition is not meant to address working 
relationships established

[[Page 13519]]

between AMS and a State or State entity.
    (2) An environmental group requested that we delete the phrase, 
``other than during the manufacture of a multiingredient product 
containing both types of ingredients,'' from the definition of 
``commingling.'' This proposal requires that a handler prevent the 
commingling of organic and nonorganic products but permits use of the 
word, ``organic,'' in labeling a product made with organic and 
nonorganic ingredients in accordance with these regulations. Therefore, 
it is necessary to indicate that the term, ``commingling,'' does not 
apply to the manufacture of multiingredient products produced in 
accordance with these regulations.
    (3) A farmers' association recommended that the Secretary delegate 
authority for determining crop year to certifying agents because crop 
year will vary from region to region. We have found no compelling 
reason to make certifying agents responsible for determining crop year 
and have not made the recommended change.
    (4) A few commenters requested that the definition of ``handling 
operation'' be amended to exclude retailers of prepackaged agricultural 
products. This change is unnecessary because such retailers are 
excluded by the definition of ``handling operation'' through the 
phrase, ``except final retailers of agricultural products that do not 
process agricultural products.''
    (5) Several commenters, including a State department of 
agriculture, recommended elimination of the exception for weight labels 
in the definition of ``label.'' We have not made the recommended change 
to the definition of ``label'' because, as used in this proposal, 
``label'' is intended to represent the organic nature of the product. A 
weight label that does not refer to the organic nature of the product 
would not constitute a label for the purposes of this proposal.
    (6) A commenter requested that the definitions for ``labeling'' and 
``market information'' be amended to refer only to products produced by 
the seller. We have not made this requested change because changing the 
definitions to only include products produced by the seller would 
severely restrict the application of the terms, ``labeling'' and 
``market information.'' As defined, ``labeling'' and ``market 
information'' correctly include any information that may be presented 
to consumers concerning all products sold whether produced by the 
seller, most likely a retail outlet, or produced by a production or 
handling operation from which the seller acquired the products.
    (7) A commenter requested that we include definitions for 
``manure'' and ``aged or rotted manure.'' Under this proposal it is not 
necessary to define either term.
    (8) An environmental organization requested that a phrase be added 
to the definition of ``mulch'' to indicate that acceptable mulch 
materials leave no chemical or toxic residues. This proposal allows the 
use of composted plant and animal wastes obtained from nonorganic 
sources, such as commercial compost products. Uncomposted plant or 
animal waste material which has been treated with a substance can be as 
utilized as a mulch provided the substance appears on the National List 
or complies with the OFPA. Off-farm plant and animal wastes from food 
processing, municipal yard waste facilities, and other sources are used 
extensively in existing organic operations and generally permitted by 
organic certification programs. Using such organic wastes is consistent 
with a system of organic production and handling, which calls for 
recycling organic wastes to return nutrients to the land. We believe 
that concerns about potential contaminants in plant and animal waste 
materials can be addressed by the requirement in this proposal that 
these materials be managed in a manner that prevents such 
contamination. Accordingly, this change has not been made. Additional 
information on this issue can be found at subpart C, Crop Production, 
Changes Requested But Not Made, items 2 and 3.
    (9) Several commenters suggested adding information to the 
definition of ``National Organic Standards Board'' to address the role 
of the NOSB with regard to the National List. This change is 
unnecessary because the role of the NOSB is adequately covered in 
section 6517, National List, of the Act.
    (10) Numerous comments were received from consumers, environmental 
groups, and organic producers concerning the definition of the term, 
``nonagricultural ingredient.'' Commenters expressed the view that this 
term represented an attempt by USDA to circumvent the intent of the Act 
that synthetic ingredients not be permitted in organic processed 
products. We disagree with the position that the Act prohibits the use 
of synthetic ingredients in organic processed products. The use of 
synthetic ingredients in organic processed products is discussed in the 
preamble to the National List found in subpart G. We have changed the 
term, ``nonagricultural ingredient,'' to ``nonagricultural substance'' 
to be consistent with the language used in this proposal. The 
definition remains the same.
    (11) Commenters stated their objection to the use of the term, 
``nonsynthetic (natural),'' and its definition. A commenter mistakenly 
stated that the term, ``natural,'' was defined in the Act. Other 
commenters felt that use of any term that was not included in the Act 
was a violation of the Act. Because the term, ``natural,'' is so 
ambiguous and subject to differing interpretations, the term, 
``nonsynthetic,'' as used throughout this regulation, represents an 
important clarification of the intent of the Act, and we have, 
therefore, retained it in this proposal.
    (12) A few commenters requested that the definition of ``petition'' 
be amended by adding the phrase, ``to the National Organic Standards 
Board,'' immediately following the word, ``submitted.'' We have not 
made the requested change for two reasons. First, the change is 
unnecessary. Second, petitions, whether addressed to the NOSB or 
National Organic Program (NOP) Staff, will be received by the NOP 
because the administrative functions of the NOSB are performed at the 
NOP office. Petitions received will be distributed by the NOP to the 
NOSB and appropriate technical reviewers.
    (13) A producers association stated that the definition for 
``processing'' was confusing with regard to the difference between a 
handler and a processor. A handling operation that performs any of the 
activities listed in the definition of processing becomes a processor. 
We have found no compelling reason to revise this comprehensive 
definition for processing, which comes directly from the Act. A 
commenter suggested that this definition be changed to include 
repackaging for weight. In addition to the definition being stipulated 
by the Act, affixing a weight label to a product is a normal retail 
activity that does not warrant the expense and effort necessary to 
certify all retailers who routinely affix weight labels to organic 
product.
    (14) A few commenters requested that the definition of ``State 
organic certification program'' be amended by adding a statement 
indicating that a State program could have additional requirements. 
This issue is addressed in subpart G, State Organic Certification 
Programs, Proposal Description.
    (15) A technical institute recommended including genetically 
engineered organisms and their products in the definition of 
``synthetic,'' and an environmental

[[Page 13520]]

group wanted the definition to include the combustion of minerals. We 
have not amended the definition as given in the Act because it already 
includes the combustion of minerals, which are chemically changed by 
the process of combustion. We also do not consider it necessary to 
classify genetically engineered organisms as either synthetic or 
nonsynthetic for the purposes of this regulation, since these organisms 
and their products are prohibited for use in organic production or 
handling regardless of whether or not they are synthetic.
    (16) A commenter recommended adding the word, ``synthetic,'' 
immediately preceding the word, ``substances,'' in the second sentence 
of the definition of ``system of organic farming and handling.'' We 
disagree with this suggestion because ``substances'' as used in this 
definition could be synthetic or nonsynthetic. A few commenters 
requested deletion of the word, ``extraneous,'' as a modifier of 
``synthetic additives'' in the definition of ``system of organic 
farming and handling.'' The commenters stated that use of the word, 
``extraneous,'' implied that synthetic additives can be used in organic 
processed products. Synthetics may be used in processed products if the 
substance is included on the National List. Additionally, the word, 
``extraneous,'' modifies the word, ``processing,'' in the definition, 
and we consider use of extraneous processing to be inconsistent with 
organic handling. For these reasons, we have not removed the word, 
``extraneous,'' from the definition. We have, however, amended the 
term, ``system of organic farming and handling,'' by deleting 
``farming'' and inserting ``production.'' The definition for the term, 
``system of organic production and handling,'' is unchanged. We have 
taken this action to make the term consistent with the language of this 
proposal. Additional information on this issue can be found at subpart 
C, Production and Handling (General), Changes Requested But Not Made, 
item 1.
    (17) Several commenters, including a State Department of 
Agriculture and a fishery association, requested that wild game and 
aquatic animals be included in the definition of ``wild crop.'' 
Regarding aquatic animals, we intend to develop detailed practice 
standards for specific aquatic species, which will be published for 
comment and finalized prior to the implementation of the NOP. Given the 
virtual absence of recognized certification programs for aquatic 
operations, including aquaculture, there are no U.S. models on which to 
base national standards. Additional information on this issue can be 
found at subpart B, Changes Requested But Not Made, item 11 and subpart 
C, Crop Production, Changes Requested But Not Made, item 7. 
Accordingly, we have not made the requested changes to the definition 
of ``wild crop.''
Definitions--Additional Provisions
    Upon further review of the definitions in the first proposal, we 
have decided to propose the following additions and changes.
Amended Definitions
    (1) We have amended the definition of ``accreditation'' to include 
foreign entities as now provided for in subpart F, Accreditation. 
Additional information on including foreign entities in accreditation 
can be found at subpart B, Additional Provisions, item 1, and subpart 
F, Changes Based On Comments, item 1.
    (2) We have amended the definition of ``allowed synthetic'' by 
replacing ``for use in organic farming'' with ``for use in organic 
production, or handling.'' This correction was necessary because the 
National List includes synthetic substances used in organic production 
and handling.
    (3) We have amended the terms, ``certified organic farm,'' 
``certified organic handling operation,'' and ``certified organic wild-
crop harvesting operation,'' with the term, ``certified operation.'' 
The term, ``certified operation,'' is used throughout this proposal to 
refer to a crop or livestock production, wild-crop harvesting, or 
handling operation or portion of an operation that is certified by an 
accredited certifying agent as utilizing a system of organic production 
or handling as described by the Act and regulations in this part. We 
have taken this action to simplify the regulatory language.
    (4) We have amended the term, ``cultural,'' to ``cultural methods'' 
and amended the definition by removing all references to livestock. We 
have taken this action because this proposal does not refer to cultural 
methods with reference to livestock health care.
    (5) We have amended the definition of ``field'' by replacing 
``farm'' with ``production operation.'' This action was taken because 
``farm'' has been replaced by ``production operation'' throughout this 
proposal.
    (6) We have amended the definition of ``handler'' by adding the 
phrase, ``including producers who handle crops or livestock of their 
own production.'' We have made this change to clarify that producers 
who handle their own production become handlers under the regulations. 
Such producer/handlers must be certified as a handler.
    (7) We have amended the term, ``inert ingredient in pesticide 
formulations,'' to ``inert ingredient.'' We have also amended the 
definition by specifying that the pesticide product is used in organic 
crop or livestock production and handling. These changes have been made 
to make the term and its definition consistent with the language used 
in the National List. This proposal takes a different position on inert 
ingredients, as explained in subpart G, National List, Changes Based on 
Comments, item 6, than was taken in the first proposal. Because of the 
increased importance of inert ingredients in this proposal, we have 
rejected the position of the few commenters who recommended removal of 
this definition.
    (8) We have amended the term, ``organic plan,'' to ``organic system 
plan'' and made editorial changes to the definition to make the term 
and language of the definition consistent with the language in this 
proposal.
    (9) We have amended the definition of ``peer review panel'' by 
removing ``to assist in evaluating the performance of a certifying 
agent'' and inserting ``to assist in evaluating applicants for 
accreditation as certifying agents.'' This change clarifies that the 
role of the peer review panel is to evaluate applicants for 
accreditation. Additional information on ``peer review panel'' can be 
found at subpart C, Proposal Description, Production and Handling 
(General).
    (10) We have amended the definition of ``person'' by adding 
``contractor'' to clarify that, when the regulations use ``person,'' 
the meaning includes ``contractors.''
    (11) We have amended the definition of ``records'' by removing the 
record examples. A trade association and several States recommend 
adding ``process flow charts'' to the examples of records. Another 
commenter, who does not want to give USDA unlimited access to personnel 
files, suggested the creation of a specific list of records to be 
maintained. We have rewritten the recordkeeping provisions, removing 
all references to specific records or types of records which must be 
maintained. We have taken this action because we believe that it is 
impracticable to specify in detail every class of records which may be 
found essential in demonstrating compliance with the Act and 
regulations. Different types of certified production and handling 
operations will, by the very nature of their business, be required to 
maintain different records to establish their

[[Page 13521]]

compliance with the Act and regulations. Additional information on the 
issue of listing every class of records which may be found essential in 
demonstrating compliance with the Act and regulations can be found at 
subpart B, Changes Based On Comments, item 6.
    (12) We have amended the definition of ``State.'' Addition of the 
term, ``State entity,'' necessitated our amendment of the definition of 
``State'' to clarify that State means the States of the United States 
of America.
    (13) We have amended the term, ``system of organic farming and 
handling,'' to ``system of organic production and handling'' and 
retained the original definition in this proposal. The original 
definition was crafted to be consistent with the requirements of the 
Act. We have changed ``farming'' to ``production'' to provide a more 
encompassing term, which may come to include such diverse activities as 
hydroponics, green house production, and harvesting of aquatic animals. 
The purpose of the original definition was to describe practices and 
substances consistent with systems of organic farming and organic 
handling as required by the Act and to provide an explicit reference 
point for determining which practices and substances are most 
consistent with these systems. Several commenters suggested that the 
definition include the concepts, ``agroecosystem health,'' ``ecological 
harmony,'' and ``biological diversity.'' Commenters also suggested 
including definitions for ``organic agriculture,'' ``organic farming,'' 
and ``transition to organic.'' This definition is intended to clarify 
regulatory provisions in this proposal and is not intended as a broad 
philosophical statement. The terms, ``organic agriculture,'' ``organic 
farming,'' and ``transition to organic,'' are not used in this proposal 
and, therefore, are not defined.
    (14) We amended the definition of transplant to prevent confusion 
with a related term, ``seedling.'' While the terms, ``transplant'' and 
``seedling'' are often used interchangeably, the Act treats them as 
distinct and establishes separate regulatory requirements. We have 
determined that the physical process of moving and replanting a 
seedling results in that seedling becoming a transplant. We have 
created this distinction to be able to enforce the full requirements of 
the Act. Additional information on ``transplant'' can be found at 
subpart C, Crop Production, Changes Based On Comments, item 4.
New Definitions
    (1) We have defined ``accredited laboratory.'' Information 
concerning ``accredited laboratory'' can be found at subpart G, 
Inspection and Testing, Reporting, and Exclusion from Sale, Proposal 
Description.
    (2) We have defined ``action level.'' Information concerning 
``action level'' can be found at subpart G, Inspection and Testing, 
Reporting, and Exclusion from Sale, Changes Based On Comments, item 2.
    (3) We have defined ``agricultural inputs.'' Information concerning 
``agricultural inputs'' can be found at subpart G, Inspection and 
Testing, Reporting, and Exclusion from Sale, Changes Based On Comments, 
item 1.
    (4) We have defined ``Agricultural Marketing Service (AMS) `` 
because the term is used throughout this proposal.
    (5) We have defined ``breeder stock.'' We have added this 
definition because this proposal establishes conditions for the 
administration of an allowed synthetic parasiticide to livestock 
producing offspring for incorporation into an organic operation. We 
have also proposed conditions under which dairy stock, whose milk or 
milk products are to be sold, labeled, or represented as organically 
produced, may be treated with allowed synthetic parasiticides. 
Additional information on this issue can be found at subpart C, 
Livestock Production, Changes Based On Comments, item 9.
    (6) We have defined ``bulk.'' Information concerning ``bulk'' can 
be found at subpart D, Additional Provisions, item 7.
    (7) We have defined ``claims.'' Information concerning ``claims'' 
can be found at subpart D, Changes Based On Comments, item 1.
    (8) We have defined ``detectable residue.'' Information concerning 
``detectable residue'' can be found at subpart G, Inspection and 
Testing, Reporting, and Exclusion from Sale, Proposal Description and 
at Changes Based On Comments, item 2.
    (9) We have defined ``drift.'' Information concerning ``drift'' can 
be found in subpart G, Residue Testing, changes based on comments, item 
2.
    (10) We have defined ``estimated national mean.'' Information 
concerning ``estimated national mean'' can be found at subpart G, 
Inspection and Testing, Reporting, and Exclusion from Sale, Proposal 
Description and at Changes Based On Comments, item 2.
    (11) We have defined ``excluded methods.'' As a result of extensive 
public comment, we have revised the definition of certain methods to be 
excluded from organic production systems. Many commenters suggested 
that we use the definition for certain methods to be excluded from 
organic production systems proposed by the NOSB. This proposal 
essentially adopts that definition. ``Excluded methods'' refers to a 
variety of methods used to genetically modify organisms or influence 
their growth and development by means that are not possible under 
natural conditions or processes and are not considered compatible with 
organic production. Such methods would include recombinant DNA, cell 
fusion, and micro-and macroencapsulation. Such methods would not 
include the use of traditional breeding, conjugation, fermentation, 
hybridization, in vitro fertilization, or tissue culture.
    We recognize that the phrases, ``natural conditions or processes'' 
and ``not considered compatible with organic production,'' may be 
subject to interpretation. We have proposed to use these phrases for 
two reasons. First, ``natural conditions or processes'' is used in the 
NOSB and American Organic Standards definitions, both of which were the 
result of consultation with organic industry and consumer stakeholders 
and, thus, accurately reflect current industry practices as well as 
consumer preferences. Second, we recognize that industry and consumer 
expectations regarding the products of these techniques in organic 
production systems may evolve. We believe that, taken together, these 
phrases allow for a degree of flexibility to ensure that our 
regulations continue to accurately reflect industry practices and 
consumer preferences. In cases where questions may arise regarding a 
specific technique, we anticipate that such questions would be resolved 
by the Administrator based on recommendations from the NOSB.
    (12) We have defined ``feed additive.'' Information concerning 
``feed additive'' can be found at subpart C, Livestock Production, 
Changes Based On Comments, item 7.
    (13) We have defined ``feed supplement'' Information concerning 
feed supplement'' can be found at subpart C, Livestock Production, 
Changes Based On Comments, item 7.
    (14) We have defined ``forage.'' Information concerning ``forage'' 
can be found at subpart C, Livestock Production, Changes Based On 
Comments, item 4.
    (15) We have defined ``immediate family.'' Information concerning 
``immediate family'' can be found at subpart F, Changes Based On 
Comments, items 14 and 15; Changes Requested But Not Made, item 18; and 
Additional Provisions, item 2.
    (16) We have defined ``ingredient'' because the term is used 
throughout subpart D.

[[Page 13522]]

    (17) We have defined ``inspection'' because the term is used 
throughout subparts E and F.
    (18) We have defined ``lot.'' Information concerning ``lot'' can be 
found at subpart D, Proposal Description and at Additional Provisions, 
item 6.
    (19) We have defined ``natural resources of the operation.'' This 
definition has been added to provide greater context for evaluating the 
``maintain or improve'' requirement for a system of organic production 
and handling. Information concerning ``natural resources of the 
operation'' can be found at subpart C, Production and Handling 
(General), Changes Based On Comments, item 2.
    (20) We have defined ``nonretail container.'' Information 
concerning ``nonretail container'' can be found at subpart D, Proposal 
Description and at Additional Provisions, item 6.
    (21) We have defined ``practice standard.'' Practice standards have 
been added to this proposal in response to commenter requests for more 
specific guidelines for measuring the performance of an organic system 
of production and handling. A practice standard is a series of specific 
guidelines, requirements, and operating procedures through which a 
production or handling operation implements a required component of its 
organic system plan. For example, this proposal contains a practice 
standard for soil fertility and crop nutrient management which 
describes the tillage practices, sources and handling restrictions for 
nutrients, and prohibited activities that a production operation must 
comply with. There are specific practice standards applicable to crop, 
livestock, and wild-crop production, and handling operations. We are 
also proposing to incorporate the terms of the NRCS practice standard 
for a composting facility into the requirements of this proposal. 
Additional information on ``practice standards'' can be found at 
subpart C, Production and Handling (General), Changes Based On 
Comments, item 4.
    (22) We have defined ``private entity'' because the term is used 
throughout subpart F to differentiate between governmental (State 
entity) and nongovernmental (private entity) organizations providing 
certification services.
    (23) We have defined ``production lot number.'' Information 
concerning ``production lot number'' can be found at subpart D, 
Proposal Description and at Additional Provisions, item 6.
    (24) We have defined ``residue testing'' because the term is used 
throughout the inspection and Testing, Reporting, and Exclusion from 
Sale portion of subpart G.
    (25) We have defined ``retail food establishment.'' Information on 
``retail food establishment'' can be found in subpart B, Applicability, 
Proposal Description and Additional Provisions, item 2.
    (26) We have defined ``sewage sludge.'' This term has been added 
and defined as synonymous with ``biosolids'' to incorporate the 
Environmental Protection Agency's regulatory language for this category 
of materials. Information concerning ``sewage sludge'' can be found at 
subpart C, Crop Production, Changes Based On Comments, item 1.
    (27) We have defined ``State entity.'' This proposal provides for 
the accreditation of domestic, tribal government, and foreign 
governmental subdivisions that provide certification services. We refer 
to such an entity in this proposal as a ``State entity.'' Additional 
information on ``State entity'' can be found at subpart F, Changes 
Based On Comments, item 1.
    (28) We have defined ``tolerance.'' Information concerning 
``tolerance'' can be found at subpart G, Inspection and Testing, 
Reporting, and Exclusion from Sale, Proposal Description and at Changes 
Based On Comments, item 2.

Subpart B--Applicability

    This subpart provides an overview of what has to be certified under 
the National Organic Program (NOP), describes exemptions and exclusions 
from certification, addresses use of the term, ``organic,'' and 
addresses recordkeeping by certified production and handling 
operations.
Proposal Description
    Except for exempt and excluded operations, each production or 
handling operation or specified portion of a production or handling 
operation that produces or handles crops, livestock, livestock 
products, or other agricultural products that are intended to be sold, 
labeled, or represented as ``100 percent organic,'' ``organic,'' or 
``made with organic (specified ingredients)'' must be certified. 
Certified operations must meet all applicable requirements of these 
regulations.
    Certifying agents will begin the process of certifying organic 
production and handling operations to the national standards upon 
receipt of their accreditation from the Administrator. All production 
and handling operations certified by an accredited certifying agent 
will be considered certified to the national standards until the 
certified operation's anniversary date of certification. We are 
providing this phase-in procedure for production and handling 
operations certified by newly accredited certifying agents because we 
believe that such certifying agents will, upon publication of the final 
rule, demonstrate their eligibility for accreditation by applying the 
national standards to the certification and renewal of certification of 
their clients. We are also providing this phase-in procedure to provide 
relief to certified operations which would otherwise have to be 
certified twice within a 12-month period (prior to their certifying 
agent's accreditation and again following their certifying agent's 
accreditation). This relief will only be available to those certified 
operations certified by a certifying agent that receives its 
accreditation within 18 months from the date of publication of the 
final rule. We anticipate that certifying agents and production and 
handling operations will move as quickly as possible to begin operating 
under the national organic standards. We are providing this substantial 
phase-in period because accredited certifying agents will have to 
schedule on-site inspections around varying growing seasons and because 
certifying agents and production and handling operations will need time 
to adapt to the new national organic standards.
    Exempt and Excluded Operations. This regulation establishes several 
categories of exempt or excluded operations. Exempt operations derive 
their exemption from the Act while excluded operations are excluded as 
a result of a Departmental policy decision. An exempt or excluded 
operation does not need to be certified. However, operations that 
qualify as exempt or excluded operations may elect to apply for 
certification. A production or handling operation that is exempt or 
excluded from obtaining certification still must meet other regulatory 
requirements contained in this rule as explained below.
    Exempt Operations. (1) A production or handling operation that has 
$5,000 or less in gross agricultural income from organic sales annually 
is exempt from certification and does not need to submit an the organic 
system plan to anyone for acceptance or approval. However, an exempt 
producer or handler must comply with the labeling requirements of 
Sec. 205.309 and the organic production and handling requirements 
applicable to its type of operation. For example a producer of organic 
vegetables, that performs no handling functions, would have to comply 
with the labeling requirements

[[Page 13523]]

of Sec. 205.309 and the applicable production requirements in 
Secs. 205.202 through 205.207. The labeling and production and handling 
requirements protect the integrity of organically produced products.
    (2) A retail food establishment or portion of a retail food 
establishment that handles organically produced agricultural products 
but does not process them is exempt from all of the requirements in 
these regulations.
    (3) A handling operation or portion of a handling operation that 
handles agricultural products containing less than 50 percent organic 
ingredients by total weight of the finished product (excluding water 
and salt) is exempt from the requirements in these regulations, except 
the recordkeeping provisions of Sec. 205.101(c); the provisions for 
prevention of contact of organic products with prohibited substances in 
Sec. 205.272; and the labeling regulations in Sec. 205.309. The 
recordkeeping provisions maintain an audit trail for organic products. 
The prevention of contact with prohibited substances and the labeling 
requirements protect the integrity of organically produced products.
    (4) If a handling operation or portion of a handling operation that 
handles agricultural products containing at least 50 percent organic 
ingredients by weight (excluding water and salt) does not use the word, 
``organic,'' on any package panel other than the information panel, it 
is exempt from the requirements in these regulations, except the 
recordkeeping provisions of Sec. 205.101(c); the provisions for 
prevention of contact of organic products with prohibited substances as 
provided in Sec. 205.272; and the labeling regulations in Sec. 205.309. 
The recordkeeping provisions maintain an audit trail for organic 
products. The prevention of contact with prohibited substances and 
labeling requirements protect the integrity of organically produced 
products.
    As noted above, exempt handling operations producing 
multiingredient products must maintain records as required by 
Sec. 205.101(c). This would include records sufficient to: (1) prove 
that ingredients identified as organic were organically produced and 
handled, and (2) verify quantities produced from such ingredients. Such 
records must be maintained for no less than 3 years and the operation 
must allow representatives of the Secretary and the applicable State 
program's governing State official access to the records during normal 
business hours for inspection and copying to determine compliance with 
the applicable regulations.
    Excluded Operations. (1) A handling operation or portion of a 
handling operation that sells organic agricultural products labeled as 
``100 percent organic,'' ``organic,'' or ``made with organic (specified 
ingredients)'' that are packaged or otherwise enclosed in a container 
prior to being received or acquired by the operation, remain in the 
same package or container, and are not otherwise processed while in the 
control of the handling operation is excluded from the requirements in 
these regulations, except for the provisions for prevention of 
commingling and contact of organic products with prohibited substances 
in Sec. 205.272. The requirements for the prevention of commingling and 
contact with prohibited substances protect the integrity of organically 
produced products.
    This exclusion will avoid creating an unnecessary barrier for 
handlers who distribute nonorganic products and who want to offer a 
selection of organic products.
    (2) A retail food establishment or portion of a retail food 
establishment that processes or prepares, on the premises of the retail 
food establishment, raw and ready-to-eat food from certified 
agricultural products labeled as ``100 percent organic,'' ``organic,'' 
or ``made with organic (specified ingredients)'' is excluded from the 
requirements in these regulations, except for the provisions for 
prevention of contact of organic products with prohibited substances as 
provided in Sec. 205.272; and the labeling regulations in Sec. 205.309. 
The prevention of commingling and contact with prohibited substances 
and labeling requirements protect the integrity of organically produced 
products.
    Excluded retail food establishments include restaurants; 
delicatessens; bakeries; grocery stores; or any retail outlet with an 
in-store restaurant, delicatessen, bakery, salad bar, or other eat-in 
or carry-out service of processed or prepared raw and ready-to-eat 
food.
    We have excluded such retail food establishments because comments 
to the first proposal concerning the issue of certification of retail 
food establishments were completely divergent. Comments ranged from the 
certification of all retail food establishments to exclusion of all 
retail food establishments. There is clearly a great deal of public 
concern regarding the handling of organic products by retail food 
establishments. Someday retail food establishments may be subject to 
regulation under this NOP. Any such regulation would be preceded by 
rulemaking with an opportunity for public comment. Our exclusion of 
retail food establishments from this proposal does not prevent a State 
from developing an organic retail food establishment certification 
program or otherwise regulating retail food establishments that 
prepare, package, or process organic agricultural products.
    No retailer, regardless of this exclusion and the exceptions found 
in the definitions for ``handler'' or ``handling operation,'' may sell, 
label, or provide market information on a product unless such product 
has been produced and handled in accordance with the Act and these 
regulations. Any retailer who knowingly sells or labels a product as 
organic, except in accordance with the Act and these regulations, will 
be subject to a civil penalty of not more than $10,000 under this 
program. Such retailer may also be subject to enforcement actions and 
penalties under Federal statutes and their implementing regulations 
administered by other agencies of the Federal government.
    Recordkeeping Requirements for Certified Operations. A certified 
operation must maintain records concerning the production and handling 
of agricultural products that are sold, labeled, or represented as 
``100 percent organic,'' ``organic,'' or ``made with organic (specified 
ingredients)'' sufficient to demonstrate compliance with the Act and 
regulations. Such records must be adapted to the particular business 
that the certified operation is conducting, fully disclose all 
activities and transactions of the certified operation in sufficient 
detail to be readily understood and audited, be maintained for not less 
than 5 years beyond their creation, and be sufficient to demonstrate 
compliance with the Act and regulations. Certified operations must make 
the records required by this regulation available for inspection and 
copying by authorized representatives of the Secretary, the applicable 
State program's governing State official, and the certifying agent. 
Access to such records must be provided during normal business hours.
    Examples of Records. Each exempt, excluded, and certified operation 
should maintain the records which demonstrate compliance with the Act 
and the regulations applicable to it and which it believes establish an 
audit trail sufficient to prove to the Secretary, the applicable State 
program's governing State official, and the certifying agent that the 
exempt, excluded, or certified operation is and has been in compliance 
with the Act and regulations.

[[Page 13524]]

    Examples of records include: Application and supporting documents 
for certification; organic system plan and supporting documents; 
purchased inputs, including seeds, transplants, livestock, and 
substances (fertilizers, pesticides, and veterinary biologics 
consistent with the livestock provisions of subpart C), cash purchase 
receipts, receiving manifests (bills of lading), receiving tickets, and 
purchase invoices; field records (planting, inputs, cultivation, and 
harvest); storage records (bin register, cooler log); livestock 
records, including feed (cash purchase receipts, receiving manifests 
(bills of lading), receiving tickets, purchase invoices, copies of 
grower certificates), breeding records (calendar, chart, notebook, 
veterinary documents), purchased animals documentation (cash purchase 
receipts, receiving manifests (bills of lading), receiving tickets, 
purchase invoices, copies of grower certificates), herd health records 
(calendar, notebook, card file, veterinary records), and input records 
(cash purchase receipts, written records, labels); producer invoice; 
producer contract; receiving manifests (bills of lading); transaction 
certificate; producer certificate; handler certificate; weigh tickets, 
receipts, and tags; receiving tickets; cash purchase receipts; raw 
product inventory reports and records; finished product inventory 
reports and records; daily inventories by lot; records as to 
reconditioning, shrinkage, and dumping; production reports and records; 
shipping reports; shipping manifests (bills of lading); paid freight 
and other bills; car manifests; broker's contracts; broker's 
statements; warehouse receipts; inspection certificates; residue 
testing reports; soil and water testing reports; cash receipt journals; 
general ledgers and supporting documents; sales journals; accounts 
payable journals; accounts receivable journals; cash disbursement 
journals; purchase invoices; purchase journals; receiving tickets; 
producer and handler contracts; cash sales receipts; cash purchase 
journals; sales invoices, statements, journals, tickets, and receipts; 
account sales invoices; ledgers; financial statements; bank statements; 
records of deposit; canceled checks; check stubs; cash receipts; tax 
returns; accountant's or other work papers; agreements; contracts; 
purchase orders; confirmations and memorandums of sales; computer data; 
computer printouts; and compilations of data from the foregoing.
    Request for Comment. This proposal provides that all ingredients in 
a multiingredient product identified as organic must have been produced 
by a production or handling operation certified by an accredited 
certifying agent. We are seeking comment on the following question. 
Should handlers be allowed to identify organically produced products 
produced by exempt production operations as organic ingredients? Such 
identification would be restricted to the ingredients list on the 
information panel. This may provide a wholesale outlet for organically 
produced agricultural products produced by producers exempted from 
certification because their gross agricultural income from organic 
sales totals $5,000 or less annually.
    Compliance with Federal Statutes and Regulations. Any agricultural 
product that is sold, labeled, or represented as ``100 percent 
organic,'' ``organic,'' or ``made with organic (specified 
ingredients)'' must be produced and handled in accordance with the 
requirements in these regulations. Organic agricultural products must 
be produced and handled in compliance with the Federal Meat Inspection 
Act, the Poultry Products Inspection Act, and the Egg Products 
Inspection Act, concerning meat, poultry, and egg products; the Federal 
Food, Drug, and Cosmetic Act; the Federal Insecticide, Fungicide, and 
Rodenticide Act; and any other applicable Federal statute and its 
implementing regulations.
    Foreign Applicants. The regulations in this part, as applicable, 
apply equally to domestic and foreign applicants for accreditation, 
accredited certifying agents, domestic and foreign applicants for 
certification as organic production or handling operations, and 
certified production and handling operations unless otherwise 
specified.
Applicability--Changes Based on Comments
    This subpart differs from our first proposal in several respects as 
follows:
    (1) Exception for Handlers Serving Three or Fewer Certified 
Operations. We have removed the provision that would have allowed 
handlers providing services to fewer than three certified organic 
producers to operate without separate certification under the NOP 
(Sec. 205.201). Such handlers will now have to be certified unless 
otherwise exempted or excluded from certification under Sec. 205.101 of 
these regulations. We have taken this action because we believe that 
the first proposal invites problems, such as making certain that the 
contracted handler maintains compliance with the Act and regulations, 
taking enforcement actions against persons violating the Act and 
regulations, and being equitable to all handlers since large-volume 
handling operations may qualify for inclusion under the provision on 
the basis of few clients while small-volume handlers would be 
disqualified because they have three or more clients.
    More than 100 comments were received, most from consumers, in 
opposition to the provision. Many of the commenters erroneously 
interpreted the provision as an exemption for handlers of product for 
less than three certified operations. Most of these commenters 
expressed the belief that it is a violation of the Act to allow 
handlers to operate through inclusion under another certified 
operation's certification rather than through separate certification 
under the Act and regulations. Several commenters stated that it is 
unacceptable to exempt handling operations providing services to fewer 
than three certified entities from separate certification. Several 
commenters stated that operations that process products from a 
certified producer should always be certified. Several State 
departments of agriculture and others stated that the exemption for 
handlers servicing fewer than three certified operations does not make 
sense. They emphasized that certified operations could produce very 
large quantities of organic product and a large-scale handler may 
contract with only a few certified producer operations. Therefore, they 
called for elimination of the exemption. A few commenters questioned 
the certified operation's ability to ensure that the contracted handler 
maintains compliance with the Act and regulations. They expressed their 
belief that the certified operation would have no authority to maintain 
compliance with the Act within a facility it neither owns nor manages.
    We never intended to exempt handlers of fewer than three certified 
operations from certification. Rather, we proposed a means by which 
handlers of fewer than three certified operations could be covered 
under the certification of a certified operation for which it provides 
handling services.
    Several of the commenters favored the provision that any handling 
operation that provides handling services to fewer than three certified 
entities that produce or handle agricultural products that are or that 
are intended to be sold, labeled, or represented as organic or made 
with certain organic ingredients would not be required to be separately 
certified apart from the operations for which it provides such 
services. However, supporters of the concept differed in their position 
on the proposal. Most stated that the provision would work

[[Page 13525]]

only if it is made clear that a handler can provide services to only 
one or two separate entities and qualify for the exemption and only if 
included in the certifications of and inspected along with the entities 
for which the handler will provide the services. They further 
emphasized that all applicable standards must be met. A few supporters 
recommended that there be a contract between the handler and the 
certified operation and that the certified operation be responsible for 
any failure of the handler to adhere to these regulations. Another 
commenter stated that, if handlers are to be exempt from certification, 
the qualifying parameter for exemption should be based upon economic 
value similar to that for production operations.
    Two commenters supported the proposal but wanted the fewer-than-
three-certified-operations limitation removed. One of the commenters, a 
nonprofit agricultural organization, expressed the belief that the 
limitation needlessly restricts commercial activity, invites an 
excessive amount of paperwork related to certification applications, 
and provides no greater assurances for quality control. This commenter, 
referring to the definition of handling operation at section 6502(10) 
of the Act, interpreted ``to receive or otherwise acquire'' as 
synonymous with taking legal title to the product. This commenter 
stated that this interpretation creates a distinct, verifiable 
threshold which clearly identifies those operations needing to be 
certified and those that do not need to be certified. Under the 
commenter's suggested system, handlers who take legal title to organic 
products assume responsibility for their subsequent handling and are 
required to have their operations certified. Any handler who works on 
organic products without taking legal title would have his or her 
activities approved and monitored by the certifying agent responsible 
for the product when it arrived at the handler's door. The commenter 
believes that noncertified handlers who wanted to serve organic 
customers would quickly learn to provide the quality control and 
accountability requirements which certifying agents expect to see.
    We disagree with the commenters who recommended removal of the 
fewer-than-three-certified-operations restriction on the grounds that 
the proposal to limit exemptions to handlers contracting with fewer 
than three certified operations needlessly restricts commercial 
activity, invites an excessive amount of paperwork related to 
certification applications, and provides no greater assurances for 
quality control. The primary justification given for removal of the 
fewer-than-three-certified-operations restriction is the belief that 
any handler who works on organic products without taking legal title 
would have his or her activities approved and monitored by the 
certifying agent responsible for the product when it arrived at the 
handler's door. First, it is unreasonable to expect the certifying 
agent to be responsible for monitoring noncertified handlers even if 
they are providing services to an operation certified by the certifying 
agent. Second, we disagree with the commenter's interpretation that 
``to receive or otherwise acquire'' is synonymous with taking legal 
title to the product. ``To receive or otherwise acquire'' involves the 
possession, control, or custody of a product. Such possession, control, 
or custody of a product may or may not involve the transfer of title to 
the product. In other words, a handler may have possession, control, or 
custody of the product under a right derived from a certified operation 
but not under a claim of the handler's title to the product.
    (2) Certification for a Portion of a Production or Handling 
Operation. We have clarified that a portion of a production or handling 
operation can be certified. We have taken this action because we agree 
with the association commenter who suggested that the Department 
clarify for potential applicants for certification that a portion of 
their production or handling operation can be certified. The Act at 
section 6506(b) authorizes the certification of specific fields of a 
production operation or parts of a handling operation when: (1) In the 
case of a production operation or field, the area to be certified has 
distinct, defined boundaries and buffer zones separating the land being 
operated through the use of organic methods from land that is not being 
operated through the use of such methods; (2) the operators of such 
production or handling operation maintain records of all organic 
operations separate from records relating to other operations and make 
such records available at all times for inspection by the Secretary, 
the certifying agent, and the State program's governing State official; 
and (3) appropriate physical facilities, machinery, and management 
practices are established to prevent the possibility of a mixing of 
organic and nonorganic products or a penetration of prohibited 
chemicals or other substances on the certified area. This clarification 
is found at Sec. 205.100 of this proposal.
    (3) Exemption for Operations with $5000 or Less in Income. We have 
clarified at Sec. 205.101(a)(1) that the producer and handler exemption 
from certification applies to production and handling operations that 
sell agricultural products as organic but whose gross agricultural 
income from organic sales totals $5,000 or less annually. We have taken 
this action because of commenter confusion over whether the $5,000 
level applied to all sales of agricultural products or just sales of 
organic agricultural products. This action is consistent with the 
position of a State department of agriculture, which stated that the 
$5,000 exemption should apply to organic sales, not sales of all 
agricultural products. The commenter believes that, as originally 
proposed, the regulation would limit opportunities for organic industry 
development, especially for small producers and other small 
agribusinesses.
    (4) Applicability of Regulation to Exempt Operations. We have 
revised the producer and handler exemption, provided to producers and 
handlers with gross agricultural income from organic sales totaling 
$5,000 or less annually, to provide that such operations are exempt 
from certification and do not need to submit an organic system plan to 
anyone for acceptance or approval but must comply with the requirements 
for organic production and handling and the labeling requirements for 
agricultural products produced on an exempt or excluded operation. We 
have taken this action because the first proposal too narrowly 
addressed the regulatory requirements that exempt producers must meet. 
Our purpose is to exempt such production and handling operations from 
the regulatory and financial burdens of certification but not to exempt 
them from the standards for organic production and handling. A 
fundamental concept of this regulation is to establish a label for 
organic. To the extent that these entities will be using the term, 
``organic,'' to describe their product, they must be truthful. If they 
don't comply with the other requirements of this part, they cannot 
truthfully describe their product as organic.
    Several State commenters expressed the belief that the producer 
exemption would be too difficult to enforce. Some expressed the belief 
that exempt production operations would still require monitoring to 
verify compliance with organic standards. A State department of 
agriculture commented that some monitoring of uncertified operations 
would still be needed to verify compliance with standards; otherwise 
there would be no guarantee that standards would be met for

[[Page 13526]]

products being sold as organic. Another State, which expressed strong 
disagreement with the producer exemption, asked how complaints against 
such producers would be reconciled if they are exempt from the NOP and 
do not have to maintain records over a multiple-year period. This 
commenter stated its intent, under its State program, to require 
certification of organic production operations producing less than 
$5,000 in agricultural product yearly. This same commenter acknowledged 
the Federal program's obligation to provide the exemption as required 
by section 6505(d) of the Act.
    A producer raised the issue of having exempt operations provide 
affidavits of compliance with the Act and regulations except for 
certification. A certifying agent made the observation that the rule as 
first proposed would not permit exempt producers, whether operating 
under an affidavit or not, to sell any of their products to a certified 
operation for further processing unless they were fully certified. This 
certifying agent stated that it did not believe excluding exempt 
producers from selling any of their products to a certified operation 
for further processing unless they were fully certified was consistent 
with the intent of the Act.
    We disagree with both commenters. First, we believe that an 
affidavit program for exempt producers, opting to exercise their right 
to the exemption, would impose unnecessary regulation upon entities 
that the Act clearly intended not to impose such regulation upon. 
Second, an affidavit program would create a regulatory burden on the 
Department and certifying agents that would not be justified by the 
size of such operations. We recognize, as pointed out by commenters, 
that some State programs currently require organic production 
operations that would be exempt under this national program to register 
with the State and to comply with requirements such as filing financial 
records and maintaining records of production methods and substances 
used.
    While we believe that an affidavit program is not appropriate at 
the national level, we do believe that States would be authorized to 
regulate organic operations exempted under the NOP's $5,000-or-less 
organic sales exemption under an approved State program. Under this 
proposal, producers and handlers exempted under the NOP's $5,000-or-
less organic sales exemption will be exempt from the certification 
regulations and will not have to submit an organic system plan to 
anyone for acceptance or approval but will be required to comply with 
the requirements for organic production and handling and for labeling. 
States may implement a program for monitoring the activities of exempt 
production and handling operations and enforcing compliance with the 
NOP. States will be permitted to require certification of federally 
exempted producers and handlers under an approved State organic 
certification program. The Department will consider any complaint of 
noncompliance with these regulations by an exempt production or 
handling operation and take appropriate action.
    (5) Applicability of Federal Statutes. We have added at 
Sec. 205.102(c) reference to a production or handling operation's 
responsibility for complying with all applicable Federal statutes and 
their implementing regulations as those statutes may apply to the 
production and handling of agricultural products. We have made this 
addition as a means of advising producers, handlers, and the public 
that these regulations do not supersede or alter a producer's or 
handler's responsibilities under other Federal statutes and their 
implementing regulations.
    A processors association urged the Department to advise the public 
in this rule that food products produced and processed under the 
organic standard must comply with applicable provisions of the Federal 
Food, Drug, and Cosmetic Act; the Federal Meat Inspection Act; the 
Poultry Products Inspection Act; and all other relevant statutes and 
their implementing regulations, in all respects, especially related to 
adulteration and misbranding.
    (6) Recordkeeping Provisions. We have rewritten the recordkeeping 
provisions removing all references to specific records or types of 
records which must be maintained. In their place, we are requiring that 
certified operations maintain records adapted to the particular 
business that the certified operation is conducting. Such records must 
disclose all activities and transactions of the certified operation in 
sufficient detail as to be readily understood and audited and must be 
sufficient to demonstrate compliance with the Act and regulations. We 
have taken this action because we believe that it is impracticable to 
specify in detail every class of records which may be found essential 
in demonstrating compliance with the Act and regulations. Different 
types of certified production and handling operations will, by the very 
nature of their business, be required to maintain different records to 
establish their compliance with the Act and regulations.
    A certifying agent and a beekeepers association expressed support 
for the recordkeeping requirements in the first proposal. The 
beekeeping association emphasized the value of such recordkeeping in 
monitoring the use of substances. A marketing association and a State 
commented that the recordkeeping period for a list of substances 
applied to a certified operation should be changed from 3 to 5 years to 
be consistent with the requirements of section 6511(d) of the Act. A 
research foundation suggested removal of the requirement for 
identifying the name and address of the person who applies and who has 
applied any substance to any part of the farm and any livestock or 
other agricultural product. A trade association recommended the 
addition of a new paragraph addressing the records required to be 
maintained by crop production operations to establish an audit trail. 
Specifically, the commenter recommended that the new paragraph require 
that an audit trail be maintained by all organic crop production 
operations, which records: (1) All sources and amounts of all off-farm 
inputs; (2) the dates, rate, method of application, location, reason 
for use, and name and address of applicator for all off-farm inputs; 
(3) the dates, projected and actual yield, and harvest location of all 
crops produced by the operation, both organic and nonorganic; (4) the 
dates, quantities, and locations of all crops stored; (5) the transport 
system(s) used to distribute organic crops; and (6) the product name, 
date, quantity, and buyer of all products sold, both organic and 
nonorganic. A State commenter stated that the maintenance of records on 
a certified operation is important, but there must be restraint in 
requiring redundant or irrelevant information. Approximately 50 retail 
commenters, speaking on behalf of a producer handler, stated that the 
recordkeeping requirements were burdensome and overly complicated.
    Comments indicated that there was some concern regarding what 
records had to be maintained by certified operations. Commenters were 
concerned about requiring the maintenance of the correct records for 
establishing an audit trail, avoiding the retention of redundant or 
irrelevant records, and minimizing the burden and complexity of the 
recordkeeping.
    We agree with the commenters who stated that the recordkeeping 
period for a list of substances applied should be consistent with the 
5-year recordkeeping requirements of the Act.

[[Page 13527]]

Accordingly, this proposal at Sec. 205.103(b)(3) requires that 
certified operations maintain all records applicable to their organic 
operations for not less than 5 years beyond their creation. We disagree 
with those commenters who called for more specifics relative to what 
records need to be maintained and agree with those commenters who 
expressed concern regarding the magnitude of records required to be 
maintained. This proposal provides each production and handling 
operation with the opportunity to decide for itself what records are 
necessary to demonstrate its compliance with the Act and regulations.
    (7) Exemption from Prevention of Commingling. We have removed the 
requirement that a handling operation or portion of a handling 
operation that handles only agricultural products that contain less 
than 50 percent organic ingredients by total weight of the finished 
product (excluding water and salt) that is exempt from the requirements 
in this part comply with the provision for the prevention of 
commingling. As noted in item 8 below, exempt handlers of agricultural 
products that contain at least 50 percent organic ingredients by weight 
will also be exempt from complying with the provision for the 
prevention of commingling. We have taken this action because the 
commingling of agricultural products is often a part of the processing 
activity. Such operations must, however, comply with all of the 
applicable labeling provisions of subpart D including the prohibition 
on the combining of organic and nonorganic forms of the same 
agricultural product. In other words, the handler must not, for 
example, combine organic and nonorganic corn if corn is to be shown on 
the information panel as ``organic corn.''
    A commenter called for the removal of the requirement that an 
exempt handler comply with the provisions for the prevention of 
commingling and contact of organic products with prohibited substances. 
The commenter claimed that requiring exempt handlers to prevent 
commingling of organic and nonorganic products and contact of organic 
products with prohibited substances is inconsistent with the Act. We do 
not agree. As noted above, we have removed the prevention of 
commingling requirement because the commingling of agricultural 
products is often a part of the processing activity. We have not, 
however, removed the requirement for the prevention of contact of 
organic products with prohibited substances because the requirement is 
necessary to safeguard the integrity of organic ingredients used in the 
products being handled.
    (8) Exemption for Handlers that Handle Product Containing at Least 
50 Percent Organic Ingredients. We have provided at Sec. 205.101(a)(4) 
that any handling operation or portion of a handling operation that 
handles agricultural products that contain at least 50 percent organic 
ingredients by weight (excluding water and salt) that chooses to not 
use the word, ``organic,'' on any panel other than the information 
panel is exempt from the requirements in these regulations, except the 
provisions for prevention of contact of organic products with 
prohibited substances as set forth in Sec. 205.272, the labeling 
provisions of Sec. 205.309, and the recordkeeping provisions of 
Sec. 205.101(c).
    A commenter stated that the Department is required under the Act to 
exempt any handling operation or portion of a handling operation that 
processes agricultural products that contain at least 50 percent 
organically produced ingredients by weight (excluding water and salt). 
We disagree with the commenter. Section 6505(c)(1) of the Act ties the 
exemption from certification to use of the word, ``organic,'' on the 
principal display panel. The Secretary, in consultation with the 
National Organic Standards Board (NOSB) and the Secretary of Health and 
Human Services, may require certification of any operation that chooses 
to use the word, ``organic,'' on the principal display panel. This 
proposal provides that handlers, processing agricultural products that 
contain at least 50 percent organically produced ingredients by weight 
(excluding water and salt), who choose to only use the word, 
``organic,'' on the information panel are exempt from certification. 
Handlers processing agricultural products that contain at least 50 
percent organically produced ingredients by weight (excluding water and 
salt) who choose to use the word, ``organic,'' on any other panel, 
including the principal display panel, must be certified. Use of the 
word, ``organic,'' on the principal display panel carries with it 
connotations in the minds of consumers regarding the organic nature of 
the product which necessitate certification of handlers of such 
products. Further, requiring certification of handlers of such products 
is consistent with current industry practice.
Applicability--Changes Requested But Not Made
    This subpart retains from our first proposal regulations on which 
we received comments as follows:
    (1) Exemptions for Handlers. Commenters stated that under no 
circumstances should organic handling operations be exempt from 
certification. A few environmental organizations, a certifying agent, 
and an industry association commented that the first proposal exceeded 
statutory authority by broadening the producer exemption in section 
6505(d) of the Act to apply to handlers. An agriculture research and 
education organization stated that, while the Act does not specifically 
identify handling operations under the producer exemption, including 
them is a reasonable and workable interpretation of the Act. The 
commenter stated that the Act provides an exemption to persons who sell 
no more than $5,000 annually in value of agricultural products and it 
sees no reason why the exemption should not include handlers. This 
commenter also recommended that the NOP develop a new category of 
exemption of up to $10,000 for on-farm processing. The commenter's 
recommended exemption would apply to value-added, made-on-site 
products, such as maple syrup, jams, and relishes, and would allow 
individuals to combine their production and handling exemptions.
    We do not agree with those commenters who stated that the first 
proposal exceeded statutory authority. The title of the exemption in 
the Act (section 6505(d)) specifically refers to small farmers. 
However, the text to the exemption provides, in full, that ``subpart 
(a)(1) shall not apply to persons who sell no more than $5,000 annually 
in value of agricultural products.'' ``Person'' is defined in the Act 
as ``an individual, group of individuals, corporation, association, 
organization, cooperative, or other entity.'' The Act defines 
``agricultural product'' as ``any agricultural commodity or product, 
whether raw or processed, including any commodity or product derived 
from livestock, that is marketed in the United States for human or 
livestock consumption. Handlers are covered by the definition of 
``person'' and ``agricultural product'' and are thereby eligible for 
exemption.
    The financial burden of certification is no less for handlers with 
sales of no more than $5,000 annually than it is for producers with 
sales of no more than $5,000 annually. Therefore, since the cost of 
certification is the primary reason for exempting production

[[Page 13528]]

operations with sales of no more than $5,000 annually, it is reasonable 
to also exempt handling operations with sales of no more than $5,000 
annually.
    This proposal exempts production and handling operations that sell 
agricultural products as ``organic'' but whose gross agricultural 
income from organic sales totals $5,000 or less annually. Production 
and handling operations exempted on the basis of organic sales of 
$5,000 or less annually are exempt from certification under Subpart E 
and do not need to submit an organic system plan under Sec. 205.201 but 
must comply with the applicable organic production and handling 
requirements of subpart C and the labeling requirements of 
Sec. 205.309.
    Exemptions for production operations and handling operations are 
separate exemptions. Therefore, a production operation that is also a 
handling operation, due to its production and sale of processed 
products, must qualify for each exemption separately. The balance of 
this paragraph lists exemption eligibility examples. A production 
operation with gross agricultural income from organic sales totaling 
$5,000 or less annually will be exempt from certification as an organic 
production operation. A handling operation with gross agricultural 
income from organic sales totaling $5,000 or less annually will be 
exempt from certification as an organic handling operation. A 
production and handling operation with gross agricultural income from 
organic production sales totaling $5,000 or less annually and organic 
handling sales totaling $5,000 or less annually will be exempt from 
certification as an organic production operation and from certification 
as an organic handling operation. A production and handling operation 
with gross agricultural income from organic production sales totaling 
$5,000 or less annually and organic handling sales totaling more than 
$5,000 annually will be exempt from certification as an organic 
production operation only. A production and handling operation with 
gross agricultural income from organic production sales totaling more 
than $5,000 annually and organic handling sales totaling $5,000 or less 
annually will be exempt from certification as an organic handling 
operation only.
    Products marketed by exempt production operations and handling 
operations cannot be represented as certified organic or display the 
U.S. Department of Agriculture (USDA) organic seal. Products from 
exempt operations may not be included as organic ingredients in a 
multiingredient product produced or processed in a certified operation. 
We anticipate that this exemption will be used primarily by small 
market gardeners, hobbyists, and other small producers who sell produce 
and other agricultural products at farmers markets and roadside stands 
to consumers within their communities.
    (2) Exceeding $5000 Limit for Exemption. A few commenters, 
including a State, raised the concern that an organic operation might 
not anticipate sales over $5,000 but could exceed its exemption due to 
a bumper crop or market price increases, putting the operation in 
violation. The Department believes that once an exempted operation 
reaches the $5,000 maximum exemption level, it is compelled to seek 
certification, which it would have to obtain and maintain if it is to 
continue to sell organic products. A certified organic operation, 
including one which previously lost its exempt status, could switch 
from certified to exempt if its size or operations were changed such 
that it no longer sold more than $5,000 annually in value of 
agricultural products.
    (3) Certification of Exempt Operations. A producer interpreted 
``exempt'' as meaning that operations exempted from certification could 
not be certified as an organic operation. This interpretation is not 
correct. Any production or handling operation, including an exempt 
operation, which makes application for certification as an organic 
operation and meets the requirements for organic certification may be 
certified.
    (4) Increasing the Statutory Limitation of $5000 for Exemption. In 
the first proposal, we asked for comments as to whether the $5,000 
level for exemption from certification should be raised to $10,000 or 
to another amount and why an increased amount would be appropriate. 
Suggested levels ranged from $2,000 to $50,000. The suggested levels 
and justifications for such levels are not sufficiently consistent for 
us to recommend that Congress change the $5,000 level.
    In addition, we requested data as to the number of operations that 
may be exempt under the current $5,000 limitation for exemption and the 
number of operations that may be exempt under any new monetary amount 
suggested. Comments from the few States responding to the request for 
data as to the number of operations that may be exempt under the 
current $5,000 limitation revealed that from one-third to one-half of 
organic producers in the commenting States would be exempt under the 
statutorily authorized $5,000 exemption limitation.
    (5) Certification of Retail Operations. A commenter said the first 
proposal ignored retail operations which contract with an organic farm 
to produce organic products with the store's brand on the label. The 
commenter said the retail operation should be certified because it is 
responsible if violation occurs in the organic production or handling 
of the branded product. The commenter is incorrect in suggesting that 
the retailer would be held responsible for a violation if the violation 
occurred at the production or handling facility. When a retail 
operation contracts for the production, packaging, or labeling of 
organic product, it is the certified production or handling operation 
that is responsible for meeting the applicable organic production or 
handling requirements under the Act and these regulations. If a 
violation occurs in the organic production or handling of the product, 
the certified production or handling operation retains responsibility 
for the violation even if the retailer's name is on the label.
    (6) Exemption for Products Containing Less than 50 Percent Organic 
Ingredients. Several commenters representing States and organic 
organizations opposed the exemption of a handling operation or portion 
of a handling operation that handles only agricultural product 
containing less than 50 percent organic ingredients. They stated that 
handling operations creating products with organic ingredients should 
be certified regardless of the percentage of organic ingredients found 
in the products they produce. These commenters stated that exemptions 
from certification undermine audit trails and consumer confidence. Each 
of these commenters called for removal of the proposed exemption. 
Another commenter stated that, if a product is less than 50 percent 
organic, then it is not organic and should not be labeled or sold as 
such.
    We disagree with the comments. Because such products consist of 
less than 50 percent organic ingredients, handlers may only use the 
word, ``organic,'' on the information panel of such products to 
truthfully represent the organic nature of the ingredients. Such 
handlers must also comply with the recordkeeping provisions of 
Sec. 205.101(c), the prevention of contact of organic products with 
prohibited substances provisions of Sec. 205.272, and the labeling 
provisions of Sec. 205.309.
    (7) Ensuring Organic Ingredients are Not Contaminated. A commenter 
asked how the Department would ensure that organic ingredients are not 
contaminated without certification of the handling operation creating 
the final

[[Page 13529]]

product. Handling operations that handle agricultural products 
containing less than 50 percent organic ingredients and at least 50 
percent organic ingredients that are exempt from certification must 
maintain records sufficient to: (1) Prove that ingredients identified 
as organic were organically produced and handled, and (2) verify 
quantities produced for such ingredients. Such operations are required 
at Sec. 205.101(c) of this proposal to allow representatives of the 
Secretary and the applicable State program's governing State official 
access to these records for inspection and copying during normal 
business hours to determine compliance with the applicable regulations.
    (8) Exclusion for Handlers that Receive and Distribute Prepackaged 
Product. Commenters raised several issues regarding the exclusion of 
handlers who receive and distribute prepackaged organic products. At 
least three certifying agents commented that all retailers should be 
certified unless they handle only organic product in a ``final, sealed 
retail container,'' or ``final impermeable containers.'' The commenters 
are apparently seeking further assurance that nothing is added to the 
organic product while under control of a distributor or retail 
operation. Because of the wide variety of organic products and the 
special needs of some of those products, establishing restrictions on 
the kind of containers used for transportation could unfairly treat 
some products and commodity industries. For example, some organic 
products may require containers which ``breathe'' or allow the exchange 
of air and outside temperatures. Nonpermeable containers could hasten 
spoilage of some fresh and processed organic products.
    A few certifying agents proposed that distributors and trucking 
companies which transport agricultural products also should be 
certified under this part. However, such transportation operations do 
not carry out the functions specified in the definitions for handler 
and handling operations. Distributors and trucking companies have 
traditionally been excluded from requirements of agricultural 
production regulations. The Act cannot be used to regulate activities 
or entities beyond its regulatory authorities. In this case, it is the 
responsibility of producers, handlers, interim handlers, and retailers 
to meet the requirements of this regulation by ensuring that their 
contracted shippers and distributors understand, respect, and protect 
the integrity of the organic products they are transporting.
    An organic association requested that proper notification of ``good 
organic handling practices'' be made to the transportation, trucking, 
and public warehousing sectors to inform them of their 
responsibilities. The commenter stated that the notification should 
include requirements for audit trail records, measures needed to 
prevent commingling and contamination by prohibited substances. This 
commenter expressed the belief that excluded handlers should 
preregister and provide a signed statement of acknowledgment of the 
requirements. Regarding enforcement of the suggested requirements, this 
commenter stated that enforcement of the requirements should be funded 
and administered by existing State and Federal inspection services.
    We acknowledge the need for education regarding the requirements of 
this rule as well as such issues as the handling of organic products. 
The NOP, in cooperation with the NOSB, will provide educational 
material to the public regarding the requirements of this rule. Such 
educational material will include good organic handling practices made 
available to the transportation, trucking, and public warehousing 
sectors. However, we disagree with the suggestions calling for 
preregistration of exempt and excluded handlers and enforcement of the 
requirements by existing State and Federal inspection services. We 
believe the suggestions create a burden, on exempt and excluded 
handlers, the Department, and certifying agents, not justified by the 
nature of the handling performed.
    (9) Seafood Products. A marketing institute recommended that the 
first proposal be revised to address seafood products in a separate 
seafood section and to include provisions that apply to seafood 
harvested in the wild. This commenter stated that wild-caught seafood 
should be allowed to be labeled as organic. A processors association 
also called for the labeling of wild-caught seafood as organic.
    While the first proposal contained no standards solely for aquatic 
animals in an organic operation, it did contain provisions applicable 
to their production. The first proposal allowed fish and crustaceans, 
among other livestock types, to be sold, labeled, or represented as 
organic if such livestock had been brought into an organic operation no 
later than the earliest commercially available stage of life. Several 
commenters suggested that the management of aquatic animals differs 
sufficiently from mammals and poultry to require separate regulatory 
provisions. We concur and intend to develop detailed practice standards 
for specific aquatic animals as discussed further under the production 
and handling subpart.
Applicability--Additional Provisions
    Upon further review of the applicability provisions in the first 
proposal, we have decided to propose the following additions and 
changes.
    (1) Foreign Applicants. We have added a new provision at 
Sec. 205.104 addressing applicability of these regulations to foreign 
applicants. We have made this addition to clarify our intent that the 
regulations in this part apply equally to domestic and foreign 
applicants for accreditation, accredited certifying agents, domestic 
and foreign applicants for certification as organic production or 
handling operations, and certified organic production and handling 
operations unless otherwise specified in these regulations.
    (2) New Exclusions. We have excluded retail food establishments 
that process or prepare raw and ready-to-eat food from most of the 
requirements in these regulations. An excluded retail food 
establishments must comply with the requirements for the prevention of 
contact with prohibited substances provisions of Sec. 205.272 and the 
labeling provisions of Sec. 205.309. We have excluded such retail food 
establishments because comments to the first proposal concerning the 
issue of certification of retail food establishments (restaurant, 
delicatessen, bakery, grocery store, or other retail outlet) preparing, 
packaging, or processing raw and ready-to-eat organic agricultural 
products that are previously labeled as ``100 percent organic,'' 
``organic,'' or ``made with organic (specified ingredients)'' were 
completely divergent. The first proposal also contained an 
inconsistency which would have required a supermarket delicatessen to 
be certified but would have excluded from certification a restaurant 
with carry-out delicatessen products.
    As the comments discussed below show, there is clearly a great deal 
of public concern regarding the handling of organic products by retail 
food establishments. Should we decide to regulate retail food 
establishments under the NOP, we will proceed with rulemaking and 
provide an opportunity for public comment.
    Our exclusion of retail food establishments from this proposal does 
not prevent a State from developing an organic retail food 
establishment certification program or otherwise regulating retail food 
establishments that prepare, package, or process organic

[[Page 13530]]

agricultural products. Texas and Maryland currently have retailer 
certification programs.
    No retailer, regardless of this exclusion and the exceptions found 
in the definitions for ``handler'' or ``handling operation,'' may sell 
or label a product as organically produced and handled or fix a label 
to or provide other market information concerning an agricultural 
product if such label or information implies that such product is 
produced and handled using organic methods unless such product has been 
produced and handled in accordance with the Act and these regulations. 
Any retailer who knowingly sells or labels a product as organic, except 
in accordance with the Act and these regulations, will be subject to a 
civil penalty of not more than $10,000 under this program. Such 
retailer may also be subject to enforcement actions and penalties under 
Federal statutes and their implementing regulations administered by 
other agencies of the Federal Government.
    More than 90 commenters, including an organic association, stated 
that the retailer exclusion in the first proposal violates the 
requirement to certify all handling operations. The organic association 
believes that processing, as defined in the Act, includes all the 
normal culinary arts, food manufacturing, and packaging. All of these 
commenters, including some States, recommended removal of the 
exclusion. Several commenters, including a few States, expressed 
concern that exclusions from certification eliminate effective audit 
trails and undermine consumer confidence in organic products. One State 
commented that it believed retail food establishments should be 
certified because they are the last handler link from producer to 
consumer.
    Several commenters stated that retailers who receive organic 
product have a high potential for loss of integrity of the organic 
product due to accidental misuse of pesticides and sanitizers during 
shipping or storage and to inadvertent commingling with nonorganic 
product. The commenters believe that, even though a retailer may only 
display and sell organic product, such retailer should be certified and 
monitored for compliance to ensure proper treatment of the product in 
shipment and storage. A State agency, however, cautioned against 
establishing another burden on the organic industry. The commenter said 
that if sorting from bulk and repackaging into smaller packages 
requires certification, then many small ``natural food'' retail outlets 
would find certification more costly than the economic benefits of 
marketing organic products. The commenter said many small, natural food 
retail food establishments would likely stop carrying organic items.
    A few commenters stated there is a high potential for fraud among 
retailers who have the opportunity to repackage, mislabel, and sell 
nonorganic product as organic. Therefore, they believe that all 
retailers must be subject to certification or some form of oversight to 
assure that they are not mislabeling product.
    A commenter representing a large retail grocery store operation 
said that good identification procedures enable retail stores to keep 
organic product separated from nonorganic product during 
transportation, storage, and in-store displays. The commenter continued 
that unduly rigid requirements would be burdensome on retailers. The 
commenter indicated that the costs of certification and compliance may 
outweigh the benefits of carrying organic product.
    Another commenter from a major retail food establishment suggested 
that retailers that wash and sort fresh organic produce for display 
should be required to follow ``good organic handling practices'' that 
would establish recordkeeping responsibilities and prevent commingling 
with nonorganic products and contamination by prohibited materials. The 
commenter suggested that conformance could be maintained by existing 
State or local health inspectors or Federal inspectors with special 
training in organic handling systems. However, there is no authority in 
the Act to require the services of State or local inspectors.
    Another retailer stated that retailers will comply with regulations 
because consumers will hold retailers responsible for deficiencies or 
illegal actions through the entire production and processing chain for 
agricultural products.
    A commenter stated that, if a restaurant serves organic foods, it 
should be allowed to so state. The commenter went on to say that 
restaurants and grocery stores have a right to state that they used 
organic ingredients in preparing a given dish. This commenter believes 
that restaurants and grocery stores selling organic products, even if 
they prepare them, should not have to be certified. A few commenters 
claimed that processing, as defined in the Act, includes all culinary 
arts and food manufacturing. They stated that restaurants must be 
certified or, at the very least, be required to keep records of organic 
foods prepared. A State commenter who stated that exemptions undermine 
audit trails and consumer confidence suggested that restaurants serving 
organic foods be required to maintain records showing the origin and 
certification status of raw agricultural ingredients used in the 
restaurant's food products.
    The Department routinely monitors compliance of various food 
producers, handlers, distributors, and retailers which are regulated 
under a variety of Departmental programs. The Department responds to 
consumer complaints and often conducts unannounced compliance 
investigations and audits of agricultural industry businesses. The 
Department understands the need for and commits Departmental resources 
to this organic program. In addition, oversight of these operations can 
be conducted by State agencies.

Subpart C--Organic Crop, Wild Crop, Livestock, and Handling 
Requirements

Proposal Description
    This subpart sets forth the requirements with which production and 
handling operations must comply in order to sell, label, or represent 
agricultural products as ``100 percent organic,'' ``organic,'' or 
``made with organic (specified ingredients).'' The producer or handler 
of an organic production or handling operation must comply with all 
applicable provisions of subpart C. Any practice implemented in 
accordance with this subpart must maintain or improve the natural 
resources, including soil and water quality, of the operation. 
Production and handling operations which sell, label, or represent 
agricultural products as organic in any manner and which are exempt or 
excluded from certification must comply with the requirements of this 
subpart, except for the development of an organic system plan.
    Production and Handling (General). The Organic Food Production Act 
of 1990 (OFPA or Act) requires that all crop, wild crop, livestock, and 
handling operations requiring certification submit an organic system 
plan to their certifying agent and, where applicable, the State organic 
program. The organic system plan is a detailed description of how an 
operation will achieve, document, and sustain compliance with all 
applicable provisions in the OFPA and these regulations. The certifying 
agent must concur that the proposed organic system plan fulfills the 
requirements of Subpart C, and any subsequent modification of the 
organic plan by the producer or handler must receive the approval of 
the certifying agent.

[[Page 13531]]

    The organic system plan is the forum through which the producer or 
handler and certifying agent collaborate to define, on a site-specific 
basis, how to achieve and document compliance with the requirements of 
certification. The organic system plan commits the producer or handler 
to a sequence of practices and procedures resulting in an operation 
that complies with every applicable provision in the regulations. 
Accreditation qualifies the certifying agent to attest to whether an 
organic system plan comports with the organic standard. The organic 
system plan must be negotiated, enacted, and amended through an 
informed dialogue between certifying agent and producer or handler, and 
it must be responsive to the unique characteristics of each operation.
    An organic system plan contains six components. First, the organic 
system plan must describe the practices and procedures used, including 
the frequency with which they will be used, in the certified operation. 
Second, it must list and characterize each substance used as a 
production or handling input. Third, it must identify the monitoring 
techniques which will be used to verify that the organic plan is being 
implemented in a manner which complies with all applicable 
requirements. Fourth, it must explain the recordkeeping system used to 
preserve the identity of organic products from the point of 
certification through delivery to the customer who assumes legal title 
to the goods. Fifth, the organic system plan must describe the measures 
to be taken to avoid contact between certified production and handling 
operations and prohibited substances and document how the operation 
will prevent commingling of organic and nonorganic products. Finally, 
the organic system plan must contain the additional information deemed 
necessary by the certifying agent to evaluate site-specific conditions 
relevant to compliance with these or applicable State program 
regulations. Producers or handlers may submit a plan developed to 
comply with other Federal, State, or local regulatory programs if it 
fulfills the requirements of an organic system plan.
    The first element of the organic system plan requires a narrative 
or other descriptive format that identifies the practices and 
procedures to be performed and maintained, including the frequency with 
which they will be performed. Practices are tangible production and 
handling techniques such as the method for applying manure, the 
mechanical and biological methods used to prepare and combine 
ingredients and package finished products, and the measures taken to 
exclude pests from a facility. Procedures are the protocols established 
for selecting appropriate practices and materials for use in the 
organic system plan, such as a procedure for locating commercially 
available organically produced seed. Procedures reflect the decision-
making process used to implement the organic system plan.
    By requiring information on the frequency with which production and 
handling practices and procedures will be performed, this proposal 
calls for the organic system plan to include an implementation 
schedule, including information on the timing and sequence of all 
relevant production and handling activities. The plan will include, for 
example, information about planned crop rotation sequences, the timing 
of any applications of organic materials, and the timing and location 
of soil tests. Livestock management practices might describe 
development of a rotational grazing plan or addition of mineral 
supplements to the feed supply. A handling operation might identify 
steps involved in locating and contracting with farmers who could 
produce organic ingredients that were in short supply.
    The second element that must be included in an organic system plan 
is information on the application of substances to land, facilities, or 
agricultural products. This requirement encompasses both natural and 
synthetic materials allowed for use in production and handling 
operations. For natural materials which may be used in organic 
operations under specific restrictions, the organic plan must detail 
how the application of the materials will comply with those 
restrictions. For example, farmers who apply manure to their fields 
must document in their organic system plans how they will prevent that 
application from contributing to water contamination.
    The third element of the organic system plan is a description of 
the methods used to evaluate its effectiveness. Producers and handlers 
are responsible for identifying measurable indicators that can be used 
to evaluate how well they are achieving the objectives of the 
operation. For example, production objectives could be measured through 
regular tallies of bushels or pounds of product sold from the farm or 
in numbers of cases sold from a handling operation. Indicators that can 
identify changes in quality or effectiveness of management practices 
could be relatively simple, such as the information contained in a 
standard soil test. The specific indicators used to evaluate a given 
organic system plan will be determined by the producer or handler in 
consultation with the certifying agent. Thus, if the organic system 
plan calls for improvements in soil organic matter content in a 
particular field, it would include provisions for analyzing soil 
organic matter levels at periodic intervals. If herd health improvement 
is an objective, factors such as somatic cell count or observations 
about changes in reproductive patterns might be used as indicators.
    The fourth element of the organic system plan is a description of 
the recordkeeping system used to verify and document an audit trail, as 
appropriate to the operation. For each crop or wild-crop harvested, the 
audit trail must trace the product from the field, farm parcel, or area 
where it is harvested through the transfer of legal title. A livestock 
operation must trace each animal from its entrance into through removal 
from the organic operation. A handling operation must trace each 
product that is handled and sold, labeled, or represented as organic 
from the receipt of its constituent ingredients to the sale of the 
processed product. In response to several comments received, this 
proposal provides information, found in subpart B, Sec. 205.103, on the 
records needed to establish a verifiable audit trail.
    The fifth element which must be included in an organic system plan 
pertains to split production or handling operations. This provision 
requires an operation that produces both organic and nonorganic 
products to describe the measures used to prevent commingling of 
organic and nonorganic products. This requirement addresses contact of 
organic products, including livestock, organic field units, storage 
areas, and packaging to be used for organic products, with prohibited 
substances. Requirements in the first proposal for information about 
the nonorganic portion of the operation have been removed.
    We do not propose to list the specific requirements to be included 
in an organic system plan. We expect to publish a program manual to 
provide guidance on appropriate documentation for the certification 
process. In the meantime, the accreditation process provides an 
assurance that certifying agents are competent to determine the 
specific documentation they require to review and evaluate an 
operation's organic system plan. Section 205.200(a)(6) allows a 
certifying agent to request additional information needed to determine 
that an organic system plan meets the requirements of this

[[Page 13532]]

subpart. The site-specific nature of organic production and handling 
necessitates that certifying agents have the authority to determine 
whether specific information is needed to carry out their function.
    Crop Production. Any field or farm parcel used to produce an 
organic crop must have been managed in accordance with the requirements 
in Secs. 205.203 through 205.206 and have had no prohibited substances 
applied to it for at least 3 years prior to harvest of the crop. Such 
fields and farm parcels must also have distinct, defined boundaries and 
buffer zones to prevent contact with the land or crop by prohibited 
substances applied to adjoining land.
    A producer of an organic crop must manage soil fertility, including 
tillage and cultivation practices, in a manner that maintains or 
improves the physical, chemical, and biological condition of the soil 
and minimizes soil erosion. Crop nutrients must be budgeted and 
supplied through proper use of manure or other animal and plant 
materials, mined mineral substances, and other substances approved for 
use under these regulations. The producer must manage animal and plant 
waste materials to maintain or improve soil organic matter content in a 
manner that does not contribute to contamination of crops, soil, or 
water by plant nutrients, pathogenic organisms, heavy metals, or 
residues of prohibited substances. Raw animal manure must either be 
composted, applied to land used for a crop not intended for human 
consumption, or incorporated into the soil at least 90 days before 
harvesting an edible product that does not come into contact with the 
soil or soil particles and at least 120 days before harvesting an 
edible product that does come into contact with the soil or soil 
particles. Composted plant or animal waste materials used for soil 
fertility must be produced in compliance with the Natural Resources 
Conservation Service's (NRCS) Conservation Practice Standard for a 
Composting Facility (Code 317). Uncomposted plant and animal waste 
materials may be used to amend soil fertility. A plant or animal waste 
material that has been chemically altered by a manufacturing process 
may be used only if it is included on the National List of synthetic 
substances allowed for use in organic production. Mined substances of 
low solubility may be used as sources of crop nutrients, as may mined 
substances of high solubility, when justified by soil or crop tissue 
analysis. Ashes of untreated plant or animal materials which have not 
been combined with a prohibited substance and which are not included on 
the National List of nonsynthetic substances prohibited for use in 
organic crop production may be used to produce an organic crop. 
Synthetic crop nutrient supplements that appear on the National List of 
allowed synthetic substances may be used as a source of crop nutrients 
when justified by soil or crop tissue analysis. The producer may not 
use any fertilizer that contains a synthetic substance not allowed for 
crop production on the National List or use sewage sludge. Burning crop 
residues as a means of disposal, except for trimmings of perennial 
crops burned to suppress the spread of disease, is prohibited.
    The producer must use organically grown seeds, annual seedlings, 
and planting stock, except that untreated nonorganic seeds and planting 
stock may be used when equivalent organic varieties are not 
commercially available. Seed and planting stock treated with substances 
that appear on the National List of synthetic substances allowed for 
use in organic production may be used when an organically produced or 
untreated variety is not commercially available. Nonorganically 
produced annual seedlings may be used when a temporary variance has 
been established due to damage caused by unavoidable business 
interruption, such as fire, flood, or frost. Planting stock used to 
produce a perennial crop may be sold as organically produced planting 
stock after it has been maintained under a system of organic management 
for at least 1 year. Seeds, annual seedlings, and planting stock 
treated with prohibited substances may be used to produce an organic 
crop when the application of the substance is a requirement of Federal 
or State phytosanitary regulations. Seeds, annual seedlings, or 
planting stock produced through an excluded method may not be used for 
organic production.
    The producer is required to implement a crop rotation, including 
but not limited to sod, cover crops, green manure crops, and catch 
crops. The crop rotation must maintain or improve soil organic matter 
content, provide for effective pest management in perennial crops, 
manage deficient or excess plant nutrients, and control erosion to the 
extent that these functions are applicable to the operation.
    The producer must use preventive practices to manage crop pests, 
weeds, and diseases, including but not limited to crop rotation, soil 
and crop nutrient management, sanitation measures, and cultural 
practices that enhance crop health. Such cultural practices include the 
selection of plant species and varieties with regard to suitability to 
site-specific conditions and resistance to prevalent pests, weeds, and 
diseases. Mechanical and biological methods that do not entail 
application of synthetic substances may be used as needed to control 
pest, weed, and disease problems that may occur. Pest control practices 
include augmentation or introduction of pest predators or parasites; 
development of habitat for natural enemies; and nonsynthetic, nontoxic 
controls such as lures, traps, and repellents. Weed management 
practices include mulching with fully biodegradable materials; mowing; 
livestock grazing; hand weeding and mechanical cultivation; flame, 
heat, or electrical techniques; and plastic or other synthetic mulches, 
provided that they are removed from the field at the end of the growing 
or harvest season. Disease problems may be controlled through 
management practices which suppress the spread of disease organisms and 
the application of nonsynthetic biological, botanical, or mineral 
inputs. When these practices are insufficient to prevent or control 
crop pests, weeds, and diseases, a biological or botanical substance, 
or a synthetic substance that is allowed on the National List may be 
used provided that the producer evaluates and mitigates the effects of 
repetitive use of the same or similar materials on resistance and 
shifts in pest, weed, or disease types. The producer must use a pest, 
weed, or disease control substance in compliance with the Federal 
Insecticide, Fungicide, and Rodenticide Act. Pest control substances 
produced through excluded methods are prohibited.
    Any wild crop that is to be sold, labeled, or represented as ``100 
percent organic,'' ``organic,'' or ``made with organic (specified 
ingredients)'' must be harvested from land to which no prohibited 
substances have been applied for at least 3 years prior to harvest. The 
wild crop must also be harvested in a manner that ensures such 
harvesting or gathering will not be destructive to the environment and 
will sustain the growth and production of the wild crop.
    Livestock Production. We propose that any livestock or edible 
livestock product to be sold, labeled, or represented as organic must 
be maintained under continuous organic management from birth or 
hatching, with four exceptions. Poultry or edible poultry products must 
be from animals that have been under continuous organic management 
beginning no later than the second day of life. Milk or milk products 
must be from animals that

[[Page 13533]]

have been under continuous organic management beginning no later than 1 
year prior to the production of such products. A nonedible livestock 
product must be derived from an animal that has been under continuous 
organic management beginning no later than 1 year prior to the harvest 
of the nonedible product. Livestock used as breeder stock may be 
brought from a nonorganic operation into an organic operation at any 
time, provided that, if such livestock are gestating and the offspring 
are to be organically raised from birth, the breeder stock must be 
brought into the organic operation prior to the last third of 
pregnancy.
    We also propose that, should an animal be brought into an organic 
operation pursuant to this section and subsequently moved to a 
nonorganic operation, neither the animal nor any products derived from 
it may be sold, labeled, or represented as organic. Breeder or dairy 
stock that has not been under continuous organic management from birth 
may not be sold, labeled, or represented as organic slaughter stock. No 
organism produced with excluded methods may be used for breeding 
purposes or for the production of livestock products intended to be 
sold, labeled, or represented as organic. The producer of an organic 
livestock operation must maintain records sufficient to preserve the 
identity of all organically managed livestock and all edible and 
nonedible organic livestock products produced on his or her operation.
    We are proposing that, except for feed additives and supplements 
included on the National List of synthetic substances allowed for use 
in organic livestock production, the total feed ration for livestock 
managed in an organic operation must be composed of agricultural 
products, including pasture and forage, that are organically produced. 
Any portion of the feed ration that is handled must comply with organic 
handling requirements. The producer must not use animal drugs, 
including hormones, to promote growth in an animal or provide feed 
supplements or additives in amounts above those needed for adequate 
growth and health maintenance for the species at its specific stage of 
life. The producer must not feed animals under organic management 
plastic pellets for roughage or formulas containing urea or manure. The 
feeding of mammalian and poultry slaughter by-products to mammals or 
poultry is prohibited. The producer must not supply animal feed, feed 
additives, or feed supplements in violation of the Federal Food, Drug, 
and Cosmetic Act.
    The producer of an organic livestock operation must establish and 
maintain preventive animal health care practices. The producer must 
select species and types of livestock with regard to suitability for 
site-specific conditions and resistance to prevalent diseases and 
parasites. The producer must provide organic feedstuffs, as well as 
vitamins, minerals, and other supplements, sufficient to meet the 
animals' nutritional requirements. The producer must establish 
appropriate housing, pasture conditions, and sanitation practices to 
minimize the occurrence and spread of diseases and parasites. Animals 
in an organic livestock operation must be maintained under conditions 
which provide for exercise, freedom of movement, and reduction of 
stress appropriate to the species. Additionally, all physical 
alterations performed on animals in an organic livestock operation must 
be conducted to promote the animals' welfare and in a manner that 
minimizes stress and pain.
    The producer of an organic livestock operation must administer 
vaccines and other veterinary biologics as needed to protect the well-
being of animals in his or her care. When preventive practices and 
veterinary biologics are inadequate to prevent sickness, the producer 
may administer medications included on the National List of synthetic 
substances allowed for use in livestock operations. The producer may 
not administer synthetic parasiticides to breeder stock during the last 
third of gestation if the progeny is to be sold, labeled, or 
represented as organically produced. After administering synthetic 
parasiticides to dairy stock, the producer must observe a 90-day 
withdrawal period before selling the milk or milk products produced 
from the treated animal as organically produced. Every use of a 
synthetic medication or parasiticide must be incorporated into the 
livestock operation's organic system plan subject to approval by the 
certifying agent.
    We propose that the producer of an organic livestock operation must 
not treat an animal in that operation with antibiotics, any synthetic 
substance not included on the National List of synthetic substances 
allowed for use in livestock production, or any substance that contains 
a nonsynthetic substance included on the National List of nonsynthetic 
substances prohibited for use in organic livestock production. The 
producer must not administer any animal drug, other than vaccinations, 
in the absence of illness. The use of hormones is prohibited in organic 
livestock production, as is the use of synthetic parasiticides on a 
routine basis. The producer must not administer synthetic parasiticides 
to slaughter stock or administer any animal drug in violation of the 
Federal Food, Drug, and Cosmetic Act. The producer must not withhold 
medical treatment from a sick animal to maintain its organic status. 
All appropriate medications and treatments must be used to restore an 
animal to health when methods acceptable to organic production 
standards fail. Livestock that are treated with prohibited materials 
must be clearly identified and shall not be sold, labeled, or 
represented as organic.
    Under this proposal, a livestock producer must document in his or 
her organic system plan the preventative measures he or she has in 
place to deter illness, the allowed practices he or she will employ if 
illness occurs, and his or her protocol for determining when a sick 
animal must receive a prohibited animal drug. The standards we are 
proposing will not allow an organic system plan that envisions an 
acceptable level of chronic illness or proposes to deal with disease by 
sending infected animals to slaughter. Neither situation can be 
considered consistent with the principles of organic management. The 
organic system plan must reflect a proactive approach to health 
management, drawing upon allowable practices and materials. Animals 
with conditions that do not respond to this approach must be treated 
appropriately and diverted to nonorganic markets.
    The producer of an organic livestock operation must establish and 
maintain livestock living conditions for the animals under his or her 
care which accommodate the health and natural behavior of the 
livestock. The producer must provide access to shade, shelter, exercise 
areas, fresh air, and direct sunlight suitable to the species, its 
stage of production, the climate, and the environment. This requirement 
includes access to pasture for ruminant animals. The producer must also 
provide appropriate clean, dry bedding, and, if the bedding is 
typically consumed by the species, it must comply with applicable 
organic feed requirements. The producer must provide shelter designed 
to allow for the natural maintenance, comfort level, and opportunity to 
exercise appropriate to the species. The shelter must also provide the 
temperature level, ventilation, and air circulation suitable to the 
species and reduce the potential for livestock injury. The producer may 
provide temporary confinement of an animal because of inclement 
weather; the animal's stage of production;

[[Page 13534]]

conditions under which the health, safety, or well-being of the animal 
could be jeopardized; or risk to soil or water quality. The producer of 
an organic livestock operation is required to manage manure in a manner 
that does not contribute to contamination of crops, soil, or water by 
plant nutrients, heavy metals, or pathogenic organisms and optimizes 
nutrient recycling.
    Handling. This proposal permits mechanical or biological methods to 
be used to process an agricultural product intended to be sold, 
labeled, or represented as ``100 percent organic,'' ``organic,'' or 
``made with organic (specified ingredients)'' for the purpose of 
retarding spoilage or otherwise preparing the agricultural product for 
market. It permits the use of nonagricultural substances and 
nonorganically produced agricultural products that are included on the 
National List in or on a processed agricultural product intended to be 
sold, labeled, or represented as ``organic'' or ``made with organic 
(specified ingredients).'' This proposal prohibits a handler from using 
ionizing radiation for any purpose, an ingredient produced with 
excluded methods, or a volatile synthetic solvent in or on a processed 
agricultural product intended to be sold, labeled, or represented as 
``100 percent organic,'' ``organic,'' or ``made with organic (specified 
ingredients).''
    The practice standard for facility pest management requires the 
producer or handler operating a facility to use management practices to 
prevent pests, including removing pest habitat, food sources, and 
breeding areas; preventing access to handling facilities; and 
controlling environmental factors, such as temperature, light, 
humidity, atmosphere, and air circulation to prevent pest reproduction. 
Permitted pest control methods include augmentation or introduction of 
predators or parasites for the pest species; mechanical or physical 
controls, including traps, light, or sound; and nontoxic, nonsynthetic 
controls, such as lures and repellents.
    This proposal permits the use of a nonsynthetic biological or 
botanical substance or any synthetic substance to control facility 
pests if the permitted prevention and control practices are not 
effective. Any substance applied must be used in accordance with the 
label provisions as approved by the appropriate authority, such as the 
Environmental Protection Agency (EPA) or the Food and Drug 
Administration (FDA). We propose that the handler of an organic 
handling operation who uses any biological, botanical, or synthetic 
substance to control facility pests must specify in the organic system 
plan all measures taken or intended to be taken to prevent contact 
between the substance and any ingredient or finished product intended 
to be sold, labeled, or represented as organic or made with organic 
ingredients. In addition to these restrictions, the handler must 
include in the organic handling plan an evaluation of the effects of 
repetitive use of the same or similar materials on pest resistance and 
shifts in pest types.
    This proposal delineates practice standards that must be followed 
by an organic handling operation to prevent the commingling of organic 
and nonorganic products and protect organic products from contact with 
prohibited substances. An organic handling operation must not use 
packaging materials and storage containers or bins that contain a 
synthetic fungicide, preservative, or fumigant in handling an organic 
product. The operation also must not use or reuse any storage bin or 
container that was previously in contact with any prohibited substance 
unless the reusable bin or container has been thoroughly cleaned and 
poses no risk of prohibited materials contacting the organic product.
    Temporary Variances. This subpart establishes conditions under 
which operations may receive temporary variances from the provisions 
contained in Secs. 205.203 through 205.207, 205.336 through 205.239, 
and 205.270 through 205.272. The Administrator may establish temporary 
variances due to natural disasters declared by the Secretary; 
unavoidable business interruption caused by catastrophe such as wind, 
fire, hail, flooding, excessive moisture, earthquake, or drought; or to 
conduct research on organic production and handling techniques or 
inputs. A certifying agent may recommend that the Administrator 
establish a temporary variance for unavoidable business interruption. 
The Administrator will determine how long a temporary variance will be 
in effect at the time it is established, subject to extension as the 
Administrator deems necessary. Upon notification by the Administrator 
that a temporary variance has been established due to a natural 
disaster, a certifying agent must inform each production and handling 
operation it certifies within the affected geographical region or each 
individual production and handling operation affected by the temporary 
variance. Temporary variances may not be issued for any practice, 
material, or procedure which is otherwise prohibited by these 
regulations.
    A request for issuance of a temporary variance, the justification 
for it, and measures to evaluate the impact of the practice on the 
operation's natural resources must be documented in the organic plan 
and approved by the certifying agent. For example, if a drought 
resulted in a severe shortage of organically produced hay, a dairy 
operation might be permitted to substitute some nonorganic hay for a 
portion of the herd's diet to prevent liquidation of the herd. The 
producer must keep records showing the source and amount of the hay and 
update the organic plan to describe the justification for the practice 
and a timeframe for restoring the total feed ration to organic sources. 
The certifying agent might also request that the plan include 
contingency measures to avoid the need to resort to nonorganic feed in 
case of a future shortage. A variance for experimental purposes might 
be issued to permit a crop producer to undertake on-farm trials of 
small quantities of a new (but not produced with excluded methods) crop 
variety that was not available as organic seed.
Production and Handling (General)--Changes Based on Comments
    The subpart differs from our first proposal in several respects as 
follows:
    (1) Genetically Engineered Organisms. In the first proposal, we 
invited public comment on the use of genetically engineered organisms 
(GEO's) or their products in a system of organic production and 
handling. Specifically, we asked whether the use of GEO's or their 
products should be permitted, prohibited, or allowed on a case-by-case 
basis in organic production or handling operations. Hundreds of 
thousands of public comments opposed the use of GEO's or their products 
in organic production or processing. In response to these comments, 
this proposal prohibits use of genetic engineering (included in the 
broad definition of ``excluded methods'' in this proposal, based on the 
definition recommended by the National Organic Standards Board (NOSB)) 
in all stages of organic production and handling. This proposal 
contains a specific prohibition on the use of seeds, annual seedlings 
and planting stock (Sec. 205.204(b)), pest control substances 
(Sec. 205.206(f)), organisms (Sec. 205.236 (b)(3)), and ingredients 
(Sec. 205.270(c)(2)) produced with excluded methods.
    Products created with modern biotechnology techniques have been 
tested, approved by the appropriate regulatory agencies, and can be 
used safely in general agricultural production. At the same time,

[[Page 13535]]

consumers have made clear their opposition to use of these techniques 
in organic food production. This rule is a marketing standard, not a 
safety standard. Since use of genetic engineering in the production of 
organic foods runs counter to consumer expectations, foods produced 
through excluded methods will not be permitted to carry the organic 
label.
    We acknowledge that the broad prohibition on use of excluded 
methods in organic production and handling systems may create 
compliance obstacles for organic operations and certifying agents. For 
example, many current certification programs allow vaccination of 
animals with synthetic compounds when such treatment is mandatory. 
However, while many FDA-approved vaccines are now produced using 
excluded methods, we are unaware of any certification program which has 
an enforcement mechanism to ensure that such substances are not used in 
organic production. We do not know to what extent, if any, organic 
livestock producers are currently using vaccines produced with excluded 
methods or how a prohibition on the use of such substances would affect 
development of the industry.
    Similarly, the prohibition on the use of excluded methods in the 
production of organic foods may also present challenges to organic 
handlers and certifying agents. This may pose a particular problem with 
respect to the nonorganic ingredients of multiingredient products with 
50-95 percent organic content, to which the prohibition on use of 
excluded methods also applies. For example, it may be harder for 
organic food processors, who may struggle to find sources of nonorganic 
ingredients that are produced without use of excluded methods and for 
certifying agents, who must ensure that handlers have complied with 
this requirement.
    As with most elements of this program, compliance monitoring and 
enforcement will rely on the ongoing oversight of organic operations by 
USDA-accredited certifying agents, rather than on product testing. 
Certifying agents must approve organic plans that detail procedures and 
practices to be followed by organic operations and will review 
extensive records maintained by organic operations to ensure that they 
are complying with the approved organic plans and the regulations.
    This system of compliance assurance will be particularly important 
with respect to the prohibition on use of excluded methods. Producers 
and handlers must be vigilant in the acquisition of materials and 
products. Certifying agents should be aware of agricultural products 
produced through excluded methods and must carefully review material 
and product origin documentation. It will be the responsibility of 
certifying agents to review the sourcing specifications and other 
provisions of producer and handler organic plans to ensure the 
integrity of organic and multiingredient products. We anticipate that 
this system of carefully reviewed and documented organic plans, which 
establishes documented procedures demonstrating good faith efforts to 
diligently pursue and maintain the integrity of ingredients produced 
without use of excluded methods, could satisfy the requirements in this 
regulation.
    With respect to the prohibition on the use of excluded methods in 
production of the nonorganic ingredients in multiingredient products, 
we recognize that the ability to meet these requirements depends 
primarily on practices used in conventional agricultural markets. We 
also recognize that practices for preserving product identity, 
including segregating genetically engineered and nongenetically 
engineered products, are evolving in some conventional markets. 
Currently there are no consensus industry standards for product 
segregation, rather contractual agreements are used to the extent 
possible. As the marketplace evolves toward recognized best practices 
or standards for product testing and segregation, we anticipate that 
these methods and systems will become the standards for implementing 
the prohibition on use of excluded methods in production of nonorganic 
ingredients in multiingredient products. Linking the requirements 
pertaining to nonorganic ingredients in this proposal to the evolving 
practices within the marketplace will provide certifying agents with a 
verifiable criterion against which to evaluate production and handling 
processes, as well as providing greater certainty to handlers and 
processors as they seek to identify acceptable sources of nonorganic 
ingredients.
    As with other prohibited substances, a positive detection of a 
product of excluded methods would trigger an investigation by the 
certifying agent to determine if a violation of organic production or 
handling standards occurred and would not necessarily represent a 
violation on its own. The presence of a detectable residue alone does 
not necessarily indicate use of a product of excluded methods that 
would constitute a violation of the standards.
    We anticipate that these issues will be of particular interest to 
commenters on the proposal, and that comments may help to shed light on 
industry capabilities and expectations. We recognize that this policy 
will place additional burdens on certified operations and certifying 
agents, but we believe that the necessity to meet strong consumer 
expectations outweighs these concerns.
    (2) Measurable Degradation Standard. We are proposing that any 
practice implemented in accordance with the requirements for organic 
production and handling must maintain or improve the soil and water 
quality of the operation. This provision is a modification of the 
requirement in the first proposal that the use or application of a 
practice not result in measurable degradation of soil or water quality. 
Some commenters stated that the concept of measurable degradation was 
too limiting and reduced the holistic principles behind organic 
production to an exercise in risk assessment. In introducing the 
concept of measurable degradation, we stated that its purpose was to 
``clarify that all methods and substances used in an organic operation 
shall be consistent with a system of organic farming and handling and 
the purposes of the OFPA.'' As such, measurable degradation and the 
specific indicators of soil and water quality used to monitor it were 
designed as tools to evaluate compliance with the OFPA and not as ends 
in themselves.
    The new provision requiring that an organic operation maintain or 
improve its soil and water quality retains the linkage between 
production and handling practices and the natural resources of the 
operation, which is a fundamental tenet of both organic production and 
the OFPA. We have introduced the ``maintain or improve'' provision to 
allow for consideration of a variety of environmental indicators that 
contribute to the overall performance of the operation. Both the 
objective of certification--establishing an organic system of 
production and handling--and the standard by which it is achieved--the 
requirements in this proposal--remain constant for all operations. The 
environmental indicators used to establish and monitor compliance with 
an approved organic system plan will depend upon the site-specific 
conditions of the individual operation. For example, a producer and 
certifying agent would consider the soil types, hydrology, other 
environmental conditions and the specific nature of the crops and 
livestock being produced to

[[Page 13536]]

determine which indicators would best reflect the performance of the 
organic system plan. Site-specific conditions--high water table, soils 
that are prone to erosion--combined with the operation's production 
practices--the use of persistent inputs such as copper or sulfur 
compounds, the type of tillage practices used--will dictate the 
selection of environmental indicators. While individual indicators, 
especially when signaling that significant change has occurred, remain 
important, the ``maintain or improve'' provision allows a producer or 
handler and his or her certifying agent to assume a broader perspective 
in monitoring compliance with the OFPA.
    Many commenters objected to the requirement in the first proposal 
that certain production practices ``not result in a measurable 
degradation of the soil.'' The purpose of the ``measurable 
degradation'' requirement was solely to provide producers and their 
certifying agents with quantifiable, verifiable tools with which to 
evaluate compliance with the applicable regulations. While the current 
proposal does not refer to ``measurable degradation'' in the practice 
standards, producers and handlers must identify and incorporate into 
their organic system plans specific testing and evaluation techniques 
to measure the environmental impact of their production practices. In 
many cases, this requirement could be filled with a standard soil 
analysis, which would indicate trends in soil organic content, nutrient 
composition, and physical properties. In other cases, chemical or 
biological analysis of stream water entering and leaving a crop or 
livestock operation could suffice to monitor compliance with the 
practice standards. There is no way to substantiate the effectiveness 
of the practices and materials used in an organic production system 
without some form of measurable verification. Analytical procedures to 
monitor the condition, over time, of an operation's resource base are a 
standard feature of efficient resource management, whether or not the 
operation is organically managed.
    (3) Function and Content Requirements of the Organic System Plan. 
We propose significant changes in the function and content requirements 
of the organic system plan to solidify its role in the relationship 
between producer or handler and certifying agent. Public comment on the 
first proposal identified numerous perceived deficiencies in the 
provisions for an organic system plan. Some commenters, including 
organic certifying agents and industry associations, stated that the 
proposed content requirements were a ``shadow'' of the plan intended by 
the OFPA because the regulatory text did not include the words, 
``management,'' ``rotation,'' or ``manure.'' Some commenters 
characterized the organic system plan in the first proposal as a simple 
list of materials to be used and practices to be followed and thought 
that it would not adequately address why the producer or handler made 
specific production choices. Echoing the recommendation adopted by the 
NOSB at its June 1994 meeting in Santa Fe, NM, other commenters 
suggested that each organic system plan should be required to include 
key elements of organic production, such as soil and crop management, 
resource conservation, crop protection, and maintenance of organic 
integrity through growing, harvesting, and postharvest operations. We 
fully agree with the principle that a comprehensive organic system plan 
is an integral component of a certified operation and that it provides 
the foundation for the working relationship between the certifying 
agent and the producer or handler. This proposal contains a standard 
that defines and characterizes an organic system of production and 
handling and establishes the organic system plan as the centerpiece of 
the relationship between producer or handler and certifying agent.
    Some commenters expressed concern that the first proposal did not 
link the organic system plan to specific regulatory requirements such 
as proper tillage, crop rotation, and manuring. The first proposal did, 
however, require operations to document compliance with all applicable 
standards. The obligation to document compliance with all applicable 
standards was implicit in the requirement that an organic system plan 
contain a description of the practices to be performed and maintained 
to establish a system of organic farming and handling. A producer or 
handler intending to engage in a practice must comply with the 
corresponding standards and include his or her intentions for doing so 
in the organic system plan. This proposal contains a similar provision, 
found in Sec. 205.200(a)(1), which requires a description of the 
practices and procedures used in the certified operation, again, 
without stating the specific standards with which the operation must 
comply.
    We acknowledge that, by providing the regulatory guidance necessary 
to implement the OFPA, the Secretary is further empowering accredited 
certifying agents to determine whether an operation's organic system 
plan meets the requirements of the statute. The provisions for an 
organic system plan in Sec. 205.200(a)(1)-(6) outline the prerequisites 
for certification. Combined with the production and handling standards 
in Secs. 205.201 through 205.207, 205.236 through 205.239, and 205.270 
through 205.272, these requirements provide the criteria necessary for 
certifying agents to determine whether to grant certification.
    For similar reasons, we propose not to include in this proposal a 
list of the specific requirements to be included in a particular type 
of organic system plan. For example, while the first proposal required 
that a farm operation submit the total acreage under organic management 
as part of its organic system plan, there is no similar requirement in 
this proposal. We believe that accredited certifying agents are capable 
of determining the specific documentation they require to review an 
application for certification. Certifying agents are granted authority 
to request the information they deem essential to the performance of 
their duties. Many resources are available to certifying agents for 
determining the information needed to make certification decisions. The 
Federal-State Marketing Improvement Program of the Agricultural 
Marketing Service (AMS) helped fund a project (#12-25-G-0202) which 
created an organic inspection manual and developed a whole set of 
organic certification form templates. Among these templates are 
detailed forms for organic farm, livestock, and handling system plans. 
AMS worked with the Independent Organic Inspectors Association and the 
Organic Certifiers Council on this project and supports continued 
movement toward standardized certification documentation. The NOSB 
provided recommendations, including sample questionnaires, for the 
information it deems necessary for inclusion in an organic system plan. 
Additionally, the Organic Trade Association recently released the 
American Organic Standards that drew upon broad industry involvement to 
create a detailed description of organic system plan requirements.
    The organic system plan in the first proposal included requirements 
for split farming operations--meaning farms that engage in both organic 
and nonorganic production--that some commenters stated were excessive. 
These commenters pointed out that the OFPA does not provide for the 
organic system plan to include any production or handling practice not 
consistent with the OFPA, and that the practices on the nonorganic 
portion of the split-farm

