[Federal Register Volume 68, Number 131 (Wednesday, July 9, 2003)]
[Proposed Rules]
[Pages 40817-40820]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 03-17332]


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DEPARTMENT OF AGRICULTURE

Animal and Plant Health Inspection Service

9 CFR Part 130

[Docket No. 03-036-1]


Veterinary Services User Fees; Pet Food Facility Inspection and 
Approval Fees

AGENCY: Animal and Plant Health Inspection Service, USDA.

ACTION: Proposed rule.

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SUMMARY: We are proposing to amend the user fee regulations to replace 
the flat rate annual user fees currently charged for the inspection and 
approval of pet food manufacturing, rendering, blending, digest, and 
spraying and drying facilities with user fees based on hourly rates for 
inspections and approval. We have found that the flat rate annual user 
fees no longer cover the costs of our inspections and cannot be 
adequately formulated to cover the costs of inspections and 
reinspections mandated by various foreign regions to which those 
facilities export their pet food ingredients or products. This action 
would ensure that our user fees cover the cost of providing these 
services to pet food facilities.

DATES: We will consider all comments that we receive on or before 
September 8, 2003.

ADDRESSES: You may submit comments by postal mail/commercial delivery 
or by e-mail. If you use postal mail/commercial delivery, please send 
four copies of your comment (an original and three copies) to: Docket 
No. 03-036-1, Regulatory Analysis and Development, PPD, APHIS, Station 
3C71, 4700 River Road Unit 118, Riverdale, MD 20737-1238. Please state 
that your comment refers to Docket No. 03-036-1. If you use e-mail, 
address your comment to [email protected]. Your comment must 
be contained in the body of your message; do not send attached files. 
Please include your name and address in your message and ``Docket No. 
03-036-1'' on the subject line.
    You may read any comments that we receive on this docket in our 
reading room. The reading room is located in room 1141 of the USDA 
South Building, 14th Street and Independence Avenue SW., Washington, 
DC. Normal reading room hours are 8 a.m. to 4:30 p.m., Monday through 
Friday, except holidays. To be sure someone is there to help you, 
please call (202) 690-2817 before coming.
    APHIS documents published in the Federal Register, and related 
information, including the names of organizations and individuals who 
have commented on APHIS dockets, are available on the Internet at 
http://www.aphis.usda.gov/ppd/rad/webrepor.html.

FOR FURTHER INFORMATION CONTACT: For information concerning program 
operations for Veterinary Services, contact Dr. Thomas W. Burleson, 
Staff Veterinarian, National Center for Import and Export, VS, APHIS, 
4700 River Road Unit 44, Riverdale, MD 20737-1231, (301) 734-8364.
    For information concerning user fee rate development, contact Ms. 
Kris Caraher, Accountant, User Fees Section,

[[Page 40818]]

Financial Systems and Services Branch, APHIS, 4700 River Road Unit 54, 
Riverdale, MD 20737-1232, (301) 734-8351.

SUPPLEMENTARY INFORMATION:

Background

    Pet food rendering facilities process animal byproducts by cooking 
them down into various products that are used as ingredients in pet 
foods and animal feeds. Pet food blending facilities take different 
materials and mix them according to manufacturers' specifications. Pet 
food digest facilities produce enzymatic meals in powdered or liquid 
form for use as pet food flavor enhancers. Pet food spraying and drying 
facilities produce powdered materials, which are also used as flavor 
enhancers. Pet food manufacturing facilities combine and cook 
ingredients to produce the finished pet food, which is then packaged 
for sale in the United States or for export to another country.
    Facilities that process or manufacture pet food ingredients or 
products for export, including manufacturing, rendering, blending, 
digest, and spraying and drying facilities, are required by the 
European Union (EU) and some other foreign regions to be inspected and 
approved by the Animal and Plant Health Inspection Service (APHIS). 
These inspections and approvals are carried out by APHIS in accordance 
with the regulations in 9 CFR part 156, ``Voluntary Inspection and 
Certification Service.''
    User fees to reimburse APHIS for the costs of providing veterinary 
diagnostic services and import- and export-related services for live 
animals and birds and animal products are contained in 9 CFR part 130. 
Section 130.11 lists flat rate fees for inspecting and approving pet 
food manufacturing, rendering, blending, digest, and spraying and 
drying facilities.
    The flat rate annual user fees for inspection and approval of these 
facilities were established in a final rule we published in the Federal 
Register on June 20, 2000 (65 FR 38179-38182, Docket No. 98-045-2). 
Prior to that final rule, APHIS had charged hourly rate user fees for 
inspection of these facilities, as provided for by Sec.  130.30(a)(11). 
We established the flat rate annual user fees in Sec.  130.11 based on 
requests from pet food industry representatives that we modify our user 
fees to make it easier for them to know in advance what their costs 
would be. We calculated the flat rate annual user fees to reflect the 
average annual cost to APHIS of providing these services.
    However, we have determined that APHIS is no longer recovering its 
full costs for providing these services through the flat rate annual 
user fees in Sec.  130.11. The flat annual rate user fees for initial 
approval and renewal of approval of pet food manufacturing facilities 
were based on our estimates that initial approval would require 6.4 
hours of labor on the part of Veterinary Services inspectors and 
support staff, while renewal of approval would require 5.4 hours. For 
pet food rendering facilities, the estimates were 5.8 hours for initial 
approval and 4.2 hours for renewal of approval; for pet food blender 
facilities, 6.7 hours for initial approval and 4.8 hours for renewal of 
approval; for pet food digest facilities, 6.0 hours for initial 
approval and 3.3 hours for renewal of approval; and for pet food 
spraying and drying facilities, 4.2 hours for initial approval and 2.5 
hours for renewal of approval. (All these estimated times include both 
the time required to provide the service and travel time to and from 
the facilities.)
    While these estimates were accurate at the time the user fees were 
established, foreign requirements for inspection and approval have 
changed somewhat in the interim, and we have found that initial 
approvals and renewals of approval can now require 1\1/2\ times the 
labor we had estimated they would require when the flat rate annual 
user fees were set. This means that APHIS does not recover its costs 
under the current flat rate annual user fee schedule.
    In addition, the EU's requirements for inspection and approval of 
facilities that wish to export pet food to the EU changed dramatically 
on May 1, 2003. Inspections under these new requirements are more 
complex and thus require more labor, meaning that the estimates of 
labor required for inspection and approval on which the current flat 
rate user fees are based have become yet more outdated.
    The EU's new requirements also make it infeasible to address the 
present unrecovered costs by simply recalculating the current flat rate 
user fees for inspection and approval of pet food facilities. The 
amount of time needed to complete the inspection processes that are 
required by the EU varies widely between pet food facilities, even pet 
food facilities of the same type. Charging a flat rate user fee for 
inspections performed in accordance with these new requirements would 
thus be inequitable, as facility operators whose facilities could be 
inspected in a relatively short amount of time would, in effect, be 
subsidizing facility operators whose facilities required inspections of 
greater length.
    Furthermore, under the EU's requirements, pet food facilities that 
are not found to be in compliance at the initial inspection must, if 
they still wish to export pet food to the EU, undergo reinspection. The 
APHIS flat rate annual user fees for inspection and approval and for 
renewal of approval in Sec.  130.11 are intended to cover APHIS' costs 
for all inspections required during the year. We developed these flat 
rate user fees based on an average of two inspections per year. 
However, the new EU requirements are likely to require more frequent 
reinspections for some facilities. The cost of these additional 
reinspections will not be recovered under the current flat rate user 
fees. A flat rate annual user fee that did take the possibility of 
these additional reinspections into account would also be inequitable; 
under such a fee, facility owners whose facilities required relatively 
few inspections would, in effect, be subsidizing those whose facilities 
required more inspections, to a far greater degree than under the EU's 
previous requirements.
    Finally, we cannot predict what changes foreign governments may 
make to their requirements for inspection and approval of pet food 
facilities in the future, or what changes we might need to make in the 
flat rate user fees because of those changes. A more flexible system, 
using the hourly rates proposed here, would reduce the need for future 
rulemaking while ensuring that APHIS properly recovers its full costs 
for providing these services and that all customers are charged fairly.
    These considerations have led us to conclude that the flat rate 
annual user fees for inspection and approval of pet food facilities, 
while providing cost certainty for facility operators and reducing 
administrative timekeeping costs for APHIS, have not achieved, and will 
not be able to achieve, their primary goal: Ensuring that APHIS 
recovers the costs of inspecting and approving such facilities. 
Returning to an hourly rate user fee would allow us to charge facility 
operators an appropriate amount for the labor expended in inspecting 
and approving their facilities, would allow us to recover the costs of 
any reinspections that may be required, and would give us more 
flexibility should the requirements of importing countries for 
inspection and approval change in the future.
    Therefore, we are proposing to remove the flat rate user fees for 
inspection and approval of pet food manufacturing, rendering, blending, 
or digest facilities and pet food spraying and drying facilities from 
the table of flat rate user fees in Sec.  130.11. With the

[[Page 40819]]

removal of these specific user fees, such facilities would be charged 
for inspection and approval in accordance with Sec.  130.30, which 
provides, among other things, that user fees for inspections conducted 
under 9 CFR part 156 will be calculated at the hourly rate (or hourly 
overtime rate, if applicable) listed in that section when those 
inspections are not covered by flat rate user fees elsewhere in part 
130.
    In addition to listing user fees for the current and future fiscal 
years (FY 2003 and beyond), the table in Sec.  130.11 lists user fees 
for fiscal years 2001 and 2002. Because fiscal years 2001 and 2002 have 
passed, we believe it is no longer necessary to list the user fees for 
those fiscal years in the regulations. Therefore, we are also proposing 
to amend the user fee table in Sec.  130.11 by removing the columns 
that list fees for fiscal years 2001 and 2002. In addition, because 
this proposed rule will not be finalized during FY 2003, we are also 
proposing to remove the column that lists fees for FY 2003. Because 
there would then be only one column listing user fees, we are proposing 
to remove the designation ``Beginning October 1, 2003'' from that 
column.
    Finally, because we would be removing the specific flat rate user 
fees for inspecting and approving pet food manufacturing, rendering, 
blending, digest, and spraying and drying facilities, it would no 
longer be necessary to maintain definitions in Sec.  130.1 related to 
those fees. Specifically, we would amend Sec.  130.1 by removing the 