[[Page 13537]]

would not be consistent with the Act. Based on these comments, this 
proposed organic production system plan will not require information 
about a split-farm's nonorganic operations. However, this proposal 
requires that a split operation, whether a production or a handling 
operation, describe the measures it is taking or will take to prevent 
commingling of organic and nonorganic product and to prevent contact of 
organic products, fields, or facilities with prohibited substances.
    (4) Regulatory Enforcement. The National Organic Program (NOP) will 
require consistent and effective enforcement of the regulations across 
diverse crop, wild crop, livestock, and handling operations which are 
differentiated by site-specific conditions within dissimilar geographic 
regions. The resources and objectives of each certified operation are 
unique, and the OFPA, accordingly, provides certifying agents with 
criteria, not formulas, to determine whether the practices, procedures, 
and inputs described in an organic system plan constitute compliance 
with the OFPA. The flexibility implicit in this approach allows 
producers and handlers to choose from a variety of production and 
handling options. In addition to being flexible, a regulatory mechanism 
must be clear, consistent, and enforceable. For this reason, producers 
and handlers must document the choices they make in an organic system 
plan and demonstrate a good-faith effort to implement the plan. For 
example, the decision to use an allowed synthetic pest control 
substance must be based on evidence that prevention and nonsynthetic 
pest control measures are not adequate.
    Public comment indicated that the regulatory mechanisms that were 
introduced in the first proposal, including orders of preference, 
performance standards, and provision for allowance of certain practices 
``if necessary,'' provided producers and handlers too much discretion 
in selecting materials and practices. These comments indicated that 
insufficient oversight by certifying agents could dilute the meaning of 
organic certification. Therefore, we are proposing significant changes 
in the regulatory mechanisms which govern producers, handlers, and 
their certifying agents in determining the materials, practices, and 
procedures used in an organic operation.
    One regulatory mechanism used in the first proposal was an ``order 
of preference'' scheme for selecting organic practices or materials 
employed in production and handling. This scheme was proposed for a 
number of areas: Crop rotation; manuring practices; soil fertility and 
nutrient management; seeds and planting stock selection; crop pest, 
weed, and disease prevention and management; livestock health care; 
selection of handling ingredients; and prevention and facility pest 
management. There was also a general order of preference requirement 
that mandated the use of nonsynthetic substances in preference to 
synthetic substances.
    Comments from at least one industry association supported using 
orders of preference to assure that choices made by producers and 
handlers will be as consistent as possible with organic farming and 
handling principles. Others, including several organic certifying 
agents, felt that the conditions for choosing a lower order of 
preference were not specified clearly enough and could result in 
inconsistent enforcement of the standards. Some commenters thought that 
certifying agents would be overly burdened by having to review and 
approve the justification in the organic plan for choosing less 
preferable practices, although some stated that if the criteria for 
choosing a lower order of preference were clarified and documentation 
of the reasoning behind the choice was explicitly required, then this 
scheme would be workable. Some noted that ranking practices and inputs 
according to their suitability is analogous to the ``approved, 
restricted, prohibited'' scheme which many State and private 
certification programs employ. A few commenters expressed the belief 
that establishing provisions to issue variances would address their 
concerns and provide for adequate oversight and enforcement concerning 
practices, procedures, and inputs that are considered to be acceptable 
but less desirable for organic production and handling.
    However, several commenters, including consumers and organic 
certifying agents, asserted that ``preference'' could be interpreted as 
purely based on the personal choice or convenience of the producer or 
handler. Some certifying agents indicated that the soil fertility order 
of preference was too complex and difficult to enforce. A number of 
consumers disliked this concept because it permitted some deviation 
from the most desirable standards, such as use of organically produced 
seeds. Another commenter speculated that this scheme could be 
interpreted as establishing different levels of ``organicness.'' 
Although these interpretations do not reflect the intent of the first 
proposal, in the interest of clarity, we have removed references to 
orders of preference in the current regulatory text. We also removed 
the general requirement for orders of preference and to simplify the 
scheme so that it will be less burdensome for certifying agents to 
enforce. Several provisions in this proposal, including the seeds and 
planting stock practice standard (Sec. 205.204) and the crop pest, 
weed, and disease management practice standard (Sec. 205.206) will 
allow less desirable practices or substances to be used only if the 
preferred alternative is either ineffective or not commercially 
available. As was true of the first proposal, justification for 
choosing a less desirable alternative, such as nonorganic seeds or 
planting stock, must be documented in the relevant organic system plan 
and approved by the certifying agent.
    Several commenters, including industry and environmental 
associations, also took issue with the use in the first proposal of 
performance standards, which specify the required outcome but not the 
practices that must be used to achieve it. The general provision that 
any practice or substance used in an organic operation not contribute 
to measurable degradation of soil or water quality is an example of 
such a performance standard. Objections to the use of performance 
standards referred to the nature of organic production standards, which 
focus on the production process and not quantifiable outcomes such as 
pesticide residue levels. Some of these commenters asserted that such a 
mechanism would relegate organic standards to a risk assessment model, 
which is not appropriate for evaluating a system of organic management.
    We agree that standards for an organic management system cannot be 
reduced to measurable outcomes, and this was not the intent of the 
proposed performance standards in the first proposal. The evaluation of 
measurable indicators as benchmarks of the proper functioning of a 
management system is compatible with the overall requirement that 
practices be implemented that are consistent with a system of organic 
farming and handling. Such indicators help to determine whether a given 
operation is in compliance with the regulations. For example, the crop 
rotation provisions in this proposal list a series of functions, 
including weed management, that should be provided by an appropriate 
rotation. While the possible types of rotation that could achieve this 
objective are virtually limitless and could not be specifically 
prescribed, recording changes in weed populations could document the

[[Page 13538]]

effectiveness of the rotation being implemented.
    Another type of regulatory provision employed in the first proposal 
permitted the use of certain practices or substances only ``if 
necessary.'' This was proposed for the introduction of nonorganic 
animals into an organic operation, for using up to 20 percent 
nonorganic livestock feed, for permitting restrictions on access by 
livestock to space for movement and access to outdoors, and for use of 
synthetic processing aids in producing an organic processed product. A 
producer or handler was required to establish his or her need to use a 
particular practice or substance based on site-specific circumstances. 
The basis for each such decision was to be stated in the organic system 
plan and evaluated by the certifying agent. Many commenters indicated 
that this provision was not appropriate because, for example, the 
allowance for the use of 20 percent nonorganic livestock feed, ``if 
necessary,'' left a loophole that could permit an unscrupulous producer 
to use nonorganic feed without a valid reason that was consistent with 
the regulations. We concur that this allowance for practices ``if 
necessary'' is overly vague and have removed the provision from this 
proposal. It has been replaced by more specific regulatory 
restrictions, referred to as practice standards, which better reflect 
the recommendations of the NOSB.
    We have addressed comments that requested more specific guidelines 
for acceptable organic practices by introducing the concept of practice 
standards. Practice standards are a series of specific guidelines, 
requirements, and operating procedures for common agricultural 
practices such as crop rotation, pest management, and crop nutrient 
management. The NOSB reviewed portions of the current NRCS practice 
standards for crop rotation, nutrient management, pest management, 
composting facilities, and cover or green manure crops at its 
Washington, DC, meeting in June 1999. NRCS practice standards, while 
not public health standards, contain rigorous, field-tested provisions 
which provide specific benchmarks for monitoring the performance of 
many required organic production techniques. A practice standard can 
also serve as the foundation for an even more detailed program manual.
    For example, we are proposing that composted animal and plant waste 
materials which are used for soil fertility and crop nutrient 
management must be produced at a facility in compliance with the NRCS 
practice standard for a Composting Facility (Code 317). This document 
establishes minimum acceptable requirements for the design, 
construction, and operation of a composting facility. A copy of this 
practice standard may be obtained from any NRCS field office. A copy of 
this practice standard may be viewed at USDA-AMS-TMD-NOP, Room 2510--
South Building; 1400 Independence Ave., SW, Washington, DC 20250-0248. 
The NOP intends to publish additional practice standards for public 
comment in the Federal Register. We are also holding discussions with 
NRCS to determine whether farming operations which comply with the 
certification requirements of the NOP will have the added benefit of 
being able to participate simultaneously with NRCS cost-share programs.
    Incorporating NRCS practice standards into the requirements for 
organic certification introduces a significantly greater degree of 
specificity than most organic standards have previously contained. For 
example, the Composting Facility practice standard includes 
specifications for facility size, moisture content of the compost pile, 
carbon-nitrogen ratio, and the interval which certain temperatures must 
be sustained to achieve a finished product. The practice standard also 
contains restrictions on source materials which may make it difficult 
to utilize certain categories of materials which have traditionally 
been allowed in organic compost production. Enforcing these additional 
requirements will require far greater oversight from the certifying 
agent, and expertise in this area will become another factor in 
accreditation. NRCS uses its practice standards for voluntary cost-
share programs, and organic producers may find the requirements 
burdensome as an added, mandatory expense. Despite the many comments we 
received criticizing the provisions for performance standards in the 
first proposal, organic certification schemes have traditionally 
prescribed outcomes and allowed producers and handlers flexibility in 
selecting practices used to achieve them. However, we received many 
other comments stating that more rigorous, clearly defined regulatory 
mechanisms were needed to protect the integrity of organic 
certification. We have considered the use of NRCS practice standards to 
provide clear, consistent, and verifiable guidelines for conducting 
essential organic production practices. We are particularly interested 
in receiving specific comment on the feasibility of using NRCS practice 
standards for compost production and how such practice standards may 
generally be used to establish organic standards.
    (5) Temporary Variances. Section 205.201(b) of this proposal 
provides procedures for establishing a temporary variance from certain 
requirements of subpart C. The temporary variance is a mechanism for 
providing regulatory flexibility that did not appear in the first 
proposal. This mechanism is proposed in response to comments from an 
industry association and several certifying agents who expressed the 
need, in certain circumstances, to use practices that would otherwise 
not comply with the applicable practice standard. Similar mechanisms 
are used by most existing certifying agents to make exceptions in cases 
of compelling need, when there is minimal concern for compromising the 
integrity of an organic system. Temporary variances are established 
from specific requirements and not, unless specified, from all 
production standards. They are established for a determined period of 
time, subject to extension as deemed necessary by the Administrator. 
For example, the Administrator could, under appropriate circumstances, 
waive the requirement that a producer must provide livestock with a 
ration composed of 100 percent organically produced feed.
    Temporary variances are created under very specific circumstances 
and are subject to strong oversight by the Department to prevent 
potential abuse. This proposal contains three situations in which the 
Administrator could establish a temporary variance. These situations 
are: natural disasters as declared by the Secretary in a specific 
geographical area; business interruption caused by wind, flood, fire, 
or other catastrophic event; or for the purpose of conducting research 
or trials of techniques, varieties, or ingredients used in organic 
production or handling. In the case of natural disaster declared by the 
Secretary, the Administrator will establish a temporary variance 
available to all organic operations within the area designated as 
affected. For local catastrophic events in which the Secretary does not 
declare a disaster, the certifying agent is responsible for making 
recommendations to the Administrator for establishing temporary 
variances. Catastrophic events must be of a sufficient magnitude and 
have a direct, immediate impact such that the operation could not 
continue to function without the temporary variance. Certifying agents 
are responsible for making a recommendation for a temporary variance in 
situations prompted by

[[Page 13539]]

research needs. Producers and handlers cannot appeal directly to the 
Administrator for a temporary variance but must make such a request 
through their certifying agent.
    Temporary variances, as proposed here, will not extend to any 
practice or substance that is expressly prohibited by any provision of 
the OFPA, the applicable standards, these regulations, or any other 
Federal, State, or local laws or regulations. For example, a variance 
cannot be granted for use of an organism produced through excluded 
methods, for use of sewage sludge as a fertilizer, or for use of 
irradiation to process an organic product or ingredient. We expect to 
provide additional guidelines in a program manual to assist certifying 
agents in evaluating how much of an allowance is appropriate, such as 
how much of the ration for which animals could come from nonorganic 
sources under a variance.
Production and Handling (General)--Changes Requested But Not Made
    This subpart retains from our first proposal regulations on which 
we received comments as follows:
    (1) Definition of ``System of Organic Farming and Handling''. The 
first proposal contained a definition of a ``system of organic farming 
and handling'' to provide an explicit reference point for determining 
which practices and substances were consistent with such a system. 
Several industry associations and certifying agents commented that the 
definition was helpful but lacking in key concepts, such as 
``ecological balance,'' ``agroecosystem health,'' and ``biological 
diversity.'' Several thought the definition should receive greater 
emphasis in the regulations as a reference point for the underlying 
principles of organic production and handling and that the NOSB's 
definition should be used. Although we considered many of the concepts 
discussed by commenters, only the scope and not the meaning of the 
original definition has been changed. The definition in this proposal 
is based on the one we developed in consultation with the NOSB but is 
limited to concepts that are incorporated into the OFPA. Measuring 
compliance with the component-based mandates of the OFPA, such as 
fostering soil fertility and preventing water contamination by manure, 
does not require criteria as far-reaching as ``agroecosystem health'' 
or ``biological diversity.'' We also took into consideration the costs 
to comply with such open-ended requirements and determined that this 
could be excessively burdensome. Synergistic benefits may be associated 
with organic production and handling systems, but the OFPA requires 
only that individual components of the system--soil, water, wild crop 
environment--be protected. Adherence to the conservation practices 
found in the individual practice standards will result in cumulative 
benefits to the agroecosystem, but producers and handlers would have 
difficulty measuring compliance at this scale. Establishing standards 
that address individual components of an organic farming system, such 
as tillage practices and manure management, will directly and 
beneficially impact the entire ecosystem. For the purpose of 
enforcement, however, we propose retaining the component-based criteria 
for evaluating a system of organic farming and handling.
    (2) Commercial Availability Standard. The first proposal allowed 
certain materials and practices, such as nonorganic seeds and 
nonorganic minor ingredients in a product labeled organic, to be chosen 
if preferable alternatives were not ``commercially available.'' We have 
retained the commercial availability principle in this proposal but 
have limited its use to the provisions addressing the selection of 
organic or untreated seeds and planting stock. A number of producers, 
consumers, and certifying agents expressed concern that producers or 
handlers not be permitted to base claims of commercial unavailability 
on any price difference between organic and nonorganic inputs. They 
argued that the term, ``feasibly and economically,'' in the proposed 
definition of ``commercially available'' were too vague to be 
enforceable. Comments from an industry association supported the use of 
this concept but requested a more specific definition that could be 
used to assess the economic dimension of commercial availability. The 
NOSB has also cited commercial availability as a valid criterion for 
allowing some flexibility in the choice of inputs and stated that the 
term is applicable to the quantity and quality of available product as 
well as its cost.
    Although commercial availability is not defined in the OFPA, the 
concept is well established within current certification programs and 
the commercial world in general. To be considered commercially 
available, a preferred input must be known and readily available in the 
sense that a producer or handler can locate and acquire the quantity 
and quality of product needed to sustain his or her operation. The 
producer or handler must make a good faith effort to procure the 
preferred input but should not be expected to rely on an inconsistent 
supply of a necessary commodity. We do not provide a formula for 
determining when price difference alone is enough to justify purchase 
of the less desirable input because of the multiple factors which could 
affect such a decision.
    By limiting the application of the commercial availability standard 
to the selection of organic or untreated seeds and planting stock, we 
are limiting its use to relatively narrow and well defined markets. A 
producer must justify a choice based on commercial availability when 
submitting an organic plan to the certifying agent, and it must be 
supported by evidence of a good-faith effort to obtain the preferred 
input. The attempt to source an input from known suppliers and an 
investigation to discover potential new suppliers constitute the 
producer's good-faith effort. Certifying agent approval of the organic 
plan provides sufficient protection against abuse of this provision. 
Although comments reflected concern that too many allowances for 
nonorganic inputs could dilute the integrity of certification, the 
organic industry has built its reputation while using the commercial 
availability exemption for sourcing certain materials. Certifying agent 
oversight can ensure that it works in the NOP as well.
Production and Handling (General)--Additional Provisions
    Upon further review of the provisions in the first proposal, we 
have decided to propose the following additions and changes.
    (1) Dual Use of an Organic System Plan. Section 205.201(b) allows a 
producer or handler to submit an organic production system plan 
developed to meet the requirements of another Federal, State, or local 
regulatory program if the plan fulfills the applicable requirements of 
this section. Government agencies may have programs in place that 
require participating agricultural producers or handlers to develop and 
follow a management plan. For example, the NRCS Environmental Quality 
Incentives Program (EQIP) requires a conservation plan. An organic 
production system plan could be incorporated into such a conservation 
plan and fully comply with the requirements proposed in Sec. 205.201 of 
this proposal. This new provision could reduce the paperwork burden for 
an operation that participates in more than one program requiring a 
farm conservation plan.

[[Page 13540]]

Crop Production--Changes Based on Comments
    This subpart differs from our first proposal in several respects as 
follows:
    (1) Biosolids. The first proposal requested public comment on the 
possible use of biosolids as a means of enhancing soil fertility on an 
organic agricultural operation. Our interpretation of the term, 
``biosolids,'' is synonymous with the definition of sewage sludge 
contained in 40 CFR part 503. In response to the comments we received, 
this proposal adds biosolids to the list in Sec. 205.203(e)(2) of 
substances that are specifically prohibited for use in organic 
production.
    The first proposal reviewed some historical information about the 
Federal enforcement of biosolids use and the steps taken by EPA, FDA, 
and the U.S. Department of Agriculture (USDA) to ensure that biosolids 
are safe to use on crops for human consumption. Comments were solicited 
as to whether biosolids should be permitted or prohibited in organic 
production. The first proposal noted that the NOSB recommended that 
biosolids should be classified as synthetic and were not appropriate 
for use in organic crop production. The NOSB took this position at its 
1996 meeting in Indianapolis, IN, and reaffirmed it at its 1998 meeting 
in Ontario, CA.
    We received hundreds of thousands of comments, virtually all of 
which strongly opposed the use of biosolids in organic agriculture. The 
vast majority of the commenters stated that biosolids can contain 
synthetic substances prohibited in organic agriculture, such as 
industrial waste, street runoff containing petroleum products, and 
household waste contaminated with cleaning products, polychlorinated 
biphenyls (PCB's) and dioxins. Commenters indicated that sewage sludge 
should not be allowable because it may contain synthetic materials 
prohibited in organic production which are not restricted under EPA 
regulations. Many commenters stated that biosolids are not currently 
allowed in organic production and that permitting their use would run 
contrary to consumer expectations. Such an allowance would place 
producers at a competitive disadvantage in domestic and international 
markets. While sewage sludge may be safely used in conventional 
agriculture, allowing its use under these standards would be 
inconsistent with the historical understanding of organic fertility 
management shared by producers and consumers. Therefore, this proposal 
prohibits the use of sewage sludge in organic production.
    (2) Tillage and Conservation Practices. While no comments objected 
to the inclusion of tillage and cultivation practices in the first 
proposal, a few took issue with the requirement that these practices 
result in ``no measurable degradation'' of soil quality. In this 
proposal, the concept of `` no measurable degradation'' has been 
replaced with the requirement to ``maintain or improve'' soil quality. 
We agree with commenters who suggest that prevention of soil erosion is 
an important consideration for the selection of tillage and cultivation 
methods and have included a requirement that tillage and cultivation 
practices maintain or improve the physical, chemical, and biological 
condition of soil and minimize soil erosion. We have removed other 
references to preventing measurable degradation when using plant or 
animal wastes in the first proposal and replaced them with a 
requirement, in Sec. 205.203(c), that the producer manage these 
materials to maintain or improve soil organic matter content in a 
manner that does not contribute to contamination of crops, soil, or 
water by plant nutrients, pathogenic organisms, heavy metals, or 
residues of prohibited substances. In accordance with several comments 
received, this provision frames the requirement in terms of achieving a 
positive outcome rather than avoiding a negative one. This proposal 
specifies the types of measurable degradation that could result from 
improper or excessive application of plant or animal waste materials, 
and producers, in consultation with the certifying agent, will identify 
potential problems and address them in the organic system plan. The 
organic system plan must also identify appropriate monitoring 
activities to ensure that the ``maintain or improve'' requirement is 
being met. For example, a producer who manages an on-farm composting 
facility might make regular observations of the pile to check for 
leaking and periodically sample a nearby stream for nitrate content.
    (3) Application of Raw Manure. The first proposal requested public 
comment on appropriate guidelines to ensure that use of raw animal 
manure would not cause contamination of food products by pathogens that 
cause foodborne illness. The OFPA restricts the use of raw manure by 
requiring that a reasonable period of time elapse between its 
application to a crop intended for human consumption and the harvest of 
that crop. This period of time must be approved by the certifying 
agent, but in no event may it be less than 60 days. The OFPA stipulates 
that the certifying agent determine the interval between the last 
application of raw manure and harvest of the crop to ensure the safety 
of the crop. Furthermore, the OFPA prohibits raw manure from being 
applied to any crop in a way that significantly contributes to water 
contamination by nitrates or bacteria. The first proposal contained an 
order of preference which favored the use of composted materials, 
including manure, as inputs for soil fertility but allowed raw manure 
applications subject to the 60-day minimum preharvest interval 
contained in the OFPA.
    Many public comments addressed the issue of raw manure use, and 
some industry, producer, consumer, and environmental groups submitted 
substantial technical information. Many of these commenters addressed 
the human health risk associated with the use of manure in organic crop 
production. Most of these comments suggested that a determination of 
sufficient time to ensure the safety of a crop depends on soil and 
climate conditions, but that the 60-day period specified in the OFPA 
was not sufficient. Some commenters cited various amounts of time that 
might be considered safe. Other commenters stated that no interval 
between application and harvest could be considered safe and 
recommended prohibiting the application of raw manure to any crop. The 
NOSB had extensive deliberations on the use of raw manure in organic 
crop production at its June 1999 meeting in Washington, DC.
    The OFPA's requirement that raw manure be applied in a manner that 
ensures the safety of the crop presents a unique regulatory challenge. 
We have consistently maintained that the NOP is for marketing, not food 
safety, purposes. Organic production and handling standards, which are 
not based on risk assessment of public health consequences, may differ 
from the requirements established by agencies that are responsible for 
food safety regulations. The OFPA's requirement that the application of 
raw manure ensures the safety of the food to which it has been applied 
requires the NOP to move toward establishing a public health standard. 
This requirement is especially challenging given that there is no 
Federal oversight of the application of raw manure to any kind of crop 
nor any public health standards to establish what constitutes safe use 
of raw manure. Applications of raw manure are a hazardous, threatening

[[Page 13541]]

pathogenic contamination of food products, notwithstanding the use of 
composted manure, which can carry similar hazards.
    We have responded to the concerns regarding the application of raw 
manure to organically produced crops by proposing the standards 
contained in Sec. 205.203(c)(1). We propose that raw animal manure must 
be composted, unless it is applied to land used for a crop not intended 
for human consumption, incorporated into the soil not less than 120 
days prior to the harvest of a product in direct contact with the soil 
surface or particles, or incorporated into the soil not less than 90 
days prior to the harvest of a product the edible portion of which does 
not have contact with the soil surface or particles. However, many 
site-specific variables affect the viability of pathogens in raw 
manure, and we cannot determine whether this standard will be 
sufficient under all conditions to fulfill the safe food requirement 
contained in the OFPA. We are requesting comment on the development of 
more comprehensive standards that certifying agents are capable of 
enforcing. We are also requesting comment on how to regulate the 
authority to determine the ``reasonable period of time'' between the 
last application of raw manure and harvest of a crop which the OFPA 
delegates to the certifying agent. Given the need for far greater 
scientific understanding of the spread of pathogens in raw manure, we 
do not consider that certifying agents should be expected to make the 
determination of safety.
    Several comments were received which suggest that any use of raw 
animal manure could jeopardize human health and that the use of raw 
animal manure by organic farmers thereby increases the risk that 
organic foods may not be as safe as conventionally produced foods. We 
recognize that our knowledge of the risks from foodborne pathogens has 
advanced since the OFPA was passed a decade ago, and that safety 
precautions have been strengthened accordingly. Therefore, we are 
seeking further guidance for developing regulations that minimize the 
potential for contamination of crops grown for human consumption by 
pathogens from raw animal manure. This approach is consistent with the 
traditional organic certification procedures which have restricted the 
use of raw manure for environmental as well as health concerns. Other 
Federal and State regulatory programs may impose additional 
requirements on the use of raw manure in crop production which could be 
applicable to organic operations.
    The first proposal required that management practices for the 
application and storage of raw manure be implemented in a manner that 
does not significantly contribute to contamination of water by nitrates 
and bacteria, including human pathogens. The use of the word, 
``significantly,'' in this provision is a direct reference to the 
authorizing language in the OFPA (Section 2114(b)(2) (C)). However, 
commenters suggested that this language implies that ``insignificant'' 
contamination would be acceptable. This proposal requires that soil 
management practices aim at preventing, to the extent possible, any 
contamination of water by nitrates and pathogenic bacteria.
    (4) Use of Treated Seed. The first proposal permitted the use of 
treated seeds if the same variety was not commercially available in 
untreated form or if unanticipated or emergency circumstances made it 
infeasible to obtain untreated seeds. In this context, ``treated seed'' 
refers to the application of a pesticide to a seed prior to planting 
and does not include the use of a disinfection treatment for a seed 
that is intended for sprouting and food use. A number of comments from 
producer and industry groups suggested that this was appropriate but 
that a producer should have to choose an ``equivalent'' untreated seed 
variety that was commercially available. The term, ``equivalent,'' 
indicates that two seed varieties have similar performance attributes, 
such as resistance to drought and insects, and production traits, 
including yield, size, and shape of the commodity. We agree with this 
provision because it favors a nonsynthetic input over a synthetic one 
and have, therefore, included it in this proposal. We are also 
requiring that, when selecting a nonorganically produced seed, a 
producer select an untreated equivalent variety in preference to one 
which has been treated with an allowed synthetic treatment.
    Some comments objected to any allowance for the use of treated 
seeds or planting stock, citing the prohibition in 2109(c)(3) of the 
OFPA (7 U.S.C. 6508(c)(3)) on the use of transplants that are treated 
with any synthetic or prohibited material. We recognize that the use of 
synthetic seed treatments, some of which are acutely toxic, may seem 
inconsistent with a system of organic production and handling, but it 
is an established practice in State and private certification programs 
and is supported by provisions of the OFPA. We believe that retention 
of the commercial availability requirement, a preference for untreated, 
nonorganically produced seed over treated, nonorganically produced 
seed, and the use of temporary variances in this proposal provide an 
appropriate context for regulating the use of synthetic seed 
treatments.
    The requirement from the first proposal that all seeds, annual 
seedlings, and planting stock be organically produced is retained in 
this proposal. Similarly, this proposal contains a comparable exception 
to the requirement so that nonorganically produced seeds and planting 
stock could be used to produce an organic crop when an equivalent 
organically produced variety is not commercially available. A 
producer's decision to use nonorganically produced seeds and planting 
stock for reasons of commercial nonavailability of equivalent organic 
varieties must be included in his or her organic plan and agreed to by 
the certifying agent. We decided to retain these provisions from the 
first proposal after receiving comments from producer and industry 
groups that acknowledged that the supplies of organic farm inputs will 
not be sufficient to provide for the seed and planting stock needs of 
all organic operations in the near future. We have added the 
requirement that producers select equivalent untreated seed over 
treated seed when commercial availability allows them to use a 
nonorganically produced variety. We recognize that these provisions 
could lead to certifying agents facing numerous decisions regarding 
commercial availability and equivalency in the organic system plans 
they review. This degree of oversight is warranted, however, to ensure 
that the use of synthetic materials in organic production is kept to a 
minimum. We are not extending the commercial availability exception to 
the requirement for organically produced annual seedlings because the 
comments indicated that the organic input suppliers are effectively 
meeting this demand.
    In contrast to the first proposal, we propose that any synthetic 
seed treatment used in organic production must be included on the 
National List of synthetic substances allowed for use in organic 
production. We base this requirement on the OFPA, which identifies 
``treated seed'' as a category of synthetic substances eligible for 
inclusion on the National List. We believe that including specific seed 
treatments on the National List will satisfy the requirement in the 
OFPA that a farmer shall not apply a material to or

[[Page 13542]]

engage in a practice on seeds or seedlings that is contrary to or 
inconsistent with the applicable certification program. The approach we 
are proposing is also consistent with current practice in the organic 
industry. The NOSB endorsed this approach at its 1994 meeting in Santa 
Fe, NM, by recommending that seed treated with synthetic fungicides 
appearing on the National List be allowed when nontreated varieties are 
commercially unavailable.
    We propose that producers or handlers may request a temporary 
variance due to unavoidable natural disaster in order to use 
nonorganically produced annual seedlings. The temporary variance will 
be appropriate in instances in which an unexpected event such as a 
frost, flooding, fire, or other catastrophic event destroyed the 
producer's nontreated planting materials and no organically produced 
replacements are commercially available. This provision cannot be used 
to compensate for mismanagement by the producer. For example, a 
producer who planted seedlings prior to the recognized frost date and 
lost his or her crop to a freeze could not claim that this disaster was 
unavoidable. This provision requires that the producer make all 
reasonable efforts to protect his or her seeds, annual seedlings, and 
planting stock before being allowed to substitute with treated 
replacements.
    Some commenters cited the prohibition in section 2109(c)(3) of the 
OFPA against using transplants that are treated with any synthetic or 
prohibited material as justification for prohibiting the use of 
synthetic seed treatments. However, the statute permits the use of 
seeds and seedlings treated with substances included on the National 
List of allowed synthetic substances. The seemingly inconsistent 
requirements for seedlings and transplants, functionally equivalent 
terms, have made this a difficult issue to resolve. The first proposal 
attempted to reconcile these differences by defining transplant as an 
annual seedling produced on an organic farm and transplanted to a field 
on the same farm operation to raise an organically produced crop. Many 
commenters felt that distinguishing between annual seedlings which 
originated on and off the operation was not a valid approach. We 
concur, and have removed this definition, and interpret the term,'' 
transplant,'' as applying to any seedling which is transported and 
replanted, regardless of whether it originated on the operation or not. 
We interpret the prohibition on using a transplant treated with any 
synthetic or prohibited material as taking effect after the seedling 
has been physically transplanted. Therefore, the prohibition only 
applies to materials applied after transplanting and not to the 
synthetic treatment included on the National List, which may have been 
applied to the seed that produced the seedling.
    The application of disinfectants to seeds used for sprouting 
represents a unique dimension of the seed treatment issue. Raw sprouts 
pose a potential food safety risk because the conditions under which 
they are produced--growing time, temperature, water activity, pH and 
nutrient content--can foster the rapid growth of bacteria. In 1999, FDA 
issued guidance advising sprout producers and seed suppliers of 
measures to reduce microbial hazards common to sprout production. These 
measures include treating seeds with one or more approved methods such 
as presprout soaking with 20,000 ppm calcium hypochlorite. Based on the 
recommendation of the NOSB, the Secretary has included on the National 
List in this proposal three chlorine materials to disinfect and 
sanitize food contact surfaces. However, these materials carry the 
annotation that residual chlorine levels in water shall not exceed the 
maximum residual disinfectant limit under the Safe Drinking Water Act, 
which is well below the 20,000 ppm level that FDA currently advises 
sprout producers to follow.
    Existing State and private certification programs have diverged in 
their response to the FDA guidance on chlorine treatments. While 
treating food products with high concentrations of chlorine has 
traditionally been prohibited, some certifying agents currently allow 
sprout treatment at the 20,000 ppm level. Producers of organic sprouts 
are finding it increasingly difficult to balance the FDA guidance, the 
expectations of consumers, and the requirements of their certifying 
agents. This proposal contains no specific guidance on the use of 
chlorine treatments on seeds used in sprout production. As synthetic 
compounds, chlorine materials would have to be added to the National 
List at specified concentrations to be used for disinfecting sprouts. 
Without a specific National List exemption, operations that treat 
sprouts at the level established in the FDA guidance could not be 
organically managed.
    (5) Crop Rotation. The OFPA requires an organic crop production 
plan to foster soil fertility through practices that include a crop 
rotation. The first proposal required the establishment of a crop 
rotation or other ``means'' of ensuring soil fertility and effective 
pest management but did not provide explicit restrictions concerning 
situations in which those means could be substituted. Producers and 
producer groups sent many comments stressing the importance of a proper 
crop rotation for successful organic crop production and objecting to 
the vague allowance for other methods to be used in its place. Although 
we have not changed the definition of crop rotation from the first 
proposal, the new practice standard eliminates the possibility that an 
organic producer will substitute some other practice for a crop 
rotation. This proposal does, however, allow for variances from an 
approved crop rotation plan due to natural disasters, including 
weather.
    A few commenters made the point that, although the OFPA includes a 
provision for a crop rotation as a means of improving soil fertility, a 
crop rotation serves other critical functions as well. We reviewed the 
NRCS practice standard for crop rotation (Code 328) which addresses 
many of the concerns raised in public comment. Accordingly, 
Sec. 205.205 of this proposal requires the producer to implement a crop 
rotation, including, but not limited to, cover crops, sod, green manure 
crops, alley crops, and catch crops. These techniques serve the 
following functions as applicable to the operation: maintain or improve 
soil organic matter content; provide for effective pest management in 
annual and perennial crops; manage deficient or excess plant nutrients; 
provide erosion control to minimize soil loss; and manage subsurface 
water to prevent transport of dissolved materials.
    A few comments suggested requiring that rotation plans include sod 
or legumes, which serve to improve soil organic matter content and 
increase soil nitrogen supplies to meet the demands of a following 
crop. However, all of these functions could be fulfilled through many 
different types of rotation plans, which could only be developed 
according to the site-specific climate, soil type, and type of crops or 
livestock produced on a given operation. In the interest of 
flexibility, therefore, this proposal does not specify what crops have 
to be included in a crop rotation. An organic plan that meets the 
criteria specified in this proposal must be developed by a producer and 
approved by the certifying agent.
    Proposed Sec. 205.205(b) specifically applies to perennial crops. 
Under this provision, an orchard plan might include establishment of 
hedgerow areas that provide habitat for beneficial insects to assist in 
effective pest management. This provision was added

[[Page 13543]]

in response to comments stating that an organic farm plan should 
address the functions provided by crop rotations even in the case of 
perennial crops such as orchards and sod. We expect to develop program 
manuals containing more detailed information on different types of 
rotations, including methods to fulfill the prescribed functions for 
perennial crops, that are suitable to a wide range of types of 
operations and geographic conditions.
    (6) Prohibition on Cytotoxic Pest Control Substances. In response 
to several comments, we have deleted the provision in the first 
proposal to prohibit use of a synthetic carbon-based substance having a 
cytotoxic mode of action for any use as a pest control substance. Some 
commenters interpreted this provision to mean that this single 
criterion would substitute for those specified in the OFPA for 
evaluating substances proposed for inclusion on the National List. 
Other commenters, including industry groups, objected to this provision 
because it has not previously been part of certification standards and 
its meaning was too ambiguous. Some substances that have historically 
been accepted for organic production could have cytotoxic effects when 
used in inappropriate concentrations. Although this provision added to 
and did not replace the evaluation criteria contained in the OFPA and 
eliminated the need for the NOSB to review clearly inappropriate 
substances, it has been removed from this proposal in the interest of 
clarity.
Crop Production--Changes Requested But Not Made
    This subpart retains from our first proposal regulations on which 
we received comments as follows:
    (1) Buffer Zones. Section 205.202(a)(3) of this proposal requires 
that any land on which organic crops are produced have distinct, 
defined boundaries and buffer zones, such as runoff diversions, to 
prevent the unintended exposure of the crop to prohibited substances 
from adjoining land. Several commenters suggested that the regulations 
should specify a minimum size for buffer zones, as is currently 
required by some organic certifying agents. Although specifying a size 
for these zones would establish a more definable requirement, it could 
also impose unnecessary burdens on some organic producers without 
offering greater protection of organic fields and crops from unintended 
contact with prohibited substances. Another commenter argued that 
buffer zones should not be required for unmanaged lands such as 
wilderness areas or abandoned farms. There might be no need for a 
buffer zone if an organic farm were completely surrounded by wilderness 
or abandoned farms, which is one reason why a the size of a buffer zone 
should not be specified. This proposal leaves the determination of an 
adequate buffer zone to the organic producer and the certifying agent 
on a case-by-case basis. Buffer zone provisions are an important part 
of each organic production system plan, and we will provide guidelines 
for buffer zones in program manuals.
    (2) Nonorganic Plant and Animal Waste Materials. The first proposal 
permitted the use of any uncomposted plant or animal wastes. It also 
allowed use of composted plant or animal wastes obtained from 
nonorganic sources, such as commercial compost products. Several 
consumer and environmental groups objected to permitting the use of 
plant or animal wastes from nonorganic sources. Such materials, they 
argued, could potentially contain residues of prohibited substances 
that could compromise the integrity of the organic farm system. 
However, off-farm plant and animal wastes from food processing, 
municipal yard waste facilities, and other sources are used extensively 
in existing organic operations and are generally permitted by organic 
certification programs. Bone meal, fish meal, and seaweed meal are also 
commonly used as organic farm inputs. Commercial fertilizer products 
that contain mixtures of such plant and animal by-products are commonly 
permitted for use in existing organic certification programs, subject 
to certifying agent review. Using such organic wastes is consistent 
with a system of organic production and handling, which calls for 
recycling organic wastes to return nutrients to the land. We believe 
that concerns about potential contaminants in plant and animal waste 
materials can be addressed by the requirement in this proposal that 
these materials be managed in a manner that prevents such 
contamination. For example, cotton gin trash that had been treated with 
a prohibited substance could only be used if the organic system plan 
specified composting the material before adding it to the soil. 
Composting has been shown to effectively biodegrade synthetic organic 
compounds, and the organic system plan could also call for the compost 
or soil to be monitored regularly for specific residues.
    Finally, the first proposal and this proposal prohibit the use of 
any commercially blended fertilizer product that contains a prohibited 
substance, as required by the OFPA. Although a number of commenters 
worried that a product containing toxic synthetic substances as inert 
ingredients could be used for organic production, this prohibition 
prevents such products from being used. For this reason, the use of any 
composted or uncomposted plant or animal wastes to supply soil or crop 
nutrient is permitted without further limitation other than preventing 
contamination of soil or water by pathogenic organisms, heavy metals, 
or residues of prohibited substances. The certifying agent will be 
expected to have the expertise to recognize materials that might be of 
concern and ensure that they are properly addressed in the organic 
system plan. We expect to provide additional guidelines in program 
manuals to help evaluate whether animal manure is fully decomposed, as 
well as guidelines for other types of materials to address potential 
soil or water quality concerns. We acknowledge the need to examine 
carefully commercial blended fertilizers and soil amendments to ensure 
that such products do not contain prohibited substances.
    (3) Chemically Altered Plant or Animal Waste Materials. The first 
proposal allowed the use of a composted or uncomposted plant or animal 
waste material that had been chemically altered by a manufacturing 
process--such as leather meal, newspaper, and biosolids--if the 
material was included on the National List of allowed synthetics. Only 
newspaper was proposed for inclusion on the National List. A few 
commenters objected to this allowance, although newspaper is commonly 
permitted as a mulch material or as an ingredient in compost in 
existing organic certification programs and was recommended for this 
use by the NOSB. The National List review process offers an adequate 
safeguard to ensure that other waste materials that may be permitted in 
the future will be consistent with a system of organic production and 
handling, and we propose to retain this provision in Sec. 205.203(c)(5) 
of this proposal.
    (4) Soil and Crop Mineral Nutrients. This proposal includes 
provisions for supplying soil and crop mineral nutrients that are 
similar to those in the first proposal. While use of a proper crop 
rotation and recycled plant and animal wastes can often provide all the 
mineral nutrients required by crops, supplemental sources of these 
nutrients are sometimes needed. Section 205.203(d) of this proposal 
permits a producer to supply soil and crop nutrients through use of 
mined minerals and other nonsynthetic sources. Synthetic micronutrients 
are also allowed if they are included on the

[[Page 13544]]

National List. Ash from plant or animal materials can be used, as long 
as the burned material was not treated or combined with a prohibited 
substance and was not included on the National List of prohibited 
nonsynthetic substances. For example, ashes from treated wood or 
incinerator ash are not permitted, nor is ash from manure, which is on 
the National List of prohibited nonsynthetics. The prohibition of 
burning crop residues on the farm in the first proposal has been 
retained, but an exception for burning trimmings of perennial crops to 
control diseases has been added in response to an NOSB recommendation.
    Commenters raised no objection to the proposed allowance for 
mineral substances of low solubility, including lime, greensand 
(glauconite), and rock phosphate, which have traditionally been 
permitted in organic certification programs. However, numerous 
producers and certifying agents expressed concern about the allowance 
for use of mined mineral substances of high solubility or salinity. 
These include substances such as sodium (Chilean) nitrate or potassium 
nitrate (niter), potassium chloride (muriate of potash), langbeinite 
(sulfate of potash magnesia), and potassium sulfate. Because of their 
potential to degrade soil quality by contributing to soil salinization, 
these substances, along with the synthetic micronutrients that are on 
the National List of allowed synthetics, were allowed only when used in 
cases of known nutrient deficiency. Many commenters objected to the use 
of sodium nitrate and potassium nitrate in organic production, and some 
contested the determination that nonsynthetic, mined sources of 
potassium nitrate are available. Some also objected to allowing 
potassium chloride, which has traditionally been prohibited in most 
organic certification programs. Several commenters argued that no 
highly soluble source of nitrogen, synthetic or not, should be 
permitted for application to soil in an organic management system. They 
indicated that these materials are not permitted in international 
organic standards, and approval could potentially harm exports of 
organic products. The NOSB reviewed Chilean nitrate in 1995 and 
recommended certain restrictions on the use of this material, which is 
allowed with restrictions in some existing organic certification 
programs and prohibited in others. In accordance with the NOSB's 
recommendation, this proposal permits these materials to be used 
according to justifications in the organic system plan. More detailed 
guidance will be provided in program manuals on the appropriate 
justifications for the use of highly soluble nutrient sources, 
including plans for discontinuing their use. Soil or tissue testing 
will be an important aspect of justifying the need for any such 
supplementation. Producers concerned about requirements for export 
markets can request certification to the standards required by 
individual contracts.
    (5) Nonorganically Produced Planting Stock. The first proposal 
allowed nonorganically produced planting stock used to produce a 
perennial crop to be sold, labeled, or represented as organically 
produced after the planting stock had been managed on an organic 
operation for a period of no less than 1 crop year. This provision is 
authorized by section 2107(a)(11) of the OFPA (7 U.S.C. 6506(a)(11)). 
Some commenters thought this provision provided a loophole for 
indiscriminate use of treated planting stock on an organic operation. 
They argued that a producer could purchase treated nursery stock and 
list it as organic planting stock in the organic plan after only 1 
year. However, producer and industry groups supported this provision as 
an important stimulus to the organic input suppliers, since it allows a 
nursery operation to purchase planting stock from a nonorganic 
operation and later resell this stock as organically produced. The 
first proposal described an organic nursery operation which could 
purchase nonorganic dwarf apple rootstock and graft it with locally 
adapted varieties and then sell the resulting planting stock as 
organically produced after raising it organically for at least 1 year. 
We agree that the potential benefits of this provision outweigh its 
possible abuses, and Sec. 205.204(d) of this proposal permits 
nonorganically produced planting stock to be used as planting stock to 
produce a perennial crop to be sold, labeled, or represented as 
organically produced after the planting stock has been under a system 
of organic management for no less than 1 crop year.
    (6) Pest, Weed, and Disease Control Practice Standard. The OFPA 
sets forth practices such as the use of natural poisons that persist in 
the environment or plastic mulches that are prohibited or restricted in 
the control of pests, weeds, and diseases in organic crops. It also 
lists the following categories of active synthetic pest, weed, and 
disease control substances that may be considered for exemption if they 
are included on the National List: Copper and sulfur compounds; toxins 
derived from bacteria; pheromones; soaps; horticultural oils; fish 
emulsions; treated seed; vitamins and minerals; livestock parasiticides 
and medications, and production aids, including netting, tree wraps and 
seals, insect traps, sticky barriers, row covers, and equipment 
cleansers. Section 205.206 of this proposal contains the practice 
standard to implement the provisions of the OFPA for synthetic pest 
control substances.
    We have made a minor modification by eliminating one element of the 
order of preference which commenters considered too difficult to 
enforce. There is no distinction made in this proposal between pest 
prevention and control practices in terms of preferability. However, a 
provision in the first proposal that permitted application of a 
botanical or allowed synthetic pest control substance only if 
previously delineated methods were ineffective has been retained. This 
provision is supported by public comments from producers, certifying 
agents, and many consumers who emphasized that such substances, while 
sometimes necessary, should only be permitted as a last resort. This 
provision requires a producer to document the need for copper and 
sulfur fungicides, dormant oils, or similar materials in their organic 
system plan.
    (7) Wild-crop Harvesting. We received few comments on the provision 
in the first proposal concerning wild-crop harvesting, and, therefore, 
this proposal retains similar requirements. Changing the term for the 
location from which wild crops may be harvested from ``land'' to 
``area'' is the only substantive difference between the first proposal 
and this one. We made this change to be consistent with the language in 
the OFPA. One commenter stated that maps should be required as part of 
the certification process. A certifying agent could reasonably require 
such maps to assist in evaluating the organic system plan, but we have 
not made their inclusion a requirement.
    The provisions of this section apply only to the management of wild 
crops. The OFPA includes ``fish used for food, wild or domesticated 
game, or other nonplant life'' in the definition of livestock, and we 
are considering additional standards for animals and animal products 
harvested from the wild. We received substantial public comment on the 
opportunities for developing standards for marine and freshwater 
aquatic animals (encompassing finfish and shellfish) and apiculture 
operations. Additional comments addressed the feasibility of developing 
production standards for harvesting wild terrestrial animals.

[[Page 13545]]

    The certification of aquatic animals has very limited precedent 
among existing certifying agents and will require additional dialogue 
before credible standards can be developed. The FY 2000 Agriculture, 
Rural Development, Food and Drug Administration, and Related Agencies 
Appropriations Act provides funds for the NOP to convene national 
meetings to consider the development of organic standards for aquatic 
animals. Meetings will be held in Alaska, Alabama, and Rhode Island. 
Simultaneously, the NOP will be working with stakeholders from the 
aquaculture community to consider standards for the production of farm-
raised aquatic animals.
    The certification of apiculture operations has some precedent among 
certifying agents. However, due to many unique production 
considerations, organic certification for apiculture operations has 
been very limited. Public comment on the first proposal indicated that 
consensus on critical apiculture issues including forage area and pest 
management will require considerable additional dialogue. The NOSB has 
expressed interest in leading the discussion of the key issues 
pertinent to certification of apiculture operations. We will 
incorporate public participation and the NOSB's recommendations into 
future production standards for apiculture as well as for other wild 
harvested livestock operations as needed.
    (8) Practice Standards for Specialty Crop Operations. Several 
organic certifying agents and producer associations commented that the 
proposed rule did not sufficiently detail prescribed practices for many 
specialized aspects of organic production and handling, such as 
mushrooms, greenhouses, and aquaculture. We concur that such details 
are lacking, and to a certain extent, this proposal addresses that gap 
through the introduction of more detailed practice standards. In some 
cases, more specific regulations appropriate for such specialized 
operations, including aquaculture, mushroom production, and greenhouse 
operations, will be filled in as recommendations are developed by the 
NOSB. Beyond this, the Department expects to address the need for 
greater specificity through program manuals, which will provide more 
detailed guidance about site-specific decisions. For example, program 
manuals could include examples of crop rotation plans suited to 
different geographic regions, soil conditions, and types of 
enterprises. Program manuals could also be used to provide guidance 
about how indicators of the condition of the natural resource base can 
be qualitatively assessed using simple field observations so that the 
impact of site-specific practices on soil and water quality can be 
documented in the organic plan.
Crop Production--Additional Provisions
    Upon further review of the provisions in the first proposal, we 
have decided to propose the following additions and changes.
    (1) Mandatory Phytosanitary Treatment of Seeds, Seedlings, and 
Planting Stock. Section 205.204(e) of this proposal contains a new 
provision that permits the use of treated seeds, seedlings, or planting 
stock in cases in which Federal or State phytosanitary regulations 
require treatment. For example, some States require seed potatoes or 
strawberry crowns to be treated to prevent the spread of plant 
diseases. The OFPA authorizes reasonable exemptions from specific 
requirements for compliance with Federal or State emergency pest or 
disease treatment programs. This provision is also consistent with the 
NOSB's recommendation on the use of treated planting stock.
    (2) Restriction on the Use of a Synthetic Pest Control Substance. 
The first proposal included a provision that any use of biological or 
botanical pest control substances or synthetic pest control substances 
approved for use on the National List had to be used in a manner that 
did not result in measurable degradation of soil or water quality. This 
provision has been removed, and Sec. 205.207(e) of this proposal 
includes a new provision that further restricts use of these substances 
by requiring the producer to implement measures to evaluate and 
mitigate the effects of repetitive use of the same or similar materials 
on pest resistance and shifts in pest types. This requirement can be 
met by reviewing available research on pest resistance to the substance 
being used and observing changes in pest populations following repeated 
application of the substance. Public comments pointed out evidence that 
nonsynthetic biological and botanical pest control substances, if 
overused, pose concerns for inducing accelerated resistance in pest 
populations.
Livestock Production--Changes Based on Comments
    This subpart differs from our first proposal in several respects as 
follows:
    (1) Minimum Period of Organic Management--Nonedible Products. The 
first proposal established a 90-day minimum period of organic 
management for animals from which nonedible products, such as wool, 
were to be harvested. Many consumers and producers said that a 90-day 
period was too short and that an animal should be under organic 
management for at least 1 year before a nonedible organic product could 
be obtained from it. This requirement is consistent with the provision 
that dairy animals receive a minimum of 1 year of continuous organic 
management prior to the production of the milk or milk products to be 
sold, labeled, or represented as organic. Therefore, this proposal has 
been revised to state that an animal brought into an organic operation 
must be under continuous organic management for 1 year prior to the 
harvest of nonedible products that are sold, labeled, or represented as 
organic.
    (2) Origin of Mammalian Slaughter Stock. The first proposal allowed 
mammalian livestock from a nonorganic source for the production of 
organic meat if the livestock was brought into an organic operation no 
later than the 15th day of life, if necessary. Public comment was 
sought as to the specific conditions, such as commercial unavailability 
of organic livestock or an emergency situation, that should be a 
prerequisite for allowing mammalian livestock of nonorganic origin to 
be designated as organic slaughter stock. Thousands of commenters, 
along with the NOSB, strongly opposed allowing the use of cows, sheep, 
or other mammals as organic slaughter stock if they were not organic 
from birth. Most of them also rejected allowing such practices on an 
``if necessary'' basis. Accordingly, Sec. 205.236 requires that 
mammalian slaughter stock be organically raised from birth.
    (3) Standard for Aquatic Animal Production. While the first 
proposal contained no standards solely for aquatic animals in an 
organic operation, it did contain provisions applicable to their 
production. The first proposal allowed fish and crustaceans, among 
other livestock types, to be sold, labeled, or represented as organic 
if such livestock had been brought into an organic operation no later 
than the earliest commercially available stage of life. Several 
commenters suggested that the management of aquatic species differs 
significantly from mammals and poultry and would require separate 
regulatory provisions. We concur and intend to develop detailed 
practice standards for specific aquatic species that will be published 
for comment and finalized prior to the implementation of the NOP. Given 
the virtual absence of recognized certification programs for

[[Page 13546]]

aquatic operations, including aquaculture, there are limited models on 
which to base national standards. Therefore, we must create 
opportunities for producers, consumers, certifying agents, and other 
interested parties to participate in the development of practice 
standards. We will hold public meetings in Alaska, Alabama, and Rhode 
Island to receive comment and anticipate that the NOSB will also 
provide recommendations.
    (4) Apiculture Standard. The first proposal allowed bees to be 
brought into an organic operation at any stage of life and required 
that the predominant portion of their forage be organically produced. 
Several commenters, including producer and industry groups, pointed out 
that bees differ significantly from other livestock types and that the 
first proposal lacked sufficient details to guide honey producers. Many 
consumers stated that the provisions proposed for bee forage, which 
required only that a predominant portion of the bees' forage be 
organic, were too vague and lenient. Recognizing that the provisions in 
the first proposal for certifying beekeeping operations were 
inadequate, we removed them entirely from this proposal. We will review 
the detailed production and handling standards for beekeeping 
operations that several certifying agents have developed and assess the 
feasibility of developing a practice standard. The NOSB has agreed to 
review and recommend an apiculture practice standard for organic honey 
production and hive care, including the origin of organic bees.
    (5) Organic Feed Requirement. The first proposal allowed a producer 
to feed livestock up to 20 percent of the total feed ration in a given 
year that was not organically produced. Furthermore, in an emergency 
situation, the first proposal allowed the Administrator to increase the 
amount of nonorganic feed that could be provided. Thousands of comments 
were received opposing any allowance for nonorganic livestock feed, and 
many thought that no conditions justified providing any nonorganic feed 
to organic animals. Most producer groups, organic certifying agents, 
and industry groups, however, recognized that eliminating all 
flexibility in this regard could seriously inhibit growth of the 
organic livestock industry and reduce the availability organic 
livestock products. Several existing certification programs allow some 
use of nonorganic feed in emergencies, in one case specifying that up 
to 10 percent of the livestock ration may be nonorganic. Commenters 
made it clear that the commercial availability of certified organic 
livestock feed has increased enough to eliminate exemptions based on 
availability, even in regions such as the Northeast where supplies were 
previously difficult to obtain. The NOSB also recommended providing an 
allowance for livestock to receive nonorganic feed in emergency 
situations, with strict requirements for documentation in the organic 
system plan.
    Based on the public comment received and the recommendations of the 
NOSB, we agree that allowances for providing nonorganic feed to 
organically managed livestock should be limited to emergencies, such as 
fire, drought, flood, and other natural disasters. Accordingly, we have 
removed the provision from the first proposal that a producer may 
provide up to 20 percent nonorganically raised feed ``as necessary.'' 
Exemptions for emergency use of nonorganic feed must be authorized by 
the Administrator through the procedures for establishing a temporary 
variance. Producers will work with their certifying agents to determine 
the minimum percentage of nonorganic feed needed to supply the 
nutritional requirements of the livestock until the 100 percent organic 
ration can be restored.
    (6) New Dairy Herd exemption. The first proposal included an 
exemption to allow an entire, distinct dairy herd--converted to organic 
management for the first time--to be fed nonorganic feed up to 90 days 
prior to the production of milk or milk products labeled as organic. A 
few producer groups supported this allowance for a one-time, whole-herd 
exemption to make it feasible for existing conventional dairy farmers 
to convert to organic management without incurring the costs of 100 
percent organic feed for 12 months prior to certification. However, in 
light of the strong opposition to any nonorganic feed allowance by 
consumers and its inconsistency with NOSB recommendations, we have 
eliminated this provision.
    (7) Synthetic Feed Additives. The first proposal prohibited the 
feeding of substances containing synthetic amino acid additives and 
synthetic trace elements to stimulate the growth or production of 
livestock. In Sec. 205.237(c)(2), the term, ``synthetic amino acids,'' 
is replaced with the term, ``additives,'' which includes nutritional 
substances other than amino acids. Some commenters stated that the 
term, ``additives,'' more precisely reflects the intent of the OFPA, 
which prohibits the use of growth stimulants. The provision in the 
first proposal to permit use of synthetic amino acid additives to 
fulfill the normal nutritional needs of livestock is retained in 
Sec. 205.237(a).
    (8) Prohibition on Antibiotics. The OFPA prohibits producers from 
using subtherapeutic doses of antibiotics. While this suggests that 
treatment with antibiotics at therapeutic levels is allowed, the OFPA 
does not contain affirmative conditions for their use. In developing 
provisions in the first proposal for treating livestock with 
antibiotics, we reviewed the NOSB recommendations, public input 
received at NOSB meetings, testimony presented at livestock hearings, 
and existing State and private standards. We found that innovative 
production practices and consumer expectations had increasingly 
diminished the use of antibiotics in organic livestock since passage of 
the OFPA. At its 1994 meeting in Santa Fe, NM, the NOSB recommended 
prohibiting the use of antibiotics in the production of organic 
slaughter stock but allowing their use with extended withdrawal 
intervals for dairy and breeder stock. By its Ontario, CA, meeting in 
1998, the NOSB recommended prohibiting all antibiotic use after animals 
were brought into an organic operation. Other comments we reviewed 
favored allowing the use of antibiotics because organic livestock might 
benefit from receiving such treatments. Other commenters requested that 
organic producers be prohibited from withholding treatment from sick 
animals for economic reasons.
    The first proposal permitted mammals raised as organic slaughter 
stock to receive antibiotics in the first 21 days of life and other 
species to be given antibiotics in the first 7 days of life. The 
rationale for allowing antibiotic use was based on concerns about the 
vulnerability of newly born or hatched livestock brought into an 
organic operation from a nonorganic source. The first proposal 
permitted organic slaughter stock to originate from nonorganic sources 
if it was brought under organic management at an early stage of life. 
Allowing the use of animal drugs could be an appropriate safety net for 
young organic livestock during their first week of organic management. 
We requested public comment on the use of animal drugs in the 
production of organic livestock, including organic slaughter stock. We 
also published an issue paper in October 1998 entitled ``The Use of 
Antibiotics and Parasiticides in Organic Livestock Production,'' 
requesting additional public comment on this subject.
    We received thousands of comments from consumers, producers, and 
industry groups objecting to any allowance for antibiotic use in

[[Page 13547]]

organically produced livestock. Many of these comments supported a 
comprehensive prohibition on the use of antibiotics, regardless of the 
animal's age or the type of products produced from it. Based on these 
public comments and the availability of alternative production 
practices, this proposal prohibits selling, labeling, or representing 
as organic any animal that has been treated with an antibiotic at any 
dosage.
    (9) Parasiticide Use. The first proposal permitted livestock in an 
organic operation to receive parasiticides topically at any time of 
life, provided that the producer complied with the prohibition against 
routine use of a synthetic internal parasiticide. We concluded that, 
while some earlier public comment favored prohibiting the use of 
internal parasiticides and the NOSB recommended restricting their use, 
many producers had indicated that parasiticides were essential to their 
operations. These producers stated that parasites can threaten animal 
health at any stage of life and that the use of parasiticides is 
unavoidable in certain regions of the country. Even under highly 
controlled situations, some parasites endemic to certain regions can be 
carried by wild birds, water, or feed. Concerns for the overall health 
of an animal warranted that parasiticides be used as soon as possible 
after determining the presence of parasites at a level affecting the 
health of the infected livestock.
    In responding to the first proposal, a large number of commenters 
stated that synthetic parasiticides should be prohibited in organic 
production, especially for slaughter stock. The NOSB also recommended 
prohibiting the use of parasiticides in slaughter animals. For other 
livestock, the Board recommended that, in certain climates, in certain 
stages of production, and for certain animals, the use of synthetic 
parasiticides might be necessary. The Board stated that breeding stock, 
for example, could receive parasiticides up to certain stages of 
gestation specific to the type of livestock. Such use of synthetic 
parasiticides would be highly restricted and include a lengthy period 
of elapsed time before the animal's offspring would be eligible for use 
in a certified operation. The Board proposed developing practice 
standards to address specific instances in which parasiticides could be 
allowed.
    This proposal allows the use of synthetic parasiticides included on 
the National List for use in organic production on breeder and dairy 
stock provided that preventative practices and veterinary biologics are 
inadequate to prevent infestation. This proposal prohibits 
administering synthetic parasiticides to livestock sold for slaughter. 
These provisions reflect an attempt to balance the conflicting 
positions taken by consumers and producers in response to the first 
proposal and the subsequent issue paper on livestock medications. We 
recognize that the goal of organic production is to use management 
practices and natural substances to eliminate, when possible, reliance 
on synthetic materials. However, we do not believe that a comprehensive 
prohibition on synthetic parasiticides is feasible for all species and 
for all regions of the country at this time. Additionally, the new 
requirements for access to the outdoors for organically managed 
livestock contained in this proposal may exacerbate exposure to 
parasites for animals in systems which previously used greater degrees 
of confinement. These provisions are also consistent with the position 
of the NOSB, which recommended at its October 1999 meeting to allow a 
synthetic parasiticide for use on organically raised breeder and dairy 
stock with the same restrictions incorporated in this proposal.
    The OFPA prohibits the use of synthetic internal parasiticides on a 
routine basis. In the first proposal, the word, ``routine,'' was 
defined as administering an animal drug ``without cause.'' Many 
commenters objected to that definition, pointing out that producers 
would not administer a parasiticide unless they perceived a justifiable 
cause. Commenters fear that this might lead to dependence on 
parasiticides rather than a management system to reduce the number of 
parasites. Therefore, this proposal adopts the NOSB-recommended 
definition for ``routine'' as use of a synthetic parasiticide on a 
regular, planned, or periodic basis. The prohibition on using synthetic 
treatments on a routine basis is retained in Sec. 205.238(c)(4).
    (10) Temporary Confinement. The first proposal provided that, if 
necessary, animals could be maintained under conditions that restrict 
the available space for movement or access to outdoors if other living 
conditions were adequate to maintain the animals' health without the 
use of permitted animal drugs. This provision considered the effects of 
climate, geographical location, and physical surroundings on the 
ability of animals to have access to the outdoors. We explained that a 
system of organic production is soil based and that animals should be 
allowed, as appropriate, access to the soil. This understanding was 
considered in balance with animal health issues, such as the need to 
keep animals indoors during extended periods of inclement weather. The 
determination of necessity was to be based on site-specific conditions 
described by the producer in an organic system plan or updates to an 
organic plan, which required approval from the certifying agent. We 
requested public comment as to the conditions under which animals may 
be maintained to restrict the available space for movement or access to 
the outdoors. We also released an issue paper in October 1998 entitled 
``Livestock Confinement in Organic Production Systems'' to solicit 
further public participation in preparing this proposal.
    Many commenters stated that, while confinement is appropriate under 
certain conditions, access to the outdoors is a fundamental tenet of 
organic livestock production. Commenters cited the widespread 
prohibition on confinement systems, such as raising poultry in battery 
cages, contained in domestic and international standards. Producers of 
organic livestock have incorporated access to the outdoors into viable 
production systems for all major commercial species, and consumers 
clearly identify these practices as a distinguishing characteristic of 
organic products. Some commenters stated that production standards 
containing broad allowances for confinement would weaken their 
incentive for purchasing organic products. Some producers pointed out 
that providing animals access to the outdoors can reduce stress and 
diminish the risk of transmitting disease. The vast majority of 
commenters strongly indicated that protection of an animal's welfare or 
the soil and water resources of the operation were the only appropriate 
conditions for restricting access to the outdoors. Furthermore, many 
commenters stated that the condition and properties of the outdoor area 
to which an animal receives access, such as the nutritional content of 
pasture, must be important considerations in developing livestock 
production standards.
    Section 205.239(b) of this proposal specifies the circumstances 
under which animals may be temporarily confined. This new requirement 
proposes temporary confinement during periods of inclement weather; 
certain stages of production such as when dairy animals are very young; 
when the animal's health, safety, or well-being are jeopardized; or 
when there is risk to soil and water quality. The NOSB specified that 
the stage of an animal's production

[[Page 13548]]

is not intended to include the lactation cycle of dairy animals in 
which only dry cows would be allowed access to the outside and pasture. 
The NOSB recommended and we propose that when there is a risk to soil 
or water quality, livestock should be temporarily confined. Practice 
standards addressing when and how individual species may be temporarily 
confined will be developed and published in program manuals. We are 
also incorporating the NOSB recommendation that ruminants receive 
access to pasture during the periods they are not temporarily confined.
    (11) Physical Alterations. This proposal contains a requirement in 
Sec. 205.238(a)(5) that the producer of an organic livestock operation 
must perform, as needed, physical alterations on livestock to promote 
the animal's welfare and in a manner that minimizes pain and stress. 
Physical alterations include castration and other practices, such as 
wing clipping, intended to modify or affect the animal's behavior in 
confinement. We received comments on the first proposal which stated 
that the performance of physical alterations is integral to a system of 
organic livestock production which must be addressed in the standards. 
Subsequently, some commenters on the confinement issue paper drew a 
connection between certain physical alterations, such as debeaking in 
poultry, and the conditions for space and mobility under which 
livestock are raised We anticipate that this subject will be a 
significant consideration when the NOP engages in equivalency 
discussions under the Codex Alimentarius guidelines.
    While many certification programs have production standards for 
conducting physical alterations on animals, we cannot identify general 
consensus on which practices should be approved or prohibited. Many 
production variables, including breed, the number and concentration of 
animals raised, and the available natural resource base, influence the 
selection of production practices. Operations which raise the same 
species of livestock could, due to differences in production practices, 
require different approaches to whether and how to conduct physical 
alterations. We do not have sufficient information at this time to 
propose species-specific guidelines but anticipate working with 
producers, consumers, and certifying agents to develop a better 
understanding on which to act. By including the requirement for 
conducting physical alterations in a manner which promotes an animal's 
welfare and minimizes pain and stress in this proposal, we are 
acknowledging two points. One, physical alterations have an appropriate 
and at times necessary role in livestock production, and, two, 
consideration for animal welfare and comfort is an integral component 
of organic livestock production.
    In order to use an animal's welfare and comfort as a condition for 
establishing standards, we are requesting comment on techniques to 
measure animal stress. Certifying agents will need objective, 
verifiable methods to determine whether a producer is fulfilling the 
livestock management conditions established in the organic system plan. 
Such methods may include physiological or behavioral approaches to 
measuring stress and may be directed at individual animals or larger 
groups such as herds or flocks. The many comments addressing the well-
being of animals under organic management indicate that this issue is 
central to the differentiation of organic production standards from 
nonorganic practices. We need consistent, verifiable enforcement 
techniques to ensure that organic producers are capable of attaining 
and documenting such standards.
    (12) Treatment of Sick or Injured Animals. In this proposal, any 
animal that is to be sold, labeled, or represented as organic may not 
be treated with a prohibited animal drug, including antibiotics, 
synthetic substances that are not allowed, or nonsynthetic substances 
that are prohibited. Any substance used as an animal drug in organic 
livestock production must be approved by FDA or registered by EPA and 
must be administered in compliance with the Federal Food, Drug, and 
Cosmetic Act. This proposal simultaneously requires that sick or 
injured animals must be treated with the appropriate animal medicine 
regardless of whether organic status is lost as a result of doing so. 
This requirement has been added in response to an NOSB recommendation. 
Thousands of comments expressed concern that organic livestock would 
suffer unduly if producers were not required to provide treatment, 
especially to save the life of a critically ill animal, rather than 
risk the suffering or death of the animal simply to maintain its 
organic status. If the treatment required under this proposal includes 
the use of a prohibited substance, the animal and any product derived 
from it must be diverted to the nonorganic market.
    (13) Feeding of Animal By-Products. Although we received thousands 
of comments supporting a ban on the feeding of any animal by-products 
to livestock under organic management, a broad prohibition would 
prevent certain essential practices, such as feeding milk to young 
mammals. This prohibition is also inappropriate in the case of 
carnivorous livestock, such as many aquatic species. We believe that 
the comments we received were not intended to prohibit such practices 
but were, rather, motivated by concerns for food safety and the humane 
treatment of animals. This proposal prohibits the feeding of poultry 
and mammalian slaughter by-products to organically raised poultry or 
mammals. This change is based on the thousands of comments that 
expressed strong consumer preference against adding animal by-products 
into feed for the same species. There was concern that this practice 
could expose ruminant animals to Bovine Spongiform Encephalopathy 
(BSE). FDA regulates animal feed additives and uses its authority to 
address the human health considerations of animal refeeding. FDA 
continually revises its regulations to ensure the highest level of 
protection against known and emerging human health risks. The 
prohibition on feeding poultry and mammalian slaughter by-products to 
organically raised poultry or mammals contained in this proposal is 
based solely on the consumer preference expressed in public comment and 
is not a food safety standard. Future changes that are made to FDA 
regulations will be reflected in NOP standards.
    (14) Withdrawal Intervals. The first proposal required that a 
producer determine that an animal was fully recovered from the 
condition for which an animal drug was administered before a product 
obtained from that animal could be sold, labeled, or represented as 
organic. In compliance with FDA regulations, this could not have been 
less than the withdrawal time specified on the label of the animal drug 
administered. We received comments from producer groups that favored 
extending the withdrawal times specified on animal drug labels. Many 
private certification programs applied the principle of extended 
withdrawal periods to the use of antibiotics in dairy and breeder stock 
before innovations in production led to such substances being 
prohibited. The NOSB has continued to include extended withdrawal 
period annotations with its recommendations for the use of 
parasiticides.
    Based on consumer preference and the recommendations of the NOSB, 
we are proposing an extended withdrawal interval for three animal drugs 
(Ivermectin, Lidocaine, and Procaine) included on the National List in 
this proposal. FDA exercises full responsibility for determining and

[[Page 13549]]

enforcing the withdrawal intervals for animal drugs. No food safety 
arguments are used or implied to support the use of extended withdrawal 
periods. Rather, we determined that extended withdrawal periods are 
more compatible with consumer expectations of organically raised 
animals. In emergency situations where the need for a synthetic 
parasiticide or medicine is unavoidable, an extended withdrawal period 
would indicate that such use was neither routine nor normal. This 
approach is consistent with the manner in which organic certification 
agencies addressed antibiotic use in livestock production. Before the 
current prohibition on antibiotics became the industry norm, certifying 
agents allowed their use under restricted conditions, including 
extended withdrawal intervals, to demonstrate to consumers that such 
use was genuinely essential.
Livestock Production--Changes Requested But Not Made
    This subpart retains from our first proposal regulations on which 
we received comments as follows:
    (1) Feed Requirements. The first proposal required the use of 
preventive health care practices, including diverse feedstuffs, 
appropriate housing, well maintained pasture, and good sanitation 
practices, and this proposal contains similar provisions. It also 
included provisions for administering appropriate veterinary biologics, 
vitamins, and minerals, and on selecting species and types of livestock 
with regard to suitability for site-specific conditions and resistance 
to prevalent diseases and parasites. Preventive health care practices 
were generally supported by comments as being consistent with a system 
of organic livestock production.
    Many commenters requested an explanation of the term, ``diverse 
feedstuffs,'' and some expressed concern that this provision could 
permit use of feed supplements which might be prohibited by other 
Federal, State, or local laws. All provisions proposed in this subpart 
must be in compliance with applicable laws and regulations, including 
the Federal Food, Drug, and Cosmetic Act; the OFPA; and our definition 
of a system of organic production and handling. Vitamins, minerals, and 
other synthetic or nonagricultural supplements, which appear on the 
National List of allowed synthetic livestock products in the first 
proposal are similarly permitted here, and provide a means to diversify 
an animal's diet. Soybean meal and other organically produced feed 
concentrates also serve this purpose. We encourage the NOSB to develop 
and recommend practice standards to provide additional guidance 
regarding the appropriate variety of feed for specific livestock 
species. Both the first proposal and this one defer to publications of 
the National Research Council's Committee on Animal Nutrition to 
establish nutrient requirements for livestock. Producers and certifying 
agents will use these publications to ensure that animal nutrient 
requirements are met.
Handling--Changes Based on Comments
    This subpart differs from our first proposal in several respects as 
follows:
    (1) Irradiation. In the first proposal, we requested public comment 
on the compatibility of ionizing radiation (irradiation) with a system 
of organic production and handling. We also asked if there are 
effective alternatives to ionizing radiation, such as sanitary 
practices, heat pasteurization, and incidental additives, that are 
compatible with a system of organic production and handling, and, if 
so, how they are compatible. We further asked whether the use of 
ionizing radiation was considered an essential standard industry 
practice or good manufacturing practice. Although the NOSB recommended 
prohibiting the use of ionizing radiation for organic products, we 
requested this information because of increasing concern about 
foodborne illness and growing interest in FDA-approved ionizing 
radiation as a sanitation or preservation treatment for a wide range of 
agricultural products.
    We received hundreds of thousands of comments from every segment of 
the organic community--producers, processors, certifying agents, 
consumers, environmental groups, and retailers--opposing the use of 
ionizing radiation. These comments indicated that ionizing radiation 
has been expressly prohibited in all existing organic certification 
standards, international as well as domestic. Allowing this practice 
could put domestic producers and handlers at a trade disadvantage, 
disrupt international markets, and undermine consumer faith in the 
integrity of the domestic organic label.
    Comments suggested alternatives to ionizing radiation for 
preventing contamination by human pathogens. Alternatives include heat 
disinfection, refrigeration, moisture and oxygen reduction, packaging, 
hygienic handling, and appropriate use of disinfectant substances. 
Although no one suggested that any products might be unavailable if 
irradiation were prohibited, many commenters expressed the willingness 
to do without any product that required irradiation. In response to the 
overwhelming consensus of public comment, this proposal prohibits any 
use of ionizing radiation for the handling of any organic product in 
Sec. 205.270(c).
    (2) Incidental Additives. The first proposal included a provision 
that permitted the use of incidental additives in processing, except 
those extracted with a volatile synthetic solvent, if it was necessary 
for the production of the product. As with previous provisions for 
practices that could be used only ``if necessary,'' the preamble to the 
first proposal explained that a determination of necessity was based on 
site-specific conditions that were described by a producer or handler 
in an organic system plan or updates to an organic system plan and 
reviewed by the certifying agent. We requested comments as to the 
conditions under which an incidental additive might be considered 
necessary and requested comment as to whether handlers who handle only 
products sold, labeled, or represented as ``made with certain organic 
ingredients'' should be exempted from the restriction of using 
incidental additives only if necessary. An incidental additive was 
defined as an additive that is present in an agricultural product at an 
insignificant level, does not have any technical or functional effect 
in the product, and is not considered an active ingredient. This 
definition is consistent with 21 CFR 101.100(a)(3)(ii) and is the basis 
for the definition of an incidental additive in this proposal.
    Although thousands of consumers objected to the use of synthetic 
substances in processed organic products, many others specified that an 
incidental additive that had been reviewed and approved by the NOSB 
would be acceptable. Few respondents supported exempting products 
labeled as ``made with organic ingredients'' from restrictions on the 
use of incidental additives. The NOSB recommended that documentation be 
required for use of synthetic incidental additives and that handlers 
demonstrate progress over time in finding replacements. Organic 
industry groups also commented that hundreds of incidental additives 
are currently being used to process organic products and that 
prohibiting the use of such substances would severely restrict the 
choices available to consumers and limit the growth of the organic 
sector. The NOSB recommended several synthetic incidental additives for 
the National List, recognizing that a wide range of organic products 
could not be feasiblely manufactured without the use

[[Page 13550]]

of incidental additives such as defoaming agents, adjuvants, 
clarifiers, filtering agents, and equipment cleansers. Therefore, this 
proposal requires that any incidental additive used to process 
agricultural products that are intended to be sold, labeled, or 
represented as ``organic'' or ``made with organic (specified 
ingredients)'' must be included on the National List of allowed 
nonagricultural (nonorganic) substances in Sec. 205.605. A product 
labeled as ``100 percent organic'' could not be produced through the 
use of any synthetic processing aid.
    (3) Prevention and Control of Facility Pests. The first proposal 
addressed the prevention and control of facility pests and authorized 
the NOP to require such terms and conditions as are determined 
necessary. These provisions were based on existing organic 
certification programs and NOSB recommendations. The first proposal 
included a three-step order of preference, which commenters found to be 
overly complex and difficult to enforce. This proposal retains similar 
provisions but simplifies the scheme so that there are only two levels 
of distinction between preferable and less preferable practices. In 
this proposal, pest prevention and control methods that do not entail 
use of biological, botanical, or synthetic substances are equally 
acceptable, and the producer or handler may only use biological, 
botanical, or synthetic substances if other approved methods are not 
effective. Paragraph (c) of Sec. 205.271 parallels the provision 
proposed in Sec. 205.206(d) addressing crop pest, weed, and disease 
management. Accordingly, it requires an operator of an organic handling 
operation who applies any biological, botanical, or synthetic substance 
for the prevention or control of pests to implement measures to 
evaluate the effects of repetitive use of the same or similar materials 
on pest resistance and shifts in pest types.
    (4) Storage Containers. Sections 205.272 (b)(1) and (b)(2) of this 
proposal contain provisions similar to the first proposal which 
prohibit the use of storage containers or bins, including packages and 
packaging materials, that contain synthetic fungicides, preservatives, 
or fumigants. These requirements also prohibit the use or reuse of any 
bag or container that was previously in contact with any substance that 
could compromise the organic integrity of its contents. This proposal 
adds a provision to permit the reuse of a bag or container originally 
used for conventional products if the reusable bin or container has 
been thoroughly cleaned and poses no risk of prohibited materials 
contacting organic products. Producers and handlers commented that it 
is possible and desirable to reuse some kinds of containers if 
precautions are taken. This modification is consistent with the OFPA, 
which requires that the organic quality of a product not be 
compromised.
    (5) Agricultural Fibers. Some commenters stated that the labeling 
provisions in the first proposal for processed commodities containing 
organically produced cotton fibers were excessively restrictive. The 
OFPA provides the Secretary with the authority to implement standards 
for organically produced agricultural fibers, including cotton, used 
for nonfood purposes. This authority includes standards for the 
production of the agricultural fiber as well as handling standards to 
regulate the practices and materials that are used in the manufacture 
of the nonfood commodity. State and private certification agents have 
made substantial progress in developing and implementing handling 
standards for organically produced agricultural fibers that are gaining 
acceptance in the marketplace. We are reviewing the existing 
certification guidelines and industry practices and anticipate 
developing standards for processing organically produced agricultural 
fibers.
Handling--Changes Requested But Not Made
    This subpart retains from our first proposal regulations on which 
we received comments as follows:
    (1) Facility Pest Control Substances. The first proposal permitted 
the use of any substance to control facility pests, as long as the 
intended use was approved by the appropriate regulatory authority and 
the substance was applied in a manner that prevents it from coming into 
contact with any organic product. Many consumers objected to this 
provision and suggested that prohibited substances should never be 
allowed to be used in any organic operation. However, comments from a 
number of organic handlers and one industry association stated that, 
because handling operations must comply with health regulations that 
require elimination of any pests that may invade food handling 
facilities, prohibited substances must sometimes be used. The NOSB also 
acknowledged this possibility in its recommendations, and most organic 
certification programs similarly allow for such an occurrence, with 
strict provisions for safeguarding the integrity of organic products. 
In agreement with these comments, we have proposed a similar allowance 
in Sec. 205.271(c). The handler must fully document in his or her 
organic plan the evidence that such a measure was necessary and the 
measures taken to protect organic products or ingredients from coming 
into contact with any pest control substance.
    (2) Waxes. We propose to retain the definition of packaging 
included in the first proposal, which encompasses waxes used in contact 
with an edible surface of an agricultural product. A number of 
commenters disagreed with the inclusion of waxes in the definition of 
packaging, arguing that waxes should be considered nonagricultural 
ingredients and, therefore, should be required to appear on the 
National List of nonagricultural (nonorganic) substances allowed as 
ingredients in or on processed products labeled as ``organic'' or 
``made with organic (specified ingredients).'' However, the first 
proposal did require carnauba and other waxes to be on the National 
List of nonagricultural ingredients allowed for use in organic 
processed products, and this proposal contains a similar provision. 
These provisions adequately address the concerns expressed by the 
commenters that only waxes meeting the criteria for ingredients in 
organic processed products be permitted. It is appropriate to include 
waxes in the definition of packaging to ensure that prohibited 
substances are not added to approved waxes that may be applied to the 
edible surface of organic products, in accordance with the OFPA, which 
prohibits use of any packaging materials that contain synthetic 
fungicides, preservatives, or fumigants.

Subpart D--Labels, Labeling, and Market Information

    The Act provides that a person may sell or label an agricultural 
product as organically produced only if the product has been produced 
and handled in accordance with provisions of the Act and these 
regulations. This subpart sets forth labeling requirements for organic 
agricultural products and products with organic ingredients based on 
their percentage of organic composition. For each labeling category, 
this subpart establishes what ``organic'' terms and references can and 
cannot be displayed on a product package's principal display panel, 
information panel, ingredient statement, and on other package panels. 
Labeling is proposed for containers used in shipping and storing 
organic product and for denoting organic bulk products in market 
information which is displayed or disseminated at the point of retail 
sale. Restrictions on labeling organic product produced by exempt 
operations are described. Finally, this

[[Page 13551]]

subpart proposes a new USDA organic seal or shield (hereafter referred 
to as the USDA Seal) and regulations for display of the USDA seal and 
display of the seals, logos, or other identifying marks of certifying 
agents.
    The intent of these sections is to ensure that organically produced 
agricultural products are consistently labeled to aid consumers in 
selection of organic products and to prevent labeling abuses. These 
provisions cover the labeling of a product as ``organic'' and are not 
intended to supersede other labeling requirements specified in various 
Federal labeling regulations. For instance, we propose that the percent 
of organic ingredients and the name of the certifying agent be 
displayed on the information panel of packaged products and that the 
organic ingredients be identified as ``organic'' in the ingredient 
statement. The Food and Drug Administration (FDA) has authority to 
regulate the placement of information on package information panels 
and, thus, FDA labeling requirements in 21 CFR parts 100 through 169 
must be complied with by handler when affixing organic labels to 
product packages. Display of the USDA Seal and certifying agent seals, 
logos, or other identifying marks also must be in accordance with those 
regulations. The requirements of FDA's Fair Packaging and Labeling Act 
(FLPA) and the Federal Food, Drug, and Cosmetic Act (FFDCA) must be 
followed. Likewise, the Federal Trade Commission has authority over 
product advertising and the extent to which a handler or retail food 
establishment engages in advertising as part of its market information 
activities. The Federal Trade Commission (FTC) regulations in 16 CFR 
must be followed. USDA's Food Safety and Inspection Service's (FSIS) 
Federal Meat Inspection Act, Poultry Products Inspection Act, and Egg 
Products Inspection Act also have implementing regulations in 9 CFR 
which must be followed. The labeling requirements specified in this 
subpart must not be applied in a manner so that they would conflict 
with the labeling requirements of these and other Federal and State 
programs.
    While this regulation does not require labeling of an organic 
product as organic, we assume that producers and handlers will choose 
to label their organic products and display the USDA Seal to the extent 
allowed in these regulations. They will do this to improve the 
marketability of their organic product.
    In this proposal, assembly, packaging, and labeling of a 
multiingredient organic product are considered handling activities. The 
certification of handling operations is covered in subpart C of this 
regulation. No claims, statements, or marks using the term, 
``organic,'' or display of certification seals, other than as provided 
in this regulation, may be used. A handler which chooses not to use 
these required and prohibited labeling provisions may not otherwise 
label or represent a product as organic.
    Once a handler makes a decision to market a product as organic or 
containing organic ingredients, the handler is required to follow the 
provisions in this subpart regarding use, display, and location of 
organic claims and certification seals. Handlers who may produce 
organic ingredients and/or assemble multiingredient products composed 
of more than 50 percent organic ingredients must be certified as an 
organic handling operation. Handlers of products of less-than-50-
percent organic ingredients do not have to be certified unless the 
handler actually produces one or more of the ingredients used in the 
less-than-50-percent product. Repackers who purchase certified organic 
product from other entities for repackaging and labeling must be 
certified as an organic operation. Entities which simply relabel a 
product package would be subject to recordkeeping requirements to show 
proof that the product purchased prior to relabeling was, indeed, 
organically produced. Distributors which receive and transport labeled 
product to market are not subject to certification or any handling 
requirements of this regulation.
Proposal Description
    The general labeling principle employed in this proposal, and to 
which we think most commenters would subscribe, is that labeling or 
identification of the organic nature of a product should increase as 
the organic content of the product increases. In other words, the 
higher the organic content of a product, the more prominently its 
organic nature can be displayed. This is consistent with provisions of 
the Act which establishes the three percentage categories for organic 
content and basic labeling requirements in two of those categories.
    Section 205.300 specifies the general use of the term, ``organic,'' 
on product labels. Paragraph (a) establishes that the term, 
``organic,'' may be used only on labels and in market information of 
agricultural products and ingredients that have been certified as 
produced and handled in accordance with these regulations. The term, 
``organic,'' cannot be used on a product label for any purpose other 
than to modify or identify the product or ingredient in the product 
that is organically produced and handled. Products not organically 
produced and handled will not be able to use the term, ``organic,'' on 
any package panel or in market information in any way that implies the 
product is organically produced.
    Categories of Organic Content. The type of labeling and market 
information that can be used and its placement on different panels of 
consumer packages will be based on the percentage of organic 
ingredients in the product. The percentage will reflect the actual 
weight or fluid volume (excluding water and salt) of the organic 
ingredients in the product. Four categories of organic content are 
proposed: 100 percent organic; 95 percent or more organic content; 50 
to 95 percent organic content; and less than 50 percent organic 
content.

100 Percent Organic

    For labeling and market information purposes, this proposal allows 
a ``100 percent organic'' label for an agricultural product that is 
composed of a single ingredient such as raw, organically produced 
fruits and vegetables. The product also may be composed of two or more 
organically produced ingredients, provided that the individual 
ingredients are organically produced and handled consistent with 
provisions in subpart C of this regulation. No processing aids may be 
used in the production of 100 percent organic products. This proposal 
provides that labeling provisions for ``100 percent organic'' products 
be the same as provisions for the 95 percent ``organic'' products 
specified below.

Organic

    Products labeled or represented as ``organic'' will contain, by 
weight (excluding water and salt), at least 95 percent organically 
produced raw or processed agricultural product. The organic ingredients 
must be produced using production and handling practices pursuant to 
subpart C of this regulation. The nonorganic (5 percent or less) 
ingredients may be composed of nonorganic or nonagricultural 
substances. The difference between 100 percent organic products and 95 
percent-plus products is that the latter may contain up to 5 percent 
nonorganic or nonagricultural products.

Multiingredient Product: 50-95 Percent Organic Ingredients

    For labeling and market information purposes, the third category of 
agricultural products are multiingredient products containing by weight 
or fluid volume (excluding water

[[Page 13552]]

and salt) between 50 and 95 percent organic agricultural ingredients 
produced pursuant to these regulations. Such products may be labeled or 
represented as ``made with organic (specified ingredients).'' By 
``specified,'' we mean the name of the agricultural product forming the 
organic ingredient. The organic ingredients must be produced using 
substances on the approved National List in subpart G and employing 
organic production and handling practices consistent with subpart C of 
this regulation. For instance, breakfast cereal made with 75 percent 
organically produced and processed wheat and 25 percent other, 
nonorganically produced grains, raisins, and nuts can be labeled as 
``made with organic wheat'' on the principal display panel. To qualify 
for this organic labeling, the nonorganic ingredients (grains, raisins, 
and nuts) must be produced and handled without use of the first three 
prohibited practices specified in paragraph (e) (excluded methods, 
sewage sludge, or ionizing radiation). However, those nonorganic 
ingredients may be produced or handled using practices prohibited in 
paragraphs (e)(4) through (e)(7) (using substances not on the National 
List; containing added sulfites, nitrates, or nitrites; using 
nonorganic ingredients when organic ingredients are available; and 
using organic and nonorganic forms of the same ingredient).

Multiingredient Product: Less Than 50 Percent Organic Ingredients

    The final labeling category covers multiingredient products with 
less than 50 percent organic ingredients (by weight or fluid volume, 
excluding water and salt). The organic ingredients must be produced 
using substances on the approved National List in subpart G and 
employing organic production and handling practices consistent with 
subpart C of this part. The remaining nonorganic ingredients (50 
percent or more of the product) may be produced, handled, and assembled 
without regard to these regulations (using prohibited substances and 
prohibited production and handling practices). Organic labeling of 
these products is limited to the information panel only as provided in 
Sec. 205.305.
    Prohibited Practices. This proposal prohibits labeling of whole 
products or ingredients as ``organic'' if those products or ingredients 
are produced using any of the following production or handling 
practices: (1) Ingredients or processing aids containing or created 
using excluded methods (genetically modified organisms (GMO)) or the 
products of excluded methods; (2) ingredients that have been produced 
using applications of sewage sludge (biosolids) as fertilizer; (3) 
ingredients that have been processed with ionizing radiation; (4) 
processing aids not approved on the National List; (5) sulfites, 
nitrates, or nitrites added to or used in processing of an organic 
product in addition to those substances occurring naturally in a 
commodity; (6) use of the phrase, ``organic when available,'' or 
similar statement on labels or in market information when referring to 
products composed of nonorganic ingredients used in place of specified 
organic ingredients; and (7) labeling as ``organic'' any product 
containing both organic and nonorganic forms of an ingredient specified 
as ``organic'' on the label. The prohibitions on the use of excluded 
methods, sewage sludge, irradiated products, and prohibited processing 
aids are included here to be consistent with the revised National List 
of Approved and Prohibited Substances in subpart G.
    These seven prohibitions apply to the four labeling categories of 
products and are not individually repeated as prohibited practices in 
the following sections. Table 1, Prohibited Production and Handling 
Practices for Organic Labeling, is a summary reference of how the seven 
prohibited practices must be applied in the production and handling of 
organic and nonorganic ingredients of products in the four labeling 
categories.

                                     Table 1.--Prohibited Production and Handling Practices for Labeling Categories
--------------------------------------------------------------------------------------------------------------------------------------------------------
                                                                                                                                             Use both
                                                                                      Use processing    Contain added     Use organic       organic &
      Labeling category          Use  excluded      Use sewage     Use  irradiation     aids not on       sulfites,       ingredients       nonorganic
                                    methods           sludge                           national list      nitrates,      when available   forms of same
                                                                                                           nitrites                         ingredient
--------------------------------------------------------------------------------------------------------------------------------------------------------
``100 percent Organic''
    Single/multiingredients    NO..............  NO..............  NO..............  Use NO            NO.............  NO.............  NO.
     completely organic.                                                              Processing Aids.
``Organic''
    Organic Ingredients (95%   NO..............  NO..............  NO..............  NO..............  NO.............  NO.............  NO.
     or more).
    Nonorganic Ingredients     NO..............  NO..............  NO..............  NO..............  NO.............  NO.............  NO.
     (5% or less).
``Made with Organic
 (specified ingredients)''
    Organic Ingredients (50-   NO..............  NO..............  NO..............  NO..............  NO.............  NO.............  NO.
     95%).
    Nonorganic Ingredients     NO..............  NO..............  NO..............  OK..............  OK.............  NA*............  NA*.
     (49% or less).
Less-than 50% Organic
 Ingredients
    Organic Ingredients (49%   NO..............  NO..............  NO..............  NO..............  NO.............  NO.............  NO.
     or less).
    Nonorganic Ingredients     OK..............  OK..............  OK..............  OK..............  OK.............  NA*............  NA*
     (50% or more).
--------------------------------------------------------------------------------------------------------------------------------------------------------
* Not applicable.

    Calculating the Percentage of Organic Ingredients. This proposal 
specifies procedures for calculating the percentage, by weight or fluid 
volume, of organically produced ingredients in an agricultural product 
labeled or represented as ``organic.''
    The organic percentage of liquid products and liquid ingredients 
will be determined based on the fluid volume of the product and 
ingredients (excluding water and salt). When a product is identified on 
the principal display panel or the information panel as being 
reconstituted with water from a concentrate, the organic content will 
be calculated on the basis of a single-strength concentration.
    Some products may contain both dry and liquid ingredients that are 
produced organically. In such cases, this proposal provides that the 
percentage of total organic ingredients will be based on the

[[Page 13553]]

combined weight of the dry organic ingredient(s) and the weight of the 
liquid organic ingredient(s), excluding water and salt. For example, a 
product may be made using organically produced vegetable oils or grain 
oils or contain organic liquid flavoring extracts in addition to other 
organic and nonorganic ingredients. In these cases, the weight of the 
liquid organic oils or flavoring extracts, less any added water and 
salt, would be added to other solid organic ingredients in the product, 
and their combined weight would be the basis for calculating the 
percentage of organic ingredients. We believe this process provides the 
most appropriate and least burdensome method for calculating the 
organic percentage of such multiingredient products.
    Only one figure providing the total percentage of all organic 
ingredients will be shown on the information panel. The total 
percentage will be displayed on the information panel of the consumer 
package above or below the ingredient statement with the words, 
``contains X percent organic ingredients,'' or a similar phrase. If the 
total percentage is a fraction, it will be rounded down to the nearest 
whole number. The percentage of each organic ingredient will not be 
required to be displayed.
    Labeling ``100 Percent Organic'' and ``Organic'' Products. This 
proposal includes optional, required, and prohibited practices for 
labeling packages of agricultural products that are ``100 percent 
organic'' or ``organic'' (at least 95 percent organic). Only products 
that are composed of a wholly organic single ingredient or entirely of 
certified organic ingredients may be identified with a percentage 
number (100 percent) on the principal display panel. Products between 
95 and 100 percent organic composition, when identified as ``organic'' 
on the principal display panel, will be required to state on the 
information panel the percentage of organic ingredients in the finished 
product and identify each organic ingredient in the ingredient 
statement.
    The handler may display the following information on the principal 
display panel, the information panel, and any other part of the package 
and in market information representing the product: (1) The term, ``100 
percent organic'' or ``organic,'' as applicable, to the content of the 
product; (2) the USDA Seal; and (3) the seal, logo, or other 
identifying mark of the certifying agent (hereafter referred to as 
``seal or logo'') which certified the handler of the finished product. 
The seals or logos of other certifying agents which certified organic 
raw materials or organic ingredients used in the product also may be 
displayed, at the discretion of the handler. If multiple organic 
ingredients are identified on the ingredient statement, the handler of 
the finished product that combined the various organic ingredients must 
maintain documentation, pursuant to subpart B of this regulation, 
certifying the organic content of the added ingredients.
    While certifying agent identifications can appear on the package 
with the USDA Seal, they may not appear larger than the USDA Seal on 
the package. There is no restriction on the size of the USDA Seal as it 
may appear on any panel of a packaged product, provided that display of 
the Seal conforms with the labeling requirements of FDA and FSIS.
    This proposal specifies three labeling practices that will be 
required if a handler labels a product ``100 percent organic'' or 
``organic'' on the principal display panel. If a product is labeled as 
``100 percent organic'' the ingredients may also be modified with the 
term, ``organic,'' but would not have to be so labeled because it is 
assumed from the 100 percent label that all ingredients are organic. 
For 95 percent-plus products that contain more than one ingredient, 
each organic ingredient listed in the ingredient statement must be 
modified with the term, ``organic.'' Water and salt in the ingredient 
will not be identified as ``organic.'' Secondly, the total percentage 
of organic ingredients in the product must be shown on the information 
panel. The percentage statement should be placed in a manner that it 
can be viewed in relation to the ingredient statement.
    The handler also must display on the information panel the name of 
the certifying agent which certified the handler producing the finished 
product. The handler has the option to include the business address or 
telephone number of the certifying agent. This information must be 
placed below or otherwise near the manufacturer or distributor's name.
    Labeling Products ``Made with Organic (Specified Ingredients)''. 
With regard to agricultural products ``made with organic (specified 
ingredients)''--those products containing between 50 and 95 percent 
organic ingredients--this proposal establishes the following optional, 
required, and prohibited labeling practices.
    Under optional practices, the statement, ``made with organic 
(specified ingredients),'' may be placed on the principal display panel 
and other panels of the package. The same statement can also be used in 
market information representing the product. However, the following 
restrictions will be placed on the statement, ``made with organic 
(specified ingredients),'' when it appears on the principal display 
panel: (1) The statement cannot list more than three organic 
ingredients in the product; (2) the statement cannot appear in print 
that is larger than one half (50 percent) of the size of the largest 
print or type appearing on the principal display panel; and (3) the 
statement must appear in its entirety in the same type size, style, and 
color without highlighting. Display of the statement, ``made with 
organic (specified ingredients),'' on other panels must be similarly 
consistent with the size of print used on those panels. These 
restrictions are consistent with FDA regulations and similar to the 
recommendations of the National Organic Standards Board (NOSB). This 
provision will help assure that the statement, ``made with organic 
(specified ingredients),'' is not displayed in such a manner as to 
misrepresent the actual organic composition of the product.
    We also propose that, at the handler's option, the certifying 
agent's seal or logo may be displayed on the principal display panel or 
other package panel.
    Packages of products labeled as ``made with organic (specified 
ingredients)'' will be required to display on the information panel the 
total percentage of organic ingredients in the product and modify each 
organic ingredient listed in the ingredient statement with the term, 
``organic.'' The percentage of organic ingredients must be displayed so 
that it can be viewed in relation to the ingredient statement.
    The name of the certifying agent which certified the handler of the 
finished product must be displayed below or otherwise near the 
manufacturer or distributor's name. The statement may include the 
phrase, ``Certified organic by * * *'' or ``Ingredients certified as 
organically produced by * * *'' to help distinguish the certifying 
agent from the manufacturer or distributor. At the handler's option, 
this label may include the business address or telephone number of the 
certifying agent which certified the handler of the finished product.
    Labeling Products with Less Than 50 Percent Organic Ingredients. 
The final labeling category covers packaged multiingredient 
agricultural product containing less than 50 percent organic 
ingredients.
    Handlers of ``less than 50 percent'' multiingredient products, who 
choose to declare the organic nature of the

[[Page 13554]]

product, may do so only on the information panel by declaring the total 
percentage of organic ingredients in the product and, in the ingredient 
statement, modifying the organic ingredients with the term, 
``organic.'' The percentage statement must be displayed so that it can 
be viewed in relation to the ingredient statement.
    Products composed of less than 50 percent organic content cannot 
display the USDA Seal or any certifying agent's seal or logo anywhere 
on the product package or in market information.
    Handlers of such products will be subject to this regulation in the 
following ways. Those handlers who only purchase organic and nonorganic 
ingredients and assemble a finished product of less than 50 percent 
organic content do not have to be certified as organic handlers. They 
will be responsible for appropriate handling and storage of the organic 
ingredients prior to product assembly and for maintaining records 
verifying the organic certification of the ingredients used in the 
product. To the extent that the packaging process includes affixing the 
label to finished product package, those handlers will be responsible 
for meeting the labeling requirements of this subpart. Handlers who 
produce an organic ingredient prior to assembly into a finished 
product, even though the finished product contains less than 50 percent 
organic content, and must be certified as to the source of the organic 
ingredient(s). The nonorganic ingredients may be produced, handled, and 
assembled without regard to the requirements of this part.
    The handler who affixes the label to the product package will be 
responsible for calculating the percentage of organic ingredients in an 
organic product. As part of the certifying agent'' annual certification 
of the handler, the certifier will verify the calculation and labeling 
of packages.
    Table 2, Labeling Consumer Product Packages, provides a summary of 
the required and prohibited labeling practices for the four labeling 
categories.

                                  Table 2.--Labeling Consumer Product Packages
----------------------------------------------------------------------------------------------------------------
                                   Principal display                          Ingredient         Other package
        Labeling category                panel         Information panel       statement            panels
----------------------------------------------------------------------------------------------------------------
``100 percent Organic''           ``100 percent       ``100% Organic''..  If multiingredient  ``100 percent
 (Entirely organic; whole, raw     organic''.                              product, identify   Organic''.
 or processed product).                                                    each ingredient
                                                                           as ``organic''.
                                  USDA Seal and       Certifying agent    ..................  USDA Seal and
                                   Certifying agent    name (required);                        Certifying agent
                                   sets(s).            business address,                       seal(s).
                                                       tele. #
                                                       (optional).
``Organic`` (95% or more organic  ``Organic''.......  ``X% Organic        Identify organic    ``Organic''.
 ingredients).                                         Ingredients''.      ingredients as
                                                                           ``organic''.
                                  USDA Seal and       Certifying agent    ..................  USDA Seal and
                                   Certifying agent    name (required);                        Certifying agent
                                   seals(s).           business address,                       seal(s).
                                                       tele. #
                                                       (optional).
``Made with Organic (specified    ``Made with         ``X% Organic        Identify organic    ``Made with
 ingredients)'' (50 to 95%         organic             Ingredients''.      ingredients as      organic
 organic ingredients).             (specified                              ``organic''.        (specified
                                   ingredients)''.                                             ingredients)''.
                                  Certifying agent    Certifying agent    Identify organic    ``Made with
                                   seal of final       name (required;     ingredients as      organic
                                   product handler.    business address,   ``organic''.        (specified
                                                       tele. #                                 ingredients)''.
                                                       (optional).
                                  Prohibited: USDA    Prohibited: USDA    ..................  Prohibited: USDA
                                   Seal.               Seal.                                   Seal.
Less-than 50% Organic             Prohibited: Any     ``X% Organic        Identify organic    Prohibited: Any
 Ingredients (49% or less          reference to        Ingredients''.      ingredients as      reference to
 organic ingredients).             organic content                         ``organic''.        organic content
                                   of product.                                                 of product.
                                  Prohibited: USDA    Prohibited: USDA    ..................  Prohibited: USDA
                                   Seal & Certifying   Seal & Certifying                       Seal & Certifying
                                   agent seal.         agent seal.                             agent seal.
----------------------------------------------------------------------------------------------------------------

    Misrepresentation in Labeling of Organic Products. The labeling 
requirements of this proposal are intended to assure that the term, 
``organic,'' and other similar terms or phrases are not used on a 
product package or in marketing information in a way that misleads 
consumers as to the contents of the package. Thus, we intend to monitor 
the use of the term, ``organic,'' and other similar terms and phrases. 
Should we find that terms or phrases are being used on product packages 
to represent ``organic'' when the products are not produced to the 
requirements of this regulation, we will proceed to restrict their use.
    After consideration of alternative labeling terms that handlers 
might wish to use to qualify or modify the term, ``organic,'' we have 
determined that handlers may not qualify or modify the term, 
``organic,'' using adjectives such as, ``pure'' or ``healthy,'' e.g., 
``pure organic beef'' or ``healthy organic celery.'' The term, 
``organic,'' is used in labeling to indicate a certified system of 
agricultural production and handling. Terms such as ``pure,'' 
``healthy,'' and other similar adjectives attribute hygienic, 
compositional, or nutritional characteristics to products. Use of such 
adjectives misrepresents products produced under the organic system of 
agriculture as having special qualities as a result of being produced 
under the organic system. Furthermore, use of such adjectives would 
incorrectly imply that products labeled in this manner are different 
from other ``organic'' products that are not so
    Moreover, ``pure,'' ``healthy,'' and other similar terms are 
regulated by FSIS and FDA. These terms may be used only in accordance 
with the labeling requirements of FDA and FSIS. For example, the 
regulations implemented by FSIS, 9 CFR 317.363, define the terms, 
``healthy,'' ``health,'' and similar derivations and the conditions of 
use as a nutritional claim. Also, according to FSIS regulations, 9 CFR 
317.8(b)(34), the term, ``pure,'' as well as the terms, ``all,'' ``100 
percent,'' and similar terms, may only be used to indicate that a 
single ingredient product is composed of 100 percent of the product 
ingredient and contains no other ingredients. The term, ``healthy,'' is 
regulated by FDA (21 CFR

[[Page 13555]]

101.14) and can be used, with documentation, only to indicate or 
characterize a relationship of the product to a disease or health-
related condition. The prohibition on use of these terms to modify 
``organic'' does not otherwise preclude their use in other labeling 
claims.
    We also intend to monitor the use of the term, ``organic,'' in 
corporate or company names and seek additional guidance from the FTC. 
We do not believe that the term, ``organic,'' in a brand name context 
inherently implies an organic production or handling claim or 
inherently constitutes a false or misleading statement.
    The determination as to whether the use of the term, ``organic,'' 
in a brand name conveys a message about the product's attributes must 
be made by the Secretary. We will monitor use of the term, ``organic,'' 
in product and company names at this time. However, if we find that the 
term is being used in a false or misleading way to misrepresent the 
organic nature of the product, we have the authority under section 
6519(b) of the Act to take action against such use. Such determinations 
and actions will be taken on a case-by-case basis.
    Labeling of Products Shipped in International Markets. Domestically 
produced organic products intended for export may be labeled to meet 
the requirements of the country of destination or any labeling 
requirements specified by a particular foreign buyer. For instance, a 
product label may require a statement that the product has been 
certified to, or meets, certain European Union organic standards. Such 
factual statements regarding the organic nature of the product will be 
permitted. However, those packages must be exported and cannot be sold 
in the United States with such a statement on the label because the 
statement indicates certification to standards other than are required 
under this program. As a safeguard for this requirement, we require 
that shipping containers and bills of lading for such exported products 
display the statement, ``for export only,'' in bold letters. Handlers 
also will be expected to maintain records, such as bills of lading and 
U.S. Customs Service documentation, showing export of the products. 
Only products which have been certified and labeled consistent with the 
requirements of the National Organic Program (NOP) may be shipped to 
international markets without marking the shipping containers ``for 
export only.''
    Organic product produced under a foreign country's or international 
association's organic standards deemed equivalent to these standards 
and certified by a certifying agent accredited by the Secretary may be 
imported into the United States provided that the product labels are 
consistent with the requirements of this subpart. Any labeling on the 
product package or in market representation cannot imply that the 
product is also certified to other organic standards or requirements 
that are more restrictive than this national program. These provisions 
are consistent with international standards and will facilitate 
international trade of organically produced products and, thus, benefit 
the global organic industry.
    Labeling Nonretail Containers. Section 205.306 provides for 
labeling nonretail containers used to ship or store raw or processed 
organic agricultural products that are labeled ``100 percent organic,'' 
``organic,'' and ``made with organic (specified ingredients).'' These 
labeling provisions are not intended for shipping or storage containers 
that also will be used in displays at the point of retail sale. They 
would be used for easy identification of the product to help prevent 
commingling with nonorganic product or handling of the product which 
would destroy the organic nature of the product (fumigation, etc.). 
Retail containers will have to meet labeling provisions specified in 
Sec. 205.307.
    Containers used only for shipping and storage of any product 
labeled as containing 50 percent or more organic content may, at the 
handler's discretion, display the following information: (1) The name 
and contact information of the certifying agent which certified the 
handler of the finished product; (2) the term, ``organic,'' modifying 
the product name; (3) any special handling instructions that must be 
followed to maintain the organic integrity of the product; and (4) the 
USDA Seal and the appropriate certifying agent seal. This information 
is optional if handlers believe display of the information helps ensure 
special handling or storage practices which are consistent with organic 
practices.
    Containers used for shipping and storage of organic product must 
display a production lot number if such a number is used in the 
processing and handling of the organic product being shipped or stored. 
The lot number must be included for inventory control and quality 
assurance purposes. To help assure export of organic product produced 
and labeled to foreign specifications, the shipping containers and 
shipping documents (bills of lading) must be marked with the phrase, 
``for export only,'' in bold letters. The handler also must maintain 
records showing export of the product to a foreign country.
    Much of the required information may overlap information that the 
handler normally affixes to shipping and storage containers or 
information that is required under other Federal labeling regulations. 
Provisions in this proposal do not take precedence over food safety or 
quality control provisions which may be required for specified products 
or types of products covered by such Federal regulations. There are no 
restrictions on size or display of the term, ``organic product,'' or 
the certifying agent seal unless otherwise required by other Federal or 
State statutes.
    Labeling Products at the Point of Retail Sale Section 205.101(b)(2) 
of subpart B on Applicability provides regulations regarding the 
certification of retail food establishments under this program. Those 
operations are subject to labeling and market information requirements 
concerning products offered to consumers at the point of retail sale. 
Such labeling and market information must truthfully represent the 
organic nature and handling of the product.
    Section 205.307 applies to organically produced products that are 
not prepackaged prior to sale and are presented in a manner which 
allows the consumer to select the quantity of the product purchased.
    To be labeled as ``100 percent organic'' or ``organic'' at the 
point of retail sale, the processing and assembly of such products must 
be carried out by a certified manufacturing facility for distribution 
to a retail food establishment. For instance, a tossed salad may be 
labeled as ``100 percent organic tossed salad'' or ``organic tossed 
salad'' (consistent with the percentage of organic ingredients in the 
salad) provided the salad and ingredients have been produced and 
assembled under organic certification. If the multiingredient product 
is identified as ``organic'' at the point of retail sale, any 
ingredient statement displayed at retail sale must identify the organic 
ingredients as ``organic.'' The retail materials may also display the 
USDA Seal and the seal or logo of the certifying agent. If shown, the 
certifying agent seal must not be larger than the USDA Seal.
    Using the same example, a product made with 95 percent or more 
certified organic salad components but which is assembled at an 
uncertified operation may be labeled ``tossed salad made with organic 
(specified ingredients).'' The retail food establishment may not

[[Page 13556]]

display the USDA Seal or the seal or seals of cerftifying agents 
involved in ingredient certifications because the final assembly of the 
product was not certified pursuant to the handling requirements of this 
regulation.
    Our position on the applicability of these regulations to different 
business entities is more completely explained in subpart B, 
Applicability, of this regulation.
    ``Section 205.308 addresses processed products ``made with organic 
(specified ingredients)'' that are not prepackaged prior to sale and 
are presented in a manner which allows the consumer to select the 
quantity of the product purchased. These products will include, but 
will not be limited to, multiingredient products containing between 50 
and 95 percent organic ingredients. Retail displays, display 
containers, and market information for such products may display the 
phrase, ``made with organic (specified ingredients)'' provided that the 
product has been assembled by a manufacturing facility certified 
pursuant to this regulation. Up to three organic ingredients may be 
identified in the statement. If such statement is declared in market 
information at the point of retail sale, the ingredient statement must 
identify the organic ingredients as ``organic.'' Retail display and 
market information of such bulk products cannot use the USDA Seal but 
may display the seal or logo of the certifying agent which certified 
the finished product, provided that assembly of the product was carried 
out at a certified manufacturing facility. The certifying agent's seal 
or logo may be displayed at the option of the retail food 
establishment. If such a product has not been assembled at a certified 
manufacturing facility, the retail display and market information may 
not identify the product as ``made with organic (specified 
ingredients).''
    Prepared food products containing less than 50 percent organic 
ingredients at retail sale may not be identified as organic or 
containing organic ingredients. The USDA Seal and any certifying agent 
seal or logo may not be displayed.
    Labeling Products Produced on Exempt or Excluded Operations. This 
proposal provides limited organic labeling provisions for organic 
product produced or handled on exempt and excluded operations. Such 
operations would include retail food establishments, certain 
manufacturing facilities, and production and handling operations with 
annual organic sales of less the $5,000. They are discussed more 
thoroughly in subpart B, Applicability.
    Under this proposal, any such operation that is exempt or excluded 
from certification, or which chooses not to be certified, may not label 
its products in a way which indicates that the operation has been 
certified as organic. Primarily, this means that the exempt or excluded 
operation may not display the USDA Seal or any seal or logo of a 
certifying agent. Any packaged organic product from an exempt or 
excluded operation may not use the labeling terms ``100 percent 
organic,'' or ``organic,'' or ``made with organic (specified 
ingredients),'' on the principal display panel. Those labeling terms 
are reserved for products produced by certified operations. The organic 
representation of exempt or excluded operation products may only be 
made on the information panel where the organic percentage can be 
displayed and the organic ingredients identified as ``organic.''
    Retail displays and market representation of such products may not 
indicate that the product has been certified as organic. For instance, 
a whole, raw, organic product marketed directly to consumers at a 
farmers market or roadside stand as ``organic apples'' or ``organic 
tomatoes.'' However, no terms may be used which indicate ``certified'' 
organic apples, etc. No organic seal or logo may be displayed with the 
product at the point of retail sale.
    We propose these restrictions simply as truth in labeling 
provisions because use of terms or phrases reserved for certified 
operations and products and display a certification seal will indicate 
that the product has been certified. We believe this requirement will 
help differentiate between certified and not certified products and 
help maintain the integrity of certified products while providing 
limited organic labeling opportunities for exempt and excluded 
operations.
    Finally, this rule proposes that exempt organic producers cannot 
sell their product to a handler for use as an ingredient or for 
processing into an ingredient that will be labeled as ``organic'' on 
the information panel. However, this restriction is raised for public 
comment in subpart B, Applicability, of this part.
    Small producers or handlers who qualify for exemption but who 
choose to be certified pursuant to these regulations can label their 
product as certified organic and can sell that product to certified 
handlers for further processing as an organic ingredient.
    USDA Seal. This proposal introduces a new, redesigned, USDA Seal, 
that can be placed on consumer packages, displayed at retail food 
establishments, and used in market information to show that products 
have been produced and handled in accordance with these regulations. 
The Seal can only be used to identify raw and processed products that 
are labeled as ``100 percent organic'' or ``organic.'' It cannot be 
used for products labeled as ``made with organic (specified 
ingredients)'' (50 to 95 percent organic ingredients) or on 
multiingredient products with less than 50 percent organic ingredients.
    The USDA Seal presented in this proposal will consist of the 
phrase, ``USDA Certified Organic,'' on a shield or badge design. When 
used, the seal must be the same form and design as shown in figure 1 of 
Sec. 205.310 of this proposal. The seal must be printed legibly and 
conspicuously. On consumer packages, retail displays, and labeling and 
market information, the Seal may be printed on a white, light colored, 
or transparent background with contrasting dark colored words and 
shield outline or on a dark colored background with contrasting words 
and shield outline in one or two light colors. The Seal also may be 
printed in the colors red, white, and blue as follows: a white 
background, with dark blue shield outline, and red words. The choice of 
color scheme is left to the discretion of the producer, handler, or 
retail food establishment based on other colors on the product package 
and other considerations.
Labeling--Changes Based On Comments
    This subpart differs from our first proposal in several respects as 
follows:
    (1) Use of terms other than ``organic.'' The first proposal stated 
that informational statements which imply ``organic'' production and 
handling should be used only on products that are produced and handled 
in accordance with these regulations. The proposal identified several 
informational statements commonly referred to as ``eco-label'' or 
``green'' terms and phrases such as: ``produced without synthetic 
fertilizers,'' ``pesticide free farm,'' ``no drugs or growth hormones 
used,'' ``raised without antibiotics,'' ``ecologically produced,'' 
``sustainably harvested,'' etc. We asked for comments on these and 
other terms or phrases which directly or indirectly imply that a 
product was organically produced and handled.
    Commenters favored use of ``eco-label'' and ``green'' terms and 
phrases on any product labels. The general consensus expressed in the 
comments is

[[Page 13557]]

that producers and handlers should be able to make claims about their 
product provided the claims are truthful.
    While commenters did not oppose the use of eco-label terms or 
phrases on nonorganic products, they made it clear that the term, 
``organic,'' should only be used on products produced and handled in 
accordance with these regulations. Several commented that consumers 
respond favorably to the term, ``organic,'' when used on a product 
label, and, therefore, proper use of the term must be closely 
protected.
    We also received several comments regarding use of the terms, 
``biological'' and ``ecological,'' on product labels. A few comments 
indicated that the terms should be allowed on nonorganic products to 
truthfully describe an alternative agricultural system under which the 
product was produced or processed. However, most commenters opposed use 
of the terms as substitutes for the term ``organic'' on product labels.
    We agree with the majority of comments received on this subject, 
and we, therefore, propose to regulate the term, ``organic,'' and no 
other terms. We propose that the term, ``organic,'' may only be used on 
labeling and market information of products that are produced and 
handled in accordance with these regulations. We understand that the 
terms, ``ecological'' and ``biological,'' are a special case in that 
they are used synonymously with the term, ``organic,'' in other 
countries. However, they cannot be used interchangeably with the term, 
``organic,'' in this country. These terms may be used as eco-labels at 
this time. However, we will proceed to restrict use of these or any 
other terms if we find that they are used on product packages in the 
United States to represent ``organic'' when the products are not 
produced to the requirements of this regulation.
    (2) 100 percent organic category. Our first proposal did not 
provide for a ``100 percent organic'' category because that level of 
organic composition is not specifically provided for in the Act. While 
the Act and the first proposal provide for a labeling category of 95 
percent or higher organic content, commenters appealed for a labeling 
category for product that is 100 percent organic. Many suggested that 
being able to use the term, ``100 percent,'' will give handlers added 
incentive to use only certified ingredients in multiingredient 
products. Some commenters suggested that if a product is composed only 
of organic ingredients, with no additives or other substances, it 
should be allowed to be labeled and represented in market information 
as 100 percent.
    We agree that a ``100 percent organic'' labeling category may 
increase the effectiveness of marketing efforts and may provide 
incentives for handlers to use more certified organic ingredients in 
their multiingredient products. Therefore, this proposal will allow the 
term, ``100 percent organic,'' to be used on labels affixed to or 
market information representing raw or processed organic products that 
are composed entirely of organically produced agricultural product.
    (3) Identification of private certifying agents. Under the first 
proposal, identification of private certifying agents was not permitted 
on the principal display panel with the USDA Seal and the State organic 
seal. While a few commenters suggested that only the USDA Seal should 
be displayed on the principal display panel, the majority of those 
commenting on this topic requested that private certifying agent seals 
be displayed on an equal basis with a seal of the appropriate State's 
organic program. Although the number of State certifying agents is 
relatively small, private certifying agents believe that State organic 
programs and State certifying agents may implement measures in States 
that work against the interests of private certifying agents. The 
Department believes those concerns to be unfounded. Under the NOP, the 
Secretary will approve all State organic programs and accredit all 
State certifying agents. However, any of those programs or agents that 
might discriminate or work against the interests of private certifying 
agents in the State would not be approved by the Secretary.
    Some commenters suggested that many private certifying agent seals 
are widely recognized and respected and their seals influence consumer 
choices in product purchases. It is appropriate that private certifying 
agents be afforded the same treatment with regard to labeling as the 
State certifying agent. We agree with commenters' requests for equal 
treatment of certifying agents and that certifier seals may have 
marketing potential in some areas. Therefore, we specify in this 
proposal that a private certifying agent's seal or logo can be 
displayed to the same extent as the seal of a State certifying agent. 
This change is reflected throughout this subpart.
    (4) Use of a certifying agent's seal or logo. Many commenters 
believe that the certifying agent's seal, logo, or identifying mark 
shown on ``100 percent organic'' and ``organic'' products should be the 
seal or mark of the certifying agent that certifies the handler of 
finished product. Commenters also stated that labels should not be used 
to misrepresent one product as being more organic than another product, 
which might happen if multiple seals are displayed on one product 
package and only two are displayed on a competing product package. 
While we understand the commenters' points, we believe that display of 
certifying agent seals on products labeled ``100 percent organic,'' 
``organic,'' and ``made with organic (specified ingredients)'' should 
remain optional for handlers. If two or more certifying agents are 
involved in certifying raw organic agricultural product and organic 
ingredients used in a finished product, the seals or marks of those 
certifying agents may be displayed, at the discretion of the handler. 
There should be only two restrictions to using multiple certifying 
agent seals: (1) The seal of the certifier of the handling operation 
producing the finished product should be displayed; and (2) only the 
seals of those certifying agents actually involved with certification 
of the product or ingredients may be displayed. For instance, a private 
certifying agent may certify a product assembled using organic 
ingredients produced in Texas and certified by the Texas State 
certifying agent. The product package may, at the handler's option, 
display the Texas State agent's seal in addition to the seal of the 
private certifying agent which certified the operation creating other 
organic ingredients and creating the finished product. Likewise, 
display of a seal of a foreign country's organic program or foreign 
certifying agent will be permitted only if the foreign agent certified 
the finished product or a product ingredient.
    Some commenters say that display of two State agent seals may 
confuse consumers. However, we do not believe it is likely that 
handlers will choose to display multiple certifying agent seals to 
misrepresent a product. We also do not believe that possible consumer 
confusion from display of multiple seals should take precedence over 
the handler's right to provide product information. If multiple 
certifying agent seals or marks are displayed on a product package or 
in market information, the handler or retail food establishment must 
maintain appropriate records showing proof of all organic 
certifications.
    (5) Display of certifying agent name and business address. 
Commenters also suggested that the certifying agent's name and business 
address be displayed adjacent to identification of the handler or 
distributor of products labeled ``organic'' and ``made with organic

[[Page 13558]]

(specified ingredients).'' The commenters stated that such information 
should be available for consumers who may have questions about the 
organic nature of a product or product ingredients. We agree that the 
name of the certifying agent should be included on a product package 
but believe that display of the business address or telephone number 
should be optional to the handler who assembles the finished product 
and affixes the label on the package. If a consumer wants to inquire 
about the organic nature of a purchased product, the consumer can 
obtain contact information through the certifying agent database listed 
on the NOP homepage. Finally, to clearly identify the information 
provided, the statement, ``Certified organic by * * *'' or 
``Ingredients certified as organically produced by * * *,'' may be used 
to distinguish the certifying agent from the manufacturer or 
distributor of the product.
    The statement and agent identification is intended for information 
purposes only and is not to promote the organic nature of the product. 
The certifying agent identification may be placed below the 
manufacturer or distributor information and must not interfere with 
display of that information.
    (6) Size of certifying agent seal. There was a general consensus 
among commenters that the seals of State and private certification 
agents should not be larger than the USDA Seal. To emphasize the market 
value of such a national organic seal and maintain some consistency of 
treatment with regard to the different organic content categories, we 
propose that State and private certifying agent seals can be the same 
size as but must not exceed the size of the USDA Seal on any package 
label or in market information. The size of the USDA Seal on a package 
is left to the discretion of the handler.
    (7) Displaying the percentage of organic ingredients. The first 
proposal permitted use of the word, ``organic,'' in the ingredient 
statements to modify those ingredients that were produced and handled 
pursuant to these regulations, but did not require the percentage of 
organic ingredients to be displayed on the label. Most all commenters 
responding to this labeling issue stated that identification of organic 
ingredients as ``organic'' will encourage handlers to increase the 
organic composition of multiingredient products. However, some 
commenters did not favor any use of the word, ``organic,'' on packages 
of multiingredient products containing less than 50 percent organic 
ingredients. Some commenters also suggested that including the total 
percentage of organic content adjacent to the ingredient statement (in 
which the organic ingredients are identified) would give relevance to 
the ingredient statement. We concur with commenters' recommendations 
about the display of the total percentage of organic content and 
propose that the percentage of organic ingredients be placed on the 
information panel. The percentage statement and the ingredient 
statement should be shown in a way that indicates the relationship of 
the information. If a product is labeled ``100 percent organic,'' all 
ingredients (except water and salt), by definition, would have to be 
certified organic ingredients, and each ingredient may be but would not 
have to be identified as ``organic.'' Identification of organic 
ingredients would be required for products labeled ``organic'' and 
``made with organic (specified ingredients),'' and for products 
containing less than 50 percent organic ingredients. We did not change 
the identification of organic ingredients for products containing less 
than 50 percent organic ingredients because we believe the uses of the 
term on the information panel and ingredient statement of such product 
packages do not imply that the product is organic.
    (8) Labeling of products containing 50-95 percent organic 
ingredients. The first proposal specified that products with 50-95 
percent organic content could use ``made with certain organic 
ingredients'' on the label. Many commenters suggested that the word, 
``certain,'' may appear confusing to consumers and that a stronger 
statement is needed to identify the organic nature of the product. One 
commenter sought clarification of whether the term, ``certain,'' is a 
substitute for the name of the ingredient in a single-ingredient 
product. Many requested that the statement be changed to allow specific 
identification of the organic ingredients on the principal display 
panel. Because that is the panel first and most often observed by 
consumers, the commenters indicated that the information presented on 
the principal display panel should be clear and accurate to assist 
consumers in making their purchasing decisions.
    After review of the comments, we believe that, if the statement is 
going to be displayed on the principal display panel, it should state 
the specified organic ingredient in the product; e.g., ``made with 
organic (specified ingredients).'' Replacing the word, ``certain,'' 
with the actual organic commodity name or organic ingredient will add 
the specificity sought by commenters and assist consumers in making 
more informed choices. Under this proposal, the statement, ``made with 
organic (specified ingredients),'' must be used on the principal 
display panel and on other package panels of a product containing 
between 50 and 95 percent organic ingredients.
    Several commenters suggested that the size of the letters in the 
phrase be limited to a fraction of the size of the product name as it 
appears on the principal display panel. They stated that limiting the 
size of the letters will keep the statement from making the product 
appear more organic than products with 95 percent organic ingredients. 
For instance, if a product contains 55 percent organic ingredients and 
the statement, ``made with organic (specified ingredients),'' is 
displayed on the principal display panel in large, bold letters, the 
product may appear more organic than a 97-percent product simply 
labeled ``organic.'' Commenters recommended letter sizes from one-half 
to three-fourths the size of the product name as it appears on the 
principal display panel.
    We also believe that the labeling for these products should not use 
typeface or letter sizes which would mislead consumers. FDA labeling 
requirements in 21 CFR 101.3(d) specify that required statement of 
identity of the product shall be in a size most reasonably related to 
the largest printed matter on a panel. FDA enforces ``reasonably 
related'' as being one half the size of the largest printed matter, 
which is usually the product name. Therefore, to be consistent with FDA 
labeling requirements, we have established the print size of the 
statement, ``made with organic (specified ingredients),'' to be not 
more than 50 percent, or one half, of the largest print size appearing 
on the principal display panel. This print size is consistent with the 
recommendation of many commenters but is smaller than the 75 percent 
recommended by the NOSB. We propose that the statement, ``made with 
organic (specified ingredients),'' appear in only one print style and 
color, without highlighting.
    We believe that these additional restrictions on display of the 
statement will enable the message to be delivered and yet provide some 
structure and consistency to display of the statement. It is our 
intention that the statement not be used to disproportionately dominate 
the principal display panel or other panels and not be used to 
misrepresent the organic nature of the product.
    (9) Limiting the number of organic ingredients listed. Some 
commenters suggested limiting the number of organic ingredients that 
could be

[[Page 13559]]

included in the statement ``made with organic ingredients.'' This topic 
was the subject of much NOSB deliberation and public discussion. 
Commenters reasoned that if the list of organic ingredients became too 
long, the product could appear to be more organic than ``95 percent'' 
products. For instance, a product could have 10 organic ingredients, 
but those 10 ingredients may comprise only 51 percent of the product. 
The consensus of comments suggested that the statement should be 
limited to three organic ingredients, which is the industry standard. 
We believe their recommendation has merit and, therefore, propose that 
up to three organic ingredients can be shown in the statement. We 
encourage additional comments on the maximum number of ingredients that 
should be allowed to appear in the statement on the principal display 
panel. Commenters should provide reasons for the number they recommend.
    (10) Qualifications for display of the USDA Seal. In the first 
proposal, we permitted the display of the USDA seal on products with 50 
percent or more organic ingredients. Commenters objected. They 
overwhelmingly endorsed a high organic content standard for a product 
to be labeled as ``organic.'' They believe products containing less 
than 95 percent organic ingredients do not have sufficient organic 
content to justify an ``organic'' label on the principal display panel, 
and should not be so labeled under the NOP regulations. Commenters also 
stated that display of the USDA Seal will be very desirable. Many 
stated that a prohibition on display of the USDA Seal on 50-to-95-
percent products would encourage handlers who assemble multiingredient 
products to use more organically produced ingredients and fewer 
nonorganic ingredients. They suggested that the USDA Seal and the 
certifying agent's seal or logo not be displayed on any package panel 
of products ``made with organic (specified ingredients)'' or on 
products with less than 50 percent organic ingredients.
    We agree that some distinction should be made between 95 percent-
plus organic products and the 50-95 percent organic products. Handlers 
of 95 percent-plus organic products may display both the USDA Seal and 
the certifying agent seal or logo on the principal display panel of the 
product. The commenters propose that handlers of 50-95 percent organic 
products not be allowed to display either seal on the principal display 
panel. However, we believe that, because handlers of 50-95 percent 
organic product are required to be certified under this program, it is 
appropriate that they should be allowed to display some evidence of 
that certification. We propose, therefore, that handlers of 50-95 
percent organic product may display the seal or logo of the certifying 
agent which certified the finished product. Display of the USDA Seal 
will still be restricted to only 100 percent organic products and to 95 
percent-plus products. We believe this provision will provide more 
equitable treatment for handlers of 50-95 percent products who are 
required under this regulation to obtain and maintain organic 
certification in order to label their organic product. It will also 
maintain a distinction between the two product levels by continuing the 
restriction on display of the USDA Seal. We believe that, while display 
of the USDA Seal is less likely to be an incentive for handlers of 
products at the lower end of the 50 to 95 percent range of organic 
content, handlers of products at the higher end of the 50 to 95 percent 
organic content range may be encouraged to increase the organic content 
in order to display the USDA Seal.
    An organic product produced or handled by an exempt or excluded 
operation, including those with less than $5,000 annual organic sales, 
may not display the USDA Seal or the seal of a certified agent because 
the operation has not been certified. Even if the organic content of 
the product is 95 percent or higher, the product still cannot be 
labeled as ``certified'' organic or marketed using an organic seal or 
logo.
    (11) Design of the USDA Seal. The final change prompted by comments 
is redesign of the USDA Seal. The Seal in the first proposal was a 
triangular shape behind a circle of recycling arrows around a globe 
figure with the word, ``organic,'' printed diagonally across the globe. 
That proposed seal was opposed by hundreds of commenters. Comments 
included: The triangle resembles a radioactive warning symbol or 
fallout shelter sign; the diagonal line across the circle appears to be 
the universal ``no'' sign (such as ``no walking,'' ``no smoking''); the 
globe design doesn't show up; the globe design implies an international 
program; the design is too busy; simplify the design; use the words, 
``certified organic''; use a text logo; the seal will be too costly to 
produce; and the triangle points will puncture or tear plastic when 
printed.
    Given the overwhelming negative response to the first seal, we 
propose a simplified design composed of the words, ``USDA CERTIFIED 
ORGANIC,'' inside a shield or badge design. This design is consistent 
with comments requesting simplicity and use of the words, ``certified 
organic.'' At the request of commenters, this proposal provides for 
labeling on transparent material. We believe the proposed basic dark on 
light or light on dark requirement is broad enough to allow handlers 
the flexibility needed to match color schemes compatible with their 
product packages. The alternative red, white, and blue color scheme 
offers handlers what consumers may identify as a more official or 
patriotic display of the Seal. We believe it is important that the Seal 
be displayed in a consistent manner, within general light/dark 
guidelines so that the Seal becomes easily recognizable to consumers.
Labeling--Changes Requested But Not Made
    Comments reflecting different opinions on the same topic are 
covered above (e.g., the number of organic ingredients listed on the 
principal display panel, the size of ``organic'' letters on the 
principal display panel, a recommended redesign of the USDA Seal, 
etc.). Obviously, not all such conflicting recommendations can be 
accepted. Two comments were received which are not accepted but which 
we believe warrant further consideration by the public and the organic 
community. We request additional comments regarding the following two 
recommendations. Commenters should specify their recommendation 
regarding each topic and provide reasons for their recommendation.
    (1) Changing the ``organic'' threshold for multiingredient 
products. At least one commenter suggested that the 50-95 percent 
labeling category sets too low a threshold for organic labeling of 
multiingredient products. The commenter suggested that, for increased 
international acceptance of USDA standards, the lowest acceptable 
percentage for receiving an organic label should be 70 percent organic 
ingredients, based on the European Union (EU) standard which now 
requires a minimum of 70 percent organic ingredients for the product to 
be labeled as ``organic'' (or, ``biological'' or ``ecological'').
    The EU standard allows products with a 70 percent organic content 
to be labeled as ``organic,'' where our proposal will require at least 
95 percent organic content before a product could be labled as 
``organic.'' This 95 percent standard is in the Act. Where the two 
standards differ is that the EU standard doe not have a ``made with 
organic (specified ingredients)'' category proposed in this rule.

[[Page 13560]]

    While the Act establishes a 50-percent minimum ingredient content, 
that percentage can be adjusted upward if doing so would further the 
purposes of the Act. To do so, however, the Secretary must have good 
cause and justification for establishing a higher minimum organic 
ingredient content. In other words, we could raise the minimum organic 
ingredient content threshold to 70 percent, redefining two of our four 
categories. The four categories would be: less than 70 percent, 70-95 
percent, greater than 95 percent, and 100 percent. Under this scenario, 
the prohibitions on excluded methods, irradiation, and sewage sludge 
would not apply to the nonorganic ingredients of products with less 
than 70 percent organic content. At the same time, these products would 
only be able to list the organic ingredients on the information panel. 
The ``made with organic ingredients'' category, to which the 
prohibition would apply, would be 70-95 percent organic content. The 
only products that would get the ``organic'' designation would still be 
those with at least 95 percent organic content.
    Because we find no compelling reason to raise the 50-percent 
minimum ingredient content threshold established in the Act, we have 
not accepted the commentor's recommendation in this proposal. However, 
if comments on this proposal suggest an appropriate justification, the 
minimum ingredient content threshold could be raised in the final rule.
    (2) Minimum content requirements for organic ingredients. One 
commenter suggested that a minimum percentage of the entire product 
weight be established to qualify for a single ingredient to be included 
in the statement, ``made with organic (specified ingredients).'' The 
commenter suggested that this would help prevent misrepresentation of 
the organic nature of a product. The commenter suggested that the 
minimum content for any ingredient should be 15 percent. The commenter 
did not justify the 15-percent minimum (as opposed to another minimum 
percentage). Because such a recommendation could prevent important 
ingredients from being specified on a product label, we have not 
incorporated the comment in this proposal. However, we believe the 
comment may have merit. One factor in establishing a minimum percentage 
for any individual ingredient listed on the principal display panel 
would be the established minimum percentage for all organic ingredients 
in a product, the question raised in the paragraph above. For instance, 
if the minimum percentage of all ingredients is established at 70 
percent to conform to EU standards, should there be a minimum 
percentage for any individual organic ingredient that could be listed 
on the principal display panel as one of three organic ingredients in 
the product? Would such a labeling restriction prevent identification 
of an important organic ingredient from being displayed on the 
principal display panel?
    Commenters on questions (1) and (2) should state whether they think 
the recommendations would further the marketing of organic products 
and, if so, clearly state the recommended percentage for each question 
and the reasons for their opinions regarding each issue.
    (3) Labeling requirements for small operations. A majority of those 
who commented on the exemption for small operations (less than $5,000 
organic sales) in the first proposal stated that such operations are 
not exempt from labeling requirements under the Act. In this proposal, 
we provide limited labeling provisions which prohibit exempt and 
excluded operations, including those with less than $5,000 in annual 
organic sales, from labeling their products in a way that indicates the 
operations or the products have been certified as organic. These 
provisions will not allow such operations to use labeling terms and 
organic seals and logos specified for certified operations. We believe 
those terms, logos and seals should be reserved for operations and 
products that are certified under these regulations.
Labeling--Additional Provisions
    Upon further review of the label and market information provisions 
in the first proposal, we propose the following additions and changes.
    (1) Display of a State organic seal. Under the first proposal, each 
State organic certification program would have been allowed to display 
a seal or logo of its State organic program. The first preamble stated 
that it was appropriate for a State to have a seal representing its 
organic program, thus allowing product produced under that program to 
bear the State's seal.
    Currently, 13 State departments of agriculture (or other State 
agency) and approximately 40 private agents certify to a variety of 
private and State organic requirements. After establishing a policy 
which more clearly defines the criteria for approval of a State organic 
program, we believe that, in the interest of consistent and uniform 
national standards, product packages should not display the seal of a 
State organic program if the seal is different from the seal or mark 
used by the State's organic certifying agent.
    This determination is based on a proposed change in State programs. 
A State organic program will be approved by the Secretary for specific, 
need-based reasons particular to that State (see State Programs under 
subpart G). To establish and maintain uniform national standards, 
States will not be authorized to implement more restrictive organic 
standards simply to promote State products that are ``more organic'' 
than products produced and handled in other States or under NOP 
requirements. Rather, the Secretary will approve only those State 
programs that need more restrictive requirements to protect or preserve 
unique environmental conditions or to accommodate product and handling 
practices unique to a State or portion of a State. In the absence of 
such environmental conditions or production practice needs, a State's 
organic program must have the same requirements as this NOP. If this is 
the case and if a relatively few State programs are approved to have 
more restrictive requirements, then no real purpose is served by 
permitting State organic programs to display a separate and distinct 
seal on a product label. Such a seal would not represent a ``more 
organic'' product.
    In the place of a State organic program seal, this proposal 
provides for the seal or logo of a State certifying agent to be 
displayed on packages, if that certifying agent certifies the organic 
operation producing the product. Selection of a State or private 
certifying agent is the choice of the organic producer or handler being 
certified. A State's department of agriculture (or other equivalent 
State agency) may establish one or more State certifying agent offices 
as part of its governmental operations, or the State may license a 
private certifying agent to certify organic operations on behalf of the 
State. In either case, the certifying agent would certify these 
national requirements and not the particular requirements of a State 
organic program unless those requirements were approved by the 
Secretary. Therefore, the only organic seal or mark representing a 
State will be the seal or mark of a State's certifying agent or 
licensed certifying agent. Any certifying agent licensed by the State 
must be accredited by the Secretary pursuant to subpart F of this 
proposal.
    (2) Labeling for international markets. We have added two 
paragraphs under section 205.300 to provide for labeling of products 
intended for international markets. Domestically produced organic 
products intended for export may be labeled to meet the requirements of 
the country of destination or any labeling

[[Page 13561]]

requirements specified by a particular foreign buyer.
    If labeled to meet foreign labeling requirements, such packaged 
products cannot be sold in the United States. Pursuant to Sec. 205.306, 
shipping containers and bills of lading for these products would have 
to be marked ``for export only'' to assure that the product was not 
distributed domestically. We are providing this exception to labeling 
requirements for the convenience of exporters only. If the foreign 
country or buyer does not require different product labeling, domestic 
product which has been produced, certified, and labeled pursuant to 
these regulations may be shipped without the statement, ``for export 
only,'' on the containers and bills of lading.
    Organic product produced in another country for export to the 
United States may be certified to the requirements of this regulation 
or to an approved foreign organic certification program that has been 
recognized as equivalent to the requirements of the NOP. Such products 
must be labeled pursuant to the requirements of this subpart.
    (3) Product composition. Under new Sec. 205.301, Product 
Composition, we have clarified the composition of organic and 
nonorganic ingredients in products covered in the four labeling 
categories. All ingredients labeled as ``organic'' in the ingredient 
statement of the product package must be produced and handled pursuant 
to these requirements. No substances prohibited on the National List in 
subpart G and no production or handling practices prohibited in 
Sec. 205.301(e) may be used in the production or handling of any 
ingredient labeled as ``organic.'' Regulations covering the production 
and handling of nonorganic ingredients varies with the labeling 
category. The higher the percentage of a product's organic composition, 
the more restrictive the production and handling requirements of the 
nonorganic ingredients in the product. These requirements are found 
under Sec. 205.301 and explained above under Proposal Description.
    (4) Prohibited practices. Section 205.301(e) lists seven production 
and handling practices that are prohibited from being used to produce 
whole products or product ingredients that would be labeled as 
``organic'' under the NOP. Some of these prohibited practices appear 
for the first time in this proposal, and others were specified in the 
first proposal and were supported by all those who addressed them in 
their comments.
    The first proposal prohibited organic labeling of a product or 
ingredient produced using water that does not meet requirements of the 
Safe Drinking Water Act (42 U.S.C. 300(f) et seq.). We have not 
included that provision in this proposal because potable water is 
required in other FDA and FSIS processing regulations and does not need 
to be repeated as a requirement in this regulation.
    The first three practices (use of excluded methods, sewage sludge, 
and irradiation) are discussed elsewhere in this proposal and are added 
as prohibited practices in this labeling section for consistency 
purposes.
    Only processing aids and substances on the National List in subpart 
G of this regulation may be used in the production and handling of 95 
percent-plus organic products and 50-95 percent organic products and in 
any ingredient labeled as organic on a product package.
    The first proposal prohibited use of sulfites, nitrates, and 
nitrites in production or processing of organic products or 
ingredients. We have amended the wording of this provision to clarify 
that a handler cannot add any sulfites, nitrates, and nitrites to a 
product and still label the finished product or ingredient as 
``organic.'' We make this clarification because these substances are 
found naturally in many substances and may appear naturally in potable 
water used in processing.
    The last two processing practices that would prohibit an 
``organic'' label appeared in separate sections of the first proposal 
and are included in this proposal in Sec. 205.301(e)(6) and (e)(7). The 
first is that products and organic ingredients assembled using organic 
or nonorganic forms of the same ingredient or component ingredients--
depending on availability of the organic ingredients--cannot be labeled 
as ``organic when available'' or a similar phrase. Similarly, products 
and organic ingredients assembled using both organic and nonorganic 
forms of the same ingredient or component ingredients cannot be labeled 
as organic if that ingredient is identified as organic on the 
ingredient statement and included in the percentage of organic content 
on the information panel.
    (5) Calculating organic content. Because labeling requirements are 
based on the amount of organic ingredients in a product, we have added 
new section 205.302, which addresses the calculation of organic 
percentages. Provisions in this new section were not included in the 
first proposal. While this should be a simple mathematical procedure, 
the section proposes certain guidelines for calculating and labeling 
organic percentages.
    Only one percentage figure for total organic ingredients will be 
shown on a package. The percentage of individual organic ingredients 
will not be displayed.
    An organic product may be constituted completely of organic liquid 
products. Therefore, this proposal adds the phrase, ``or fluid 
volume,'' in several places in the proposal when referring to liquid 
products and ingredients. For ingredients in liquid form that are 
reconstituted with water from a concentrate, the calculation would be 
based on a single-strength solution of the liquid concentrate. For 
products that may contain both dry and liquid organic ingredients, the 
percentage calculation would be based on the combined weight of the 
organic ingredients, including the weight of the liquid ingredients, 
minus water and salt.
    (6) Labeling of nonretail containers. We have added new 
Sec. 205.306, covering labeling of nonretail containers--those used 
only for shipping and storage of agricultural products labeled as 
organic or containing organic ingredients. While the same containers 
are commonly used for both shipping and storage, the first proposal did 
not reference storage containers or specify labeling requirements for 
those containers. These provisions are proposed only for products 
labeled as ``100 percent organic,'' ``organic,'' and ``made with 
organic (specified ingredients).'' Some may believe that use of the 
USDA Seal on a shipping container of products ``made with organic 
(specified ingredients)'' may be inconsistent with other labeling 
provisions prohibiting display of the Seal on consumer packages of 
those products. However, in the case of shipping and storage 
containers, the display of seals is not intended for marketing purposes 
but would be used for easy identification of the product to help 
prevent commingling with nonorganic product or handling of the product 
which would destroy the organic nature of the product (fumigation, 
etc.). These provisions will not apply to shipping and storage 
containers of products containing less than 50 percent organic 
ingredients.
    (7) Retail Food Establishments. The extent of the regulatory 
authority of this regulation has been the subject of intense 
discussions in comments received, NOSB deliberations, and AMS 
discussions. Commenters claimed that it makes no sense to regulate and 
certify the production and handling of organic product but not require 
certification and regulate retail food establishments where some fresh 
foods containing organic ingredients are processed and

[[Page 13562]]

assembled and where they can become adulterated or misrepresented to 
the consuming public.
    Retail food establishments that market organic product, whether 
produced in-store, in a corporate commissary, or by others, will be 
subject to the labeling provisions of this subpart as that labeling 
applies to: (1) Point-of-purchase, in-store displays describing the 
organic nature of the product; and (2) other market information and 
media advertising regarding the product being marketed at the retail 
food establishment. Food retail establishments must describe the 
product in in-store retail displays, market information, and media 
advertising that is consistent with the organic content of the finished 
product. Any labeling of a product that is inconsistent with the 
percentage of organic content of the product will be considered a 
violation of truth in labeling and/or truth in advertising regulations 
of FDA and the FTC. Multiingredient products which are described as 
organic product in retail displays and market information must be 
assembled by a certified manufacturing facility, pursuant to the 
Applicability subpart of this regulation.
    Packaged organic products, organic fresh produce, and organic bulk 
bin food items must be described in point-of-purchase displays, pricing 
information, and consumer information in terms consistent with the 
organic content of the product. For instance, an in-store retail 
display would describe an 87 percent organic product by specifying the 
percentage of organic content of the product and identifying the 
organic ingredients in the ingredient statement, as may be required by 
FDA. The market information for such a product must not, for instance, 
label the product as ``organic'' or ``100 percent organic.'' This would 
be a violation of truth in labeling and advertising regulations of FDA 
and FTC. The USDA Seal and the seal of the certifying agent may be 
displayed at retail sales and in market information on products 
certified as containing 95 percent or more organic content. 
Multiingredient products containing 50-95 percent organic ingredients 
may display the seal or logo of the certifying agent of the organic 
handling operation.
    We believe these labeling practices will help assure appropriate 
representation of bulk organic products at retail sale and will 
encourage handlers to use more organic ingredients.
    Products containing less than 50 percent organic ingredients at the 
point of retail sale may not be identified in any way as ``organic'' or 
containing organic ingredients. In addition, the USDA Seal and seal, 
logo, or other identifying mark of the certifying agent is prohibited 
from being used in retail displays and market information.
    (8) Change in calculating the $5,000 exemption. We are proposing a 
change in calculating the $5,000 exemption for producers and handlers. 
The $5,000 annual exemption will be calculated on sales of organically 
produced product and not on all agricultural products marketed by the 
exempt producer or handler, as provided in the first proposal. This 
exemption means that qualifying exempt organic producers and handlers 
may annually sell up to $5,000 of organically produced products and not 
be certified as an organic operation under this regulation. The 
exemption could apply to a large, conventional agricultural operation 
that also has a small amount of acreage designated for organic 
production--the products of which, for example, is sold at a roadside 
stand. Any sale of other, nonorganic products will not count against 
the $5,000 sales total. The labeling and market information 
requirements for organic products produced by such exempt operations 
are specified in Sec. 205.309 of this regulation.

Subpart E--Certification

    This subpart sets forth the requirements for a national program to 
certify production and handling operations as certified organic 
production or handling operations. The certification process proposed 
in this subpart will be carried out by accredited certifying agents.
Proposal Description
    General Requirements. Production and handling operations seeking to 
receive or maintain organic certification must comply with the Act and 
applicable organic production and handling regulations. Such operations 
must establish, implement, and annually update an organic production or 
handling system plan that is submitted to an accredited certifying 
agent. They must permit on-site inspections by the certifying agent 
with complete access to the production or handling operation, including 
noncertified areas and structures.
    As discussed in Subpart B, certified operations must maintain 
records concerning the production and handling of agricultural products 
that are sold, labeled, or represented as ``100 percent organic,'' 
``organic,'' or ``made with organic (specified ingredients)'' 
sufficient to demonstrate compliance with the Act and regulations. 
Records applicable to the organic operation must be maintained for not 
less than 5 years beyond their creation. Authorized representatives of 
the Secretary, the applicable State program's governing State official, 
and the certifying agent must be allowed access to the operation's 
records during normal business hours. Access to the operation's records 
will be for the purpose of reviewing and copying the records to 
determine compliance with the Act and regulations.
    Certified operations are required to immediately notify the 
certifying agent concerning any application, including drift, of a 
prohibited substance to any field, production unit, site, facility, 
livestock, or product that is part of the organic operation. They must 
also immediately notify the certifying agent concerning any change in a 
certified operation or any portion of a certified operation that may 
affect its compliance with the Act and regulations.
    Certification Process. To obtain certification, a producer or 
handler must submit a request for certification to an accredited 
certifying agent. The request must contain descriptive information 
about the applicant's business, an organic production and handling 
system plan, information concerning any previous business applications 
for certification, and any other information necessary to determine 
compliance with the Act.
    Applicants for certification and certified operations must submit 
the applicable fees charged by the certifying agent. An applicant may 
withdraw its application at anytime. An applicant who withdraws its 
application will be liable for the costs of services provided up to the 
time of withdrawal of the application.
    The certifying agent will decide whether to accept the applicant's 
application for certification. Certifying agents may decline to accept 
an application for certification but may not decline to accept an 
application on the basis of race, color, national origin, gender, 
religion, age, disability, political beliefs, sexual orientation, or 
marital or family status.
    Upon acceptance of an application for certification, a certifying 
agent will review the application to ensure completeness and to 
determine whether the applicant appears to comply or may be able to 
comply with the applicable production or handling regulations. As part 
of its review, the certifying agent will verify that an applicant has 
submitted documentation to support the correction of any deficiencies 
identified in a previously received notification of noncompliance. The 
certifying agent

[[Page 13563]]

will also review any available U.S. Department of Agriculture (USDA) 
data on production and handling operations for information concerning 
the applicant.
    We anticipate using data collected from certifying agents to 
establish and maintain a password-protected Internet database only 
available to accredited certifying agents and USDA. This database would 
include data on production and handling operations issued a 
notification of noncompliance, noncompliance correction, denial of 
certification, certification, proposed suspension or revocation of 
certification, and suspension or revocation of certification. 
Certifying agents would use this Internet database during their review 
of an application for certification. This data will not be available to 
the general public because much of the data would involve ongoing 
compliance issues inappropriate for release prior to a final 
determination.
    After a complete review of the application, the certifying agent 
will communicate its findings to the applicant. If the review of the 
application reveals that the applicant may be in compliance with the 
applicable production or handling regulations, the certifying agent 
will schedule an on-site inspection of the applicant's operation to 
determine whether the applicant qualifies for certification. The 
initial on-site inspection must be conducted within a reasonable time 
following a determination that the applicant appears to comply or may 
be able to comply with the requirements for certification.
    The certifying agent will conduct an initial on-site inspection of 
each production unit, facility, and site included in the applicant's 
operation. As a benchmark, certifying agents should follow auditing 
guidelines prescribed by the International Organization for 
Standardization Guide 10011-1, ``Guidelines for auditing quality 
systems--Part 1: Auditing'' (ISO Guide 10011-1).\1\ The certifying 
agent will use the on-site inspection in determining whether to approve 
the request for certification and to verify the operation's compliance 
or capability to comply with the Act and regulations. Certifying agents 
will conduct on-site inspections when the applicant or an authorized 
representative of the applicant who is knowledgeable about the 
operation is present. An on-site inspection must also be conducted when 
land, facilities, and activities that demonstrate the operation's 
compliance with or capability to comply with the applicable production 
or handling regulations can be observed.
---------------------------------------------------------------------------

    \1\ ISO Guide 10011-1 is available for viewing at USDA-AMS, 
Transportation and Marketing Programs, Room 2945--South Building, 
14th and Independence Ave., SW, Washington, DC, from 9:00 a.m. to 
4:00 p.m., Monday through Friday (except official Federal holidays). 
A copy may be obtained from the American National Standards 
Institute, 11 West 42nd Street, New York, NY 10036; Website: 
www.ansi.org; E-mail: [email protected]; Telephone: 212-642-4900; 
Facsimile: 212-398-0023.
---------------------------------------------------------------------------

    The on-site inspection must verify that the information provided to 
the certifying agent accurately reflects the practices used or to be 
used by the applicant or certified operation and that prohibited 
substances have not been and are not being applied to the operation. 
Certifying agents may use the collection and testing of soil; water; 
waste; plant tissue; and plant, animal, and processed products samples 
as tools in accomplishing this verification.
    The inspector will conduct an exit interview with an authorized 
representative of the inspected operation to confirm the accuracy and 
completeness of inspection observations and information gathered during 
the on-site inspection. The main purpose of this exit interview is to 
present the inspection observations to those in charge of the firm in 
such a manner so as to ensure they clearly understand the results of 
the inspection. The firm is not required to volunteer any information 
during the exit interview but would be required to respond to questions 
or requests for additional information. The inspector will raise and 
discuss during the exit interview any known issues of concern, taking 
into account their perceived significance. As a general rule, the 
inspector will not make recommendations for improvements to the 
operation during the exit interview. However, the certifying agent will 
have the discretion to decide the extent to which an inspector may 
discuss any compliance issue.
    Notification of Approval. A certifying agent will review the on-
site inspection report, the results of any analyses for substances, and 
any additional information provided by the applicant within a 
reasonable time after completion of the initial on-site inspection. The 
certifying agent will approve certification upon making two 
determinations: (1) That the applicant's operation, including its 
organic system plan and all procedures and activities, is in compliance 
with the Act and regulations; and (2) that the applicant is able to 
conduct operations in accordance with its organic systems plan.
    Upon determining the applicant's compliance and ability to comply, 
the agent will approve certification and issue a ``certificate of 
organic operation.'' The approval may include restrictions regarding 
minor deficiencies that would not prevent certification as a condition 
of continued certification. A certificate of organic operation will 
specify the name and address of the certified operation; the effective 
date of certification; the categories of organic operation, including 
crops, wild crops, livestock, or processed products produced by the 
certified operation; and the name, address, and telephone number of the 
certifying agent. Once certified, a production or handling operation's 
organic certification continues in effect until surrendered by the 
organic operation or suspended or revoked by the certifying agent, the 
State program's governing State official, or the Administrator.
    Denial of Certification. Should the certifying agent determine that 
the applicant is not able to comply or is not in compliance with the 
act, the certifying agent will issue a written notification of 
noncompliance to the applicant. Applicants who receive a notification 
of noncompliance may correct the deficiencies and submit, by the date 
specified, a description of correction and supporting documentation to 
the certifying agent. As an alternative, the applicant may submit a new 
application to another certifying agent, along with the notification of 
noncompliance and a description of correction of the deficiencies and 
supporting documentation. Applicants may also submit, by the date 
specified, written information to the certifying agent to rebut the 
noncompliance described in the notification of noncompliance. When a 
noncompliance cannot be corrected, a notification of noncompliance and 
a ``notification of denial of certification'' may be combined in one 
notification.
    The certifying agent will evaluate the applicant's corrective 
actions taken and supporting documentation submitted or the written 
rebuttal. If necessary, the certifying agent will conduct a followup 
on-site inspection of the applicant's operation. When the corrective 
action or rebuttal is sufficient for the applicant to qualify for 
certification, the certifying agent will approve certification. When 
the corrective action or rebuttal is not sufficient for the applicant 
to qualify for certification, the certifying agent will issue the 
applicant a written notice of denial of certification. The certifying 
agent will also issue a written notice of denial of certification when 
an applicant fails to respond to the notification of noncompliance. The

[[Page 13564]]

notice of denial of certification will state the reasons for denial and 
the applicant's right to reapply for certification, request mediation, 
or file an appeal.
    An applicant who has received a notification of noncompliance or 
notice of denial of certification may apply for certification again at 
any time with any certifying agent. When the applicant submits a new 
application to a different certifying agent, the application must 
include a copy of the notification of noncompliance or notice of denial 
of certification. The application must also include a description of 
the actions taken, with supporting documentation, to correct the 
deficiencies noted in the notification of noncompliance. When a 
certifying agent receives such an application, the certifying agent 
will treat the application as a new application and begin a new 
application process.
    A certifying agent has limited authority to deny certification 
without first issuing a notification of noncompliance. This authority 
may be exercised when the certifying agent has reason to believe that 
an applicant for certification has willfully made a false statement or 
otherwise purposefully misrepresented its operation or its compliance 
with the requirements for certification.
    Continuation of Certification. Each year, the certified operation 
must update its organic production or handling system plan and submit 
the updated information to the certifying agent to continue 
certification. The updated organic system plan must include a summary 
statement, supported by documentation, detailing deviations from, 
changes to, modifications to, or other amendments to the previous 
year's organic system plan. The updated organic system plan must also 
include additions to or deletions from the previous year's organic 
system plan, intended to be undertaken in the coming year. The 
certified operation must update the descriptive information about its 
business and other information as deemed necessary by the certifying 
agent to determine compliance with the Act and regulations.
    Following receipt of the certified operation's updated information, 
the certifying agent will arrange and conduct an on-site inspection of 
the certified operation. As a benchmark, certifying agents should 
follow auditing guidelines prescribed by ISO Guide 10011-1. Upon 
completion of the inspection and a review of updated information, the 
certifying agent will determine whether the operation continues to 
comply with the Act and regulations. If the certifying agent determines 
that the operation is in compliance, certification will continue. If 
any of the information specified on the certificate of organic 
operation has changed, the certifying agent will issue an updated 
certificate of organic operation. If the certifying agent finds that 
the operation is not complying with the Act and regulations, a written 
notification of noncompliance will be issued as described in 
Sec. 205.662.
    In addition to annual inspections, a certifying agent may conduct 
additional on-site inspections of certified operations to determine 
compliance with the Act and regulations. The Administrator or State 
program's governing State official may also require that additional 
inspections be performed by the certifying agent to determine 
compliance with the Act and regulations. Additional inspections may be 
announced or unannounced and would be conducted, as necessary, to 
obtain information needed to determine compliance with identified 
requirements.
    Such on-site inspections would likely be precipitated by reasons to 
believe that the certified operation was operating in violation of one 
or more requirements of the Act or these regulations. The policies and 
procedures regarding additional inspections, including how the costs of 
such inspections are handled, would be the responsibility of each 
certifying agent. Misuse of such authority would be subject to review 
by the Department during its evaluation of a certifying agent for 
reaccreditation and at other times in response to complaints. Certified 
production and handling operations could file complaints with the 
Department at any time should they believe a certifying agent abuses 
its authority to perform additional inspections.
    Certification After Suspension or Revocation of Certifying Agent's 
Accreditation. When the Administrator revokes or suspends a certifying 
agent's accreditation, affected certified operations will need to make 
application for certification with another accredited certifying agent. 
The certification of the production or handling operation remains in 
effect during this transfer of the certification. The certified 
production or handling operation may seek certification by any 
qualified certifying agent accredited by the Administrator. To minimize 
the burden of obtaining the new certification, the Administrator will 
oversee transfer of the original certifying agent's file on the 
certified operation to the operation's new certifying agent.
    Upon initiation of suspension or revocation of a certifying agent's 
accreditation, or upon suspension or revocation of a certifying agent's 
accreditation, the Administrator may initiate proceedings to suspend or 
revoke the certification of operations certified by the certifying 
agent. The Administrator's decision to suspend or revoke a producer's 
or handler's certification in light of the loss of its certifying 
agent's accreditation would be made on a case-by-case basis. Actions 
such as fraud, bribery, or collusion by the certifying agent, which 
cause the Administrator to believe that the certifying agent's clients 
do not meet the standards of the Act or these regulations, might 
require the immediate initiation of procedures to suspend or revoke 
certification from some or all of its client base. Removal of 
accreditation, regardless of the reason, in no way affects the appeals 
rights of the certifying agent's clients. Further, a certified 
operation's certification will remain in effect pending the final 
resolution of any proceeding to suspend or revoke its certification.
    A private-entity certifying agent must furnish reasonable security 
for the purpose of protecting the rights of operations certified by 
such certifying agent. This security is to ensure the performance of 
the certifying agent's contractual obligations. As noted elsewhere in 
this proposed rule, the specific amount and type of security that must 
be furnished by a private certifying agent will be the subject of 
future rulemaking by the Department. We anticipate that the amount of 
the security will be tied to the number of clients served by the 
certifying agent and the anticipated costs of certification that may be 
incurred by its clients in the event that the certifying agent's 
accreditation is suspended or revoked. We anticipate that the security 
may be in the form of cash, surety bonds, or other financial instrument 
(such as a letter of credit) administered in a manner comparable to 
cash or surety bonds held under the Perishable Agricultural Commodities 
Act.
Certification--Changes Based on Comments
    This subpart differs from our first proposal in several respects as 
follows:
    (1) On-site Inspection Requirements. We have amended the general 
requirements provision concerning on-site inspections. The first 
proposal required production and handling operations to permit an 
annual on-site

[[Page 13565]]

inspection by the certifying agent. A few commenters suggested that the 
term, ``inspection,'' be made plural and that the section citations be 
amended to include the section on additional inspections. The section 
on additional inspections addressed the certifying agent's authority to 
perform on-site inspections in addition to the annual on-site 
inspection.
    The commenters believe that ``inspection'' should apply to all 
situations when on-site inspections must be or could be performed, 
including the initial site inspection for a new certification as well 
as, for instance, compliance inspections. Commenters believe that these 
changes are needed to assure access to the certified operation and that 
an applicant's agreement to permit any and all necessary on-site 
inspections should be clearly stated as a general requirement for 
certification.
    We had intended for the general requirements provision concerning 
on-site inspections to include all instances in which an on-site 
inspection might be appropriate. Accordingly, we have amended the 
requirement by replacing the phrase, ``an annual on-site inspection,'' 
with the phrase, ``on-site inspections.'' This terminology would cover 
initial, annual, and additional inspections needed for certification, 
continuation of certification, and to determine whether the operation 
is in compliance with program requirements. To ensure complete access 
to the production or handling operation for the purpose of conducting 
on-site inspections and determining compliance with the requirements of 
the National Organic Program (NOP), we have added a requirement that 
the operation permit complete access to the production or handling 
operation, including noncertified areas and structures. The general 
requirements provision on on-site inspections is found at 
Sec. 205.400(c).
    (2) Providing Access to Records. We have clarified the meaning of 
providing access to the records that the certified operation must 
maintain by adding ``during normal business hours for review and 
copying'' to the regulation. The first proposal required that certified 
organic operations maintain records for not less than 5 years from the 
date of their creation. It also required the certified operation to 
allow authorized representatives of the Secretary, the applicable 
governing State official, and the certifying agent access to such 
records to determine compliance with the Act and regulations.
    Several comments were received regarding these recordkeeping 
requirements. Most of these comments were received from organic 
producer organizations and certifying agents. A few commenters 
questioned the necessity of maintaining records for 5 years, requested 
a different period for different records, and requested clarification 
on the meaning of providing access. Section 6511(d) of the Act requires 
organic production or handling operations to maintain records for 5 
years. Accordingly, we have made no change to the retention period in 
this proposal. The clarification on the meaning of providing access to 
records is found at Sec. 205.400(d).
    (3) Notification of Drift. We have amended the requirement that 
production and handling operations immediately notify the certifying 
agent concerning any application of a prohibited substance by adding 
the phrase, ``including drift.'' A few commenters suggested adding a 
requirement that the certified operation notify the certifying agent 
when an organically certified field is contaminated by drift. They 
stated that drift is the most common reason for prohibiting the organic 
label on otherwise organically produced product.
    We agree that the certified operation should immediately report any 
drift of a prohibited substance onto an organic field to its certifying 
agent. Accordingly, Sec. 205.400(f)(1) provides that an applicant 
seeking to receive or maintain organic certification must immediately 
notify the certifying agent concerning any application, including 
drift, of a prohibited substance. This provision applies to new 
applicants as well as to ongoing certified operations. Contamination by 
drift could occur during the time period between application for and 
approval of certification. Accordingly, an applicant for certification 
would be required to notify the certifying agent of any contact with a 
prohibited substance.
    (4) Applicant Requirements. We have added the requirement that 
applicants for certification include other information necessary to 
determine compliance with the Act and regulations. Commenters suggested 
that the we add a provision to the application regulations requiring 
applicants for certification to submit other information deemed 
necessary by the certifying agent. They stated that this authority is 
needed to assure that applicants are fully cooperative and responsive 
throughout the certification process.
    We believe the requested authority would be helpful to certifying 
agents. However, we believe the authority for certifying agents to 
request other information they deem necessary must be qualified by the 
requirement that the information be necessary to determine compliance 
with the Act and regulations. Accordingly, we have provided certifying 
agents with the authority to request other information necessary to 
determine compliance with the Act and regulations. This addition is 
found at Sec. 205.401(d).
    (5) Requirement for Notification of Noncompliance. We have replaced 
the first proposal's section on ``preliminary evaluation of an 
applicant for certification'' with a new section on ``review of 
application.'' We have revised the section to clarify that certifying 
agents will issue notices of noncompliance only after the initial on-
site inspection of an applicant's operations. We also allow applicants 
to voluntarily withdraw their application for certification at any 
time.
    This change was in response to comments on the first proposal's 
requirement that applicants for certification report, to the certifying 
agent with whom they have applied, the receipt of a notice of 
noncompliance received from another certifying agent. A State organic 
growers association stated that this requirement places a stigma on 
applicants who, for example, applied for certification before the 
operation was ready to meet all requirements for certification. This 
commenter suggested that notification of previous denial only be 
required after an applicant has been denied certification. The 
commenter went on to say that, if the language in the original proposal 
is maintained, there should be a time limit of within the past 3 or 5 
years of denial. Another commenter suggested that certifying agents 
have the option of recommending that noncompliant applicants withdraw 
their applications rather than be denied certification. As an 
alternative, one of the commenters suggested that denial of 
certification to an unprepared applicant should not have to be reported 
on a subsequent application to another certifying agent unless the 
first noncompliance notice led to a denial of certification.
    We continue to believe that it is in the best interest of the 
program and consumers to require applicants to report the receipt of 
notices of noncompliance and denial of certification to any certifying 
agent to whom they make application. However, we also believe that 
operations should not be unnecessarily stigmatized because they applied 
for certification before the operation was ready to meet all 
requirements for certification.

[[Page 13566]]

Accordingly, this proposal requires that an applicant report the 
receipt of a notice of noncompliance or denial of certification to any 
certifying agent to whom application is made but allows applicants to 
voluntarily withdraw their application at any time.
    An applicant that voluntarily withdrew its application prior to the 
issuance of a notice of noncompliance would not be issued a notice of 
noncompliance. Similarly, an applicant that voluntarily withdrew its 
application prior to the issuance of a notice of certification denial 
would not be issued a notice of certification denial.
    (6) Residue Testing. We have revised the verification of 
information provisions to provide that the on-site inspection of an 
operation must verify that prohibited substances have not been and are 
not being applied to the operation. Verification would be through means 
which, at the discretion of the certifying agent, may include the 
collection and testing of soil; water; waste; seeds; plant tissue; and 
plant, animal, and processed products samples.
    Comments from certifying agents suggested adding a provision that 
would allow a certifying agent to collect samples of substances from 
the operation for residue testing. They stated that such testing is 
necessary to detect unreported use or accumulation of prohibited 
substances. Section 6506(a)(6) of the Act requires periodic residue 
testing by certifying agents of products produced by certified organic 
operations. It is our intent that collection of samples for residue 
testing may be conducted as part of initial on-site inspections, as 
well as during on-site inspections of certified organic operations. The 
inspector could collect samples of soil; water; waste; seeds; plant 
tissues; and plant, animal, and processed products. Collection of such 
samples would be at the discretion of the certifying agent. To maintain 
the integrity of the inspection process, it is necessary that the 
certifying agent or inspector collect such samples first hand, rather 
than receive the samples from the applicant. We have made the requested 
addition at Sec. 205.403(c)(3).
    (7) Postinspection Conference Requirements. We have amended the 
postinspection conference requirements. We have changed all references 
to ``postinspection conference'' to ``exit interview.'' We have removed 
the requirement that the inspector discuss his or her observations 
regarding the operation's compliance or ability to comply with the Act 
and regulations. This requirement has been replaced with the 
requirement that the inspector confirm the accuracy and completeness of 
inspection observations and information gathered during the on-site 
inspection. The inspector can use the exit interview to request any 
additional information necessary to establish eligibility for 
certification. Finally, this amendment requires the inspector to raise 
and discuss during the exit interview any known issues of concern.
    Certifying agents commented that it would be inappropriate for an 
inspector to discuss observations and possible violations of compliance 
at an exit interview. They stated that requiring exit interviews places 
the inspector in the position of providing observations and feedback to 
the applicant before the inspector is able to confer with the 
certifying agent. Some certifying agents expressed concern that exit 
interviews could result in inspectors providing false or misleading 
information to the applicant. Some commenters requested that exit 
interviews be held only for the purpose of checking the accuracy and 
completeness of inspector observations made and the information 
obtained during the inspection. Other commenters requested that the 
exit interviews requirement be removed from these regulations.
    We believe that qualified inspectors should be capable of 
competently discussing an applicant's compliance or ability to comply 
with these regulations. However, we also believe that a certifying 
agent should have the opportunity to decide whether to allow its 
inspectors to discuss issues of compliance at an exit interview. 
Accordingly, we have amended the exit interview requirements as noted 
above. These amended requirements are found at Sec. 205.403(d).
    (8) Additional Inspections. We have added a new provision that 
additional inspections may be announced or unannounced at the 
discretion of the certifying agent or as required by the Administrator 
or State program's governing State official. This change was made in 
response to commenters who requested the addition of a requirement that 
certifying agents conduct unannounced site visits in addition to the 
initial and annual inspections. We believe that unannounced on-site 
inspections are appropriate and valuable in both monitoring and 
investigating compliance with the Act and regulations. The requested 
addition is found at Sec. 205.403(a)(2)(iii).
    (9) Requirements for Written Inspection Reports. We have removed 
the requirement that the certifying agent require an inspector to 
prepare and submit to the certifying agent, within 30 days of 
completing an inspection, a written report that describes the 
inspector's observations and assessments of the inspected operation's 
compliance or ability to comply with the Act and regulations. A variety 
of comments, pro and con, were received on this requirement. Certifying 
agents questioned whether the 30-day timeframe was reasonable. Other 
commenters suggested that, rather than specifying a time period, the 
section should stress the need for timely reporting. A commenter 
suggested that an inspector's observations and assessments on the 
inspected operation include the inspector's recommendations on approval 
of certification. Other commenters stated that the requirement amounted 
to micro management of a certifying agent's business. This latter group 
of commenters believe that the setting of a time period for inspector 
reporting involves a policy matter that should be determined by the 
certifying agent. We agree with the commenters who stated that setting 
deadlines for the filing of inspection reports is an internal policy 
matter better left to certifying agents.
    We believe that policies and procedures regarding inspector 
reporting are the purview of the certifying agent. Certifying agents 
would be expected to develop and implement inspector reporting 
requirements for on-site inspections internal to their own operations. 
Such policies and procedures and a certifying agent's performance in 
making timely certification decisions would be subject to review during 
accreditation and reaccreditation of the certifying agent. Accordingly, 
we have removed the provision.
    Removal of this requirement does not eliminate the need for a 
written on-site inspection report or the importance of timely 
inspection reporting by an inspector to the certifying agent. 
Certifying agents are expected to make timely decisions regarding 
whether to certify an applicant and whether a certified operation is in 
compliance with the Act and regulations. Applicants with complaints 
regarding timeliness of service could forward their complaints to the 
Administrator.
    (10) Responsibilities of Certifier in the Application Process. We 
have replaced the list of requirements to be reviewed by a certifying 
agent in determining an applicant's eligibility for certification with 
a general statement on determination of eligibility. Commenters 
requested the addition of a provision requiring certifying agents to 
verify implementation of the organic system plan. We agree that an on-
site

[[Page 13567]]

inspection of an ongoing operation must include assessment of the 
operation's application of its organic system plan. Because an on-site 
inspection of a new applicant's operation would be conducted at a time 
when the operation can demonstrate its organic capabilities, the 
operation must be able to show that it is satisfactorily carrying out 
its organic system plan.
    It was our intent that certifying agents would verify 
implementation of the applicant's organic system plan during the 
certifying agent's review of the on-site inspection report and 
application. However, our list of requirements to be reviewed by a 
certifying agent in determining an applicant's eligibility for 
certification did not specifically reference verification of 
implementation of the organic system plan. We have decided to replace 
the list of requirements to be reviewed with a general statement on 
determination of eligibility. This statement provides: ``If the 
certifying agent determines that the organic system plan and all 
procedures and activities of the applicant's operation are in 
compliance with the requirements of this part and that the applicant is 
able to conduct operations in accordance with the plan, the agent shall 
approve certification.'' We believe this general statement, in 
combination with the requirement that the certifying agent review the 
application, the on-site inspection report, the results of any analyses 
for substances conducted, and any additional information requested from 
or supplied by the applicant, adequately addresses the commenters' 
concerns. This revision to the approval of certification requirements 
is found at Sec. 205.404(a).
    (11) Information Included on the Certificate of Organic Operation. 
We have amended the regulations specifying what information must be 
included on a certificate of organic operation. Comments received from 
organic operations, certifying agents, and consumers recommended that 
certifying agents provide additional information on certificates of 
organic operation. Specifically, they recommended that all certificates 
include: (1) The certifying agent's name and address; (2) an expiration 
date; (3) the physical location of certified operations, including 
separate fields and facilities; (4) the name of the certified 
operation's contact person responsible for compliance with program 
requirements; (5) the name and address of the certified operation; and 
(6) the crops and products certified. The commenters believe such 
information, especially a date on which the certificate expires, to be 
vital to assuring accountability and compliance with the program.
    We believe it would be beneficial to persons with concerns 
regarding a certified production or handling operation to have ready 
access to information concerning the name, address, and telephone 
number of the certifying agent. Further, because the certificate of 
organic operation would be an official document of the certifying 
agent, it would be appropriate for this information to appear on every 
certificate. Accordingly, we have added the name, address, and 
telephone number of the certifying agent to the information which must 
be included on every certificate. This addition is found at 
Sec. 205.404(b)(4).
    We disagree with the commenters who requested that certificates of 
organic operation display an expiration date. We believe annual 
expiration of a certificate would place an unnecessary burden on 
certifying agents and certified operations. Annual expiration of 
certificates is also inconsistent with the fact that an operation's 
certification does not expire. In fact, once an operation is certified 
as an organic operation, its certification remains in effect until 
surrendered by the certified operation or suspended or revoked by the 
certifying agent, the State program's governing State official, or the 
Administrator. All certified operations are required to annually update 
their organic system plan. If the updated plan causes information on 
the certificate to be incorrect, the certifying agent will issue a new 
certificate with the correct information. This provides a mechanism for 
ensuring that certificates are updated as necessary on an annual bases. 
We have not included the recommended addition in this proposal.
    For clarification, we have added Sec. 205.404(c). This section 
provides that once certified a production or handling operation's 
organic certification continues in effect until surrendered by the 
organic operation or suspended or revoked by the certifying agent, the 
State program's governing State official, or the Administrator.
    We disagree with the commenters who requested that certificates 
display the physical location of certified operations, including 
separate fields and facilities, and the name of the certified 
operation's contact person responsible for compliance with program 
requirements. We believe that the location of a certified operation's 
fields and facilities has no relationship to the operation's status as 
a certified organic operation. Therefore, such information should only 
be made available with the written consent of the certified operation. 
The name of the certified operation's contact person would be 
releasable information. We believe, however, that such detail is 
unnecessarily burdensome to the certifying agent and will only serve to 
clutter the certificate. By requiring the name, address, and telephone 
number of the certifying agent, as noted above, the certificate would 
provide interested persons with a contact for obtaining releasable 
information concerning the certified operation. Further, the certifying 
agent is the first line of compliance under this program and, as such, 
is the person to whom all questions and concerns should be addressed 
about certified operations.
    We agree with the commenters who requested that certificates 
display the name and address of the certified operation because such 
information is potentially beneficial to consumers. Accordingly, we 
have added the name and address of the certified operation to the 
information which must be included on every certificate. This addition 
is found at Sec. 205.404(b)(1).
    The first proposal required that the certificate list the 
category(ies) and type(s) of products produced by the certified 
operation. Commenters were apparently confused about the meaning of 
category(ies) and type(s) of products. We have, therefore, revised the 
requirement to provide that a certificate of organic operation would 
specify the categories of organic operation, including, crops, wild 
crops, livestock, or processed products produced by the certified 
operation. This revision is found at Sec. 205.404(b)(3).
    (12) Certifiers Authority to Deny Certification. We have added 
authority for certifying agents to deny certification to applicants who 
do not meet the requirements for certification. The first proposal 
required certifying agents to forward their recommendations for denial 
of certification to the Administrator. Commenters stated that authority 
for denial of certification should rest with the certifying agents. 
They also contended that referral to the Administrator for denial of 
certification establishes a bureaucratic process, which would create 
unnecessary delays to the denial process and increased cost to 
applicants. Many commenters suggested the appeals process is sufficient 
to protect the interests of the Secretary.
    We have determined that it is reasonable to authorize certifying 
agents to deny certification. Denial by the certifying agent would 
provide the applicant with a more timely decision on its eligibility 
for certification. A more timely decision would provide an

[[Page 13568]]

earlier opportunity for applicants to appeal a denial of certification. 
Authority for certifying agents to deny certification to applicants who 
do not meet the requirements for certification is found at section 
205.405.
    This proposal requires certifying agents to evaluate the 
applicant's corrective actions taken and supporting documentation or 
written rebuttal submitted in response to a notification of 
noncompliance. Certifying agents are authorized to perform on-site 
inspections to verify corrections to deficiencies or statements 
contained in a rebuttal, if necessary, to assure full compliance with 
the certification requirements. The certifying agent will issue the 
applicant a written notice of denial of certification if the corrective 
action or rebuttal is not sufficient for the applicant to qualify for 
certification.
    We believe the denial of certification provisions should clearly 
state an applicant's options and rights upon receiving a notice of 
denial of certification. Accordingly, Sec. 205.405(c)(1)(ii) provides 
that a notice of denial of certification must state the reasons for 
denial and the applicant's right to reapply for certification, request 
mediation, or file an appeal. An applicant who has received a written 
notice of denial of certification may apply for certification again at 
any time with any certifying agent, may request mediation to resolve a 
dispute with the certifying agent, or may file an appeal with the 
Administrator as outlined in Sec. 205.663 for mediation and 
Sec. 205.681 for appeals. Applicants subject to an approved State 
program would seek mediation or appeal in accordance with the rules of 
the approved State program.
    (13) Willful Misrepresentations or False Statements by Applicants. 
We have included authority for certifying agents to deny certification 
if the agent has reason to believe that the applicant has willfully 
made a false statement or otherwise purposefully misrepresented its 
operation or compliance with the certification requirements. Such false 
statements would, in most cases, be verified during an on-site 
inspection. This authority was provided to certifying agents in the 
first proposal relative to certified operations. The first proposal, 
however, did not reference an applicant's willful making of a false 
statement or otherwise purposefully misrepresenting its operation or 
compliance with the certification requirements. Certifying agents 
commented that applicants for certification also may make false 
statements or misrepresent facts. They suggested that the regulations 
reflect a certifying agent's authority in such cases. We agree with the 
commenters and have added Sec. 205.405(f). This section authorizes 
denial of certification without first issuing a notification of 
noncompliance when the certifying agent has reason to believe that the 
applicant has willfully made a false statement or otherwise 
purposefully misrepresented its operation or compliance with the 
certification requirements.
Certification--Changes Requested But Not Made
    This subpart retains from our first proposal regulations on which 
we received comments as follows:
    (1) Timeliness of Applicant's Notification to Certifiers. A 
commenter suggested that ``immediately'' in the requirement that 
production and handling operations immediately notify the certifying 
agent concerning any application of a prohibited substance be replaced 
with ``within 2 days.'' No justification was given for the recommended 
change, and the change has not been made. ``Immediately notify'' means 
that the applicant or certified operation must at once notify its 
certifying agent upon learning that a prohibited substance has come in 
contact with any portion of its operation or production. The certifying 
agent will evaluate the circumstances surrounding the event and decide 
whether the certified operation acted within the intent of this 
requirement. This requirement is found at Sec. 205.400(f)(1).
    (2) Notification of Changes to Certifying Agent. Commenters 
questioned how the certified operation would know what changes in its 
certified operation or any portion of its operation would require 
reporting to its certifier. Certified operations are responsible for 
being familiar with the requirements of the Act and these regulations. 
Further, they have an obligation to contact their certifying agent when 
they have questions regarding compliance with this program. As a rule, 
certified operations should contact their certifying agent whenever the 
change is not covered under their approved organic system plan. The 
requirement that a certified operation notify its certifying agent 
concerning any change in its certified operation that may affect its 
compliance with the Act and regulations is found at Sec. 205.400(f)(2).
    (3) Tests for Soil Fertility and Irrigation Water. Certifying 
agents suggested that applicants for certification be required to 
submit test results for soil fertility and irrigation water quality to 
prove compliance with the NOP. We recognize that increasing soil 
fertility through organic production practices is a goal of the organic 
industry. However, soil fertility will not qualify or disqualify an 
applicant for organic certification. An applicant who has independently 
had such tests conducted may, but is not required to, include them with 
the application. While the Act requires that handlers only use in their 
products water that meets all Safe Drinking Water Act requirements, no 
similar requirements are placed on producers and the water they use to 
irrigate their crops. For these reasons, we are not requiring 
applicants for certification to submit soil fertility or irrigation 
water quality test results.
    (4) Timeliness of On-site Inspection. The first proposal required a 
certifying agent to conduct an initial on-site inspection within a 
reasonable time following a favorable preliminary evaluation of an 
application for certification. Several commenters asked what 
constitutes reasonable time between submission of an application and an 
on-site inspection. Others stated that, when determining what 
constitutes reasonable time, consideration should be given to factors 
such as when the application was submitted relative to when activities 
demonstrating compliance can be observed and when the inspection can be 
scheduled to assure the presence of the applicant.
    We stated in the first proposal that we did not specify a time 
within which an inspection must be conducted because the time would 
vary according to when the application was submitted and the type of 
operation to be inspected. Timely service will be in the best interest 
of certifying agents since applicants may forward complaints regarding 
service to the Administrator. Such complaints could have an impact on a 
certifying agent's reaccreditation or continued accreditation. Further, 
our original position is consistent with those commenters requesting 
flexibility in determining what constitutes reasonable time. 
Accordingly, we have made no changes in this proposal regarding what 
constitutes reasonable time. This requirement is found at 
Sec. 205.403(b).
    (5) Additional On-site Inspections. Some organic associations asked 
what would trigger a decision to conduct an additional on-site 
inspection. Commenters expressed the concern that certifying agents 
could conduct additional, unneeded inspections at the expense of 
operators who would have to pay the costs of the inspections. Other 
commenters asked who would pay for the additional on-site inspections. 
Some certifying agents suggested that guidelines need to be established 
under

[[Page 13569]]

which additional inspections must be conducted. A certifying agent 
suggested that additional inspections could be conducted based on the 
inspector's observations, the certifier's recommendation, and, 
possibly, third-party complaints.
    The authority for on-site inspections is necessary for monitoring 
and compliance purposes at the discretion of the certifying agent, the 
Administrator, or a State program's governing State official. Such on-
site inspections would likely be precipitated by reasons to believe 
that the certified operation was operating in violation of one or more 
requirements of the Act or these regulations. The on-site inspection 
would be conducted, as necessary, to obtain information needed to 
determine compliance with identified requirements.
    We believe policies and procedures regarding additional 
inspections, including how the costs of such inspections are handled, 
are the responsibility of each certifying agent. Misuse of such 
authority would be subject to review by the Department during its 
evaluation of a certifying agent for reaccreditation and at other times 
in response to complaints. Certified production and handling operations 
could file complaints with the Department at any time should they 
believe a certifying agent abuses its authority to perform additional 
inspections. Accordingly, we have made no changes in this proposal 
based on these comments.
    (6) Annual Renewal of Certification. Commenters requested annual 
renewal of certification rather than updates to a continuing 
certification program. Other commenters requested that the notice of 
certification have an ending date or be issued for an established 
period of time. An industry association commented that the proposed 
continuation of certification regulations requires a certified 
operation to annually certify that it is complying with the Act and 
these regulations. This commenter stated that the proposed continuation 
of certification procedures changes the process of recertification to 
one more closely resembling self-certification. Another industry 
association stated that certification until surrendered by the 
certified operation or suspended or revoked would make the assurance of 
compliance extremely difficult, if not impossible. This commenter 
further stated that certifying agents will be unable to effectively 
monitor applicants or gain needed information. This commenter 
recommended that renewal paperwork include the items specified in the 
continuation of certification regulations but that certifying agents 
use their own discretion as to the forms and information needed. 
Similarly, a certifying agent commented that certification must be 
renewed with an application on an annual basis and that no operation 
can be certified for life. This commenter recommended requiring a 
yearly application and other documentation deemed necessary by the 
certifying agent.
    We disagree with the commenters. We prefer continuous certification 
due to the very real possibility that the renewal process might not 
always be completed before expiration of the certification period. 
Expiration of the certification period would result in termination of 
the operation's certification. Even a short period of interruption in 
an operation's organic status could have severe economic ramifications. 
Further, we believe that a regular schedule of expiration of 
certification is unnecessary inasmuch as all certified operations are 
required to annually update their organic system plan and submit any 
changes to their certifying agent. Accordingly, this proposal retains 
the provision for continuous certification.
    (7) Timing of On-site Inspections. A State certifying agent and an 
industry organization stated that requiring an on-site inspection after 
receipt of the renewal application is not consistent with current 
practice. The State certifying agent stated that it moved the renewal 
date to January 1 of each year to make the renewal process less 
burdensome to its certified producers. This commenter went on to say 
that the annual inspection conducted during the appropriate growing or 
processing season is used to evaluate the organic operation in the 
renewal process. The State certifying agent further stated that an 
additional inspection at renewal time would not be useful if it was not 
an appropriate time to observe production practices at the organic 
operation. Both commenters requested elimination of the requirement 
that the certifying agent arrange and conduct an on-site inspection 
following receipt of the operation's annual submission of information. 
These commenters also requested that a determination of noncompliance 
be based on on-site inspections conducted during the previous 
certification year and a review of the information annually submitted 
by the certified operation.
    We disagree with the commenters. Certifying agents are required to 
schedule on-site inspections for a time when land, facilities, and 
activities that demonstrate the operation's compliance or capability to 
comply with the applicable production or handling provisions of the NOP 
may be observed. Accordingly, the initial certification must have 
followed an on-site inspection performed when the operation was able to 
demonstrate its compliance or capability to comply. The certified 
operation, therefore, should be fulfilling its annual continuation of 
certification obligations at a time when it can demonstrate its 
compliance with the Act and regulations. The commenters' 
recommendations are not accepted.
Certification--Additional Provisions
    Upon further review of the certification provisions in the first 
proposal, we have decided to propose the following additions and 
changes.
    (1) Requirements for Business Information. We have revised the 
business information required of all applicants for certification as an 
organic operation. First, the application must include the name of the 
person who completed the application. Certifying agents will use this 
information when following up on information within the application. 
Second, we have removed the requirement that the application include 
the names of personnel responsible for maintaining compliance with the 
Act and regulations. We believe this information is unnecessary since 
the person responsible for overseeing compliance is the certifying 
agent. Third, we have added the requirement that when the applicant is 
a corporation, the application must include the name, address, and 
telephone number of the person authorized to act on the applicant's 
behalf. Fourth, we have removed the requirement that the applicant for 
certification submit a statement of compliance. We have also removed 
the ``Statement of Compliance'' section which required the submission 
of a statement of compliance with the application for certification. We 
have removed this requirement because we have determined that it 
creates an unnecessary burden upon applicants for certification. 
Section 205.400(a) requires that a person seeking to receive or 
maintain organic certification must comply with the Act and applicable 
production and handling regulations. Accordingly, it is unnecessary to 
require a separate document through which the applicant for 
certification agrees to comply with the Act and regulations. The 
requirements for the submission of business information with the 
request for certification are found at Sec. 205.401(b).
    (2) Disclosure of Previous Applications. The first proposal

[[Page 13570]]

required that the request for certification include the name(s) of any 
organic certifying agent(s) to which application had previously been 
made, the year(s) of application, and the outcome of the application(s) 
submission. We have amended this requirement by adding ``including a 
copy of any notification of noncompliance or denial of certification 
issued to the applicant for certification and a description of the 
actions taken by the applicant to correct the deficiencies noted in the 
notification of noncompliance, including evidence of such correction.'' 
We have added this provision to clarify what we mean by ``the outcome 
of the application(s) submitted.'' This provision is found at 
Sec. 205.401(c).
    (3) On-site Inspections. We have combined the arranging for 
inspection, verification of information, postinspection conference, and 
additional inspection regulations of the first proposal into a new on-
site inspections section, Sec. 205.403. We made this change for the 
purposes of clarification and the removal of redundancies.
    (4) Additional Inspections. We have revised the on-site inspections 
requirements to provide that a State program's governing State official 
may require a certifying agent to conduct an additional inspection of a 
production or handling operation to determine the operation's 
compliance with the Act and these regulations. We have provided State 
program governing State officials with authority to require additional 
inspections because such officials will have compliance 
responsibilities under their State programs and will need such 
authority to carry out their responsibilities. These requirements are 
found at Sec. 205.403(a).
    (5) Notifications of Noncompliance. We have added at 
Sec. 205.405(b) a provision which identifies for applicants for 
certification what their options are when they receive a notification 
of noncompliance. Such applicants may correct the deficiencies and 
submit a description and supporting documentation of correction to the 
certifying agent, correct the deficiencies and submit a new application 
to another certifying agent along with the notification of 
noncompliance and a description and supporting documentation of 
correction, or submit written information to the certifying agent to 
rebut the noncompliance described in the notification of noncompliance.
    (6) Reapplying After a Notice of Noncompliance or Denial of 
Certification. We have added a new provision which requires a 
certifying agent to treat an application for certification as a new 
application when such application includes a notification of 
noncompliance or a notice of denial of certification. While the new 
application may contain the same organic system plan and other 
information provided in the unsuccessful application for certification, 
it must also provide any new information or changes in operations which 
may have occurred since the filing of the unsuccessful application. The 
updated information concerning the applicant's operation must include a 
description of actions taken, with supporting documentation, to correct 
the deficiencies identified in the notification of noncompliance. This 
new provision is found at Sec. 205.405(e).

Subpart F--Accreditation of Certifying Agents

    This subpart sets forth the requirements for a national program to 
accredit State and private entities as certifying agents to certify 
domestic or foreign organic production or handling operations. This 
subpart also provides that USDA will accept a foreign certifying 
agent's accreditation to certify organic production or handling 
operations if: (1) USDA determines, upon the request of a foreign 
government, that the standards under which the foreign government 
authority accredited the foreign certifying agent meet the requirements 
of this part; or (2) the foreign governmental authority that accredited 
the certifying agent acted under an equivalency agreement negotiated 
between the United States Government and the foreign government.
    This National Organic Program (NOP) accreditation process will 
facilitate national and international acceptance of United States 
organically produced agricultural commodities. The accreditation 
requirements in these regulations will replace the organic assessment 
voluntary, fee-for-service program, established by AMS under the 
Agricultural Marketing Act of 1946. That assessment program verifies 
that State and private organic certifying agents comply with the 
requirements prescribed under the International Organization for 
Standardization/International Electrotechnical Commission Guide 65, 
``General Requirements for Bodies Operating Product Certification 
Systems'' (ISO Guide 65).\2\ ISO Guide 65 provides the general 
requirements that a certifying agent would need to meet to be 
recognized as competent and reliable. That assessment program was 
originally established to enable organic certifying agents in the 
absence of a U.S. national organic program to comply with European 
Union (EU) requirements beginning on June 30, 1999. That assessment 
program verifies that State and private organic certifying agents are 
operating third-party certification systems in a consistent and 
reliable manner, thereby facilitating uninterrupted exports of U.S. 
organic agricultural commodities to the EU. ISO Guide 65 is used as a 
benchmark in developing the accreditation program described in this 
proposed rule. Certifying agents accredited under the NOP that maintain 
compliance with the Act and these regulations will meet or exceed the 
requirements of ISO Guide 65; therefore, the organic assessment program 
is no longer needed.
---------------------------------------------------------------------------

    \2\ ISO/IEC Guide 65 is available for viewing at USDA-AMS, 
Transportation and Marketing Programs, Room 2945-South Building, 
14th and Independence Ave., SW, Washington, DC, from 9:00 a.m. to 
4:00 p.m., Monday through Friday (except official Federal holidays). 
A copy may be obtained from the American National Standards 
Institute, 11 West 42nd Street, New York, NY 10036; Website: 
www.ansi.org; E-mail: [email protected]; Telephone: 212-642-4900; 
Facsimile: 212-398-0023.
---------------------------------------------------------------------------

    Participation in the NOP does not preclude the accredited 
certifying agent from conducting other business operations, including 
the certification of agricultural products, practices, and procedures. 
An accredited certifying agent may not, however, engage in any business 
operations or activities which would involve the agent in a violation 
of or a conflict of interest under the NOP.
Proposal Description
    The Administrator will accredit qualified domestic and foreign 
applicants in the areas of crops, livestock, wild crops, or handling or 
any combination thereof to certify domestic or foreign production or 
handling operations as certified organic operations. Qualified 
applicants will be accredited for 5 years.
    Application Process. Certifying agents will apply to the 
Administrator for accreditation to certify production or handling 
operations operating under the NOP. The certifying agent's application 
must include basic business information, must identify each area of 
operation for which accreditation is requested and the estimated number 
of each type of operation to be certified annually, and must include a 
list of each State or foreign country where it currently certifies 
production or handling operations and where it intends to certify such 
operations.

[[Page 13571]]

Certifying agents must also submit personnel, administrative, conflict 
of interest, current certification, and other documents and information 
to demonstrate their expertise in organic production or handling 
techniques, their ability to comply with and implement the organic 
certification program, and their ability to comply with the 
requirements for accreditation.
    The administrative information submitted by the applicant should 
include copies of their procedures for certifying operations, for 
ensuring compliance of their certified operations with the Act and 
regulation, for complying with recordkeeping requirements, and for 
making information available to the public about certified operations. 
The procedures for certifying operations encompass the processes used 
by the certifying agent to evaluate applicants, make certification 
decisions, issue certification certificates, and maintain the 
confidentiality of any business information submitted by the certified 
operation. The procedures for ensuring compliance of the certified 
operations would include the methods used to review and investigate 
certified operations, for sampling and residue testing, and to report 
violations.
    The personnel information submitted with the application should 
demonstrate that the applicant uses a sufficient number of adequately 
trained personnel to comply with and implement the organic 
certification program. The certifying agent will also have to provide 
evidence that its responsibly connected persons, employees, and 
contractors with inspection, analysis, and decision-making 
responsibilities have sufficient expertise in organic production or 
handling techniques to successfully perform the duties assigned. They 
must also show that these employees have revealed existing or potential 
conflicts of interest.
    Applicants who currently certify production or handling operations 
must also submit a list of the production and handling operations 
currently certified by them. For each area in which the applicant 
requests accreditation, the applicant should furnish copies of 
inspection reports and certification evaluation documents for at least 
three operations. If the applicant underwent any other accrediting 
process in the year previous to the application, the applicant should 
also submit the results of the process.
    Certifying agents are prohibited from providing advice concerning 
organic practices or techniques to any certification applicant or 
certified operation for a fee, other than as part of the fees under the 
certification program. The Administrator will provide oversight of the 
fees to ensure that the schedule of fees filed with the Administrator 
is applied uniformly and in a nondiscriminatory manner. The 
Administrator may inform a certifying agent that its fees appear to be 
unreasonable and require that the certifying agent justify the fees. 
The Administrator will investigate the level of fees charged by an 
accredited certifying agent upon receipt of a valid complaint or under 
compelling circumstances warranting such an investigation. Certifying 
agents are prohibited from providing advice concerning organic 
practices or techniques to any certification applicant or certified 
operation for a fee, other than as part of the fees under the 
certification program.
    Statement of Agreement. Upon receipt of the certifying agent's 
application for accreditation, the Administrator will send a statement 
of agreement to the person responsible for the certifying agent's day-
to-day operations for signature. The statement of agreement affirms 
that, if granted accreditation as a certifying agent under this 
subpart, the applicant will carry out the provisions of the Act and the 
regulations in this part. Accreditation will not be approved until this 
statement is signed and returned to the Administrator.
    The statement of agreement will include the applicant's agreement 
to accept the certification decisions made by another U.S. Department 
of Agriculture (USDA)-accredited certifying agent as equivalent to its 
own and the applicant's agreement to refrain from making false or 
misleading claims about its accreditation status, the USDA 
accreditation program, or the nature or qualities of products labeled 
as organically produced. Further, the statement will include the 
applicant's agreement to pay and submit the fees charged by AMS and to 
comply with, implement, and carry out any other terms and conditions 
determined by the Administrator to be necessary. Applicants are also 
required to affirm through this statement of agreement that they will: 
(1) Conduct an annual performance appraisal for each inspector used; 
(2) have an annual program evaluation conducted of their certification 
activities by their staff, an outside auditor, or a consultant who has 
expertise to conduct such evaluations; and (3) implement measures to 
correct any deficiencies in compliance with the Act and regulations 
identified in an inspector performance appraisal or program evaluation.
    A private entity certifying agent must additionally agree to hold 
the Secretary harmless for any failure on the agent's part to carry out 
the provisions of the Act and regulations. A private entity certifying 
agent's statement will also include an agreement to furnish reasonable 
security for the purpose of protecting the rights of operations 
certified by such certifying agent. Such security will be in an amount 
and according to such terms as the Administrator may by regulation 
prescribe. A private entity certifying agent must agree to transfer all 
records or copies of records concerning its certification activities to 
the Administrator if it dissolves or loses its accreditation. A private 
entity certifying agent must also agree to make such records available 
to any applicable State program's governing State official.
    Approval of Accreditation. Upon receiving all the required 
information, including the statement of agreement, and the required 
fee, the Administrator will determine if the applicant meets the 
requirements for accreditation. The Administrator's determination will 
be based on a review of the information submitted and, if necessary, a 
review of the information obtained from a site evaluation. The 
Administrator will notify the applicant of approval of accreditation in 
writing. The notice of accreditation will state the area(s) for which 
accreditation is given, the effective date of the accreditation, and, 
for a private-entity certifying agent, the amount and type of security 
that must be established.
    Certifying agents who apply for accreditation and do not meet the 
requirements for accreditation will be provided, in accordance with 
Sec. 205.665, with a notification of noncompliance and given an 
opportunity to come into compliance. After receipt of a notification of 
noncompliance, the applicant may submit a description of the actions 
taken to correct the noted deficiencies and evidence demonstrating such 
corrections or file an appeal with the Administrator. If the applicant 
is successful in its appeal or provides acceptable evidence 
demonstrating correction of the deficiencies, the Administrator will 
notify the applicant of accreditation. If the applicant fails to 
correct the deficiencies, fails to report the corrections by the date 
specified in the notification of noncompliance, fails to file an appeal 
by the date specified in the notification of noncompliance, or is 
unsuccessful in its appeal, the Administrator will issue a written 
notification of accreditation denial to the applicant. An applicant who 
has

[[Page 13572]]

received written notification of accreditation denial may apply for 
accreditation again at any time.
    Once accredited, a certifying agent may establish a seal, logo, or 
other identifying mark to be used by certified production and handling 
operations. However, the certifying agent may not require use of its 
seal, logo, or other identifying mark on any product sold, labeled, or 
represented as organically produced as a condition of certification. 
The certifying agent also may not require compliance with any 
production or handling practices other than those provided for in the 
Act and regulations as a condition for use of its identifying mark. 
This provision does not apply to States with more restrictive 
requirements approved by the Administrator or private-entity certifying 
agents certifying operations within such States.
    Site Evaluations. One or more representatives of the Administrator 
will perform site evaluations for each certifying agent in order to 
examine the certifying agent's operations and to evaluate compliance 
with the Act and regulations. Site evaluations will include an on-site 
review of the certifying agent's certification procedures, decisions, 
facilities, administrative and management systems, and production or 
handling operations certified by the certifying agent. A site 
evaluation of an accreditation applicant will be conducted before or 
within a reasonable time after issuance of the applicant's notification 
of accreditation. Certifying agents will be billed for each site 
evaluation conducted in association with an initial accreditation, 
amendments to an accreditation, and renewals of accreditation. 
Certifying agents will not be billed by USDA for USDA-initiated site 
evaluations conducted to determine compliance with the Act and 
regulations.
    As noted above, a certifying agent may be accredited prior to a 
site evaluation. If the Administrator finds, following the site 
evaluation, that an accredited certifying agent is not in compliance 
with the Act or regulations, the Administrator will issue the 
certifying agent a written notification of noncompliance. If the 
certifying agent fails to correct the deficiencies, report the 
corrections by the date specified in the notification of noncompliance, 
or file an appeal by the date specified in the notification of 
noncompliance, the Administrator will begin proceedings to suspend or 
revoke the accreditation. A certifying agent that has had its 
accreditation suspended may apply for accreditation again at any time. 
A private-entity certifying agent whose accreditation is revoked will 
be ineligible for accreditation for a period of not less than 3 years 
following the date of such determination.
    Peer Review Panels. The Administrator may establish a peer review 
panel to assist in evaluating applicants for accreditation. Peer review 
panels will be used at the discretion of the Administrator following 
the site evaluation of a certifying agent, but under no circumstances 
will the Administrator convene a peer review panel when the peer review 
pool does not contain sufficient persons qualified to peer review the 
certifying agent.
    To be eligible to serve on a peer review panel, the applicant for 
membership in the peer review pool must provide the Administrator with 
a written description and, upon request, supporting documentation of 
its qualifications to conduct peer reviews. The applicant for 
membership in the peer review pool must address possible limitations on 
availability to serve and include information concerning commercial 
interests with any person who may seek to become or who is an 
accredited certifying agent. No person who has or has had a commercial 
interest, including an immediate family interest or the provision of 
consulting services, in an applicant for accreditation or renewal of 
accreditation will be appointed to a panel evaluating such applicant 
for accreditation or renewal of accreditation. Persons accepted to the 
pool may serve until notified that their appointment has been rescinded 
by the Administrator or until they are no longer qualified, whichever 
occurs first. Peer reviewers will serve without compensation.
    Peer review panels will consist of at least three but no more than 
five members. A Department representative will preside over the panel. 
A peer review panel will include no fewer than two members who possess 
sufficient expertise in the certifying agent's areas of accreditation. 
Peer review panels may include up to two members with expertise in 
other disciplines, including organizational management and finance; 
member(s) from the approved State organic certification program when 
the applicant is a private entity that will operate within the State; 
and member(s) from a foreign government's organic program when the 
applicant is a private entity that will operate within the country.
    Each person on a peer review panel must individually review the 
site evaluation report prepared by the Department's evaluator(s) and 
any other information that may be provided by the Administrator 
relevant to continuing or renewing the accreditation status of a 
certifying agent. Information about the certifying agent received as 
part of the review process is confidential information, and peer 
reviewers must not release, copy, quote, or otherwise use material from 
the information received other than in the report required to be 
submitted. Each peer reviewer must agree to treat the information 
received for review as confidential.
    A peer review panel meeting will be held solely for the purposes of 
exchanging information. Any meeting or conference call will be 
conducted in a manner that will ensure the actions of panel members are 
carried out on an individual basis with any opinions and 
recommendations by a member being made individually. We do not believe 
that it is usual to have consensus in peer review or that it is the 
best use of USDA resources or the time of peer reviewers to seek 
consensus under a single report. Further, requiring a consensus report 
may make peer review panels subject to the Federal Advisory Committee 
Act, which might stifle meaningful dialog between reviewers, increase 
the cost and time required of peer reviewers for peer review service, 
and result in problems obtaining volunteers for service on peer review 
panels.
    Peer review panel members will prepare and submit individual 
reports, including recommendations, to the Administrator regarding a 
certifying agent's ability to conduct and perform certification 
activities. The Administrator will consider the reports when 
determining whether to continue or renew the certifying agent's 
accreditation. Copies of the peer review panel reports will be 
provided, upon request, to the certifying agent, and written responses 
from the certifying agent may be submitted for consideration by the 
Administrator. Copies of peer review panel reports may be provided to 
any person requesting such reports under the Freedom of Information 
Act.
    Continuing Accreditation. An accredited certifying agent must 
submit annually to the Administrator, on or before the anniversary date 
of the issuance of the notification of accreditation, the following 
reports and fees: (1) A complete and accurate update of its business 
information, including its fees, and information evidencing its 
expertise in organic production or handling and its ability to comply 
with these regulations; (2) information supporting any changes 
requested in the areas of accreditation; (3) a description of measures 
implemented in the

[[Page 13573]]

previous year and any measures to be implemented in the coming year to 
satisfy any terms and conditions specified in the most recent 
notification of accreditation or notice of renewal of accreditation; 
(4) the results of the most recent inspector performance appraisals and 
annual program evaluation and a description of adjustments to the 
certifying agent's operation and procedures implemented or to be 
implemented in response to the appraisals and evaluation; and (5) the 
required AMS fees.
    Certifying agents will keep the Administrator informed of their 
certification activities by: (1) Providing the Administrator with a 
copy of any notice of denial of certification, notification of 
noncompliance, notification of noncompliance correction, notification 
of proposed suspension or revocation, and notification of suspension or 
revocation issued simultaneously with its issuance; and (2) on a 
quarterly calendar basis, the name, address, and telephone number of 
each operation granted certification.
    One or more site evaluations will occur during the 5-year period of 
accreditation to determine whether an accredited certifying agent is 
complying with the Act and regulations. USDA will establish an 
accredited certifying agent compliance monitoring program, which will 
involve no less than one randomly selected site evaluation of each 
certifying agent during its 5-year period of accreditation. Larger and 
more diverse operations, operations with clients marketing their 
products internationally, and operations with a history of problems 
should expect more frequent site evaluations by USDA. Operations with 
clients marketing their products internationally will be annually site 
evaluated to meet the ISO-Guide 61 \3\ requirement for periodic 
surveillance of accredited certifying agents. USDA may also conduct 
site evaluations during investigations of alleged or suspected 
violations of the Act or regulations and in followup to such 
investigations. Such investigations will generally be the result of 
complaints filed with the Administrator alleging violations by the 
certifying agent. Compliance site evaluations may be announced or 
unannounced at the discretion of the Administrator. Certifying agents 
will not be billed by USDA for USDA-initiated site evaluations 
conducted to determine compliance with the Act and regulations.
---------------------------------------------------------------------------

    \3\ ISO/IEC Guide 61 is available for viewing at USDA-AMS, 
Transportation and Marketing Programs, Room 2945--South Building, 
14th and Independence Ave., SW, Washington, DC, from 9:00 a.m. to 
4:00 p.m., Monday through Friday (except official Federal holidays). 
A copy may be obtained from the American National Standards 
Institute, 11 West 42nd Street, New York, NY 10036; Website: 
www.ansi.org; E-mail: [email protected]; Telephone: 212-642-4900; 
Facsimile: 212-398-0023.
---------------------------------------------------------------------------

    An accredited certifying agent must provide sufficient information 
to persons seeking certification to enable them to comply with the 
applicable requirements of the Act and these regulations. The 
certifying agent must maintain strict confidentiality with respect to 
its clients and not disclose to third parties (with the exception of 
the Secretary or the applicable State program's governing State 
official or their authorized representatives) any business-related 
information concerning any client obtained while implementing these 
regulations except as authorized by regulation. A certifying agent must 
make the following information available to the public: (1) 
Certification certificates issued during the current and 3 preceding 
calender years; (2) a list of producers and handlers whose operations 
it has certified, including for each the name of the operation, type(s) 
of operation, and the effective date of the certification, during the 
current and 3 preceding calender years; and (3) the results of 
laboratory analyses for residues of pesticides and other prohibited 
substances conducted during the current and 3 preceding calender years. 
A certifying agent may make other business information available to the 
public if permitted in writing by the producer or handler. This 
information will be made available to the public at the public's 
expense.
    An accredited certifying agent must maintain records according to 
the following schedule: (1) Records obtained from applicants for 
certification and certified operations must be maintained for not less 
than 5 years beyond their receipt; (2) records created by the 
certifying agent regarding applicants for certification and certified 
operations must be maintained for not less than 10 years beyond their 
creation; and (3) records created or received by the certifying agent 
pursuant to the accreditation requirements, excluding any records 
covered by the 10-year requirement must be maintained for not less than 
5 years beyond their creation or receipt. Examples of records obtained 
from applicants for certification and certified operations include 
organic production system plans, organic handling system plans, 
application documents, and any documents submitted to the certifying 
agent by the applicant/certified operation. Examples of records created 
by the certifying agent regarding applicants for certification and 
certified operations include certification certificates, notice of 
denial of certification, notification of noncompliance, notification of 
noncompliance correction, notification of proposed suspension or 
revocation, notification of suspension or revocation, correspondence 
with applicants and certified operations, on-site inspection reports, 
documents concerning residue testing, and internal working papers and 
memoranda concerning applicants and certified operations. Examples of 
records created or received by the certifying agent pursuant to the 
accreditation requirements include operations manuals; policies and 
procedures documents (personnel, administrative); training records; 
annual performance appraisals and supporting documents; conflict of 
interest disclosure reports and supporting documents; annual program 
evaluation working papers, memoranda, letters, and reports; fee 
schedules; quarterly reports of operations granted certification; 
application materials submitted to the NOP; correspondence received 
from and sent to USDA; and annual reports to the Administrator.
    The certifying agent must make all records available for inspection 
and copying during normal business hours by authorized representatives 
of the Secretary and the applicable State program's governing State 
official. In the event that the certifying agent dissolves or loses its 
accreditation, it must transfer to the Administrator and make available 
to any applicable State program's governing State official all records 
or copies of records concerning its certification activities.
    Certifying agents are also required to prevent conflicts of 
interest and to require the completion of an annual conflict of 
interest disclosure report by all personnel designated to be used in 
the certification operation. Coverage of the conflict of interest 
provisions extends to immediate family members of the certifying agent; 
responsibly connected persons of the certifying agent; and any 
employee, inspector, contractor, or other personnel of the certifying 
agent. A certifying agent may not certify a production or handling 
operation if the certifying agent or a responsibly connected party of 
such certifying agent has or has held a commercial interest in the 
production or handling operation, including an immediate family 
interest or the provision of consulting services, within the 12-month 
period prior to the application for certification. A certifying agent 
may certify a production or handling operation if any employee, 
inspector, contractor, or other personnel

[[Page 13574]]

of the certifying agent has or has held a commercial interest, 
including an immediate family interest or the provision of consulting 
services, within the 12-month period prior to the application for 
certification. However, any such person must be excluded from work, 
discussions, and decisions in all stages of the certification process 
and the monitoring of the entity in which they have or have held a 
commercial interest. The acceptance of payment, gifts, or favors of any 
kind, other than prescribed fees, from any business inspected is 
prohibited. However, a certifying agent that is a not-for-profit 
organization with an Internal Revenue Code tax exemption or, in the 
case of a foreign certifying agent, a comparable recognition of not-
for-profit status from its government, may accept voluntary labor from 
certified operations. Certifying agents are also prohibited from 
providing advice concerning organic practices or techniques to any 
certification applicant or certified operation for a fee, other than as 
part of the fees under the certification program.
    No accredited certifying agent may exclude from participation in or 
deny the benefits of the NOP to any person due to discrimination 
because of race, color, national origin, gender, religion, age, 
disability, political beliefs, sexual orientation, or marital or family 
status.
    Renewal of Accreditation. To avoid a lapse in accreditation, 
certifying agents must apply for renewal of accreditation 6 months 
prior to the fifth anniversary of issuance of the notification of 
accreditation and each subsequent renewal of accreditation. The 
accreditation of certifying agents who make timely application for 
renewal of accreditation will not expire during the renewal process. 
The accreditation of certifying agents who fail to make timely 
application for renewal of accreditation will expire as scheduled 
unless renewed prior to the scheduled expiration date. Certifying 
agents with an expired accreditation must not perform certification 
activities under the Act and these regulations.
    Following receipt of the certifying agent's annual report and fees, 
the results of a site evaluation, and, when applicable, the reports 
submitted by a peer review panel, the Administrator will determine 
whether the certifying agent remains in compliance with the Act and 
regulations and should have its accreditation renewed. Upon a 
determination that the certifying agent is in compliance with the Act 
and regulations, the Administrator will issue a notice of renewal of 
accreditation. The notice of renewal will specify any terms and 
conditions that must be addressed by the certifying agent and the time 
within which those terms and conditions must be satisfied. Renewal of 
accreditation will be for 5 years. Upon a determination that the 
certifying agent is not in compliance with the Act and regulations, the 
Administrator will initiate proceedings to suspend or revoke the 
certifying agent's accreditation. Any certifying agent subject to a 
proceeding to suspend or revoke its accreditation may continue to 
perform certification activities pending resolution of the proceedings 
to suspend or revoke the accreditation.
Accreditation--Changes Based on Comments
    This subpart differs from our first proposal in several respects as 
follows:
    (1) Equivalency of Imported Organic Products. We have removed the 
regulations on equivalency of imported organic products included in the 
first proposal. In this proposal, we have added foreign certifying 
agents as entities eligible for accreditation as certifying agents 
qualified to certify domestic and foreign organic production and 
handling operations. We have also added to subpart A definitions for 
private entity and State entity. We have defined ``private entity'' as 
any domestic or foreign nongovernmental for-profit or not-for-profit 
organization providing certification services. We have defined ``State 
entity'' as any domestic or foreign governmental subdivision providing 
certification services.
    In commenting on the first proposal, several commenters expressed 
confusion as to how the Secretary would determine equivalency of 
imported organic products. They also expressed confusion as to how the 
Secretary would ensure that imported products met the same requirements 
as those produced domestically. We have addressed these concerns by 
adding foreign certifying agents as private or state entities that may 
be accredited under the NOP. We have also provided that USDA will 
accept a foreign certifying agent's accreditation to certify organic 
production or handling operations if: (1) USDA determines, upon the 
request of a foreign government, that the standards under which the 
foreign government authority accredited the foreign certifying agent 
meet the requirements of this part; or (2) the foreign governmental 
authority that accredited the certifying agent acted under an 
equivalency agreement negotiated between the United States Government 
and the foreign government. These changes ensure that all certifying 
agents, including foreign private and state certifying agents, will be 
required to meet the same requirements to be recognized as qualified to 
certify organic production or handling operations. This change provides 
foreign private and state certifying agents with transparent standards 
for accreditation.
    A commenter raised concerns that we acted in violation of 
international agreements and domestic policy by proposing rules that 
were contrary to internationally accepted organic standards and, thus, 
created an unacceptable barrier to trade. The Act directs the Secretary 
to establish national standards governing the marketing of certain 
agricultural products as organically produced products. In accordance 
with our international agreements, this proposal ensures that, with 
respect to accreditation under this subpart, products imported from the 
territory of any country are being accorded treatment no less favorable 
than that accorded to products of U.S. origin. However, in accordance 
with our international trade agreements and upon implementation of this 
program, the Administrator will give positive consideration to 
accepting as equivalent technical regulations of other countries, even 
if these regulations differ from our own, provided such regulations 
fulfil the objectives of this proposed program. Any such equivalency 
agreements will be negotiated on a case-by-case basis, and ample 
opportunity for public comment will be provided before and during the 
negotiation process.
    Two commenters requested that the Secretary recognize international 
accreditation systems for foreign organic certification programs and 
establish the requirements for approval of such systems in this 
proposal. We have instead proposed for the purposes of this rule that 
all certifying agents, regardless of their country of origin, meet the 
same requirements for accreditation through the provisions of this 
subpart.
    One commenter requested that all imported organic products be 
labeled by their respective country of origin. The purpose of this 
proposal is to provide the requirements for the marketing of 
agricultural products in the United States that are labeled or sold as 
organic. The issue of country-of-origin labeling of imported products 
is not related to this proposal or the Act. Further, regulations 
pertaining to the labeling of organic agricultural products should not 
be used to enforce country-of-origin labeling requirements.
    Several commenters stated that the first proposal did not take into 
account

[[Page 13575]]

the use of equivalency to ensure the marketing of U.S. organic products 
in foreign markets. The Department will work to oppose other countries' 
organic regulations that would prohibit entry of U.S. organic product 
produced under the Act or these regulations. As appropriate, the U.S. 
Government may represent U.S. organic interests in international 
government-to-government bodies. However, neither of these objectives 
is intended to be achieved by this rule.
    (2) Accreditation Requirements Regarding Expertise of Employees. We 
have added a new regulation to the general requirements for 
accreditation. This regulation requires that the certifying agent 
ensure that its responsibly connected persons, employees, and 
contractors with inspection, analysis, and decision-making 
responsibilities have sufficient expertise in organic production or 
handling techniques to sufficiently perform the duties assigned. 
Certifying agents were required under the first proposal to use a 
sufficient number of adequately trained personnel, including 
inspectors. They were also required to conduct an annual performance 
appraisal of each inspector.
    Commenters felt that the proposed rule did not sufficiently ensure 
that certifying agents would employ qualified individuals. One of these 
commenters requested that we require organic certification inspectors 
to participate in an inspector accreditation program, such as that 
offered by the Independent Organic Inspectors Association. We believe 
that inspector participation in an inspector accreditation program 
should be left to the discretion of the inspector and certifying agent. 
However, we believe that the new requirement combined with the 
requirements from the first proposal should ensure that responsibly 
connected persons, employees, and contractors of an accredited 
certifying agent are qualified to perform their inspection, analysis, 
and decision-making duties. This new regulation is found at 
Sec. 205.501(a)(5) of this proposal.
    (3) Recordkeeping Requirements. We have proposed a new 
Sec. 205.510(b), which identifies three categories of records and their 
retention periods. This new paragraph was added to address commenter 
concern that the requirement that an accredited certifying agent 
maintain records about all of its activities for 10 years was excessive 
and unnecessary. Commenters suggested a 5- to-7-year retention period. 
We agree that for some records, a retention period of 10 years may be 
excessive. Accordingly, in this proposal, we are proposing three 
retention periods. First, records created by the certifying agent 
regarding applicants for certification and certified operations would 
have to be maintained for not less than 10 years beyond their creation. 
We believe this retention period to be consistent with the Act's 
requirement that the certifying agent maintain all records concerning 
its activities for a period of not less than 10 years. Second, records 
obtained from applicants for certification and certified operations 
would have to be maintained for not less than 5 years beyond their 
receipt. This retention period is the same as that required by the Act 
for the retention of records by the certified operation. Since the 
certified operation can dispose of its records 5 years after their 
creation, the certifying agent should also be able to dispose of those 
records it receives from the certified operation 5 years after their 
receipt. Third, records created or received by the certifying agent for 
USDA accreditation would have to be maintained for not less than 5 
years beyond their creation or receipt.
    (4) Conflict of Interest Provisions. We have made three changes 
which we believe will strengthen the conflict of interest provisions. 
We have made these changes because we concur with the comment from a 
research foundation stating that the provisions for preventing 
conflicts of interest needed to be significantly strengthened. First, 
we have added a new Sec. 205.501(a)(11)(v), which requires the 
completion of an annual conflict of interest disclosure report by all 
personnel designated to be used in the certification of an operation, 
including administrative staff, certification inspectors, members of 
any certification review and program evaluation committees, 
contractors, and all parties responsibly connected to the certifying 
agent. Second, coverage of the conflict of interest provisions has been 
extended to immediate family members of the certifying agent; 
responsibly connected persons of the certifying agent; and any 
employee, inspector, contractor (to be used in the certification of an 
operation), or other personnel of the certifying agent. Immediate 
family members would include the spouse; minor children, including 
legally adopted children; or blood relatives who reside in the 
immediate household of a certifying agent; responsibly connected person 
of the certifying agent; or any employee, inspector, contractor, or 
other personnel of the certifying agent. Third, this proposal lists 
contractors among those persons who are prohibited from accepting 
payment, gifts, or favors of any kind, other than regular fees from any 
business inspected by the certifying agent. This addition, which is 
found at Sec. 205.501(a)(11), was made to clarify that contractors, 
including contract inspectors, are prohibited from accepting payment, 
gifts, or favors of any kind, other than regular fees.
    (5) Use of Voluntary Labor. We have added an exception to the 
prohibition of the acceptance of payment, gifts, or favors of any kind. 
The exception provides that any certifying agent that is a not-for-
profit organization with an Internal Revenue Code tax exemption or, in 
the case of a foreign certifying agent, a comparable recognition of 
not-for-profit status from its government may accept voluntary labor 
from certified operations. Internal Revenue Code tax exemption or, in 
the case of a foreign certifying agent, a comparable recognition from 
its government is required as verification of the certifying agent's 
status as a not-for-profit organization. This change was made to 
clarify our original intent that not-for-profit certifying agents would 
be allowed to accept volunteer labor from persons certified by the 
certifying agent.
    In the preamble to the first proposal, we stated that we would not 
consider a volunteer who performs services for a not-for-profit 
certifying agent as providing favors to any particular individual in 
that agency and, therefore, would not consider the certifying agent as 
being in a conflict of interest situation by accepting such services 
from volunteers. We have made this clarification because a commenter 
expressed the belief that the certifying agent should be allowed to 
receive donations of time, food, and money beyond any mandatory fees 
from persons they certify. The Act prohibits certifying agents from 
accepting payments, gifts, or favors of any kind from a business 
inspected, other than prescribed fees. Accordingly, this exception is 
limited to acceptance of voluntary labor by not-for-profit certifying 
agents. While Sec. 205.501(a)(11)(iii) prohibits the acceptance of 
payments, gifts, or favors of any kind, other than prescribed fees, 
from any business inspected for certification as a producer or handler 
of organic agricultural products, the paragraph does not prohibit the 
accredited certifying agent from accepting payments, gifts, or favors 
of any kind, including time, food, or money, from persons for whom they 
do not provide inspections for certification as a producer or handler 
of organic agricultural products.

[[Page 13576]]

    (6) Certification Fees. We have removed the requirement that a 
certifying agent charge only such fees to applicants for certification 
and operations it certifies that the Secretary determines are 
reasonable. We have made this change because we concur with those 
commenters who expressed the belief that certifying agents should be 
permitted to set their own fees without the approval of the Secretary. 
However, we continue to believe that the Administrator should retain 
oversight of the fees, not for the purpose of setting the fees or of 
dictating the level of the fees, but for the purpose of determining if 
any certifying agent's fees are so high as to be unreasonable and to 
ensure that the schedule of fees filed with the Administrator are 
applied uniformly and in a nondiscriminatory manner. The Administrator 
should also retain the ability to inform a certifying agent that its 
fees appear to be unreasonable and to require a justification for the 
level of fees set by the certifying agent. We further believe that the 
Administrator should retain the ability to investigate the level of 
fees charged by an accredited certifying agent if a complaint is made 
or if compelling circumstances warrant such an investigation. 
Accordingly, we have proposed at Sec. 205.501(a)(15) that a certifying 
agent must charge applicants for certification and certified production 
and handling operations only those fees and charges that it has filed 
with the Administrator. We have also included at Sec. 205.642 
regulations with respect to fees charged by certifying agents to 
producers and handlers. Section 205.642 is discussed under fees in 
subpart G of this preamble.
    (7) State Standards That Vary From the National Organic Program. We 
have added an exception to the regulation which prohibited certifying 
agents from requiring, as a condition for use of the certifying agent's 
identifying mark, compliance with any farming or handling requirements 
other than those provided for in the Act and regulations. The exception 
provides that the requirement does not apply to States with more 
restrictive requirements approved by the Secretary or private entity 
certifying agents certifying production or handling operations within 
States with more restrictive requirements approved by the Secretary. 
This change was made because we agree with the State commenters who 
stated that the prohibition on requiring compliance with any farming or 
handling requirements other than those provided for in the Act and 
regulations would prohibit States from requiring that their more 
restrictive standards, approved by the USDA, be met as a requirement 
for use of the State's logo on organically produced products. We did 
not intend to prohibit States from requiring that their more 
restrictive standards be met as a requirement for use of the State's 
logo on organically produced products. Including this exception in 
Sec. 205.501(b)(2) will permit States with more restrictive 
requirements approved by the Secretary and private entity certifying 
agents certifying production or handling operations within the borders 
of such States to require that the State's more restrictive standards 
be met as a requirement for use of their logo or other identifying mark 
on organically produced products.
    Certifying agents may not require a certified operation to meet 
production or handling standards greater than those established by the 
Department or, when applicable, an approved State organic certification 
program as a condition for using its logo or other identifying mark. 
However, a certifying agent may verify, upon the request of a producer 
or handler certified by the certifying agent, that the producer or 
handler is meeting contractual specifications which include 
requirements in addition to those of the Act and regulations.
    (8) Time Period for Public Access to Information. For the 
requirement that certifying agents describe the procedures they will 
use for making information available to the public, we have changed the 
time period from ``during the 10-year period preceding the receipt of 
the request from the public'' to ``during the current and 3 preceding 
calendar years.'' Commenters stated that the required 10-year period 
was excessive and unnecessary. The Act requires public access to 
certification documents and laboratory analyses that pertain to 
certification. However, the Act does not specify that a certifying 
agent must provide access to its records throughout their 10-year 
retention period. We agree with the commenters that public access to 
the records the certifying agent is required to keep should be limited 
to a reasonable period short of the full retention period. Such a 
reasonable period, we believe, would be the current calendar year and 
the 3 calendar years preceding the calendar year of the request. 
Accordingly, Sec. 205.504(b)(5) requires certifying agents to describe 
the procedures they will use for making information available to the 
public during the current and 3 preceding calendar years. This time 
period will lessen the burden on certifying agents while assuring 
reasonable public access to such records.
    (9) Scope of Information for Public Release. We have expanded the 
scope of information for public release which must be included in the 
list of producers and handlers whose operations the certifying agent 
has certified. Specifically, certifying agents will have to include the 
name of the operation and type(s) of operation in its list of producers 
and handlers it has certified. This change is included in section 
Sec. 205.504(b)(5)(ii). Commenters requested that the list be expanded 
to include the name of the operation, its physical location(s), 
certification history, type(s) of operation, acreage (when applicable), 
and person responsible for organic regulation compliance. While we 
agree that the name of the operation and type(s) of operation should be 
available to the public, we believe that the certified operation's 
physical location(s), certification history, and acreage are 
confidential information which has no relationship to the operation's 
status as a certified organic operation. Therefore, such information 
should only be made available with the written consent of the certified 
operation. We also believe that it is unnecessary to list a person 
responsible for organic regulation compliance since the applicant 
ultimately has that responsibility. Therefore, these requested 
additions have not been made. We have also removed the separate 
requirement that certifying agents identify for the public the organic 
agricultural products produced by each certified operation. We have 
taken this action because the information is available on the 
certificates and the list of producers and handlers required to be 
released by the certifying agent to the public. These requirements are 
found at Sec. 205.504(b)(5)(i) and (ii).
    (10) Release of Nonconfidential Business Information. We have 
removed the requirement that certifying agents provide a description of 
the procedures to be used to make nonconfidential business information, 
as permitted by the producer or handler and approved by the Secretary, 
available to the public. This requirement has been replaced with the 
requirement that the certifying agent provide a description of the 
procedures to be used to make other business information, as permitted 
in writing by the producer or handler, available to the public. 
Commenters objected to the requirement that the Secretary approve the 
release of nonconfidential business information that the producer or 
handler had authorized the certifying agent to

[[Page 13577]]

release. They believed that this requirement lacked justification and 
created unnecessary costs. We concur that this requirement is 
unnecessary. However, we believe that the producer's or handler's 
approval must be obtained in writing, which is reflected in this 
proposal at Sec. 205.504(b)(5)(v).
    (11) Submission of Applicant's Financial Policies and Procedures. 
We have removed the requirement that a certifying agent include with 
its application for accreditation a description of its policies and 
procedures for collection and disbursement of funds and documents that 
identify anticipated sources of income, including all fees to be 
collected from producers and handlers. Commenters stated that they did 
not believe the submission of applicant financial policies and 
procedures was necessary. We have decided that the information 
requested probably would not fully meet our needs in determining that 
certification decisions were not influenced by the certifying agent's 
concern for the certification decision's financial impact on the 
certifying agent or in determining compliance with the conflict of 
interest provisions of the Act and these regulations. Accordingly, this 
requirement is not included in this proposal.
    (12) Submission of Information Concerning Current Certification 
Activities. We have changed the voluntary submission of information and 
documents concerning current certification activities to a required 
submission. Commenters stated that the submission of a list of all 
farms, wild-crop harvesting operations, and handling operations 
currently certified by the applicant should be required. They went on 
to say that the submission of copies of the inspection reports and 
certification evaluation documents for production or handling 
operations certified by the applicant during the previous year should 
remain optional. They also said the submission of results from any 
accreditation process of the applicant's operation by an accrediting 
body during the previous year for the purpose of evaluating its 
certification activities should remain optional.
    We agree with the commenters that a list of all operations 
currently certified by the applicant should be a required submission. 
We also believe that copies of inspection reports, certification 
evaluation documents, and accreditation results should be a required 
submission from all applicants currently certifying production or 
handling operations. Accordingly, at Sec. 205.504(d) we have made the 
submission of information and documents concerning current 
certification activities mandatory for certifying agents currently 
certifying production or handling operations.
    This change has been made because of the value such information and 
documents would have in assisting the Department in evaluating an 
applicant for accreditation. However, we have limited the submission of 
inspection reports and certification evaluation documents for 
production and handling operations certified by the applicant. The 
applicant is required to submit copies of at least 3 different 
inspection reports and certification evaluation documents for 
production or handling operations certified by the applicant during the 
previous year for each area of operation for which accreditation is 
requested. We have limited the submission to reduce the reporting 
burden on certifying agents. The Administrator may, however, require 
that the certifying agent submit additional inspection reports and 
certification evaluation documents.
    We recognize that a newly organized certifying agent with no 
experience would be unable to supply the information. An applicant's 
inability to provide the information and documentation required by the 
revised paragraph due to lack of experience would not be prejudicial to 
the Department's evaluation of the application.
    (13) Site Evaluations. We have revised the site evaluation 
provisions to clarify the scope of an evaluation, to specify that the 
evaluation will be arranged and conducted by a representative of the 
Administrator, and to specify when evaluations shall or may be 
conducted. These changes are made in response to commenters who 
suggested adding details to the regulatory text regarding the nature of 
site evaluations. The revised section provides that site evaluations of 
accredited certifying agents shall: (1) Be conducted for the purpose of 
examining the certifying agent's operations and evaluating its 
compliance with the Act and regulations; (2) include an on-site review 
of the certifying agent's certification procedures, decisions, 
facilities, administrative and management systems, and production or 
handling operations certified by the certifying agent; (3) be conducted 
by a representative(s) of the Administrator; and (4) be conducted after 
application for renewal of accreditation but prior to the issuance of a 
notice of renewal of accreditation. This revised section provides that 
an initial site evaluation of an accreditation applicant would be 
conducted before or within a reasonable period of time after issuance 
of the applicant's notification of accreditation. Section 205.508 also 
provides that one or more site evaluations will be conducted during the 
period of accreditation to determine whether an accredited certifying 
agent is complying with the general requirements for accreditation.
    (14) Eligibility for Peer Review Panels. We have added a new 
regulation addressing eligibility for peer review panels. Commenters 
expressed concern that peer review pool applicants be free of conflicts 
of interest and possess the necessary expertise in organic production 
or handling. The first proposal provided that candidates for membership 
in the peer review panel pool would be required to submit a letter to 
the Program Manager of the NOP requesting appointment, describing their 
qualifications, and identifying conflicts of interest. We believe that 
there is value to the applicants for membership in the peer review 
panel pool and the general public in addressing eligibility for peer 
review panels in the regulatory text. Accordingly, we have added a new 
regulation at Sec. 205.509(b) which provides that applicants for 
membership in the peer review panel pool must provide the Administrator 
with a written description and, upon request, supporting documentation 
of their qualifications to conduct peer reviews. Such description must 
include information concerning the applicant's training and expertise 
in organic production or handling methods and in evaluating whether 
production or handling operations are using a system of organic 
production or handling. Applicants must also address their possible 
limitations on availability to serve. Further, applicants would be 
required to include information concerning their commercial interests 
and those of their immediate family members, within the 12-month period 
prior to application, with any person who may seek to become or who is 
an accredited certifying agent. No person who has or has had a 
commercial interest, including an immediate family interest or the 
provision of consulting services, in an applicant for accreditation or 
renewal of accreditation will be appointed to or accept appointment to 
a panel evaluating the applicant. This provision was added for the 
purpose of avoiding conflicts of interest by peer reviewers. This new 
regulation also provides that persons accepted to the pool may serve 
until notified that their appointment has been rescinded by the 
Administrator or until

[[Page 13578]]

they are no longer qualified, whichever occurs first.
    (15) Composition of Peer Review Panels. We have revised the 
regulations concerning the composition of peer review panels. 
Commenters requested that the peer review panel consist of at least two 
members who are not USDA employees, rather than not AMS employees. We 
agree with this suggested change, which clarifies what had been our 
intent. This change is included in Sec. 205.509(c). Section 205.509(c) 
provides that peer review panels shall consist of at least three but no 
more than five members. This section provides that peer review panels 
must include a Department representative who will preside over the 
panel and no fewer than two members from the peer review pool who 
possess sufficient expertise in the relevant areas of accreditation. 
Additionally, section 205.509(c) provides that peer review panels may 
include up to two members with expertise in other disciplines, 
including organizational management and finance; member(s) from the 
approved State organic certification program when the applicant is a 
private entity seeking accreditation within the State; and member(s) 
from a foreign government's organic program when the applicant is a 
private entity that will operate within the country. We have added 
authorization for these additional members to broaden the scope and 
depth of expertise available to peer review panels.
    Commenters also expressed concern that the peer review panels 
consist of at least one member from a State organic certification 
program. We do not believe that the composition of peer review panels 
regulations needs to be amended to accommodate this concern. To the 
extent possible, accredited private certifying agents will peer review 
private certifying agents, and accredited State certifying agents will 
peer review State certifying agents.
    (16) Renewal of Accreditation. We have revised the renewal of 
accreditation provisions to, among other things, require that an 
accredited certifying agent's application for accreditation renewal be 
received 6 months prior to the fifth anniversary of issuance of the 
notification of accreditation and each subsequent renewal of 
accreditation. The first proposal provided that an accredited 
certifying agent would request renewal of accreditation on or before 
the fifth anniversary of issuance of the notice of confirmation of 
accreditation and each subsequent renewal of accreditation. Commenters 
expressed concern about whether the accredited certifying agent's 
accreditation would lapse during the renewal process. They suggested 
that certifying agents should submit their application for renewal of 
accreditation 6 months prior to the fifth anniversary of issuance of 
the notice of confirmation.
    We believe that clarification regarding the status of the 
certifying agent's accreditation during the renewal process is 
appropriate. We also concur with the commenters' suggestion that 
certifying agents should submit their applications for renewal of 
accreditation 6 months prior to the fifth anniversary of issuance of 
the notice of confirmation. We have replaced ``notice of confirmation 
of accreditation,'' however, with ``notification of accreditation'' 
because this proposal eliminates the section on confirmation of 
accreditation. Accordingly, we have provided in this proposal at 
Sec. 205.510(c) that: (1) An accredited certifying agent's application 
for accreditation renewal must be received 6 months prior to the fifth 
anniversary of issuance of the notification of accreditation and each 
subsequent renewal of accreditation; (2) the accreditation of 
certifying agents who make timely application for renewal of 
accreditation will not expire during the renewal process; (3) the 
accreditation of certifying agents who fail to make timely application 
for renewal of accreditation will expire as scheduled unless renewed 
prior to the scheduled expiration date; (4) certifying agents with an 
expired accreditation must not perform certification activities under 
the Act and regulations; and (5) following receipt of the information 
submitted by the certifying agent, the results of any site evaluation, 
and, when applicable, the reports submitted by a peer review panel, the 
Administrator will determine whether the certifying agent remains in 
compliance with the Act and regulations and should have its 
accreditation renewed.
    These changes would provide the Department with sufficient time to 
fully process the certifying agent's application for accreditation 
renewal prior to the accreditation's scheduled date of expiration. This 
revised regulation also clarifies that a certifying agent's 
accreditation will not expire during the accreditation renewal process 
if the certifying agent has made timely application for renewal. It 
also makes clear that the accreditation of certifying agents who fail 
to make timely application for renewal of accreditation will expire as 
scheduled unless renewed prior to the scheduled expiration date. This 
regulation also provides that certifying agents with an expired 
accreditation must not perform certification activities under the Act 
and these regulations.
    (17) Denial of Accreditation. We have revised the denial of 
accreditation regulations to clarify that after receipt of a 
notification of noncompliance, the applicant may submit a description 
of the actions taken to correct the noted deficiencies and evidence 
demonstrating such corrections, rather than submitting a new 
application. We have taken this action because commenters were confused 
by our reference to a new application in the denial of accreditation 
regulations. The denial of accreditation regulations are found at 
Sec. 205.507 in this proposal.
Accreditation--Changes Requested But Not Made
    This subpart retains from our first proposal regulations on which 
we received comments as follows:
    (1) Durations of Accreditation and Reporting Requirements. 
Commenters expressed concern regarding the duration of accreditation 
and whether the interval of required reporting is adequate. An 
association expressed concern regarding the economic impact of 
accreditation on small certifying agents. This commenter stated that 
small certifying agents should not be accredited more often than every 
5 years. An international organic federation expressed the belief that 
accreditation for 5 years is too long. The commenter went on to say 
that certification bodies are expanding rapidly and that annual reports 
cannot be relied upon to fully convey the consequent changes. This 
commenter believes that many of the conditions of accreditation may 
relate to operational aspects that cannot be addressed in an annual 
report.
    Annual reporting by the certifying agent, under this proposal, 
would provide: (1) A complete and accurate update of applicant 
information and expertise and ability information previously submitted; 
(2) information supporting any changes being requested in the areas of 
accreditation; (3) the measures that were implemented in the previous 
year and any measures to be implemented in the coming year to satisfy 
any terms and conditions determined by the Administrator to be 
necessary as specified in the most recent notification of 
accreditation; and (4) the results of the most recent inspector 
performance appraisal and program evaluation and adjustments to the 
certifying agent's operation and procedures implemented and intended to 
be implemented in response to the appraisals and evaluations. This 
proposal includes a requirement at

[[Page 13579]]

Sec. 205.501(a)(14) that the certifying agent submit to the 
Administrator a copy of each notification of: (1) Denial of 
certification; (2) noncompliance; (3) noncompliance correction; (4) 
proposed suspension or revocation; and (5) suspension or revocation, 
simultaneously with its issuance.
    We believe that these reporting requirements, coupled with feedback 
from applicants for certification, certified operations, and other 
interested parties, will provide the Department with sufficient 
information regarding the certifying agent and its operation to 
determine whether a site visit is necessary to evaluate the certifying 
agent's suitability to remain accredited. Under this proposal, the 
Department will conduct one or more site evaluations during the period 
of accreditation to determine whether the accredited certifying agent 
is complying with the requirements for accreditation. Accordingly, we 
believe the duration of accreditation period first proposed was 
correct, and we are, therefore, reproposing this time period at 
Sec. 205.500(b).
    (2) Performance Appraisals and Program Evaluation. Comments from 
State departments of agriculture and some certifiers indicated that the 
annual inspector performance appraisal and annual program evaluation 
requirements duplicated State requirements. The commenters asked what 
the required scope and depth of evaluations was expected to be, whether 
third party evaluators would be required to be used to assess the 
performance of the operation, and whether existing performance 
appraisal and program evaluation practices of a certifying agent would 
be used to meet the annual inspector performance appraisal and program 
evaluation requirements.
    We do not intend for States to develop dual performance appraisal 
and program evaluation programs. We believe that performance appraisals 
and program evaluations conducted to meet State requirements will also 
meet the requirements of this proposal. State and private agency 
personnel performance appraisals and program evaluations would be 
expected to be consistent with good management practices and 
appropriate to the organization's size and structure. This could be 
different for different organizations. Therefore, we are not 
prescribing the specific performance appraisal system or instrument to 
be used to assess inspector performance, the specific program 
evaluation methods that must be used, or that third parties must 
conduct the required program evaluation. Accordingly, we have not 
changed the questioned provisions, which appear at 
Sec. Sec. 205.501(a)(6) and (7). We have, however, revised 
Sec. 205.501(a)(7) to clarify that the annual program evaluation can be 
conducted by the certifying agency staff, an auditing entity, or a 
consultant who has expertise to conduct program evaluations.
    (3) ``Open Records'' Requirements. Commenters expressed the belief 
that confidentiality requirements for certifying agents might conflict 
with State requirements for ``open records.'' We recognize this 
potential for conflicting requirements. Records collected and 
maintained under the NOP are subject to the confidentiality provisions 
of the Act and these regulations. However, a State-entity certifying 
agent will be subject to its State ``open records'' laws when such laws 
conflict with the confidentiality provisions of the Act and these 
regulations. Records collected and maintained under the NOP by a 
private entity certifying agent will always be subject to the 
confidentiality requirements of the Act and these regulations. 
Accordingly, pursuant to the Act, we are reproposing the 
confidentiality provisions at Sec. 205.501(a)(10).
    To clarify that authorized representatives of the Secretary or the 
applicable State program's governing State official may act on behalf 
of the Secretary or the State program's governing State official and 
must be given access to the records, we have added the phrase, ``or 
their authorized representatives,'' to Sec. 205.501(a)(10). Such 
representative could be a member of the NOP staff, a Department 
compliance officer, or other official. This provision is standard 
practice and is necessary for Government oversight of a regulatory 
program.
    (4) List of Confidential Records. One commenter requested a 
definitive list of the records that had to be kept confidential. We 
cannot create such a list because it is not possible to describe every 
record that would be characterized as a business-related record. Such 
records would include, however, organic production and handling plans, 
records that are related to trade secrets and commercial or financial 
information obtained from applicants for certification, and records or 
information compiled for an investigation into alleged noncompliance 
with the Act and regulations.
    (5) Time Period for Prohibition of Commercial Interest. We received 
many comments regarding the prohibition of commercial interest in an 
organic production or handling operation during the 12 months prior to 
certification. Several States and industry associations stated that the 
prohibition of commercial interest should apply to the 12 months after 
as well as the 12 months prior to certification. These commenters 
offered no reasoning for their position. A research foundation 
recommended that the prohibition of commercial interest should be for 3 
years before and after the application for certification. This 
commenter stated that the conflict of interest provisions needed 
significant strengthening. A producer commenter stated that the 
prohibition of commercial interest should be for an indefinite period, 
not for 12 months. Some commenters recommended that certifying agents 
and responsible parties and employees of certifying agents be barred 
from accepting employment for 1 to 3 years from any certified 
production or handling operation in which they participated in any 
manner in the operation's certification. An accreditation service 
stated it believed there would be a conflict of interest should a 
consulting or business connection arise between an inspector and a 
production or handling operation following the site evaluation. This 
commenter presented the example of an inspector being offered 
employment during the site evaluation but not taking the position until 
6 months after the site evaluation. Many commenters, however, supported 
our proposed prohibition of commercial interest in an organic operation 
during the 12 months prior to certification.
    We disagree with the recommendations calling for a longer 
precertification conflict of interest prohibition period and with the 
recommendations for a postcertification prohibition period for those 
persons no longer associated with the certifying agent. Regarding the 
recommendations for a longer precertification prohibition period, we 
continue to believe that 12 months is a sufficient period to ensure 
that any previous commercial interest would not create a conflict of 
interest situation for two reasons. First, this time period is 
consistent with similar provisions governing conflicts of interest for 
government employees. Second, we have added a new section, 
205.501(a)(11)(v), which requires the completion of an annual conflict 
of interest disclosure report by all personnel designated to be used in 
the certification operation, including administrative staff, 
certification inspectors, members of any certification review and 
program evaluation committees, contractors, and all parties

[[Page 13580]]

responsibly connected to the certification operation. This requirement 
will assist certifying agents in complying with the requirements to 
prevent conflicts of interest. We also continue to believe that a 
longer prohibition period would have the effect of severely curtailing 
most certifying agents' ability to comply with the Act's requirement 
that they employ persons with sufficient expertise to implement the 
applicable certification program. Accordingly, we have decided to 
repropose the prohibition on commercial interest in an applicant for 
certification for a 12-month period prior to the application for 
certification at section Sec. 205.501(a)(11).
    Regarding the recommendations for a postcertification prohibition 
period for those persons no longer associated with the certifying 
agent, we believe such a period is unnecessary. We take this position 
because certifying agents and their responsibly connected parties, 
employees, inspectors, contractors, and other personnel are prohibited 
from engaging in activities or associations at any time during their 
affiliation with the certifying agent which would result in a conflict 
of interest. While associated with the certifying agent, all employees, 
inspectors, contractors, and other personnel are expected to disclose 
to the certifying agent any offer of employment they have received and 
not immediately refused. They are also expected to disclose any 
employment they are seeking and any arrangement they have concerning 
future employment with an applicant for certification or a certified 
operation. The certifying agent would then have to exclude that person 
from work, discussions, and decisions in all stages of the 
certification or monitoring of the operation making the employment 
offer. If a certifying agent or a responsibly connected party of the 
certifying agent has received and not immediately refused an offer of 
employment, is seeking employment, or has an arrangement concerning 
future employment with an applicant for certification, the certifying 
agent may not accept or process the application. Further, certifying 
agents and responsibly connected parties may not seek employment or 
have an arrangement concerning future employment with an operation 
certified by the certifying agent while associated with that certifying 
agent. Certifying agents and responsibly connected parties must sever 
their association with the certifying agent when such person does not 
immediately refuse an offer of employment from a certified operation. 
Accordingly, we have decided not to include a postcertification 
prohibition period in this proposal.
    (6) Conflicts of Interest. Some commenters stated that they 
understood the proposed conflict of interest provisions to prohibit 
certifying agents from certifying any organic operation owned or 
operated by a member of the certifying agent's board of directors or 
from certifying any organic operation owned or operated by an employee 
of the certifying agent. One commenter stated that because 
certification arose from the ranks of organic farmers, there are many 
certification personnel, including inspectors, who also farm or have 
family who farm. This commenter stated that it should be permissible 
for a certifying agent to review and certify an organic operation owned 
or operated by a responsibly connected person or employee, provided 
that the responsibly connected person or employee is excluded from the 
decision-making process with respect to the organic operation to be 
certified.
    The commenters are correct in their interpretation that the first 
proposal prohibited certifying agents from certifying an operation when 
the certifying agent or a responsibly connected party of such 
certifying agent has or has held a commercial interest in the 
operation. This prohibition is limited, however, to the 12-month period 
prior to the application for certification. The first proposal did not 
prohibit certifying agents from certifying an operation when an 
employee of the certifying agent has or has held a commercial interest 
in the operation. The first proposal prohibited a certifying agent from 
using an employee in any phase of the certification process when such 
employee has or has held a commercial interest in an operation making 
application for certification within the 12-month period prior to the 
application for certification. A responsibly connected party is any 
person who is a partner, officer, director, holder, manager, or owner 
of 10 percent or more of the voting stock of an applicant for or a 
recipient of certification or accreditation.
    We believe that a certifying agent and a responsibly connected 
party of such certifying agent hold positions of power and authority 
which preclude the certification of an operation in which they have or 
have held a commercial interest during the 12-month period prior to an 
application for certification. The certifying agent's control over the 
employment of an agent's employee makes it unreasonable to expect an 
employee of a certifying agent to impartially carry out the employee's 
duties when the certifying agent or a responsibly connected party of 
such agent has an interest in the applicant. Such is not true of an 
employee who is subordinate to the certifying agent or a responsibly 
connected party of the certifying agent. Accordingly, we have 
reproposed the requirement that a certifying agent prevent conflicts of 
interest by: (1) Not certifying a production or handling operation if 
the certifying agent or a responsibly connected party of such 
certifying agent has or has held a commercial interest within the 12-
month period prior to the application for certification and (2) 
excluding any person with a conflict of interest from work, 
discussions, and decisions in all stages of the certification process 
and the monitoring of certified production or handling operations for 
all entities in which the person has or has held a commercial interest 
within the 12-month period prior to the application for certification. 
Both of these provisions are found in Sec. 205.501(a)(11).
    (7) Defining Commercial Interest. A research foundation recommended 
that the provisions for preventing conflicts, found in this proposal at 
Sec. 205.501(a)(11), be strengthened by changing ``a commercial 
interest in the operation'' to ``a commercial interest in the operation 
or the marketing or distribution of its products.'' We believe that the 
recommended addition is unnecessary because ``commercial interest'' 
covers all business transactions between the certifying agent or 
responsibly connected parties, employees, inspectors, contractors, or 
other personnel of the certifying agent and the applicant for 
certification or certified operation. This interpretation would not 
apply to voluntary labor provided, in accordance with 
Sec. 205.501(a)(11)(iii), by a certified operation to a certifying 
agent that is a not-for-profit organization with an Internal Revenue 
Code tax exemption. Further, this interpretation would not apply to the 
providing of advice, in accordance with Sec. 205.501(a)(11)(iv), 
concerning organic practices or techniques to any certification 
applicant or certified operation when such advice is covered by fees 
under the applicable certification program established under the Act.
    (8) Provision of Information to Producers and Conflicts of 
Interest. Commenters were concerned about the effect that some of the 
conflict of interest provisions would have on certifying agents that 
provide producers with information on organic practices through forums 
such as in-house publications, conferences, workshops, informational 
meetings, and field days

[[Page 13581]]

for a fee. Specifically, they were concerned about the impact of the 
conflict of interest provision requiring that certifying agents prevent 
conflicts of interest by not providing advice concerning organic 
practices or techniques to any certification applicant or certified 
organic production or handling operation for a fee, other than as part 
of the fees established under the applicable certification program 
established under the Act. These commenters requested that the 
paragraph be rewritten to clarify that such activities would not be 
prohibited. We also received a comment stating that advice relating to 
improving production yields, market access, etc., is not the function 
of an inspector and can lead to a nonmonetary conflict of interest. 
This commenter stated that advice, where given, should be restricted to 
issues related to the understanding and implementation of the 
standards.
    Certifying agents have historically provided advice concerning 
organic practices or techniques to any certification applicant or 
certified organic production or handling operation for a fee through 
forums such as in-house publications, conferences, workshops, 
informational meetings, and field days. Such activities and their fees 
would not be prohibited under the Act or these regulations, provided 
that such activities were not required as a condition for production or 
handling certification. Section 205.503(c) would require that the 
applicant for accreditation provide a copy of the applicant's schedule 
of fees for all services to be provided under these regulations by the 
applicant. We would consider such activities to be voluntary 
participation activities provided by the certifying agent to producers, 
handlers, and other interested persons under the NOP. We also believe 
that it is appropriate, as well as industry practice, during an on-site 
inspection for inspectors to provide advice on a wide range of issues 
related to an on-site inspection of a production or handling operation. 
Accordingly, the conflict of interest provisions found at 
Sec. 205.501(a)(11) have not been rewritten as requested by the 
commenters.
    (9) Equivalency of Certification Decisions. We received a variety 
of comments suggesting changes to the requirement that accredited 
certifying agents accept the certification decisions made by another 
USDA-accredited certifying agent as equivalent to its own. Several of 
these commenters asked whether States with more restrictive standards 
could challenge certification decisions made by any accredited 
certifying agents. A few commenters representing State programs stated 
that States should be able to maintain control over which certifying 
agents operate within their State. Other commenters suggested that the 
requirement be amended to: (1) Require that a certifying agent accept 
the certification decisions made by another USDA-accredited certifying 
agent as equivalent to its own only after the certifying agent's 
accreditation has been confirmed by the Department; (2) provide that if 
a certifying agent doubts the accuracy of another certifying agent's 
determination, the certifying agent questioning the accuracy can file a 
complaint with the Secretary; and (3) authorize an accredited 
certifying agent to request additional documentation from another 
certifying agent if questions arise regarding the other certifying 
agent's certification activities or the activities or product of a 
production or handling operation certified by the other certifying 
agent.
    No organic product may be produced or handled to organic standards 
lower than the standards of the NOP. To certify organic production or 
handling operations to the national standards or to more restrictive 
State standards approved by the Secretary, the certifying agent must be 
accredited by the Administrator. While States may set more restrictive 
standards than the national organic standards for product produced or 
handled within their State, those requirements do not apply to organic 
product produced or handled outside of such State. Further, a State 
government may not prevent the marketing or sale in the State of 
organic product produced in another State to this program's national 
organic standards. State organic certification programs approved by the 
Secretary would be required to treat all accredited certifying agents 
equally. Likewise under this program, accredited certifying agents in 
one State cannot refuse to recognize another State's product which is 
certified to these national organic standards.
    We disagree with the suggestion to allow certifying agents to 
challenge the decisions of certifying agents that have not yet had 
their accreditation confirmed by the Department. We believe that 
allowing a certifying agent to challenge the certification decisions 
made by a certifying agent that has not had its site evaluation would 
create an insurmountable barrier for persons wanting to become 
accredited under the NOP, especially persons establishing new 
operations. The proposed accreditation procedures are sufficiently 
rigorous to permit a well-founded assessment of the applicant's 
capabilities and qualifications and will allow all eligible certifying 
agents to receive timely accreditation. We will only accredit 
certifying agents that we believe possess the expertise and ability to 
implement the proposed certification program. This includes newly 
established certifying agents who might require a longer period of time 
between accreditation and a site evaluation to allow the certifying 
agent to perform sufficient certification activities for the Department 
to perform a meaningful site evaluation.
    Should questions arise regarding a certifying agent's certification 
activities, a certified production or handling operation's activities, 
or the organic status of a certified production or handling operation's 
product, the questioning certifying agent could report a complaint or 
allegation of noncompliance, with the certification provisions of this 
part, to the State program's governing State official or the 
Administrator. As appropriate, the State program's governing State 
official or the Administrator will investigate such complaints or 
allegations. Certifying agents are not authorized to investigate 
allegations or suspicions of noncompliance by other certifying agents, 
nor are certifying agents allowed to take unilateral action against an 
accredited certifying agent, such as refusal to recognize the 
certification decisions made by another certifying agent.
    For the above reasons, we have not changed the requirement that a 
certifying agent accept the certification decisions made by another 
USDA-accredited certifying agent as equivalent to its own. This 
requirement is located at Sec. 205.501(a)(12).
    (10) False or Misleading Claims. Commenters objected to the 
requirements that an accredited certifying agent must refrain from 
making false or misleading claims about its accreditation status, the 
USDA accreditation program for certifying agents, or the nature or 
qualities of products labeled as organically produced. A few of these 
commenters stated that the requirements exceed the authority given by 
the Act by introducing claims other than those concerning 
representations of nonorganic product as organic. Additionally, a few 
commenters believed that the term, ``misleading,'' is too broad and 
could be interpreted to mean that the certifying agent could make no 
negative claims about the USDA accreditation program. They suggested 
that the requirements be amended by removing the reference to 
misleading claims. Another commenter

[[Page 13582]]

believed that the phrase, ``or the nature or qualities of products 
labeled as organically produced,'' should be deleted because it is 
vague and would unduly limit the freedom of certifying agents to share 
information with consumers, farmers, processors, and other interested 
parties regarding the attributes of organic food and organic production 
systems, including nutritional properties, freshness, taste, and less 
reliance on synthetic substances.
    We disagree with the commenters who stated that the requirements 
exceed the authority given by the Act by introducing claims other than 
those concerning representations of nonorganic product as organic. 
Claims regarding accreditation status, the USDA accreditation program 
for certifying agents, and the nature and quality of products labeled 
as organically produced all fall under the authority of the Act. We 
believe that the requirements are needed to prevent the dissemination 
of inaccurate or misleading information to consumers about organically 
produced products. We further believe that the changes suggested by the 
commenters would undermine the goal of a uniform NOP by allowing 
certifying agents to make claims that would state or imply that organic 
products produced by operations that they certify are superior to those 
of operations certified by other certifying agents. These requirements 
would not prohibit certifying agents from sharing factual information 
with consumers, farmers, processors, and other interested parties 
regarding verifiable attributes of organic food and organic production 
systems. Accordingly, the requirements are reproposed in this proposal 
without change at Sec. 205.501(a)(13).
    (11) Notification of Status of Certified Operations. Comments 
received on the requirements addressing documentation to be submitted 
by certifying agents to the Department regarding the status of 
certified operations suggested that: (1) The public should have access 
to the notification of certification status documentation; (2) annual 
reporting by certifying agents of the name of each operation whose 
application for certification has been approved is sufficient; and (3) 
the required reporting should only include the name of those operations 
certified during the quarter being reported rather than a listing of 
all operations certified by the certifying agent. First, we believe 
that the Freedom of Information Act adequately provides for public 
access to information. Second, we need the required information to 
facilitate oversight and to ensure that we have relatively current data 
for responding to inquiries involving the granting of certifications by 
certifying agents. It was not our intent to have certifying agents 
update their list of certified entities quarterly. Our intent was to 
receive on a quarterly basis a listing of all certifications granted by 
the certifying agent during the quarter being reported. Accordingly, no 
changes have been made on the basis of these comments to the 
requirements found in this proposal at Sec. 205.501(a)(14).
    (12) Certifier Compliance With Terms and Conditions Deemed 
Necessary. Commenters objected to the requirement that certifying 
agents must comply with and implement other terms and conditions deemed 
necessary by the Secretary. This requirement is consistent with 
Sec. 6515(d)(2) of the Act, which requires a certifying agent to enter 
into an agreement with the Secretary under which such agent shall agree 
to such other terms and conditions as the Secretary determines 
appropriate. Accordingly, this requirement, found at 
Sec. 205.501(a)(17), is unchanged in this proposal except to change 
``Secretary'' to ``Administrator'' since the Administrator will be 
responsible for administration of the NOP.
    (13) Limitations on the Use of Certifying Agent's Marks. Private 
certifying agents disagreed with the provision that prohibited 
certifying agents from requiring, as a condition of use of the 
certifying agent's identifying mark, compliance with any production or 
handling requirements other than those provided for in the Act and 
regulations. Private certifying agents commented that they should be 
allowed to use their identifying mark to recognize additional 
achievements by producers and handlers that exceed the requirements 
proposed in the national organic standards. The commenters' position is 
the same as that suggested by public input prior to publication of the 
first proposal.
    We believe that the private certifying agents' position advocating 
the use of their identifying mark to recognize additional achievements 
is inconsistent with Sec. 6501(2) of the Act, which provides that a 
stated purpose of the Act is to assure consumers that organically 
produced products meet a consistent national standard. Accordingly, we 
are reproposing the provision prohibiting certifying agents from 
requiring, as a condition of use of the certifying agent's identifying 
mark, compliance with any production or handling requirements other 
than those provided for in the Act and regulations or under an approved 
State organic certification program. This reproposed provision is found 
at Sec. 205.501(b).
    (14) Additional Requirements for Private Certifying Agents. 
Commenters expressed concern regarding the three additional 
requirements for a certifying agent who is a private person. First, 
private certifying agents expressed concern regarding the requirement 
that private certifying agents hold the Secretary harmless for any 
failure on their part to carry out the provisions of the Act and 
regulations. Their concern focused on the fact that applicants for 
certification can appeal a certifying agent's refusal to certify to the 
Secretary and that a certifying agent's recommendation to suspend or 
revoke a certification can be appealed to the Secretary. They believe 
that, without the authority to independently deny, suspend, or revoke 
certification, the certifying agent becomes liable for the actions of 
the Secretary.
    We disagree with the assertion that the certifying agent becomes 
liable for the actions of the Secretary. The provision clearly states 
that private certifying agents hold the Secretary harmless for any 
failure on their part. This in no way would make the certifying agent 
responsible for any failure on the part of the Department. Further, the 
wording of this provision is consistent with Sec. 6515(e)(1) of the 
Act, which provides that private certifying agents shall agree to hold 
the Secretary harmless for any failure on the part of the certifying 
agent to carry out the provisions of the Act. Accordingly, we are 
reproposing this regulation at Sec. 205.501(c)(1).
    Second, commenters expressed concern regarding the requirement that 
certifying agents furnish reasonable security, in an amount and 
according to terms as the Secretary may by regulation prescribe, for 
the purpose of protecting the rights of production and handling 
operations certified by such certifying agent. The commenters expressed 
concern regarding what would be the dollar amount of the security, how 
the dollar amount of the security would be determined, and in what form 
the security might be furnished. Several commenters expressed concern 
over the availability of errors and omissions insurance. The commenters 
also expressed a belief that guidance on what reasonable security might 
entail will be needed by accreditation applicants to evaluate their 
costs for accreditation.
    A private-entity certifying agent must furnish reasonable security 
for the purpose of protecting the rights of operations certified by 
such certifying agent. This security is to ensure the performance of 
the certifying agent's

[[Page 13583]]

contractual obligations. As noted elsewhere in this proposed rule, the 
specific amount and type of security that must be furnished by a 
private certifying agent will be the subject of future rulemaking by 
the Department. Such rulemaking will provide for public input and will 
occur prior to the call for applications for accreditation. We 
anticipate that the amount of the security will be tied to the number 
of clients served by the certifying agent and the anticipated costs of 
certification that may be incurred by its clients in the event that the 
certifying agent's accreditation is suspended or revoked. We anticipate 
that the security may be in the form of cash, surety bonds, or other 
financial instrument (such as a letter of credit) administered in a 
manner comparable to cash or surety bonds held under the Perishable 
Agricultural Commodities Act. Accordingly, we are reproposing this 
regulation at Sec. 205.501(c)(2).
    Third, commenters expressed concern regarding the requirement that 
a private person accredited as a certifying agent must transfer to the 
Secretary and make available to any applicable State program's 
governing State official all records or copies of records concerning 
the private certifying agent's certification activities in the event 
that the certifying agent dissolves or loses its accreditation. This 
requirement is consistent with Sec. 6515(c)(3) of the Act, which 
provides that if any private person that was certified under the Act is 
dissolved or loses its accreditation, all records or copies of records 
concerning such person's activities under the Act shall be transferred 
to the Secretary and made available to the applicable State program's 
governing State official. In addition to being consistent with the Act, 
we believe that this regulation is necessary to ensure the continuity 
and integrity of the NOP. Accordingly, we are reproposing this 
regulation at Sec. 205.501(c)(3).
    (15) Public Access to Applicant Information. The first proposal 
included provisions regarding what information had to be submitted by 
an accreditation applicant. Commenters requested the addition of a 
paragraph addressing public access to this information about the 
applicant's organization and intended certification activities. We have 
not made this requested change because the proposed recordkeeping and 
availability requirements under this program, coupled with the Freedom 
of Information Act, adequately provide for public access to 
information. The regulations on applicant information are found at 
Sec. 205.503 and include two additions to the provisions of the first 
proposal. This proposal requires the applicant to provide the name of 
the person responsible for the certifying agency's day-to-day 
operations and to submit a copy of its schedule of fees for all 
services to be provided under these regulations.
    (16) Application Requirements for States. Commenters stated that 
State certifying agents should not be required to submit documents and 
information regarding personnel, administrative policies and 
procedures, and financial policies and procedures to demonstrate 
evidence of expertise and ability. They believe that the requirements 
should not apply to States that have established hiring procedures, 
standard qualifications for job descriptions, and statewide policies 
for training, evaluating, and supervising personnel. They also stated 
that administrative policy and procedure review should be limited to 
organic program administration, not to agencywide policies or 
procedures such as financial policies.
    We acknowledge that States have established hiring procedures, 
standard qualifications for job descriptions, administrative 
procedures, and statewide policies for training, evaluating, and 
supervising personnel and that such policies and procedures would be 
applicable to State certifying agents. This fact, however, does not 
make States uniquely different from private accreditation applicants 
who would have similar policies and procedures in exercising good 
business practices. State certifying agents cannot be exempt from these 
requirements simply because they are a government agency.
    We anticipate that a State will submit its established policies and 
procedures to meet the requirements for demonstrating its expertise in 
organic production and handling techniques and its ability to fully 
comply with and implement the national organic certification program. A 
stated purpose of the Act is the establishment of national standards. 
We believe such national standards extend to uniform requirements for 
State and private certifying agents unless otherwise provided by the 
Act. We further believe the required information is essential to enable 
the Administrator to make a determination concerning approval of an 
application for accreditation. Accordingly, the requirements for 
demonstrating expertise in organic production and handling techniques 
and an ability to fully comply with and implement the national organic 
certification program remain the same for private and State certifying 
agents. These requirements are found at Sec. 205.504.
    (17) Public Access to Information on Certified Operations. 
Commenters requested that the public be provided information about a 
certified operation's farming practices, use of pesticides, and 
livestock production practices. All production and handling operations 
must meet the requirements of the national organic certification 
program to be certified. An accredited certifying agent will determine 
whether an operation meets those requirements. Certified operations can 
be held to no other standards except, if applicable, the requirements 
of an approved State organic certification program. Accordingly, we 
believe access to the requested information is unnecessary. We also 
believe the information to be confidential business information that 
should not be released to the public. Therefore, we have made no 
changes to the proposed rule to accommodate the commenters' request.
    (18) Conflicts of Interest. The first proposal required a 
description of procedures intended to be implemented to prevent the 
occurrence of conflicts of interest. It also required the 
identification of any food or agriculture-related business interests of 
all personnel intended to be used in the certification operation, 
including administrative staff, certification inspectors, members of 
any certification review and evaluation committees, all parties 
responsibly connected to the certification operation, and immediate 
family members, that may result in a conflict of interest. Commenters 
stated that existing State policies should be sufficient to prevent 
conflicts of interest. They also stated that lists of the business 
interests of all inspectors, program staff, and their families are 
unnecessary.
    We agree with the commenters that existing State policies should be 
sufficient to prevent conflicts of interest. However, we disagree with 
the commenters' assertion that lists of the business interests of all 
inspectors, program staff, and their families are unnecessary. At 
Sec. 6515(h), the Act places responsibility for the prevention of 
conflicts of interest with the certifying agent. We, however, have 
responsibility for ensuring that the certifying agent complies with 
that responsibility. We believe these requirements will provide the 
Administrator with information essential to the identification of 
conflicts of interest. A stated purpose of the Act is the establishment 
of national standards. We believe such national standards extend to 
uniform conflict of

[[Page 13584]]

interest requirements for State and private certifying agents. Further, 
for conflict of interest standards to achieve their intended 
effectiveness, they must be uniformly applied to both State and private 
certifying agents. The required information is also essential to the 
Administrator's determination of the applicant's suitability for 
accreditation. As the commenters point out, States have established 
conflict of interest policies and procedures. Thus, the required 
information should be readily available for submission to the 
Administrator with minimal inconvenience to the certifying agent. 
Accordingly, we have made no changes in this proposal based on these 
comments. Regulations concerning conflicts of interest are found at 
Secs. 205.501(a)(11) and 205.504(c) in this proposal.
    (19) Accreditation Prior to Site Evaluation. Commenters expressed 
concern that applicants could be accredited prior to a site evaluation 
of the applicant's facilities and operations. Most, however, recognized 
the need for accreditation decisions on written materials as opposed to 
further delay to program implementation. A few of the commenters urged 
USDA to complete the site evaluations during the implementation phase. 
The first proposal provided that an initial site evaluation of the 
operation of each certifying agent must be performed for the purpose of 
verifying its compliance with the Act and regulations. Two restrictions 
concerning timing were placed on the performance of an initial site 
evaluation. First, the site evaluation had to be performed within a 
reasonable period of time after the date on which the agent's notice of 
approval of accreditation was issued. Second, the site evaluation had 
to be performed after the agent had conducted sufficient certification 
activities for the Administrator to examine its operations and evaluate 
its compliance with the general requirements for accreditation.
    We never intended that a site evaluation be required prior to 
accreditation. While site evaluations could be conducted before 
approval, we believe accreditation approval without a site evaluation 
is appropriate. We believe that the commenters' concerns are adequately 
addressed by the first proposal, which provided for a well-founded 
assessment of the applicant's qualifications and capabilities through a 
sufficiently rigorous review of the application and supporting 
documentation. In cases where the document review raises concerns 
regarding the applicant's qualifications and capabilities and the 
Administrator deems it necessary, a preapproval site evaluation would 
be conducted.
    As noted above, a site evaluation to verify compliance with the Act 
and regulations would be conducted within a reasonable time period 
after the date on which the agent's notice of approval of accreditation 
was issued. Following the site evaluation, the certifying agent's 
accreditation would be continued provided the certifying agent is in 
compliance with the Act and regulations. Should it be found that the 
accredited certifying agent is not in compliance with the Act and 
regulations, the Administrator will issue the certifying agent a 
notification of noncompliance and afford the certifying agent an 
opportunity to correct the deficiencies. If the deficiencies are not 
corrected, the Administrator will begin proceedings to suspend or 
revoke the certifying agent's accreditation.
    We also believe that: (1) Conducting a site evaluation of a newly 
established certifying agent before it had begun any certification 
activities might not contribute information that would be useful for 
the Department's evaluation; (2) previously existing certifying agents 
also would need time to make adjustments in their operations to comply 
with the NOP regulations; and (3) requiring full site evaluations and 
peer reviews to be conducted prior to granting accreditation would 
further delay implementation of the Act. Accordingly, we have made no 
changes to the application requirements found at Sec. 205.502 or the 
site evaluation requirements found at Sec. 205.508 on the basis of 
these comments.
    (20) Conditional Accreditation. Commenters suggested that the rule 
provide for conditional accreditation of certifying agents. We disagree 
with the concept of conditional accreditation. We believe accreditation 
before a site evaluation to be the most effective means of providing 
new certifying agents with the opportunity to participate in the NOP. 
New certifying agents need to be unconditionally accredited to sell 
their services to potential organic clients. Such certifying agents 
need organic clients to demonstrate to the Administrator their 
compliance with the Act and regulations relative to the certification 
of organic producers or handlers. Furthermore, the Act does not provide 
for conditional accreditation. Accordingly, the proposed accreditation 
program for initial accreditation provides for: (1) Review and analysis 
of the applicant's application and evidence of expertise and ability, 
(2) approval of accreditation upon determination that the applicant 
meets the requirements for accreditation, and (3) site evaluation to 
determine compliance with the Act and regulations.
    (21) Application Fees Incurred From Notifications of Noncompliance. 
Commenters questioned whether a new application for accreditation, 
following the correction of deficiencies identified in the notification 
of noncompliance, would require a second application fee. The 
commenters stated that fees paid for the initial application should 
cover timely resubmission of the application after correction of 
deficiencies. In this proposal, we have replaced the flat fee for 
accreditation with an hourly user fee system, which will involve 
billing for actual time used in the accreditation process. Accordingly, 
there will be additional costs to applicants who submit a description 
of the actions taken to correct the deficiencies noted in the 
notification of noncompliance.
    (22) Peer Review Panels. Comments were received expressing various 
opinions regarding the peer review panel provisions of the first 
proposal. First, commenters stated that peer review panels should 
participate in site evaluations. Prior to publishing the first 
proposal, the Department received some public input which also 
suggested the use of peer reviewers in the site evaluation process. As 
noted in the first proposal, we did not provide for such participation 
because we believed that the use of peer reviewers could pose an 
excessive burden on the certifying agents, would increase the costs of 
conducting site evaluations, and could delay site evaluations and 
because AMS staff are well qualified to perform the site evaluations. 
We have made no change to our proposal as a result of this comment.
    Second, commenters stated that peer review panels should 
participate in the initial review of an application for accreditation. 
We believe this would not be an effective use of panel members' talents 
and expertise and would not be cost effective. We have made no change 
to our proposal as a result of this comment.
    Third, an industry association stated that section 6516(a) of the 
Act clearly states that the Secretary shall consider a report, not 
three to five individual reports, in determining whether to approve an 
applicant for accreditation. We do not agree that the Act requires a 
single report, nor do we believe that it is usual to have consensus in 
peer review. We also believe that it is impractical to bring peer 
reviewers together for the purpose of reviewing the information 
provided and drafting a single report. The Administrator could convene 
a peer review panel meeting or

[[Page 13585]]

conference call if necessary. Such meeting or conference call would be 
conducted in a manner that would ensure the actions of panel members 
are carried out on an individual basis with any opinions and 
recommendations by a member being made individually. A peer review 
panel meeting or conference call will be held solely to give and 
receive information. Such meeting or conference call will not be held 
for the purpose of achieving consensus by the peer review panel. The 
written report of each panel member would reflect the particular 
knowledge, expertise, and opinion that its author-member brings to the 
panel. The Administrator will consider all points in the individual 
reports in making a determination as to the continued operation of the 
accredited certifying agent. We have made no change to our proposal as 
a result of this comment.
    Fourth, commenters stated that the peer review panel regulations 
should be revised to specify what situations, other than continuation 
or renewal of accreditation, would trigger a peer review; that a peer 
review panel should be used in determining noncompliance with 
accreditation requirements; and that a peer review panel should be 
convened to review any decision of noncompliance prior to initiation of 
proceedings to suspend or revoke a certifying agent's accreditation. 
The first proposal provided that the Administrator may convene a peer 
review panel at any time for the purpose of evaluating a certifying 
agent's activities under the Act and regulations. This provision would 
provide flexibility for the Administrator to seek recommendations from 
peer reviewers at other times when it may be necessary to evaluate a 
certifying agent's compliance with the Act and regulations. We do not 
believe that it is practical or necessary to require the use of peer 
review panels in determining noncompliance and decisions to suspend or 
revoke an accreditation. We have made no change to our proposal as a 
result of these comments.
    (23) Purpose of Annual Reporting Requirements. At least one 
commenter was confused regarding the purpose for having certifying 
agents submit annual reports to the Administrator. The reports would 
update information and evidence of expertise and ability previously 
submitted by the certifying agent; support any changes being requested 
in the areas of accreditation; describe the measures that were 
implemented in the previous year and any measures to be implemented in 
the coming year to satisfy any terms and conditions determined by the 
Administrator to be necessary, as specified in the most recent 
notification of accreditation or notice of renewal of accreditation; 
and describe the results of the most recent inspector performance 
appraisals and program evaluation and adjustments to the certifying 
agent's operation and procedures implemented and intended to be 
implemented in response to the appraisals and program evaluation. The 
first proposal stated that this information would be reviewed by the 
Administrator to determine whether the certifying agent was maintaining 
its accreditation by satisfying the requirements of the Act and 
regulations and to assess the need for a site evaluation. We believe 
that an annual process of reviewing information submitted by certifying 
agents is necessary so that the Administrator can be informed of any 
changes in the procedures and personnel used by the certifying agents. 
We have made no change to our proposal as a result of this comment.
Accreditation--Additional Provisions
    Upon further review of the accreditation provisions in the first 
proposal, we have decided to propose the following additions and 
changes.
    (1) Access to Records. We have added the requirement that the 
records maintained by the certifying agent under the Act and 
regulations be made available for copying by authorized representatives 
of the Secretary and the applicable State program's governing State 
official. This addition is necessary to ensure that authorized 
representatives are able to obtain copies of records applicable to a 
review or an investigation regarding compliance with the Act and 
regulations. This addition, found at Sec. 205.501(a)(9), is authorized 
under section 6506 of the Act.
    (2) Conflicts of Interest. A conflict of interest regulation in the 
first proposal required that certifying agents prevent conflicts of 
interest by not certifying an operation through the use of any employee 
that has or has held a commercial interest in the operation, including 
the provision of consulting services, within the 12-month period prior 
to the application for certification. This regulation was closely 
related to a second regulation which required certifying agents to 
prevent conflicts of interest by not assigning an inspector to perform 
an inspection of an operation if the inspector has or has held a 
commercial interest in the operation, including the provision of 
consulting services, within the 12 months prior to conducting the 
inspection. For clarification, this proposal combines the regulations 
at Sec. 205.501(a)(11)(ii). This new regulation provides for excluding 
any person, including contractors, with conflicts of interest from 
work, discussions, and decisions in all stages of the certification 
process and the monitoring of certified production and handling 
operations for all entities in which such person has or has held a 
commercial interest, including an immediate family interest or the 
provision of consulting services, within the 12-month period prior to 
the application for certification. This regulation would permit a 
certifying agent to certify the operation of an employee or contractor 
or an employee's or contractor's immediate family member provided the 
employee or contractor was not used in certifying the production or 
handling operation.
    (3) Reporting Requirements for Certifying Agents. The first 
proposal required a certifying agent to submit to the Administrator a 
copy of each notification of noncompliance issued simultaneously with 
its issuance to the certification applicant or the certified operation. 
It also required a certifying agent to submit to the Administrator on a 
quarterly calendar basis the name of each operation certified. In this 
proposal, we have expanded the provision to provide that certifying 
agents must submit to the Administrator: (1) A copy of any notice of 
denial of certification, notification of noncompliance, notification of 
noncompliance correction, notification of proposed suspension or 
revocation, and notification of suspension or revocation issued 
simultaneously with its issuance; and (2) on a quarterly calendar 
basis, the name, address, and telephone number of each operation 
granted certification. This information is needed to facilitate 
oversight and to ensure that we have relatively current data for 
responding to inquiries involving the granting of certifications by 
certifying agents. These changes are included in Sec. 205.501(a)(14).
    We anticipate using the data collected under Sec. 205.501(a)(14) to 
establish and maintain 2 Internet databases. The first Internet 
database would be accessible to the general public and would include 
the names and other appropriate data on certified organic production 
and handling operations. The second Internet database would be password 
protected and only available to accredited certifying agents and USDA. 
This second database would include data on production and handling 
operations issued a notification of noncompliance, noncompliance 
correction, denial of certification, certification, proposed suspension 
or revocation of certification, and

[[Page 13586]]

suspension or revocation of certification. Certifying agents would use 
the second Internet database during their review of an application for 
certification.
    (4) Requirements for Nondiscrimination. We have included at 
Sec. 205.501(d) the provision that no private or State entity 
accredited as a certifying agent under subpart F shall exclude from 
participation in or deny the benefits of the NOP to any person due to 
discrimination because of race, color, national origin, gender, 
religion, age, disability, political beliefs, sexual orientation, or 
marital or family status. This regulation is consistent with USDA 
regulations which prohibit discrimination in its programs and 
activities.
    (5) Submission of Policies and Procedures. The first proposal 
required an applicant for accreditation as a certifying agent to submit 
documents and information to demonstrate the applicant's expertise in 
organic farming or handling techniques, its ability to fully comply 
with and implement the organic certification program, and its ability 
to comply with the requirements for accreditation. Much of the 
documentation and information required involved submission of a 
description of a policy or procedure to be used by the certifying 
agent. In this proposal we have changed the requirement from submission 
of a description of the policy or procedure to submission of a copy of 
the actual policy or procedure. This will facilitate the Department's 
determination of an applicant's eligibility for accreditation by 
providing more complete information. By requiring a copy of each policy 
and procedure, which should already be in the possession of the 
applicant, rather than a description of each, we have lessened the 
burden on applicants for accreditation. This change is found in 
Sec. 205.504 of this proposal.
    (6) Public Access to Certification Certificates. In this proposal, 
we have added the requirement that certifying agents make copies of 
certification certificates issued during the current and 3 preceding 
calendar years available to the public. Such documents may be useful to 
consumers wishing to verify that an operation is certified to produce 
and label agricultural products as organic. Copies of certification 
certificates will be especially valuable in assisting handlers in 
assuring that the products they receive labeled as organic were 
produced and handled by certified organic operations. This requirement 
is found at Sec. 205.504(b)(5)(i).
    (7) Submission of Residue Testing Procedures. We believe that 
applicants for accreditation should provide evidence of expertise and 
ability in meeting the sampling and residue testing requirements of 
these regulations. Therefore, we have added the requirement that 
applicants for accreditation submit a copy of the procedures to be used 
for residue testing. This requirement is found at Sec. 205.504(b)(6). 
Residue testing requirements are found at Sec. 205.670.
    (8) Elimination of Section on Confirmation of Accreditation. We 
have amended the section on approval of accreditation by adding the 
duration of accreditation provision formerly included in the first 
proposal's section on confirmation of accreditation. We have also 
eliminated the section on confirmation of accreditation. We have taken 
this action to eliminate the confusion created by having a section on 
approval of accreditation and a section on confirmation of 
accreditation.
    (9) Denial of Accreditation. We have amended the denial of 
accreditation regulations and eliminated the section on denial of 
confirmation of accreditation. We have taken this action to eliminate 
the confusion created by having a section on denial of accreditation 
and a section on denial of confirmation of accreditation. We have added 
to the denial of accreditation regulations that a notification of 
noncompliance can be issued based on the findings of a site evaluation.
    Under the first proposal's denial of accreditation regulations, the 
Administrator could institute proceedings to deny accreditation to an 
applicant who did not correct the deficiencies noted in a notification 
of noncompliance within the time specified. In this proposal, we have 
amended these regulations to provide that the Administrator will 
provide the applicant with a written notification of accreditation 
denial or begin proceedings to suspend or revoke the certifying agent's 
accreditation if accredited prior to a site evaluation. Such action 
will be taken when the applicant fails to correct the deficiencies, 
report the corrections by the date specified, or file an appeal by the 
date specified in the notification of noncompliance.
    We have also clarified that an applicant who has received written 
notification of accreditation denial or had its accreditation suspended 
may apply for accreditation again at any time. Additionally, we have 
provided that a private certifying agent whose initial accreditation is 
revoked following an initial site evaluation will be ineligible for 
accreditation for a period of not less than 3 years following the date 
of such determination. This period of ineligibility is consistent with 
section 6519(e) of the Act. These changes are included in Sec. 205.507.
    A certifying agent accredited prior to an initial site evaluation 
whose site evaluation reveals that the certifying agent is not properly 
adhering to the provisions of the Act or these regulations will be 
subject to suspension of its accreditation. A private certifying agent 
accredited prior to an initial site evaluation who's site evaluation 
reveals that the certifying agent has violated the provisions of the 
Act and these regulations or that falsely or negligently certifies any 
production or handling operation that does not meet the terms and 
conditions of this national organic certification program as an organic 
operation will be subject to revocation of its accreditation. Section 
205.660(b) of subpart G provides that the Secretary may initiate 
suspension or revocation proceedings against a certified operation upon 
initiation of suspension or revocation proceedings against or upon 
suspension or revocation of the certified operation's certifying 
agent's accreditation.
    (10) Peer Review Panels. We have removed the provision which 
provided that the Administrator may convene a peer review panel at any 
time for the purpose of evaluating an applicant for accreditation or a 
certifying agent's activities under the Act and regulations. This 
change has been made because peer review panels will only be used to 
assist in the evaluation of applicants for accreditation, amendment to 
an accreditation, and renewal of accreditation.

Subpart G--Administrative

The National List of Allowed and Prohibited Substances
Proposal Description
    This subpart contains criteria for determining which substances and 
ingredients are allowed or prohibited in products to be sold, labeled, 
or represented as ``organic'' or ``made with organic (specified 
ingredients).'' It establishes the National List of Allowed and 
Prohibited Substances (National List) and identifies specific 
substances which may or may not be used in organic production and 
handling operations. Sections 6504, 6510, 6517, and 6518 of the Organic 
Foods Production Act (OFPA) of 1990 provide the Secretary with the 
authority to develop the National List. The contents of the National 
List are based upon a Proposed National List, with

[[Page 13587]]

annotations, as recommended to the Secretary by the National Organic 
Standards Board (NOSB). The NOSB is established by the OFPA to advise 
the Secretary on all aspects of the National Organic Program (NOP). The 
OFPA prohibits synthetic substances in the production and handling of 
organically produced agricultural products unless such synthetic 
substances are placed on the National List.
    The first category of the National List includes synthetic 
substances allowed for use in organic crop production. The second 
category includes nonsynthetic substances prohibited for use in organic 
crop production. The third category of the National List includes 
synthetic substances allowed for use in organic livestock production. 
The fourth category includes nonsynthetic substances prohibited for use 
in organic livestock production. The fifth category of the National 
List includes nonagricultural (nonorganic) substances allowed as 
ingredients in or on processed products labeled as ``organic'' or 
``made with organic (specified ingredients).'' The final category of 
the National List includes nonorganically produced agricultural 
products allowed as ingredients in or on processed products labeled as 
``organic'' or ``made with organic (specified ingredients).'' This 
subpart also outlines procedures through which an individual may 
petition the Secretary to evaluate substances for developing proposed 
National List amendments and deletions.
National List (General)
    The NOSB is responsible for making the recommendation of whether a 
substance is suitable for use in organic production and handling. The 
OFPA authorizes the NOSB to develop and forward to the Secretary a 
Proposed National List and any subsequent proposed amendments. In March 
1995, the NOSB initiated a petition process to solicit public 
participation in identifying specific materials to be added to the 
National List. The NOSB convened a Technical Advisory Panel (TAP) to 
review substances identified in the petition process and made extensive 
recommendations on a Proposed National List during its meetings in 1995 
and 1996. In 1999, the NOSB selected materials left from the original 
petition process to authorize a second round of TAP reviews. The NOSB 
used these updated TAP reviews to make additional recommendations on 
the Proposed National List at its October 1999 meeting. With the 
exception of four substances on which the Secretary did not concur with 
the NOSB recommendations and minor formatting changes, the National 
List in this proposal corresponds to the recommendations on allowed and 
prohibited substances made by the NOSB. The National List in this 
proposal has also been developed in consultation with the Food and Drug 
Administration (FDA), the Environmental Protection Agency (EPA), and 
the Food Safety Inspection Service (FSIS) of USDA. Additionally, we 
have made changes in response to public comment received on the first 
proposal.
    Nothing in this subpart alters the authority of other Federal 
agencies to regulate substances appearing on the National List. FDA 
establishes safety regulations on approved and prohibited uses of 
substances in food production and processing. FSIS has the authority to 
determine efficacy and suitability regarding the production and 
processing of meat, poultry, and egg products. FDA and FSIS 
restrictions on use or combinations of food additives or ingredients 
take precedence over the approved and prohibited uses specified in this 
proposal. Any combinations of substances in food processing not already 
addressed in FDA and FSIS regulations must be approved by FDA and FSIS 
prior to use. Use-of-substance requirements are proposed by FDA and 
FSIS in rulemaking actions and are frequently updated with revised use 
requirements. It is important that certified organic producers and 
handlers of both crop and livestock products consult with FDA 
regulations in 21 CFR parts 170 through 199 and FSIS regulations in 
this regard. All feeds, feed ingredients, and additives for feeds used 
in the production of livestock in an organic operation must comply with 
the Federal Food, Drug, and Cosmetic Act (FFD&CA). Animal feed labeling 
requirements are published in 21 CFR part 501, and new animal drug 
requirements and a listing of approved animal drugs are published in 21 
CFR parts 510-558. Food (feed) additive requirements, a list of 
approved food (feed) additives generally recognized as safe substances 
(GRAS), substances affirmed as GRAS, and substances prohibited from use 
in animal food or feed are published in 21 CFR parts 570-571, 21 CFR 
part 573, 21 CFR part 582, 21 CFR part 584, and 21 CFR part 589, 
respectively. Furthermore, the Food and Drug Administration has worked 
closely with the Association of American Feed Control Officials (AAFCO) 
and recognizes the list of additives and feedstuffs published in the 
AAFCO Official Publication, which is updated annually.
National List--Changes Based On Comments
    This subpart differs from our first proposal in several respects as 
follows:
    (1) Genetically Engineered Organisms (GEO's). To solicit public 
comment on the use of genetically engineered organisms in organic 
production and handling, we included two such materials on the National 
List in the first proposal. As discussed in Production and Handling--
Subpart C, we received many thousands of comments opposing the use of 
substances or organisms produced through genetic engineering in organic 
production and handling. Many commenters expressed strong concerns that 
GEO's do not meet current consumer expectations of organic agriculture 
or an organically produced product. They stated that existing national 
and international organic certification standards clearly and 
consistently prohibit GEO's. Accordingly, this proposal prohibits GEO's 
and their derivatives and the products of GEO's and their derivatives 
in any product or ingredient that is sold, labeled, or represented as 
organic. As a result of the prohibition, the National List does not 
contain any materials derived from GEO's.
    (2) Inclusion of Substances not Recommended by the NOSB. The first 
proposal allowed some synthetic substances in organic crop production 
and handling that the NOSB had not included on the proposed National 
List. Citing the statutory requirements of the OFPA, commenters were 
overwhelmingly opposed to adding substances to the National List that 
had not been recommended by the NOSB. Every substance on the National 
List in this proposal was favorably recommended by the NOSB.
    With four exceptions, the National List included in this proposal 
contains every substance that the NOSB recommended to allow in organic 
production and handling. The Secretary has not accepted the NOSB 
recommendations to allow sulfur dioxide in the production of wine 
labeled as ``made with organic grapes.'' Additionally, the Secretary 
has not concurred with the NOSB recommendation to allow the 
antibiotics, Streptomycin and Terramycin, in organic crop production or 
to allow livestock producers to administer synthetic Oxytocin for 
approved organic veterinary practices. The Secretary decided not to add 
sulfur dioxide to the National List because its use produces sulfites, 
which are

[[Page 13588]]

prohibited in the OFPA. Streptomycin and Terramycin were not added to 
the National List for use in crop production in order to be consistent 
with this proposal's prohibition on the use of all antibiotics in 
animal production. The Secretary's decision not to allow livestock 
producers to administer synthetic Oxytocin is based on extensive public 
comment that opposed the use of animal drugs including hormones in 
organic livestock operations. Many certifying agencies have allowed 
producers to administer Oxytocin to animals that experience severe 
complications resulting from labor. While most of the public comment 
strongly opposed the use of synthetic hormones in organic dairy 
production, Oxytocin has some uses that do not involve lactation but 
are instead related to an animal's postpartum survival. Not allowing 
Oxytocin in organic operations is responsive to the public comment 
opposing the use of synthetic hormones but does preclude the use of an 
animal medication that some producers have previously been able to use 
in emergency situations.
    (3) Prohibited Nonsynthetic Substances. The National List in the 
first proposal contained no prohibited nonsynthetic (natural) 
substances. Many commenters requested that the four nonsynthetic 
substances which the NOSB proposed to prohibit be added to the National 
List. We agree with this position, and this proposal lists ash from 
manure burning, mined sodium fluoaluminate, strychnine, and tobacco 
dust as natural substances that are prohibited in organic crop 
production and handling. In addition, we have included arsenic and lead 
salts on the National List of prohibited natural substances in 
accordance with provisions of the OFPA.
    (4) Annotations on National List Substances. The National List in 
the first proposal did not include all of the annotations originally 
developed by the NOSB for the materials it recommended to include on 
the National List. The OFPA stipulates that when basing the National 
List upon the NOSB's recommendations, the Secretary shall include ``an 
itemization, by specific use or application,'' of each synthetic 
substance permitted or natural substance prohibited. This itemization, 
commonly known within the organic industry as an annotation, has been 
used by existing State and private certification agents to regulate the 
use of allowed materials. Annotations can establish allowable sources 
or procedures for obtaining a substance, specify the crops or 
conditions for which it may be applied, establish use restrictions 
based on environmental monitoring, or create other conditions to govern 
the use of a substance.
    Many commenters stated that removing annotations diminished the 
NOSB's role in advising the Secretary on the content of the National 
List. Commenters also stated that annotations are essential for 
ensuring that substances are used in a manner which is consistent and 
compatible with a system of organic production and handling. 
Considering how annotations have been applied in regulating the use of 
allowed substances by State and private certifying agents, we have 
incorporated every feasible NOSB-proposed annotation in this proposal.
    (5) Incidental Additives. The first proposal stated that a 
nonagricultural synthetic substance occurring as an incidental 
additive, including a processing aid, could be used in organic 
production and handling without having to be added to the National 
List. This position was based on FDA and FSIS regulations which require 
that active ingredients, but not incidental additives, appear on a 
product label. Because incidental additives were not active ingredients 
in organically processed food under these regulations, the first 
proposal maintained that they were not prohibited by the OFPA and would 
not need to be added to the National List.
    Thousands of commenters responded with varying opinions on this 
subject. Many commenters approved of the proposed approach, generally 
stating that processing aids are essential and needed for most 
agricultural products. These commenters felt that eliminating their use 
entirely would greatly limit handlers' ability to produce a wide 
variety of organic products. However, other commenters strongly opposed 
allowing the use of any nonagricultural synthetic substance that had 
not been petitioned, reviewed, and recommended by the NOSB; published 
for comment in the Federal Register; and then added by the Secretary to 
the National List. Some commenters protested the use of any synthetic 
incidental additives in organic handling operations. They stated that 
their use is not consistent with the principles of organic agriculture 
and that consumers currently do not believe that such aids and 
additives are used in organically processed products.
    Prior to the first proposal, the NOSB reviewed this issue and 
recommended allowing both synthetic and nonsynthetic incidental 
additives in processed organic products. The NOSB's 1995 recommendation 
stated that nonsynthetic, nonagricultural products used as ingredients, 
processing aids, or incidental food additives should be categorically 
allowed in organically processed products unless specifically 
prohibited and that synthetic, nonagricultural products should not be 
used as ingredients, processing aids, or incidental food additives 
unless specifically included on the National List. The NOSB applied 
these recommendations to processed foods labeled ``organic'' and ``made 
with organic (specified ingredients).'' However, the OFPA does not 
allow the categorical allowance for nonsynthetic, nonagricultural 
products. Section 6510(a)(4) of the OFPA requires that any 
nonorganically produced ingredient added to an organic product must be 
included on the National List.
    The NOSB revisited this issue at its February 1999 meeting when it 
adopted criteria for accepting (adding to the National List) a 
synthetic processing aid or adjuvant. These criteria are an 
interpretation and application of the general evaluation criteria for 
synthetic substances contained in the OFPA that the NOSB will apply to 
processing aids and adjuvants. To review the adopted criteria, the 
public can visit the USDA NOP website: www.ams.usda.gov/nop/nosbfeb99.html or write Program Manager, Room 2945 South Building, U.S. 
Department of Agriculture, AMS, Transportation and Marketing Programs, 
NOP, PO Box 96456, Washington, DC 20090-6456. The NOSB adopted these 
criteria as internal guidelines for evaluating processing aids and 
adjuvants. The adopted criteria do not supercede the criteria contained 
in the OFPA, or replace FDA's authority to regulate food additives.
    We are proposing that to be used in or on a processed product 
labeled as ``organic'' or ``made with organic (specified 
ingredients),'' a nonagricultural substance, whether synthetic or 
nonsynthetic, must be included on the National List. This position 
supports the NOSB recommendation that synthetic substances be allowed 
in organic processed foods but incorporates the National List 
requirement reflected in public comment. We have divided the materials 
on this list (Sec. 205.605) in the current proposal to reflect the 
recommended distinction made by the NOSB between synthetic and 
nonsynthetic substances. This distinction does not affect how the 
substances may be used. We recognize that many commenters, basing their 
argument on the OFPA, objected to allowing any synthetic substances in 
processed organic products. However, we believe that the OFPA does 
allow

[[Page 13589]]

synthetic substances, when added to the National List, to be used in 
this manner. The criteria utilized by the NOSB for evaluating 
processing aids and adjuvants are very restrictive and, if applied to 
all incidental additives, should minimize the number of substances 
added to the National List.
    (6) Inert Ingredients in Formulated Products. The first proposal 
addressed the presence of synthetic inert ingredients in formulated 
products used as production inputs in organic crop or livestock 
operations. Formulated products are multiingredient compounds including 
pesticides, fertilizers, and animal drugs and feeds. In accordance with 
the OFPA, we proposed that a formulated product containing an inert 
ingredient could be used, provided that the substance did not appear on 
EPA's List 1 as an Inert of Toxicological Concern. We also prohibited 
the use of synthetic inerts not on EPA List 1 if the substance was also 
used as an active ingredient that had not been added to the National 
List. To review or to receive the most current listing of the EPA 
Inerts, the public can visit EPA's Internet home page at http://www.epa.gov/opprd001/inerts/lists.html, or write to Registration 
Support Branch (Inerts), Registration Division (Mail Code 7505C), 
Office of Pesticide Programs, Environmental Protection Agency, 401 M 
St., SW., Washington, DC 20460.
    The first proposal interpreted the statutory prohibition on EPA 
List 1 inerts as allowing the use of synthetic inert ingredients that 
were not specifically prohibited. This allowed the use of products 
containing synthetic inert substances (provided that they were not also 
used as active substances) included on the other EPA inert lists: List 
2, Potentially Toxic Inerts; List 3, Inerts of Unknown Toxicity; and 
List 4, Inerts of Minimal Concern. We also applied the term, ``inert,'' 
to all nonactive ingredients contained in any formulated product used 
in organic production. This meant that the nonactive ingredients in 
animal feeds (fillers or additives), animal drugs (excipients), and 
fertilizers (carriers or adjuvants) would only be prohibited if they 
were classified by the EPA as List 1 inerts.
    We received many comments stating that our restrictions on inert 
ingredients were too permissive and would result in many traditionally 
prohibited materials being used in organic production. Commenters 
stated that the statutory prohibition on EPA List 1 inerts did not 
imply that all other inerts should be allowed and argued that the NOSB 
had the authority to prohibit additional substances. Citing the 
uncertainty associated with EPA List 2 (potentially toxic) and EPA List 
3 (unknown toxicity) inert ingredients, they questioned how such 
substances could satisfy the criteria in OFPA for adding synthetic 
substances to the National List. Commenters also opposed expanding the 
definition of inert to include nonactive ingredients in all formulated 
products. They stated that the EPA classifies only those inerts used in 
pesticides, and that many of the substances routinely used in other 
types of formulated products were not subject to review. Therefore, 
substances not used in pesticides would not appear on any EPA list and 
would be allowed. Finally, commenters cited the disparity between the 
allowance for synthetic inert ingredients in the first proposal and the 
more restrictive substance review procedures used by existing organic 
certifying agents.
    The NOSB responded to the provisions for inert ingredients 
contained in the first proposal. At its meeting in March 1998, the NOSB 
stated that synthetic compounds should not be allowed in production 
inputs unless they appear on the National List. In February 1999, the 
NOSB voted to prohibit EPA List 1 and 2 inerts, prohibit EPA List 3 
inerts unless specifically allowed by the NOSB, and allow EPA List 4 
inerts unless specifically prohibited. The NOSB also recommended full 
disclosure of all ingredients in formulated products, called for an 
expedited review of EPA List 3 inerts currently in common use in 
organic production, and endorsed an 18-month phase-out period for EPA 
List 3 inerts not ultimately allowed.
    In this proposal, only EPA List 4 inerts are allowed as ingredients 
in formulated products used in organic production. This would not 
include varieties of EPA List 4 substances such as corn starch, 
lecithin, or citric acid that are the product of excluded methods. 
Additionally, the term inert is restricted to nonactive ingredients in 
pesticides. Synthetic nonactive ingredients in formulated products used 
as production inputs, including fertilizers, animal drugs, and feeds, 
must be included the National List. While the OFPA prohibits using a 
fertilizer containing synthetic ingredients or a commercially blended 
fertilizer containing prohibited materials, the requirement does not 
apply to synthetic substances included on the National List. The NOSB 
recommended and the Secretary concurs that certain synthetic substances 
used in fertilizer-formulated products should be included on the 
National List. We have retained the provision from the first proposal 
prohibiting the use of any formulated product containing a EPA List 1 
Inert. Using the criteria established in the OFPA for evaluating 
synthetic substances, the NOSB may review inert ingredients on EPA List 
2 or 3 as well as other synthetic, nonactive substances used in 
formulated products for inclusion on the Proposed National List it 
forwards to the Secretary.
    We recognize that inert ingredients in pesticides and similar 
substances in other formulated products pose one of the most 
problematic examples of the use of synthetic materials in organic 
production. For example, verifying the use of inerts and similar 
substances such as fillers, carriers, additives, and excipients has 
been difficult because they are not required to appear on ingredient 
labels, and formulators typically treat product formulas as 
confidential information. At times, certifying agents have been unable 
to determine the exact composition of formulated products proposed for 
use in organic production. In other instances, organic producers have 
applied formulated products containing inert ingredients and similar 
substances that are not specifically allowed. We are challenged with 
balancing standard practice with the strict statutory requirement that 
producers and handlers apply only those synthetic substances added to 
the National List. As sanctioned by OFPA, synthetic substances can be 
used in organic production as long as they appear on the National List. 
The development and maintenance of the National List has been and will 
be designed to allow the use of a minimal number of synthetic 
substances that are acceptable to the organic industry and meet the 
OFPA criteria.
    Two principles will be essential for responding to this challenge: 
greater disclosure of the contents of formulated products and an 
expedited review of inert ingredients and other nonactive substances. 
The OFPA recognized the need for disclosure by requiring the NOSB to 
work with formulators to obtain a complete list of ingredients in their 
products. The NOSB has initiated this work, and its effort is ongoing 
as of the date of this publication. It is our understanding from the 
comments, hearings, and information considered by the NOSB that the 
organic industry has made considerable progress on disclosure of inert 
ingredients since the passage of OFPA. Formulators have responded to 
the incentive to provide products using EPA List 4 inert ingredients, 
and certifying agents have

[[Page 13590]]

gained greater access to information on product composition. EPA has 
expressed its willingness to expedite the review of its List 2 and 3 
inerts, which the NOSB identifies as particularly important in 
formulated products widely used in organic operations. The organic 
industry should clearly understand that NOSB evaluation of the wide 
variety of inert ingredients and other nonactive substances will 
require considerable coordination between the NOP, the NOSB, and 
industry. Materials review can be anticipated as the NOSB's primary 
activity during NOP implementation. Considering the critical nature of 
this task, the organic industry should make a collaborative effort to 
prioritize for NOSB review those substances which are essential to 
organic production and handling.
    We recognize that more work is needed for this policy to satisfy 
the needs of organic producers and handlers, product formulators, and 
consumers. We are requesting comment on the proposed requirements for 
inert ingredients in formulated products. We are sensitive that an 
abrupt prohibition on synthetic substances which may have knowingly or 
unknowingly been used in the past but which are not added to the 
National List may disrupt many well-established and accepted production 
systems. However, our assessment is that the benefits of a clear policy 
consistent with the OFPA, NOSB recommendations, and public comment 
outweigh the costs. The net effect will be greater consumer confidence 
in USDA's organic label and more products that are tailored to the 
needs of organic producers.
    (7) Use of Veterinary Medicines. The OFPA prohibits certain routine 
uses of veterinary medications (specifically subtherapeutic doses of 
antibiotics) but allows their administration in the presence of 
illness. The first proposal added antibiotics to the National List 
because their use had been evaluated and approved by applicable 
regulatory agencies, pursuant to FDA requirements, and because they had 
to be included on the National List to be used in organic livestock 
production.
    We received many comments opposing the use of antibiotics in 
organic livestock production. Commenters expressed general concern over 
microbial resistance to antibiotics and expressed a desire to source 
food products without antibiotics. This proposal removes antibiotics 
from the National List of approved synthetic substances for livestock 
use.
    (8) Removal of Substances from the National List. The first 
proposal outlined a petition process for amending the National List and 
included an extensive list of information to be provided for reviewing 
a substance. Some commenters recommended that this section be amended 
to include procedures for deleting substances from the National List. 
The OFPA and the first proposal indicated that the NOSB would review 
substances added to the National List at least on a 5-year basis and 
recommend to the Secretary any substances that should be removed. We 
concur with commenters that removal of a substance should not have to 
wait for such a review cycle. Thus, a petition to remove a substance 
from the National List may be filed at any time. The information 
contained in the petition for removal of a substance will be provided 
by AMS upon request. The NOSB will evaluate substance removal petitions 
and forward a recommendation to the Secretary. Commenters suggested 
that any changes to the National List be published in the Federal 
Register for public comment. All proposed changes to the National List 
will be published in the Federal Register.
    (9) Use of Sulfur Dioxide. The first proposal allowed the use of 
sulfur dioxide in crop production and as an ingredient in or on organic 
processed products. The NOSB had recommended that sulfur dioxide be 
permitted in the processing of organic wine and for smoke bombs used 
underground to control rodents. Numerous commenters opposed the use of 
sulfur dioxide in organic wine because its use produces sulfites, which 
are prohibited in the OFPA, as a by-product. We concur with the 
commenters and further believe that the trend in the organic industry, 
as evidenced by the California Department of Food and Agriculture's 
Preliminary Organic Materials List of September 1998, is to prohibit 
all uses of sulfur dioxide except in underground rodent control. 
Therefore, we are proposing to allow sulfur dioxide for underground 
control of rodents and to prohibit its use as an ingredient in or 
processed food including the production of organic wine.
National List--Additional Provisions
    Upon further review of the provisions in the first proposal, we 
have decided to propose the following additions and changes.
    (1) New Additions to the National List. During the October 1999 
meeting, the NOSB reviewed substances and made new recommendations to 
the Proposed National List. The Secretary concurs with the 
recommendations from that meeting and this proposal adds those 
substances with the applicable annotations to the National List. These 
substances are: Potassium Bicarbonate (205.601(d)), Glycerin 
(2005.603(a)), Phosphoric Acid (205.603(a) and 205.605(b)), Ivermectin 
(205.603(a)), Chlorhexidine (205.603(a)), and Ethylene (205.605(b)). 
This proposal establishes conditions that allow producers to administer 
the parasiticide Ivermectin to breeder stock and dairy stock in organic 
livestock operations. Treating organically managed slaughter stock with 
Ivermectin is prohibited. These provisions are based on the 
recommendations developed by the NOSB at its October 1999 meeting. The 
NOSB's recommendations from that meeting were derivative of many years 
of work addressing how to establish and enforce the conditions allowing 
use of synthetic parasiticides. The OFPA identifies livestock 
parasiticides as a category of substances which may be included on the 
National List and also prohibits the use of synthetic internal 
parasiticides on a routine basis. The determination of what constitutes 
a routine basis for parasiticide use has been challenging given the 
diversity of animals, production systems, and environmental factors 
which are covered by a national organic standard.
    In this proposal, the conditions under which Ivermectin may be used 
apply to the health care history of the animal prior to treatment and 
the certification of products derived from the animal after treatment. 
The pretreatment conditions are designed to ensure that the producer is 
using a comprehensive management system to prevent the introduction and 
transmission of parasites among the animals in his or her care. 
Producers must document in their organic system plan preventative 
practices such as quarantine and fecal exams for all incoming stock, 
appropriate pasture rotation and management, culling of infested 
livestock, and vector and intermediate host control. A producer may 
administer an allowed synthetic parasiticide only after all applicable 
management practices and nonsynthetic treatments have been employed. A 
producer must receive the approval of their certifying agent before 
using a synthetic parasiticide. In collaboration with the NOSB, we will 
be developing program manuals detailing preventive management practices 
for specific livestock species to assist producers and certifying 
agents in determining when the use of synthetic parasiticides is 
allowable.
    This proposal also contains provisions addressing the posttreatment 
condition of livestock which are administered Ivermectin. These 
conditions are included as an

[[Page 13591]]

annotation to Ivermectin on the National List and are consistent with 
the requirements contained in Sec. 205.238(b)(1)(2) of the regulatory 
text for administering any allowed synthetic parasiticide. In 
compliance with the recommendations of the NOSB, we are proposing that 
a producer may not administer Ivermectin to breeder stock during the 
last third of gestation if the progeny is to be sold, labeled, or 
represented as organically produced. Additionally, a producer must 
observe a 90-day withdrawal period before selling milk or milk products 
produced from an animal treated with Ivermectin as organically 
produced. The Food and Drug Administration exercises responsibility for 
determining and enforcing the withdrawal intervals for animal drugs. No 
food safety arguments are used or implied to support the use of 
extended withdrawal periods. Rather, we determined that extended 
withdrawal periods are more compatible with consumer expectations of 
organically raised animals.
    Ivermectin is the first synthetic parasiticide that the Secretary 
has proposed adding to the National List, and allowing its use could 
significantly affect organic management practices. The FDA has approved 
18 animal drugs containing Ivermectin that are labeled for use on one 
or more animals including beef and dairy cattle, sheep, swine, and 
several minor species. A total of 11 of these drugs are not covered by 
this proposed rule: three have additional synthetic active ingredients 
not on the National List and eight others are labeled for nonfood uses. 
(They are used on horses not for food use, dogs, and cats.) While there 
are no approved uses of Ivermectin on lactating dairy animals, the 
remaining seven food-use products could be administered to breeder 
stock and dairy stock either prior to lactation or during a dry period.
    Future NOSB meetings will consider new proposals of substances to 
be added to the National List.
    (2) Petition Process to Amend the National List. We are modifying 
the contents of the petition for amending the National List that was 
contained in the first proposal. We are proposing that any person 
requesting a change in the National List should request a copy of the 
petition procedures from the NOP Program Manager. The procedures will 
include a list of information that has to be provided for consideration 
of a change in the National List. Under the provisions in the first 
proposal, the NOP would be required to go through rulemaking every time 
it sought to update contents of the petition. Under this proposal, the 
NOP will amend the requirements of the petition process and publish the 
changes in the Federal Register. This revised process will help to 
expedite amending the National List and keep the National List more 
current. We anticipate that amendments to the National List will be 
made on an annual basis, depending upon the number of substance 
petitions filed. Substances petitioned for inclusion onto the National 
List will be reviewed by the NOSB, which will forward a recommendation 
to the Secretary. All amendments to the National List will be published 
for comment in the Federal Register.
State Organic Certification Programs
    The Act provides that each State may implement a certification 
program for producers and handlers of agricultural products that have 
been produced and handled within the State, using organic methods that 
meet the requirements of this regulation. Each State organic 
certification program must be approved by the Secretary. A State 
organic certification program's organic standards and requirements 
cannot exceed these National Organic Program (NOP) regulations unless 
the State petitions for, and the Secretary approves, more restrictive 
requirements. The sections covering State programs, beginning with 
Sec. 205.620, establish: (1) The requirements for a State organic 
certification program and amending such a program; and (2) the process 
for initial approvals of programs and program amendments. A process for 
review and approval of a State's organic certification program every 5 
years will be addressed in subsequent rulemaking.
Proposal Description
    There are a wide variety of organic certification programs now 
operating in different States. Approximately 31 States currently have, 
or are developing, their own State organic certification programs. At 
least 13 of those use State government agencies or contracted private 
certifying agents to certify organic operations in the State. Thus, at 
least 19 States do not have State organic programs and approximately 37 
States do not have State Government or State-designated private 
certifying agents. Under this proposal, States may utilize these NOP 
standards and requirements and not have State oversight or 
responsibility for administration of the NOP in the State. On the other 
hand, a State may petition the Secretary for approval to add its unique 
State requirements to the NOP and agree to administer the national 
program in the State.
    Requirements of a State Organic Certification Program. Under the 
Act and the NOP, a State, through the State program's governing State 
official, must submit to the Secretary a copy of the proposed State 
organic certification program. The governing State official must submit 
an affidavit or memorandum of understanding agreeing to meet the 11 
general requirements of an organic program, as specified in section 
6506(a) of the Act. Specifically, the governing State official must 
agree to: (1) Require that product sold or represented as organic must 
be produced and handled only by certified organic operations; (2) 
require that participating organic producers and handlers establish 
organic plans for their operations; (3) allow certified producers and 
handlers to appeal adverse decisions under appeal provisions of these 
regulations; (4) require that certified operations certify annually 
that they have complied with the NOP; (5) provide for annual on-site 
inspections of certified operations by certifying agents; (6) require 
periodic residue testing by certifying agents; (7) provide for 
appropriate and adequate enforcement procedures which are consistent 
with the NOP; (8) protect against conflict of interests as specified in 
these regulations; (9) provide for public access to certification 
documents; (10) provide for collection of reasonable fees; and (11) 
require other terms and conditions as may be established by the 
Secretary. The NOP will assume these responsibilities in States that do 
not have an approved State organic certification program.
    Supporting materials must be submitted addressing these general 
requirements, including such documentation as: authorizing State 
statutes, program goals and objectives, a description of the State's 
organic program office, codified compliance and appeals processes, and 
other information as may be requested by the Secretary. Written 
material must assess the State organic certification program's ability 
and willingness to administer the 11 general requirements for organic 
programs. Administration of these general requirements may require 
development of a unique working relationship between the State organic 
program and the NOP.
    With the approval of its State organic certification program, the 
State must assume responsibility for administration of these 11 general 
requirements and any approved, more restrictive requirements in the 
State. For instance, a State's responsibilities will include oversight 
of certified organic production and handling operations to ensure that

[[Page 13592]]

products sold or represented as organic are produced and handled 
pursuant to these regulations. A State's organic certification program 
must include noncompliance and appeals procedures similar in force and 
effect to those outlined in the Compliance and Appeals provisions of 
this subpart. We expect that every State has in place official 
compliance procedures and formal appeal procedures which are used to 
enforce the State's regulatory programs. Those procedures should 
provide opportunity, as do the procedures in this subpart, for entities 
that may not be in compliance with State regulations, to come into 
compliance with those regulations. Such procedures should be clearly 
addressed in the State's organic certification application.
    A proposed State organic certification program and any proposed 
amendment to such a program must be approved by the Secretary prior to 
being implemented by the State. A State may have other organic State 
sponsored projects, such as research and promotion programs, tax 
incentives, or transition assistance for organic producers within the 
State. Such programs would not be subject to the Secretary's approval, 
provided they do not conflict with the purposes of the Act.
    Under certain circumstances, a State organic program may have more 
restrictive requirements in the State than corresponding NOP 
requirements for production and handling of organic product and 
certification of organic production and handling operations. These more 
restrictive requirements must be based on unique environmental 
conditions or specific production or handling practices particular to 
the State or portion of the State. Any environmental condition cited in 
the proposed amendment must be of a nature that implementation of these 
NOP regulations will be insufficient to correct the condition. The 
environmental condition must necessitate use of more restrictive 
practices or requirements rather than the corresponding practices and 
requirements provided in these regulations. Any such condition that is 
limited to a specific geographic area of the State will be required of 
organic production and handling operations active only in that 
geographic area. If approved by the Secretary, the more restrictive 
requirements will become the NOP regulations for appropriate organic 
producers and handlers in the State or area of the State.
    We do not expect that a State's request for more restrictive 
requirements will cover a wide range of organic production and handling 
standards. Rather, the increased requirements are likely to be limited 
to a specific production or handling practice or a more restricted use 
of approved National List substances to address needs or critical 
conditions in a specified geographic area(s). For instance, to protect 
an endangered lake or estuary, a State may have more restrictive buffer 
zone requirements than are provided in this regulation. Such a State 
may request that its more restrictive buffer zone requirements be 
established as the minimum buffer zone requirements of this regulation.
    A State's more restrictive standards will not be applied to 
production and handling activities outside the State or a specified 
geographic area in the State. Further, the more restrictive standards 
do not apply to marketing of organic product and, thus, will not be 
used to restrict access of organic product produced in other States.
    Section 205.621 provides that a State program's governing State 
official will submit to the Secretary a copy of a proposed State 
organic program or request for approval of any substantive amendment to 
a State's approved program.
    State Program Approval Process. We envision the request and 
approval process will occur during the period between publication of 
the final rule and the projected effective date of the this national 
program (which will be announced in the final rule). Because 
requirements of a State organic program cannot exceed the requirements 
of this program unless warranted by unique conditions in the State, 
some State organic programs currently in effect may elect to 
discontinue their programs when the NOP becomes effective. Those 
programs simply will not request approval of their programs and their 
State organic requirements, in effect under the State program, will be 
superseded on the effective date of the NOP. State organic 
certification programs which seek approval of their programs will 
submit the required material and continue operations until the 
effective date of the NOP. We envision that all approved State organic 
certification programs will become effective under the NOP on the day 
the program becomes effective. A State wishing to establish a new State 
organic certification program under the NOP may submit the State 
program request and supporting material at any time. New programs 
submitted after this program becomes effective will be subject to the 
same review and approval process.
    The submitted copy of the State organic certification program must 
be in its final form and ready for implementation. It cannot be altered 
by the State during the review process unless the change is cleared 
with the Secretary.
    Amendments to State Programs. For amendment of a State organic 
program, the State program's governing State official must submit a 
copy of the proposed amendments and justification for them. The 
supporting material must document the unique environmental or 
ecological conditions or production practices in the State that 
necessitate use of more restrictive organic requirements. The 
supporting material must also explain how the more restrictive 
requirements will address the environmental condition. Likewise, the 
supporting material must explain how the increased requirements are 
better suited to agricultural conditions in the State.
    Because State organic certification program requirements cannot be 
less restrictive than NOP requirements, any amendment to lower such 
requirements could only entail a relaxation of a more restrictive 
requirement previously approved by the Secretary. Thus, an amendment to 
relax a State program's requirement also must be reviewed by the 
Secretary. A decrease in a State organic certification program's more 
restrictive requirements must be justified, based on documented changes 
in the unique conditions or practices which warranted the increase in 
requirements.
    Written materials supporting an amendment must assess how the more 
restrictive requirements further the purposes of and are consistent 
with the Act and these regulations. The written material should 
acknowledge that the more restrictive State requirements will not be 
used to limit or restrict access of organic products produced in other 
States or foreign countries to markets in the State. Also, supporting 
materials must explain how the amended requirements would affect the 
State program's governing State official's ability to administer the 11 
general requirements. A request to relax a requirement also must 
address these issues.
    The Secretary will review each State's application based on how 
closely it complies with the purposes and intent of the Act and the 
provisions of the NOP and how well its administrative capabilities and 
processes match up with the needs of the State's program.
    The Act provides that the Secretary's review and determination of a 
new State organic certification program or a

[[Page 13593]]

program amendment will take no more than 6 months. AMS will notify the 
public upon approval of each State program. The public information will 
be made available to national agricultural news media and to all news 
media in the State. AMS will identify, among other things, any more 
restrictive certification requirements that are included in the 
approved State program.
    A denial of a new program or program amendment will include a 
written explanation of why the proposal is denied and what changes will 
be needed for the program to be approved. The State may implement 
needed changes and submit a new program or program amendment.
    Section 205.622 establishes that State organic certification 
programs will be reviewed at least once every 5 years by the Secretary 
and that a determination will be made within 6 months of the 
anniversary date as to continuation of the State organic certification 
program. We will issue appropriate procedures regarding this 
requirement at a later date, after AMS and the States have had an 
opportunity to administer the NOP and State programs.
State Programs--Changes Based On Comments
    There are no changes based on comments.
State Programs--Changes Requested But Not Made
    (1) Allowing more restrictive State standards. About a third of 
those commenting on State organic certification program provisions 
complained that the first proposal gave USDA complete control over 
State organic standards. A few suggested that a State with higher 
organic requirements should be able to prohibit the in-State sale of 
products certified only to the NOP or other State organic program 
requirements. Another commented that the NOP should ``defer'' to other 
State organic certification programs with higher standards.
    While paragraph (b)(1) of section 6507 of the Act provides that 
States may establish more restrictive organic certification 
requirements, paragraph (b)(2) establishes parameters for those 
requirements. More restrictive State organic program requirements must: 
Further the purposes of the Act; be consistent with the Act; not 
discriminate against other States' agricultural commodities; and be 
approved by the Secretary before becoming effective. As noted above, we 
expect that a State's more restrictive requirements are likely to cover 
specific production or handling practices such as more restricted use 
of approved National List substances or farming practices to address a 
State or area's particular environmental conditions.
    The Secretary must employ some consistent and common criteria for 
approving States requests for more restrictive State organic programs. 
The criteria for establishing such requirements must be consistent with 
the purposes of the Act. We believe the need to preserve, protect, and 
enhance unique environmental or farming conditions is a common 
criterion for all States. We believe such criteria are consistent with 
the stated goals of most, if not all, State organic programs and 
organic trade and farming organizations.
    The more restrictive standards will not be applied to production 
and handling activities outside the geographic area of the State. 
Further, the more restrictive standards do not apply to marketing of 
organic product and, thus, will not be used to restrict access of 
organic product produced in other States. Clearly, prohibiting the sale 
of other States' products is prohibited by the Act as well as other 
national laws covering interstate commerce in the United States. If 
some States were to restrict access to State markets, the purposes and 
the benefits of the national program would be lost.
    Discriminatory marketing practices are prohibited under section 
6507(b)(2)(c) of the Act. Thus, the purpose of more restrictive State 
organic requirements cannot be, as the commenters suggest, to allow 
claims of more organic or purer product. States will not be able to 
promote their products as being more organic because their products 
were produced under more restrictive State requirements. More 
restrictive State organic requirements will be authorized only as 
needed to respond to special environmental or production conditions in 
the State which necessitate more restrictive requirements. Any State's 
request for less restrictive or lower organic standards than are 
required under this program will not be approved by the Secretary.
    (2) Treatment of private and State certifying agents. Some private 
certifying agents commented that the first proposal would permit 
accredited State certifying agents to establish more restrictive 
standards than these regulations but prohibit private certifying agents 
from establishing their own more restrictive requirements. Under this 
program, State certifying agents will not unilaterally establish 
organic standards or requirements in a State. A State program's 
governing State official may, upon approval of the Secretary, establish 
a State organic certification program as an entity of the State's 
department of agriculture or other similar State government agency. The 
Act provides this authority to the State government and does not 
provide similar authority to private certifying agents. Private 
certifying agents are not government entities and have no official 
regulatory or administrative authorities over agricultural activities 
in the State. State certifying agents as well as private certifying 
agents will act as service providers, certifying to national and, where 
applicable, to particular State organic requirements.
    Again, commenters appear to miss an essential point of this 
national program. The only mandatory organic standards and requirements 
are those of the NOP and the unique requirements approved for a State 
organic certification program by the Secretary. A private certifying 
agent may believe its more restrictive requirements result in a more 
organic or purer product and may want to certify producers and handlers 
only to those requirements. However, neither State certifying agents 
nor private certifying agents will be able to require that client 
operations or organic product be certified to more restrictive 
standards than the standards of this program or approved State 
standards. The only other more restrictive requirements that may be 
certified to may be requirements made at the request of handlers or 
manufacturers who are purchasing the organic product or ingredient. For 
example, a producer could request a certifying agent to certify certain 
production practices required for export to a foreign manufacturer. 
Such certification can be made only at the request of the producer or 
handler being certified. Both State and private certifying agents may 
certify to the requested more restrictive contract requirements, 
provided those more restrictive requirements are consistent with these 
regulations and provided the certifying agents have the necessary 
technical qualifications to carry out the certification.
    Similarly, one commenter stated that the NOP should not prevent a 
private certifying agent from having and advertising its own higher 
organic standards. While a private certifying agent may have the 
capability to certify to certain higher organic requirements, a handler 
certified by the certifying agent may not claim on product labels or in 
market information that its products are more organic, purer, or better 
than product certified by other certifying agents or State organic 
programs.

[[Page 13594]]

    In this regard, certifying agents, whether they are State or 
private certifying agents, may not use different seals, logos, or other 
identifying marks to distinguish between organic operations certified 
to NOP requirements and a State's approved more restrictive 
requirements, the certifying agent's preferred requirements, or the 
client's requested higher requirements. We believe that if certifying 
agents were allowed to use more than one seal or identifying mark, 
based on various standards certified to, the marketplace would be 
inundated with a variety of different certifying agent seals, logos, 
and identifying marks. This would add to consumer confusion, complicate 
the marketplace, and jeopardize benefits of this program.
    (3) Private certifying agent concerns. Several commenters expressed 
concern that private certifying agents are at a disadvantage vis-a-vis 
State certifying agents. They stated that a State organic program or a 
State certifying agent could initiate policies that would limit the 
activities or effectiveness of private certifying agents. However, this 
proposed program does not alter the current situation in that State and 
private certifying agents operate in the same States. If a requested 
State organic certification program proposes a requirement or procedure 
that will have a negative affect or discriminate against private 
certifying agents operating in the State, the Secretary will not 
approve the requirement or procedure.
    Some commenters asked whether these national regulations will 
affect a State's accreditation of private certifying agents operating 
in the State. A few believe that States should be allowed to continue 
or establish separate accreditation programs for private certifying 
agents.
    We believe accreditation of certifying agents is a core 
responsibility for USDA. Establishment of a single national 
accreditation program is an essential part of the NOP. States will not 
accredit private certifying agents. As stated elsewhere in this 
proposal, any accreditation responsibilities of a State's current 
organic certification program will cease with implementation of this 
program. Pursuant to the Compliance provisions of this subpart, the 
governing State official or designee charged with compliance oversight 
under the State program may investigate and notify the NOP of possible 
compliance violations on the part of certifying agents operating in the 
State. However, the State may not pursue compliance actions or remove 
accreditation of any certifying agent accredited by the Secretary. That 
authority is the sole responsibility of the Secretary.
    If more restrictive State requirements are approved by the 
Secretary, we will review certifying agent qualifications in the State 
and determine whether they are able to certify to the approved, more 
restrictive requirements. Our accreditation responsibilities must 
include oversight of both State and private certifying agents, 
including any foreign certifying agents that may operate in a State, 
and to monitoring their compliance with accreditation requirements.
    (4) Public comment on State applications. One commenter suggested 
that USDA publish for comment in the Federal Register, a summary of 
each State's proposed organic program and any requested program 
amendments. The commenter claimed that an approved State organic 
certification program will effectively substitute the State's program 
for the NOP in the State. Thus, the commenter contends, those proposed 
State programs and program amendments should be made available for 
public comment. After consideration of the implications of the comment, 
we do not believe that the Federal Register notification process is the 
proper venue for receiving comments on a proposed State program which 
is applicable only to residents and business entities in the State. We 
assume that the governing State official is submitting the request on 
behalf of the organic producers and handlers in the State. Further, the 
appropriateness of the State's requested more restrictive requirements 
should stand on the merits of each proposal and not on whether 
commenters in other States believe the proposed requirements are 
warranted. Certified organic producers and handlers outside the State 
will not be subject to the more restrictive standards or requirements 
of the State program. The more restrictive standards will not be used 
to restrict market access of organic product produced in other States 
or countries. Thus, there is no reason to receive public comment on 
requested State requirements from individuals not directly affected by 
the proposed requirements.
    The commenter suggested that AMS also publish a summary of each 
proposed program and any amendments to a program in a newspaper of 
general circulation in the State. AMS will issue a public information 
notices which will announce each approved State organic certification 
program and any approved amendments of a State program. The notices 
will identify the unique characteristics of the approved State program 
that warranted the more restrictive organic production or handling 
requirements. We also will include a summary of the new program on the 
NOP homepage.
    (5) State program consistencies. Several commenters asked for 
clarification of the first proposal's terms, ``consistent'' and 
``substantive amendments,'' used in regard to State programs operating 
under the NOP. Being ``consistent'' with the NOP means that a State 
program's written standards or requirements must be at least equal to 
the standards and requirements of the NOP. This is provided for in the 
Act. Further, in allowing State organic programs to have more 
restrictive or higher standards, the Act requires that those more 
restrictive standards and requirements be consistent with the purposes 
of the Act. To be ``consistent'' with the purposes of the Act means 
that the requested, more restrictive standards or requirements are of 
such a nature that they do not undermine the application of uniform 
national organic standards. Thus, if a request for more restrictive 
State organic standards is determined to not be consistent with uniform 
national organic standards, the State program will not be approved by 
the Secretary. The administrative procedures used by the State in 
administering the 11 general requirements of the State's organic 
program should have the same force and effect of the procedures use by 
AMS in administering this program.
    The same commenters asked for clarification of the term, 
``substantive amendments,'' in obtaining USDA approval of more strict 
amendments for one State's organic certification program. ``Substantive 
amendments'' means changes that would increase the quantitative or 
qualitative standards or specific requirements for an operation's or a 
product's certification under the State organic program. Once this 
national program is operating, if a question arises as to whether a 
desired change in a State organic certification program is considered 
substantive or not, the State program's governing State official should 
raise the issue with the Secretary.
State Programs--Additional Provisions
    (1) State program responsibilities. This subpart establishes that a 
State organic certification program which petitions for approval by the 
Secretary will have increased responsibilities under the NOP. Our first 
proposal did not suggest qualifying factors or other information that 
had to be submitted by the State program's governing State official. 
This proposal specifies the 11 general requirements, addressed above, 
and the needs-based environmental

[[Page 13595]]

conditions or special production practices for establishing more 
restrictive requirements. Those factors establish our revised position 
that a State must agree to incurring increased responsibilities and 
obligations to be approved as a State organic certification program 
under the NOP. For instance, as discussed above, a State with an 
approved organic certification program will oversee compliance and 
appeals procedures for certified organic operations in the State. Those 
procedures must provide due process opportunities such as rebuttal, 
mediation, and correction procedures in this proposal. Once approved by 
the Secretary, the State governing official or designee must 
effectively administer the State's organic certification program in a 
manner that is consistent and equitable for the certified parties 
involved in compliance actions.
    A State's organic certification program may include other programs 
and projects which the State government may conduct to promote or 
increase organic production and handling in the State. Such programs 
may include organic promotion and research projects, transition 
assistance, a directory of organic production and handling operations 
in the State, a consumer referral program, or certifications given to 
retail operations which market organic foods. This proposal will not 
prohibit such State activities, provided those activities do not 
establish production or handling standards that work against the 
purposes of the NOP. Such programs may not advertise, promote, or 
otherwise infer that the State's organic products are more organic or 
better than organic product produced in other States. Such programs and 
projects should be beyond the scope of this national program and, if 
so, will not be subject to the Secretary's review.
    (2) Renewal of State program. The final section provides that 
reviews of State organic certification programs will be conducted at 
least once every 5 years, as required in paragraph (c) of section 6507. 
The intent of the provision is not changed in this proposal. We will 
provide further information regarding reviews of State programs before 
the first 5-year period is completed. We expect that, with experiences 
gained from a few years of program operation, we will be able to 
propose more appropriate procedures, guidelines, and requirements to 
assure proper reviews of operating State organic programs.
    Fees. This portion of subpart G sets forth the regulations on fees 
and other charges to be assessed for accreditation and certification 
services under the National Organic Program (NOP). These regulations 
address the kinds of fees and charges to be assessed by the Department 
for the accreditation of certifying agents, the level of such fees and 
charges, and the payment of such fees and charges. These regulations 
also address general requirements to be met by certifying agents in 
assessing fees and other charges for the certification of producers and 
handlers as certified organic operations. Finally, these regulations 
address the Secretary's oversight of a certifying agent's fees and 
charges for certification services.
Proposal Description
    Fees and Other Charges for Accreditation. Fees and other charges 
will be assessed and collected from applicants for initial 
accreditation and accredited certifying agents submitting annual 
reports or seeking renewal of accreditation. Such fees will be equal as 
nearly as may be to the cost of the accreditation services rendered 
under these regulations. Fees-for-service will be based on the time 
required to render the service provided calculated to the nearest 15-
minute period. Activities to be billed on the basis of time used 
include the review of applications and accompanying documents and 
information, evaluator travel, the conduct of on-site evaluations, 
review of annual reports and updated documents and information, and the 
preparation of reports and any other documents in connection with the 
performance of service. The hourly rate will be the same as that 
charged by the Agricultural Marketing Service (AMS), through its 
Quality System Certification Program, to certification bodies 
requesting conformity assessment to the International Organization for 
Standardization ``General Requirements for Bodies Operating Product 
Certification Systems'' (ISO Guide 65).
    Applicants for initial accreditation and accredited certifying 
agents submitting annual reports or seeking renewal of accreditation 
during the first 18 months following the effective date of subpart F 
will receive service without incurring an hourly charge for such 
service.
    Applicants for initial accreditation and renewal of accreditation 
must pay at the time of application, effective 18 months following the 
effective date of Subpart F, a nonrefundable fee of $500.00. This fee 
will be applied to the applicant's fees-for-service account.
    When service is requested at a place so distant from the 
evaluator's headquarters that a total of one-half hour or more is 
required for the evaluator(s) to travel to such place and back to the 
headquarters, or at a place of prior assignment on circuitous routing 
requiring a total of one-half hour or more to travel to the next place 
of assignment on the circuitous routing, the charge for such service 
will include all applicable travel charges. Travel charges may include 
a mileage charge administratively determined by the Department, travel 
tolls, or, where the travel is made by public transportation (including 
hired vehicles), a fee equal to the actual cost thereof. If the service 
is provided on a circuitous routing the travel charges will be prorated 
among all the applicants and certifying agents furnished the service 
involved on an equitable basis. Travel charges will become effective 
for all applicants for initial accreditation and accredited certifying 
agents on the effective date of subpart F. The applicant or certifying 
agent will not be charged a new mileage rate without notification 
before the service is rendered.
    When service is requested at a place away from the evaluator's 
headquarters, the fee for such service shall include a per diem charge 
if the employee(s) performing the service is paid per diem in 
accordance with existing travel regulations. Per diem charges to 
applicants and certifying agents will cover the same period of time for 
which the evaluator(s) receives per diem reimbursement. The per diem 
rate will be administratively determined by the Department. Per diem 
charges shall become effective for all applicants for initial 
accreditation and accredited certifying agents on the effective date of 
subpart F. The applicant or certifying agent will not be charged a new 
per diem rate without notification before the service is rendered.
    When costs, other than fees-for-service, travel charges, and per 
diem charges are associated with providing the services, the applicant 
or certifying agent will be charged for these costs. Such costs 
include, but are not limited to, equipment rental, photocopying, 
delivery, facsimile, telephone, or translation charges incurred in 
association with accreditation services. The amount of the costs 
charged will be determined administratively by the Department. Such 
costs will become effective for all applicants for initial 
accreditation and accredited certifying agents on the effective date of 
subpart F.
    Payment of Fees and Other Charges. Applicants for initial 
accreditation and renewal of accreditation must remit the nonrefundable 
fee along with their application. Remittance must be made payable to 
the Agricultural Marketing Service, USDA, and mailed to: Program 
Manager, USDA-AMS-TMP-NOP,

[[Page 13596]]

Room 2945-South Building, PO Box 96456, Washington, DC 20090-6456 or 
such other address as required by the Program Manager. All other 
payments for fees and other charges must be received by the due date 
shown on the bill for collection, made payable to the Agricultural 
Marketing Service, USDA, and mailed to the address provided on the bill 
for collection. The Administrator will assess interest, penalties, and 
administrative costs on debts not paid by the due date shown on a bill 
for collection and collect delinquent debts or refer such debts to the 
Department of Justice for litigation.
    Fees and Other Charges for Certification. Fees charged by a 
certifying agent must be reasonable, and a certifying agent may charge 
applicants for certification and certified production and handling 
operations only those fees and charges that it has filed with the 
Administrator. The certifying agent must provide each applicant with an 
estimate of the total cost of certification and an estimate of the 
annual cost of updating the certification. The certifying agent may 
require applicants for certification to pay at the time of application 
a nonrefundable fee of no more than $250.00 which must be applied to 
the applicant's fees-for-service account. The certifying agent must 
provide all persons inquiring about the application process with a copy 
of its fee schedule.
    Fees--Changes Based on Comments. This portion of subpart G differs 
from our first proposal in several respects as follows:
    (1) Application and Administrative Fees. We have removed the 
provisions which required certifying agents to pay application and 
administrative fees. These fee provisions have been replaced with 
provisions for the assessment of fees for service equal as nearly as 
may be to the cost of the accreditation services rendered under these 
regulations. In other words, we will be assessing fees and charges only 
for activities related to accreditation. These fees and charges will be 
assessed and collected from applicants for initial accreditation and 
accredited certifying agents submitting annual reports or seeking 
renewal of accreditation. The balance of costs incurred by the NOP will 
be funded through appropriations. We have retained the requirement, 
with modification, that certifying agents reimburse the Department for 
travel, per diem, and related other costs associated with providing 
accreditation services. We have taken these actions in an attempt to 
minimize the cost of this program on certifying agents. Certifying 
agents will be charged for the actual time and travel expenses 
necessary for the NOP to perform accreditation services.
    This proposed program is similar to the Quality Systems 
Certification Program (QSCP) established pursuant to 7 CFR part 54. The 
QSCP is an audit-based program administered by AMS through its 
Livestock and Seed Program, which provides meatpackers, processors, 
producers, and other businesses in the livestock and meat trade with 
the opportunity to have special processes or documented quality 
management systems verified. Since the procedures used for accrediting 
State and private entities as accredited organic certifying agents are 
similar to those used to certify other types of product or system 
certification programs under the QSCP, we have decided to use this 
existing program and its staff in examining certifying agents' 
operations and evaluating their compliance with the Act and these 
regulations. Using the QSCP and its staff will enable the NOP to 
provide the necessary services without creating a separate bureaucracy. 
Hourly fees to be charged for services under this program will be the 
same as those under the QSCP, currently estimated at $95.00 per hour.
    This fee of approximately $95.00 is greater than the $42.20 base 
rate charged under the voluntary user-fee-funded program established by 
AMS to verify that State and private organic certifying agents in the 
United States comply with the requirements prescribed under ISO Guide 
65. This program, administered by the AMS Livestock and Seed Program, 
applied the aggregate meat grading rate for services to this ISO Guide 
65 verification program for State and private organic certificating 
agents. The grading rate of $42.20 was the only rate for which AMS was 
authorized to charge at the time that the program to assess ISO Guide 
65 conformity by organic certifying agents was implemented. This was 
not the actual audit rate of approximately $95.00 for such services. 
The AMS Livestock and Seed Program will engage in rulemaking to 
establish audit fees for its QSCP. As noted above, those fees are 
expected to be approximately $95.00 per hour. The NOP will notify 
accredited certifying agents of proposed rate changes and final actions 
on such rates by AMS.
    To minimize the economic impact of implementing the NOP on 
certifying agents, we have decided to provide services for 
accreditation during the first 18 months following the effective date 
of new subpart F without an hourly charge for all applicants for 
initial accreditation and accredited certifying agents. This represents 
full subsidization of the hourly costs for accreditation by the 
Department during the first 18 months of operation. This 18-month 
subsidization of the hourly costs will prove especially beneficial to 
any applicant for accreditation that submits a substandard application 
or has difficulty establishing eligibility for accreditation. 
Certifying agents will be charged for accreditation service at the 
published hourly rate on the first day of the nineteenth month 
following the effective date of subpart F.
    Over 15,000 comments were received on fees, with all opposing the 
first proposal's fee provisions. In addition to comments from 
consumers, comments were received from State agencies, organic growers, 
grower associations, and certifying agents. Most of these commenters 
expressed the belief that the proposed fees would price small 
certifying agents out of the organic industry. Almost half of the over 
15,000 comments suggested a sliding-scale fee system, rather than the 
flat fee system in the first proposal, to accommodate the economic 
needs of small certifying agents. We have not accepted the concept of a 
sliding-scale fee system. Rather, as noted above, we are proposing that 
certifying agents be charged for the actual time and travel expenses 
necessary for the NOP to perform accreditation services. Under this fee 
system, smaller certifying agents should pay less in hourly charges to 
obtain and maintain certification than larger certifying agents. This 
assumption, however, is contingent on the quality of all documentation 
submitted to the Department, certifying agent recordkeeping, and the 
efficiency of the certifying agent in meeting the requirements of this 
part. The fees and other charges for accreditation regulations are 
found in Sec. 205.640.
    (2) Payment by Certified Check. We have removed the requirement 
that the payment of fees and charges to the Department be by certified 
check or money order. We have made this change because we agree with 
commenters that this requirement is unnecessary and potentially 
burdensome.
    Nearly all industry commenters opposed the form and method of 
payments stated throughout the original fee sections. Commenters stated 
that payment by certified check or money order was unnecessary and 
would create an additional burden on individual producers, handlers, 
and private certifiers. A few State commenters stated that it was 
insulting for the U.S. Department of Agriculture (USDA) to require a 
State government agency to pay for its accreditation with a certified 
check.

[[Page 13597]]

    (3) Producer and Handler Fees to the Department. We have removed 
the provisions which required the payment of certification fees by 
producers and handlers to the Department. We have taken this action 
because we believe that the goal of recovering program costs through 
fees and other costs charged to producers and handlers for 
certification as certified organic operations should be balanced 
against the Act's purpose to facilitate interstate commerce in fresh 
and processed food.
    We received over 15,000 comments all opposing the first proposal's 
fee provisions for producers and handlers. Comments were received from 
consumers, State agencies, organic growers, grower associations, and 
certifying agents. Most of these commenters stated that the proposed 
fees would price small producers and handlers out of the organic 
industry. Hundreds of these commenters stated that the proposed fees 
favor large production operations. Almost half of the over 15,000 
comments suggested a sliding-scale fee system, rather than the flat fee 
system proposed in the first proposal, to accommodate the economic 
needs of small producers and handlers. Hundreds more suggested that 
small producers and processors be exempt from the payment of fees.
    Most of the State agency, organic grower, grower association, and 
certifying agent (industry) commenters spoke to the very small size and 
family-farm nature of the average organic production operation and how 
those operations would be affected by the proposed fees. Commenters 
from this group who offered estimates suggested that one-third to over 
one-half of organic producers in their area or State are very small 
organic producers operating at or near the exemption level of $5,000 in 
annual sales. They said those operating just above the exemption level 
could be forced out of organic production by the extra fee and the 
increased certification charges passed down by certifying agents who 
would have to pay the proposed accreditation charges.
    Commenters, industry and consumer, stated that, rather than 
encouraging growth and new participation in organic agriculture, the 
costs of certification would stifle growth and discourage small 
producer participation in organic agriculture. An industry commenter 
stated that exempt producers who might want to be certified so they 
could market their product as organic would be dissuaded from doing so 
because of the cost of certification. Industry commenters also stated 
that the additional USDA fee on small handlers would make small organic 
handling operations marginal. A few State agencies commented that many 
small organic producers also conduct their own on-farm handling and 
that these operations would be forced out of the organic industry by 
the excessive handler fee and reporting burdens.
    The comment, that exempt producers who might want to be certified 
so they could market their product as organic would be dissuaded from 
doing so because of the cost of certification, requires clarification. 
It may be true that such producers would be dissuaded from seeking 
certification because of the cost of certification. It is not true, 
however, that exempt producers must be certified to sell or label their 
production as organic. The Act exempts small producers, those who 
produce no more than $5,000 in agricultural products, from the 
requirement that a person may sell or label an agricultural product as 
organically produced only if such product is produced and handled in 
accordance with the Act.
    Industry commenters recommended complete changes to the proposed 
fee structure. Most, like the consumer commenters, suggested a sliding 
scale for fees based on either size or sales volume. Several industry 
commenters stated that the Act does not require that USDA recover all 
program costs from assessments on producers, handlers, and certifying 
agents. They cited section 6522 of the Act as authorizing the use of 
appropriated funds to carry out the program. Some industry commenters 
suggested that appropriated funds should be used to cover all 
administrative and overhead costs and that fees collected from the 
industry should only be used for specific program activities such as 
accreditation. A few industry commenters suggested that organic farmers 
not be charged an AMS fee but that each be required to sign an 
affidavit of compliance with program requirements.
    After further discussions within the Department and review of the 
comments, we have determined that the fee structure for the NOP should 
be modified to reduce costs to all organic sectors. We acknowledge that 
the fees proposed in the first proposal might have discouraged industry 
growth and might not have facilitated interstate commerce of organic 
products. Because we believe that fees and other costs charged to 
producers and handlers for certification as certified organic 
operations should be kept to a minimum to encourage industry 
participation and growth, we have removed the regulations which 
provided for the payment of fees to the Department by certified 
production and handling operations.
    (4) Estimated Cost of Certification. We have added, at 
Sec. 205.642, the requirement that the certifying agent must provide 
each applicant with an estimate of the total cost of certification and 
an estimate of the annual cost of updating the certification. 
Additionally, the certifying agent must provide all persons inquiring 
about the application process with a copy of its fee schedule. We have 
added these provisions to ensure that producers and handlers have early 
and ready access to the information they need to consider cost in 
selecting an agent to certify their production or handling operation. 
We consider this to be especially important because, as noted in the 
preamble to subpart F, we have removed the requirement that the 
certifying agent charge only such fees to applicants for certification 
and operations it certifies that the Secretary determines are 
reasonable. We have removed this requirement because we concur with 
those commenters who expressed the belief that certifying agents should 
be permitted to set their own fees without the approval of the 
Secretary. We have also removed this requirement because we concur with 
the commenters' belief that production and handling operations are free 
to consider cost in selecting an agent to certify their production or 
handling operation.
    Fees--Changes Requested But Not Made. This subpart retains from our 
first proposal regulations on which we received comments as follows:
    (1) Accreditation Charges Billed to State Certifying Agents. 
Several State certifying agents stated that State certifying agents 
should not be assessed accreditation charges. Commenters stated that 
most State certifying agents could face large accreditation costs 
because they have many county or regional offices which would be 
considered subsidiaries of the headquarters office. They stated that 
these charges would have to be passed on to producers and handlers or 
paid with supplemental State funds. A few State certifying agents 
stated that USDA should pay the States, rather than vice versa, because 
of the State organic programs' contributions to the national program. 
At least one State representative commented that accreditation fees for 
State certifying agents should be less than for private certifying 
agents because State certifying agents should require less review and 
oversight by AMS.
    We disagree with those commenters who recommended that State 
certifying agents not be assessed accreditation

[[Page 13598]]

charges, be charged less for accreditation, or be paid to certify 
production or handling operations. We view such actions as constituting 
unacceptable preferential treatment of State certifying agents to the 
detriment of private-entity certifying agents. Accordingly, under this 
proposal, State-entity certifying agents will be assessed fees for 
accreditation under the same fee structure as private-entity certifying 
agents.
    (2) Subsidization. Some industry commenters stated that national 
governments in Europe provide direct subsidies and other economic 
incentives for their farmers to grow organic. A few questioned why the 
organic industry would be charged for services while some USDA programs 
are provided without cost to other agricultural sectors, and USDA 
actually pays some farmers not to grow some commodities. Industry 
commenters and many consumer commenters stated that it was unfair for 
this proposed program to charge all costs to a fledgling agricultural 
industry composed mostly of small, family farmers and marginal 
operations. Finally, a few industry commenters proposed the 
philosophical argument that program fees penalize those who protect the 
earth and that USDA should charge traditional producers who damage the 
earth with chemical applications and nonsustainable cultural practices.
    AMS is primarily a user-fee-based Federal agency. The Act at 
section 6506(a)(10) requires the collection of fees from producers, 
handlers, and certifying agents. We are, therefore, unable to provide 
for the full subsidization of producers, handlers, and certifying 
agents as espoused by some commenters. Accordingly, this proposal 
provides for the payment of fees by producers, handlers, and certifying 
agents. We have, however, proposed regulations in this proposal which 
we believe will minimize the economic impact of the NOP on producers, 
handlers, and certifying agents.
    Fees--Additional Provisions. Upon further review of the fee 
provisions in the first proposal, we have decided to propose the 
following additions.
    (1) Certification Fees Charged by Certifying Agents. We have added, 
at Sec. 205.642, regulations addressing general requirements to be met 
by certifying agents in assessing fees and other charges for the 
certification of producers and handlers as certified organic 
operations. First, fees charged by a certifying agent must be 
reasonable, and a certifying agent may charge applicants for 
certification and certified production and handling operations only 
those fees and charges that it has filed with the Administrator. This 
is a general requirement for accreditation and is also found at 
Sec. 205.501(a)(15) in subpart F on accreditation. This regulation does 
not prohibit certifying agents from providing and charging for services 
outside the NOP. Services that certifying agents might provide outside 
the NOP include in-house publications, conferences, workshops, 
informational meetings, and field days. Certifying agents cannot 
require participation in such activities by certified operations or 
applicants for certification as a condition of certification.
    Second, the certifying agent may require applicants for 
certification to pay at the time of application a nonrefundable fee of 
no more than $250.00 which must be applied to the applicant's fees-for-
service account. We believe that this fee will help ensure that 
certifying agents are compensated for certification services provided 
to an applicant that is found to be not qualified to receive 
certification as an organic production or handling operation.
    (2) Fees Charged to Foreign Certifying Agents. We have removed the 
provisions which required the payment of fees for import programs. We 
have taken this action because this proposal includes foreign State 
entities and foreign private entities which provide certification 
services under the accreditation requirements of this part. 
Accordingly, such entities are covered under the fees for accreditation 
provisions of Sec. 205.640.
Compliance
    This portion of subpart G sets forth the enforcement procedures for 
the National Organic Program (NOP). These procedures describe the 
compliance responsibilities of the Secretary, USDA, and Agricultural 
Marketing Service (AMS) officials acting on behalf of the Secretary. 
These procedures also describe responsibilities of State programs' 
governing State officials (governing State officials) and State and 
private certifying agents for compliance under the NOP. The NOP is the 
AMS office that reviews applications and initiates approvals of 
accreditation of new certifying agents, conducts oversight of 
accredited certifying agents, and reviews and recommends continuation 
of accreditation of certifying agents. These provisions also address 
the rights of certified production and handling operations and 
accredited certifying agents operating under the NOP. Approval or 
denial of applications for certification and accreditation are 
addressed under subparts E and F, respectively.
Proposal Description
    The Secretary is required under the Act to review the operations of 
State organic certification programs, accredited certifying agents, and 
certified production or handling operations for compliance with the Act 
and these regulations. The Program Manager of the NOP may carry out 
oversight of compliance proceedings on behalf of the Secretary and the 
Administrator. However, most reviews and analyses of certification 
noncompliance will be conducted by the certifying agent which certified 
the operation. With regard to certifying agents, the Program Manager 
may initiate proceedings to suspend or revoke the accreditation of a 
certifying agent for failure to conduct accreditation activities or 
maintain accreditation requirements pursuant to subpart F of this 
regulation.
    In States with an approved State organic certification program, the 
State program's governing State official is responsible for 
administration of the State's compliance program for certified 
operations. Governing State officials also may review and investigate 
complaints of certifying agents operating in the State who may not be 
in compliance with the accreditation requirements of the Act and these 
regulations. They must notify the Program Manager of such noncompliance 
activities and make information regarding the violation available to 
the NOP for appropriate action.
    The Program Manager may initiate proceedings to suspend or revoke a 
certified operation's certification if a certifying agent or State 
program's governing State official fails to take appropriate 
enforcement action or if an operation is found to be erroneously 
certified by a certifying agent whose accreditation has been suspended 
or revoked.
    The compliance provisions of the NOP are consistent with the 
requirements of the Administrative Procedure Act (APA) (5 U.S.C. 553-
559) in that this program provides for due process including an 
opportunity for hearing, appeal procedures, written notifications of 
noncompliance, and opportunities to demonstrate or achieve compliance 
before any suspension or revocation of organic certification or 
accreditation is invoked. An exception to the initial due process steps 
under the APA is provided in instances of willful violations. However, 
willful violations may be appealed pursuant to

[[Page 13599]]

the Appeals procedure in this subpart. A compliance action regarding 
certification carried out under an approved State program's compliance 
procedures will have the same force and effect as a certification 
compliance action carried out under these NOP compliance procedures. 
The notification process for denying applications for certification and 
applications for accreditation is laid out in subparts E and F 
respectively.
    Noncompliance Procedure for Certified Operations. The Act provides 
for the enforcement of certified operations. Statutory oversight of 
production and handling operations by certifying agents includes review 
of organic plans, residue and tissue testing, authority to conduct 
investigations, and responsibility to report violations. Applicants for 
certification must meet certification requirements of the NOP, as 
determined by certifying agents.
    Notification of Noncompliance. As noted above, the Program Manager 
or the governing State official may review and investigate a certified 
operation based on complaints and may initiate noncompliance 
proceedings established in this subpart. However, we expect that most 
compliance procedures will begin with a certifying agent's inspection, 
review, or investigation of such certified operation. Thus, this 
noncompliance procedure is proposed based on that process.
    A written notification of noncompliance will be sent to the 
certified operation if a certifying agent's inspection, review, or 
investigation reveals any noncompliance with the Act or these 
regulations. Noncompliance may include, among other things, production 
or handling practices or conditions, use of substances, or labeling 
which are not in compliance with subparts C, Production and Handling, 
or E, Certification, of this regulation. The results of a residue test 
may trigger a noncompliance notification. A noncompliance notification 
may encompass the entire operation or a portion of the operation. For 
instance, a violation at one farm may not warrant loss of certification 
at other farms of the certified operation not affected by the 
violation.
    A notification of noncompliance will provide: (1) A description of 
each condition, action, or item of noncompliance; (2) the facts upon 
which the notification is based; and (3) the date by which the 
certified operation must rebut the notification or correct the 
noncompliance. A certified operation may continue to sell its product 
as organic upon receiving a notification of noncompliance and 
throughout the noncompliance proceeding and any appeal procedure which 
might follow the compliance proceeding.
    All written notifications sent by certifying agents and governing 
State officials, as well as rebuttals, requests for mediation, and 
notices of correction of deficiencies sent by certified operations will 
be sent to the addressee's place of business by a delivery service 
which provides dated return receipts. This will help assure completed 
communications and timely compliance procedures.
    If a certified operation believes the notification of noncompliance 
is incorrect or not well-founded, the operation may submit a rebuttal 
to the certifying agent, providing supporting data to refute the facts 
stated in the notification. Rebuttals are provided to allow certifying 
agents and certified operations to informally resolve noncompliance 
notices. Rebuttals should be helpful in resolving differences which may 
be the result of misinterpretation of requirements, misunderstandings, 
or incomplete information. Alternatively, the certified operation may 
correct the identified deficiencies and submit proof of such 
corrections. When the operation demonstrates that each noncompliance 
has been corrected or otherwise resolved, the certifying agent will 
send the certified operation a written notification of noncompliance 
resolution.
    Proposed Suspension or Revocation of Certification. If the 
noncompliance is not resolved and is not in the process of being 
resolved by the date specified in the notification, the certifying 
agent will send the certified operation a written notification of 
proposed suspension or revocation of certification for the entire 
operation or a portion of the operation affected by the noncompliance. 
The notification will state: (1) The reasons for the proposed 
suspension or revocation; (2) the proposed effective date of the 
suspension or revocation; (3) the impact of the suspension or 
revocation on the certified operation's future eligibility for 
certification; and (4) that the certified operation has a right to 
request mediation or to file an appeal. The impact of a proposed 
suspension or revocation may include the suspension period or whether 
the suspension or revocation applies to the entire operation or to a 
portion or portions of the operation. A governing State official may 
not suspend or revoke certification of an entity's certified operations 
in other States. Likewise, a certifying agent may not suspend or revoke 
certification of an entity's operations which the certifying agent does 
not certify.
    If a certifying agent determines that correction of a noncompliance 
is not possible, the notification of noncompliance and the proposed 
suspension or revocation of certification may be combined in one 
notification of proposed suspension or revocation. The certified 
operation will have an opportunity to appeal that suspension or 
revocation decision.
    Mediation. A certified operation may request mediation of any 
dispute regarding denial of certification or proposed suspension or 
revocation of certification. Mediation is not required prior to filing 
an appeal but is offered as an option which may resolve the 
noncompliance more quickly than the next step, which is filing an 
appeal. If a State program is in effect, the mediation procedures 
established in the State program, as approved by the Secretary, must be 
followed. Mediation will be requested in writing to the applicable 
certifying agent. The dispute will be mediated by a qualified mediator 
mutually agreed upon by the parties to the mediation. The parties to 
the mediation will have no more than 30 days to reach an agreement 
following a mediation session. If mediation is unsuccessful, the 
certified operation will have 30 days from termination of mediation to 
appeal the proposed suspension or revocation to the Administrator.
    Any agreement reached during or as a result of the mediation 
process must be in compliance with the Act and these regulations. Also, 
the Secretary reserves the right to review any mediated settlement to 
assure that the terms of the settlement conform with the requirements 
of the Act and the NOP.
    Suspension or Revocation. The certifying agent will suspend or 
revoke the certified operation's certification when the operation fails 
to resolve the issue through rebuttal or mediation, fails to complete 
needed corrections, or does not file an appeal. The operation will be 
notified of the suspension or revocation by written notification. The 
certifying agent must not send a notification of suspension or 
revocation to a certified operation that has requested mediation or 
filed an appeal.
    The decision to suspend or revoke certification will be based on 
the seriousness of the noncompliance and on whether the noncompliance 
is a willful action by the certified operation. Such decisions must be 
made on a case-by-case basis. Section 6519 of the Act establishes that 
willful violations include making a false statement, knowingly affixing 
a false label, or

[[Page 13600]]

otherwise violating the purposes of the Act. Certifying agents are 
responsible for investigating whether a violation is a willful act and 
advising the Program Manager or governing State official of the results 
of such investigation. However, only the Program Manager or governing 
State official may make the final determination that a violation is 
willful.
    If a suspected willful noncompliance is not a serious violation, a 
proposed suspension rather than revocation may be issued. Revocation is 
reserved for serious instances of willful noncompliance and other 
serious violations.
    The certifying agent may determine that a lesser penalty of 
suspension is warranted by the noncompliance. A proposal to suspend 
certification may be issued for violations that are inadvertent or 
cannot be proven to be willful. A suspension may be applicable only to 
one area of operation or one field or farm unit where the noncompliance 
occurred.
    A certified operation that has had its certification revoked will 
not be eligible to receive certification for an operation in which such 
operation or person has an interest for 5 years following the date of 
revocation. If an individual is the owner of a certified operation or 
is the principal officer or director of operations who is fully 
responsible for complying with certification requirements of this part, 
a suspension or revocation could be issued in the individual's name. 
The effect would be that another operation would be ineligible for 
organic certification if that individual is listed as a principal in 
the operation. The Secretary may waive an ineligibility period when it 
is in the best interests of the certification program.
    Noncompliance Procedure for Certifying Agents. The Program Manager, 
on behalf of the Secretary, may initiate a compliance action against an 
accredited certifying agent who fails to carry out responsibilities 
entrusted to the certifying agent or maintain resources sufficient to 
meet accreditation requirements in subpart F. Compliance proceedings 
may be initiated as a result of annual reviews for continuation of 
accreditation, as a result of site visits, or as a result of 
investigations initiated in response to complaints of noncompliant 
activities. Compliance proceedings also may be initiated on 
recommendation of a governing State official.
    A written notification of noncompliance will be sent by the Program 
Manager to an accredited certifying agent when an inspection, review, 
or investigation of such person reveals any noncompliance with the Act 
or these regulations. A notification of noncompliance will provide a 
description of each noncompliance found and the facts upon which the 
notification is based. Additionally, the notification will provide the 
date by which the certifying agent must rebut the noncompliance notice 
or correct each noncompliance described.
    When documentation received by the Program Manager demonstrates 
that each noncompliance has been resolved, the Program Manager will 
send the certifying agent a written notification of noncompliance 
resolution.
    If a noncompliance is not resolved by rebuttal or correction of 
violations, the Program Manager will issue a proposed suspension or 
revocation of accreditation. The notification will state whether the 
certifying agent's entire business, field office, or offices in a 
geographic area or in a specified technical field of accreditation are 
to be suspended or revoked. For instance, if a private certifying agent 
with field offices in different geographic areas is cited for a 
compliance violation in one area, the Program Manager could determine 
that only the accreditation of the noncompliant operation should be 
suspended or revoked.
    If the Program Manager determines that the noncompliance cannot be 
immediately or easily corrected, the Program Manager may combine the 
notification of noncompliance and the proposed suspension or revocation 
in one notification. The notification of proposed suspension or 
revocation of accreditation will state the reasons and effective date 
for the proposed suspension or revocation. Such notification will also 
state the impact of a suspension or revocation on future eligibility 
for accreditation and the certifying agent's right to file an appeal.
    If the Program Manager has reason to believe that a certifying 
agent has willfully violated the Act or regulations, the Program 
Manager may issue a notification of proposed revocation of 
accreditation. The proposed revocation may be for the certifying 
agent's entire accreditation business, a particular field office, or a 
specified technical area of accreditation. This notification, because 
it involves a willful violation, will be sent without first issuing a 
notification of noncompliance.
    The certifying agent may file an appeal of the Program Manager's 
determination, pursuant to Sec. 205.681. If the certifying agent fails 
to file an appeal of the proposed suspension or revocation, the Program 
Manager will suspend or revoke the certifying agent's accreditation. 
The certifying agent will be notified of the suspension or revocation 
by written notification.
    A certifying agent whose accreditation is suspended or revoked must 
cease all certification activities in each area of accreditation and in 
each State for which its accreditation is suspended or revoked. Any 
certifying agent whose accreditation has been suspended or revoked must 
transfer to the Secretary all records concerning its certification 
activities that were suspended or revoked. The certifying agent must 
also make such records available to any applicable governing State 
official. The records will be used to determine whether operations 
certified by the certifying agent may retain their organic 
certification.
    A certifying agent whose accreditation is suspended by the 
Secretary may at any time submit a new request for accreditation. Such 
request must be accompanied by evidence demonstrating correction of 
each noncompliance and actions taken to comply with and remain in 
compliance with the Act and regulations. A certifying agent whose 
accreditation is revoked by the Secretary will be ineligible to be 
accredited as a certifying agent under the Act and regulations for a 
period of not less than 3 years following the date of revocation.
    State Programs' Compliance Procedures. A State program's governing 
State official may initiate noncompliance proceedings of certified 
organic operations operating in the State. Such proceedings may be 
initiated for failure of a certified operation to meet the production 
or handling requirements of this part or the State's more restrictive 
requirements, as approved by the Secretary. The governing State 
official must attempt to resolve the compliance violations through 
State mediation and reviews of corrections to operations.
    The governing State official must promptly notify the Program 
Manager of commencement of enforcement proceedings initiated against 
certified operations. An enforcement proceeding, brought by a governing 
State official against a certified operation may be appealed in 
accordance with the appeal procedures of the State organic 
certification program. There will be no subsequent rights of appeal to 
the Secretary.
Compliance--Changes Based On Comments
    This portion of subpart G differs from our first proposal in 
several respects as follows:
    (1) Authority of certifying agents. We have provided accredited 
certifying

[[Page 13601]]

agents with authority to initiate noncompliance proceedings which may 
result in suspension or revocation of producer and handler 
certifications. A certifying agent's notification of proposed 
suspension or revocation of certification provides an opportunity for 
the certified operation to file an appeal in accordance with the appeal 
provisions of Sec. 205.681. If a noncompliance procedure initiated by a 
certifying agent is not corrected, remains unresolved, and is not 
appealed, the certified operation's certification will be suspended or 
revoked. If the certified operation files an appeal, the action is 
turned over to the Program Manager or applicable governing State 
official for further resolution. The suspension or revocation will not 
become effective unless upheld by a ruling on the appeal.
    Commenters expressed opposition to the notification of 
noncompliance with certification requirements and termination of 
certification provisions of the first proposal. Those provisions 
required a certifying agent to submit to the Administrator a notice of 
its recommendation to terminate the certification of a certified 
operation or any portion of a certified operation if the certifying 
agent had reason to believe the operation had ceased to comply with the 
Act and regulations. The commenters were opposed to the Secretary 
assuming authority for suspension or revocation of certification. The 
commenters stated that such decisions are the duty and responsibility 
of certifying agents, with the Secretary providing for appeals. Some 
commenters expressed the belief that the certifying agent's position is 
undermined by not having authority to suspend or revoke a certification 
for cause. Many commenters stated that certifying agents must have such 
authority in order to: (1) Achieve producer and handler compliance with 
the regulations; and (2) expedite the enforcement process. They believe 
that providing certifying agents with the authority to suspend or 
revoke a certification will preserve the NOP's integrity and increase 
consumer confidence in the quality of the organic products they 
purchase. Commenters stressed that, in addition to providing procedures 
for producer and handler appeals, the Department provides a system of 
checks and balances through the accreditation program.
    We agree that certifying agents should have an important role to 
play in the suspension or revocation of the certification of production 
or handling operation that they certify. This proposal will enhance the 
certifying agent's authority to ensure that any production or handling 
operation it certifies is in compliance with the Act and regulations. 
We also agree that providing certifying agents with a more direct role 
in suspension or revocation proceedings will shorten the compliance 
process.
    Accordingly, as noted above, we have provided accredited certifying 
agents with increased authorities in enforcement proceedings. They will 
make determinations to accept or reject rebuttals submitted in response 
to notifications of noncompliance. They will be responsible for 
defending their determinations, which must be consistent with the 
position of the NOP, in mediation processes. Finally, their decisions 
to propose suspension or revocation of producer and handler 
certifications will become effective unless appealed by the certified 
operation. Authority for certifying agents to take enforcement actions 
against certified operations is found in Sec. 205.662.
    (2) Mediation. We have added a new section authorizing certified 
operations to request mediation of any dispute regarding denial of 
certification or proposed suspension or revocation of certification. 
This section addresses the request for mediation, selection of the 
mediator, the time period for reaching an agreement, requirements of an 
agreement, and appealing a noncompliance decision if mediation is 
unsuccessful. The parties in the procedure must make administrative 
arrangements for the mediation and arrange for payment of any costs 
involved in the mediation. The Department will not finance or 
participate in such mediation. This additional provision is found at 
Sec. 205.663.
    Commenters requested that the Department authorize the use of 
alternative dispute resolution procedures and mediation. We support the 
idea of using mediation to resolve disputes with respect to denial of 
certification or proposed suspension or revocation of certification. 
Some States use mediation as a component of their appeal process. We 
believe mediation could prove effective in resolving many of the 
possible disputes between applicants for certification or certified 
operations and certifying agents. Without mediation, such disputes 
would probably be referred to the Administrator in the form of appeals. 
Mediation in some cases, however, may be of limited value because all 
agreements reached during mediation or as a result of the mediation 
process must be in compliance with the Act, these regulations, and any 
policies or procedures governing the NOP. While we presume a mediated 
settlement will be in accordance with the Act, the Secretary has 
authority to review and overrule a mediated settlement if the Secretary 
determines the settlement is not in accordance with Act and these 
regulations.
    (3) State certification program. Commenters generally requested 
that States administer and enforce their own organic certification 
programs. We have added regulations in these provisions addressing 
States' enforcement of their programs regarding certified producers and 
handlers operating in the State. These regulations clarify a State's 
responsibility to provide for enforcement and appeal proceedings which 
are consistent with these regulations and for keeping the Secretary 
informed of such proceedings. We have added these regulations because 
we believe that a State must have the authority to initiate compliance 
actions to enforce its organic certification program. The regulations 
are found at Sec. 205.668.
    Regarding accreditation authorities, commenters stated that a State 
program's governing State official should have authority to suspend or 
revoke the accreditation of private certifying agents operating within 
the State. Sections 6515(j) and 6519(e) of the Act address suspension 
and revocation of accreditation by the Secretary or governing State 
official. While the Act may provide for the possibility of such 
authority being used by governing State officials, it also requires the 
Secretary to establish a workable accreditation program and it grants 
sole authority to the Secretary to accredit certifying agents. 
Therefore, the Secretary must have sole authority to suspend or revoke 
that accreditation.
    This does not mean that governing State officials are denied a role 
in oversight of certifying agents operating in their States. If a 
governing State official believes a certifying agent operating in the 
State is not in compliance with the accreditation requirements of the 
Act or is not properly certifying producers or handlers to NOP and the 
State's approved unique organic certification requirements, the 
governing State official must investigate the possible noncompliance. 
If evidence of noncompliance is found, the governing State official 
must notify the Program Manager of such noncompliance activities and 
document those activities. The Program Manager will investigate such 
complaints of noncompliance.

[[Page 13602]]

    (4) Right of appeal. We have added the requirement that any 
notification of proposed suspension or revocation must include a notice 
to the certified operation's or certifying agent's of its right to file 
an appeal. Commenters requested that the notification of proposed 
suspension or revocation provisions for certifying agents reference the 
appeals section. We agree with the commenters' request and add that all 
recipients of a notification of proposed suspension or revocation 
should be made aware of their appeal rights. Notification of appeal 
rights is found in Sec. 205.662 for certified operations and 
Sec. 205.665 for certifying agents.
Compliance--Changes Requested But Not Made
    This subpart retains from our first proposal regulations on which 
we received comments as follows:
    (1) Revocation period. Commenters stated that a 5-year period of 
ineligibility for certification after revocation of certification is 
too harsh a punishment to apply in all cases. Some commenters suggested 
that ``shall not be eligible'' should be replaced with ``may be deemed 
ineligible'' so that the penalty provision would be available for 
flagrant violations of the Act but would not have to be applied to all 
violations. A commenter suggested a maximum period of ineligibility of 
3 years be established for certified operations. The commenter's 
justification was that organically produced agricultural products must 
be produced on land to which no prohibited substances have been applied 
for 3 years prior to harvest. This commenter also stated that the 
ineligibility waiver should be a local decision with notice to the 
Administrator.
    Section 6519(c) of the Act requires certification ineligibility for 
5 years unless reduced or eliminated by the Secretary. Revocation of a 
certification is a serious action subject to due process for the 
accused certified producer or handler. We believe that any 
noncompliance action, combination of noncompliance actions, or history 
of noncompliance activities deemed to warrant the revocation of 
certification also warrants ineligibility from certification for 5 
years unless reduced or eliminated by the Secretary. If the 
noncompliance is not significant enough to warrant revocation of the 
operation's certification, the certifying agent, State program's 
governing State official, or Secretary may choose to suspend the 
operation's certification for a period of time less than the 5-year 
revocation period. We disagree with the suggestion that ineligibility 
waivers should be decided at the local level. Actions which are 
finalized by the governing State official, Administrator, or Secretary 
cannot be subject to reversal or waivers by certifying agents. 
Additionally, a national program such as this must have uniformity in 
application, which would be less likely if individual certifying agents 
were permitted to establish their own criteria for ineligibility 
waivers. Accordingly, the ineligibility and waiver provisions are 
unchanged in this proposal.
    (2) Accreditation sanctions. Commenters stated that suspension and 
revocation of accreditation should be applied fairly to both private 
and State certifying agents. Governing State officials do not have any 
accreditation authorities under this proposal--which may reduce private 
certifying agents' concerns of unfair or unequal treatment. 
Accreditation compliance actions by the Program Manager and the 
Administrator will be conducted impartially and in accordance with the 
Administrative Procedure Act and Department policies.
    Revocation would be based on a determination that a private 
certifying agent willfully violated the Act or these regulations or 
falsely or negligently certified a production or handling operation as 
an organic operation. The Act does not authorize the revocation of a 
State certifying agent's accreditation. However, because suspension of 
such entity can be established for any period of time, a suspension can 
be effectively equivalent to a revocation of accreditation. 
Accordingly, this proposal retains the provisions for the suspension of 
accreditation for private and State certifying agents and the 
revocation of accreditation for private certifying agents.
Compliance--Additional Provisions
    Upon further review of the accreditation provisions in the first 
proposal, we have decided to propose the following additions and 
changes.
    (1) Enforcement rights of the Secretary. We have added a general 
section addressing specific enforcement rights of the Secretary. First, 
this section clarifies that the Program Manager on behalf of the 
Secretary and the Administrator may inspect and review State organic 
certification programs, accredited certifying agents, and certified 
production or handling operations for compliance with the Act or 
regulations. The Program Manager has this oversight authority in States 
with State organic certification programs as well as in States without 
such programs.
    Second, this section provides that the Program Manager may initiate 
proceedings to suspend or revoke a certified operation's certification 
when a certifying agent or governing State official fails to take 
appropriate enforcement action against a certified operation that is 
not in compliance with the Act or these regulations. We have added this 
provision because this proposal provides certifying agents and 
governing State officials with enforcement authorities, including the 
suspension and revocation of certifications. However, we believe the 
Secretary, through the Program Manager, must have authority to take 
such actions if a certifying agent or governing State official fails to 
carry out its responsibilities.
    Third, this section provides that the Program Manager may initiate 
proceedings to suspend or revoke a certified operation's certification 
upon suspension or revocation of the operation's certifying agent's 
accreditation. We have added this provision to enable the Program 
Manager to suspend or revoke certification of any operation that a 
certifying agent certified following procedures or practices that are 
not in compliance with the Act or these regulations. This addition is 
found at Sec. 205.660.
    (2) Certifying agent investigations. We have added a section to 
clarify that certifying agents may investigate complaints of 
noncompliance with the Act or regulations concerning operations that 
they have certified. This section does not authorize a certifying agent 
to investigate certified operations that the certifying agent has not 
certified. Such complaints should be reported to the certifying agent 
that certifies the operation in question. This addition is found at 
Sec. 205.661.
    (3) Certified operation rebuttals. We have added a certified 
operation's right to rebut any noncompliance described in a notice of 
noncompliance. We believe this provision is necessary to clarify that 
certified operations should be able to present facts or arguments 
refuting the certifying agent's findings. We see this as an informal 
process between the certified operation and the certifying agent to 
clarify possible misunderstandings or misinterpretation of 
requirements, data, or information. The APA requires such opportunities 
prior to suspension or revocation. Certified operations that 
successfully refute a finding of noncompliance will receive a 
notification of noncompliance resolution. Any certified operation 
unable to successfully refute a finding of noncompliance must correct 
the

[[Page 13603]]

noncompliance or face possible suspension or revocation of its 
certification. This addition is found at Sec. 205.662(a)(3).
    (4) Certifying agent rebuttals. We also have added a certifying 
agent's right to rebut any accreditation noncompliance described in a 
notice of noncompliance issued by the Program Manager. This also will 
be an informal process and is consistent with the intent of the APA. We 
believe this provision is necessary to clarify that certifying agents 
should be able to present facts or arguments refuting the Program 
Manager's findings. Certifying agents that successfully refute a 
finding of noncompliance will receive a notification of noncompliance 
resolution. Any certifying agent unable to successfully refute a 
finding of noncompliance must correct the noncompliance or face 
possible suspension or revocation of its accreditation. This addition 
is found at Sec. 205.665(a)(3).
    (5) Willful noncompliance. We have also added authority for 
certifying agents and governing State officials to move directly to a 
notice of proposed revocation if a certification noncompliance is a 
willful, serious violation of these regulations. This will allow 
expedited action in dealing with serious violations of certification. 
The due process provisions of the APA provide an exception in cases of 
willful violations. Even though a noncompliance may be a willful act, 
the certified operation maintains the right to file an appeal of a 
proposed suspension or revocation of certification. Revocation of 
certification is reserved for serious instances of willful 
noncompliance and other serious violations. If a suspected willful 
violation is deemed not serious, a proposed suspension of certification 
rather than revocation may be issued.
Inspection and Testing, Reporting, and Exclusion From Sale
    This portion of subpart G sets forth the inspection and testing 
requirements for agricultural products that have been produced on 
organic production operations or handled through organic handling 
operations.
    Based on comments received regarding the first proposal, we have 
modified and restructured our residue testing requirements. Commenters 
were concerned about the cost of residue testing to certified 
operations and certifying agents, the determination of detectable 
levels of prohibited substances, and the exclusion of contaminated 
products from sale as organically produced.
    Residue testing plays an important role in organic certification by 
providing a means for monitoring compliance with the National Organic 
Program (NOP) and by discouraging the mislabeling of agricultural 
products. This testing program provides State programs' governing State 
officials and certifying agents with a tool for ensuring compliance 
with three areas for testing: (1) Preharvest residue testing, (2) 
postharvest residue testing, and (3) testing for unavoidable residual 
environmental contamination levels.
Proposal Description
    Under the residue testing requirements of the NOP, we propose that 
all agricultural products sold, labeled, or represented as organically 
produced be available for inspection by the Administrator, State 
program's governing State official, or certifying agent. Organic farms 
and handling operations must be made available for inspection under 
proposed Subpart E, Certification. In addition, products from the 
aforementioned organic operations may be required by the State 
program's governing State official or certifying agent to undergo 
preharvest or postharvest testing when there is reason to believe that 
agricultural products to be sold or labeled as organically produced 
have come into contact with prohibited substances. The cost of such 
testing will be borne by the applicable certifying party and is 
considered a cost of doing business. Accordingly, certifying agents 
should make provisions for the cost of preharvest or postharvest 
residue testing when structuring certification fees.
    Preharvest and Postharvest Residue Testing. The main objectives of 
the residue testing program are to: (1) Ensure that certified organic 
production and handling operations are in compliance with the 
requirements set forth in this proposal; and (2) serve as a means for 
monitoring drift and unavoidable residue contamination of agricultural 
products to be sold or labeled as organically produced. Any detectable 
residues of a prohibited substance found in or on samples during 
chemical analysis will serve as a warning indicator to the State 
program's governing State official or certifying agent.
    The request for preharvest or postharvest residue testing is based 
on the Administrator's, State program's governing State official's, or 
certifying agent's belief that an agricultural product has come into 
contact with one or more prohibited substances. The ``reason to 
believe'' could be triggered by various situations, for example: (1) 
The applicable authority receiving formal written complaint regarding 
the practices of a certified organic operation; (2) an open container 
of a prohibited substance found on the premises of a certified organic 
operation; (3) the proximity of a certified organic operation to a 
potential source of drift; (4) suspected soil contamination by 
historically persistent substances; or (5) when the product from a 
certified organic operation is unaffected when neighboring fields or 
crops are infested with pests. These situations do not represent all of 
the possible occurrences that would trigger an investigation. 
Preharvest or postharvest residue testing will occur on a case-by-case 
basis.
    In each case, an inspector representing the Administrator, 
certifying agent, or State program's governing State official will 
conduct sampling. Testing for chemical residues must be performed in an 
accredited laboratory, defined as a laboratory that has met and 
continues to meet the requirements specified in the Food, Agriculture, 
Conservation, and Trade Act of 1990 (7 U.S.C. 138) (FACT Act) for 
pesticide residue analyses of fresh fruit and vegetables and/or 
pesticide analysis of products derived from livestock and fowl. AMS is 
currently developing a regulation for the National Laboratory 
Accreditation Program (NLAP), which will accredit laboratories under 
the FACT Act. We expect that the NLAP will be implemented before or at 
the same time as the NOP. When conducting chemical analyses, the 
laboratory must incorporate the analytical methods described in the 
16th edition of the Official Methods of Analysis of the AOAC 
International or other applicable validated methodology for determining 
the presence of contaminants in agricultural products.
    When testing indicates that an agricultural product to be sold or 
labeled as organically produced contains residues of prohibited 
substances, certifying agents will compare the level of detected 
residues with a national mean of detection for the specific commodity/
pesticide combination generated by the U.S. Department of Agriculture's 
(USDA) Pesticide Data Program (PDP). This national mean is defined as 
the mean level of detected pesticide residues as described in certain 
pesticide/commodity pairs or combinations established by USDA's 
Pesticide Data Program. The national mean for specific commodity/
pesticide combinations will serve as a standard for the Administrator, 
State programs' governing State officials, and certifying

[[Page 13604]]

agents to assist in monitoring for illegal use violations. This 
information will be made available by USDA to aid State programs' 
governing State officials and certifying agents in making sound 
evaluations and decisions regarding detected levels of prohibited 
substances.
    In addition, levels of unavoidable residual environmental 
contamination will be determined for crop-and site-specific 
agricultural commodities to be sold, labeled, or represented as ``100 
percent organic,'' ``organic,'' or ``made with organic (specified 
ingredients).'' These levels will represent limits at which the 
Department may take compliance action to suspend the use of the 
contaminated area for organic agricultural production. Initially, 
unavoidable residual environmental contamination levels will be set for 
persistent prohibited substances (aldrin, dieldrin, chlordane, DDE, 
etc.) in the environment. In time, they may become more inclusive of 
prohibited residues as additional information becomes available. 
Unavoidable residual environmental contamination levels will be based 
on the unavoidability of the chemical substances and do not represent 
permissible levels of contamination where it is avoidable. Historical 
residue data gathered from Federal and State monitoring and testing 
programs will be used to determine these levels. They will be set by 
the Administrator, in consultation with the Food and Drug 
Administration (FDA) and Environmental Protection Agency (EPA).
    After all tests and analyses have been concluded, the results must 
be provided to the Administrator. The results of analyses and tests 
will be available, kept on record, and reviewed by the Department to 
evaluate concentration levels of prohibited substances for specific 
regions and agricultural crops. Analyses and test results will also be 
available for public access, unless the residue testing is part of an 
ongoing compliance investigation. Information relative to an ongoing 
compliance investigation will be confidential and restricted to the 
public.
    Detection of Prohibited Substances. In the case of residue testing 
and the detection of prohibited substances in or on agricultural 
products to be sold, labeled, or represented ``100 percent organic,'' 
``organic,'' or ``made with organic (specified ingredients),'' 
detectable residues of prohibited substances that exceed the national 
mean of detection for the respective commodity/pesticide combination or 
unavoidable residual contamination levels cannot be sold or labeled as 
organically produced. When such an agricultural crop is in violation of 
these requirements, the certification of that crop will be suspended 
for the period that the crop is in production. Certifying agents must 
follow the requirements specified in Secs. 205.662 and 205.663 of 
Subpart G, Compliance. In addition, when a State program's governing 
State official or a certifying agent detects a prohibited substance in 
or on agricultural products to be sold or labeled as organically 
produced, the State program's governing State official or certifying 
agent may conduct an investigation to determine the cause of the 
prohibited substance.
    If the investigation into the cause of a detectable residue level 
in a product indicates that the residue was the result of an 
intentional application of a prohibited substance, the Administrator is 
authorized to initiate proceedings to revoke or suspend the 
certification status of an operation or portion of that operation. When 
testing indicates that an agricultural product contains prohibited 
substances that exceed either the EPA tolerance level or FDA action 
level, as applicable, for the prohibited substance, the data revealing 
such information will be promptly reported to the appropriate 
regulatory health agencies.
    Emergency Pest Eradication or Disease Treatment Programs. When a 
prohibited substance is applied to an organic production or handling 
operation due to a Federal or State emergency pest eradication or 
disease treatment program and the organic handling or production 
operation otherwise meets the requirements of this proposal, the 
certification status of the operation shall not be affected as a result 
of the application of the prohibited substance, provided that: (1) Any 
harvested crop or plant part to be harvested that has contact with a 
prohibited substance applied as the result of a Federal or State 
emergency pest eradication or disease treatment program cannot be sold, 
labeled, or represented as ``100 percent organic,'' ``organic,'' or 
``made with organic (specified ingredients)'; and (2) any livestock 
that are treated with a prohibited substance applied as the result of a 
Federal or State emergency pest or disease treatment program or product 
derived from such treated livestock cannot be sold, labeled, or 
represented as ``100 percent organic,'' ``organic,'' or ``made with 
organic (specified ingredients).''
    However, milk or milk products may be labeled or sold as 
organically produced beginning 12 months following the last date that 
the dairy animal was treated with the prohibited substance. 
Additionally, the offspring of gestating mammalian breeder stock 
treated with a prohibited substance may be considered organic if the 
breeder stock was not in the last third of gestation on the date that 
the breeder stock was treated with the prohibited substance.
Residue Testing--Changes Based on Comments
    This portion of subpart G differs from our first proposal in 
several respects as follows:
    Residue Testing. (1) We have revised the first proposal's section 
on residue testing and repositioned it under Sec. 205.670(b).
    Commenters disagreed with the provisions in the first proposal 
which required certifying agents to conduct residue testing of products 
produced and handled on operations that they had certified not less 
frequently than every 5 years. They stated that the first proposal's 
requirements for residue testing: (1) Were in excess of what the Act 
actually requires; (2) were more stringent than that of the industry 
norm; (3) would create an unnecessary burden on certifying agents and 
organic production and handling operations; and (4) would increase 
costs for certified production and handling operations. The commenters 
stated that the NOP's residue testing requirements should utilize 
existing Federal and State testing programs for the detection of 
pesticide residues. They also stated that residue testing should only 
be required when it is known or suspected that prohibited substances 
have been applied to organic products.
    We disagree with the commenters' assertions regarding the first 
proposal's requirements for residue testing. However, in an attempt to 
minimize the burdens of residue testing, we have proposed that State 
programs' governing State officials and certifying agents may test 
agricultural inputs used for organic production and require preharvest 
or postharvest testing of any agricultural product to be sold, labeled, 
or represented as ``100 percent organic,'' ``organic,'' or ``made with 
organic (specified ingredients)'' when there is reason to believe that 
the agricultural product has come into contact with prohibited 
substances. This change allows State programs' governing State 
officials and certifying agents to perform preharvest and postharvest 
residue testing on a case-by-case basis.
    Commenters requested that the rule specify which laboratories are 
authorized to perform residue testing and what tests each laboratory 
would be accredited to perform. We have defined

[[Page 13605]]

an accredited laboratory as a laboratory that has met and continues to 
meet the requirements specified in the Food, Agriculture, Conservation, 
and Trade Act of 1990 (7 U.S.C. 138) for pesticide residue analyses of 
fresh fruit and vegetables and/or pesticide residue analysis of 
products derived from livestock and fowl. Any laboratory that meets the 
specified requirements therein may be used in conducting residue tests. 
We have required that accredited laboratories be used to ensure 
consistency among data, testing methodology, reporting procedures, and 
other testing criteria needed to maintain analytical uniformity in the 
residue testing program. Validated analytical methodologies for 
determining the presence of contaminants in agricultural products, such 
as those described in the 16th edition of the Official Methods of 
Analysis of the AOAC International, may be used.
    Tolerance Levels for Pesticide Residues. (2) We have prohibited the 
sale and labeling of agricultural products as organic when such 
products have been tested for prohibited substances and found to 
contain residues of prohibited substances at levels greater than the 
national mean of detection for the specific commodity/pesticide 
combination or levels greater than the unavoidable residual 
environmental contamination. Such agricultural products cannot be sold, 
labeled, or represented as ``100 percent organic,'' ``organic,'' or 
``made with organic (specified ingredients).'' The Administrator, State 
program's governing State official, or certifying agent may conduct an 
investigation of the applicable production or handling operation to 
determine the cause of the presence of any prohibited substance. If the 
investigation reveals that the presence of a prohibited substance was 
the result of intentional application of the prohibited substance, the 
Administrator may initiate proceedings to suspend or revoke the 
production or handling operation's certification.
    (3) Commenters suggested that USDA adopt a uniform standard for the 
maximum allowable residue levels. Some commenters expressed the belief 
that it is impractical or too expensive to establish site-specific, 
unavoidable residual environmental contamination levels for every 
commodity/pesticide combination in every growing area. Others argued 
that the cause of contamination is irrelevant and that crops that 
exceed the maximum residue levels should not be allowed to be sold as 
organic. Finally, others argued that a single standard was needed 
because contaminated products would not be removed from the market 
immediately, pending determination of cause.
    Organic standards, including provisions governing prohibited 
substances, are based on the method of production, not the content. The 
primary purpose of the residue testing approaches described in this 
proposal, then, is to provide an additional tool for State programs' 
governing State officials and certifying agents to use in monitoring 
and ensuring compliance with the NOP. We acknowledge that consumers 
have a reasonable expectation that organic products will contain 
minimal residues of prohibited substances. We are not allowing the use 
of prohibited substances. We are making provisions for the unavoidable 
occurrences of prohibited substances while ensuring that residue levels 
are consistent with consumer expectations.
    This proposal adopts PDP's national means of detected residue for 
specific commodity/pesticide combinations and the unavoidable residual 
environmental contamination levels. Both standards have been adopted 
for the purpose of determining excessive prohibited substances on 
agricultural products to be sold, labeled, or represented as ``100 
percent organic,'' ``organic,'' or ``made with organic (specified 
ingredients).''
    The national mean of detected residue for a specific commodity/
pesticide combination is derived from detections in the PDP monitoring 
program. As a result of mean values being based on conventional 
substances, we believe that residue values that fall above this mean, 
then, would be beyond reasonable consumer expectations for minimal 
residues. The situation is very similar with respect to unavoidable 
residual environmental contamination levels. Even though the presence 
of residues of certain persistent substances may not be the result of 
intentional application, we believe that excessive residue levels would 
not be consistent with the intentions of the Act. Accordingly, when 
levels of a persistent substance are detected above the unavoidable 
residual environmental contamination level, the product cannot be sold 
or labeled as organically produced.
    Some commenters suggested that we use a percentage of the EPA 
tolerance of FDA action level, such as 5 or 10 percent, as a uniform 
standard for the maximum allowable residue level. We considered the 
comments but decided not to adopt them for the following reasons. The 
EPA tolerances for pesticides are defined as the maximum legal level of 
a pesticide residue in or on a raw or processed agricultural commodity, 
as set by the Environmental Protection Agency under the Federal Food 
Drug and Cosmetic Act, section 408. FDA action levels represent limits, 
at or above which FDA will take legal action against a food product to 
prevent poisonous or deleterious substances from entering the food 
supply. Both EPA tolerances and FDA action levels are public health-
based standards. Our rationale for residue testing, as a tool for State 
programs' governing State officials and certifying agents to monitor 
compliance with the NOP, is different from these public health 
programs.
    Accepting a percentage of EPA tolerance or FDA action levels could 
also pose a significant problem for analytical laboratories trying to 
analyze for prohibited substances. In some cases, pesticides have 
tolerances that are set near their analytical method's Limit of 
Quantification (LOQ). The LOQ is defined as the lowest level where 
analytical measurement becomes quantitatively meaningful. If the EPA 
tolerances are near the analytical method LOQ's, accurate determination 
of the levels at 5 to 10 percent of the tolerance may not be attainable 
for analytical instrumentation currently employed. Therefore, the 
Department could be setting a level of concern below the LOQ for some 
substances if it adopted this recommendation. As a fundamental 
principle, we have chosen not to set an enforcement level that could be 
below detection limits for some substances. As an alternative, we are 
proposing to use the PDP national mean of detected residues for 
specific commodity/pesticide combinations.
    Other commenters suggested that USDA adopt a ``zero tolerance'' for 
residues of prohibited substances. Under this suggestion, products 
containing any detectable residues of a prohibited substance would not 
be allowed to be labeled as organically produced. This proposal does 
not adopt this suggestion. While standards strictly prohibit use of any 
substance not found on the approved National List, we recognize that 
some minimal residues may still be found in organic foods. We believe 
our proposed residue testing system and compliance provisions should be 
adequate to protect the integrity of agricultural products sold, 
labeled, or represented as ``100 percent organic,'' ``organic,'' or 
``made with organic (specified ingredients).''
    Several commenters expressed opposition to the first proposal not 
requiring residue testing in the event of drift. These commenters 
stated that organic producers should report all incidences of drift to 
their certifying agent. The commenters further stated that a crop 
should be tested for the

[[Page 13606]]

presence of prohibited substances when drift has or is suspected to 
have occurred. They also stated that when the test indicates levels of 
residues of prohibited substances that exceed 5 percent of the EPA 
tolerance level, the crop should be prohibited from being sold or 
labeled as organically produced.
    In response to commenters' concern about contamination from drift, 
we have used some of their reasoning in the development of our residue 
testing program. Drift is defined as the physical movement of 
prohibited substances from the intended target site onto an organic 
production operation or any portion thereof. The National Organic 
Standards Board (NOSB or Board) recommended that agricultural products 
exposed to drift not be sold, labeled, or represented as ``100 percent 
organic,'' ``organic,'' or ``made with organic (specified 
ingredients)'' or fed to livestock on organic operations. The NOSB also 
recommended that preharvest tissue testing of crops suspected of 
receiving drift be required to verify the presence or absence of 
prohibited substances. This proposal addresses the problem of drift 
through the use of preharvest testing of crops suspected of receiving 
drift of a prohibited substance. Although drift may occur, especially 
in those agricultural regions where pesticide use on nonorganic lands 
is routine and heavy, exposure to drift does not constitute use of a 
prohibited substance. Therefore, preharvest testing provisions have 
been established for State programs' governing State officials and 
certifying agents to test when there is a reason to believe that 
agricultural products intended to be sold or labeled as organically 
produced have come into contact with prohibited substances. This will 
allow a State program's governing State official or certifying agent to 
determine whether the integrity of the product has been affected. We 
believe our proposed residue testing program and compliance provisions 
should be adequate to protect the integrity of agricultural products.
Residue Testing--Changes Requested but Not Made
    (1) The original proposal provided that land subject to a Federal 
or State emergency disease or pest treatment program should not lose 
its organic certification and should not be required to be withheld 
from organic production for a period of 3 years. A few commenters 
stated that a field treated under such emergency situations should lose 
its certification and should be restricted for organic use for 3 years 
following the emergency treatment. The commenters stated this is 
necessary to maintain consumer confidence in organically produced 
products. We believe the first proposal is consistent with the 
requirements of the Act. The proposal provided that crops and livestock 
that had contact or been treated with a prohibited substance under such 
an official emergency treatment program could not be sold or labeled as 
organic. This proposal retains that prohibition.
    Commenters suggested that producers work with the Federal or State 
agency which requires an emergency treatment program and arrange for 
use of materials that are compatible with organic production. While 
this may be possible under certain emergency treatment situations, it 
cannot be relied on as a solution to every emergency treatment 
situation. Appropriate alternative treatments may not be available, or 
the jurisdiction requiring the emergency program may not grant 
alternative treatments. Commenters also suggested that producers avoid 
planting crops that might be subject to pests or diseases targeted by 
emergency treatment programs to avoid emergency treatments. We do not 
believe that is a reasonable solution for producers. Emergency 
treatment programs are used in response to unforeseen infestations and 
diseases. Only hindsight would help organic producers determine which 
crops to produce. Further, the possibilities of damaging insect 
infestations or plant or animal diseases warranting an emergency 
treatment program are so numerous that an organic producer could be 
left with few or no alternative crops or livestock to produce. Cultural 
conditions and market factors also would limit selection of alternative 
organic production. Accordingly, the commenters' recommendation that 
loss of organic certification and an automatic 3-year prohibition on 
organic production from land or livestock treated under an official 
emergency treatment program is not accepted.
    Residue Testing. (2) Commenters suggested that some of the 
responsibility of residue testing be removed from certifying agent 
responsibilities. They also suggested that residue testing requirements 
take into account current Federal and State testing requirements 
already in place for the detection of pesticide residues.
    We have not adopted language that the Department would use current 
Federal and State testing requirements for the detection of pesticide 
residues in the residue testing program. Although State and Federal 
testing provide good sources of data on pesticide residues, the data 
may reflect criteria developed for different sampling purposes, showing 
wide variations in sample selection and indicating different laboratory 
capabilities and different levels of quantification between and within 
laboratories.
Residue Testing--Additional Provisions
    Section 205.670(a) has been added. It provides that the 
Administrator, the State program's governing State official, and the 
applicable certifying agent have access, for inspection purposes, to 
all agricultural products being sold, labeled, or represented as ``100 
percent organic,'' ``organic,'' or ``made with organic (specified 
ingredients).'' In addition, the organic products must be made 
available for examination by said authorities in the manner that they 
prescribe.
    Public comments did not suggest this action. However, we believe it 
is necessary to officially grant the Administrator, the State program's 
governing State official, and the applicable certifying agent the 
authority to access all agricultural products subject to inspection 
under this section. This authority will help resolve conflicts that may 
arise regarding product accessibility during inspection and testing.
    Adverse Action Appeal Process. This portion of subpart G sets forth 
the general framework for an appeal process for persons subject to 
compliance determinations under the National Organic Program (NOP). In 
this proposal, we are empowering certifying agents with the authority 
to make decisions concerning denial of certification and the suspension 
or revocation of certified operations. This empowerment of certifying 
agents makes the appeal process very important.
    We envision two kinds of appeals will be filed under these 
procedures: (1) Producers and handlers appealing denial of 
certification and proposed suspension and revocation of certification 
decisions by certifying agents; and (2) certifying agents appealing 
denial of accreditation and proposed suspension and revocation 
decisions by the NOP Program Manager. The Administrative Procedure Act 
(APA) (5 U.S.C. 553-559) provides that entities such as certified 
operations and accredited certifying agents have the right to appeal 
any adverse actions taken against their certification or accreditation, 
respectively. Applicants for certification and applicants for 
accreditation who receive a denial of certification or accreditation 
may appeal that denial following this appeal

[[Page 13607]]

procedure. The appeal process is the same for applicants as for 
certified operations and accredited certifying agents.
    The informal appeal process described in this section is an 
extension of the noncompliance proceeding outlined in the Compliance 
section of this subpart.
    For certification proceedings, the NOP and the Administrator will 
oversee compliance proceedings and handle certification appeals from 
operations in States that do not have an approved State organic 
certification program. The Administrator will issue decisions to 
sustain or deny appeals. If an appeal is denied, the Secretary will 
initiate a formal administrative review process, which includes a 
hearing before an administrative law judge and review by the 
Department's Judicial Officer. The formal administrative review process 
will be conducted pursuant to the Department's Uniform Rules of 
Practice, 7 CFR 1.130 through 1.151. The formal administrative review 
will be the Department's final determination on the noncompliance 
proceeding. That decision may be appealed to the District Courts. This 
section addresses the informal appeal process which is used to arrive 
at the Administrator's decision to sustain or deny an appeal.
    In States with approved State organic certification programs, the 
governing State official or designee will oversee certification 
compliance proceedings and handle appeals from certified operations in 
the State. The governing State official or designated appeals official 
will rule on appeals filed under a State organic certification program. 
Further appeal of that decision may be made to the district court 
system.
Proposal Description
    These appeal procedures provide that persons subject to the Act who 
believe that they are adversely affected by a noncompliance decision of 
a certifying agent, Program Manager, or governing State official may 
appeal such decision to the Administrator or to the applicable State's 
appeal process. Under Compliance provision in this subpart, accredited 
certifying agents initiate noncompliance proceedings. If an appeal of a 
certification decision is filed, the process is referred to the 
Administrator or governing State official or designee, as applicable, 
to the State where the applicant or certified operation resides.
Certification Appeals
    Applicants for certification may appeal a certifying agent's denial 
of certification. Certified operations may appeal a certifying agent's 
notification of proposed suspension or revocation of the operation's 
certification. These appeals will be made to the Administrator or to 
the applicable governing State official or designated official in the 
approved State organic certification program.
    Certification appeals may be filed only after an applicant or a 
certified operation has been given opportunity to come into compliance 
with these regulations or otherwise resolve the specified 
noncompliance. Prior to filing an appeal, the applicant or certified 
operation must have failed in rebuttal, refused to make specified 
corrections, or made corrections which the certifying agent 
subsequently determined to not meet certification requirements of the 
NOP.
    If the Administrator or governing State official sustains an 
appeal, the applicant or certified operation will be granted 
certification or continued certification, as applicable to the 
operation's status. The applicant or certified operation will not be 
required to correct the actions or conditions cited in the 
noncompliance notification. The act of sustaining the appeal will not 
be considered an adverse action and may not be appealed by the 
certifying agent which issued the notification.
    If the Administrator or governing State official denies an appeal, 
a formal administrative proceeding will be initiated to deny, suspend, 
or revoke the certification. Such proceeding will be conducted pursuant 
to the Department's Uniform Rules of Practice or pursuant to the 
State's formal appeal procedures. Certified operations may continue to 
operate throughout this informal appeals process and the formal 
administrative proceedings.
Accreditation Appeals
    Pursuant to Sec. 205.665 of this subpart, all accredited certifying 
agents are subject to the Program Manager's review of their operations 
and any noncompliance actions resulting from such reviews. As provided 
in Sec. 205.668, a State program's governing State official must advise 
the Program Manager if an investigation of a certifying agent reveals 
that the certifying agent is not in compliance with the Act or these 
regulations. The appeal process for applicants is the same as for 
accredited certifying agents.
    An appeal may be filed with the Administrator only after the 
certifying agent fails to rebut the noncompliance notice and fails to 
correct the noncompliance specified. If the Administrator sustains an 
appeal, the applicant or certified operation will be granted 
certification or continued certification, as applicable to the 
operation's status. The applicant or certified operation will not be 
required to correct the actions or conditions cited in the compliance 
notification. If the appeal is denied, a formal administrative 
proceeding will be initiated to deny, suspend, or revoke the 
accreditation.
    The certifying agent may continue to operate as a certifying agent 
throughout the informal appeals process and the formal administrative 
proceeding.
    All appeals to the Administrator must be filed in writing and sent 
to: Administrator, USDA-AMS, Room 3071-S, PO Box 96456, Washington, DC 
20090-6456. An appeal must include a copy of the adverse decision to be 
reviewed and a statement of the appellant's reasons for believing that 
the decision was not proper and not made in accordance with applicable 
program regulations, policies, or procedures. A certified operation 
must send a copy of its appeal, to its certifying agent. All written 
communications between parties involved in appeal proceedings must be 
sent to the recipient's place of business by a delivery service which 
provides dated return receipts. Appeals under a State's procedure will 
be filed pursuant to the State's appeal process, which should include 
addresses and filing periods, etc.
    An appeal must be filed within the time provided in the letter of 
notification or at least 30 days from the date of receipt of the notice 
to deny, suspend, or revoke certification or accreditation. The appeal 
will be considered ``filed'' on the date received by the Administrator 
or, when applicable, the State program's governing State official or 
such official's designee. The Administrator will notify the appellant 
and the appellant's certifying agent that the appeal was received. 
Unless appealed in a timely manner, a notification to deny, suspend, or 
revoke a certification or an accreditation will become final. The 
applicant, certified operation, or certifying agent that does not file 
an appeal in the time period provided waives the right to further 
appeal of the compliance proceeding.
Appeals--Changes Based On Comments
    These appeal regulations differ from our first proposal as follows:
    (1) Decision-making. We have clarified who will be making decisions 
that may be appealed to the Administrator. This proposal provides that 
persons subject to the Act who, during noncompliance proceedings 
described in this subpart, believe that

[[Page 13608]]

they are adversely affected by a noncompliance decision of a certifying 
agent, Program Manager, or governing State official may appeal such 
decision to the Administrator or the State's designated appeals 
official. This clarification is found in Sec. 205.680.
    Commenters stated that the proposed appeals procedures limited 
appeals to decisions of the NOP staff. Commenters requested that the 
appeals procedures be available for decisions by the Secretary, any 
representative of the Secretary, and decisions by any certifying agent. 
What we meant in the first proposal was that appeals would be filed on 
decisions made by the Program Manager and certifying agents.
    As noted above, we are empowering certifying agents to make 
decisions concerning denials of certification and suspension or 
revocation of certified operations' certifications. Certifying agents 
accredited under this program act on behalf of the Secretary and the 
Administrator to carry out certification services, including 
noncompliance actions. The Administrator or designated governing State 
official will make decisions to either sustain or deny appeals by 
certification applicants and certified operations, as applicable to the 
State.
    The Program Manager will make decisions to deny applications for 
accreditation and to suspend or revoke certifying agents' 
accreditations. The Administrator will make all decisions to either 
sustain or deny appeals by accreditation applicants and certifying 
agents.
    (2) Appeal procedures. Commenters requested detailed appeal 
procedures or the use of citations to identify existing Departmental 
appeal procedures which would be used for appeals filed under this 
program. We acknowledge that the first proposal lacked detailed appeals 
provisions. However, we believe this explanation is more informative 
and helpful for the commenters. The formal administrative procedure 
following the Department's Uniform Rules of Practice is required under 
the APA. The rules of practice are not included in individual 
rulemaking actions but may be found under 7 CFR 1.130 through 1.151. 
The combination of this informal appeal procedure followed by the 
formal administrative proceeding assures applicants, certified 
operations, and accredited certifying agents that they will be given 
full opportunity to respond to any noncompliance proceeding brought 
against their application or operation. Individual State programs will 
have their own, approved appeal procedures.
    Commenters also recommended that the Department should use an 
independent USDA appeals division to avoid conflict of interest by the 
Program Manager or the Administrator in the handling of appeals. We 
believe this proposed appeal procedure ensures that appeals will be 
administered by persons not involved in the decision being appealed. 
This appeals procedure is consistent with the requirements of the APA.
    Paragraph (a)(1) of Sec. 205.681 provides that if the Administrator 
sustains an applicant's or certified operation's appeal of a certifying 
agent's noncompliance decision, the act of sustaining the appeal shall 
not be an adverse action subject to appeal by the affected certifying 
agent. We have included this provision because, as noted above, 
certifying agents are accredited by the Secretary to provide 
certification services as agents of the Secretary and the 
Administrator. Therefore, if the Administrator overrules a decision of 
an accredited certifying agent, that certifying agent cannot request an 
appeal of the Administrator's decision.
Appeals--Changes Requested But Not Made
    None.
Appeals--Additional Provisions
    (1) State appeals procedures. We are proposing that appeal 
proceedings in States with organic certification programs approved by 
the Secretary will be carried out in accordance with the official 
administrative appeal proceedings in each State. A State's appeal 
process will be included as part of the State's organic certification 
program. Because a State's appeal procedure is approved by the 
Secretary, the final determination for a certification appeal arrived 
at under that procedure is considered to have the effect of a decision 
by the Secretary. Approved State appeal processes are unique to each 
State and are not included in this regulation.
    Certification appeals are made to the State program's governing 
State official or such official's designee. The governing State 
official or designee will administer the appeal pursuant to appeal 
procedures which have been approved by the Secretary. Rulings on such 
appeals, as noted in Sec. 205.668, may not be appealed to the 
Secretary. The certification applicant or certified operation may make 
subsequent appeal to the Court of Appeals of the United States for the 
circuit in which such applicant or certified operation carries on 
business or in the United States Court of Appeals for the District of 
Columbia Circuit.
    (2) Accreditation appeals. This proposal provides that the Program 
Manager carries out all compliance proceedings on accredited certifying 
agents. The Secretary has sole authority for accrediting certifying 
agents and, therefore, must retain sole authority for suspending or 
revoking that accreditation. A State program's governing State official 
must investigate any complaints of noncompliance on the part of a 
certifying agent operating in the State. If noncompliance activities or 
conditions are found, the governing State official must notify the 
Program Manager of those compliance violations or suspected compliance 
violations.
Miscellaneous
    Section 205.690 provisions the Office of Management and Budget 
control number assigned to the information collection requirements of 
these regulations. Sections 205.691 through 205.699 are reserved.

List of Subjects in 7 CFR Part 205

    Administrative practice and procedure, Agriculture, Animals, 
Archives and records, Foods, Imports, Labeling, Organically produced 
products, Plants, Reporting and recordkeeping requirements, Seals and 
insignia, Soil conservation.

    For the reasons set forth in the preamble, it is proposed that 
Title 7, Chapter I of the Code of Federal Regulations be amended as 
follows:
    1. Parts 205 through 209 which are currently reserved in subchapter 
K (Federal Seed Act), are removed.
    2. A new subchapter M consisting of part 205 through 209 is added 
to read as follows:

SUBCHAPTER M--ORGANIC FOODS PRODUCTION ACT PROVISIONS

PART 205--NATIONAL ORGANIC PROGRAM

Subpart A--Definitions

Sec.
 205.1   Meaning of words.
 205.2   Terms defined.
Subpart B--Applicability
 205.100   What has to be certified.
 205.101   Exemptions and exclusions from certification.
 205.102   Use of the term, ``organic.''
 205.103   Recordkeeping by certified operations.
 205.104   Foreign applicants.
 205.105-205.199   [Reserved]
Subpart C--Organic Crop, Wild Crop, Livestock, and Handling 
Requirements
 205.200   General.

[[Page 13609]]

 205.201   Organic production and handling system plan.
 205.202   Land requirements.
 205.203   Soil fertility and crop nutrient management practice 
standard.
 205.204   Seeds and planting stock practice standard.
 205.205   Crop rotation practice standard.
 205.206   Crop pest, weed, and disease management practice 
standard.
 205.207   Wild-crop harvesting practice standard.
 205.208-205.235   [Reserved]
 205.236   Origin of livestock.
 205.237   Livestock feed.
 205.238   Livestock health care practice standard.
 205.239   Livestock living conditions.
 205.240-205.269   [Reserved]
 205.270   Organic handling requirements.
 205.271   Facility pest management practice standard.
 205.272   Commingling and contact with prohibited substance 
prevention practice standard.
 205.290   Temporary variances.
Subpart D--Labels, Labeling, and Market Information
 205.300   Use of the term, ``organic.''
 205.301   Product composition.
 205.302   Calculating the percentage of organically produced 
ingredients.
 205.303   Packaged products labeled ``100 percent organic'' or 
``organic.''
 205.304   Packaged products labeled ``made with organic (specified 
ingredients).''
 205.305   Multiingredient packaged products with less that 50 
percent organic ingredients.
 205.306   Labeling of nonretail containers used for only shipping 
or storage of raw or processed agricultural products labeled as 
``100 percent organic,'' ``organic,'' or ``made with organic 
(specified ingredients).''
 205.307   Agricultural products in a form other than packages at 
the time of retail sale that are labeled or represented as ``100 
percent organic'' or ``organic.''
 205.308   Agricultural products in a form other than packages at 
the time of retail sale that are sold, labeled, or represented as 
``made with organic (specified ingredients).''
 205.309   Agricultural products produced on an exempt production 
operation.
 205.310   USDA Seal.
Subpart E--Certification
 205.400   General requirements for certification.
 205.401   Application for certification.
 205.402   Review of application.
 205.403   On-site inspections.
 205.404   Approval of certification.
 205.405   Denial of certification.
 205.406   Continuation of certification.
 205.407-205.499   [Reserved]
Subpart F--Accreditation of Certifying Agents
 205.500   Areas and duration of accreditation.
 205.501   General requirements for accreditation.
 205.502   Applying for accreditation.
 205.503   Applicant information.
 205.504   Evidence of expertise and ability.
 205.505   Statement of agreement.
 205.506   Approval of accreditation.
 205.507   Denial of accreditation.
 205.508   Site evaluations.
 205.509   Peer review panel.
 205.510   Annual report, recordkeeping, and renewal of accredition.
 205.511-205.599   [Reserved]
Subpart G--Administrative
The National List of Allowed and Prohibited Substances

 205.600   Allowed and prohibited substances and ingredients in 
organic production and handling.
 205.601   Synthetic substances allowed for use in 
organic crop production.
 205.602   Nonsynthetic substances prohibited for use in organic 
crop production.
 205.603   Synthetic substances allowed for use in organic livestock 
production.
 205.604   Nonsynthetic substances prohibited for use in organic 
livestock production. [Reserved]
 205.605   Nonagricultural (nonorganic) substances allowed as 
ingredients in or on processed products labeled as ``organic,'' or 
``made with organic (specified ingredients).''
 205.606   Nonorganically produced agricultural products allowed as 
ingredients in or on processed products labeled as ``organic'' or 
``made with organic ingredients.''
 205.607   Amending the National List.
State Programs
 205.620   Requirements of State organic certification programs.
 205.621   Submission and determination of proposed State organic 
certification programs and amendments to approved State organic 
certification programs.
 205.622   Review of approved State organic certification programs.
Fees
 205.640   Fees and other charges for accreditation.
 205.641   Payment of fees and other charges.
 205.642   Fees and other charges for certification.
 205.643-205.649   [Reserved]
Compliance
 205.660   General.
 205.661   Investigations of certified operations.
 205.662   Noncompliance procedure for certified operations.
 205.663   Mediation.
 205.664   [Reserved]
 205.665   Noncompliance prodcedures for certifying agents.
 205.666-205.667   [Reserved]
 205.668   Noncompliance procudures under State organic 
certification programs.
 205.699   [Reserved]
Inspection and Testing, Reporting, and Exclusion from Sale
 205.670  Inspection and testing of agricultural product to be sold 
or labeled ``organic''.
 205.671  Exclusion from organic sale.
205.672   Emergency pest or disease treatment.
 205.673--205.679  [Reserved]
Adverse Action Appeal Process
 205.680   General.
 205.681  Appeals.
 205.682--205.689  [Reserved]
Miscellaneous
 205.690 OMB control number.
 205.691--205.699  [Reserved]

    Authority: 7 U.S.C. 6501-6522.

Subpart A--Definitions


 205.1  Meaning of words.

    For the purpose of the regulations in this subpart, words in the 
singular form shall be deemed to impart the plural and vice versa, as 
the case may demand.


 205.2  Terms defined.

    Accredited laboratory. A laboratory that has met and continues to 
meet the requirements specified in the Food, Agriculture, Conservation, 
and Trade Act of 1990 (7 U.S.C. 138) for pesticide residue analyses of 
fresh fruit and vegetables and/or pesticide residue analysis of 
products derived from livestock and fowl.
    Accreditation. A determination made by the Secretary that 
authorizes a private, foreign, or State entity to conduct certification 
activities as a certifying agent under this part.
    Act. The Organic Foods Production Act of 1990, as amended (7 U.S.C. 
6501 et seq.).
    Action level. The limit at or above which the Food and Drug 
Administration will take legal action against a product to remove it 
from the market. Action levels are based on unavoidability of the 
poisonous or deleterious substances and do not represent permissible 
levels of contamination where it is avoidable.
    Administrator. The Administrator for the Agricultural Marketing 
Service (AMS), United States Departure of Agriculture, or the 
representative to whom authority has been delegated to act in the stead 
of the Administrator.
    Agricultural inputs. All substances or materials used in the 
production or handling of organic agricultural products.
    Agricultural product. Any agricultural commodity or product, 
whether raw or processed, including any commodity or product derived 
from livestock that is marketed in the United States for human or 
livestock consumption.
    Allowed synthetic. A substance that is included on the National 
List of synthetic substances allowed for use in organic production, or 
handling.
    Agricultural Marketing Service (AMS). The Agricultural Marketing 
Service of the United States Department of Agriculture.

[[Page 13610]]

    Animal drug. Any drug as defined in section 201 of the Federal 
Food, Drug, and Cosmetic Act, as amended (21 U.S.C. 321), that is 
intended for use in livestock, including any drug intended for use in 
livestock feed but not including such livestock feed.
    Annual seedling. A plant grown from seed that will complete its 
life cycle or produce a harvestable yield within the same crop year or 
season in which it was planted.
    Area of operation. The types of operations: Crops, livestock, wild-
crop harvesting, handling, or any combination thereof that a certifying 
agent may be accredited to certify under this part.
    Audit trail. Documentation that is sufficient to determine the 
source, transfer of ownership, and transportation of any agricultural 
product labeled as ``100 percent organic,'' the organic ingredients of 
any agricultural product labeled as ``organic'' or ``made with organic 
(specified ingredients)'' or the organic ingredients of any 
agricultural product containing less than 50 percent organic 
ingredients identified as organic in an ingredients statement.
    Biodegradable. Subject to biological decomposition into simpler 
biochemical or chemical components.
    Biologics. All viruses, serums, toxins, and analogous products of 
natural or synthetic origin, such as diagnostics, antitoxins, vaccines, 
live microorganisms, killed microorganisms, and the antigenic or 
immunizing components of microorganisms intended for use in the 
diagnosis, treatment, or prevention of diseases of animals.
    Breeder stock. Female livestock whose offspring may be incorporated 
into an organic operation at the time of their birth.
    Buffer zone. An area located between a certified production 
operation or portion of a production operation and an adjacent land 
area that is not maintained under organic management. A buffer zone 
must be sufficient in size or other features (e.g., windbreaks or a 
diversion ditch) to prevent the possibility of unintended contact by 
prohibited substances applied to adjacent land areas with an area that 
is part of a certified operation.
    Bulk. The presentation to consumers at retail sale of an 
agricultural product in unpackaged, loose form, enabling the consumer 
to determine the individual pieces, amount, or volume of the product 
purchased.
    Certification or certified. A determination made by a certifying 
agent that a production or handling operation is in compliance with the 
Act and the regulations in this part, which is documented by a 
certificate of organic operation.
    Certified operation. A crop or livestock production, wild-crop 
harvesting, or handling operation or portion of such operation that is 
certified by an accredited certifying agent as utilizing a system of 
organic production or handling as described by the Act and the 
regulations in this part.
    Certifying agent. Any entity accredited by the Secretary as a 
certifying agent for the purpose of certifying a production or handling 
operation as a certified production or handling operation.
    Certifying agent's operation. All sites, facilities, personnel, and 
records used by a certifying agent to conduct certification activities 
under the Act and the regulations in this part.
    Claims. Oral, written, implied, or symbolic representations, 
statements, or advertising or other forms of communication presented to 
the public or buyers of agricultural products that relate to the 
organic certification process or the term, ``100 percent organic,'' 
``organic,'' or ``made with organic (specified ingredients),'' or, in 
the case of agricultural products containing less than 50 percent 
organic ingredients, the term, ``organic,'' on the ingredients panel.
    Commercially available. The ability to obtain a production input in 
an appropriate form, quality, or quantity to fulfill an essential 
function in a system of organic production or handling, as determined 
by the certifying agent in the course of reviewing the organic plan.
    Commingling. Physical contact between unpackaged organically 
produced and nonorganically produced agricultural products during 
production, transportation, storage or handling, other than during the 
manufacture of a multiingredient product containing both types of 
ingredients.
    Compost. The product of a carefully managed process through which 
microorganisms break down plant and animal materials into more 
available forms suitable for application to the soil. Compost used in 
an organic operation must be produced in a facility in compliance with 
the Natural Resource Conservation Service's practice standard for a 
composting facility (Code 317) and must use methods to raise the 
temperature of the raw materials to the levels needed to stabilize 
nutrients and kill pathogens.
    Control. Any method that reduces or limits damage by populations of 
pests, weeds, or diseases to levels that do not significantly reduce 
productivity.
    Crop. A plant or part of a plant intended to be marketed as an 
agricultural product or fed to livestock.
    Crop residues. The plant parts remaining in a field after the 
harvest of a crop, which include stalks, stems, leaves, roots, and 
weeds.
    Crop rotation. The practice of alternating the annual crops grown 
on a specific field in a planned pattern or sequence in successive crop 
years, so that crops of the same species or family are not grown 
repeatedly without interruption on the same field. Perennial cropping 
systems employ means such as alley cropping, intercropping, and 
hedgerows to introduce biological diversity in lieu of crop sequencing.
    Crop year. That normal growing season for a crop as determined by 
the Secretary.
    Cultivation. Digging up or cutting the soil to prepare a seed bed; 
control weeds; aerate the soil; or work organic matter, crop residues, 
or fertilizers into the soil.
    Cultural methods. Methods used to enhance crop health and prevent 
weed, pest, or disease problems without the use of substances; examples 
include the selection of appropriate varieties and planting sites; 
proper timing and density of plantings; irrigation; and extending a 
growing season by manipulating the microclimate with green houses, cold 
frames, or wind breaks.
    Detectable residue. The amount or presence of chemical residue or 
sample component that can be reliably observed or found in the sample 
matrix by the current approved analytical methodology.
    Disease vectors. Plants or animals that harbor or transmit disease 
organisms or pathogens which may attack crops or livestock.
    Drift. The physical movement of prohibited substances from the 
intended target site onto an organic operation or portion thereof.
    Emergency pest or disease treatment program. A mandatory program 
authorized by a Federal, State, or local agency for the purpose of 
controlling or eradicating a pest or disease.
    Employee. Any person providing paid or volunteer services for a 
certifying agent.
    Estimated National Mean. The mean level of detected pesticide 
residues as described in certain pesticide/commodity pairs or 
combinations established by USDA's Pesticide Data Program.

[[Page 13611]]

    Excluded methods. Refers to a variety of methods used to 
genetically modify organisms or influence their growth and development 
by means that are not possible under natural conditions or processes 
and are not considered compatible with organic production. Such methods 
would include recombinant DNA, cell fusion, and micro- and 
macroencapsulation. Such methods would not include the use of 
traditional breeding, conjugation, fermentation, hybridization, in 
vitro fertilization, or tissue culture.
    Feed. Edible materials which are consumed by livestock for their 
nutritional value. Feed may be concentrates (grains) or roughages (hay, 
silage, fodder). The term, ``feed,'' encompasses all agricultural 
commodities, including pasture ingested by livestock for nutritional 
purposes.
    Feed Additive. A substance or combination of substances added to 
feed in micro quantities to fulfill a specific nutritional need, i.e., 
nutrients in the form of amino acids, vitamins, and minerals.
    Feed Supplement. A feed used with another feed to improve the 
nutrient balance or performance of the total ration and intended to be:
    (1) Diluted with other feeds when fed to livestock;
    (2) Offered free choice with other parts of the ration if 
separately available; or
    (3) Further diluted and mixed to produce a complete feed.
    Fertilizer. A single or blended substance containing one or more 
recognized plant nutrient(s) which is used primarily for its plant 
nutrient content and which is designed for use or claimed to have value 
in promoting plant growth.
    Field. An area of land identified as a discrete unit within a 
production operation.
    Forage. Vegetable material in a fresh, dried, or ensiled state 
(pasture, hay, or silage) which is fed to livestock.
    Handle. To sell, process, or package agricultural products, except 
such term shall not include the sale, transportation, or delivery of 
crops or livestock by the producer thereof to a handler.
    Handler. Any person engaged in the business of handling 
agricultural products, including producers who handle crops or 
livestock of their own production, except such term shall not include 
final retailers of agricultural products that do not process 
agricultural products.
    Handling operation. Any operation or portion of an operation 
(except final retailers of agricultural products that do not process 
agricultural products) that receives or otherwise acquires agricultural 
products and processes, packages, or stores such products.
    Immediate family. The spouse, minor children, or blood relatives 
who reside in the immediate household of a certifying agent or an 
employee, inspector, contractor, or other personnel of the certifying 
agent. For the purpose of this part, the interest of a spouse, minor 
child, or blood relative who is a resident of the immediate household 
of a certifying agent or an employee, inspector, contractor, or other 
personnel of the certifying agent shall be considered to be an interest 
of the certifying agent or an employee, inspector, contractor, or other 
personnel of the certifying agent.
    Inert ingredient. Any substance (or group of substances with 
similar chemical structures if designated by the Environmental 
Protection Agency) other than an active ingredient which is 
intentionally included in any pesticide product used in organic crop or 
livestock production and handling (40 CFR 152.3(m)).
    Information panel. That part of the label of a packaged product 
that is immediately contiguous to and to the right of the principal 
display panel as observed by an individual facing the principal display 
panel, unless another section of the label is designated as the 
information panel because of package size or other package attributes 
(e.g., irregular shape with one usable surface).
    Ingredient. Any substance used in the preparation of an 
agricultural product that is still present in the final commercial 
product as consumed.
    Ingredients statement. The list of ingredients contained in a 
product shown in their common and usual names in the descending order 
of predominance.
    Inspector. Any person retained or used by a certifying agent to 
conduct inspections of certification applicants or certified production 
or handling operations.
    Inspection. The act of examining and evaluating the production or 
handling operation of an applicant for certification or certified 
operation to determine compliance with the Act and the regulations in 
this part.
    Label. A display of written, printed, or graphic material on the 
immediate container of an agricultural product or any such material 
affixed to any agricultural product or affixed to a bulk container 
containing an agricultural product, except for package liners or a 
display of written, printed, or graphic material which contains only 
information about the weight of the product.
    Labeling. All written, printed, or graphic material accompanying an 
agricultural product at any time or written, printed, or graphic 
material about the agricultural product displayed at retail stores 
about the product.
    Livestock. Any cattle, sheep, goat, swine, poultry, or equine 
animals used for food or in the production of food, fiber, feed, or 
other agricultural-based consumer products; wild or domesticated game; 
or other nonplant life, except such term shall not include aquatic 
animals or bees for the production of food, fiber, feed, or other 
agricultural-based consumer products.
    Lot. Any number of containers which contain an agricultural product 
of the same kind located in the same conveyance, warehouse, or packing 
house and which are available for inspection at the same time.
    Market information. Any written, printed, audiovisual, or graphic 
information, including advertising, pamphlets, flyers, catalogues, 
posters, and signs, distributed, broadcasted, or made available outside 
of retail outlets that are used to assist in the sale or promotion of a 
product.
    Mulch. Any material, such as wood chips, leaves, straw, paper, or 
plastic (on the National List), that serves to suppress weed growth, 
moderate soil temperature, or conserve soil moisture.
    National List. A list of allowed and prohibited substances as 
provided for in section 6517 of the Act (7 U.S.C. 6517).
    National Organic Program (NOP). The program authorized by the Act 
for the purpose of implementing its provisions.
    National Organic Standards Board (NOSB). A Board established by the 
Secretary under 7 U.S.C. 6518 to assist in the development of standards 
for substances to be used in organic production and to advise the 
Secretary on any other aspects of the implementation of the National 
Organic Program.
    Natural resources of the operation. The physical, hydrological, and 
biological features of a production operation, including soil, water, 
wetlands, woodlands, and wildlife.
    Nonagricultural substance. A substance that is not a product of 
agriculture, such as a mineral or a bacterial culture, that is used as 
an ingredient in an agricultural product. For the purposes of this 
part, a nonagricultural ingredient also includes any substance, such as 
gums, citric acid, or pectin, that is extracted from, isolated from, or 
a fraction of an agricultural product, so that the identity of the

[[Page 13612]]

agricultural product is unrecognizable in the extract, isolate, or 
fraction.
    Nonsynthetic (natural). A substance that is derived from mineral, 
plant, or animal matter and does not undergo a synthetic process as 
defined in section 6502(21) of the Act (7 U.S.C. 6502(21)). For the 
purposes of this part, nonsynthetic is used as a synonym for natural as 
the term is used in the Act.
    Nontoxic. Not known to cause any adverse physiological effects in 
animals, plants, humans, or the environment.
    Nonretail container. Any container used for shipping or storage of 
an agricultural product that is not used in the retail display or sale 
of the product.
    Organic. A labeling term that refers to an agricultural product 
produced in accordance with the Act and the regulations in this part.
    Organic matter. The remains, residues, or waste products of any 
organism.
    Organic system plan. A plan of management of an organic production 
or handling operation that has been agreed to by the producer or 
handler and the certifying agent and that includes written plans 
concerning all aspects of agricultural production or handling described 
in the Act and the regulations in subpart C of this part.
    Peer review panel. A panel of individuals who have expertise in 
organic production and handling methods and certification procedures 
and who are appointed by the Administrator to assist in evaluating 
applicants for accreditation as certifying agents.
    Person. An individual, group of individuals, contractor, 
corporation, association, organization, cooperative, or other entity.
    Pesticide. Any substance which alone, in chemical combination, or 
in any formulation with one or more substances is defined as a 
pesticide in section 2(u) of the Federal Insecticide, Fungicide, and 
Rodenticide Act (7 U.S.C. 136(u) et seq).
    Petition. A request to amend the National List that is submitted by 
any person in accordance with this part.
    Planting stock. Any plant or plant tissue, including rhizomes, 
shoots, leaf or stem cuttings, roots, or tubers, used in plant 
production or propagation.
    Practice standard. The guidelines and requirements through which a 
production or handling operation implements a required component of its 
production or handling organic system plan. A practice standard 
integrates a series of allowed and prohibited actions, materials, and 
conditions to establish a minimum level performance for planning, 
conducting, and maintaining a function, such as livestock health care 
or facility pest management, essential to an organic operation.
    Principal display panel. That part of a label that is most likely 
to be displayed, presented, shown, or examined under customary 
conditions of display for sale.
    Private entity. Any domestic or foreign nongovernmental for-profit 
or not-for-profit organization providing certification services.
    Processing. Cooking, baking, curing, heating, drying, mixing, 
grinding, churning, separating, extracting, cutting, fermenting, 
eviscerating, preserving, dehydrating, freezing, or otherwise 
manufacturing and includes the packaging, canning, jarring, or 
otherwise enclosing food in a container.
    Producer. A person who engages in the business of growing or 
producing food, fiber, feed, and other agricultural-based consumer 
products.
    Production lot number/identifier. Identification of a product based 
on the production sequence of the product showing the date, time, and 
place of production used for quality control purposes.
    Prohibited substance. A substance whose use in any aspect of 
organic production or handling is prohibited or not provided for in the 
Act or the regulations of this part.
    Records. Any information in written, visual, or electronic form 
that documents the activities undertaken by a producer, handler, or 
certifying agent to comply with the Act and regulations in this part.
    Residue testing. An official or validated analytical procedure that 
detects, identifies, and measures the presence of chemical substances, 
their metabolites, or degradations products in or on raw or processed 
agricultural products.
    Responsibly connected. Any person who is a partner, officer, 
director, holder, manager, or owner of 10 percent or more of the voting 
stock of an applicant or a recipient of certification or accreditation.
    Retail food establishment. A restaurant; delicatessen; bakery; 
grocery store; or any retail outlet with an in-store restaurant, 
delicatessen, bakery, salad bar, or other eat-in or carry-out service 
of processed or prepared raw and ready-to-eat-food.
    Routine use of parasiticide. The regular, planned, or periodic use 
of parasiticides.
    Secretary. The Secretary of Agriculture or a representative to whom 
authority has been delegated to act in the Secretary's stead.
    Sewage sludge. A solid, semisolid, or liquid residue generated 
during the treatment of domestic sewage in a treatment works. Sewage 
sludge includes, but is not limited to: domestic septage; scum or 
solids removed in primary, secondary, or advanced wastewater treatment 
processes; and a material derived from sewage sludge. Sewage sludge 
does not include ash generated during the firing of sewage sludge in a 
sewage sludge incinerator or grit and screenings generated during 
preliminary treatment of domestic sewage in a treatment works.
    Slaughter stock. Any animal that is intended to be slaughtered for 
consumption by humans or other animals.
    Soil and water quality. Observable indicators of the physical, 
chemical, or biological condition of soil and water, including the 
presence of environmental contaminants.
    State. Any of the several States of the United States of America, 
its territories, the District of Columbia, and the Commonwealth of 
Puerto Rico.
    State certifying agent. A certifying agent accredited by the 
Secretary under the National Organic Program and operated by the State 
for the purposes of certifying organic production and handling 
operations in the State.
    State entity. Any domestic, tribal government, or foreign 
governmental subdivision providing certification services.
    State organic certification program. A State program that meets the 
requirements of section 6506 of the Act, is approved by the Secretary, 
and is designed to ensure that a product that is sold or labeled as 
organically produced under the Act is produced and handled using 
organic methods.
    State program's governing State official. The chief executive 
official of a State or, in the case of a State that provides for the 
statewide election of an official to be responsible solely for the 
administration of the agricultural operations of the State, such 
official, who administers a State organic certification program.
    Synthetic. A substance that is formulated or manufactured by a 
chemical process or by a process that chemically changes a substance 
extracted from naturally occurring plant, animal, or mineral sources, 
except that such term shall not apply to substances created by 
naturally occurring biological processes.
    System of organic production and handling. A system that is 
designed to produce agricultural products by the use of methods and 
substances that maintain the integrity of organic

[[Page 13613]]

agricultural products until they reach the consumer. This is 
accomplished by using, where possible, cultural, biological, and 
mechanical methods, as opposed to using substances, to fulfill any 
specific function within the system so as to: Maintain long-term soil 
fertility; increase soil biological activity; ensure effective pest 
management; recycle wastes to return nutrients to the land; provide 
attentive care for farm animals; and handle the agricultural products 
without the use of extraneous synthetic additives or processing in 
accordance with the Act and regulations in this part.
    Transplant. A seedling which has been removed from its original 
place of production, transported, and replanted.
    Tolerance. The maximum legal level of a pesticide residue in or on 
a raw or processed agricultural commodity as set by the Environmental 
Protection Agency under FFDCA, Section 408.
    Unavoidable residual environmental contamination (UREC). Background 
levels of naturally occurring or synthetic chemicals that are present 
in the soil or present in organically produced agricultural products 
that are below established tolerances.
    Wild crop. Any plant or portion of a plant that is collected or 
harvested from an area of land that is not maintained under cultivation 
or other agricultural management.

Subpart B--Applicability


Sec. 205.100  What has to be certified.

    (a) Except for operations exempt or excluded in Sec. 205.101, each 
production or handling operation or specified portion of a production 
or handling operation that produces or handles crops, livestock, 
livestock products, or other agricultural products that are intended to 
be sold, labeled, or represented as ``100 percent organic,'' 
``organic,'' or ``made with organic (specified ingredients)'' must be 
certified according to the provisions of subpart E of this part and 
must meet all other applicable requirements of this part.
    (b) Any production or handling operation that has been certified by 
a certifying agent on the date that the certifying agent first receives 
its accreditation under this part shall be considered certified to the 
national standards until the operation's anniversary date of 
certification. Such recognition shall only be available to those 
operations certified by a certifying agent that receives its 
accreditation within 18 months from the date of publication of the 
final rule implementing this part.


Sec. 205.101  Exemptions and exclusions from certification.

    (a) Exemptions.
    (1) A production or handling operation that sells agricultural 
products as ``organic'' but whose gross agricultural income from 
organic sales totals $5,000 or less annually is exempt from 
certification under subpart E of this part and from submitting an 
organic system plan for acceptance or approval under Sec. 205.201 but 
must comply with the applicable organic production and handling 
requirements of subpart C of this part and the labeling requirements of 
Sec. 205.309.
    (2) A handling operation that is a retail food establishment or 
portion of a retail food establishment that handles organically 
produced agricultural products but does not process them is exempt from 
the requirements in this part.
    (3) A handling operation or portion of a handling operation that 
handles agricultural products that contain less than 50 percent organic 
ingredients by total weight of the finished product (excluding water 
and salt) is exempt from the requirements in this part, except:
    (i) The provisions for prevention of contact of organic products 
with prohibited substances set forth in Sec. 205.272 with respect to 
any organically produced ingredients used in an agricultural product;
    (ii) The labeling provisions of Sec. 205.309; and
    (iii) The recordkeeping provisions in paragraph (c) of this 
section.
    (4) A handling operation or portion of a handling operation that 
handles agricultural products that contain at least 50 percent organic 
ingredients by total weight of the finished product (excluding water 
and salt) that chooses to not use the word, ``organic,'' on any panel 
other than the information panel is exempt from the requirements in 
this part, except:
    (i) The provisions for prevention of contact of organic products 
with prohibited substances set forth in Sec. 205.272 with respect to 
any organically produced ingredients used in an agricultural product;
    (ii) The labeling provisions of Sec. 205.309; and
    (iii) The recordkeeping provisions in paragraph (c) of this 
section.
    (b) Exclusions.
    (1) A handling operation or portion of a handling operation is 
excluded from the requirements of this part, except for the 
requirements for the prevention of commingling and contact with 
prohibited substances as set forth in Sec. 205.272 with respect to any 
organically produced products if such operation or portion of the 
operation only sells organic agricultural products labeled as ``100 
percent organic,'' ``organic,'' or ``made with organic (specified 
ingredients)'' that:
    (i) Are packaged or otherwise enclosed in a container prior to 
being received or acquired by the operation; and
    (ii) Remain in the same package or container and are not otherwise 
processed while in the control of the handling operation.
    (2) A handling operation that is a retail food establishment or 
portion of a retail food establishment that processes or prepares, on 
the premises of the retail food establishment, raw and ready-to-eat 
food from agricultural products that are previously labeled as ``100 
percent organic,'' ``organic,'' or ``made with organic (specified 
ingredients)'' is excluded from the requirements in this part, except:
    (i) The requirements for the prevention of contact with prohibited 
substances as set forth in Sec. 205.272; and
    (ii) The labeling provisions of Sec. 205.309.
    (c) Records to be maintained by exempt operations.
    (1) Any handling operation exempt from certification pursuant to 
paragraph (a)(3) or (a)(4) of this section must maintain records 
sufficient to:
    (i) Prove that ingredients identified as organic were organically 
produced and handled; and
    (ii) Verify quanities produced from such ingredients.
    (2) Records must be maintained for no less than 3 years beyond 
their creation and the operations must allow representatives of the 
Secretary and the applicable State program's governing State official 
access to these records for inspection and copying during normal 
business hours to determine compliance with the applicable regulations 
set forth in this part.


Sec. 205.102  Use of the term, ``organic.''

    Any agricultural product that is sold, labeled, or represented as 
``100 percent organic,'' ``organic,'' or ``made with organic (specified 
ingredients)'' must be:
    (a) Produced in accordance with the requirements specified in 
Sec. 205.101 or Secs. 205.202 through 205.207 or Secs. 205.236 through 
205.239 and all other applicable requirements of part 205;
    (b) Handled in accordance with the requirements specified in 
Sec. 205.101 or Secs. 205.270 through 205.272 and all other applicable 
requirements of this part 205; and
    (c) Produced and handled in compliance with the Federal Meat

[[Page 13614]]

Inspection Act (21 U.S.C. 601 et seq.), the Poultry Products Inspection 
Act (21) U.S.C. 451 et seq.), and the Egg Products Inspection Act (21 
U.S.C. 1031 et seq.), concerning meat, poultry, and egg products; the 
Federal Food, Drug, and Cosmetic Act (21 U.S.C. 301 et seq.); the 
Federal Insecticide, Fungicide, and Rodenticide Act (7 U.S.C. 136 et 
seq.); and any other applicable Federal statute and its implementing 
regulations.


Sec. 205.103  Recordkeeping by certified operations.

    (a) A certified operation must maintain records concerning the 
production, harvesting, and handling of agricultural products that are 
or that are intended to be sold, labeled, or represented as ``100 
percent organic,'' ``organic,'' or ``made with organic (specified 
ingredients).''
    (b) Such records must:
    (1) Be adapted to the particular business that the certified 
operation is conducting;
    (2) Fully disclose all activities and transactions of the certified 
operation in sufficient detail as to be readily understood and audited;
    (3) Be maintained for not less than 5 years beyond their creation; 
and
    (4) Be sufficient to demonstrate compliance with the Act and the 
regulations in this part.
    (c) The certified operation must make such records available for 
inspection and copying during normal business hours by authorized 
representatives of the Secretary, the applicable State program's 
governing State official, and the certifying agent.


Sec. 205.104  Foreign applicants.

    The regulations in this part, as applicable, apply equally to 
domestic and foreign applicants for accreditation, accredited 
certifying agents, domestic and foreign applicants for certification as 
organic production or handling operations, and certified organic 
production and handling operations unless otherwise specified.


Secs. 205.105--205.199  [Reserved]

Subpart C--Organic Production and Handling Requirements


Sec. 205.200  General.

    The producer or handler of a production or handling operation 
wishing to sell, label, or represent agricultural products as ``100 
percent organic,'' ``organic,'' or ``made with organic (specified 
ingredients)'' must comply with the applicable provisions of this 
subpart. Practices implemented in accordance with this subpart must 
maintain or improve the natural resources of the operation, including 
soil and water quality.


Sec. 205.201  Organic production and handling system plan.

    (a) The producer or handler of a production or handling operation, 
except as exempt or excluded under Sec. 205.101, wishing to sell, 
label, or represent agricultural products as ``100 percent organic,'' 
``organic,'' or ``made with organic (specified ingredients)'' must 
develop an organic production or handling system plan that is agreed to 
by the producer or handler and an accredited certifying agent. An 
organic system plan must meet the requirements set forth in this 
section to establish a system of organic production or handling. An 
organic production or handling system plan must include:
    (1) A description of practices and procedures to be performed and 
maintained, including the frequency with which they will be performed;
    (2) A list of each substance to be used as a production or handling 
input, indicating its composition, source, and location(s) where it 
will be used;
    (3) A description of the monitoring practices and procedures to be 
performed and maintained, including the frequency with which they will 
be performed, to verify that the plan is effectively implemented;
    (4) A description of the recordkeeping system implemented to comply 
with the requirements established in Sec. 205.103;
    (5) A description of practices and procedures to prevent 
commingling of organic and nonorganic products and to prevent contact 
of organic production and handling operations and products with 
prohibited substances; and
    (6) Additional information deemed necessary by the certifying agent 
to evaluate compliance with the regulations.
    (b) A producer may substitute a plan prepared to meet the 
requirements of another Federal, State, or local government regulatory 
program for the organic system plan: Provided, That, the submitted plan 
meets all the requirements of this subpart.


Sec. 205.202  Land requirements.

    Any field or farm parcel from which harvested crops are intended to 
be sold, labeled, or represented as ``100 percent organic,'' 
``organic,'' or ``made with organic (specified ingredients)'' must:
    (a) Have been managed in accordance with the provisions of 
Secs. 205.203 through 205.206;
    (b) Have had no prohibited substances, as listed in Sec. 205.600, 
applied to it for a period of 3 years immediately preceding harvest of 
the crop; and
    (c) Have distinct, defined boundaries and buffer zones such as 
runoff diversions to prevent the unintended application of a prohibited 
substance to the crop or contact with a prohibited substance applied to 
adjoining land that is not under organic management.


Sec. 205.203  Soil fertility and crop nutrient management practice 
standard.

    (a) The producer must select and implement tillage and cultivation 
practices that maintain or improve the physical, chemical, and 
biological condition of soil and minimize soil erosion.
    (b) The producer must budget and supply crop nutrients by properly 
utilizing manure or other animal and plant materials, mined mineral 
substances, and substances approved in Sec. 205.601.
    (c) The producer must manage animal and plant waste materials to 
maintain or improve soil organic matter content in a manner that does 
not contribute to contamination of crops, soil, or water by plant 
nutrients, pathogenic organisms, heavy metals, or residues of 
prohibited substances. Animal and plant waste materials include:
    (1) Raw animal manure, which must be composted unless it is:
    (i) Applied to land used for a crop not intended for human 
consumption;
    (ii) Incorporated into the soil not less than 120 days prior to the 
harvest of a product whose edible portion has direct contact with the 
soil surface or soil particles; or
    (iii) Incorporated into the soil not less than 90 days prior to the 
harvest of a product whose edible portion does not have direct contact 
with the soil surface or soil particles;
    (2) Other uncomposted plant or animal wastes, such as aged, fully 
decomposed animal manure;
    (3) A composted product produced in a facility in compliance with 
the Natural Resources Conservation Service's practice standard for a 
composting facility (Code 317); and
    (4) A composted or uncomposted plant or animal waste material that 
has been chemically altered by a manufacturing process: Provided, That, 
the material is included on the National List of synthetic substances 
allowed for use in organic crop production established in Sec. 205.601.
    (d) In addition to crop rotations and plant and animal waste 
materials, a producer may supply soil and crop nutrients by applying:
    (1) A mined substance of low solubility;
    (2) A mined substance of high solubility, when justified by soil or 
crop tissue analysis;

[[Page 13615]]

    (3) Ash obtained from the burning of a plant or animal material, 
except as prohibited in paragraph (e) of this section: Provided, That, 
the material burned has not been treated or combined with a prohibited 
substance or the ash is not included on the National List of 
nonsynthetic substances prohibited for use in organic crop production; 
and
    (4) A crop nutrient supplement included on the National List of 
synthetic substances allowed for use in organic production, when 
justified by soil or crop tissue analysis.
    (e) The producer must not use:
    (1) Any fertilizer or commercially blended fertilizer or composted 
product that contains a synthetic substance not included on the 
National List of synthetic substances allowed for use in organic 
production;
    (2) Sewage sludge (biosolids) as defined in 40 CFR part 503; and
    (3) Burning as a means of disposal for crop residues produced on 
the operation: Except, That, prunings from perennial crops may be 
burned to suppress the spread of disease.


Sec. 205.204  Seeds and planting stock practice standard.

    (a) The producer must use organically grown seeds, annual 
seedlings, and planting stock: Except, That,
    (1) Nonorganically produced untreated seeds and planting stock may 
be used to produce an organic crop when an equivalent organically 
produced variety is not commercially available;
    (2) Nonorganically produced seeds and planting stock that have been 
treated with a substance included on the National List of synthetic 
substances allowed for use in organic crop production may be used to 
produce an organic crop when an equivalent organically produced or 
untreated variety is not commercially available;
    (3) Nonorganically produced annual seedlings may be used to produce 
an organic crop when a temporary variance has been granted in 
accordance with Sec. 205.290(a)(2);
    (4) Nonorganically produced planting stock to be used to produce a 
perennial crop may be sold, labeled, or represented as organically 
produced only after the planting stock has been maintained under a 
system of organic management for a period of no less than 1 year; and
    (5) Seeds, annual seedlings, and planting stock treated with 
prohibited substances may be used to produce an organic crop when the 
application of the materials is a requirement of Federal or State 
phytosanitary regulations.
    (b) The producer of an organic operation must not use seeds or 
planting stock produced with excluded methods.


Sec. 205.205  Crop rotation practice standard.

    The producer must implement a crop rotation including, but not 
limited to, sod, cover crops, green manure crops, and catch crops that 
provide the following functions that are applicable to the operation:
    (a) Maintain or improve soil organic matter content;
    (b) Provide for pest management in annual and perennial crops;
    (c) Manage deficient or excess plant nutrients; and
    (d) Provide erosion control.


Sec. 205.206  Crop pest, weed, and disease management practice 
standard.

    (a) The producer must use management practices to prevent crop 
pests, weeds, and diseases including, but not limited to:
    (1) Crop rotation and soil and crop nutrient management practices, 
as provided for in Secs. 205.203 and 205.205;
    (2) Sanitation measures to remove disease vectors, weed seeds, and 
habitat for pest organisms; and
    (3) Cultural practices that enhance crop health, including 
selection of plant species and varieties with regard to suitability to 
site-specific conditions and resistance to prevalent pests, weeds, and 
diseases.
    (b) Pest problems may be controlled through mechanical or physical 
methods including, but not limited to:
    (1) Augmentation or introduction of predators or parasites of the 
pest species;
    (2) Development of habitat for natural enemies of pests;
    (3) Nonsynthetic, nontoxic controls such as lures, traps, and 
repellents.
    (c) Weed problems may be controlled through:
    (1) Mulching with fully biodegradable materials;
    (2) Mowing;
    (3) Livestock grazing;
    (4) Hand weeding and mechanical cultivation;
    (5) Flame, heat, or electrical means; or
    (6) Plastic or other synthetic mulches: Provided, That, they are 
removed from the field at the end of the growing or harvest season.
    (d) Disease problems may be controlled through:
    (1) Management practices which suppress the spread of disease 
organisms; or
    (2) Application of nonsynthetic biological, botanical, or mineral 
inputs.
    (e) When the practices provided for in paragraphs (a) through (d) 
of this section are insufficient to prevent or control crop pests, 
weeds, and diseases, a biological or botanical substance or a substance 
included on the National List of synthetic substances allowed for use 
in organic production may be applied to prevent, suppress, or control 
pests, weeds, or diseases: Provided, That, the producer implements 
measures to evaluate and mitigate the effects of repetitive use of the 
same or similar materials on pest resistance and shifts in pest, weed, 
or disease types, and the substance is used in compliance with the 
Federal Insecticide, Fungicide, and Rodenticide Act.
    (f) The producer or handler of an organic operation must not use a 
pest, weed, or disease control substance produced through excluded 
methods.


Sec. 205.207  Wild-crop harvesting practice standard.

    (a) Any area from which a wild crop that is intended to be sold, 
labeled, or represented as organic is harvested must have had no 
prohibited substance, as set forth in Sec. 205.600, applied to it for a 
period of 3 years immediately preceding the harvest of the wild crop.
    (b) A wild-crop must be harvested in a manner that ensures that 
such harvesting or gathering will not be destructive to the environment 
and will sustain the growth and production of the wild crop.


Secs. 205.208--205.235  [Reserved]


Sec. 205.236  Origin of livestock.

    (a) Livestock or edible livestock products that are to be sold, 
labeled, or represented as organic must be from livestock under 
continuous organic management from birth or hatching: Except, That,
    (1) Poultry. Poultry or edible poultry products must be from 
poultry that has been under continuous organic management beginning no 
later than the second day of life;
    (2) Dairy Animals. Milk or milk products must be from animals that 
have been under continuous organic management beginning no later than 1 
year prior to the production of the milk or milk products that are to 
be sold, labeled, or represented as organic.
    (3) Nonedible products. Nonedible livestock products must be from 
animals that have been under continuous organic management not less 
than 1 year prior to harvest of the nonedible product.
    (4) Breeder stock. Livestock used as breeder stock may be brought 
from a nonorganic operation onto an organic operation at any time: 
Provided, That, if such livestock are gestating and the offspring are 
to be raised as organic

[[Page 13616]]

livestock, the breeder stock must be brought onto the facility prior to 
the last third of pregnancy.
    (b) The following are prohibited:
    (1) Livestock or edible livestock products that are removed from an 
organic operation and subsequently managed on a nonorganic operation 
may be not sold, labeled, or represented as organically produced.
    (2) Breeder or dairy stock that has not been under continuous 
organic management since birth may not be sold, labeled, or represented 
as organic slaughter stock; and
    (3) No organism produced by excluded methods may be used for 
breeding purposes or for the production of livestock products intended 
to be sold, labeled, or represented as organic.
    (c) The producer of an organic livestock operation must maintain 
records sufficient to preserve the identity of all organically managed 
animals and edible and nonedible animal products produced on the 
operation.


Sec. 205.237  Livestock feed.

    (a) The producer of an organic livestock operation must provide 
livestock with a total feed ration composed of agricultural products, 
including pasture and forage, that is organically produced and, if 
applicable, organically handled: Except, That, nonagricultural products 
and synthetic substances allowed under Sec. 205.603 may be used as feed 
additives and supplements.
    (b) The producer of an organic operation must not:
    (1) Use animal drugs, including hormones, to promote growth;
    (2) Provide feed supplements or additives in amounts above those 
needed for adequate nutrition and health maintenance for the species at 
its specific stage of life;
    (3) Feed plastic pellets for roughage;
    (4) Feed formulas containing urea or manure;
    (5) Feed mammalian or poultry slaughter by-products to mammals or 
poultry; or
    (6) Use feed, feed additives, and feed supplements in violation of 
the Federal Food, Drug, and Cosmetic Act.


Sec. 205.238  Livestock health care practice standard.

    (a) The producer must establish and maintain preventive livestock 
health care practices, including:
    (1) Selection of species and types of livestock with regard to 
suitability for site-specific conditions and resistance to prevalent 
diseases and parasites;
    (2) Provision of feedstuffs sufficient to meet nutritional 
requirements, including vitamins, minerals, and other additives or 
supplements;
    (3) Establishment of appropriate housing, pasture conditions, and 
sanitation practices to minimize the occurrence and spread of diseases 
and parasites;
    (4) Provision of conditions which allow for exercise, freedom of 
movement, and reduction of stress appropriate to the species;
    (5) Performance of physical alterations as needed to promote the 
animal's welfare and in a manner that minimizes pain and stress; and
    (6) Administration of vaccines and other veterinary biologics.
    (b) When preventive practices and veterinary biologics are 
inadequate to prevent sickness, a producer may administer synthetic 
medications: Provided, That, such medications are allowed under 
Sec. 205.603. Parasiticides allowed under Sec. 205.603 may be used on
    (1) Breeder stock, when used prior to the last third of gestation 
for progeny that are to be sold, labeled, or represented as organically 
produced; and
    (2) Dairy stock, when used a minimum of 90 days prior to the 
production of milk or milk products that are to be sold, labeled, or 
represented as organic.
    (c) The producer of an organic livestock operation must not:
    (1) Sell, label, or represent as organic any animal or edible 
product derived from any animal treated with antibiotics, any substance 
that contains a synthetic substance not allowed under Sec. 205.603, or 
any substance that contains a nonsynthetic substance prohibited in 
Sec. 205.604.
    (2) Administer any animal drug, other than vaccinations, in the 
absence of illness;
    (3) Administer hormones;
    (4) Administer synthetic parasiticides on a routine basis;
    (5) Administer synthetic parasiticides to slaughter stock;
    (6) Administer animal drugs in violation of the Federal Food, Drug, 
and Cosmetic Act; or
    (7) Withhold medical treatment from a sick animal in an effort to 
preserve its organic status. All appropriate medications must be used 
to restore an animal to health when methods acceptable to organic 
production fail. Livestock treated with a prohibited substance must be 
clearly identified and shall not be sold, labeled, or represented as 
organically produced.


Sec. 205.239  Livestock living conditions.

    (a) The producer of an organic livestock operation must establish 
and maintain livestock living conditions which accommodate the health 
and natural behavior of animals, including:
    (1) Access to shade, shelter, exercise areas, fresh air, and direct 
sunlight suitable to the species, its stage of production, the climate, 
and the environment;
    (2) Access to pasture for ruminants;
    (3) Appropriate clean, dry bedding. If the bedding is typically 
consumed by the animal species, it must comply with the feed 
requirements of Sec. 205.237;
    (4) Shelter designed to allow for:
    (i) Natural maintenance, comfort behaviors, and opportunity to 
exercise;
    (ii) Temperature level, ventilation, and air circulation suitable 
to the species; and
    (iii) Reduction of potential for livestock injury;
    (b) The producer of an organic livestock operation may provide 
temporary confinement for an animal because of:
    (1) Inclement weather;
    (2) The animal's stage of production;
    (3) Conditions under which the health, safety, or well being of the 
animal could be jeopardized; or
    (4) Risk to soil or water quality.
    (c) The producer of an organic livestock operation must manage 
manure in a manner that does not contribute to contamination of crops, 
soil, or water by plant nutrients, heavy metals, or pathogenic 
organisms and optimizes recycling of nutrients.


Secs. 205.240--205.269  [Reserved]


Sec. 205.270  Organic handling requirements.

    (a) Mechanical or biological methods, including, but not limited 
to, cooking, baking, heating, drying, mixing, grinding, churning, 
separating, extracting, slaughtering, cutting, fermenting, 
eviscerating, preserving, dehydrating, freezing, chilling, or otherwise 
manufacturing, and the packaging, canning, jarring, or otherwise 
enclosing food in a container may be used to process an agricultural 
product intended to be sold, labeled, or represented as ``100 percent 
organic,'' ``organic,'' or ``made with organic (specified 
ingredients)'' for the purpose of retarding spoilage or otherwise 
preparing the agricultural product for market.
    (b) Nonagricultural substances allowed under Sec. 205.605 and 
nonorganically produced agricultural products allowed under 
Sec. 205.606 may be used in or on a processed agricultural product 
intended to be sold, labeled, or represented as ``organic'' or ``made 
with organic (specified ingredients).''
    (c) The handler of an organic handling operation must not use in or 
on an

[[Page 13617]]

agricultural product intended to be sold, labeled, or represented as 
``100 percent organic,'' ``organic,'' or ``made with organic (specified 
ingredients)'':
    (1) Ionizing radiation for any purpose;
    (2) An ingredient produced with excluded methods; or
    (3) A volatile synthetic solvent or any other synthetic processing 
aid not allowed under Sec. 205.605 as ingredients in or on processed 
products labeled as organic or made with organic ingredients.


Sec. 205.271  Facility pest management practice standard.

    (a) The producer or handler of an organic facility must use 
management practices to prevent pests, including, but not limited to:
    (1) Removal of pest habitat, food sources, and breeding areas;
    (2) Prevention of access to handling facilities; or
    (3) Management of environmental factors, such as temperature, 
light, humidity, atmosphere, and air circulation to prevent pest 
reproduction.
    (b) Pests may be controlled through:
    (1) Augmentation or introduction of predators or parasites for the 
pest species;
    (2) Mechanical or physical controls including, but not limited to, 
traps, light, or sound; or
    (3) Nontoxic, nonsynthetic controls, such as lures and repellents.
    (c) If the practices provided for in paragraphs (a) and (b) of this 
section are not effective to prevent or control facility pests, a 
nonsynthetic biological or botanical substance or a synthetic substance 
may be applied to prevent, suppress, or control pests: Provided, That, 
the substance is applied in the manner consistent with its label as 
approved by the Federal, State, and local regulatory authorities.
    (d) The handler of an organic handling operation who applies a 
nonsynthetic biological or botanical substance or a synthetic substance 
for the prevention or control of a pest must include in the organic 
handling plan a list of all measures taken or intended to be taken to 
prevent contact between the substance and any ingredient or finished 
product intended to be sold, labeled, or represented as ``organic'' or 
``made with organic (specified ingredients).''
    (e) The handler of an organic handling operation who applies a 
nonsynthetic biological or botanical substance or a synthetic substance 
for the prevention or control of a pest must include in the organic 
handling plan an evaluation of the effects of repetitive use of the 
same or similar materials on pest resistance and shifts in pest types.


Sec. 205.272  Commingling and contact with prohibited substance 
prevention practice standard.

    (a) The handler of an organic handling operation must implement 
measures necessary to prevent the commingling of organic and nonorganic 
products and protect organic products from contact with prohibited 
substances.
    (b) The following methods and substances are prohibited for use in 
the handling of any agricultural product intended to be sold, labeled, 
or represented as ``100 per cent organic,'' ``organic,'' or ``made with 
organic (specified ingredients)'':
    (1) Packaging materials and storage containers or bins that contain 
a synthetic fungicide, preservative, or fumigant;
    (2) The use or reuse of any bag or container that had previously 
been in contact with any substance in such a manner as to compromise 
the organic integrity of any products unless, after use for 
conventional products, the reusable bin or container has been 
thoroughly cleaned and poses no risk of prohibited materials contacting 
the organic product.


Secs. 205.273--205.289  [Reserved]


Sec. 205.290  Temporary variances.

    (a) Temporary variances from the requirements in Secs. 205.203 
through 205.207, 205.236 through 205.239, and 205.270 through 205.272 
may be established by the Administrator for the following reasons:
    (1) Natural disasters declared by the Secretary;
    (2) Damage caused by wind, flood, excessive moisture, tornado, 
earthquake, fire, or other business interruption; and
    (3) Practices used for the purpose of conducting research or trials 
of techniques, varieties, or ingredients used in organic production or 
handling.
    (b) A certifying agent may recommend in writing to the 
Administrator a temporary variance from a standard set forth in subpart 
C of this part for organic production or handling operations: Provided, 
That, such variance may only be recommended for the reasons listed in 
paragraph (a) of this section.
    (c) The Administrator will provide written notification to 
certifying agents upon establishment of a temporary variance applicable 
to the certifying agent's certified production or handling operations. 
When establishing a temporary variance, the Administrator shall specify 
the period of time it shall remain in effect, subject to extension as 
the Administrator deems necessary.
    (d) A certifying agent, upon notification from the Administrator of 
the establishment of a temporary variance, must notify each production 
or handling operation it certifies within the affected geographical 
area or the individual organic production or handling operation(s) to 
which the temporary variance applies.
    (e) Temporary variances may not be requested for any practice, 
material, or procedure otherwise prohibited in these regulations.

Subpart D--Labels, Labeling, and Market Information


Sec. 205.300  Use of the term, ``organic.''

    (a) The term, ``organic,'' may only be used on labels and in 
labeling of raw or processed agricultural products, including 
ingredients, that have been produced and handled in accordance with the 
regulations in this part.
    (b) Products for export, produced and certified to foreign national 
organic standards or foreign contract buyer requirements, may be 
labeled in accordance with the organic labeling requirements of the 
receiving country or contract buyer: Provided, That, the shipping 
containers and shipping documents meet the labeling requirements 
specified in Sec. 205.306(c).
    (c) Products produced in a foreign country and exported for sale in 
the United States must be certified pursuant to subpart E of this part 
and labeled pursuant to this subpart D.


Sec. 205.301  Product composition.

    (a) Products sold, labeled, or represented as ``100 percent 
organic.'' A raw or processed agricultural product sold, labeled, or 
represented as ``100 percent organic'' must contain (by weight or fluid 
volume, excluding water and salt) not less than 100 percent organically 
produced raw or processed agricultural product. No such product or 
product ingredient may contain or be created using excluded methods or 
be produced using sewage sludge or ionizing radiation. If labeled as an 
organic food product, such product must be labeled pursuant to 
Sec. 205.303.
    (b) Products sold, labeled, or represented as ``organic.'' A raw or 
processed agricultural product sold, labeled, or represented as 
``organic'' must contain (by weight or fluid volume, excluding water 
and salt) not less than 95 percent organically produced raw or 
processed agricultural product. Any remaining product ingredients must 
consist of nonagricultural substances or nonorganically produced 
agricultural products approved in the National List of Allowed and 
Prohibited Substances in subpart G of this part and must not

[[Page 13618]]

contain or be created using excluded methods or be produced using 
sewage sludge or ionizing radiation. If labeled as an organic food 
product, such products must be labeled pursuant to Sec. 205.303.
    (c) Products sold, labeled, or represented as ``made with organic 
(specified ingredients).'' Multiingredient agricultural product sold, 
labeled, or represented as ``made with organic (specified 
ingredients)'' must contain (by weight or fluid volume, excluding water 
and salt) at least 50 percent organically produced agricultural 
products which are produced and handled pursuant to requirements in 
subpart C of this part. The nonorganic ingredients must not contain or 
be created using excluded methods or be produced using sewage sludge or 
ionizing radiation. If labeled as an organic food product, such 
products must be labeled pursuant to Sec. 205.304.
    (d) Products with less than 50 percent organic ingredients. The 
organic ingredients in multiingredient agricultural product containing 
less than 50 percent organic ingredients (by weight or fluid volume, 
excluding water and salt) must be produced and handled pursuant to 
requirements in subpart C of this part. The nonorganic ingredients may 
be produced and handled without regard to the requirements of this 
part. Multiingredient agricultural product containing less than 50 
percent organically produced ingredients may represent the organic 
nature of the product only as provided in Sec. 205.305.
    (e) All ingredients identified as ``organic'' in the ingredient 
statement of any product must not:
    (1) Be produced using excluded methods or products of excluded 
methods as ingredients or processing aids;
    (2) Be produced using sewage sludge;
    (3) Be processed using ionizing radiation;
    (4) Be processed using processing aids not approved on the National 
List of Allowed and Prohibited Substances in subpart G of this part: 
Except, That, products labeled as ``100 percent organic,'' if 
processed, must be processed using no processing aids;
    (5) Contain sulfites, nitrates, or nitrites added during the 
production or handling process;
    (6) Be produced using nonorganic ingredients when organic 
ingredients are not available; or
    (7) Include organic and nonorganic forms of the same ingredient.


Sec. 205.302  Calculating the percentage of organically produced 
ingredients.

    (a) The percentage of all organically produced ingredients in an 
agricultural product sold, labeled, or represented as ``100 percent 
organic,'' ``organic,'' or ``made with organic (specified 
ingredients),'' or that include organic ingredients must be calculated 
by:
    (1) Dividing the total net weight (excluding water and salt) of 
combined organic ingredients by the total weight (excluding water and 
salt) of the finished product.
    (2) Dividing the fluid volume of all organic ingredients (excluding 
water and salt) by the fluid volume of the finished product (excluding 
water and salt) if the product and ingredients are liquid. If the 
liquid product is identified on the principal display panel or 
information panel as being reconstituted from concentrates, the 
calculation should be made on the basis of single-strength 
concentrations of the ingredients and finished product.
    (3) For products containing organic ingredients in both solid and 
liquid form, dividing the combined weight of the solid ingredients and 
the weight of the liquid ingredients (excluding water and salt) by the 
total weight (excluding water and salt) of the finished product.
    (b) The percentage of all organically produced ingredients in an 
agricultural product must be rounded down to the nearest whole number 
and indicated on the information panel above the ingredient statement 
with the words, ``contains X percent organic ingredients.''
    (c) The percentage must be calculated by the handler who affixes 
the label on the consumer package and verified by the certifying agent 
of the handler.


Sec. 205.303  Packaged products labeled ``100 percent organic'' or 
``organic.''

    (a) Agricultural products in packages described in Sec. 205.301(a) 
and (b) may display, on the principal display panel, information panel, 
and any other panel of the package and on any labeling or market 
information concerning the product, the following terms:
    (1) The term, ``100 percent organic'' or ``organic,'' as 
applicable, to modify the name of the product;
    (2) The USDA Seal;
    (3) The seal, logo, or other identifying mark of the certifying 
agent which certified the production or handling operation producing 
the finished product and any other certifying agent which certified 
production or handling operations producing raw organic product or 
organic ingredients used in the finished product: Provided, That, the 
handler producing the finished product maintain records, pursuant to 
this part, verifying organic certification of the operations producing 
such ingredients, and: Provided further, That, such seals or marks are 
not, individually, displayed more prominently than the USDA Seal.
    (b) Agricultural products in packages described in Sec. 205.301(a) 
and (b) must:
    (1) On the information panel of multiingredient products and 
consistent with the labeling requirements of the Food and Drug 
Administration, declare the total percentage of organic ingredients in 
the product.
    (2) In the ingredient statement, modify each organic ingredient of 
multiingredient products with the word, ``organic'': Except, That, 
ingredients in multiingredient products labeled ``100 percent organic'' 
are not required to modified with the term ``organic.'' Any water or 
salt included as an ingredient will not be identified as organic.
    (3) On the information panel, below the information identifying the 
handler or distributor of the product and preceded by the statement, 
``Certified organic by * * *,'' or similar phrase, identify the name of 
the certifying agent that certified the handler of the finished 
product: Except, That, the business address or telephone number of the 
certifying agent may be included in such label.


Sec. 205.304  Packaged products labeled ``made with organic (specified 
ingredients).''

    (a) Agricultural products in packages described in Sec. 205.301(c) 
may display on the principal display panel, information panel, and any 
other panel and on any labeling or market information concerning the 
product:
    (1) The statement, ``made with organic (specified ingredients)'': 
Provided, That, display of the statement is consistent with labeling 
requirements of the Food and Drug Administration and:
    (i) Does not list more than three organic ingredients;
    (ii) Does not exceed one-half the size of the largest type size on 
the panel; and
    (iii) Appears in its entirety in the same type size, style, and 
color without highlighting; and
    (2) The seal, logo, or other identifying mark of the certifying 
agent that certified the handler of the finished product.
    (b) Agricultural products in packages described in Sec. 205.301(c) 
must:
    (1) On the information panel and consistent with the labeling 
requirements of the Food and Drug Administration, declare the total 
percentage of organic ingredients in the product.

[[Page 13619]]

    (2) In the ingredient statement, modify each organic ingredient 
with the word, ``organic.'' Any water or salt included as an ingredient 
will not be identified as organic.
    (3) On the information panel, below the information identifying the 
handler or distributor of the product and preceded by the statement, 
``Certified organic by * * *,'' or similar phrase, identify the name of 
the certifying agent that certified the handler of the finished 
product: Except, That, the business address or telephone number of the 
certifying agent may be included in such label.
    (c) Agricultural products in packages described in Sec. 205.301(c) 
must not display the USDA Seal.


Sec. 205.305  Multiingredient packaged products with less than 50 
percent organic ingredients.

    (a) Agricultural products with less than 50 percent organic 
ingredients must:
    (1) On the information panel and consistent with the labeling 
requirements of the Food and Drug Administration, declare the total 
percentage of organic ingredients in the product.
    (2) In the ingredient statement, modify each organic ingredient 
with the word, ``organic.''
    (b) Agricultural products with less than 50 percent organic 
ingredients must not display:
    (1) The USDA Seal and
    (2) Any certifying agent's seal, logo, or other identifying mark.


Sec. 205.306  Labeling of nonretail containers used for only shipping 
or storage of raw or processed agricultural products labeled as ``100 
percent organic,'' ``organic,'' or ``made with organic (specified 
ingredients).''

    (a) Nonretail containers used only to ship or store raw or 
processed agricultural product labeled as containing organic 
ingredients may display the following terms or marks:
    (1) The name and contact information of the certifying agent which 
certified the handler which assembled the final product;
    (2) Identification of the product as ``organic product'';
    (3) Special handling instructions needed to maintain the organic 
integrity of the product;
    (4) The USDA Seal;
    (5) The seal, logo, or other identifying mark of the certifying 
agent that certified the organic production or handling operation that 
produced or handled the finished product.
    (b) If not required under other Federal labeling regulations, 
nonretail containers used to ship or store raw or processed 
agricultural product labeled as containing organic ingredients must 
display the production lot number of the product, if applicable.
    (c) Shipping containers of domestically produced product labeled as 
organic intended for export to international markets may be labeled 
consistent with any shipping container labeling requirements of the 
foreign country of destination or the container labeling specifications 
of a foreign contract buyer: Provided, That, the shipping containers 
and shipping documents accompanying such organic product be clearly 
marked ``For export only'' and: Provided further, That, proof of such 
container marking and export must be maintained by the handler, 
consistent with recordkeeping requirements for exempt and excluded 
operations under Sec. 205.101.


Sec. 205.307  Agricultural products in other than packaged form at the 
point of retail sale that are sold, labeled, or represented as ``100 
percent organic'' or ``organic.''

    (a) Agricultural products labeled or represented as ``100 percent 
organic'' or ``organic'' in retail display, labeling, and display 
containers may use the term, ``100 percent organic'' or ``organic,'' as 
applicable, to modify the name of the product: Provided, That, such 
products are assembled in a manufacturing facility certified in 
accordance with the requirements of this part; and, Provided further, 
Than, the word, ``organic,'' is used to modify the organic ingredients 
listed in the ingredient statement of the products.
    (b) The retail display, labeling, and display containers may use:
    (1) The USDA Seal;
    (2) The seal, logo, or other identifying mark of the certifying 
agent that certified the production or handling operation producing the 
finished product and any other certifying agent which certified 
operations producing raw organic product or organic ingredients used in 
the finished product: Provided, That, such seals or marks are not, 
individually, displayed more prominently than the USDA Seal.


Sec. 205.308  Agricultural products in other than packaged form at the 
point of retail sale that are sold, labeled, or represented as ``made 
with organic (specified ingredients).''

    (a) Retail displays, display containers, and market information of 
agricultural products containing between 50 and 95 percent organic 
ingredients may use the phrase, ``made with organic (specified 
ingredients)'' Provided, That, such products have been assembled at a 
manufacturing facility certified in accordance with the requirements of 
this part, and:
    (1) Such statement does not list more than three organic 
ingredients, and
    (2) In any such display of the product's ingredient statement, the 
organic ingredients must be modified as ``organic.''
    (b) Such agricultural products labeled as ``made with organic 
(specified ingredients)'' in retail displays, display containers, and 
market information may display the certifying agent's seal, logo, or 
other identifying mark.


Sec. 205.309  Agricultural products produced on an exempt or excluded 
operation.

    (a) An agricultural product organically produced or handled on an 
exempt or excluded operation must not:
    (1) Display the USDA Seal or any certifying agent's seal or other 
identifying mark which represents that the production or handling 
operation as a certified organic operation, or
    (2) Be represented as a certified organic product to any buyer.
    (b) An agricultural product organically produced or handled on an 
exempt or excluded operation may be identified as an organic product or 
organic ingredient in a multiingredient product produced by the exempt 
or excluded operation. Such product or ingredient must not be 
identified as ``organic'' in a product processed by others.
    (c) Such product is subject to labeling requirements specified in 
paragraph (a) of Sec. 205.300, and paragraphs (e)(1) through (e)(7) of 
Sec. 205.301.


Sec. 205.310  USDA Seal.

    (a) The USDA Seal described in paragraphs (b) and (c) of this 
section may be used only for agricultural products (raw or processed) 
described in Sec. 205.301(a) and (b).
    (b) The USDA Seal must replicate the form and design of the example 
in figure 1 and must be printed legibly and conspicuously:
    (1) On a white, light colored, or transparent background with 
contrasting dark color words and shield outline or on a dark colored 
background with contrasting white or light colored words and shield 
outline; or
    (2) On a white background with dark blue colored words and red 
shield outline.
BILLING CODE 3410-02-P

[[Page 13620]]

[GRAPHIC] [TIFF OMITTED] TP13MR00.000

BILLING CODE 3410-02-C

Subpart E--Certification


Sec. 205.400  General requirements for certification.

    A person seeking to receive or maintain organic certification under 
the regulations in this part must:
    (a) Comply with the Act and applicable organic production and 
handling regulations of this part;
    (b) Establish, implement, and update annually an organic production 
or handling system plan that is submitted to an accredited certifying 
agent as provided for in Sec. 205.200;
    (c) Permit on-site inspections with complete access to the 
production or handling operation, including noncertified areas and 
structures, by the certifying agent as provided for in Sec. 205.403;
    (d) Maintain all records applicable to the organic operation for 
not less than 5 years beyond their creation and allow authorized 
representatives of the Secretary, the applicable State program's 
governing State official, and the certifying agent access to such 
records during normal business hours for review and copying to 
determine compliance with the Act and the regulations in this part, as 
provided for in Sec. 205.104;
    (e) Submit the applicable fees charged by the certifying agent; and
    (f) Immediately notify the certifying agent concerning any:
    (1) Application, including drift, of a prohibited substance to any 
field, production unit, site, facility, livestock, or product that is 
part of an operation; and
    (2) Change in a certified operation or any portion of a certified 
operation that may affect its compliance with the Act and the 
regulations in this part.


Sec. 205.401  Application for Certification.

    A person seeking certification of a production or handling 
operation under this subpart must submit a request for certification to 
a certifying agent. The request must include the following information:
    (a) An organic production or handling system plan, as required in 
Sec. 205.200;
    (b) The name of the person completing the application; the 
applicant's business name, address, and telephone number; and, when the 
applicant is a corporation, the name, address, and telephone number of 
the person authorized to act on the applicant's behalf.
    (c) The name(s) of any organic certifying agent(s) to which 
application has previously been made, the year(s) of application, and 
the outcome of the application(s) submission, including a copy of any 
notification of noncompliance or denial of certification issued to the 
applicant for certification and a description of the actions taken by 
the applicant to correct the deficiencies noted in the notification of 
noncompliance, including evidence of such correction and;
    (d) Other information necessary to determine compliance with the 
Act and the regulations in this part.


Sec. 205.402  Review of application.

    (a) Upon acceptance of an application for certification a 
certifying agent must:
    (1) Review the application to ensure completeness pursuant to 
Sec. 205.401;
    (2) Determine by a review of the application materials whether the 
applicant appears to comply or may be able to comply with the 
applicable requirements of subpart C of this part;
    (3) Verify that an applicant who previously applied to another 
certifying agent and received a notification of noncompliance, pursuant 
to Sec. 205.405(a), has submitted documentation to support the 
correction of any deficiencies identified in such notification, as 
required in Sec. 205.405(b); and
    (4) Schedule an on-site inspection of the operation to determine 
whether the applicant qualifies for certification if the review of 
application materials reveals that the production or handling operation 
may be in compliance with the applicable requirements of subpart C of 
this part.
    (b) The certifying agent shall communicate to the applicant its 
findings on the review of application materials specified in 
Sec. 205.402(a).
    (c) The applicant may withdraw its application at any time. An 
applicant who withdraws its application shall be liable for the costs 
of services provided up to the time of withdrawal of its application. 
An applicant that voluntarily withdrew its application prior to the 
issuance of a notice of noncompliance will not be issued a notice of 
noncompliance. Similarly, an applicant that voluntarily withdrew its 
application prior to the issuance of a notice of certification denial 
will not be issued a notice of certification denial.


Sec. 205.403  On-site inspections.

    (a) On-site inspections.
    (1) A certifying agent must conduct an initial on-site inspection 
of each production unit, facility, and site that is included in an 
operation for which certification is requested and an on-site 
inspection of each certified operation annually thereafter, for the 
purpose of determining whether to approve the request for certification 
or whether the certification of the operation should continue.
    (2)(i) A certifying agent may conduct additional on-site 
inspections of applicants for certification and certified operations to 
determine compliance with the Act and the regulations in this part.
    (ii) The Administrator or State program's governing State official 
may require that additional inspections be performed by the certifying 
agent for the purpose of determining compliance with the Act and the 
regulations in this part.
    (iii) Additional inspections may be announced or unannounced at the 
discretion of the certifying agent or as required by the Administrator 
or State program's governing State official.
    (b) Scheduling. The initial on-site inspection must be conducted 
within a reasonable time following a determination that the applicant 
appears to comply or may be able to comply with the requirements of 
subpart C of this part. On-site inspections must be conducted when the 
applicant or an authorized representative of the applicant who is 
knowledgeable about the operation is present and at a time when land, 
facilities, and activities that demonstrate the operation's compliance 
with or capability to comply with the applicable provisions of subpart 
C of this part can be observed, except that this requirement does not 
apply to unannounced on-site inspections.
    (c) Verification of information. The on-site inspection of an 
operation must verify:
    (1) The operation's compliance or capability to comply with the Act 
and the regulations in this part;
    (2) That the information, including the organic production or 
handling system plan, provided in accordance with Secs. 205.401, 
205.406, and 205.200, accurately reflects the practices used or to be 
used by the applicant for

[[Page 13621]]

certification or by the certified operation;
    (3) That prohibited substances have not been and are not being 
applied to the operation through means which, at the discretion of the 
certifying agent, may include the collection and testing of soil; 
water; waste; seeds; plant tissue; and plant, animal, and processed 
products samples.
    (d) Exit interview. The inspector must conduct an exit interview 
with an authorized representative of the inspected operation to confirm 
the accuracy and completeness of inspection observations and 
information gathered during the on-site inspection. The inspector must 
also address the need for any additional information as well as any 
issues of concern.


Sec. 205.404  Approval of certification.

    (a) Within a reasonable time after completion of the initial on-
site inspection, a certifying agent must review the on-site inspection 
report, the results of any analyses for substances conducted, and any 
additional information requested from or supplied by the applicant. If 
the certifying agent determines that the organic system plan and all 
procedures and activities of the applicant's operation are in 
compliance with the requirements of this part and that the applicant is 
able to conduct operations in accordance with the plan, the agent shall 
approve certification. The approval may include restrictions as a 
condition of continued certification.
    (b) The certifying agent must issue a certificate of organic 
operation which specifies the:
    (1) Name and address of the certified operation;
    (2) Effective date of certification;
    (3) Categories of organic operation, including crops, wild crops, 
livestock, or processed products produced by the certified operation; 
and
    (4) Name, address, and telephone number of the certifying agent.
    (c) Once certified, a production or handling operation's organic 
certification continues in effect until surrendered by the organic 
operation or suspended or revoked by the certifying agent, the State 
program's governing State official, or the Administrator.


Sec. 205.405  Denial of certification.

    (a) When the certifying agent has reason to believe, based on a 
review of the information specified in Sec. 205.402 or Sec. 205.404, 
that an applicant for certification is not able to comply or is not in 
compliance with the requirements of this part, the certifying agent 
must provide a written notification of noncompliance to the applicant 
pursuant to Sec. 205.662(a). When correction of a noncompliance is not 
possible, a notification of noncompliance and a notification of denial 
of certification may be combined in one notification.
    (b) Upon receipt of such notification of noncompliance, the 
applicant may:
    (1) Correct deficiencies and submit a description of the corrective 
actions taken with supporting documentation to the certifying agent;
    (2) Correct deficiencies and submit a new application to another 
certifying agent: Provided, That, the applicant must include a complete 
application, the notification of noncompliance received from the first 
certifying agent, and a description of the corrective actions taken 
with supporting documentation; or
    (3) Submit written information to rebut the noncompliance described 
in the notification of noncompliance.
    (c) After issuance of a notification of noncompliance, the 
certifying agent must:
    (1) Evaluate the applicant's corrective actions taken and 
supporting documentation submitted or the written rebuttal, conduct an 
on-site inspection if necessary, and;
    (i) When the corrective action or rebuttal is sufficient for the 
applicant to qualify for certification, issue the applicant an approval 
of certification pursuant to Sec. 205.404; or
    (ii) When the corrective action or rebuttal is not sufficient for 
the applicant to qualify for certification, issue the applicant a 
written notice of denial of certification.
    (2) Issue a written notice of denial of certification to an 
applicant who fails to respond to the notification of noncompliance.
    (3) Provide notice of approval or denial to the Administrator, 
pursuant to Sec. 205.501(a)(14).
    (d) A notice of denial of certification must state the reason(s) 
for denial and the applicant's right to:
    (1) Reapply for certification pursuant to Secs. 205.401 and 
205.405(e);
    (2) Request mediation pursuant to Sec. 205.663 or, if applicable, 
pursuant to a State program; or
    (3) File an appeal pursuant to Sec. 205.681 or, if applicable, 
pursuant to a State program of the denial of certification.
    (e) An applicant for certification who has received a written 
notification of noncompliance or a written notice of denial of 
certification may apply for certification again at any time with any 
certifying agent, in accordance with Secs. 205.401 and 205.405(e). When 
such applicant submits a new application to a certifying agent other 
than the agent who issued the notification of noncompliance or notice 
of denial of certification, the applicant for certification must 
include a copy of the notification of noncompliance or notice of denial 
of certification and a description of the actions taken, with 
supporting documentation, to correct the deficiencies noted in the 
notification of noncompliance.
    (f) A certifying agent who receives a new application for 
certification, which includes a notification of noncompliance or a 
notice of denial of certification, must treat the application as a new 
application and begin a new application process pursuant to 
Sec. 205.402.
    (g) Notwithstanding paragraph (a) of this section, if a certifying 
agent has reason to believe that an applicant for certification has 
willfully made a false statement or otherwise purposefully 
misrepresented the applicant's operation or its compliance with the 
certification requirements pursuant to this part, the certifying agent 
may deny certification pursuant to paragraph (c)(1)(ii) of this section 
without first issuing a notification of noncompliance.


Sec. 205.406  Continuation of certification.

    (a) To continue certification, a certified operation must annually 
submit the following information, as applicable, to the certifying 
agent:
    (1) An updated organic production or handling system plan which 
includes:
    (i) A summary statement, supported by documentation, detailing any 
deviations from, changes to, modifications to, or other amendments made 
to the previous year's organic system plan during the previous year; 
and
    (ii) Any additions or deletions to the previous year's organic 
system plan, intended to be undertaken in the coming year, detailed 
pursuant to Sec. 205.200;
    (2) Any additions to or deletions from the information required 
pursuant to Sec. 205.401(b); and (3) Other information as deemed 
necessary by the certifying agent to determine compliance with the Act 
and the regulations in this part.
    (b) Following the receipt of the information specified in paragraph 
(a) of this section, the certifying agent shall arrange and conduct an 
on-site inspection of the certified operation, pursuant to 
Sec. 205.403.
    (c) If the certifying agent has reason to believe, based on the on-
site inspection and a review of the information specified in 
Sec. 205.404, that a certified operation is not complying with the 
requirements of the Act and the

[[Page 13622]]

regulations in this part, the certifying agent shall provide a written 
notification of noncompliance to the operation in accordance with 
Sec. 205.662.
    (d) If the certifying agent determines that the certified operation 
is complying with the Act and the regulations in this part and that any 
of the information specified on the certificate of organic operation 
has changed, the certifying agent must issue an updated certificate of 
organic operation pursuant to Sec. 205.404(b).


Secs. 205.407-205.499  [Reserved]

Subpart F--Accreditation of Certifying Agents


Sec. 205.500  Areas and duration of accreditation.

    (a) The Administrator shall accredit a qualified domestic or 
foreign applicant in the areas of crops, livestock, wild crops, or 
handling or any combination thereof to certify a domestic or foreign 
production or handling operation as a certified operation.
    (b) Accreditation shall be for a period of 5 years from the date of 
approval of accreditation pursuant to Sec. 205.506.
    (c) In lieu of accreditation under paragraph (a) of this section, 
USDA will accept a foreign certifying agent's accreditation to certify 
organic production or handling operations if:
    (1) USDA determines, upon the request of a foreign government, that 
the standards under which the foreign government authority accredited 
the foreign certifying agent meet the requirements of this part; or
    (2) The foreign government authority that accredited the foreign 
certifying agent acted under an equivalency agreement negotiated 
between the United States and the foreign government.


Sec. 205.501  General requirements for accreditation.

    (a) A private or State entity accredited as a certifying agent 
under this subpart must:
    (1) Have sufficient expertise in organic production or handling 
techniques to fully comply with and implement the terms and conditions 
of the organic certification program established under the Act and the 
regulations in this part;
    (2) Demonstrate the ability to fully comply with the requirements 
for accreditation set forth in this subpart;
    (3) Carry out the provisions of the Act and the regulations in this 
part, including the provisions of Secs. 205.402 through 205.406 and 
Sec. 205.670;
    (4) Use a sufficient number of adequately trained personnel, 
including inspectors and certification review personnel, to comply with 
and implement the organic certification program established under the 
Act and the regulations in subpart E of this part;
    (5) Ensure that its responsibly connected persons, employees, and 
contractors with inspection, analysis, and decision-making 
responsibilities have sufficient expertise in organic production or 
handling techniques to successfully perform the duties assigned.
    (6) Conduct an annual performance appraisal for each inspector used 
by the certifying agent and implement measures to correct any 
deficiencies in compliance with the Act and the regulations in this 
part that are identified in the appraisal;
    (7) Have an annual program evaluation of its certification 
activities conducted by the certifying agent's staff, an outside 
auditor, or a consultant who has expertise to conduct such evaluations 
and implement measures to correct any deficiencies in compliance with 
the Act and the regulations in this part that are identified in the 
evaluation;
    (8) Provide sufficient information to persons seeking certification 
to enable them to comply with the applicable requirements of the Act 
and the regulations in this part;
    (9) Maintain all records pursuant to Sec. 205.510(b) and make all 
such records available for inspection and copying during normal 
business hours by authorized representatives of the Secretary and the 
applicable State program's governing State official;
    (10) Maintain strict confidentiality with respect to its clients 
under the applicable organic certification program and not disclose to 
third parties (with the exception of the Secretary or the applicable 
State program's governing State official or their authorized 
representatives) any business-related information concerning any client 
obtained while implementing the regulations in this part, except as 
provided for in Sec. 205.504(b)(5);
    (11) Prevent conflicts of interest by:
    (i) Not certifying a production or handling operation if the 
certifying agent or a responsibly connected party of such certifying 
agent has or has held a commercial interest in the production or 
handling operation, including an immediate family interest or the 
provision of consulting services, within the 12-month period prior to 
the application for certification;
    (ii) Excluding any person, including contractors, with conflicts of 
interest from work, discussions, and decisions in all stages of the 
certification process and the monitoring of certified production or 
handling operations for all entities in which such person has or has 
held a commercial interest, including an immediate family interest or 
the provision of consulting services, within the 12-month period prior 
to the application for certification;
    (iii) Not permitting any employee, inspector, contractor, or other 
personnel to accept payment, gifts, or favors of any kind, other than 
prescribed fees, from any business inspected, except that a certifying 
agent that is a not-for-profit organization with an Internal Revenue 
Code tax exemption, or in the case of a foreign certifying agent a 
comparable recognition of not-for-profit status from its government, 
may accept voluntary labor from certified operations;
    (iv) Not providing advice concerning organic practices or 
techniques to any certification applicant or certified operation for a 
fee, other than as part of the fees under the applicable certification 
program established under the Act; and
    (v) Requiring all persons identified in Sec. 205.504(a)(2) to 
complete an annual conflict of interest disclosure report.
    (12) Accept the certification decisions made by another USDA-
accredited certifying agent as equivalent to its own;
    (13) Refrain from making false or misleading claims about its 
accreditation status, the USDA accreditation program for certifying 
agents, or the nature or qualities of products labeled as organically 
produced;
    (14) Submit to the Administrator:
    (i) A copy of any notice of denial of certification issued pursuant 
to Sec. 205.405, notification of noncompliance, notification of 
noncompliance correction, notification of proposed suspension or 
revocation, and notification of suspension or revocation sent pursuant 
to Sec. 205.662, simultaneously with its issuance and
    (ii) On a quarterly calender basis, the name, address, and 
telephone number of each operation granted certification;
    (15) Charge applicants for certification and certified production 
and handling operations only those fees and charges that it has filed 
with the Administrator;
    (16) Pay and submit fees to AMS in accordance with Sec. 205.640; 
and
    (17) Comply with, implement, and carry out any other terms and 
conditions determined by the Administrator to be necessary.
    (b) A private or State entity accredited as a certifying agent 
under this subpart may establish a seal, logo, or other identifying 
mark to be used by production and handling operations certified by the 
certifying agent to indicate affiliation with the certifying

[[Page 13623]]

agent: Provided, That, the certifying agent:
    (1) Does not require use of its seal, logo, or other identifying 
mark on any product sold, labeled, or represented as organically 
produced as a condition of certification and
    (2) Does not require compliance with any production or handling 
practices other than those provided for in the Act and the regulations 
in this part as a condition of use of its identifying mark: Provided, 
That, this provision does not apply to States with more restrictive 
requirements approved by the Secretary or private entity certifying 
agents certifying production and handling operations within States with 
more restrictive requirements approved by the Secretary.
    (c) A private entity accredited as a certifying agent must:
    (1) Hold the Secretary harmless for any failure on the part of the 
certifying agent to carry out the provisions of the Act and the 
regulations in this part;
    (2) Furnish reasonable security, in an amount and according to such 
terms as the Administrator may by regulation prescribe, for the purpose 
of protecting the rights of production and handling operations 
certified by such certifying agent under the Act and the regulations in 
this part; and
    (3) Transfer to the Administrator and make available to any 
applicable State program's governing State official all records or 
copies of records concerning the person's certification activities in 
the event that the certifying agent dissolves or loses its 
accreditation.
    (d) No private or State entity accredited as a certifying agent 
under this subpart shall exclude from participation in or deny the 
benefits of the National Organic Program to any person due to 
discrimination because of race, color, national origin, gender, 
religion, age, disability, political beliefs, sexual orientation, or 
marital or family status.


Sec. 205.502  Applying for accreditation.

    (a) A private or State entity seeking accreditation as a certifying 
agent under this subpart must submit an application for accreditation 
which contains the applicable information and documents set forth in 
Secs. 205.503 through 205.505 and the fees required in Sec. 205.640 to: 
Program Manager, USDA-AMS-TMP-NOP, Room 2945-South Building, PO Box 
96456, Washington, DC 20090-6456.
    (b) Following the receipt of the information and documents, the 
Administrator will determine, pursuant to Sec. 205.506, whether the 
applicant for accreditation should be accredited as a certifying agent.


Sec. 205.503  Applicant information.

    A private or State entity seeking accreditation as a certifying 
agent must submit the following information:
    (a) The business name, primary office location, mailing address, 
name of the person(s) responsible for the certifying agent's day-to-day 
operations, contact numbers (telephone, facsimile, and Internet 
address) of the applicant, and, for an applicant who is a private 
person, the entity's taxpayer identification number;
    (b) The name, office location, mailing address, and contact numbers 
(telephone, facsimile, and Internet address) for each of its 
organizational units, such as chapters or subsidiary offices, and the 
name of a contact person for each unit;
    (c) Each area of operation (crops, wild crops, livestock, or 
handling) for which accreditation is requested and the estimated number 
of each type of operation anticipated to be certified annually by the 
applicant along with a copy of the applicant's schedule of fees for all 
services to be provided under these regulations by the applicant;
    (d) The type of entity the applicant is (e.g., government 
agricultural office, for-profit business, not-for-profit membership 
association) and for:
    (1) A State entity, a copy of the official's authority to conduct 
certification activities under the Act and the regulations in this 
part,
    (2) A private entity, documentation showing the entity's status and 
organizational purpose, such as articles of incorporation and by-laws 
or ownership or membership provisions, and its date of establishment; 
and
    (e) A list of each State or foreign country in which the applicant 
currently certifies production and handling operations and a list of 
each State or foreign country in which the applicant intends to certify 
production or handling operations.


Sec. 205.504  Evidence of expertise and ability.

    A private or State entity seeking accreditation as a certifying 
agent must submit the following documents and information to 
demonstrate its expertise in organic production or handling techniques; 
its ability to fully comply with and implement the organic 
certification program established in Secs. 205.100 and 205.101, 
Secs. 205.201 through 205.203, Secs. 205.300 through 205.303, 
Secs. 205.400 through 205.406, and Secs. 205.661 and 205.662; and its 
ability to comply with the requirements for accreditation set forth in 
Sec. 205.501:
    (a) Personnel.
    (1) A copy of the applicant's policies and procedures for training, 
evaluating, and supervising personnel;
    (2) The name and position description of all personnel to be used 
in the certification operation, including administrative staff, 
certification inspectors, members of any certification review and 
evaluation committees, contractors, and all parties responsibly 
connected to the certifying agent;
    (3) A description of the qualifications, including experience, 
training, and education in agriculture, organic production, and organic 
handling, for:
    (i) Each inspector to be used by the applicant and
    (ii) Each person to be designated by the applicant to review or 
evaluate applications for certification; and
    (4) A description of any training that the applicant has provided 
or intends to provide to personnel to ensure that they comply with and 
implement the requirements of the Act and the regulations in this part.
    (b) Administrative policies and procedures.
    (1) A copy of the procedures to be used to evaluate certification 
applicants, make certification decisions, and issue certification 
certificates;
    (2) A copy of the procedures to be used for reviewing and 
investigating certified operation compliance with the Act and the 
regulations in this part and the reporting of violations of the Act and 
the regulations in this part to the Administrator;
    (3) A copy of the procedures to be used for complying with the 
recordkeeping requirements set forth in Sec. 205.501(a)(9);
    (4) A copy of the procedures to be used for maintaining the 
confidentiality of any business-related information as set forth in 
Sec. 205.501(a)(10);
    (5) A copy of the procedures to be used for making the following 
information available to any member of the public upon request:
    (i) Certification certificates issued during the current and 3 
preceding calender years;
    (ii) A list of producers and handlers whose operations it has 
certified, including for each the name of the operation, type(s) of 
operation, and the effective date of the certification, during the 
current and 3 preceding calender years;
    (iii) The results of laboratory analyses for residues of pesticides 
and other prohibited substances conducted during the current and 3 
preceding calender years; and
    (iv) Other business information as permitted in writing by the 
producer or handler; and

[[Page 13624]]

    (6) A copy of the procedures to be used for sampling and residue 
testing pursuant to Sec. 205.670.
    (c) Conflicts of interest.
    (1) A copy of procedures intended to be implemented to prevent the 
occurrence of conflicts of interest, as described in 
Sec. 205.501(a)(11).
    (2) For each person identified in Sec. 205.504(a)(2), a conflict of 
interest disclosure report, identifying any food- or agriculture-
related business interests, including business interests of immediate 
family members, that cause a conflict of interest.
    (d) Current certification activities. An applicant who currently 
certifies production or handling operations must submit:
    (1) A list of all production and handling operations currently 
certified by the applicant;
    (2) Copies of at least 3, the Administrator may require additional, 
different inspection reports and certification evaluation documents for 
production or handling operations certified by the applicant during the 
previous year for each area of operation for which accreditation is 
requested; and
    (3) The results of any accreditation process of the applicant's 
operation by an accrediting body during the previous year for the 
purpose of evaluating its certification activities.
    (e) Other information. Any other information the applicant believes 
may assist in the Administrator's evaluation of the applicant's 
expertise and ability.


Sec. 205.505  Statement of agreement.

    (a) A private or State entity seeking accreditation under this 
subpart must sign and return a statement of agreement prepared by the 
Administrator which affirms that, if granted accreditation as a 
certifying agent under this subpart, the applicant will carry out the 
provisions of the Act and the regulations in this part, including:
    (1) Accept the certification decisions made by another USDA 
accredited certifying agent as equivalent to its own;
    (2) Refrain from making false or misleading claims about its 
accreditation status, the USDA accreditation program for certifying 
agents, or the nature or qualities of products labeled as organically 
produced;
    (3) Conduct an annual performance appraisal for each inspector to 
be used by the certifying agent and implement measures to correct any 
possible deficiencies identified in compliance with the Act and the 
regulations in this part;
    (4) Have an annual internal program evaluation conducted of its 
certification activities by certifying agent staff, an outside auditor, 
or a consultant who has the expertise to conduct such evaluations and 
implement measures to correct any deficiencies identified in compliance 
with the Act and the regulations in this part;
    (5) Pay and submit fees to AMS in accordance with Sec. 205.640; and
    (6) Comply with, implement, and carry out any other terms and 
conditions determined by the Administrator to be necessary.
    (b) A private entity seeking accreditation as a certifying agent 
under this subpart must additionally agree to:
    (1) Hold the Secretary harmless for any failure on the part of the 
certifying agent to carry out the provisions of the Act and the 
regulations in this part;
    (2) Furnish reasonable security, in an amount and according to such 
terms as the Administrator may by regulation prescribe, for the purpose 
of protecting the rights of production and handling operations 
certified by such certifying agent under the Act and the regulations in 
this part; and
    (3) Transfer to the Administrator and make available to the 
applicable State program's governing State official all records or 
copies of records concerning the certifying agent's certification 
activities in the event that the certifying agent dissolves or loses 
its accreditation.


Sec. 205.506  Approval of accreditation.

    (a) Accreditation will be approved when:
    (1) The accreditation applicant has submitted the information 
required by Secs. 205.503 through 205.505;
    (2) The accreditation applicant pays the required fee in accordance 
with Sec. 205.640(c); and
    (3) The Administrator determines that the applicant for 
accreditation meets the requirements for accreditation as stated in 
Sec. 205.501, as determined by a review of the information submitted in 
accordance with Secs. 205.503 through 205.505 and, if necessary, a 
review of the information obtained from a site evaluation as provided 
for in Sec. 205.508.
    (b) On making a determination to approve an application for 
accreditation, the Administrator will notify the applicant of approval 
of accreditation in writing, stating:
    (1) The area(s) for which accreditation is given;
    (2) The effective date of the accreditation; and
    (3) For a certifying agent who is a private entity, the amount and 
type of security that must be established to protect the rights of 
production and handling operations certified by such certifying agent.
    (c) The accreditation of a certifying agent shall continue in 
effect until such time as the certifying agent fails to renew 
accreditation as provided in Sec. 205.510(b), the certifying agent 
voluntarily ceases its certification activities, or accreditation is 
suspended or revoked pursuant to Sec. 205.665.


Sec. 205.507  Denial of accreditation.

    (a) If the Administrator has reason to believe, based on a review 
of the information specified in Secs. 205.503 through 205.505 or after 
a site evaluation as specified in Sec. 205.508, that an applicant for 
accreditation is not able to comply or is not in compliance with the 
requirements of the Act and the regulations in this part, the 
Administrator shall provide a written notification of noncompliance to 
the applicant in accordance with Sec. 205.665(a).
    (b) The applicant may:
    (1) File, with the Administrator, an appeal of the deficiencies 
identified in the notification of noncompliance; or
    (2) Submit to the Administrator a description of the actions taken 
to correct the deficiencies identified in the notification of 
noncompliance and evidence demonstrating such corrections.
    (c) If an applicant fails to correct the deficiencies, fails to 
report the corrections by the date specified in the notification of 
noncompliance, fails to file an appeal of the notification of 
noncompliance by the date specified, or is unsuccessful in its appeal, 
the Administrator will provide the applicant with written notification 
of accreditation denial. An applicant who has received written 
notification of accreditation denial may apply for accreditation again 
at any time in accordance with Sec. 205.502.
    (d) If the certifying agent was accredited prior to the site 
evaluation and the certifying agent fails to correct the deficiencies, 
fails to report the corrections by the date specified in the 
notification of noncompliance, or fails to file an appeal of the 
notification of noncompliance by the date specified, the Administrator 
will begin proceedings to suspend or revoke the certifying agent's 
accreditation. An applicant who has had its accreditation suspended may 
apply for accreditation again at any time in accordance with 
Sec. 205.502. A private entity certifying agent whose accreditation is 
revoked will be ineligible for accreditation for a period of not less 
than 3 years following the date of such determination.

[[Page 13625]]

Sec. 205.508  Site evaluations.

    (a) Site evaluations of accredited certifying agents shall be 
conducted for the purpose of examining the certifying agent's 
operations and evaluating its compliance with the Act and the 
regulations of this part. Site evaluations shall include an on-site 
review of the certifying agent's certification procedures, decisions, 
facilities, administrative and management systems, and production or 
handling operations certified by the certifying agent. Site evaluations 
shall be conducted by a representative(s) of the Administrator.
    (b) An initial site evaluation of an accreditation applicant shall 
be conducted before or within a reasonable period of time after 
issuance of the applicant's ``notification of accreditation.'' A site 
evaluation shall be conducted after application for renewal of 
accreditation but prior to the issuance of a notice of renewal of 
accreditation. One or more site evaluations will be conducted during 
the period of accreditation to determine whether an accredited 
certifying agent is complying with the general requirements set forth 
in Sec. 205.501.


Sec. 205.509  Peer review panel.

    The Administrator may establish a peer review panel to assist in 
evaluating applicants for accreditation, amendment to an accreditation, 
and renewal of accreditation as certifying agents. Peer reviewers will 
serve without compensation.
    (a) Peer review panel(s).
    (1) A peer review panel shall review the documentation provided by 
the Administrator after any site evaluation performed pursuant to 
Secs. 205.508 and 205.510.
    (2) The Administrator shall consider the reports received from each 
individual member of a peer review panel when determining whether to 
continue or renew the accreditation of a certifying agent.
    (3) A peer review panel meeting shall be held solely for the 
purposes of giving and receiving information. Any meeting or conference 
call shall be conducted in a manner that will ensure the actions of 
panel members are carried out on an individual basis with any opinions 
and recommendations by a member being made individually.
    (b) Eligibility for peer review panels.
    (1) Applicants for membership in the peer review panel pool must:
    (i) Provide the Administrator with a written description and, upon 
request, supporting documentation of their qualifications to conduct 
peer reviews. Such description must include information concerning the 
applicant's training and expertise in organic production or handling 
methods and in evaluating whether production or handling operations are 
using a system of organic production or handling.
    (ii) Address possible limitations on availability to serve.
    (iii) Include information concerning their commercial interests and 
those of their immediate family members, within the 12-month period 
prior to application, with any person who may seek to become or who is 
an accredited certifying agent. No person who has or has had a 
commercial interest, including an immediate family interest or the 
provision of consulting services, in an applicant for accreditation or 
renewal of accreditation within the preceding 12-month period shall be 
appointed to or accept appointment to a panel evaluating such applicant 
for accreditation or renewal of accreditation.
    (2) Persons accepted to the pool may serve until notified that 
their appointment has been rescinded by the Administrator or until they 
are no longer qualified, whichever occurs first.
    (c) Composition of peer review panels.
    (1) Peer review panels convened by the Administrator shall consist 
of at least three but no more than five members.
    (2) Peer review panels must include:
    (i) A Department representative who shall preside over the panel 
and
    (ii) No fewer than two members, drawn from the peer review pool, 
who possess sufficient expertise, as determined by the Administrator, 
in the areas of accreditation described in the application for 
accreditation or the notice of approval of accreditation for each 
certifying agent whose operations and performance are to be reviewed.
    (3) Peer review panels may include:
    (i) Up to two members with expertise in other disciplines, 
including organizational management and finance;
    (ii) Member(s) from the approved State organic certification 
program when the applicant is a private entity that will operate within 
the State; and
    (iii) Member(s) from a foreign government's organic program when 
the applicant is a private entity that will operate within the country.
    (d) Duties and responsibilities of panel members.
    (1) Each person on a peer review panel must individually review the 
site evaluation report prepared by the Department's evaluator(s) and 
any other information that may be provided by the Administrator 
relevant to continuing or renewing the accreditation status of a 
certifying agent;
    (2) Information about the certifying agent received as part of the 
review process is confidential information, and peer reviewers must not 
release, copy, quote, or otherwise use material from the information 
received, other than in the report required to be submitted;
    (3) Each peer reviewer must agree to treat the information received 
for review as confidential; and
    (4) Each person on a peer review panel must provide an individual 
written report, including recommendations, to the Administrator 
regarding a certifying agent's ability to conduct and perform 
certification activities.
    (e) Peer review panel reports. Copies of the peer review panel 
reports will be provided upon request to the certifying agent, and 
written responses from the certifying agent may be submitted for 
consideration by the Administrator.


Sec. 205.510  Annual report, recordkeeping, and renewal of 
accreditation.

    (a) Annual report and fees. An accredited certifying agent must 
submit annually to the Administrator, on or before the anniversary date 
of the issuance of the notification of accreditation, the following 
reports and fees:
    (1) A complete and accurate update of information submitted 
pursuant to Secs. 205.503 and 205.504;
    (2) Information supporting any changes being requested in the areas 
of accreditation described in Sec. 205.500;
    (3) A description of the measures implemented in the previous year 
and any measures to be implemented in the coming year to satisfy any 
terms and conditions determined by the Administrator to be necessary, 
as specified in the most recent notification of accreditation or notice 
of renewal of accreditation;
    (4) The results of the most recent inspector performance appraisals 
and annual program evaluation and a description of adjustments to the 
certifying agent's operation and procedures implemented or to be 
implemented in response to the appraisals and evaluation; and
    (5) The fees required in Sec. 205.640(a).
    (b) Recordkeeping. Certifying agents must maintain records 
according to the following schedule:
    (1) Records obtained from applicants for certification and 
certified operations must be maintained for not less than 5 years 
beyond their receipt;
    (2) Records created by the certifying agent regarding applicants 
for certification and certified operations must be maintained for not 
less than 10 years beyond their creation; and

[[Page 13626]]

    (3) Records created or received by the certifying agent pursuant to 
the accreditation requirements of this subpart F, excluding any records 
covered by Secs. 205.510(b)(2), must be maintained for not less than 5 
years beyond their creation or receipt.
    (c) Renewal of accreditation.
    (1) An accredited certifying agent's application for accreditation 
renewal must be received 6 months prior to the fifth anniversary of 
issuance of the notification of accreditation and each subsequent 
renewal of accreditation. The accreditation of certifying agents who 
make timely application for renewal of accreditation will not expire 
during the renewal process. The accreditation of certifying agents who 
fail to make timely application for renewal of accreditation will 
expire as scheduled unless renewed prior to the scheduled expiration 
date. Certifying agents with an expired accreditation must not perform 
certification activities under the Act and these regulations.
    (2) Following receipt of the information submitted by the 
certifying agent in accordance with paragraph (a) of this section, the 
results of a site evaluation, and, if applicable, the reports submitted 
by a peer review panel, the Administrator will determine whether the 
certifying agent remains in compliance with the Act and the regulations 
of this part and should have its accreditation renewed.
    (d) Notice of renewal of accreditation. Upon a determination that 
the certifying agent is in compliance with the Act and the regulations 
of this part, the Administrator will issue a notice of renewal of 
accreditation. The notice of renewal will specify any terms and 
conditions that must be addressed by the certifying agent and the time 
within which those terms and conditions must be satisfied.
    (e) Noncompliance. Upon a determination that the certifying agent 
is not in compliance with the Act and the regulations of this part, the 
Administrator will initiate proceedings to suspend or revoke the 
certifying agent's accreditation.


Secs. 205.511--205.599  [Reserved]

Subpart G--Administrative

The National List of Allowed and Prohibited Substances


Sec. 205.600  Allowed and prohibited substances and ingredients in 
organic production and handling.

    To be sold or labeled as ``organic,'' or ``made with organic 
(specified ingredients),'' the product must be produced and handled 
without the use of:
    (a) Synthetic substances and ingredients, except as provided in 
Sec. 205.601 and Sec. 205.603.
    (b) Nonagricultural substances used in or on processed products, 
except as otherwise provided in Sec. 205.605;
    (c) Nonsynthetic substances prohibited in Sec. 205.602 or 
Sec. 205.604; and
    (d) Materials, processes, or techniques prohibited in Sec. 205.301.


Sec. 205.601  Synthetic substances allowed for use in organic crop 
production.

    In accordance with restrictions specified in this section and 
Sec. 205.102 and Sec. 205.200 through Sec. 205.207, the following 
synthetic substances may be used:
    (a) As algicides, disinfectants and sanitizers, including 
irrigation system cleaning systems
    (1) Alcohols
    (i) Ethanol
    (ii) Isopropanol
    (2) Chlorine Materials--Except, That, residual chlorine levels in 
the water shall not exceed the maximum residual disinfectant limit 
under the Safe Drinking Water Act.
    (i) Calcium Hypochlorite
    (ii) Chlorine Dioxide
    (iii) Sodium Hypochlorite
    (3) Hydrogen Peroxide
    (4) Soap-Based Algicides/Demossers
    (b) As herbicides, weed barriers, as applicable.
    (1) Herbicides, Soap-Based--for use in farmstead maintenance 
(roadways, ditches, right of ways, building perimeters) and ornamental 
crops
    (2) Mulches
    (i) Newspaper or other recycled paper, without glossy or colored 
inks.
    (ii) Plastic mulch and covers (petroleum-based other than polyvinyl 
chloride (PVC))
    (c) As compost feedstocks--Newspapers or other recycled paper, 
without glossy or colored inks
    (d) As animal repellents--Soaps, Ammonium--for use as a large 
animal repellant only, no contact with soil or edible portion of crop
    (e) As insecticides (including acracides or mite control)
    (1) Ammonium Carbonate--for use as bait in insect traps only, no 
direct contact with crop or soil
    (2) Boric Acid--structural pest control, no direct contact with 
organic food or crops
    (3) Elemental Sulfur
    (4) Lime Sulfur--including calcium polysulfide, fungicides, or 
insecticides if no alternatives
    (5) Oils, Horticultural--as dormant, suffocating, and summer oils
    (6) Petroleum-Based Oils--on woody plants for dormant and summer 
pest control, Except, That, a petroleum-based material allowed as a 
pesticide is prohibited for use as a herbicide. Aromatic petroleum 
solvents as a subclass of petroleum-based oils are prohibited.
    (7) Soaps, Insecticidal
    (8) Sticky Traps/Barriers
    (f) As insect attractants--Pheromones
    (g) As rodenticides
    (1) Sulfur Dioxide--underground rodent control only (smoke bombs)
    (2) Vitamin D3
    (h) As slug or snail bait--[Reserved]
    (i) As plant disease control
    (1) Coppers, Fixed--Copper Hydroxide, Copper Oxide, Copper 
Oxychloride, Includes products exempted from EPA tolerance, Except, 
That, copper-based materials shall be managed in a way that prevents 
excessive accumulation in the soil and shall not be used as herbicides.
    (2) Copper Sulfate--Substance must be used in a manner that 
minimizes accumulation of copper in the soil.
    (3) Hydrated Lime--not permitted for soil application or to 
cauterize mutilations or deodorize animal wastes
    (4) Hydrogen Peroxide
    (5) Oils, Horticultural, as dormant, suffocating, and summer oils, 
insecticides only
    (6) Petroleum-Based Oils--Except, That, aromatic petroleum solvents 
as a subclass of petroleum-based oils are prohibited.
    (7) Potassium Bicarbonate
    (8) Elemental Sulfur
    (j) As plant or soil amendments.
    (1) Aquatic Plant Extracts (other than hydrolyzed)--Extraction 
process is limited to the use of Potassium Hydroxide or Sodium 
Hydroxide; solvent amount used is limited to that amount necessary for 
extraction.
    (2) Humic Acids--naturally occurring deposits, water and alkali 
extracts only
    (3) Lignin Sulfonate--chelating agent, dust suppressant, floatation 
agent
    (4) Micronutrients--not to be used as a defoliant, herbicide, or 
desiccant. Those made from nitrates or chlorides are not allowed. Soil 
deficiency must be documented by soil or tissue test.
    (i) Soluble Boron Products
    (ii) Sulfates, carbonates, oxides, or silicates of zinc, iron, 
magnesium, manganese, molybdenum, selenium, and cobalt
    (5) Liquid Fish Products--can be pH adjusted with sulfuric, citric 
or phosphoric acid. The amount of acid used shall not exceed the 
minimum needed to lower the pH to 3.5
    (6) Vitamins, B1, C, and E
    (k) As plant growth regulators--[Reserved]

[[Page 13627]]

    (l) As floating agents in postharvest handling
    (1) Lignin Sulfonate
    (2) Sodium Silicate--for tree fruit and fiber processing
    (m) As synthetic inert ingredients as classified by the 
Environmental Protection Agency (EPA), for use with a synthetic 
substance listed in this section and used as an active ingredient in 
accordance with any limitations on the use of such synthetic 
substances--EPA List 4--Inerts of Minimal Concern
    (n)-(z) [Reserved]


Sec. 205.602  Nonsynthetic substances prohibited for use in organic 
crop production.

    (a) Ash from manure burning
    (b) Arsenic
    (c) Lead salts
    (d) Sodium Fluoaluminate (Mined)
    (e) Strychnine
    (f) Tobacco Dust
    (g)-(z) [Reserved]


Sec. 205.603  Synthetic substances allowed for use in organic livestock 
production.

    Any substance in the following categories may be used in organic 
livestock production in accordance with any restrictions specified in 
this section and Sec. 205.102 and Sec. 205.236 through Sec. 205.239.
    (a) As disinfectants, sanitizers, and medical treatments as 
applicable
    (1) Alcohols
    (i) Ethanol--disinfectant and sanitizer only, prohibited as a feed 
additive
    (ii) Isopropanol--disinfectant only
    (2) Aspirin--approved for health care use to reduce inflammation
    (3) Chlorine Materials--disinfecting and sanitizing facilities and 
equipment. Residual chlorine levels in the water shall not exceed the 
maximum residual disinfectant limit under the Safe Drinking Water Act
    (i) Calcium Hypochlorite
    (ii) Chlorine Dioxide
    (iii) Sodium Hypochlorite
    (4) Chlorohexidine--Allowed for surgical procedures conducted by a 
veterinarian. Allowed for use as a teat dip when alternative germicidal 
agents and/or physical barriers have lost their effectiveness
    (5) Electrolytes--without antibiotics
    (6) Glucose
    (7) Glycerin--Allowed as a livestock teat dip, must be produced 
through the hydrolysis of fats or oils
    (8) Iodine
    (9) Hydrogen Peroxide
    (10) Magnesium Sulfate
    (11) Parasiticides--Ivermectin--Prohibited in slaughter stock, 
allowed in emergency treatment for dairy and breeder stock when organic 
system plan-approved preventive management does not prevent 
infestation. Milk or milk products from a treated animal cannot be 
labeled as provided for in subpart D of this part for 90 days following 
treatment. In breeder stock, treatment cannot occur during the last 
third of gestation if the progeny will be sold as organic
    (12) Phosphoric Acid--allowed as an equipment cleaner
    (13) Vaccines and Biologics
    (b) As topical treatment, external parasiticide or local anesthetic 
as applicable.
    (1) Iodine
    (2) Lidocaine--as a local anesthetic. Use requires a withdrawal 
period of 90 days after administering to livestock intended for 
slaughter and 7 days after administering to dairy animals
    (3) Lime, Hydrated--(Bordeaux mixes)
    (4) Mineral Oil--for topical use and as a lubricant
    (5) Procaine--as a local anesthetic, use requires a withdrawal 
period of 90 days after administering to livestock intended for 
slaughter and 7 days after administering to dairy animals
    (6) Copper Sulfate
    (c) As feed supplements--Milk Replacers--without antibiotics, as 
emergency use only, no nonmilk products or products from BST treated 
animals
    (d) As feed additives
    (1) Trace Minerals, including:
    (i) Copper Sulfate
    (ii) Magnesium Sulfate
    (2) Vitamins--accepted for enrichment or fortification, limited to 
those approved by the FDA for livestock use
    (e) As fillers and excipients
    (f)-(z) [Reserved]


Sec. 205.604  Nonsynthetic substances prohibited for use in organic 
livestock production. [Reserved]


Sec. 205.605  Nonagricultural (nonorganic) substances allowed as 
ingredients in or on processed products labeled as ``organic'' or 
``made with organic (specified ingredients).''

    The following nonagricultural substances may be used only in 
accordance with any restrictions specified in this section and 
Sec. 205.102, Sec. 205.270, and Sec. 205.300 through Sec. 205.310.
    (a) Nonsynthetics allowed:
    (1) Agar-agar
    (2) Acids
    (i) Alginic
    (ii) Citric--produced by microbial fermentation of carbohydrate 
substances
    (iii) Lactic
    (3) Baking Powder--aluminum-free
    (4) Bentonite
    (5) Calcium Carbonate
    (6) Calcium Chloride
    (7) Carrageenan
    (8) Cornstarch (Native)
    (9) Dairy Cultures--non-EM
    (10) Diatomaceous Earth--food filtering aid only
    (11) Enzymes--must be derived from edible, nontoxic plants, 
nonpathogenic fungi, or nonpathogenic bacteria
    (12) Gums--Water extracted only (arabic, guar, locust bean, carob 
bean)
    (13) Kaolin
    (14) Kelp--for use only as a thickener and dietary supplement
    (15) Lecithin--unbleached
    (16) Nitrogen--Oil-free grades
    (17) Oxygen--Oil-free grades
    (18) Pectin (high-methoxy)
    (19) Perlite--for use only as a filter aid in food processing
    (20) Potassium Chloride
    (21) Potassium Iodide
    (22) Sodium Bicarbonate
    (23) Sodium Carbonate
    (24) Yeast--Nonsynthetic, non-EM
    (i) Autolysate
    (ii) Bakers
    (iii) Brewers
    (iv) Nutritional
    (v) Smoked--growth on petrochemical substrate and sulfite waste 
liquor prohibited. Nonsynthetic smoke flavoring process must be 
documented
    (b) Synthetics allowed:
    (1) Alginates
    (2) Ammonium Bicarbonate--for use only as a leavening agent
    (3) Ammonium Carbonate--for use only as a leavening agent
    (4) Ascorbic Acid
    (5) Calcium Citrate
    (6) Calcium Hydroxide
    (7) Calcium Phosphates (monobasic and dibasic)
    (8) Carbon Dioxide
    (9) Chlorine Materials--disinfecting and sanitizing food contact 
surfaces, Except, That, residual chlorine levels in the water shall not 
exceed the maximum residual disinfectant limit under the Safe Drinking 
Water Act.
    (i) Calcium Hypochlorite
    (ii) Chlorine Dioxide
    (iii) Sodium Hypochlorite
    (10) Ethylene--allowed for post harvest ripening of tropical fruit
    (11) Ferrous Sulfate--for iron enrichment or fortification of foods 
when required by regulation or recommended (independent organization)
    (12) Glycerides (mono and di)--for use only in drum drying of food
    (13) Glycerin--produced by hydrolysis of fats and oils
    (14) Hydrogen peroxide

[[Page 13628]]

    (15) Lecithin--bleached
    (16) Magnesium Carbonate--for use only in agricultural products 
labeled ``made with organic (specified ingredients),'' prohibited in 
agricultural products labeled ``organic''
    (17) Magnesium Chloride--derived from sea water
    (18) Magnesium Stearate--for use only in agricultural products 
labeled ``made with organic (specified ingredients),'' prohibited in 
agricultural products labeled ``organic''
    (19) Magnesium Sulfate
    (20) Nutrient vitamins and minerals, in accordance with 21 CFR 
104.20, Nutritional Quality Guidelines For Foods
    (21) Ozone
    (22) Pectin (low-methoxy)
    (23) Phosphoric Acid--cleaning of food-contact surfaces and 
equipment only
    (24) Potassium Acid Tartrate
    (25) Potassium Tartrate made from Tartaric acid
    (26) Potassium Carbonate
    (27) Potassium Citrate
    (28) Potassium Hydroxide--prohibited for use in lye peeling of 
fruits and vegetables
    (29) Potassium Iodide--for use only in agricultural products 
labeled ``made with organic (specified ingredients),'' prohibited in 
agricultural products labeled ``organic''
    (30) Potassium Phosphate--for use only in agricultural products 
labeled ``made with organic (specific ingredients),'' prohibited in 
agricultural products labeled ``organic''
    (31) Silicon Dioxide
    (32) Sodium Citrate
    (33) Sodium Hydroxide--prohibited for use in lye peeling of fruits 
and vegetables
    (34) Sodium Phosphates--for use only in dairy foods
    (35) Tocopherols--derived from vegetable oil when rosemary extracts 
are not a suitable alternative
    (36) Xanthan gum
    (c)-(z) [Reserved]


Sec. 205.606  Nonorganically produced agricultural products allowed as 
ingredients in or on processed products labeled as organic or made with 
organic ingredients.

    Any nonorganically produced agricultural product may be used in 
accordance with any restrictions specified in this section and 
Sec. 205.102, Sec. 205.270, and Sec. 205.300 through Sec. 205.310.


Sec. 205.607  Amending the National List.

    (a) Any person may petition the National Organic Standard Board for 
the purpose of having a substance evaluated for recommendation to the 
Secretary for inclusion on or deletion from the National List in 
accordance with section 6517 of the Act.
    (b) A person petitioning for amendment of the National List should 
request a copy of the petition procedures from the USDA at the address 
in Sec. 205.607(c).
    (c) A petition to amend the National List must be submitted to: 
Program Manager, USDA/AMS/TM/NOP, Room 2945 South Building, PO Box 
96456, Washington, DC 20090-6456.
    (d) A substance may be added to the National List only in the 
following categories:
    (1) Synthetic substances allowed for use in organic crop or 
livestock production;
    (2) Nonsynthetic substances prohibited for use in organic crop or 
livestock production; or
    (3) Nonagricultural substances allowed for use as ingredients in or 
on processed products labeled as ``organic'' or ``made with organic 
(specified ingredients).''

State Programs


Sec. 205.620  Requirements of State organic certification programs.

    (a) A State may establish a State organic certification program for 
production and handling operations within the State which produces and 
handles organic agricultural products.
    (b) A State organic certification program must meet the general 
requirements for organic programs specified in the Act and be at least 
equivalent to the regulations in this part.
    (c) A State organic certification program may contain more 
restrictive requirements based on unique environmental conditions or 
specific production or handling practices particular to the State or 
region of the United States, which necessitates the more restrictive 
requirement. Such additional requirements must further the purposes and 
be consistent with the Act and regulations in this part.
    (d) A State organic certification program must assume enforcement 
obligations in the State for the requirements of this part and any more 
restrictive requirements approved by the Secretary.
    (e) A State organic certification program and any amendments to 
such program must be approved by the Secretary prior to being 
implemented by the State.


Sec. 205.621  Submission and determination of proposed State organic 
certification programs and amendments to approved State organic 
certification programs.

    (a) A State program's governing State official must submit to the 
Secretary a proposed State organic certification program and any 
proposed amendments to such approved program.
    (1) Such submission must contain supporting materials that include 
statutory authorities, program description, a statement of acceptance 
of the general requirements for organic programs specified in the Act, 
documentation of unique environmental or ecological conditions or 
specific production practices particular to the State which necessitate 
more restrictive requirements than the requirements of this part, and 
other information as may be required by the Secretary.
    (2) Submission of a request for amendment of an approved State 
organic certification program must contain supporting material that 
includes an explanation and documentation of the unique environmental 
or ecological conditions or specific production practices particular to 
the State or region, which necessitates the proposed amendment. 
Supporting material also must explain how the proposed amendment 
furthers and is consistent with the purposes of the Act and the 
regulations of this part.
    (b) Within 6 months of receipt of submission, the Secretary will:
    (1) Publish in the Federal Register for public comment, a summary 
of a proposed State organic certification program, and a summary of any 
proposed amendment to such program.
    (2) After review of materials and documentation accompanying the 
proposal and consideration of comments received, notify the State 
program's governing State official of approval or disapproval of the 
proposed program or amendment of an approved program and, if 
disapproved, the reasons for the disapproval.
    (c) After receipt of a notice of disapproval, the State program's 
governing State official may resubmitt a revised State organic 
certification program or amendment of such a program at any time.


Sec. 205.622  Review of approved State organic certification programs.

    The Secretary will review a State organic certification program not 
less than once during each 5-year period following the date of the 
initial program approval. The Secretary will notify the State program's 
governing State official of approval or disapproval of the

[[Page 13629]]

program within 6 months after initiation of the review.

Fees


Sec. 205.640  Fees and other charges for accreditation.

    Fees and other charges equal as nearly as may be to the cost of the 
accreditation services rendered under the regulations, including 
initial accreditation, review of annual reports, and renewal of 
accreditation, shall be assessed and collected from applicants for 
initial accreditation and accredited certifying agents submitting 
annual reports or seeking renewal of accreditation in accordance with 
the following provisions.
    (a) Fees-for-Service.
    (1) Except as otherwise provided in this section, fees-for-service 
shall be based on the time required to render the service provided 
calculated to the nearest 15-minute period, including the review of 
applications and accompanying documents and information, evaluator 
travel, the conduct of on-site evaluations, review of annual reports 
and updated documents and information, and the time required to prepare 
reports and any other documents in connection with the performance of 
service. The hourly rate shall be the same as that charged by the 
Agricultural Marketing Service (AMS), through its Quality Systems 
Certification Program, to certification bodies requesting conformity 
assessment to the International Organization for Standardization 
``General Requirements for Bodies Operating Product Certification 
Systems'' (ISO Guide 65).
    (2) Applicants for initial accreditation and accredited certifying 
agents submitting annual reports or seeking renewal of accreditation 
during the first 18 months following the effective date of subpart F of 
this part shall receive service without incurring an hourly charge for 
service.
    (3) Applicants for initial accreditation and renewal of 
accreditation must pay at the time of application, effective 18 months 
following the effective date of subpart F of this part, a nonrefundable 
fee of $500.00 which shall be applied to the applicant's fees-for-
service account.
    (b) Travel charges. When service is requested at a place so distant 
from the evaluator's headquarters that a total of one-half hour or more 
is required for the evaluator(s) to travel to such place and back to 
the headquarters or at a place of prior assignment on circuitous 
routing requiring a total of one-half hour or more to travel to the 
next place of assignment on the circuitous routing, the charge for such 
service shall include a mileage charge administratively determined by 
the Department and travel tolls, if applicable, or such travel prorated 
among all the applicants and certifying agents furnished the service 
involved on an equitable basis or, where the travel is made by public 
transportation (including hired vehicles), a fee equal to the actual 
cost thereof. Travel charges shall become effective for all applicants 
for initial accreditation and accredited certifying agents on the 
effective date of subpart F of this part. The applicant or certifying 
agent will not be charged a new mileage rate without notification 
before the service is rendered.
    (c) Per diem charges. When service is requested at a place away 
from the evaluator's headquarters, the fee for such service shall 
include a per diem charge if the employee(s) performing the service is 
paid per diem in accordance with existing travel regulations. Per diem 
charges to applicants and certifying agents will cover the same period 
of time for which the evaluator(s) receives per diem reimbursement. The 
per diem rate will be administratively determined by the Department. 
Per diem charges shall become effective, for all applicants for initial 
accreditation and accredited certifying agents on the effective date of 
subpart F of this part. The applicant or certifying agent will not be 
charged a new per diem rate without notification before the service is 
rendered.
    (d) Other costs. When costs, other than costs specified in 
paragraphs (a), (b), and (c) of this section are associated with 
providing the services, the applicant or certifying agent will be 
charged for these costs. Such costs include, but are not limited to, 
equipment rental, photocopying, delivery, facsimile, telephone, or 
translation charges incurred in association with accreditation 
services. The amount of the costs charged will be determined 
administratively by the Department. Such costs shall become effective 
for all applicants for initial accreditation and accredited certifying 
agents on the effective date of subpart F of this part.


Sec. 205.641  Payment of fees and other charges.

    (a) Applicants for initial accreditation and renewal of 
accreditation must remit the nonrefundable fee, pursuant to 
Sec. 205.640(a)(3), along with their application. Remittance must be 
made payable to the Agricultural Marketing Service, USDA, and mailed 
to: Program Manager, USDA-AMS-TMP-NOP, Room 2945-South Building, PO Box 
96456, Washington, DC 20090-6456 or such other address as required by 
the Program Manager.
    (b) Payments for fees and other charges not covered under paragraph 
(a) of this section must be:
    (1) Received by the due date shown on the bill for collection;
    (2) Made payable to the Agricultural Marketing Service, USDA; and
    (3) Mailed to the address provided on the bill for collection.
    (c) The Administrator shall assess interest, penalties, and 
administrative costs on debts not paid by the due date shown on a bill 
for collection and collect delinquent debts or refer such debts to the 
Department of Justice for litigation.


Sec. 205.642  Fees and other charges for certification.

    Fees charged by a certifying agent must be reasonable, and a 
certifying agent shall charge applicants for certification and 
certified production and handling operations only those fees and 
charges that it has filed with the Administrator. The certifying agent 
shall provide each applicant with an estimate of the total cost of 
certification and an estimate of the annual cost of updating the 
certification. The certifying agent may require applicants for 
certification to pay at the time of application a nonrefundable fee of 
no more than $250.00, which shall be applied to the applicant's fees-
for-service account. The certifying agent shall provide all persons 
inquiring about the application process with a copy of its fee 
schedule.


Secs. 205.643--205.649  [Reserved]

Compliance


Sec. 205.660  General.

    (a) The National Organic Program's Program Manager, on behalf of 
the Secretary, may inspect and review certified production and handling 
operations and accredited certifying agents for compliance with the Act 
or regulations in this part.
    (b) The Program Manager may initiate suspension or revocation 
proceedings against a certified operation:
    (1) When the Secretary has reason to believe that a certified 
operation has violated or is not in compliance with the Act or 
regulations in this part.
    (2) When a certifying agent or a State program's governing State 
official fails to take appropriate action to enforce the Act or 
regulations in this part; or
    (c) The Program Manager may initiate suspension or revocation of a 
certifying agent's accreditation if the certifying agent fails to meet, 
conduct, or maintain

[[Page 13630]]

accreditation requirements pursuant to the Act or this part.


Sec. 205.661  Investigation of certified operations.

    (a) A certifying agent may investigate complaints of noncompliance 
with the Act or regulations of this part concerning production and 
handling operations certified as organic by the certifying agent. A 
certifying agent must notify the Program Manager of all compliance 
proceedings and actions taken pursuant to this part.
    (b) A State program's governing State official may investigate 
complaints of noncompliance with the Act or regulations in this part 
concerning organic production or handling operations operating in the 
State.


Sec. 205.662  Noncompliance procedure for certified operations.

    (a) Notification. When an inspection, review, or investigation of a 
certified operation by a certifying agent or a State program's 
governing State official reveals any noncompliance with the Act or 
regulations in this part, a written notification of noncompliance shall 
be sent to the certified operation. Such notification shall provide:
    (1) A description of each noncompliance;
    (2) The facts upon which the notification of noncompliance is 
based; and
    (3) The date by which the certified operation must rebut or correct 
each noncompliance and submit supporting documentation of each such 
correction when correction is possible.
    (b) Resolution. When a certified operation demonstrates that each 
noncompliance has been resolved, the certifying agent or the State 
program's governing State official, as applicable, will send the 
certified operation a written notification of noncompliance resolution.
    (c) Proposed suspension or revocation. When rebuttal is 
unsuccessful or correction of the noncompliance is not completed within 
the prescribed time period or is not adequate to demonstrate that each 
noncompliance has been corrected, the certifying agent or State 
program's governing State official shall send the certified operation a 
written notification of proposed suspension or revocation of 
certification of the entire operation or a portion of the operation, as 
applicable to the noncompliance. When correction of a noncompliance is 
not possible, the notification of noncompliance and the proposed 
suspension or revocation of certification may be combined in one 
notification. The notification of proposed suspension or revocation of 
certification shall state:
    (1) The reasons for the proposed suspension or revocation;
    (2) The proposed effective date of such suspension or revocation;
    (3) The impact of a suspension or revocation on future eligibility 
for certification; and
    (4) The right to request mediation pursuant to Sec. 205.663 or to 
file an appeal pursuant to Sec. 205.681.
    (d) Willfull violations. Notwithstanding paragraph (a) of this 
section, if a certifying agent or State program's governing State 
official has reason to believe that a certified operation has willfully 
violated the Act or regulations in this part, the certifying agent or 
State program's governing State official shall send the certified 
operation a notification of proposed suspension or revocation of 
certification of the entire operation, or a portion of the operation, 
as applicable to the noncompliance.
    (e) Suspension or revocation.
    (1) If the certified operation fails to correct the noncompliance, 
to resolve the issue through rebuttal or mediation, or to file an 
appeal of the proposed suspension or revocation of certification, the 
certifying agent or State program's governing State official shall send 
the certified operation a written notification of suspension or 
revocation.
    (2) A certifying agent or State program's governing State official 
must not send a notification of suspension or revocation to a certified 
operation that has requested mediation pursuant to Sec. 205.663 or 
filed an appeal pursuant to Sec. 205.681.
    (f) Ineligibility. A certified operation or a person responsibly 
connected with an operation whose certification has been revoked will 
not be eligible to receive certification for a period of not more than 
5 years following the date of such revocation, as determined by the 
Secretary.


Sec. 205.663  Mediation.

    Any dispute with respect to proposed suspension or revocation of 
certification under this part shall, at the request of the applicant 
for certification or certified operation, be mediated by a qualified 
mediator mutually agreed upon by the parties to the mediation. If a 
State Program is in effect, the mediation procedures established in the 
State Program, as approved by the Secretary, will be followed. 
Mediation shall be requested in writing to the applicable certifying 
agent. The parties to the mediation shall have no more than 30 days to 
reach an agreement following a mediation session. If mediation is 
unsuccessful, the applicant for certification or certified operation 
shall have 30 days from termination of mediation to appeal the 
certifying agent's decision to the Administrator, pursuant to 
Sec. 205.681. Any agreement reached during or as a result of the 
mediation process shall be in compliance with the Act and these 
regulations. The Secretary may review any mediated agreement for 
conformity to the Act and these regulations.


Sec. 205.664  [Reserved]


Sec. 205.665  Noncompliance procedure for certifying agents.

    (a) Noncompliance. When an inspection, review, or investigation of 
an accredited certifying agent by the Program Manager reveals any 
noncompliance with the Act or regulations in this part, a written 
notification of noncompliance shall be sent to the certifying agent, as 
applicable. Such notification shall provide:
    (1) A description of each noncompliance found;
    (2) The facts upon which the notification of noncompliance is 
based; and
    (3) The date by which the certifying agent must rebut or correct 
each noncompliance when correction is possible.
    (b) Resolution. When each noncompliance has been resolved, the 
Program Manager shall send the certifying agent a written notification 
of noncompliance resolution.
    (c) Proposed suspension or revocation. If rebuttal is unsuccessful 
or if correction of the noncompliance is not made within the prescribed 
time period or is not adequate to demonstrate that each noncompliance 
has been corrected, the Program Manager shall send a written 
notification of proposed suspension or revocation of accreditation to 
the certifying agent. The notification of proposed suspension or 
revocation shall state whether the certifying agent's accreditation or 
specified areas of accreditation are to be suspended or revoked. When 
correction of a noncompliance is not possible, the notification of 
noncompliance and the proposed suspension or revocation may be combined 
in one notification. The notification of proposed suspension or 
revocation of accreditation shall state:
    (1) The reasons for the proposed suspension or revocation;
    (2) The proposed effective date of the suspension or revocation;
    (3) The impact of a suspension or revocation on future eligibility 
for accreditation; and

[[Page 13631]]

    (4) The right to file an appeal pursuant to Sec. 205.681.
    (d) Willfull violations. Notwithstanding paragraph (a) of this 
section, if the Program Manager has reason to believe that a certifying 
agent has willfully violated the Act or regulations in this part, the 
Program Manager shall send a written notification of proposed 
suspension or revocation of accreditation to the certifying agent.
    (e) Suspension or revocation. When the accredited certifying agent 
fails to file an appeal of the proposed suspension or revocation of 
accreditation, the Program Manager shall send a written notice of 
suspension or revocation of accreditation to the certifying agent.
    (f) Cessation of certification activities. A certifying agent whose 
accreditation is suspended or revoked must:
    (1) Cease all certification activities in each area of 
accreditation which its accreditation is suspended or revoked.
    (2) Transfer to the Secretary and make available to any applicable 
governing State official all records concerning its certification 
activities that were suspended or revoked.
    (g) Eligibility.
    (1) A certifying agent whose accreditation is suspended by the 
Secretary under this section may at any time submit a new request for 
accreditation, pursuant to Sec. 205.502. The request must be 
accompanied by evidence demonstrating correction of each noncompliance 
and corrective actions taken to comply with and remain in compliance 
with the Act and the regulations in this part.
    (2) A certifying agent whose accreditation is revoked by the 
Secretary shall be ineligible to be accredited as a certifying agent 
under the Act and the regulations in this part for a period of not less 
than 3 years following the date of such revocation.


Secs. 205.666 and 205.667  [Reserved]


Sec. 205.668  Noncompliance procedures under State organic 
certification programs.

    (a) A State program's governing State official must promptly notify 
the Secretary of commencement of any enforcement proceeding against a 
certified operation and forward to the Secretary a copy of each notice 
issued.
    (b) A noncompliance proceeding, brought by a State program's 
governing State official against a certified operation, shall be 
appealable pursuant to the appeal procedures of the State organic 
certification program. There shall be no subsequent rights of appeal to 
the Secretary. Final decisions of a State may be appealed to the United 
States District Court for the district in which such certified 
operation is located.
    (c) A State program's governing State official may review and 
investigate complaints of noncompliance with the Act or regulations 
concerning accreditation of certifying agents operating in the State. 
When such review or investigation reveals any noncompliance, the State 
program's governing State official shall send a written report of 
noncompliance to the Program Manager. The report shall provide a 
description of each noncompliance and the facts upon which the 
notification of noncompliance is based.


Sec. 205.669  [Reserved]

Inspection and Testing, Reporting, and Exclusion from Sale


Sec. 205.670  Inspection and testing of agricultural product to be sold 
or labeled organic.

    (a) All agricultural products that are to be sold, labeled, or 
represented as ``100 percent organic,'' ``organic,'' or ``made with 
organic (specified ingredients)'' must be made accessible by certified 
organic production or handling operations for examination by the 
Administrator, the applicable State program's governing State official, 
or the certifying agent.
    (b) The Administrator, applicable State program's governing State 
official, or the certifying agent may require preharvest or postharvest 
testing of any agricultural input used or agricultural product to be 
sold, labeled, or represented as ``100 percent organic,'' ``organic,'' 
or ``made with organic (specified ingredients)'' when there is 
reasonable cause to believe that the agricultural input or product has 
come into contact with a prohibited substance. Such tests must be 
conducted by the applicable State program's governing State official or 
the certifying agent at the official's or certifying agent's own 
expense.
    (c) The preharvest or postharvest tissue test sample collection 
pursuant to paragraph (b) of this section must be performed by an 
inspector representing the Administrator, certifying agent, or 
applicable State program's governing State official. Sample integrity 
must be maintained in transit, and residue testing must be performed in 
an accredited laboratory. Chemical analysis must be made in accordance 
with the methods described in the 16th edition of the Official Methods 
of Analysis of the AOAC International or other applicable validated 
methodology determining the presence of contaminants in agricultural 
products.
    (d) Results of all analyses and tests performed under this section:
    (1) Must be provided to the Administrator promptly upon receipt; 
and
    (2) Will be available for public access, unless the testing is part 
of an ongoing compliance investigation.


Sec. 205.671  Exclusion from organic sale.

    (a) When residue testing detects prohibited substances at levels 
that are greater than the estimated national mean of detected residues 
for specific commodity/pesticide pairs, as demonstrated by USDA's 
Pesticide Data Program, or unavoidable residual environmental 
contamination, as determined by the Administrator, the agricultural 
product must not be sold, labeled, or represented as organically 
produced. The Administrator, the applicable State program's governing 
State official, or the certifying agent may conduct an investigation of 
the certified operation to determine the cause of the prohibited 
substance residue.
    (b) If test results indicate a specific agricultural product 
contains pesticide residues or environmental contaminants that exceed 
the Food and Drug Administration's or the Environmental Protection 
Agency's regulatory tolerances, the data must be reported promptly to 
the appropriate public health agencies.


Sec. 205.672  Emergency pest or disease treatment.

    When a prohibited substance is applied to a certified operation due 
to Federal or State emergency pest eradication or disease treatment 
program and the certified operation otherwise meets the requirements of 
this part, the certification status of the operation shall not be 
affected as a result of the application of the prohibited synthetic 
substance: Provided, That:
    (a) Any harvested crop or plant part to be harvested that has 
contact with a prohibited substance applied as the result of a Federal 
or State emergency pest eradication or disease treatment program cannot 
not be sold, labeled, or represented as organically produced; and
    (b) Any livestock that are treated with a prohibited substance 
applied as the result of a Federal or State emergency pest or disease 
treatment program or product derived from such treated livestock cannot 
be sold, labeled, or represented as organically produced: Except, That:
    (1) Milk or milk products may be sold, labeled, or represented as 
organically

[[Page 13632]]

produced beginning 12 months following the last date that the dairy 
animal was treated with the prohibited substance; and
    (2) The offspring of gestating mammalian breeder stock treated with 
a prohibited substance may be considered organic: Provided, That, the 
breeder stock was not in the last third of gestation on the date that 
the breeder stock was treated with the prohibited substance.


Secs. 205.673--205.679  [Reserved]

Adverse Action Appeal Process


Sec. 205.680  General.

    Persons subject to the Act who believe they are adversely affected 
by a noncompliance proceeding decision of the National Organic 
Program's Program Manager or a certifying agent may appeal such 
decision to the Administrator.


Sec. 205.681  Appeals.

    (a) Certification appeals. An applicant for certification may 
appeal a certifying agent's notice of denial of certification, and a 
certified operation may appeal a certifying agent's notification of 
proposed suspension or revocation of certification to the 
Administrator: Except, That, when the applicant or certified operation 
is subject to an approved State organic certification program and the 
decision to deny, suspend, or revoke a certification is made by a 
certifying agent or a State program's governing State official, the 
appeal must be made to the State program's governing State official or 
such official's designee who will carry out the appeal pursuant to the 
State program's appeal procedures approved by the Secretary.
    (1) If the Administrator sustains a certification applicant's or 
certified operation's appeal of a certifying agent's decision, the 
applicant will be issued organic certification, or a certified 
operation will continue its certification, as applicable to the 
operation. The act of sustaining the appeal shall not be an adverse 
action subject to appeal by the affected certifying agent.
    (2) If the Administrator denies an appeal, a formal administrative 
proceeding will be initiated to deny, suspend, or revoke the 
certification. Such proceeding shall be conducted pursuant to the 
Department's Uniform Rules of Practice.
    (b) Accreditation appeals. An applicant for accreditation and an 
accredited certifying agent may appeal a Program Manager's denial of 
accreditation or proposed suspension or revocation of accreditation to 
the Administrator.
    (1) If the Administrator sustains an appeal, an applicant will be 
issued accreditation, or a certifying agent will continue its 
accreditation, as applicable to the operation.
    (2) If the Administrator denies an appeal, a formal administrative 
proceeding to deny, suspend, or revoke the accreditation will be 
initiated. Such proceeding shall be conducted pursuant to the 
Department's Uniform Rules of Practice.
    (c) An appeal of a noncompliance decision must be filed within the 
time period provided in the letter of notification or at least 30 days 
from the receipt of the notification. The appeal will be considered 
``filed'' on the date received by the Administrator or by the State 
program's governing State official or such official's designee as 
provided in the State's approved appeal procedures. A decision to deny, 
suspend, or revoke certification or accreditation will become final and 
nonappealable unless the decision is appealed in a timely manner.
    (d) All appeals to the Administrator must be filed in writing and 
addressed to Administrator, USDA-AMS, Room 3071-S, PO Box 96456, 
Washington, DC 20090-6456, and be copied to the certifying agent 
completely and simultaneously with submission to the Administrator. 
Appeals must include a copy of the adverse decision and a statement of 
the appellant's position that the decision was not made in accordance 
with applicable program regulations, policies, or procedures.


Secs. 205.682--205.689  [Reserved].

Miscellaneous


Sec. 205.690  OMB control number.

    The control number assigned to the information collection 
requirements by the Office of Management and Budget pursuant to the 
Paperwork Reduction Act of 1980, Public Law 96-511, is OMB number 0581-
0181.


Secs. 205.691--205.699  [Reserved]

PARTS 206-209--[RESERVED]

    Dated: March 3, 2000.
Kathleen A. Merrigan,
Administrator, Agricultural Marketing Service.

 

Appendices to the Preamble

Appendix A.--Regulatory Impact Assessment for Proposed Rules 
Implementing the Organic Foods Production Act of 1990 (Executive Order 
12866)

    The following regulatory assessment is provided to fulfill the 
requirements of Executive Order 12866. This assessment consists of a 
statement of the need for the proposed action, a description of the 
baseline for the analysis, an examination of alternative approaches, 
and an analysis of the benefits and costs. Much of the analysis is 
necessarily descriptive of the anticipated effects of the proposed 
rule. Because basic market data on the prices and quantities of 
organic goods and services and the costs of organic production are 
limited, it is not possible to provide quantitative estimates of all 
benefits and costs of the proposed rule. The cost of fees and 
recordkeeping proposed by U.S. Department of Agriculture (USDA) are 
quantified, but the anticipated benefits are not. Consequently, the 
analysis does not estimate the magnitude or the direction (positive 
or negative) of net benefits.

The Need for the Proposed Action

    The Organic Foods Production Act of 1990, Title XXI of the Food, 
Agriculture, Conservation and Trade Act of 1990, U.S.C. Title 7, 
mandates that the Secretary of Agriculture develop a national 
organic program. The OFPA states that the Secretary shall establish 
an organic certification program for farmers, wild-crop harvesters, 
and handlers of agricultural products that have been produced using 
organic methods as provided for in the OFPA. In addition, section 
6514 of the OFPA requires the Secretary to establish and implement a 
program to accredit a State program's governing State official or 
any private person, who meets the requirements of the Act, as a 
certifying agent to certify that farm, wild-crop harvesting, or 
handling operations are in compliance with the standards set out in 
the regulation. As stated by the OFPA in section 6501, the 
regulations are proposed for the following purposes: (1) to 
establish national standards governing the marketing of certain 
agricultural products as organically produced products; (2) to 
assure consumers that organically produced products meet a 
consistent standard; and (3) to facilitate interstate commerce in 
fresh and processed food that is organically produced.
    The OFPA was introduced at the request of the organic community 
after it experienced a number of problems in the marketing of 
organic products. Many consumers are willing to pay price premiums 
for organic food; hence, producers (farmers, ranchers, and wild-crop 
harvesters) and handlers have an economic incentive to label their 
products

[[Page 13633]]

organic. Because organic products cannot be distinguished from 
conventionally produced products by sight inspection, consumers rely 
on verification methods, such as certification by private entities 
or verification by retailers to ensure that organic claims are true. 
Where there has been no mandatory certification, consumers have been 
unable to verify organic product claims on their own, and may have 
been vulnerable to fraud from the mislabeling of organic products.
    As organic production became better established in the 1980's, 
new certifying agencies were formed, and some States passed laws 
establishing standards for organic production. However, the 
standards for organic production, processing, handling, and labeling 
were different to some degree, causing disagreements between 
certifying agents over whose standards would apply to ingredients 
used in multi-ingredient organic processed products. Disagreements 
about standards also created sourcing problems for handlers of these 
multiingredient products.
    Certifying agents are able to negotiate and maintain reciprocity 
agreements at some cost. These reciprocity agreements specify the 
conditions under which certifying agents recognize each others' 
standards. The current system of variable standards has led the 
organic industry to take on costs of private accreditation or 
shipment-by-shipment certification, required to gain access to some 
foreign markets such as the European Union (EU). These costs would 
be avoided if a national program were in place.

Baseline

    The organic industry is characterized by an array of production 
and handling practices, self regulation and state regulation, and 
consumer perceptions. However, there are commonalities throughout 
the industry.

Certification

    The United States currently has 49 certifying agents. There are 
36 private certifying agencies and 13 States which have 
certification programs. Private certifying agents range from small 
nonprofit associations that certify only a few growers to large for-
profit businesses operating in numerous States and certifying 
hundreds of producers. Typically, certifying agents review 
producers' organic production plans, inspect the farm fields and 
facilities to be certified, periodically reinspect, and may conduct 
soil tests and tests for residues of prohibited substances. In some 
cases, certifying agents negotiate reciprocity agreements with other 
agents.
    State laws vary widely on organic certification and 
registration. Some States require only that an organic producer 
register and make certification voluntary. California is an example. 
Other States require certification by the State's own agents, while 
others accept certification by a private certifying agent. The least 
stringent requirement among States with organic legislation is that 
products marketed as organic comply with their definition of organic 
but both registration and certification are voluntary. Approximately 
half of the States have laws which regulate organic production and 
processing. Thirteen States operate programs to certify organic 
production. In many States producers may claim their product is 
organic but operate without certification or well-defined standards. 
On the other hand, many organic producers operate in States with no 
program and voluntarily secure third party certification to well-
defined standards. Certification costs vary with farm size and 
across certifying agents. Illustrative certification costs are 
presented in Tables 2A and 2B.
    Very few certifying agents operate with an external 
accreditation. There is no law which requires them to be accredited: 
The price may be unacceptably high in relation to expected benefits; 
the certifying agent may be unable to find an accrediting party 
willing to accredit the particular organic program the certifying 
agent is marketing; and State programs may believe that their status 
as a government entity obviates the need for external accreditation.
    In 1999 USDA began verifying certifying agents to International 
Organization for Standardization (ISO) Guide 65. It is a valuable 
recognition that the certifying entity satisfies the business 
capacity standards of ISO Guide 65. European Union authorities have 
accepted verification of certifying agents to ISO Guide 65 as an 
interim measure to facilitate exports pending the establishment of a 
national organic program.

Organic Food Production

    Organic production occurs in all States. An estimated 12,000 
organic producers are operating in the United States. Most organic 
producers are small both in terms of value of sales and acreage. 
Small producers do not necessarily farm full-time, and may not 
depend solely on farm income for a livelihood. Some organic 
production occurs as a distinct part of a larger operation that 
includes conventional production practices.
    Key production practices followed by certified organic producers 
include: abstaining from use of certain crop chemicals and animal 
drugs; ecologically based pest and nutrient management; segregation 
of organic fields and animals from nonorganic fields and animals; 
following an organic production plan with multiple goals, including 
sustainability; and record keeping to document practices and 
progress toward the plan's goals. Specific elements of organic 
production will vary, but organic systems generally share a core set 
of practices. For example, the certification standards of virtually 
all State and private U.S. certifying agents prohibit the use 
synthetic chemical herbicides and insecticides or animal growth 
hormones. And most certification standards include a three year ban 
on the use of prohibited substances on cropland before production 
can be certified as organic.
    On the other hand, certification standards for organic livestock 
production have been more variable, for pasture, feed, and other 
practices. Until 1999, the USDA Food Safety and Inspection Service 
(FSIS) withheld approval for the use of organic labels on meat and 
poultry products pending the outcome of this rulemaking. However, 
the Secretary announced a change in policy in January 1999. Meat and 
poultry products may be labeled ``certified organic by (name of the 
certifying agent)'' if processors obtain prior label approval from 
FSIS and the claim meets certain basic criteria. However, many 
private and State certifying programs have not developed standards 
for livestock production.
    The provisions of the New Hampshire organic program are 
summarized below to illustrate key elements of current organic 
standards. The New Hampshire program provisions are not 
substantially different from provisions in some State programs, 
private programs, and mirror provisions of USDA's proposed national 
program. Soil tests are required for initial certification and every 
three years afterward. Soil testing measures the quality of the soil 
for agricultural production and is different from residue testing. 
New Hampshire requires residue testing ``if the department believes 
that the produce or soil which certified produce was grown may have 
become contaminated with prohibited substances.'' (New Hampshire 
Rule AGR 906 Certification of Organically Grown Food, Agr 906.05 
Laboratory Analysis) Other production standards include a written 
rotation plan, tillage systems that incorporate organic matter 
wastes into the topsoil, compliance with limits on the sources of 
manure and the timing of its application, prohibitions on the use of 
certain substances (e.g., sewage sludge, synthetic sources of 
nitrates, synthetic growth regulators, and anhydrous ammonia), a 
list of accepted and prohibited weed and pest control practices, 
segregation of organic and nonorganic production, record keeping 
regarding fertilization, cropping, and pest management histories, 
separate sales records for organic and nonorganic production, and 
records of all laboratory analyses.
    The New Hampshire program requires growers to pay a $100 annual 
inspection fee, and to provide a written description of their farm 
operation including the size of the farm, a field map, a three-year 
history of crop production, pest control, and fertilizer use, a crop 
rotation and a soil management plan, and a description of post-
harvest storage and handling methods. Applicants for certification 
must also agree to comply with regulations controlling the use of 
the New Hampshire certified organic logo.

Organic Food Handling

    In addition to growers, who actually produce and harvest 
products to be marketed as organic, there are handlers who transform 
and resell the organic products. Not all certifying agents have 
standards for handling organic products. Some have standards for 
parts of the food marketing system, such as retail food 
establishments, that are not explicitly covered by the OFPA or by 
the proposed regulation.
    Definitions of processing and handling differ across certifying 
agents and State laws. Some States, such as Washington, distinguish 
between a processor and a handler, specifying 21 actions which 
constitute processing and defining a handler as anyone who sells, 
distributes, or packs organic products. Washington does not consider 
retail grocery stores and restaurants to be organic handlers or 
processors.

[[Page 13634]]

Marketing of Organic Food--Domestic and International

    The marketing practices of organic producers range from roadside 
stands marketing directly to consumers, to marketing through 
wholesale markets, to direct marketing to restaurants and 
supermarkets. USDA does not have official national level statistics 
on organic retail sales. An industry trade publication reported 
estimates of retail sales of organic foods for a number of years in 
the 1990's (Table 1). The last published estimate was $3.5 billion 
in 1996 ($3.6 billion in 1998 dollars). To put this figure in 
context, total food expenditures by families and individuals were 
$606 billion in 1996 ($629 billion in 1998 dollars).
    The United States is both an importer and an exporter of organic 
foods. The United States does not restrict imports of organic foods. 
In fact, U.S. Customs accounts do not distinguish between organic 
and conventional products. The largest markets for organic foods 
outside the United States are in Europe, Japan, and Canada. There is 
increasing pressure, particularly in Europe and Japan, for U.S. 
exports to demonstrate that they meet a national standard rather 
than a variety of private and State standards.
    The EU is the largest market for organic food outside the United 
States. The organic food market in the EU was estimated to be worth 
$5.2 billion in 1997 (International Trade Centre UNCTAD/WTO 1999). 
The largest organic retail sales markets in the EU in 1997 were 
Germany ($1.8 billion), France ($720 million), and Italy ($750 
million). Large organic markets outside the EU include Canada and 
Australia, with approximately $60 million and $68 million, 
respectively, in organic retail sales in 1997 (Lohr 1998). Import 
share of the organic food market in Europe ranged from 10 percent in 
France to 70 percent in the United Kingdom, was 80 percent in 
Canada, and varied from 0 to 13 percent in various Australian 
states.
    Japan is another important market for U.S. organic products. 
Currently, Japan has voluntary labeling guidelines for 6 categories 
of non-conventional agricultural products: organic, transitional 
organic, no pesticide, reduced pesticide, no chemical fertilizer, 
and reduced chemical fertilizer. Total sales, including foods 
marketed as ``no chemical,'' and ``reduced chemical'' are forecast 
to jump 15 percent in 1999 to almost $3 billion. Imports of organic 
agricultural products were valued at $90 million in 1998. Given 
Japan's limited agricultural acreage, imports will likely provide an 
increasingly significant share of Japan's organic food supply (USDA 
FAS 1999a).
    Recently, these markets have adopted or are considering to adopt 
procedures that may impede the importing of organic food. The EU 
regulations establishing the basis for equivalency in organic 
production among EU members and for imports from outside the EU were 
adopted in 1991 (Council Regulation 2092/91). The EU regulations 
only allow imports from non-EU countries whose national standards 
have been recognized as equivalent to the EU standards (Commission 
Regulation 94/92).
    The Ministry of Agriculture, Forestry, and Fisheries (MAFF) in 
Japan recently announced proposed standards and third-party 
certification requirements. Under Japan's proposed standards, 
certifying agents from countries without national organic standards 
administered by a federal government will have to be accredited 
(registered) with MAFF to obtain approval to certify products 
destined for the Japanese market. The Japanese proposal includes 
provisions for country-to-country equivalency recognition of other 
national programs.

The Proposed Rule

    The proposed rule follows the structure established in the OFPA. 
By adopting this alternative, the Department would follow 
legislative direction in the OFPA. All products marketed as organic 
will have to be produced and handled as provided in the OFPA and the 
regulations. Compared to current organic practices, the proposed 
rule sets a more stringent system of requirements.

Accreditation and Certification

    The rule specifies the accreditation and certification process. 
Persons providing certification of organic production and handling 
must be accredited by USDA through the NOP. Applicants for 
accreditation must document their abilities to certify according to 
the national standards and to oversee their clients' compliance with 
the requirements of the OFPA and NOP regulations. Producers and 
handlers of organic products must be certified by an accredited 
certifying agent. Producers and handlers are required to document 
their organic plans and procedures to ensure compliance with the 
OFPA.
    All certifying agents would have to be accredited, and 
certification by producers and handlers would not be voluntary. The 
exceptions are: (1) Growers and handlers with gross organic sales of 
$5,000 or less would be exempt from certification; and (2) a 
handling operation may be exempt or excluded from certification 
according to provisions described in the rule's subpart B, 
Applicability. For example, a handling operation that is a retail 
food establishment or portion of a retail food establishment would 
be exempt if it handles organically produced agricultural products 
but does not process them, and would be excluded from the 
requirement to be certified if it processes or prepares, on the 
premises of the retail food establishment, raw and ready-to-eat-food 
from agricultural products that are previously labeled as ``100 
percent organic,'' ``organic,'' or ``made with organic (specified 
ingredients).'' However, this exemption does not extend to other 
provisions of the proposed rule such as prevention of contact with 
prohibited substances.
    USDA will charge applicants for accreditation a $500 fee at the 
time of application. USDA will also charge applicants for costs over 
$500 for site evaluation of the applicant's business. The applicant 
would be charged for travel costs, per diem expenses, and any 
miscellaneous costs incurred with a site evaluation. Review of 
documents for renewal of accreditation will be charged at an hourly 
rate.
    Producers and handlers will not pay certification fees to USDA. 
Certification fees will be established by the accredited certifying 
agents. USDA will not set fees. The rule requires certifying agents 
to submit a copy of their fee schedules to USDA, post their fees, 
and provide applicants estimates of the costs for initial 
certification and for renewal of certification.

Production and Handling

    The rule establishes standards for organic production of crops 
and livestock and handling of organic products. These standards were 
developed from specific requirements in the OFPA, recommendations 
from the National Organic Standards Board (NOSB), review of existing 
organic industry practices and standards, public comments received 
on the 1997 proposal and subsequent issue papers, and public 
meetings.
    The proposed rule establishes a number of requirements for 
producers and handlers of organic food. These requirements will 
affect farming operations, packaging operations, processing 
operations and retailers. Some of the major provisions are: (1) Land 
requirements; (2) crop nutrient requirements; (3) crop rotation 
requirements; (4) pest management requirements; (5) livestock 
management requirements; (6) processing and handling requirements; 
and (7) commingling requirements.

National List

    The National List lists allowed synthetic substances and 
prohibited non-synthetic substances that may or may not be used in 
organic production and handling operations. The list identifies 
those synthetic substances, which would otherwise be prohibited, 
that may be used in organic production based on the recommendations 
of the NOSB. Only those substances on the National List may be used. 
The National List also identifies those natural substances that may 
not be used in organic production, as determined by the Secretary 
based on the NOSB recommendations.

Testing

    When certifying agents have reason to believe organic products 
contain a prohibited substance, they may conduct residue tests. The 
rule incorporates the national mean of detected residues for 
specific commodity/pesticide pairs and clarifies how unavoidable 
residual environmental contamination would be used in residue 
testing.

Labeling

    The rule also states how organic products may be labeled and 
permitted uses of the USDA organic seal. In addition to the USDA 
seal and the certifying agent's seal, information on organic food 
content may be displayed. It is important to note that small 
businesses who are certified may use the USDA seal.

Recordkeeping

    The rule will require certifying agents, producers, and handlers 
to keep certain records. Certifying agents will be required to file 
periodic reports with USDA. Producers and handlers will be required 
to notify and submit reports to their certifying agent. While 
recordkeeping is a standard practice in

[[Page 13635]]

conventional and organic farming, the proposal adds recordkeeping 
and reporting requirements which do not exist for growers and 
handlers operating without certification. Similarly, certifying 
agents would face additional recordkeeping and reporting 
requirements, particularly those certifying agents operating without 
external accreditation. State and private certifying agents regulate 
the use of organic seals and logos. The proposed rule permits 
certifying agent logos and requires the name of the certifying agent 
on processed organic foods.

Alternatives to the Proposed Rule

    As required by E.O. 12866, alternatives to the proposed rule 
were considered. The identified alternatives were the Status Quo and 
Industry-Developed Standards. The costs and benefits of each 
alternative were assessed to the extent possible.

Status Quo: The Organic Market in the Absence of Federal Regulation

    This is the no program alternative. There would be no national 
standard or national program of accreditation and certification. 
Certification would be voluntary and certifying agents would not 
have third party accreditation. Some producers and handlers would 
operate with certification provided by private organizations or 
State programs. Other producers and handlers would characterize 
their foods as organic but would not be certified.
    A mix of State and private programs may continue to operate 
according to varying standards. In States without organic laws or 
States where certification is voluntary, goods would be marketed as 
organic without third party certification. Even under this scenario, 
organic food produced in States with production standards and 
certification may be produced using similar practices because most 
State standards follow similar requirements: A 3 year transition, 
prohibited use of certain substances (lists of substances tend to 
overlap), practices which prevent commingling with conventional 
products, and where livestock standards exist, organic feed.
    In addition, at the time the OFPA was enacted, the industry had 
been unable to agree on organic standards. Recently, there has been 
movement toward shared standards partly in response to efforts to 
develop national organic standards including the 1997 proposal and 
the public NOSB process. The Organic Trade Association (OTA) has 
developed ``American Organic Standards'' which the OTA Board 
recently ratified. The OTA describes itself as `` * * * a national 
association representing the organic industry in Canada, the United 
States and Mexico. Members include growers, shippers, processors, 
certifying agents, farmer associations, brokers, consultants, 
distributors and retailers. Established in 1985 as the Organic Foods 
Production Association of North America, the Organic Trade 
Association works to promote organic products in the marketplace and 
to protect the integrity of organic standards.'' (OTA website). 
Although there is substantial consensus on the draft standards, 
acceptance is not unanimous.
    The draft standards developed through OTA correspond closely to 
many elements in the proposed national organic program. OTA 
envisions a system of accreditation and certification of producers 
and handlers but not restaurants and grocery stores. The list of 
allowed and prohibited substances mirrors the list developed by the 
NOSB. Production practices for crops and livestock include the 
common features in most State and private programs--a 3 year 
transition, no commingling, use of organic feed, limits on the use 
of antibiotics, requirements for an organic plan and recordkeeping. 
Hence, even in the absence of a national program, the organic 
industry may be moving toward a common standard.
    Under the status quo-no national program alternative, producers 
and handlers who chose to be certified, or who are required by State 
laws to be certified, would pay fees that would vary depending on 
the market for the particular private certifying agent's service and 
whether a State certification program was operating with subsidized 
fees.
    No federal funds would be used, there would be no transfer from 
federal taxpayers at large to organic market participants, and there 
would be no federal regulatory barriers to entry into organic 
production and handling.
    International access for domestic organic products may be very 
influential on development of the organic industry in the United 
States. A food trade publication (The Natural Foods Merchandiser) 
tracked organic sales for a while in the 1990s showing annual growth 
in retail sales of 20-25 percent between 1990 and 1996 (Table 1). 
This growth took place in the absence of a national program.
    In the absence of national standards, U.S. organic producers 
have been able to access European markets only by obtaining specific 
product permissions granted to individual importers by organic 
regulatory authorities in an EU member state (Byng, p. 27-28 1994). 
This process has required the importer to satisfy the authorities, 
through documentation and possible site inspection, that the product 
in question has been certified to and produced under equivalent 
standards of production and inspection. This case-by-case process of 
approving imports was intended as a temporary arrangement to 
accommodate non-EU countries that had not yet established government 
systems regulating organic production and certification. Another 
step State and private organic certifying agencies have taken to 
access international markets in the absence of a national program 
has been a voluntary, fee-for-service program to verify that they 
comply with the requirements prescribed under ISO Guide 65.
    Governments in foreign markets and foreign private processors 
and retailers are expected to insist on additional verification that 
goods have been produced to acceptable organic standards. This would 
likely lead to an increased use of private accreditation services 
and of USDA's ISO Guide 65 verification service. USDA's ISO Guide 65 
verification services are provided on a user fee basis with full 
cost recovery. These private accreditations and USDA's verifications 
would increase costs for certifying agents and producers and 
handlers. In addition, establishing reciprocity between certifying 
agents in the domestic organic market involves some cost and may 
stifle growth in trade of organic products, although the magnitude 
of these costs and their effects on growth is unknown.
    Under the proposed national program, all applicants for 
accreditation will be assessed against ISO Guide 65, eliminating the 
need for a separate ISO Guide 65 assessment that exists for those 
exporting to the EU in the absence of a national program. Growth in 
the trade of organic products, particularly exports, may be 
jeopardized by a status quo-no program alternative because there 
would be no national program upon which to establish equivalency.

Industry-Developed Standards

    As an alternative to the proposed national program, another 
national program could adopt industry-developed standards. For 
example, USDA could adopt the standards recently developed by the 
Organic Trade Association or other consensus standards and enforce 
those standards. Certification to these standards could be performed 
as it is currently, by private certifiers or by state programs. 
There could be variation among certifiers' standards, but producers 
and certifiers would not be able to prohibit use of a product 
meeting the national standard from the production of other 
``organic'' products.
    There are various enforcement mechanisms that are available 
under this alternative. The USDA could choose to enforce the adopted 
standards. Enforcement could be left to other federal agencies or 
State governments. For example, the Federal Trade Commission could 
regulate truth in advertising with respect to organic food; the USDA 
Food Safety Inspection Service could regulate labeling of organic 
meat and poultry products.
    Adopting the industry standard as the USDA standard, the USDA 
could provide an acceptable national standard that would be 
necessary in establishing equivalency to access international 
organic markets, and eliminate the problems associated with 
establishing reciprocity in the domestic organic market.
    It is important to note that it may be difficult to develop 
consensus industry standards. For example, while standards recently 
proposed by OTA were developed with significant industry input they 
may not represent the kind of consensus that is the result of this 
proposed rule.

Number of Affected Parties and Projections

    In assessing the impacts of the rule, we have attempted to 
determine the number of certifying agents, private and State, that 
are currently operating, and considered the factors likely to affect 
the number of certifying agents after the rule is implemented. We 
have attempted to determine the number of currently operating 
producers and handlers that would be affected. And, we have 
considered the factors which might affect the number of producers 
and handlers after the program has been implemented.

[[Page 13636]]

    For the analysis, the USDA assumes the following:
    1. Forty-nine domestic certifying agents and ten foreign 
certifying agents will be affected by the proposed regulation.
    2. Approximately 12,200 certified and non-certified organic 
producers will be affected by the proposed regulation. With the 
assumed growth rate of 14% for certified organic producers and 
approximately 8% for non-certified organic producers, the number of 
organic producers will grow to 17,150 in 2002.
    3. Approximately 1,250 processors and handlers of organic food 
will be affected by the proposed action. This number will grow to 
2,150 by 2002.
    4. The number of retailers affected by the proposed action is 
not quantified.

Certifying Entities

    We place the number of certifying agents currently operating at 
49, including 13 State programs. The number of certifying agents has 
remained fairly stable, between 40 and 50, for some years, with 
entries and exits tending to offset each other. For purposes of 
estimating the paperwork burden described elsewhere, we assume no 
growth in the number of domestic certifying agents but project 10 
foreign certifying agents in the first 3 years of the program.

Organic Producers

    It is more difficult to establish the number of organic 
producers. Organic farming was not distinguished from conventional 
agriculture in the 1997 Census of Agriculture. Among the sources 
which give insight into the number of producers, the Organic Farming 
Research Foundation (OFRF) has conducted nationwide surveys of 
certified organic producers from lists provided by cooperating 
certifying agents (OFRF 1999). OFRF sent its 1997 survey to 4,638 
organic producers.
    Because OFRF did not obtain lists from all certifying 
organizations or their chapters (55 out of a total of 64 identified 
entities provided lists), its list count of 4,638 producers is 
likely an underestimate of the number of certified organic farms. If 
the average producer-to-certifying agent ratio (55 certifying agents 
to 4,638 producers) holds for the 9 certifying organizations that 
did not provide the list (9 certifying agents out of a 64 certifying 
agents), then the number of producer grows to 5,397 producers.
    The different estimates of the number of certifying agents 
should be noted. The USDA estimates 49 certifying agents; the OFRF 
estimates 64 certifying agents. The difference stems from the USDA's 
not counting different chapters of certifying organizations 
separately.
    The California Department of Food and Agriculture's organic 
registration program suggests that, at least for California, most 
organic producers are not certified. For the 1994-95 reporting 
period, CDFA reported that 1,372 farms registered as organic 
producers but only 517 of these farms were certified (Klonsky and 
Tourte, 1998a). Thus, one approach to projecting national totals 
from OFRF survey lists of certified producers would be to apply the 
1994-95 ratio between producers registered and certified in 
California to the OFRF 1997 list count. This would suggest the 
number of non-certified producers to be 8,918, resulting in the 
total number of organic producers to be 14,315. However, it is 
important to note that California's structure of organic production 
may not be representative of the national profile. The number of 
non-certified producers may be higher or lower.
    CDFA also reports the number of registered and certified 
producers by sales class. Many producers would likely be eligible 
for the small farm (sales less than $5,000) exemption provided for 
in the OFPA. Of 1,372 registered organic farms in California, 907 
had sales of less than $10,000. Of the 517 certified farms, 188 had 
sales of under $10,000. If these ratios are applied to the number of 
producers calculated, then the number of certified producers with 
sales under $10,000 would be 1,962, and the number of organic 
producers in general with sales under $10,000 would be 9,463. Thus, 
there are potentially a large number of farms which could be exempt 
from certification requirements.
    Dunn (1995a, 1995b, and 1997) has estimated the number of 
certified organic producers in the United States. Dunn (1995a, 
1995b) estimated the number of certified producers at 4,060 in 1994. 
Dunn (1997) reported 4,856 certified organic farms in 1995. USDA's 
1997 proposal relied on Dunn's 1995 estimate of 4,060 total 
certified producers. Dunn's numbers have been used because Dunn's 
1995 work was an official USDA study. The methods used were reviewed 
by USDA and the resulting estimates are official USDA statistics. 
Although Dunn's 1997 estimates were not a USDA study, the 1997 study 
used the same approach as the 1995 study.
    An adjustment is needed to account for the number of producers 
who are practicing organic agriculture but who are uncertified and 
would be affected by this proposed rule. We reject the idea of 
expanding by the certified-to-registered ratio reported in 
California for reasons previously stated. We assume that the number 
of organic-but-not-certified producers in 1999 is about 4,000. We 
adopt this figure recognizing that there may be 1,000 such farms in 
California, given that there were 855 in CDFA's report on 1995 
registrations. The total number of organic farms for assessing the 
impact of the rule is 12,200 in 1999.
    Data collected by AMS indicate that the number of certified 
organic farmers increased about 12 percent per year during the 
period 1990 to 1994. OFRF survey efforts indicate that growth has 
continued, though it is not clear whether the growth rate has 
changed. We use the average growth rate from Dunn's time series from 
1991-1994, which was about 14 percent. The true rate of growth could 
be higher or lower. By applying the 14-percent growth rate to Dunn's 
(1995) estimate, the number of certified organic producer 
potentially affected in 1999 is 8,200 and 12,150 in 2002.
    We have no national-level growth rates for not-certified organic 
farms. The limited times series from CDFA is of limited value in 
estimating a growth rate. We suspect it is less than the rate for 
certified farms because certification has value and organic 
producers would be expected to take advantage of the marketing 
advantages of certification. Furthermore, the emergence of State 
certification programs that appear to have lower certification fees 
than private certification entities may have encouraged more organic 
producers to be certified. Therefore, for purposes of analyzing the 
impacts of the rule for the Paperwork Reduction Act, we assume 
growth of non-certified organic producers from 4,000 in 1999 to 
5,000 non-certified farms by 2002, making the total number of farms 
potentially affected by the rule, 17,150 farms. However, we request 
comment and/or data on the number and the growth of certified and 
non-certified organic farms.

Organic Handlers

    Little information exists on the number of handlers. They 
include processors such as organic soup manufacturers, organic food 
packaging operations, and organic food wholesalers. USDA has 
estimated that there were 600 entities in this category in 1994 
(Dunn 1995b). AMS estimated that the growth rate was 11 percent from 
1990 through 1994 (Dunn 1995b). More recent data from CDFA 
registration records suggest a growth rate of about 28 percent 
(California Department of Health Services 1999). For projection 
purposes, we use a growth rate of 20 percent, which makes the number 
of handlers for 1999 1,250 and for 2002 2,150. Reasons for growth 
include the general increase in organic production and growth in the 
market for processed organic foods, including multiingredient 
products. Again, these projections are based on limited data from 
the early 1990's, and growth may have slowed or increased. We 
request comment and/or data on the number and the growth rate of 
processors and handlers in the organic industry.

Retail Food Establishments

    Retailers of organic food are grocery stores, bakeries, 
restaurants and other establishments that process or prepare raw and 
ready-to-eat food. Most are not currently subject to either 
voluntary practices or mandatory standards of the organic industry. 
Although they are excluded from the certification requirements, they 
are subject to other processing, handling, and other production 
related requirements of the proposed rule. Hence, a new stratum of 
the organic industry will be regulated by the proposed rule.
    Dunn's (1995a) estimates the number of certified retailers to be 
31 in 1995. It is not clear whether Dunn's (1995a) definition of 
retailers and the proposed definition stated above are consistent. 
Hence, the total number of retailers that may be regulated remains 
unknown. USDA's Economic Research Service (ERS) reports there were 
161,707 grocery stores in 1997 (ERS website). Many of these stores 
sell organic products and may be affected by the proposed rule. The 
effect of the proposed regulation on the growth of retailers remains 
unknown. We request comment and/or data on the number and the growth 
rate on the retailers of organic food.

[[Page 13637]]

Foreign Entities

    The discussion of the number of affected parties has focused on 
domestic certifying agents, producers, and handlers. We recognize 
that foreign entities may apply for accreditation and foreign 
producers and handlers may be certified under the NOP. Furthermore, 
upon request of a foreign government, a foreign certifying agent may 
meet the requirements for accreditation when the Administrator 
determines that the certifying agent meets the requirements of the 
NOP.
    At this time, we have no information regarding the number of 
foreign entities which may enter the NOP. We do not know how many 
foreign producers and handlers are marketing goods as organic, nor 
do we know how many will seek to be certified under the NOP. 
Accredited certifying agents will be able to certify operations 
outside the United States and foreign certifying agents may become 
accredited by USDA. It is likely that the costs for accreditation 
will be higher for foreign applicants for accreditation. Foreign 
applicants will face the same costs as domestic applicants but the 
levels of cost would reflect generally higher costs of foreign 
travel and per diem expenses for site evaluation and miscellaneous 
costs such as for translation of documents. For purposes of 
estimating the paperwork burden described elsewhere, we assume 10 
foreign certifying agents in the first 3 years of the program. We 
request comment and/or data on the number and the growth rate of 
foreign entities that may export to the U.S. organic market.

Benefits of the Proposed Rule

    The benefits from implementation of the proposed rule are: (1) 
Improved protection of buyers from misleading claims and more 
information on organic food; (2) reduced administrative costs; and 
(3) improved access to international organic markets. Not all 
benefits that may arise from the rule are quantifiable. Where 
economic data are available, they may relate to costs and are 
generally not adequate to quantify economic benefits.

Information

    Potential benefits to consumers as a result of the proposed rule 
include more information on organic food, and protection from false 
and misleading organic food claims. Consumers may be misled by 
labels on processed and raw products claiming to be organic. In 
particular, with processed food, some of the ingredients may not be 
organically produced, or the product may contain less organic 
content than the consumer assumes. The USDA organic seal will 
provide consumers a quick tool to verify that goods offered for sale 
as organic are in fact organic. To the extent that consumers view 
the seal as an important information too, that is, product with the 
seal is perceived as more desirable, they may enhance the ability of 
producers to realize the price premiums associated with certified 
products.
    There is anecdotal evidence to suggest that consumer fraud 
involving organic food does occur (Mergentime 1997). Criminal 
prosecutions involving felony pleas and fines have taken place 
(Mergentime 1997). However, we have no evidence to suggest that this 
problem is wide-spread (Mergentime 1995). Also, it is important to 
recognize that the organic industry's effort to police itself and 
the remedies provided by the judicial system may be adequate to 
address consumer fraud. Mergentime (1997) documents the effect of 
litigating fraud cases on the industry. However, we request comment 
and/or data on the extent and the severity of consumer fraud that 
may exist.
    Some producers may have limited their organic livestock 
production because of uncertainty regarding the standards that would 
be used in the NOP. By removing the uncertainty, producers may 
increase production, thereby increasing the quantity of livestock 
products.

Reduced Administrative Costs

    The proposed rule addresses the problem of existing certifying 
agents using different standards and not granting reciprocity to 
other certifying agents. By accrediting certifying agents, the rule 
would establish the requirements and enforcement mechanisms that 
would reduce inconsistent certification services and lack of 
reciprocity between certifying agents. In the current system, the 
certifying agent of a final product is not required to recognize the 
certification of an intermediate product. Both primary farmers and 
food handlers may face a risk of being unable to sell a certified 
organic product when more than one certifying agent is involved. By 
imposing a uniform standard of certification and production, costs 
associated with establishing reciprocity between certifying agents 
will be eliminated. However, the magnitude of this benefit cannot be 
gauged without quantification. In particular, with the increasing 
consensus within the organic industry, the benefit may not be large.
    It is important to distinguish between consensus with respect to 
standards of production and consensus with respect to certifying 
agents practices. There is growing consensus regarding crop 
standards, livestock standards are more problematic. And, consensus 
is least evolved regarding standards of conduct and practice for 
certifying agents. There is no consensus regarding whether 
certifying agents should be accredited or who the accrediting body 
should be.
    Industry-wide training costs may decrease. The proposed uniform 
standards of production, certification should enable organic 
inspectors to move more easily from one certifying agent to another 
than the current system.
    In addition, USDA accreditation of certifying agents would 
present opportunities for sharing information about standards, 
practices, and the general requirements of the program through the 
NOP staff. USDA will undertake a number of outreach and education 
efforts in connection with the launch of the NOP. Compliance guides 
and other printed material will be prepared which will be more 
readily understood than the Federal Register document. NOP staff 
will participate at industry meetings and will likely host public 
information exchange meetings.

International Markets

    The final national program rule is expected to lead to EU 
acceptance of NOP certified organic products. That is, it is 
anticipated that the EU would determine that the NOP is acceptable 
vis-a-vis EU regulation 2092/91. Article 11 of EU Reg. 2092/91 
establishes the conditions under which organic products may be 
imported from third countries and addresses the framework for 
equivalency. The NOP is a national program that should be acceptable 
to the EU and other governments. The result would be the removal of 
trade restrictions, thereby possibly increasing the growth in 
exports of organic food products.
    Currently, despite restricted access to the European market, the 
United States is the most important non-EU supplier of organic 
products to EU countries (Foreign Agriculture Service (FAS), 1995). 
Import authorizations have been granted for a number of raw and 
processed commodities, including sunflowers, buckwheat, beans, 
sugar, and apples. Demand is strong throughout the European market, 
and the organic market share was 1-2 percent of total food sales in 
1997 (Collins).
    Lohr (1998) cites several growth projections:
    Annual growth rates of 25% to 30% have been experienced in the 
EU, the United States, and Japan for over five years, but growth is 
already slowing in some product categories (PSC, Scott) * * * Segger 
projects that the EU market will reach $58 billion and the U.S. 
market $47 billion by 2006. Ahmed suggests that the Australian 
market could grow to $571 million by 2000, whereas LaFond projects 
that the value of Canadian organics will reach $145 million by 2006. 
Mergentime forecasts the Japanese market will reach $2.6 billion by 
2000 (Lohr, 1126).
    Lohr further states that these projected future growth rates are 
based on straight-line extrapolations of current sales and growth 
rates without understanding the underlying market mechanisms and 
price elasticities (Lohr 1998).
    Foreign acceptance of the U.S. national standard can be expected 
to expand the universe of consumers for U.S. producers and reduce 
costs of negotiating and documenting shipment by shipment.

Costs of the Proposed Rule

    The costs of the proposed regulation are the direct costs of 
complying with the specific standards. It is important to note that 
while some costs associated with accreditation and certification are 
quantified, costs stemming from other provisions of the proposed 
regulations are not. In addition, this is a short-run analysis. The 
analysis examines the costs that may be incurred from 1999 to 2002. 
It is not possible at this time to conduct a longer-run analysis 
because we do not know enough about the fundamental supply and 
demand relationships to make economically sound long run 
projections.

Accreditation Costs

    USDA has identified 36 private certifying agents and 13 State 
programs providing certification. These 49 entities are considered 
likely applicants during the first 18 months

[[Page 13638]]

during which USDA will not charge application fees or hourly fees 
for accreditation. An unknown number of new entrants to the 
certifying business may also apply. However, over the last 10 years, 
the number of certifying agents does not appear to have grown 
significantly, with the net effect of entries and exits maintaining 
a population of certifying agents at about 40-50.
    The proposed rule would allow USDA to collect fees from 
certifying agents for USDA accreditation. Collecting fees from 
certifying agents only is administratively simpler and will enable 
State programs that want to keep client costs low to do so.
    Applicants for accreditation will be required to submit a 
nonrefundable fee of $500 at the time of application, which is 
applied to the applicant's fees for service account. This means that 
the $500 fee paid at the time of application is credited against any 
subsequent costs of accreditation arising from the site evaluation. 
The $500 fee is the direct cost to applicants who are denied 
accreditation based on the initial review of the information 
submitted with their application. Charges for the site evaluation 
visit will cover travel costs from the USDA employees' duty station, 
per diem expenses for USDA employees performing the site evaluation, 
an hourly charge that we anticipate will not exceed $95 per hour 
(per each employee) for services during normal working hours (higher 
hourly rates will be charged for overtime and for work on holidays), 
and other costs associated with providing service to the applicant 
or certifying agent.
    The anticipated hourly rate is the rate that USDA will charge 
for services under the Quality Systems Certification Program (QSCP). 
A separate rulemaking will establish the precise hourly rate that 
will be charged. Our preliminary estimate that the fee will be no 
more than $95 per hour is presented to give the public some 
indication of the rate that will be charged following the 18-month 
transition period. QSCP is an audit-based program administered by 
AMS, which provides meat packers, processors, producers, and other 
businesses in the livestock and meat trade with the opportunity to 
have special processes or documented quality management systems 
verified. The procedures for accreditation evaluation are similar to 
those used to certify other types of product or system certification 
programs under QSCP.
    At present, the base per diem for places in the United States is 
$80 ($50 for lodging and $30 for meals and incidental expenses). Per 
diem rates are higher than $80 in most large cities and urbanized 
places. Travel costs will depend on where the certifying agent is 
located.
    USDA estimates the costs of a site evaluation visit after the 
transition period will average $3,070-$4,850 depending on the 
characteristics of the applicant. This estimate is based on 
experience with the QSCP and more limited experience performing 
audits verifying that certifying agents meet ISO Guide 65. The cost 
of a site evaluation visit will vary with the cost of travel from 
the USDA reviewer's duty station to the applicant's place of 
business. In general, more distant and more remote locations will 
involve higher travel costs.
    Accreditation will include verification of adherence to ISO 
Guide 65. Recent experience with USDA's program to verify organic 
certifying agents to ISO Guide 65 indicates that roughly 32 staff 
hours are required. Although much of the accreditation site 
evaluation will involve comparisons against ISO Guide 65, additional 
hours will be required because USDA will be evaluating additional 
aspects of the applicant's operation to determine if the applicant 
is qualified to perform as an accredited agent for the NOP. Based on 
experience with ISO Guide 65 verifications, we project that small 
applicants with a simple business structure will require 3 days and 
large applicants with more complex business structure will require 5 
days. Thus, the total number of hours to be charged would range from 
24 to 40 hours. At the base rate of $95.00, the charge for hours of 
service would be $2,280-$3,800.
    Per diem costs would cover 3 to 5 days, totaling $240-$400. A 
review of domestic travel by USDA staff during fiscal year 1999, 
indicates that transportation costs ranging from $500-$600. 
Miscellaneous costs are estimated to add another $50 to each site 
visit. Thus, the total site visit cost would range from $3,070 to 
$4,850.
    During the 18-month transition period, USDA intends to use 2 
reviewers for site evaluation visits. One reviewer will come from 
the QSCP audit staff and will be familiar with the ISO Guide 65 
verification; the other reviewer will come from the NOP staff and 
will be familiar with requirements of the organic program. The two 
will conduct the site evaluation jointly. We anticipate only one 
reviewer will be required after the transition period. During the 18 
month transition period, applicants will be charged for travel and 
per diem costs for two persons, but not application fees or hourly 
fees. Thus, the estimated expenditures (travel and per diem) for 
these initial accreditations will be $1,530-$2,050. Table 3 
estimates the total initial costs for an applicant to become 
accredited.
    Currently few private certifying agents are operating with third 
party accreditation. Fetter (1999) reports that in a sample of 18 
certification programs four programs were accredited and one had 
accreditation pending. All of these were large, private certifying 
agents. Those certifying agents currently accredited by third 
parties will likely pay less for USDA accreditation. In its first 
proposal, USDA stated at FR 62:65860, ``We are aware that certifiers 
currently may pay in excess of $15,000 for accreditation by a 
private organization.'' Commenters thought this figure was too high. 
One commenter, which operates the International Federation of 
Organic Agriculture Movements (IFOAM) Accreditation Programme under 
license to IFOAM, stated ``It is possible that the largest programme 
operating a chapter system with activities in many countries (which 
is included in their IFOAM evaluation) paid this amount in their 
first year. On the other hand the average cost to a medium sized 
certifier works out at around $3000 to $4000 per year.'' Another 
commenter stated ``At the present time IFOAM accreditation costs 
less than $10,000/year for the largest certifier and $3-5,000 for 
smaller certifiers.''
    The direct costs of accreditation, if all currently operating 
certifying agents become accredited during the first 18 months 
following the final rule, is approximately $75,000 to $100,000. This 
figure is derived from the per firm costs in Table 3. After the 
first 18 months, the direct cost for accrediting 49 certifying 
agents would be approximately $150,000 to $238,000.
    The 18 month period affects the distribution of program costs 
between the organic industry and the taxpayer. Some of the costs of 
accreditation would be absorbed by the NOP operation budget 
appropriated by Congress. In effect, the taxpayers are subsidizing 
the organic industry. Without this subsidy, the total cost of 
accreditation may approach $1 million.
    Private certifying agents and state programs that do not mirror 
the proposed regulation may incur additional costs to change their 
programs to adopt the proposed national standards. The discussion on 
the effect of the proposed regulation on existing state programs is 
in ``State Program Costs.'' The cost associated with changing 
existing private certifying programs is not quantified.
    Also, certifying agents who have been operating without third 
party accreditation will face new costs. Compared to the direct 
costs of $3,000-$5,000 per year indicated by the commenters, the 
direct costs of USDA accreditation will be smaller. The direct costs 
for certifying agents obtaining accreditation during the first 18 
months, when USDA will not impose an application fee or hourly 
charges, will be limited to travel and per diem costs. Furthermore, 
USDA's charges are imposed every 5 years, not annually.
    A national accreditation program may shrink the market for a 
third-party accreditation. Certifying agents will have little 
incentive to maintain or seek a second accreditation by a private 
organization unless that accreditation sufficiently enhances the 
market value of the certifying agent's services. Thus, the market 
will determine whether other accrediting entities continue to have a 
U.S. market for their services.
    Training programs are currently offered by the Independent 
Organic Inspectors Association (IOIA), an organization of 
approximately 165 organic certification inspectors, and by some of 
the larger certifying agents (IOIA, p. 1). Costs to existing 
certifying agents to provide additional training to other staff are 
difficult to measure in the absence of information on current staff 
skill levels or the existence of formal training other than 
inspector training. Some agencies rely on volunteer staff who may 
have had no formal training, but the extent of this practice is 
unknown. AMS intends to offer assistance to certifying agents, 
producers, and handlers by providing guide books and other printed 
material that would enable participants to better understand the 
regulations. In addition, AMS intends to continue open and frequent 
communication with certifying agents and inspectors to provide as 
much information as possible to aid them in fulfilling the 
requirements of the regulations.

[[Page 13639]]

    The OFPA requires that private certifying agents furnish 
reasonable security, such as a bond, for the purpose of protecting 
the rights of participants in the organic certification program. 
Specifics requirements regarding reasonable security have not yet 
been established. It is expected that there will be costs to 
certifying agents from these requirements.

Certification Costs

    State laws vary widely on organic certification and 
registration. Some States require only that an organic producer 
register and make certification voluntary. Other States require 
certification by the State's own agents, while others accept 
certification by a private certifying agent. The least stringent 
requirement among States with organic legislation is that products 
marketed as organic comply with their definition of organic but both 
registration and certification are voluntary. Thirteen States 
operate programs to certify organic production. In many States 
producers may claim their product is organic but operate without 
certification or well-defined standards. On the other hand, many 
organic producers operate in States with no program and voluntarily 
secure third party certification to well-defined standards.
    Under the proposed rule, USDA will not impose any direct fees on 
producers and handlers. Certifying agents will establish a fee 
schedule for their certification services that will be filed with 
the Secretary. Certifying agents will provide all persons inquiring 
about the application process with a copy of their fees. The 
certifying agent will provide each applicant with an estimate of the 
total cost of certification and an estimate of the annual costs of 
updating the certification. However, the certifying agent may 
require applicants to pay at the time of application a nonrefundable 
fee of no more than $250 which must be applied to the applicants' 
fee-for-services account. The $250 limit is proposed as a reasonable 
figure considering the interests of certifying agents and 
applicants.
    The proposed maximum nonrefundable fee protects certifying 
agents by ensuring that they receive some payment for their work for 
applicants should the applicant lose interest or be found 
unqualified for certification. For the purposes of estimating the 
cost of the paperwork burden on certifying agents, USDA has valued 
their time at $27 per hour. Thus, the $250 limit, if the certifying 
agent chooses to require it, would cover approximately 9 hours of 
work. The $250 limit protects applicants from paying large fees up 
front when their ultimate eligibility for certification is unknown. 
The $250 limit is believed to be low enough to ensure producers and 
handlers can afford to take the first steps for certification but 
high enough to ensure certifying agents will have an incentive to 
initiate certification when the prospects that the applicant will 
qualify are unknown.
    Some States charge minimal fees for certification by subsidizing 
operating costs from general revenues. The majority of certifying 
agents structure their fee schedules on a sliding scale based on a 
measure of size, usually represented by the client's gross sales of 
organic products but sometimes based on the acres operated (Fetter 
1999 and Graf and Lohr 1999). Some certifying agents charge an 
hourly rate for inspection and audit services.
    Graf and Lohr have applied fee schedules provided by nine 
certifying agents to four hypothetical farms--small, medium, large, 
and a super farm. Tables 2A and 2B summarizes the fees that Graf and 
Lohr found by applying schedules of each certifying agent to 
hypothetical farms. Total first-year costs and subsequent (renewal) 
year costs for certification are shown. The average cost for each 
size class should be interpreted with care because the reported 
average is not weighted by the number of clients certified. In their 
study, the Texas Department of Agriculture program is the low-cost 
certifying agent for all-size operations. The high-cost certifying 
agent differs across farm sizes. None of these certification 
programs mentions costs for residue testing, which the NOP will 
require in the form of preharvest testing when there is reason to 
believe that agricultural products have come in contact with 
prohibited substances. Preharvest testing is expected to be 
infrequent. Some certifying agents currently require soil nutrient 
testing and water quality testing. The estimated total initial costs 
for a producer or handler to become certified are presented in Table 
3.
    We have not extended the average costs reported in Tables 2A and 
2B to aggregate certification costs for all organic farms because 
the number of organic farms is not known with precision, nor is 
their geographic location and there are no data to distribute the 
population of organic farms across size classes. Like conventional 
agriculture, the largest percentage of farms would be expected to 
fall in the smallest sales class. Many of the smallest farms would 
qualify for the small farm exemption from certification.
    In addition, organic producers and handlers would incur the 
costs associated with becoming familiar with the national program. 
We request comment and/or data on the certification costs that may 
be imposed on the organic producers, handlers, processors, and 
retailers.

Production and Handling Costs

    Producers and handlers currently active in the organic industry 
may bear costs under the proposed national standards. We believe 
that while some provisions of the proposed program mirror current 
industry practices, others differ. In addition to the cost 
associated with becoming familiar with the national program, any 
adjustments stemming from these differences will result in costs. 
These costs are only qualitatively discussed. This assessment does 
not include a provision-by-provision analysis of possible 
alternatives.

Producers

    Producers of organic food will face numerous provisions that 
will regulate their production methods. As indicated in the Baseline 
section, many of the requirements are currently practiced by 
certified organic farmers. Farming operations that are not 
certified, but are registered with a State government such as 
California, receive copies of the State laws to which they must 
comply. Some organic producers are neither certified nor registered 
and therefore may not practice the requirements proposed. Major 
provisions are discussed to illustrate costs; other provisions may 
also impose additional costs. We request comment and/or data on the 
costs that may be imposed on the producers of organic products. In 
addition, we request comment and/or data on the similarities and 
differences between the current practices of private and State 
programs and the proposed requirements.
    Land Requirement. The transition period, which would specify the 
time during which prohibited materials cannot be applied before a 
field can be certified as organic, is included in many private and 
State organic standards. The OFPA specifies a required transition 
period of 3 years before certifying a field. The effect of this 
provision on the currently certified organic farming operations may 
be minimal. Certifying agents currently enforce the 3 year 
transition period required by the OFPA. Producers who are registered 
in States requiring registration, receive copies of the State laws 
governing organic production which generally require a 3 year 
transition period.
    The effect on small farming operations that are neither 
certified or registered may be significant. Small farming operations 
that have completed a 3 year transition period and can document the 
transition will not be affected by this requirement. To stay in the 
organic industry, those who have not completed the 3 year transition 
period must comply with the transition period requirement. They may 
incur the cost of organic production for a significant length of 
time, yet not be allowed to sell their products as organic. Hence, 
some small organic operations may exit the industry. We request 
comment and/or data on the magnitude of the cost associated with the 
provision. In addition, we request comment and/or data on the 
similarities and differences between the current practices of 
private and state programs and the proposed requirements.
    Soil fertility and crop nutrients. Lacking information, we have 
not quantified the cost associated with this provision, but we 
assume that it may have costs Organic production historically rests 
on soil fertility management. Private and State certifying agents 
have well developed standards addressing care and treatment of the 
soil. The proposed rule includes requirements for the use of manure 
and a practice standard for composting which may impose additional 
costs to producers. However, not all organic farmers use manure for 
soil fertility and many farmers use composting practices that are 
consistent with the proposed rule. We believe that this requirement 
will have minimal impact on certified or registered organic 
producers. We request comment and/or data on the magnitude of the 
cost associated with the provision. In addition, we request comment 
and/or data on the similarities and differences between the current 
practices of private and State programs and the proposed 
requirements.
    Materials list. Lists of approved synthetic materials, including 
soil amendments and

[[Page 13640]]

pesticides, vary from one State program to another. A detailed 
analysis of specific differences in the various existing materials 
lists shows them to be overlapping in most cases. The impact of the 
national program will be determined by how the national standards 
differ from current certification standards and from actual 
practice.
    Farming operations, both certified and registered, may need to 
adjust their production methods to comply with the list. These 
adjustments will impose costs on these operations. However, most 
currently certified operations and those operating under a State 
program already adhere to a materials list. These lists overlap in 
most cases with each other and the National List in this proposal 
which should mitigate the costs for these operations. The magnitude 
of the costs resulting from these adjustments is not quantified. We 
request comment and/or data on the magnitude of the costs associated 
with the provision. In addition, we request comment and/or data on 
the similarities and differences between the current practices of 
private and state programs and the proposed requirements.
    Animal drug use. Another common feature of organic standards is 
the restricted use of animal drugs for livestock. Where livestock 
standards have been adopted by existing State programs and by 
private certifying agents, most prohibit the use of animal drugs 
except for the treatment of a specific disease condition, and use of 
animal drugs is generally prohibited within 90 days prior to the 
sale of milk or eggs as organic. Some State and private certifiers 
allow the use of animal drugs in animals for slaughter if the 
producer extends the withholding period. Others prohibit the use of 
animal drugs. The standards in the proposed rule would prohibit the 
sale as organic of an edible products derived from an animal treated 
with antibiotics or other unapproved substances.
    The proposed standards may not differ from existing State or 
private standards in prohibiting the use of drugs on healthy 
animals. However, the effect of this provision may differ among 
certified and registered organic farms. The effect on the certified 
farming operations is unknown. We assume that this provision may 
have costs, but the magnitude of these costs is not quantified. We 
request comment and/or data on the magnitude of the costs associated 
with the provision. In addition, we request comment and/or data on 
the similarities and differences between the current practices of 
private and state programs and the proposed requirements.
    Other livestock requirements. Lacking information, we have not 
quantified the cost associated with this provision, but we assume 
that this provision may have costs due to the variability in current 
housing, feed and health care practices. We request comment and/or 
data on the magnitude of the costs associated with the provision. In 
addition, we request comment and/or data on the similarities and 
differences between the current practices of private and state 
programs and the proposed requirements.
    Residue Testing. Lacking information, we have not quantified the 
cost associated with this provision, but we assume that this 
provision may have costs. We request comment and/or data on the 
magnitude of the costs associated with the provision. In addition, 
we request comment and/or data on the similarities and differences 
between the current practices of private and state programs and the 
proposed requirements.
    Handling requirements. These requirements prohibit a handler 
from using ionizing radiation for any purpose, an ingredient 
produced with excluded methods, or a volatile synthetic solvent in 
or on a processed agricultural product intended to be sold, labeled, 
or represented as ``100 percent organic'', ``organic'' or ``made 
with organic (specified ingredients).'' We believe, however, that 
the additional costs associated with compliance may be small. We 
base this assumption on the thousands of comments on the first 
proposal, including comments from the organic industry, indicating 
that these practices are widely considered to be inconsistent with 
organic production and handling. Lacking information, we have not 
quantified the cost associated with this provision. We request 
comment and/or data on the magnitude of the costs associated with 
the provision In addition, we request comment and/or data on the 
similarities and differences between the current practices of 
private and state programs and the proposed requirements.

Handlers

    Handlers of organic food may be defined and regulated 
differently across different certifying agents and States. Handlers 
may incur some cost associated with complying with the requirements 
of the proposed regulation. We request comment and/or data on the 
costs that may be imposed on the retailers of organic products. In 
particular, we request comment and/or data on costs associated with 
excluded methods, residue testing, and labeling. In addition, we 
request comment and/or data on the similarities and differences 
between the current practices of private and state programs and the 
proposed requirements.

Retail Food Establishments

    Largely, retailers of organic food are not regulated. However, 
they are still subject to other requirements such as prevention of 
contamination of organic products with prohibited substances, and 
commingling organic with non organic products. Complying with these 
provisions may incur some cost. We request comment and/or data on 
the costs that may be imposed on the retailers of organic products.

Labeling Costs

    Certified handlers will have to comply with requirements 
regarding the approved use of labels. The estimated annual cost for 
1,977 certified handlers to determine the composition of 20 products 
to be reported on labels is $948,960. This figure is based on an 
average of 1 hour per product and an hourly cost of $27. Similarly, 
certified handlers will have to design their labels to comply with 
the regulation. This is expected to take 1 hour per label at $27 per 
hour for a compliance cost of $948,960. Total label costs for 
certified handlers are $1.9 million.
    Any producers, processors, and retailers who are not currently 
certified but who package organic products are also subject to the 
labeling requirements. Any changes to existing labels and new labels 
that need to conform to the proposed regulation will incur a cost. 
The costs associated with these activities are not quantified. 
Hence, the lower bound on the labeling cost is approximately $2 
million. We request comment and/or data on the extent the current 
labels will need to change to conform to the proposed regulation. In 
addition, we request comment and/or data on the similarities and 
differences between the current practices of private and state 
programs and the proposed requirements.

State Program Costs

    A national program may impose additional costs on States by 
requiring changes in their existing programs. The proposed rule 
encompasses most of the principles of existing State programs. 
However, there are also departures.
    Where State standards are below Federal standards or where 
elements of the Federal standards are missing from a State program, 
these States would be required to make changes in their programs 
that they might otherwise not make. Where State programs have 
standards in addition to the Federal standards and they are not 
approved by the Secretary, States also would be required to make 
changes in their programs. States without organic standards or whose 
current standards either would conform to those of the national 
program or would be approved by the Secretary would not incur 
additional costs resulting from required changes. Currently, USDA 
cannot predict which States may be required to adjust their existing 
programs.
    States will be charged for accreditation, something none of them 
pay for now. The cost associated with this provision is discussed in 
the Accreditation Section.

Enforcement Costs

    Enforcement costs will fall upon USDA's NOP, States operating 
State programs, and on certifying agents. Certifying agents will 
review clients' operations and will notify clients of deficiencies. 
Certifying agents can initiate suspension or revocation of 
certification. Certifying agents will be aware of these overhead 
costs and we assume that they will establish fee schedules that will 
cover these costs. Actual costs to certifying agents for enforcement 
activities will depend on the number of clients, how well informed 
clients are of their obligations, and client conduct. State programs 
will face the same obligations and types of costs as private 
certifying agents.
    USDA's enforcement costs are costs associated with ensuring 
private certifying agents and State programs fulfill their 
obligations. USDA will bear costs of investigating complaints, 
monitoring use of the USDA organic seal and organic labeling, and 
taking corrective action when needed. USDA will bear costs related 
to reviewing an applicant's or certified operation's appeal and for 
administrative proceedings. We request comment on the costs of the

[[Page 13641]]

enforcement provisions of the proposed regulation.

Reporting and Recordkeeping Costs

    The Paperwork Reduction Act of 1995 requires an estimate of the 
annual reporting and recordkeeping burden of the proposed NOP. 
Detailed descriptions of individual elements of that burden are 
presented in the proposal under the heading Paperwork Reduction Act 
of 1995. The estimated annual reporting and recordkeeping burden 
reported is approximately $6.8 million. This figure should be 
understood within the context of the requirements of the Paperwork 
Reduction Act. The Paperwork Reduction Act requires the estimation 
of the amount of time necessary for participants to comply with the 
proposed regulation in addition to the burden they currently have. 
Information gathered by AMS in auditing activities in conjunction 
with ISO Guide 65 verifications, leads us to believe that the 
paperwork burden on current certifying agents and certified 
operators will be 10 to 15 percent greater than their current 
business practices as a result of this proposal.
    Certifying Agents. The regulation will impose administrative 
costs on certifying agents for reporting and recordkeeping. The 
actual amount of the additional administrative costs that would be 
imposed by the proposed rule is expected to be different for those 
entities which would begin their activities only after the national 
program is implemented. Certifying agents that currently are active 
in the organic industry already perform most of these administrative 
functions; therefore, the additional costs to them would depend upon 
the extent to which their current practices are different from the 
requirements of the proposed regulation. An estimate of the cost of 
compliance is the annual reporting and recordkeeping burden 
documented in the Paperwork Reduction Act of 1995 analysis. Table 4 
shows the estimated annual costs for State certifying agents and for 
private or foreign certifying agents. Based on the projected number 
of States agents (13) and private or foreign agents (46) the total 
reporting and recordkeeping cost, which captures much of the 
compliance costs of the rule, is $1,113,192.
    The following list describes several of the most significant 
proposed administrative requirements or optional submissions and the 
probable resources required for compliance. Details on the reporting 
and recordkeeping burdens estimated for each item are in the 
paperwork analysis.
    1. A list of farmers, wild crop harvesters and handlers 
currently certified. This information can be compiled from existing 
records. After implementation, certifying agents will be required to 
submit on a quarterly basis a list of operations certified during 
that quarter.
    2. A copy of procedures used for certification decisions, 
complying with recordkeeping requirements, maintaining 
confidentiality of clients' business-related information, preventing 
conflicts of interest, sampling and residue testing, training and 
supervising personnel, and public disclosure of prescribed 
information concerning operations they have certified and laboratory 
analyses. These policies may have to be created or modified to 
conform to the regulation.
    3. Documentation on the qualifications of all personnel used in 
the certification operation, annual performance appraisals for each 
inspector and personnel involved in the certification, and an annual 
internal program evaluation. Existing certifying agents may already 
perform these operations. New certifying agents will have to 
establish procedures to achieve these things.
    4. Documentation on the financial capacity and compliance with 
other administrative requirements (e.g., fee structure, reasonable 
security to protect the rights of the certifying agents' clients as 
provided in the NOP, and business relationships showing absence of 
conflicts of interest). Some of this information can be compiled 
from existing records, e.g., fee schedules, and some may be 
generated from other sources.
    5. Copies, submitted to USDA, of notices issued involving 
denials of certification, noncompliance, and suspension or 
revocation of certification. This requirement will be fulfilled 
simultaneously with sending notices to applicants or clients.
    6. An annual report to the Administrator including an update of 
previously submitted business information, information supporting 
any requested changes in the areas of accreditation, and steps taken 
to respond to previously identified concerns of the Administrator 
regarding the certifying agent's suitability for continued 
accreditation. The annual report requirement will draw on records 
created in the normal course of business.
    7. Retention of records created by the certifying agent 
regarding applicants and certified operations for not less than 10 
years, retention of records obtained from applicants and certified 
operations for not less than 5 years, and retention of other records 
created or received for USDA accreditation for not less than 5 
years. This activity requires records and database management 
capabilities and resources (storage space, file cabinets, electronic 
storage, etc.). In an informal inquiry, AMS found that most existing 
certifying agents currently retain records for at least 10 years and 
use both electronic and paper storage. We believe that this 
requirement will not pose an additional burden on existing 
certifying agents.
    8. Public access to certification records, such as a list of 
certified farmers and handlers, their dates of certification, 
products produced, and the results of pesticide residue tests. This 
requirement will have minimal impact given the requirements for 
retaining records.
    9. Providing program information to certification applicants. To 
comply with this requirement, certifying agents may need to modify 
existing standards and practices. The criteria for qualified 
personnel in the proposed rule may likely result in an increase in 
labor costs for some existing certifying agents and, initially, an 
increase in training costs. The amount of additional costs to these 
certifying agents would depend on the level of expertise among 
current certification agency staff, the extent to which certifying 
agents currently rely on volunteers, and the current costs of 
training certification staff.
    Producers and Handlers. The regulation will impose 
administrative costs on producers and handlers for reporting and 
recordkeeping. The actual amount of the additional administrative 
costs that would be imposed by the final rule is expected to be 
different for those entities that would begin their activities only 
after the national program is implemented. Producers and handlers 
who currently are active in the organic industry already perform 
most of these administrative functions; therefore, the additional 
costs to them would depend upon the extent to which their current 
practices are different from the requirements of the final 
regulation. An estimate of the cost of compliance is the annual 
reporting and recordkeeping burden documented in the Paperwork 
Reduction Act of 1995 analysis.
    The following list describes several proposed administrative 
requirements or optional submissions and the probable resources 
required for compliance.
    1. Establish, implement, and update annually an organic 
production or handling plan. Organic plans are a standard feature in 
the organic industry and are required by certifying agents. Thus, 
producers and handlers who are already involved in organics, can 
rely on their current plan with revisions as needed to meet elements 
of the national program which are new to them or differ from their 
current practice. Although producers and handlers are generally 
aware of the goals of organic plans, current practice may fall short 
of the rigor that will be required by the national program. New 
producers and handlers will have higher costs because they will have 
to prepare a plan from scratch.
    2. Maintain records pertaining to their organic operation for at 
least 5 years and allow authorized representatives of the Secretary, 
the applicable State program's governing State official, and the 
certifying agent access to records. Existing organic producers and 
handlers maintain records. New producers and handlers will have to 
develop records systems. Access is expected to be infrequent, will 
require little time of the certified entity, and will not require 
buildings or equipment other than what is required for storing 
records.
    3. Notify the certifying agent as required, e.g., when drift of 
a prohibited substance may have occurred, and complete a statement 
of compliance with the provisions of the NOP. Notifications are 
expected to be infrequent.
    The total reporting burden includes creation and submission of 
documents. It covers the greatest amount of reporting burden that 
might occur for any single creation or submission of a document 
during any one of the first 3 years following program 
implementation, i.e., 2000, 2001, and 2002. The total estimated 
reporting burden reflects the average burden for each reporting 
activity that might occur in 1 year of this 3-year period.
    The total recordkeeping burden is the amount of time needed to 
store and maintain records. For the purpose of measuring the 
recordkeeping burden, the year 2002 is used

[[Page 13642]]

as the reporting year for which the largest number of records might 
be stored and maintained. The annual reporting and recordkeeping 
burdens on producers, handlers, and certifying agents is summarized 
in Table 4.
    Certified operations. The annual burden on certified producers 
is estimated at 10 hours and $229. Certified handlers have an 
estimated burden of 50 hours valued at $1,189. Certifying agencies 
have an estimated burden of 700 hours valued at roughly $18,900.
    Exempt operations. The burden on small producers and handlers, 
who choose to operate as exempt entities, is minimal, 0.5 hour of 
recordkeeping valued at $12. Exempt operations are exempt from 
reporting and recordkeeping burdens. However, small producers and 
handlers will have to invest some time and review documents to 
determine whether they qualify for exemption or exclusion. Exempt 
operations that produce multiingredient products containing less 
than 50 percent organic ingredient will be required to maintain 
records documenting the organic ingredients purchased. Since records 
of purchases would be part of the normal recordkeeping for handlers, 
we do not consider this a recordkeeping burden.
    Based on the projected number of producers (17,150) and handlers 
(2,150), the total reporting and recordkeeping cost, which captures 
much of the compliance costs of the rule for this group, is 
$5,200,721. We request comment and/or data on the costs that may be 
imposed by the recordkeeping requirements of the proposed 
regulation. In addition, we request comment and/or data on the 
similarities and differences between the current practices of 
private and state programs and the proposed requirements.

Barriers to Entry--Importers of Organic Products

    Currently, there are no federal restrictions on importing 
organic products to the United States in addition to those 
regulations applying to conventional products. However, some States 
require organic products sold within the State to be produced 
according the State's standards. Thus, some State programs are 
barriers to importers. The proposed regulation imposes a national 
standard that these importers must meet, and may incur some cost. We 
request comment and/or data on the extent of the organic food 
imports and the costs that may be imposed on these importers to meet 
the proposed standards.

Small Business Ramifications

    USDA has proposed an 18-month period during which applicants for 
accreditation would not be billed for hourly services. The rationale 
for this transition period is to reduce the costs to certifying 
agents and, thus, increase the prospect that certifying agents, 
producers, and handlers will be able to afford to participate in the 
national program. The choice of 18 months is intended to provide 
sufficient time for parties desiring accreditation to submit their 
application and prepare for a site evaluation.
    USDA has proposed to operate the program partially with 
appropriated funds, in effect sharing the cost of the program 
between taxpayers and the organic industry, to respond to public 
concerns regarding the effects of the proposed regulation on small 
businesses. Thousands of comments were received opposing the first 
proposal's fee provisions with most focusing on the substantial 
impact on small certifying agents.
    Congress has expressed public policy concern with the impacts of 
regulations on small entities generally and with the impacts on the 
NOP regulations on small entities particularly. The Small Business 
Regulatory Enforcement Fairness Act of 1996 and the Regulatory 
Flexibility Act express Congressional concern regarding regulatory 
burden on small businesses. The Report from the Committee on 
Appropriations regarding the Agriculture, Rural Development, Food 
and Drug Administration, and Related Agencies Appropriations Bill, 
2000, includes the following language (U.S. Senate 1999):
    ``The Committee continues to recognize the importance of organic 
markets for small farmers and fishermen. The Committee expects the 
Secretary to construct a national organic program that takes into 
consideration the needs of small farmers and fishermen. * * * 
Furthermore, the Committee expects that of the funding available for 
the National Organic Program, necessary funds should be used to 
offset the initial costs of accreditation services, a subsidy 
necessary due to the lack of expertise in the Department of 
Agriculture in the areas of organic accreditation and insufficient 
data on the industry.''
    Certifying agents applying for accreditation during the first 18 
months following the final regulation will face lower direct costs 
than subsequent applicants. The cost for later applicants for 
accreditation will be higher because they will have to pay a $500 
application fee and hourly charges for completing their site 
evaluation. The requirement for accreditation was established in the 
OFPA in 1990 and the proposed accreditation program was part of the 
1997 proposal. Because in this proposal USDA is using appropriated 
funds to cover some of the costs of initial accreditation during the 
first 18 months of the program, certifying agents may set lower fees 
initially benefitting the producers and handlers who are certified 
during this period.
    It is important to note that many small organic operations may 
not be certified currently. In California, for example, many small 
farms are registered, but not certified. Even if certifying agents 
pass on the cost savings of the 18 month period provision to 
applicants for certification, the cost of certification may be 
higher than the cost of registration. Hence, becoming a certified 
operation for small organic producers and handlers may be more 
costly than the current practices.
    The costs imposed on small operations may be mitigated by a 
$5000 certification exemption to aid the smallest organic 
operations. However, these operations are still subject to other 
requirements of the proposed regulation. To the extent that these 
requirements differ from their current practices, complying with the 
national standards may be costly for exempt operations.
    In addition, the certification exemption allowed under the 
proposed regulation includes limits on what an exempt operation may 
do. Without the certification, small organic operations may not 
display the USDA seal and may not use a certifying agent's seal. 
However, we are asking for public comment on whether exempt 
operations should have the marketing option of selling their 
products to handlers who can claim the products as organic in multi-
ingredient products. If the consumers of organic food view the seals 
as important information tools on organic food, that is, if 
consumers of organic products insist on only certified organic 
products, the inability of small operations to display these seals 
may prevent them from realizing the price premiums associated with 
certified organic products.

Industry Composition

    The imposition of the national standards may change the 
composition of the organic industry. Even with the small business 
exemptions, some small organic operations may choose to exit the 
industry and small organic operations may also be discouraged from 
entering the industry, resulting in a higher concentration of larger 
firms. On the other hand, it may be easier for small operations to 
comply with certain NOP standards, such as the livestock standards 
which prohibit confinement production systems and require 100 
percent organic feed.

Conclusion

    Ideally, the net benefits of the proposed rule would be 
estimated by employing a welfare analysis. In a welfare model, the 
quantitative assessment of benefits would be represented by net 
changes in consumer and producer surplus, i.e., the difference 
between the willingness to pay (or firm cost structure in the case 
of producers) and the market price of organic food. These net 
changes would be estimated using information about the cost 
structure of the industry, the demand for organic food, and 
projected shifts in supply and demand resulting from the various 
factors discussed in the assessment. Although researchers have 
conducted numerous small-scale studies to determine consumers' 
willingness to pay for certain organic products (primarily fresh 
produce) and to identify reasons why conventional food buyers do not 
choose organic food products (Hammitt, 1990 and 1993; Jolly; Misra 
et al.; Park and Lohr; Weaver et al.), the available data are 
insufficient to support a quantitative assessment of this type. A 
1998 review of studies of consumer demand for organic foods 
concluded, ``Attitudes, motives, and willingness to pay for organic 
products have been measured, but apparently no retail data have been 
available to estimate own-price, cross-price, and income 
elasticities.'' (Thompson 1998).
    USDA has identified the entities that may be affected by the 
proposed rule and has analyzed the anticipated business-associated 
impacts on them of the rule based on our knowledge of the industry 
and limited data. We have drawn on industry studies, including 
studies completed since the 1997 proposed rule was published, and

[[Page 13643]]

information provided in comments on the 1997 proposed rule.
    The primary benefits from implementation of the proposed rule 
are improved protection of buyers from a reduction in market 
confusion including protection from false and misleading claims, and 
improved access to markets from the reciprocity inherent in national 
standards. These benefits have not been quantified.
    The costs of the proposed regulation are the direct costs for 
accreditation and the costs of complying with the specific standards 
in the proposal including the reporting and recordkeeping 
requirements. Other than accreditation fees, recordkeeping and 
reporting costs, we did not quantify the magnitude of the compliance 
costs or the costs of adhering to other provisions of this 
regulation. We have also not quantified the impact of all these 
provisions on small business but we believe there impact to be 
significant.
    The direct costs of accreditation if all currently operating 
certifying agents become certified during the first 18 months 
following the final rule is approximately $75,000 to $100,000. After 
the first 18 months, the direct cost for accrediting would be 
approximately $150,000 to $238,000. During the 18-month period 
during which the NOP is not recovering the full costs of 
accreditation services, the organic industry is being subsidized 
with appropriated funded derived from the taxpayers. For existing 
certifying agents compliance costs include costs to become familiar 
with and adopt NOP standards. The aggregate cost of complying with 
reporting and recordkeeping requirements of the rule are 
approximately $6.8 million. Appropriated NOP funds used to operate 
the National Organic Program are transfers from the taxpayers to the 
participants in the organic sector.

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USDA Foreign Agricultural Service. 1999b. Report on organic 
agriculture in France. Attache report FR9070. October 18.
U.S. Senate. 1999. Report 106-80. Agriculture, Rural Development, 
Food and Drug Administration, and Related Agencies Appropriation 
Bill 2000. Committee on Appropriations. Page 56.
Weaver, Robert D., David J. Evans, and A. E. Luloff. 1992. Pesticide 
Use in Tomato Production: Consumer Concerns and Willingness-to-Pay. 
Agribusiness, Vol. 8 No. 2: 131-142. Table 1.

                      Table 1.--Organic Food Sales
                              [$ billions]
------------------------------------------------------------------------
                                                                 Sales
                       Year                           Sales      (1998
                                                                dollars)
------------------------------------------------------------------------
1990..............................................      1.000       1.25
1991..............................................      1.250       1.50
1992..............................................      1.540       1.79
1993..............................................      1.890       2.13
1994..............................................      2.310       2.54
1995..............................................      2.800       2.99
1996..............................................      3.500      3.64
------------------------------------------------------------------------
 Source: Mergentime and Emerich in Natural Foods Merchandiser.


[[Page 13644]]


 Table 2A.--First Year Certification Costs, From Graf and Lohr Analysis
                              [In dollars]
------------------------------------------------------------------------
                                Small      Medium     Large      Super
      Certifying agent           farm       farm       farm       farm
------------------------------------------------------------------------
CCOF........................        750      1,650      4,750     51,150
FVO.........................        585      1,624      5,101     51,437
FOG.........................        325        845      2,525     25,525
NOFA-VT.....................        335        535        585        585
OTCO-In.....................        608      1,766      2,517     11,518
OTCO-Out....................        568      1,498      2.352     11,353
OCIA-WI.....................        315      1,590      6,090     75,090
OCIA-VA.....................        258        320        495      1,745
TDA.........................         90        155        200        515
WSDA........................        330      1,375      2,800     12,000
NC/SCS......................        n/a        n/a        n/a        n/a
Average cost................        416      1,136      2,742    24,092
------------------------------------------------------------------------
Notes:
 CCOF--California Certified Organic Farmers
 FVO--Farm Verified Organic
 FOG--Florida Certified Organic Growers & Consumers
 NOFA-VT--Northeast Organic Farming Association-Vermont
 OTCO-In--Oregon Tilth Certified Organic, inside Oregon
 OTCO-Out--Oregon Tilth Certified Organic, outside Oregon
 OCIA-WI--Organic Crop Improvement Association, Wisconsin chapter
 OCIA-VA--Organic Crop Improvement Association, Virginia chapter
 TDA--Texas Department of Agriculture
 WSDA--Washington State Department of Agriculture
 NC/SCS--NutriClean/Scientific Certification Systems
 
  Small farm--25 acres with annual sales of $30,000.
 Medium farm--150 acres with annual sales of $200,000.
 Large farm--500 acres with annual sales of $800,000.
 Super farm--3,000 acres with annual sales of $10,000,000.


   Table 2B.--Subsequent Year Certification Costs, From Graf and Lohr
                                Analysis
                              [In dollars]
------------------------------------------------------------------------
                                Small      Medium     Large      Super
      Certifying agent           farm       farm       farm       farm
------------------------------------------------------------------------
CCOF........................        425      1,300      4,350     50,550
FVO.........................        510      1,499      4,851     51,187
FOG.........................        325        845      2,525     25,525
NOFA-VT.....................        300        500        550        550
OTCO-In.....................        454      1,611      2,362     11,363
OTCO-Out....................        424      1,353      2,207     11,208
OCIA-WI.....................        290      1,565      6,065     75,065
OCIA-VA.....................        233        295        470      1,720
TDA.........................         90        155        200        515
WSDA........................        330      1,375      2,800     12,000
NC/SCS......................        700        900      1,000      2,000
Average cost................        371      1,036      2,489    21,971
------------------------------------------------------------------------
Notes:
CCOF--California Certified Organic Farmers
FVO--Farm Verified Organic
FOG--Florida Certified Organic Growers & Consumers
NOFA-VT--Northeast Organic Farming Association--Vermont
OTCO-In--Oregon Tilth Certified Organic, inside Oregon
OTCO-Out--Oregon Tilth Certified Organic, outside Oregon
OCIA-WI--Organic Crop Improvement Association, Wisconsin chapter
OCIA-VA--Organic Crop Improvement Association, Virginia chapter
TDA--Texas Department of Agriculture
WSDA--Washington State Department of Agriculture
NC/SCS--NutriClean/Scientific Certification Systems
 
 Small farm--25 acres with annual sales of $30,000.
Medium farm--150 acres with annual sales of $200,000.
Large farm--500 acres with annual sales of $800,000.
Super farm--3,000 acres with annual sales of $10,000,000.


[[Page 13645]]


           Table 3.--Costs of Accreditation and Certification
------------------------------------------------------------------------
 
------------------------------------------------------------------------
       Estimated costs to certifying agents during first 18 months
------------------------------------------------------------------------
Application fee 1                      $0
Site evaluation costs (two person
 team):.
  Per diem (3 to 5 days).............  $480 to $800
  Travel (domestic)..................  $1,000 to $1,200
  Hourly charges (not billed)........  $0
  Miscellaneous charges (copying,      $50
   phone, and similar costs).
------------------------------------------------------------------------
    Total............................  $1,530 to $2,050
------------------------------------------------------------------------
  Estimated costs to certifying agents for initial accreditation after
                             first 18 months
------------------------------------------------------------------------
Application fee 1....................  $500
Site evaluation costs (one person):
  Per diem (3 to 5 days).............  $240 to $400
  Travel (domestic)..................  $500 to $600
  Hourly charges (24 to 40 hours at    $2,280 to $3,800
   $95/hour)).
  Miscellaneous charges (copying,      $50
   phone, and similar costs).
    Total............................  $3,070 to $4,850
Annual review fees for certifying      $190 to $760
 agents (2 to 8 hours at $95/hour) 2.
------------------------------------------------------------------------
------------------------------------------------------------------------
            Estimated costs to producers for certification 3
------------------------------------------------------------------------
  Certification fee (initial           $800
   certification).
  Certification fee (renewals).......  $730
------------------------------------------------------------------------
             Estimated costs to handlers for certification 4
------------------------------------------------------------------------
Certification fee (initial             $1,825
 certification).
Certification fee (renewals).........  $1,665
------------------------------------------------------------------------
1 Nonrefundable fee that will be applied to the applicant's fee for
  service account.
2 Certifying agents are required to submit annual reports to USDA.
  Review of these reports is expected to range from 2 to 8 hours at an
  approximate rate of $95 per hour.
3 Estimated certification fees are calculated from Graf and Lohr 1999
  which, for a selection of certification agents, provides certification
  costs for four hypothetical farm sizes: (1) Small Farm (``Family
  Farm''): 25 acres, $30,000 annual sales, 5 hours to certify; (2)
  Medium Farm (``Cottage Industry''): 150 acres, $200,000 annual sales,
  6 hours to certify; (3) Large Farm (``Commercial Farm''): 500 acres,
  $800,000 annual sales, 8 hours to certify; and (4) Super Farm: 3,000
  acres, $10,000,000 annual sales, 16 hours to certify. Our estimated
  certification fees only include those charged for small and medium
  farms, because most organic producers fall into these categories as
  defined by Graf and Lohr. In the 1997 OFRF survey, 90 percent of
  respondents had gross organic farming income less than $250,000, with
  82 percent less than $100,000.
The average current certification cost for most organic producers is
  about $775 for the first year of certification ($416 for small and
  $1,136 for medium farms) and about $705 for subsequent years ($371 for
  small and $1,036 for medium farms). Approximately $25 is added to
  cover the costs associated with the National Organic Program for an
  estimated first year certification fee of $800 and subsequent year
  certification fee of $730 for producers. Larger producers could expect
  higher fees.
4 Because Graf and Lohr do not estimate certification fees for handlers,
  we estimate these fees by applying a ratio of handler-to-producer
  certification fees from the regulatory impact assessment from 1997.
  The ratio is 2.28 results in estimated fees of $1,825 and $1,665,
  respectively.


      Table 4.--Estimated Annual Reporting and Recordkeeping Burden
------------------------------------------------------------------------
                                      Annual
        Type of respondent          hours per   Hourly rate  Annual cost
                                    respondent
------------------------------------------------------------------------
Certified producer...............           10          $24         $229
Exempt producer..................          0.5           24           12
Certified handler................           50           24        1,189
Exempt handler...................          0.5           24           12
State certifying agency..........          696           27       18,778
Private or foreign certifying              700           27      18,893
 agency..........................
------------------------------------------------------------------------
Note: Estimates derived from Paperwork Reduction Act of 1995 analysis.

Appendix B.--Unfunded Mandates Reform Act

    This proposed rule has been reviewed under the Unfunded Mandates 
Reform Act (P.L.104-4). The Act requires that agencies prepare a 
qualitative and quantitative assessment of the anticipated costs and 
benefits before proposing any rule that may result in annual 
expenditures by State, local, and tribal governments, in the 
aggregate, or by the private sector, of $100 million (adjusted 
annually for inflation) in any one year. According to the Act, the 
term Federal mandate means any provision in legislation, statute, or 
regulation that would impose an enforceable duty upon State, local, 
or tribal governments, or the private sector, except a duty arising 
from participation in a voluntary Federal program.
    The National Organic Foods Production Act (OFPA) of 1990 
mandates that the Secretary develop a National Organic Program (NOP) 
to accredit eligible governing State officials or private persons as 
certifying agents who would certify producers or handlers of 
agricultural products that have been produced using organic methods 
as provided for in the OFPA. The OFPA also permits a governing State 
official to voluntarily establish a State organic certification 
program if the program is approved by the Secretary and meets the 
requirements of the OFPA. The OFPA does not require that States 
establish their own organic certification programs or that State, 
local or tribal governments, or the private sector, become 
accredited; therefore, the OFPA is not subject to the Unfunded 
Mandates Reform Act because it is a voluntary program.
    Although USDA has determined that this proposed rule is not 
subject to the Unfunded Mandates Reform Act, USDA has sought to 
consider the rule's impact on various entities. USDA prepared a 
Regulatory Impact Assessment (RIA) that is discussed in the section 
titled ``Executive Order 12866'' (also attached as an appendix to 
this proposed regulation). The RIA consists of a statement of the 
need for the proposed action, an examination of alternative 
approaches, and an analysis of the benefits and costs. Much of the 
analysis is necessarily descriptive of the anticipated impacts of 
the proposed rule. Because basic market data on the prices and 
quantities of organic goods and services and the costs of organic 
production is limited, it is not possible to provide quantitative 
estimates of all benefits and costs of the proposed rule. The cost 
of fees and recordkeeping proposed by the USDA are quantified, but 
the anticipated benefits are not. Consequently, the analysis does 
not contain an estimate of net benefits.
    The analysis employed in reaching a determination that this 
proposed rule is the least costly and least burdensome to the 
regulated parties is discussed in the sections titled ``The 
Regulatory Flexibility Act and the Effects on Small Businesses'' and 
``Paperwork Reduction Act of 1995.'' The

[[Page 13646]]

proposed rule has been designed to be as consistent as possible with 
existing industry practices, while satisfying the specific 
requirements of the OFPA.
    We have had numerous occasions to communicate with various 
entities during the development of the proposed rule; States, for 
example. Currently there are 27 States with some standards governing 
the production or handling of organic food and 13 States with 
organic certifying programs. Representatives of State governments 
have participated in public meetings with the NOSB, while the NOP 
staff has made presentations, received comments, and consulted with 
States and local and regional organic conferences, workshops, and 
trade shows. States have been actively involved in training sessions 
for organic inspectors; public hearings concerning standards for 
livestock products during 1994; a national Organic Certifiers 
meeting on July 21, 1995; a USDA-hosted meeting on February 26, 
1996; a State certifiers meeting in February 1999; and an ISO 65 
assessment training session for certifiers in April-May 1999. It is 
unknown at this time how many States, if any, might voluntarily 
establish their own organic certification programs pursuant to the 
OFPA and the regulations.

Appendix C.--The Regulatory Flexibility Act and the Effects on Small 
Businesses

    The Regulatory Flexibility Act (5 U.S.C. 601 et seq.) (Act) 
requires agencies to consider the economic impact of each proposed 
rule on small entities and evaluate alternatives that would 
accomplish the objectives of the rule without unduly burdening small 
entities or erecting barriers that would restrict their ability to 
compete in the market. The purpose is to fit regulatory actions to 
the scale of businesses subject to the action.
    In the first proposal published in December 1997, the initial 
Regulatory Flexibility Analysis (RFA), describing the impact of the 
National Organic Program and evaluating the alternatives, was 
written with guidance from the U.S. Small Business Administration 
(SBA). The RFA of this proposal was written following consideration 
of comments received in response to the first proposal, other 
information that has become available since the first proposal, the 
Regulatory Impact Assessment (RIA) that is discussed in the section 
entitled ``Executive Order 12866'' (also attached as an appendix to 
this proposal), and the information collection burden discussed in 
the section entitled ``Paperwork Reduction Act of 1995'' (PRA).

Reasons for Proposal

    Currently, organic certification is voluntary and self-imposed. 
Members of organic industries across the U.S. have experienced 
numerous problems marketing their organically produced and handled 
agricultural products. Inconsistent and conflicting organic 
production standards may have been an obstacle to the effective 
marketing of organic products. There are currently 36 private and 13 
State organic certification agencies (certifying agents) in the 
United States, each with its own standards and identifying marks.
    Some existing private certifying agents are concerned that 
States might impose registration or licensing fees which would limit 
or prevent private certification activities in those States. 
Labeling problems have confronted manufacturers of multi ingredient 
organic food products containing ingredients certified by different 
certifying agents because reciprocity agreements have to be 
negotiated between certifying agents. Consumer confusion may exist 
because of the variety of seals, labels, and logos used by 
certifying agents and State programs. Also, there is no industry 
wide agreement on an accepted list of substances that should be 
permitted or prohibited for use in organic production and handling. 
Finally, a lack of national organic standards may inhibit organic 
producers and handlers in taking full advantage of international 
organic markets and may reduce consumer choices in the variety of 
organic products available in the marketplace.
    To address these problems in the late 1980's, the organic 
industry attempted to establish a national voluntary organic 
certification program. At that time, the industry could not develop 
consensus on the standards that should be adopted, so Congress was 
petitioned by the Organic Trade Association to establish national 
standards for organic food and fiber products.
    Recently, the Organic Trade Association published American 
Organic Standards, Guidelines for the Organic Industry (AOS). 
However, not all participants in the organic industry elected to 
participate in developing the AOS. Many certifying agents preferred 
to wait for implementation of the National standards, and some 
certifying agents disagree with portions of the AOS. For these 
reasons, the USDA is proposing a regulation for the National Organic 
Program.

Legal Basis for and Objectives of Proposal

    In 1990, Congress enacted the Organic Foods Production Act of 
1990, as amended (7 U.S.C. 6501 et seq.) (OFPA). The OFPA requires 
all agricultural products labeled as ``organically produced'' to 
originate from farms or handling operations certified by a State or 
private agency that has been accredited by USDA.
    The purposes of the OFPA, set forth in section 2102 (7 U.S.C. 
6501), are to: (1) Establish national standards governing the 
marketing of certain agricultural products as organically produced 
products; (2) assure consumers that organically produced products 
meet a consistent standard; and (3) facilitate commerce in fresh and 
processed food that is organically produced. The National Organic 
Program, which this rule proposes, is the result of the OFPA.

Applicability of Proposal

    This proposal will directly affect three sectors of the organic 
industry: certifying agents, producers, and handlers. The OFPA 
provides for the collection of reasonable fees by USDA from 
producers, handlers, and certifying agents who participate in the 
national program. This proposal will impose direct costs on 
certifying agents in the form of a fee paid to the Federal 
Government for USDA accreditation. This proposal does not impose 
direct costs in the form of fees on producers and handlers. 
Certifying agents will establish a fee schedule for their 
certification services for producers and handlers. All three sectors 
are subject to indirect costs of compliance.
    The term, ``certifying agent,'' means the chief executive 
officer of a State or, in the case of a State that provides for the 
statewide election of an official to be responsible solely for the 
administration of the agricultural operations of a State, such 
official and any person (including private entities) who is 
accredited by the Secretary as a certifying agent for the purpose of 
certifying a farm or handling operation as a certified organic farm 
or handling operation. The term, ``producer,'' means a person who 
engages in the business of growing or producing food or feed. The 
term, ``handler,'' means any person engaged in the business of 
handling agricultural products, excluding final retailers of 
agricultural products that do not process agricultural products. 
Subpart B, section 205.101 in the proposed regulation provides 
information about exemptions and exclusions from certification.
    According to the most complete data available to USDA's 
Agricultural Marketing Service (AMS), there are 49 certifying agents 
(36 private and 13 State) in the U.S. Over half of the private and 
State certifying agents certify both producers and handlers, while 
the others certify only producers. Over three-fourths of private and 
State certifying agents each certify fewer than 150 producers and 20 
handlers. The number of certifying agents has remained fairly stable 
between 40 and 50 for some years, with entries and exits tending to 
offset each other. The National Organic Program staff anticipates 
that, in addition to the 49 domestic certifying agents, 10 foreign 
certifying agents may seek accreditation during the initial phase of 
the program.
    It is more difficult to establish the number of organic 
producers. Organic farming was not distinguished from conventional 
agriculture in the 1997 Census of Agriculture. There are sources 
which give insight into the number of producers. The Organic Farming 
Research Foundation (OFRF), a California-based nonprofit 
organization, has conducted three nationwide surveys of certified 
organic producers from lists provided by cooperating certifying 
agents. The most recent survey applies to the 1997 production 
year.\1\ OFRF sent its 1997 survey to 4,638 names and received 1,192 
responses. Because OFRF did not obtain lists from all certifying 
organizations or their chapters (55 out of a total of 64 identified 
entities provided lists), their list count is likely an 
understatement of the number of certified organic producers. Note 
that the estimated number of organic producers includes only 
certified organic farms. Comments filed in response to the first 
proposal and studies indicate that the total number of organic farms 
is higher.
---------------------------------------------------------------------------

    \1\ Organic Farming Research Foundation. 1999. Final Results of 
the Third Biennial National Organic Farmers' Survey. Santa Cruz, CA.

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

[[Page 13647]]

    Dunn has estimated the number of certified organic producers in 
the U.S.\2\ \3\ Dunn's 1995 work, a USDA study, estimated the number 
of certified producers at 4,060 in 1994; this estimate was used in 
the first proposal. Dunn's 1997 work reported 4,060 certified 
organic farms in 1994 and 4,856 in 1995.
---------------------------------------------------------------------------

    \2\ Dunn, Julie Anton. 1995. Organic Food and Fiber: An Analysis 
of 1994 Certified Production in the United States. U.S. Department 
of Agriculture, Agricultural Marketing Service.
    \3\ Dunn, Julie Anton. 1997. AgriSystems International Reports 
Certified Organic Production in the United States: Half a Decade of 
Growth. AgriSystems International: Wind Gap, PA.
---------------------------------------------------------------------------

    Data collected by AMS indicate that the number of organic 
farmers increased about 12 percent per year and the number of 
organic handlers increased at about 11 percent per year during the 
period 1990 to 1994. OFRF survey efforts indicate that growth has 
continued, although it is not clear whether the growth rate has 
changed. Similarly, growth in retail sales, the addition of meat and 
poultry to organic production, and the possibility of increased 
exports suggest that the number of operations has continued to 
increase. Lacking an alternative estimate of the growth rate for the 
number of certified organic producers, we use the average growth 
rate of about 14 percent from Dunn's 1997 study. The true rate of 
growth could be higher or lower. Applying the 14-percent growth rate 
to Dunn's estimate of certified producers in 1995 gives an estimate 
of 8,200 organic producers for 1999.
    An adjustment is needed to account for the number of producers 
who are practicing organic agriculture but who are not certified and 
who would be affected by this proposal. We assume that the number of 
organic but not certified producers in 1999 is about 4,000. This 
assumption is based on very limited information about the number of 
registered but not certified organic producers in California in 
1995. Thus, the total number of organic producers used in assessing 
the impact of the rule is 12,176 in 1999.
    Little information exists on the numbers of handlers and 
processors. USDA has estimated that there were 600 entities in this 
category in 1994. In California, there were 208 registered organic 
processed food firms in 1995 and 376 in 1999, a growth rate of 20 
percent.\4\ We assume that this growth rate is applicable to the 
U.S. and project 1,250 handlers in 1999. Again, the rate of growth 
could be higher or lower.
---------------------------------------------------------------------------

    \4\ California Department of Health Services (DHS). 1995. Report 
on the Registration of California Organic Processed Food Firms. 
Sacramento: State of California. September 1999 figures obtained via 
personal communication with California DHS.
---------------------------------------------------------------------------

SBA Definitions of Small Entities

    Small business size standards, Standard Industrial Code (SIC) 
(13 CFR part 121), are developed by an inter-agency group, published 
by the Office of Management and Budget, and used by SBA to identify 
small businesses. These standards represent the number of employees 
or annual receipts constituting the largest size that a for-profit 
enterprise (together with its affiliates) may be and remain eligible 
as a small business for various SBA and other Federal Government 
programs.
    Small businesses in the agricultural services sector, such as 
certifying agents, include firms with average annual revenues of 
less than $5 million (SIC Division A Major Group 7). Producers with 
crop production (SIC Division A Major Group 1) and annual average 
revenues under $500,000 are small businesses. Producers with 
livestock or animal specialities are also considered small if annual 
average revenues are under $500,000 (SIC Division A Major Group 2), 
with the exception of custom beef cattle feedlots and chicken eggs, 
which are considered small if annual average revenues are under 
$1,500,000. In handling operations, a small business has fewer than 
500 employees (SIC Division D Major Group 20).
    Based on SBA's small business size standards for the 
agricultural services sector, it is not likely that many, if any, of 
the 49 domestic certifying agents have annual revenue greater than 
$5 million. Based on anecdotal information, only a few private, for-
profit, certifying agents might be categorized as a large business. 
All private, non profit, and State certifying agents would be 
considered small by SBA's standards. Even if State certifying agents 
do not exceed the revenue threshold, they would not be considered to 
be small entities under the Act if the agents are an arm of state 
government. Only government jurisdictions with populations under 
50,000 are considered to be small entities under section 601(5) of 
the Act.
    Based on SBA's small business size standards for producers, it 
is likely that almost all organic producers would be considered 
small. The OFRF survey asked for the producer's total gross organic 
farming income during 1997. Only 35 (less than 3 percent) of the 
survey respondents reported gross income greater than $500,000, the 
SBA's cutoff between small and large businesses. Over 70 percent 
reported gross income of less than $50,000. The OFRF survey does 
caution readers about potential survey ``errors.'' It is 
particularly important to emphasize potential ``non-response 
error,'' that is, it is unknown if those who responded to the survey 
accurately represent the entire population of certified organic 
growers. Also, some producers combine organic and conventional 
production on the same operation, some with total sales that may 
exceed $500,000. However, it is likely that a majority of organic 
producers would be considered small.
    It is also likely that the vast majority of handlers would be 
considered small, based on SBA's small business size standards for 
handlers. Based on informal conversations with organic certifying 
agents, about 25 (about 2 percent) of the estimated 1,250 organic 
handlers have more than 500 employees. This includes firms that 
handle or process both organic and conventional foods.

Costs of This Proposal

    Several requirements to complete this RFA overlap with the RIA 
and the PRA. In order to avoid duplication, we combine some analyses 
as allowed in section 605(b) of the Act. This RFA provides 
information specific to small entities, while the RIA or PRA should 
be referred to for more detail. For example, the RFA requires an 
analysis of the proposed rule's costs to small entities. The RIA 
provides an analysis of the benefits and costs of this proposal. 
This RFA uses the RIA information to estimate the impact on small 
entities. Likewise, the RFA requires a description of the projected 
reporting, recordkeeping, and other compliance requirements of the 
proposed rule. The PRA section estimates the reporting and 
recordkeeping (information collection) requirements that would be 
required by this proposal from individuals, businesses, other 
private institutions, and State and local governments. The burden of 
these requirements is measured in terms of the amount of time 
required of program participants and its cost. This RFA uses the PRA 
information to estimate the burden on small entities.
    The estimated direct costs of accreditation for certifying 
agents and certification for producers and handlers under the first 
proposal issued in December 1997 and this proposal are shown in 
table 1 and discussed in the following sections. More specific 
details regarding these costs are found in the RIA.

                       Table 1.--Estimated Direct Costs of Accreditation and Certification
----------------------------------------------------------------------------------------------------------------
                                                          First proposal                   This proposal
                                                 ---------------------------------------------------------------
                                                   1st year cost   2nd year cost   1st year cost   2nd year cost
----------------------------------------------------------------------------------------------------------------
Certifying Agents:
    Accreditation application fee...............            $640            $640              $0              $0
    USDA administrative fee.....................           2,000           2,000               0               0
    Estimated site evaluation fee...............           3,500               1      1,530 to 3               1
                                                                                           2,050
    Annual review fee...........................                               2                    2 190 to 760
                                                 ---------------------------------------------------------------

[[Page 13648]]

 
        Total Fees..............................           6,140      min. 2,640      min. 1,530        min. 190
                                                 ===============================================================
Producers:
    Estimated certification fee 4...............             413             413             800             730
    USDA fee....................................              50              50               0               0
                                                 ---------------------------------------------------------------
        Total Fees..............................             463             463             800             730
                                                 ===============================================================
Handlers:
    Estimated certification fee 4...............             943             943           1,825           1,665
    USDA fee....................................             500             500               0               0
                                                 ---------------------------------------------------------------
        Total Fees..............................           1,443           1,443           1,825          1,665
----------------------------------------------------------------------------------------------------------------
1 Should certifying agents wish to become accredited in additional areas for which they have not been accredited
  previously, site evaluation fees will be charged.
2 First proposal: Included in application and administrative fees. This proposal: Certifying agents are required
  to submit annual reports to USDA. Review of these reports is expected to range from 2 to 8 hours at an
  approximate rate of $95 per hour.
3 During the first 18 months, site evaluation for initial accreditation will involve two reviewers. One reviewer
  would come from the Quality Systems Certification Program audit staff and would be familiar with ISO Guide 65
  verification; the other reviewer would come from the National Organic Program staff and would be familiar with
  requirements of the organic program. The two would conduct the site evaluation jointly. We anticipate only one
  reviewer would be required after the 18-month transition period. The estimated site evaluation fee shown here
  includes per diem and travel costs for two reviewers plus miscellaneous charges related to accreditation. Site
  evaluations for smaller certifying agents are estimated to take 3 days, with 5 days for larger certifying
  agents.
For the first 18 months after implementation of the NOP, hourly rates will not be charged to certifying agents
  for accreditation. The estimated fee shown here includes only travel and per diem expenses. At an approximate
  rate of $95 per hour, hourly charges would add an estimated $4,560 to $7,600 for 2 reviewers during the first
  18 months, and $2,280 to $3,800 for 1 reviewer after the first 18 months or for renewal of accreditation.
4 First proposal: Estimated certification fees at that time were based on the average of fees charged by a
  representative group of certifying agents (private non-profit, private for-profit and a State agency).
This proposal: Estimated certification fees are calculated from a 1999 study by Graf and Lohr 5 which, for a
  selection of certification agents, provides certification costs for four hypothetical farm sizes: (1) Small
  Farm (``Family Farm''): 25 acres, $30,000 annual sales, 5 hours to certify; (2) Medium Farm (``Cottage
  Industry''): 150 acres, $200,000 annual sales, 6 hours to certify; (3) Large Farm (``Commercial Farm''): 500
  acres, $800,000 annual sales, 8 hours to certify; and (4) Super Farm: 3,000 acres, $10,000,000 annual sales,
  16 hours to certify. Our estimated certification fees only include those charged for small and medium farms,
  because most organic producers fall into these categories as defined by Graf and Lohr. In the 1997 OFRF
  survey, 90 percent of respondents had gross organic farming income less than $250,000, with 82 percent less
  than $100,000.
The average current certification cost for most organic producers is about $775 for the first year of
  certification ($416 for small and $1,136 for medium farms) and about $705 for subsequent years ($371 for small
  and $1,036 for medium farms). An estimated $25 is added to cover the costs associated with the National
  Organic Program for an estimated first year certification fee of $800 and subsequent year certification fee of
  $730 for producers. Larger producers could expect higher fees.
Because Graf and Lohr do not estimate certification fees for handlers, we estimate these fees by applying the
  December 1997 ratio of handler-to-producer certification fees, 2.28, to the estimated first and subsequent
  year certification fees for producers, resulting in fees of $1,825 and $1,665, respectively.

Direct Costs to Certifying Agents

    We have identified 36 private certifying agents and 13 State 
programs providing certification. These 49 domestic entities are 
considered likely applicants during the first 12 months, as are an 
estimated 10 foreign certifying agents. An unknown number of new 
entrants to the certifying business may also apply. However, over 
the last 10 years, the number of certifying agents does not appear 
to have grown significantly, with the net effect of entries and 
exits maintaining a population of U.S.-based certifying agents at 
about 40 to 50. Of the 49 domestic certifying agents, based on 
information discussed previously, we estimate that the 36 private 
certifying agents are small.
---------------------------------------------------------------------------

    \5\ Graf, Anita and Luanne Lohr. 1999. Analysis of certification 
program costs. Working Paper, Fund for Rural America project, Market 
Development for Organic Agriculture Projects, Grant No. 97-36200-5.
---------------------------------------------------------------------------

    In order to identify the certifying agents that might be 
expected to face more significant impacts as a result of this 
proposal, we analyzed the amount of revenues from certification fees 
received by certifying agents. Total certification fees collected by 
the certifying agents in 1994 ranged from about $2,500 to about 
$400,000, with most certifying agents clustered around the low or 
high end of this range. This amount is based on information 
collected by AMS from a sample of 16 private and State certifying 
agents for certification fees collected in 1994. To determine a 
cutoff point for small certifying agents, the State certifying 
agents were eliminated from the sample because these agents are an 
arm of State government and are not considered small entities. Of 
the remaining 11 private certifying agents, 6 (or 55 percent) 
collected less than $25,000 each in total certification fees, and 
the other 5 (45 percent) each collected more than $200,000. Based on 
this information and knowledge of the organic industry, for purposes 
of analyzing the cost of accreditation, we estimate that about 55 
percent of private certifying agents are small with total annual 
revenue from certification of less than $25,000.
    Certification fees probably do not constitute total income for 
most private certifying agents and, thus, are not a complete measure 
of economic size. Some certifying agents also earn revenue from a 
number of other sources, such as sale of publications, membership 
dues, training workshop and conference fees, farmers markets, 
grants, or donations.
    Certifying agents will be assessed for the actual time and 
travel expenses necessary for the National Organic Program to 
perform accreditation services. The National Organic Program will 
charge the same hourly fees as are charged for the voluntary, fee-
for-service program provided by AMS to certification bodies 
requesting conformity assessment to the International Organization 
for Standardization (ISO) Guide 65, ``General Requirements for 
Bodies Operating Product Certification Systems.'' We expect that at 
the time the National Organic Program's final rule is implemented, 
the fees will be approximately $95 per hour, with higher overtime 
and holiday rates. Certifying agents will be charged for travel, per 
diem, and other related costs associated with accreditation. 
Applicants for accreditation will be required to pay at the time of 
application a nonrefundable fee of $500, which is applied to the 
applicant's fee for services account. This fee is credited against

[[Page 13649]]

any subsequent costs of accreditation arising from the site 
evaluation.
    During the first 18 months after the National Organic Program 
has been implemented, USDA will not impose hourly charges on 
certifying agents. The direct costs for certifying agents to obtain 
accreditation will be limited to per diem and transportation costs 
for the site evaluation, which is required every 5 years. We 
estimate these costs to be $1,530 for a small certifying agent and 
$2,050 for a larger certifying agent. These estimates are based on, 
for small and larger certifying agents, two reviewers with 3 and 5 
days of per diem, $500 to $600 in transportation costs, and $50 in 
miscellaneous charges related to accreditation. \6\ In subsequent 
years, certifying agents will be required to submit an annual 
report. Review of this report is anticipated to range from 2 to 8 
hours at the ISO Guide 65 hourly rate. If certifying agents wish to 
become accredited in additional areas for which they were not 
accredited previously, site evaluation fees will be charged.
---------------------------------------------------------------------------

    \6\ During the first 18 months, site evaluation for initial 
accreditation will be conducted jointly by two reviewers. Two 
reviewers offers: (1) anticipated faster turn-around; (2) different 
areas of expertise--one reviewer would come from the Quality Systems 
Certification Program audit staff and would be familiar with ISO 
Guide 65 verification, while the other reviewer would come from the 
National Organic Program staff and would be familiar with the 
requirements of the program; and (3) consistency with the organic 
industry's desire to have reviewers from both areas of expertise 
during ISO Guide 65 assessments. AMS would consider sending one 
reviewer, rather than two, for the site evaluation of small 
certification agents if an individual possessing both reviewing 
skill and knowledged of the NOP is available. We anticipate only one 
reviewer would be required after the 18-month transition period.
---------------------------------------------------------------------------

    After the first 18 months of the National Organic Program, USDA 
estimates that the costs of a site evaluation visit, required every 
5 years, could be $3,070 for small certifying agents and $4,850 for 
larger certifying agents. These estimates are based on, for small 
and larger certifying agents, one reviewer with 3 and 5 days of per 
diem, $500 to $600 in transportation costs, $50 in miscellaneous 
charges related to accreditation, and 24 to 40 hours (3 to 5 work 
days) at an anticipated maximum hourly rate under ISO Guide 65 of 
$95. Higher hourly rates will be charged for overtime and for work 
on holidays.
    The cost of a site evaluation will vary with the cost of travel 
from the auditor's work station to the applicant's place of 
business. Auditors live in different parts of the country, and 
travel costs might be reduced when the distance traveled is reduced. 
The lowest cost airfare would be used whenever possible. In some 
cases, site evaluations might be grouped geographically in order to 
reduce travel expenses. The per diem rate will also vary depending 
on the rate set for the certifying agent's location as established 
by the General Services Administration.
    Several factors will influence the amount of time needed to 
complete an accreditation audit. An operation in which documents are 
well organized and that has few nonconformities within the quality 
system will require less time for an audit than an organization in 
which documents are scattered and there are many nonconformities.\7\ 
Similarly, in a follow up audit, operations that lack organization 
in their documents and that had a large number of nonconformities 
during previous audits will require a greater amount of time. The 
scope of a follow up audit is to verify the correction of 
nonconformities and to evaluate the effectiveness of the 
corrections. Certifying agents are able to control these cost 
factors by making certain that documents are well organized and by 
educating themselves about quality systems.
---------------------------------------------------------------------------

    \7\ Adequate advance notice will be given to certifying agents 
to allow them the opportunity to organize their records prior to the 
audit and minimize the costs of accreditation.
---------------------------------------------------------------------------

    The complexity of an certification agency's organization also 
will affect the time needed to complete an audit. An agency with a 
central office in which all certification activities take place will 
require less time for document review and site evaluation than a 
chapter organization or a business structured so that responsibility 
for making certification decisions is delegated outside of the 
central office. In the latter cases, the auditors' document review 
would require additional time and site evaluation that would extend 
from the central office to one or more of the chapters or to the 
site to which the certification decision making is delegated.
    Other factors determine the amount of time needed to complete an 
accreditation audit. For an agency with numerous clients, auditors 
may need to spend more time reviewing client files or examining 
business operations than they would have to spend for a smaller 
agency. Audit of an agency with a large number of processor clients 
may require an extended amount of time to follow audit trails, 
confirm that organic ingredients remain segregated from nonorganic 
ingredients, and establish that foreign-produced ingredients 
originate from approved entities. Finally, the complexity of the 
agricultural practices certified could influence the amount of time 
necessary to complete an accreditation audit. An agency whose 
certification covers only producers who grow and harvest one crop 
per field per year, such as wheat or sugar beets, could quickly be 
audited. An agency whose producers grow several different crops per 
field per year or an agency that certifies producers of crops and 
livestock as well as handlers would require a greater amount of 
time.
    All of these factors will impact both small and large certifying 
agents. A small certifying agent could be assumed to have a less 
complex organization or have fewer clients, and, thus, potentially 
less time would be necessary for review. However, other factors, 
such as the degree of paperwork organization or the complexity of 
the agricultural practices certified, may influence the time needed 
for review for any size of business.
    Comments from the first proposal indicate that the average 
accreditation cost for a certifying agent may range from $3,000 to 
$5,000 per year for small to medium-size certifying agents to less 
than $10,000 per year for the largest certifying agents.
    Currently, relatively few certifying agents have third party 
accreditation because accreditation of certifying agents is 
voluntary. Fetter reports that in a sample of 18 certification 
programs, selected to include six large, private programs, six 
smaller private programs, and six State programs, four programs were 
accredited and one had accreditation pending.\8\ All of these were 
large private certifying agents. Three of the certifying agents 
identified by Fetter as accredited requested ISO Guide 65 
assessments by USDA and have been approved for selling organic 
products into the international market. Those certifying agents 
currently accredited by third parties will likely pay less for USDA 
accreditation because their documents are organized and they have 
fewer nonconformities.
---------------------------------------------------------------------------

    \8\ Fetter, Robert T. 1999. Economic Impacts of Alternative 
Scenarios of Organic Products Regulation. Senior Honors Thesis. 
University of Massachusetts, Amhearst, MA.
---------------------------------------------------------------------------

    Those certifying agents who have been operating without third 
party accreditation will face new costs--the costs of 
accreditation--under this proposal. Compared to the direct costs of 
$3,000 to $5,000 per year indicated by the commenters, the direct 
costs of USDA accreditation will be smaller, with estimated site 
evaluation fees (covering 5 years) ranging from $3,070 to $4,850 for 
the first year and an annual review fee ranging from $190 to $760 
for subsequent years. Furthermore, the direct costs would be 
substantially less for those certifying agents obtaining 
accreditation during the first 18 months while USDA does not impose 
an application fee or hourly charges and limits direct costs to 
travel and per diem costs.
    It is expected that all certifying agents will set their fee 
schedule to recover costs for their certification services, 
including the costs of accreditation. The larger the number of 
clients per certifying agent, the more fixed costs can be spread 
out. It is possible, however, that small certifying agents could be 
significantly impacted by this proposal and may not be able to 
continue in business from a financial standpoint.

Projected Reporting, Recordkeeping, and Other Compliance 
Requirements of Certifying Agents

    In addition to the direct costs, the regulation will impose 
administrative costs on certifying agents for reporting, 
recordkeeping, residue testing, and other compliance requirements. 
The actual amount of the additional administrative costs that would 
be imposed by the final rule is expected to be different for those 
entities that would begin their activities only after the national 
program is implemented. Certifying agents that currently are active 
in the organic industry already perform most of these administrative 
functions; therefore, the additional costs to them would depend upon 
the extent to which their current practices are different from the 
requirements of the final regulation. Projected reporting, 
recordkeeping, and other compliance requirements of certifying 
agents are discussed in greater detail in the PRA and the RIA.

[[Page 13650]]

Costs to Producers and Handlers

    Under this proposal, USDA will not impose any direct fees on 
producers and handlers. Certifying agents will establish a fee 
schedule for their certification services that will be filed with 
the Secretary and posted in a place accessible to the public. 
Certifying agents will provide all persons inquiring about the 
application process with a copy of their fees. The certifying agent 
may only charge those fees that it has filed with the Secretary. 
Furthermore, the certifying agent will provide each applicant with 
an estimate of the total cost of certification and an estimate of 
the annual costs of updating the certification. However, the 
certifying agent may require applicants to pay at the time of 
application a nonrefundable fee of no more than $250 which must be 
applied to the applicant's fee for services account.
    Currently, supply and demand for certification services 
determine the fees charged in most areas. Some States charge minimal 
fees for certification and instead subsidize operating costs from 
general revenues. According to separate studies by Fetter, and Graf 
and Lohr, the majority of certifying agents structure their fee 
schedules on a sliding scale based on a measure of size, usually 
represented by the client's gross sales of organic products but 
sometimes based on the acres operated. Some certifying agents charge 
an hourly rate for inspection and audit services.
    Graf and Lohr have applied fee schedules provided by nine 
certifying agents to four hypothetical farms--small, medium, large, 
and a super farm. They define ``small'' as a 25-acre farm with 
annual sales of $30,000 that would take 5 hours to certify. Note 
that our alternative definition of small (under $5,000) is 
different. Table 2 shows the total first-year cost and subsequent-
year cost for certification for small farms; the RIA shows detail on 
other size farms.

   Table 2.--Certification Costs Among a Selection of Certifying Agents
 [For a small farm: 25 acres, $30,000 annual sales, 5 hours to certify]
------------------------------------------------------------------------
                                                           Total cost to
                                           Total cost to    certify in
            Certifying agent                certify in      subsequent
                                            first year         years
------------------------------------------------------------------------
California Certified Organic Farmers....            $750            $425
Farm Verified Organic...................             585             510
Florida Certified Organic Growers and                325             325
 Consumers..............................
Northeast Organic Farming Association--              335             300
 Vermont................................
Oregon Tilth Certified Organic:
    --Inside Oregon.....................             608             454
    --Outside Oregon....................             568             424
Organic Crop Improvement Association:
    --Wisconsin chapter.................             315             290
    --Virginia chapter..................             258             233
Texas Department of Agriculture.........              90              90
Washington State Department of                       330             330
 Agriculture............................
NutriClean/Scientific Certification                  n/a             700
 Systems................................
Average cost............................             416             371
------------------------------------------------------------------------

The Texas Department of Agriculture program is the low-cost 
certifying agent. The high-cost certifying agent differs from first-
year to subsequent-year certification. Graf and Lohr's study 
indicates that even small farms require significant time for the 
certification process and this time does not increase 
proportionately as farm size increases. None of these certification 
programs mentions costs for residue testing which the National 
Organic Program will require in the form of preharvest testing when 
there is reason to believe that agricultural products have come in 
contact with prohibited substances. Preharvest testing is expected 
to be infrequent. Certifiers will recover the costs of preharvest 
testing through explicit charges to the producer whose crop is 
tested, or through a generally higher fee structure that spreads the 
expected costs of tests over all clients.
    Certifying agents will continue to set their own fee schedules 
under the organic program. Certifying agents will have to set fees 
to cover any net additional costs of doing business under the 
National Organic Program. Accreditation and administrative costs are 
incremental costs to existing certifying agents' businesses. Some 
certifying agents might drop their third party accreditation saving 
perhaps $3,000 to $5,000 per year, but most certifying agents are 
not currently paying for accreditation.
    This proposal imposes no requirements that would cause 
certifying agents that are presently using a sliding scale type fee 
schedule to abandon their current fee system. Certifying agents 
could recover their net additional costs by increasing their flat 
fee component, their incremental charges, or both. Because 
accreditations are renewed only every 5 years, certifying agents 
will have 5 years to recover their net new costs. Certifying agents 
who become accredited during the first year of the program would 
have fewer direct costs to recover, because they will not be charged 
the application fee and hourly charges for accreditation services.
    The OFPA established a small farmer exemption from certification 
and submission of organic plans for small producers with a maximum 
of $5,000 in gross sales of organic products. For purposes of the 
exemption, the OFPA defines a ``small farmer'' as those who sell no 
more than $5,000 annually in value of agricultural products. In this 
proposal, we have clarified that the exemption applies to those who 
sell no more than $5,000 annually in value of organic products.\9\ 
According to the OFRF survey, 27 percent of currently certified 
farms that responded to the survey would fall under this exemption. 
This percentage does not take into account those organic farms that 
are not currently certified by a private or State certifying agent. 
A study of California organic farms found that, of all organic farms 
\10\ in 1994-95, about 66 percent have revenues less than 
$10,000.\11\ If California is representative and the distribution 
within the sub-$10,000 category is uniform, then a third of the 
farms would be classified as small for purposes of the statutory 
exemption with annual sales less than $5,000. Based on the 
California study and the OFRF survey results, we estimate that 
between 25 and 33 percent of organic producers are small and would 
qualify for exemption from the certification requirements.
---------------------------------------------------------------------------

    \9\ We asked for comments on the first proposal as to whether 
the current statutory limitation of $5,000 for exemption from 
certification should be raised to $10,000 or to another amount and 
why such an increased monetary limitation for exemption from 
certification would be appropriate. Few commenters offered 
recommendations as to a maximum sales volume to exempt producers. 
Amounts ranged from $2,000 to $50,000, with a few suggesting $10,000 
and $20,000 exemptions. These proposed exemption levels and 
justifications in comments received are not sufficiently consistent 
enough for us to recommend changing the statute requirement of the 
$5,000 maximum sales volume exemption.
    \10\ California State law requires organic farmers to register 
with the State. Certification is voluntary at the current time.
    \11\ Klonsky, Karen, and Laura Tourte. 1998. Statistical Review 
of California's Organic Agriculture, 1992-95. Report prepared for 
the California Department of Food and Agriculture Organic Program. 
Cooperative Extension, Department of Agricultural Economics, 
University of California, Davis.
---------------------------------------------------------------------------

    We have estimated that there are between 3,000 and 4,000 small 
organic producers that will be exempt from certification. These 
producers would be required to comply with

[[Page 13651]]

the production and handling standards and labeling requirements set 
forth under the National Organic Program. We anticipate that this 
exemption will be used primarily by small market gardeners and 
hobbyists who sell produce and other agricultural products at 
farmers markets and roadside stands to consumers within their 
communities. By being exempt from certification, the current 
certification costs (table 2) estimated at an average $416 for the 
first year and an average $370 for subsequent years have been 
eliminated.
    Exempt producers will be allowed to market their products as 
organically produced without being certified by a certifying agent. 
Products marketed by exempt producers cannot be represented as 
certified organic or display the USDA organic seal. Products 
produced or handled on an exempt operation may be identified as 
organic ingredients in a multiingredient product produced by the 
exempt operation, but they may not be identified as organic in a 
product processed by others. These limitations may discourage some 
small producers from seeking exemption, who instead may choose to 
become certified. In this case, the costs of certification would 
apply. The value associated with having organic certification may 
outweigh the costs of certification.
    Those currently receiving voluntary certification will likely 
see a modest increase as the certifying agent passes on its cost 
incurred under the National Organic Program. Those not currently 
receiving certification and producing over $5,000 annually in 
organic products will be required to become certified, and they will 
incur the actual costs of certification.
    We have estimated that there about 98 percent of the 1,250 
organic handlers are small. A handling operation or a portion of a 
handling operation is exempt from certification requirements if it 
has annual gross sales of less than $5,000; is a retail food 
establishment that handles organically produced agricultural 
products but does not process them; handles agricultural products 
that contain less than 50 percent organic ingredients by weight of 
finished product; or does not use the word, ``organic,'' on any 
package panel other than the information panel if the agricultural 
product contains at least 50 percent organic ingredients by weight 
of finished product. A handling operation or specific portion of a 
handling operation is excluded from certification if it handles 
packaged certified organic products that were enclosed in their 
packages or containers prior to being acquired and remain in the 
same package and are not otherwise processed by the handler, or it 
is a retail food establishment that processes or prepares on its own 
premises raw and ready-to-eat food from certified organic products. 
Otherwise, to be certified organic, handlers must pay for 
certification fees estimated at $1,800 per year and fulfill 
recordkeeping requirements.
    In order to identify handlers that might be expected to face 
more significant impacts as a result of this proposal, we attempted 
to analyze handlers' revenue from organic sales. Sales data indicate 
that gross sales of organic production total less than $500,000 per 
firm for most certified handlers. Information from the California 
DHS, where State law requires organic processors to register, gives 
some indication of the size distribution. Of the 208 processors 
registered with the State in 1995, 80 firms (38 percent) reported 
gross sales of $50,000 or less, and 50 firms (24 percent) had gross 
sales exceeding $500,000. In mid-September 1999, 376 processors were 
registered with the State, with 107 firms (28 percent) reporting 
gross sales of $50,000 or less and 112 firms (30 percent) reporting 
gross sales exceeding $500,000. We use this California information 
to estimate that 25 to 30 percent of handlers have gross sales of 
$50,000 or less and could be significantly impacted by this 
proposal. Information needed to estimate the number of exempt or 
excluded handlers is not available.
    Some States, such as Texas and Washington, charge producers and 
handlers nominal fees for certification, and it is possible that 
more States might provide certification services as the National 
Organic Program is implemented. Other States, such as Minnesota, 
have cost-share programs to help offset costs for organic producers.

Projected Reporting, Recordkeeping, and Other Compliance 
Requirements for Producers and Handlers

    In addition to the fees for certification, the regulation will 
impose administrative costs on producers and handlers for reporting, 
recordkeeping, residue testing, and other compliance requirements. 
The actual amount of the additional administrative costs that would 
be imposed by the final rule is expected to be different for those 
entities that would begin their activities only after the national 
program is implemented. Producers and handlers who currently are 
active in the organic industry already perform most of these 
administrative functions; therefore, the additional costs to them 
would depend upon the extent to which their current practices are 
different from the requirements of the final regulation. Projected 
reporting, recordkeeping, and other compliance requirements of 
certifying agents are discussed in greater detail in the PRA and the 
RIA.

Federal Rules

    No other burdens are expected to fall upon the organic industry 
as a result of overlapping Federal rules. This proposed regulation 
would not duplicate, overlap or conflict with any existing Federal 
rules. In preparing this proposed regulation, AMS consulted other 
Federal agencies such as the Food and Drug Administration (FDA), the 
Environmental Protection Agency (EPA), the Bureau of Alcohol, 
Tobacco and Firearms (ATF), and the USDA's Food Safety and 
Inspection Service (FSIS) to ensure that this proposed regulation 
would complement existing regulations.

Alternatives to This Proposal

    We believe that our proposed regulation could have a significant 
impact on a substantial number of small businesses. However, we have 
considered several options with the intention of mitigating negative 
economic impacts of the fees. We did not consider alternatives, 
beyond the previously discussed exemptions, that would mitigate the 
indirect costs of this rule on small entities. The following options 
were considered by AMS prior to and during the development of this 
proposal:

Option 1: First Proposal Issued December 1997

    The first proposal suggested a fee for direct services model 
which combined a fixed fee for all farmers, handlers, and certifying 
agents, with a variable fee for certain direct services provided by 
AMS in the accreditation of certifying agents.
    Table 1 includes estimated direct costs of accreditation and 
certification for the first proposal and this proposal; the fees in 
this proposal are discussed in prior sections of this RFA. The fee 
provisions in this proposal have been changed significantly, due in 
large part to comments received regarding the first proposal.
    In overall design, the first proposal is similar to this 
proposal. USDA would accredit certifying agents who would in turn 
certify producers and handlers. USDA proposed to charge certifying 
agents a $640 application fee, costs for a site evaluation fee that 
were estimated at $3,500, and a $2,000 administrative fee. Producers 
would be charged a $50 USDA fee in addition to the fees imposed by 
the certifying agent. Handlers would be charged a $500 USDA fee on 
top of the certifying agent's fees. The fee structure was intended 
to recover the full costs of operating the National Organic Program, 
which was estimated at $1 million annually. Producers with $5,000 or 
less in annual gross sales of agricultural products and handlers 
with annual gross sales of less than $5,000 were exempt from 
certification as provided for in the OFPA.
    The OFPA permitted but did not obligate USDA to charge fees. The 
first proposal sought to set fees to recover the full costs of the 
National Organic Program. Public comment generally stressed that the 
fees were too high. Most certifying agents have operated without 
third party accreditation. Thus, USDA fees were a substantial 
increase in the costs of doing business for most certifiers. For 
producers the direct fee of $50 was a 12 percent increase over the 
estimated average fee paid for certification. For certifying agents 
the $500 fee would have been a 53 percent increase over estimated 
average certification fees. To the extent the program raised 
certifying agent costs, these costs would have been passed through 
to producers and handlers. Commenters stated that many certifying 
agents had few clients and to pass through the estimated direct 
costs of accreditation ($6,140) would make the costs of 
certification higher than producers could afford.
    Comments were received opposing fee provisions in the first 
proposal. Most of these commenters expressed the belief that the 
proposed fees would price small farmers, handlers, and certifying 
agents out of the organic industry. Many commenters stated that the 
proposed fees favored large farming operations and suggested a 
sliding scale fee system, rather than the flat fee system discussed 
in the first proposal, to

[[Page 13652]]

accommodate the economic needs of small farmers, handlers, and 
certifying agents. Most suggested that small farmers and processors 
be exempt from the payment of fees. A more comprehensive review of 
the comments appears in subpart G entitled ``Administrative'' of 
this proposal.
    Additional comments were received that specifically referred to 
the section entitled ``Regulatory Flexibility Act and Effects on 
Small Businesses'' in the first proposal. Most of these commenters 
expressed the belief that costs were understated and benefits were 
overstated. Commenters thought the proposed fees were excessive, 
unacceptable, and burdensome and would price many small farmers, 
handlers, and certifying agents out of the organic industry. Some 
thought that this appeared to be the actual intent of the first 
proposal. They also supported a sliding scale fee system, rather 
than the flat fee system originally proposed. Some stated that the 
$5,000 exemption level was much too low. Producers objected to 
having to pay the certification and inspection fees prior to knowing 
whether they would actually set a crop, if the crop would grow, or 
what percentage of the crop might be harvested.
    Compared to this proposal, the first proposal would have been 
more costly to the organic industry in terms of direct costs for 
accreditation, and to producers and handlers in terms direct fees 
and the costs which certifying agents would have attempted to pass 
through. However, the current proposal has not set fees at levels to 
recover all program costs and during an 18 month transition period 
will not require application fees or charge for hourly services. 
Costs that are not recovered through fees will be covered by 
appropriated funds, meaning that taxpayers at large will bear some 
of the costs of the proposed organic program. Thus, in terms of fees 
and other direct costs, the first proposal was more burdensome on 
the organic industry.
    The first proposal also contained new information collection 
requirements, a description of those requirements, and an estimate 
of the annual economic burden on the organic industry. We received 
responses specifically referring to the information collection 
requirements of the first proposal. Among the comments made were 
that the requirements would be unaffordable by small businesses and 
that paperwork requirements should be kept small, simple, and to a 
bare minimum, especially for small producers.
    Recordkeeping requirements for certifying agents in the first 
proposal that required certifying agents to maintain all records 
concerning their activities for 10 years have been changed to reduce 
the burden. Commenters expressed concern that this requirement was 
excessive and unnecessary. We agree and are instead proposing that 
there be three categories of records with retention periods: (1) 
Records created by certifying agents regarding applicants for 
certification and certified operations to be maintained 10 years, 
consistent with OFPA requirement for maintaining all records 
concerning activities of certifying agents; (2) records obtained 
from applicants for certification and certified operations to be 
maintained 5 years, the same as OFPA requirement for the retention 
of records by certified operations; and (3) other records created or 
received by certifying agents to be maintained for five years.

Option 2: Fee per Certification Model

    A fee per certification model was considered but not used. This 
model would have based accreditation fees on the numbers of farmers 
and handlers certified. Specifically, certifying agents would pay a 
fee to USDA for each certification performed. The smallest one-half 
of certifying agents, who certify about 10 percent of organic 
operations, would pay about 10 percent of the estimated costs 
associated with accreditation. The largest 10 percent of certifying 
agents, who certify about 45 percent of organic operations, would 
pay about 45 percent of accreditation costs. The remaining 40 
percent of certifying agents in the middle would pay 45 percent of 
the costs. The fee per certification would be fixed, regardless of 
the size of the operation being certified. This feature has the 
potential to create a barrier to market access for the smaller 
operations. Certifying agents who charge farmers and handlers for 
certification based on size and scope of the operation would 
maximize their profits by certifying only the larger farmers and 
handlers from whom they would realize a higher return. If certifying 
agents were to discriminate in this manner in favor of larger 
operations, smaller farmers and handlers would find the 
certification services available to them to be relatively limited 
and possibly more expensive than under the fee for direct services 
model that includes a variable fee for site visits. A fixed fee per 
certification also would not take into account, in the distribution 
of costs, the large difference in size between processors and 
primary producers. Processors are generally much larger than primary 
producers in terms of both total output and total revenue.

Option 3: Exemption of Small Certifying Agents From Accreditation

    Small certifying agents (those with annual revenues of $25,000 
or less) may not have the resources to meet all of the requirements 
of the rule, such as accreditation fees, administrative and 
personnel requirements, and conflict of interest restrictions, based 
on their current structure and revenues. Therefore, exempting the 
smallest certifying agents from the accreditation requirement, 
similar to small producers being exempt from certification 
requirements, could mitigate any potential adverse impact of the 
rule on this group. This option, however, would require a 
legislative amendment to the OFPA.
    The exemption of the smaller certifying agents from 
accreditation would carry with it many of the limitations resulting 
from the absence of Federal oversight. International trade would 
likely be limited to products certified by accredited certifying 
agents. Protecting domestic consumers from inappropriate organic 
claims on the labels of products certified by exempt certifying 
agents would likely lead to greater confusion over labels in the 
marketplace. Federal enforcement agencies such as the FDA, the ATF, 
and FSIS might wish to distinguish accredited certifying agents from 
those certifying agents who are exempt, perhaps by requiring 
accredited certifying agents' clients to include the USDA seal on 
their product labels.
    One of the purposes of the OFPA described in the statute is to 
assure consumers that organically produced products meet a 
consistent standard. Without Federal oversight of certifying agents, 
it would be difficult to ensure that one national standard of 
production and handling for agricultural products would be employed. 
The result could be the continuation of reciprocity agreements 
between small, exempt certifying agents and large accredited ones. 
This could result in a cost for small entities, while providing less 
benefit to certified producers and handlers than would be provided 
them by accreditation of all certifying agents.
    We request comments from all interested parties, particularly 
small businesses, as to whether a small certifier exemption would be 
beneficial or practical given the constraints explained in this 
option.

Option 4: This Proposal

    The new proposal includes provisions that will mitigate the 
impact of the National Organic Program, especially for small 
businesses. Fixed administration fees for producers, handlers and 
certification agents have been eliminated. The fixed application fee 
for accreditation also has been eliminated. This will positively 
affect small producers and handlers because fixed fees expend a 
larger percentage of a smaller operation's total revenue.
    As indicated earlier in this discussion, certifying agent 
evaluation fees would reflect actual costs for the time and travel 
required to do the evaluation. It is anticipated that smaller 
certification agents would benefit because they are small and less 
complex than larger certification agents. The proposed accreditation 
costs would be proportional to the actual time required to perform 
the service. Several small operations could be grouped by area to 
reduce travel expenses of the evaluators.
    The new labeling requirements that allow the use of a 
certification agent's seal on the principal display panel and on the 
information panel of processed product labels also may benefit small 
operations. Certification agents that have an established consumer 
base may benefit by displaying their identifying seal. Small 
certification agents, whose clients more likely produce ingredients 
for processed products, could also be identified and thus share in 
this benefit. Certification agents also may wish to expand their 
operation by offering verification of truthful labeling claims which 
will be allowed under this proposal.
    This proposal has three elements of flexibility that are 
advantageous to small entities: performance-based production and 
handling standards and certifying agent requirements; production and 
handling standards that contain a range of allowable practices; and 
temporary variances.
    The standards in this proposal are performance standards based 
on the results of a management system, rather than prescriptive or 
design standards that prescribe specific technology or a precise

[[Page 13653]]

procedure for compliance. Performance standards allow for 
flexibility in compliance, which is especially important to organic 
farmers, handlers and certifying agents with limited resources. 
Performance standards promote innovation and the development of new 
technologies which would help the industry as a whole be more 
efficient. Finally, they provide a less costly means of compliance 
than design standards. Small entities, in particular, benefit 
because compliance with performance standards allows for the 
adaptation of existing systems without costly capital investment.
    This proposal allows for flexibility by providing a range of 
production and handling practices that can be used to maintain the 
organic integrity of the operation. The use of an allowed practice 
or substance must be described in the organic plan as a record for 
consideration by the certifying agent during a certification review. 
The proposal provides temporary variances in the case of natural 
disasters, damage from wind, floods and the like, and for research 
trials. The benefit of variances is that a producer or handler would 
not lose its investment in an organic operation because of certain 
conditions that are beyond the producer or handler's control. 
Variances also enhance performance standards by allowing additional 
innovation and experimentation. This is especially important to 
producers and handlers who depend on the organic price premium.

Conclusion

    USDA has identified the entities that may be affected by this 
proposal and has analyzed the anticipated impacts of the proposal on 
them based on our knowledge of the industry and limited data. We 
have drawn on industry studies, including studies completed since 
the first proposal was published in 1997, as well as information 
provided in comments on the first proposal. However, we lack data to 
thoroughly and quantitatively describe the existing organic industry 
and quantitatively analyze the effects of this proposal.
    Whether using SBA's small business size standards by SIC or the 
alternative definitions created for this analysis, we believe that 
this proposal could have a significant impact on a substantial 
number of small businesses. Even with the flexibility proposed in 
the regulation and the expanded market opportunities brought about 
by implementation of the National Organic Program, some small 
certifying agents may choose not to become accredited to provide 
certifying services, and some small producers and handlers may 
choose not to continue being certified organic because the proposed 
fees would be passed down to them as certification fees. We invite 
comments about the expected benefits and costs to small entities as 
presented in this analysis. Specifically, we invite comments 
regarding the impact of the proposed National Organic Program on 
small certifying agents, producers, and handlers so that we might 
uncover potential unintended negative impacts on small entities.
    The proposed structure of user fees outlined in this proposal 
attempts to minimize the burden of administrative costs which will 
be assumed by small-scale organic certifying agents and the 
producers and handlers who use these certification services. 
Certifying agents already performing organic certification services 
in a State or private capacity on the date that the proposed 
national accreditation program for organic certification is 
implemented will not be required to pay the administrative costs of 
applying for initial national accreditation status; the 
administrative costs involved in evaluating the accreditation status 
of these agents will be absorbed by a portion of the National 
Organic Program operating budget appropriated by Congress. They will 
be required to pay travel expenses for the reviewers. New applicants 
seeking national accreditation for organic certification services 
will be charged a fee to cover the administrative costs of 
evaluating their suitability for accreditation, their application 
fees will be structured to reflect the actual hourly costs of having 
an AMS evaluator conduct a site visit (including travel time to and 
from the evaluator's duty station and per diem travel expenses). The 
departures from the first proposal--which would have imposed a 
uniform flat fee on all applicants for national accreditation--along 
with the adoption of an application fee structure which attempts to 
relate the imposition of fees to the actual costs involved in 
administering the national accreditation program, should contribute 
to a less burdensome and more equitable distribution of 
administrative costs across all segments of the organic industry.

Appendix D--Paperwork Reduction Act of 1995

    The Paperwork Reduction Act of 1995 (PRA) (44 U.S.C. 3506 and 
3507) is designed to minimize the burden of reporting and 
recordkeeping (information collection requirements) required by 
Federal regulations on individuals, businesses, other private 
institutions, and State and local governments. The burden is an 
estimate of the amount of time and the cost required of program 
participants to fulfill the information collection requirements.
    Information collection requirements must have Office of 
Management and Budget (OMB) review and approval before they can 
become effective. They must also be made available for public 
comment, and the comments become part of the public record. This 
notice requests comments on the proposed information collection 
requirements of this proposal.
    Title: National Organic Program.
    OMB Number: New collection.
    Expiration Date of Approval: Three years from date of approval.
    Type of Request: New.
    Abstract: The Organic Foods Production Act (OFPA) of 1990 
mandates that the Secretary develop a National Organic Program (NOP) 
to accredit eligible State program's governing State officials or 
private persons as certifying agents who would certify producers or 
handlers of agricultural products that have been produced using 
organic methods as provided for in the OFPA. This regulation is 
proposed: (1) To establish national standards governing the 
marketing of certain agricultural products as organically produced 
products; (2) to assure consumers that organically produced products 
meet a consistent standard; and (3) to facilitate interstate 
commerce in fresh and processed food that is organically produced.
    The OFPA was requested by the organic community because of 
problems encountered in the marketing of organic products. First, 
there was fraudulent use of the term, ``organic,'' resulting in the 
mislabeling of products, caused in part because many consumers are 
willing to pay premium prices for organic foods. Second, there was a 
lack of uniformity in standards defining organic production, causing 
trade disruption and confusion among buyers, sellers, and users of 
organic products. Third, there was constraint on market growth due 
to the prohibition on labeling meat and poultry products as organic. 
After implementation of the NOP, any agricultural product labeled 
``organic'' will have to be from a production or handling operation 
that is certified by a certifying agent who is accredited by the 
U.S. Department of Agriculture (USDA).
    A proposed rule to implement the OFPA was published in December 
1997. It contained information collection requirements, an estimate 
of the annual economic burden on the organic industry, and a request 
for comments about the burden. A few general comments were received 
about the burden and they were considered when this proposal was 
prepared. Also taken into account was other information about 
existing industry practices and documents, the Initial Regulatory 
Flexibility Analysis that is discussed in the section entitled 
``Regulatory Flexibility Act and the Effects on Small Businesses,'' 
and the Regulatory Impact Assessment (RIA) that is discussed in the 
section entitled ``Executive Order 12866.'' The numbers of entities 
affected by this proposal are estimated in the RIA. The RIA is 
attached as an appendix to this proposal.
    Reporting and recordkeeping are essential to the integrity of 
the organic certification system. They create a paper trail that is 
a critical element in carrying out the mandate of the OFPA. They 
serve the Agency mission, program objectives, and management needs 
by providing information on the efficiency and effectiveness of the 
program. The information affects decisions because it is the basis 
for evaluating compliance with the OFPA and the regulations, for 
administering the program, for management decisions and planning, 
and for establishing the cost of the program. It supports 
administrative and regulatory actions in response to noncompliance 
with the OFPA and the regulations.
    In general, the information collected will be used by USDA, 
State program's governing State officials, and certifying agents. It 
will be created and submitted by State and foreign program 
officials, peer review panel members, accredited certifying agents, 
organic inspectors, certified organic producers and handlers, those 
seeking accreditation or certification, and parties interested in 
changing the National List. Additionally, it will necessitate that 
all of these entities have procedures and space for recordkeeping.

[[Page 13654]]

    The burden on each entity is discussed below. One major estimate 
made about each entity is the number of entities likely to 
participate in the NOP. The information collection burden attempts 
to incorporate the burden that will be in addition to the burden 
that current organic marketers have with the burden required of new 
entrants into the field.
    USDA. USDA will be the accrediting authority. USDA will accredit 
domestic and foreign certifying agents who will certify domestic and 
foreign organic producers and handlers, using information from the 
agents documenting their business operations and program expertise. 
USDA will also permit State program's governing State officials to 
establish their own organic certification programs after the 
programs are approved by the Secretary, using information from the 
States documenting their ability to operate such programs and 
showing that such programs meet the requirements of the OFPA and the 
regulations.
    States. State program's governing State officials may operate 
their own organic certification programs. State officials will 
obtain the Secretary's approval of their programs by submitting 
information to USDA documenting their ability to operate such 
programs and showing that such programs meet the requirements of the 
OFPA and the regulations. More than half of the States currently 
have some standards governing the production, handling, or labeling 
of organic food and 13 States have organic certifying programs. 
These programs require reporting and recordkeeping burdens similar 
to those required by the NOP. It is unknown at this time how many 
States, if any, will establish their own organic certification 
programs pursuant to the OFPA and the regulations. Estimates: 13 
States will operate their own certification programs. The annual 
burden for each State will be an average of 52.308 hours or if 
calculated at a rate of $27 per hour, (rounded up to the next 
dollar), it would be $1,413.
    Peer review panels. Panels will assist the Agricultural 
Marketing Service (AMS) Administrator in evaluating applicants for 
accreditation as certifying agents. Individuals will apply to USDA 
for membership in a pool from which the panels are selected, 
submitting to USDA information documenting their qualifications to 
conduct such reviews. This will be a new burden for those serving on 
the panels. Estimates: 40 people will participate in peer review 
panels. The annual burden for each panel member will be an average 
of 10 hours or if calculated at and $27 per hour, it would be $270.
    Certifying agents. Certifying agents may be State program's 
governing State officials, private entities, or foreign entities who 
are accredited by USDA to certify domestic and foreign producers and 
handlers as organic in accordance with the OFPA and the regulations. 
Each entity wanting to be an agent will seek accreditation from 
USDA, submitting information documenting its business operations and 
program expertise. Accredited agents will determine if a producer or 
handler meets organic requirements, using detailed information from 
the operation documenting its specific practices and on-site 
inspection reports from organic inspectors. Estimates: 59 entities 
are expected to apply for certification (13 State programs, 36 
private entities, 10 foreign entities). The annual burden for each 
State program will be an average of 695.428 hours or if calculated 
at $18,778. The annual burden for each private or foreign entity 
will be 699.678 hours or $27 per hour (rounded up to the next 
dollar) it would be $18,893.
    Administrative costs for reporting, disclosure of information, 
and recordkeeping are expected to vary among certifying agents. 
Entities which begin their activities only after the national 
program is implemented would be expected to incur the greatest cost 
as they set up an operation that conforms to the OFPA and the 
regulations. For agents who are currently active in the organic 
industry, follow ISO guidelines, and already perform many of these 
administrative functions, costs will vary depending upon the extent 
to which their current practices are different from requirements in 
the OFPA and the regulations. Agents will be expected to provide the 
public with information concerning their clients. Efforts were made 
to incorporate existing industry practices and documents into this 
proposal. A list of several proposed administrative requirements and 
the probable resources required for compliance is included in the 
Regulatory Impact Assessment.
    When an entity applies for accreditation as a certifying agent, 
it must provide a copy of its procedures for complying with 
recordkeeping requirements (Sec. 205.504(b)(3)). Once certified, 
agents will have to make their records available for inspection and 
copying by authorized representatives of the Secretary 
(Sec. 205.501(a)(9)). USDA will charge certifying agents for the 
time required to do these document reviews. Audits will require less 
time if the documents are well organized and centrally located, than 
if they are in disarray and in several locations. Certifying agents 
will have control over these conditions, but making documents 
accessible to the public may bring about a substantial change in the 
way some agents currently operate.
    Recordkeeping requirements for certifying agents in the first 
proposal were changed to reduce the burden. They required certifying 
agents to maintain all records concerning their activities for 10 
years. Commenters expressed concern that this requirement was 
excessive and unnecessary. We agree and are instead proposing three 
categories of records with varying retention periods: (1) records 
created by certifying agents regarding applicants for certification 
and certified operations, maintain 10 years, consistent with OFPA's 
requirement for maintaining all records concerning activities of 
certifying agents; (2) records obtained from applicants for 
certification and certified operations, maintain 5 years, the same 
as OFPA's requirement for the retention of records by certified 
operations; and (3) records created or received by certifying agents 
regarding accreditation, maintain 5 years, consistent with OFPA's 
requirement for renewal of agent's accreditation (Sec. 205.510(b)).
    Residue testing requirements in the first proposal were changed 
to reduce the burden. They required certifying agents to undertake 
residue testing every 5 years to determine if products from 
certified operations contained a detectable residue level of a 
prohibited substance and to report such findings to appropriate 
authorities. Commenters expressed concern that the requirement was 
too costly. We agree and are instead proposing that the State 
program's governing State officials or certifying agents may conduct 
testing at their own expense only if they suspect a crop has come 
into contact with a prohibited substance. Test results must be 
submitted to the Administrator (Sec. 205.672(b)).
    Organic inspectors. Inspectors will conduct on-site inspections 
for the certifying agents of each applicant for certification and 
annually of each certified operation. They will determine whether or 
not certification should continue and will report this finding to 
the certifying agent. Inspectors will be the agents themselves, 
employees of the agents, or individual contractors. We estimate that 
about half will be certifying agents and their employees and half 
will be individual contractors. Individuals who apply for positions 
as inspectors will submit to the agents information documenting 
their qualifications to conduct such inspections. Estimates: 293 
inspectors (147 certifying agents and their employees, 146 
individual contractors) will be used. The annual burden for each 
inspector will be an average of 48.304 hours or if calculated at $27 
per hour (rounded up to the next dollar), it would be $1,305.
    Producers and handlers. Producers and handlers, domestic and 
foreign, will apply to certifying agents for organic certification, 
to renew their certification, or to report changes in their 
practices, submitting to the agents detailed information documenting 
their specific practices. Producers include farmers, livestock and 
poultry producers, and wild crop harvesters. Handlers include those 
who transport or transform food and may include millers, bulk 
distributors, food manufacturers, processors, repackagers, or 
packers. Some handlers may be part of a retail operation that 
processes organic products in a location other than the premises of 
the retail outlet.
    The OFPA requires certified operators to maintain their records 
for 5 years. Estimates: 19,300 total operators (14,153 certified and 
5,147 exempt), including 17,150 producers (12,176 certified and 
4,974 exempt) and 2,150 handlers (1,977 certified and 173 exempt). 
We do not have an estimate of the number of foreign producers and 
handlers that will apply for organic certification. The annual 
burden for each domestic operator will be: certified producer--
average of 9.521 hours or if calculated at $24 per hour, it would be 
$229; certified handler--average of 49.521 hours or if calculated at 
$24 per hour, it would be $1,189; exempt/excluded operator--average 
of 0.5 hour or if calculated at $24. per hour, it would be $12.
    The proposed regulation exempts certain operations from 
certification: (1) Producers and handlers whose gross agricultural 
income from organic sales totals $5,000 or less annually; (2) 
handlers selling only agricultural products that contain less than 
50 percent organic ingredients by total

[[Page 13655]]

weight of the finished product; (3) handlers that handle 
agricultural products that contain at least 50 percent organic 
ingredients and choose to use the word ``organic'' only on the 
information panel of a packaged product; and (4) handlers that are 
retail food establishments that handler organic food but do not 
process it. The proposed regulation also excludes certain operations 
from certification: (1) Handlers selling only agricultural products 
labeled as organic or made with organic ingredients that are 
enclosed in a container prior to being received, remain in the same 
container, and are not otherwise processed while in the control of 
the operation; and (2) handlers that are retail food establishments 
that process or prepare, on the premises, raw and ready-to-eat food 
from organic agricultural products.
    Administrative costs for reporting and recordkeeping are 
expected to vary among certified operators. Entities which begin 
their activities only after the national program is implemented 
would be expected to incur the greatest cost as they set up an 
operation that conforms to the OFPA and the regulations. For 
operators who are currently active in the organic industry and 
already perform many of these administrative functions, costs would 
vary depending upon the extent to which their current practices are 
different from requirements in the OFPA and the regulations. Efforts 
were made to incorporate existing industry practices and documents 
into this proposal. A list of several proposed administrative 
requirements and the probable resources required for compliance is 
included in the Regulatory Impact Assessment.
    Research studies have indicated that operations using product 
labels containing the term ``organic'' handle an average of 19.5 
labels annually, that there are about 16,000 products with the term 
organic on the label, and that the number of such products increased 
by 250 annually from 1994 through 1996. We estimate that by the year 
2001, 17,000 products will be marketed with the term ``organic'' on 
the label. This proposal includes an estimate of the time needed to 
develop labels for products sold, labeled, or represented as ``100 
percent organic,'' ``organic,'' ``made with organic (specified 
ingredients),'' or which use the term organic to modify an 
ingredient in the ingredients statement. Also included is the time 
spent deciding about use of the USDA seal, a State emblem, or the 
seal, logo, or other identifying marks of a private certifying agent 
(Sec. 205.300-Sec. 205.310). Because the labeling requirements in 
this proposal are in addition to FDA and FSIS requirements, the 
burden measurement does not include the hours necessary to develop 
the entire label. For purposes of calculating the burden, it was 
estimated that each handler will develop 20 labels annually.
    Interested parties. Any interested party may petition the NOSB 
for the purpose of having a substance evaluated for recommendation 
to the Secretary for inclusion on or deletion from the National 
List. Estimates: 25 interested parties may petition the NOSB. The 
annual burden for each interested party will be an average of 104 
hours and $2,496 ($24 per hour).
    Cost. The following table shows the salary rates used to 
calculate the cost of the burden. We believe the increased rates for 
this proposal over the first proposal are more realistic in terms of 
the responsibilities and requirements of each entity.

------------------------------------------------------------------------
                                                   First         This
            Estimated hourly rates                proposal     proposal
------------------------------------------------------------------------
Certified and exempt operators, interested              $10          $24
 parties......................................
State program's governing State officials,               20           27
 peer review panel members, certifying agents,
 organic inspectors...........................
------------------------------------------------------------------------

    Annual Reporting and Recordkeeping Burden: 
    Estimated Number of Respondents: 19,730.
    Total Annual Hours: 269,622.
    Total Cost: $6,780,348.
    Comments. Comments are requested on these proposed information 
collection requirements. Comments are specifically invited on: (1) 
Whether the proposed collection of information is necessary for the 
proper performance of the functions of USDA, including whether the 
information would have practical utility; (2) the accuracy of USDA's 
estimate of the burden of the proposed collection of information, 
including the validity of the methodology and assumptions used; (3) 
ways to enhance the quality, utility, and clarity of the information 
to be collected; and (4) ways to minimize the burden of the 
collection of information on those who are to respond, including the 
use of appropriate automated, electronic, mechanical, or other 
technological collection techniques or other forms of information 
technology.
    Comments should be submitted by the date stated in the section 
entitled Dates at the beginning of this proposal. However, they 
should be sent to (1) Office of Management and Budget, New Executive 
Office Building, 725 17th Street, NW, Room 725, Washington, D. C. 
20503, Attention: Desk Officer, and to (2) Clearance Officer, USDA-
OCIO, Room 404W, Jamie Whitten Building, STOP 7602, 1400 
Independence Avenue, SW, Washington, D.C. 20250-7602. Additionally, 
comments may be sent by fax to (202) 690-4632 or submitted via the 
Internet through the National Organic Program's homepage at http://www.ams.usda.gov/nop.

Appendix E.--Executive Order 12988, Civil Justice Reform

    Executive Order 12988, Civil Justice Reform, instructs each 
executive agency to adhere to certain requirements in the 
development of new and revised regulations in order to avoid unduly 
burdening the court system. The first proposal was reviewed under 
this Executive Order. No comments were received on that review and 
no additional related information has been obtained since then. This 
rule is not intended to have retroactive effect.
    States and local jurisdictions are preempted under section 2115 
of the OFPA (7 U.S.C. 6514) from creating programs of accreditation 
for private persons or State officials who want to become certifying 
agents of organic farms or handling operations. A governing State 
official would have to apply to the USDA to be accredited as a 
certifying agent, as described in section 2115(b) of the OFPA (7 
U.S.C. 6514(b)). States also are preempted under sections 2104 
through 2108 of the OFPA (7 U.S.C. 6503 through 6507) from creating 
certification programs to certify organic farms or handling 
operations unless the State programs have been submitted to, and 
approved by, the Secretary as meeting the requirements of the OFPA.
    Pursuant to section 2108(b)(2) of the OFPA (7 U.S.C. 
6507(b)(2)), a State organic certification program may contain 
additional requirements for the production and handling of 
organically produced agricultural products that are produced in the 
State, and for the certification of organic farm and handling 
operations located within the State, under certain circumstances. 
Such additional requirements must: (a) Further the purposes of the 
OFPA; (b) not be inconsistent with the OFPA; (c) not be 
discriminatory towards agricultural commodities organically produced 
in other States; and (d) not be effective until approved by the 
Secretary.
    Pursuant to section 2120(f) of the OFPA (7 U.S.C. 6519(f)), this 
proposal would not alter the authority of the Secretary under the 
Federal Meat Inspection Act (21 U.S.C. 601 et seq.), the Poultry 
Products Inspections Act (21 U.S.C. 451 et seq.) or the Egg Products 
Inspection Act (21 U.S.C. 1031 et seq.), concerning meat, poultry, 
and egg products, nor any of the authorities of the Secretary of 
Health and Human Services under the Federal Food, Drug and Cosmetic 
Act (21 U.S.C. 301 et seq.), nor the authority of the Administrator 
of the Environmental Protection Agency (EPA) under the Federal 
Insecticide, Fungicide and Rodenticide Act (7 U.S.C. 136 et seq.).
    Section 2121 of the OFPA (7 U.S.C. 6520) provides for the 
Secretary to establish an expedited administrative appeals procedure 
under which persons may appeal an action of the Secretary, the 
applicable governing State official, or a certifying agent under 
this title that adversely affects such person or is inconsistent 
with the organic certification program established under this title. 
The Act also provides that the U.S. District Court for the district 
in which a person is located has jurisdiction to review the 
Secretary's decision.

Appendix--Executive Order 13132, Federalism

    This proposal has been reviewed under Executive Order 13132, 
Federalism. This

[[Page 13656]]

Order requires that regulations that have federalism implications 
provide a federalism impact statement that: (1) Demonstrates the 
Agency consulted with the State and local officials before 
developing the proposed regulation, (2) summarizes State concerns, 
(3) provides the Agency's position supporting the need for the 
regulation, and, (4) describes how the concerns of State officials 
have been met. The Order indicates that where National standards are 
required by Federal statutes, Agencies shall consult with 
appropriate State and local officials in developing those standards. 
Further, Agencies are required to interpret Federal statutes to 
preempt State law only where the statute contains an express 
preemption provision. In such a case, any regulatory preemption of 
State law shall be restricted to the minimum necessary to meet the 
objectives of the statute.
    The Organic Foods Production Act (OFPA) of 1990 (7 U.S.C. 6514) 
establishes national standards regarding the marketing of 
agricultural products as organically produced, assures consumers 
that organically produced products meet a consistent standard, and 
facilitates interstate commerce in fresh and processed food that is 
organically produced. In carrying out these purposes, the Act 
contemplates a significant role for the States and, in fact, 
envisions a partnership between the States and the Federal 
Government in meeting the requirements of the Statute. The Act 
specifies the State role and gives States recognition for their 
activities in organic agriculture in several ways. First, 7 CFR 6507 
provides that States may establish a State organic certification 
program consistent with the national program. Second, these programs 
may contain more restrictive requirements than the National Organic 
Program established by the Secretary of Agriculture. To be more 
restrictive, State Organic programs are required to: further the 
purposes of the Act, be consistent with the Act, not discriminate 
against organic products of another State, and be approved by the 
Secretary. Third, States can choose to be accredited as certifying 
agents under the Act and carry out a State organic program. Fourth, 
the Act allows the States to determine the manner in which they 
choose to be involved in the organic program. States may choose to 
carry out the requirements of the Act by establishing a State 
program and becoming accredited as certifying agents, they may 
establish a State program and utilize private certifying agents to 
implement the program, or they may choose to utilize the national 
organic program as implemented by the Secretary.
    In recognition of their role in carrying out the provisions of 
OFPA, the Department has reached out to States and actively sought 
their input throughout the entire process of developing the proposed 
organic rule. The Department drew extensively on the organic 
expertise of States and the organic industry by working closely with 
the National Organic Standards Board. The National Organic Standards 
Board, established under Section 2119 of the OFPA (7 CFR 6518), has 
provided a broad and inclusive forum for public participation in 
developing the recommendations and concepts that underpin the 
proposed organic rule. Section 2104(c) of the OFPA (7 CFR 6503(c)) 
requires the Secretary to consult with the National Organic 
Standards Board in developing the organic program and the National 
List set forth in Section 2118 of the OFPA (7 CFR 6517).
    The Secretary has received extensive input from the Board, 
interested persons, and the States regarding the establishment of 
the National Organic Program and this reproposal. The Board met 12 
times before publication of the proposed rule on December 16, 1997, 
and has met five times during 1998 and 1999. States were invited to 
attend each of these meetings, and official State certifier 
representatives participated in Board deliberations in meetings held 
in July 1998 and July 1999. Public input sessions were held at each 
meeting to gather information from all interested persons, including 
State and local jurisdictions.
    Section 2110(g) of the OFPA (7 U.S.C. 6509(g)) requires the 
Secretary to hold public hearings to gather information to guide 
development of standards for livestock products. Four hearings were 
held during 1994 in Washington, D.C.; Rosemont, IL; Denver, CO; and, 
Sacramento, CA. States were invited to participate in each of these 
hearings.
    National Organic Program staff also received comments and 
consulted with States at public events. They made presentations, 
received comments, and consulted with States at local and regional 
organic conferences and workshops and at national and international 
organic and natural food shows.
    Further, States were provided the opportunity to comment 
specifically on State issues at a National Organic Certifiers 
meeting held on July 21, 1995, to discuss accreditation issues; a 
meeting held on February 26, 1996, to discuss the role of States in 
the National Organic Program; and a February 1999 State Certifiers 
meeting to discuss State issues. Further, States were consulted in 
training sessions held for organic inspectors, as well as numerous 
question and answer sessions at speaking engagements of the 
Agricultural Marketing Service Administrator, the National Organic 
Program Program Manager, and the staff.
    On publication of the first proposal on December 16, 1997, an 
announcement and information packet summarizing the first proposal 
were sent to over 1,000 interested parties, including State 
governors and State department of agriculture secretaries, 
commissioners, or directors. Subsequent to publication of the first 
proposal, State and local jurisdictions had the opportunity to 
provide input at four listening sessions held in February-March 1998 
on the first proposal in Austin, TX; Ames, IA; Seattle, WA; and New 
Brunswick, NJ.
    Finally, States had the opportunity to comment on the first 
proposal. More than 275,000 comments were received on the first 
proposal, including State commenters.
    Through this extensive outreach and consultation process, States 
identified a number of issues with the first proposal. States 
expressed several specific concerns regarding accreditation 
requirements as they affect State programs. These issues are 
described below, along with the Department's response in the 
reproposal.
    (1) Under OPFA 2108 (7 CFR 6507), States may establish 
additional standards, approved by the Secretary. First, State 
commenters objected to the provision in the first proposal that 
would have prohibited States from requiring compliance with these 
additional standards as a condition for use of the organically 
produced State logo on products within the borders of such State. We 
agree with the commenters, as we did not intend to prohibit States 
from requiring that these more restrictive standards be met as a 
requirement to the State's logo on organically produced products. 
Accordingly, this proposal will permit States with more restrictive 
requirements approved by the Secretary and private certifiers 
certifying production and handling operations within these States to 
require that the State's more restrictive standards be met in order 
to use the State logo.
    (2) The first proposal required annual organic inspector 
performance appraisal and annual program evaluations for certifying 
agents. State commenters objected that these requirements would 
duplicate State requirements. We do not intend for States to develop 
dual performance appraisal and program evaluation systems because we 
believe that programs already conducted by the States will meet the 
requirements of this proposal. These programs would be expected to 
conform with good management practices appropriate to an 
organization's size and structure. The questioned provisions have 
not been changed, but this proposal has been revised to clarify that 
the annual program evaluation can be conducted by the certifying 
agency staff, an auditing entity, or a consultant with appropriate 
expertise.
    (3) The first proposal set forth confidentiality requirements 
for certifying agents. Commenters stated that these confidentiality 
requirements might conflict with State requirements for ``open 
records.'' While we recognize this potential for conflicting 
requirements, records collected under the National Organic Program 
would be subject to the requirements of the Act. Where the Act and 
State requirements conflict, the Act would take precedence. There is 
no change to the confidentiality provision.
    To clarify that authorized representatives of the Secretary or 
the applicable Stae program's governing State official may act on 
their behalf and must be given access to the records, this proposal 
adds the phrase ``and their authorized representatives.''
    (4) This proposal will require that accredited certifying agents 
accept certification decisions made by another USDA-accredited 
certifying agent as equivalent. State commenters said that States 
should be able to control which certifying agents operate within 
their State.
    The first proposal provided that accredited certifying agents 
accept the certification decisions made by another USDA-accredited 
certifying agent as equivalent to their own. Commenters representing 
State programs said that States should be able to control which 
certifying agents operate within their

[[Page 13657]]

State. Several commenters asked whether States with more restrictive 
standards could challenge certification decisions made by other 
accredited certifying agents. Under the Act, no organic product may 
be produced or handled to organic standards lower than the standards 
of the National Organic Program. A State Government may not prevent 
the marketing or sale within a given State of organic product 
produced in another State according to this proposal. While States 
may, with the approval of the Secretary, set more restrictive 
standards than the national organic standards for product produced 
or handled within their State, these requirements do not apply to 
products produced or handled in another State.
    State programs approved by the Secretary will be required to 
treat all accredited certifying agents equally, and accredited 
certifying agents in one State cannot refuse to recognize another 
State's product certified to national standards. Accordingly, the 
requirement remains unchanged that a certifying agent accept 
certification decisions by another USDA-accredited certifying agent 
as equivalent.
    (5) The first proposal required all certifying agents to submit 
documents and information on personnel, administrative, and 
financial policies and procedures to demonstrate organic expertise 
and ability to implement the National Organic Program. States 
commented that State certifying agents should not be required to 
submit such information, stating that these requirements should not 
apply to States with established personnel, administrative, and 
financial procedures. They also indicated that the review should be 
limited to organic program administration only, not to agencywide 
policies and procedures. We recognize that States have established 
personnel, administrative, and financial procedures and that these 
procedures would apply to State certifying agents. However, a stated 
purpose of the Act is establishment of national standards. Such 
standards should extend to uniform requirements for State and 
private certifying agents unless otherwise provided in the Act. 
Further, such information is necessary for the Administrator to make 
a determination on approval of an application for accreditation. 
Accordingly, the requirements for demonstrating organic expertise 
and ability to implement the National Organic Program remain the 
same for private and State certifying agents.
    (6) The first proposal required a certifying agents to provide a 
description of procedures to prevent conflicts of interest and the 
identification of any food or agriculture-related business interests 
of all personnel intended to be used in the certifying operation. 
Commenters stated that existing State policies should be sufficient 
to prevent conflicts of interest for a State certifying agent and 
that lists of the business interests of all inspectors, program 
staff, and their families are not necessary.
    We agree that existing State policies should be sufficient to 
prevent conflicts of interest but disagree that lists of the 
business interests of all inspectors, program staff, and their 
families are unnecessary. The Act (CFR 6515(h)) places 
responsibility for the prevention of conflicts of interest with the 
certifying agent. However, the Department is responsible for 
ensuring that the certifying agent complies with that 
responsibility. The requirement to provide such a listing provides 
the Administrator information essential to identifying conflicts of 
interest. In addition, a stated purpose of the Act is to establish 
uniform national standards. These uniform standards should extend to 
uniform conflict of interest requirements for State and private 
certifying agents. The commenters have said that most States already 
have established conflict of interest policies and procedures so 
that the required information should be easily available for 
submission to the Administrator. Accordingly, no change has been 
made in this proposal.
    Certification, the process of qualifying a producer or handler 
to sell agricultural products labeled as organic, raised several 
issues for States.
    (1) The first proposal required an applicant for certification 
to supply required documentation to provide information necessary to 
allow a certifying agent to evaluate the application. State 
commenters suggested a provision be added to allow a certifying 
agent to require documentation from applicants in addition to that 
required by the first proposal.
    A certifying agent can, if necessary, follow up on an initial 
application with requests for additional information, provided that 
information is needed to evaluate the application and determine 
compliance with the Act and regulations. We did not make the 
suggested change, as the existing language already allows the 
certifying agent to request additional information necessary to 
determine compliance with the Act and regulations.
    (2) The first proposal laid out a certification program that 
provided for updates to a continuous organic certification. To meet 
continuation of certification requirements, the first proposal 
required an on-site inspection after receipt of the update to the 
application. A State certifying agent objected, saying that an on-
site inspection after receipt of a renewal application is not 
consistent with current practice. Currently, on-site inspections 
conducted during the prior year are used to determine compliance 
with certification requirements at the time of renewal, along with a 
review of information submitted by the certified operation. The 
State certifying agent stated that an additional inspection at 
renewal time would not be useful if it was not an appropriate time 
to observe the certified unit in operation.
    We disagree with the commenters, since certifiers are required 
to schedule on-site inspections when the certified operation can be 
observed for its compliance or ability to comply with the provisions 
of the National Organic Program. The initial certification, 
therefore, should have been granted when the on-site inspection 
verified compliance with certification requirements. The certified 
operation should be fulfilling its annual continuation of 
certification at a time when it can demonstrate its compliance with 
the Act.
    States commented on several compliance issues included in the 
first proposal.
    (1) The Administrator had sole authority to suspend or revoke 
the accreditation of certifying agents in the first proposal. 
Commenters indicated that State program's governing State officials 
should have the authority to suspend or revoke the accreditation of 
private certifying agents.
    We agree that in a State with a program approved by the 
Secretary, the State program's governing State official should be 
authorized to suspend or revoke an accreditation granted by the 
Secretary to certifying agents operating within the State. We concur 
because of the Department's role in providing oversight to the State 
program, including its enforcement procedures, and have made that 
change in this proposal.
    (2) Many commenters stated that the first proposal lacked 
adequate enforcement provisions, including enforcement by States 
with an approved State program.
    We agree with the commenters that additional enforcement 
provisions are necessary for the National Organic Program. The 
following changes have been made in this proposal.
    (a) As noted above, the State program's governing State official 
will now be authorized to suspend or revoke accreditation granted by 
the Secretary to certifying agents operating in the State.
    (b) An enforcement proceeding brought by a State program's 
governing State official against a certified operation or certifying 
agent shall be appealable pursuant to the appeal procedures of the 
State program with no subsequent appeal rights to the Secretary.
    States commented on several fees provisions in the first 
proposal.
    (1) The first proposal required that payment of fees and charges 
to the Department be by certified check or money order. State 
commenters objected, saying it was insulting for USDA to require a 
State government agency to pay for its accreditation with a 
certified check.
    Accordingly, we have removed this requirement, simply requiring 
that payments for fees and other charges for accreditation must be 
made payable to the Agricultural Marketing Service.
    (2) Several State agencies objected to the fee provisions in the 
first proposal, expressing the belief that the proposed fees would 
price small producers and handlers out of the organic industry. Some 
State agencies commented that those small organic producers 
conducting their own on-farm handling would be forced out of the 
organic industry by the excessive handler fee and reporting burdens.
    After review of the comments, we acknowledge that the fees 
charged in the first proposal may have discouraged industry growth 
and may not have facilitated interstate commerce of organic product. 
We have thus, modified the fee structure to reduce costs to all 
organic sectors and have removed the requirement that provided for 
payment of fees to the Department by certified production and 
handling operations. Instead, the Department will charge certifying 
agents only for fees and charges related to accreditation, with the 
balance of the costs of the program to be funded through 
appropriations.

[[Page 13658]]

    (3) Some State certifying agents commented that State certifying 
agents should not be assessed accreditation fees. They stated that 
most State certifying agents could face large accreditation costs 
because they have many county or regional offices which would be 
considered subsidiaries, adding that these costs would be passed on 
to producers and handlers or paid with supplemental State funds. A 
few State certifying agents asserted that USDA should pay the States 
because of the State's contribution to the national program. One 
State representative said that accreditation fees for State 
certifying agents should be less than for private certifying agents, 
as State certifying agents should involve less AMS review and 
oversight.
    We disagree with those commenters who say that State certifying 
agents should not be assessed accreditation charges, be charged 
less, or be paid to certify production and handling operations. 
These actions would constitute unacceptable preferential treatment 
of State certifying agents to the detriment of private certifying 
agents. This proposal will assess State certifying agents the same 
fees for accreditation under the same fee structure as private 
certifying agents.
    We invite States and local jurisdictions to comment on the 
issues raised in this Federalism impact statement. We also encourage 
States and local jurisdictions to review and comment on this 
proposal as it relates to the operation of State organic programs.
[FR Doc. 00-5723 Filed 3-7-00; 10:42 am]
BILLING CODE 3410-02-P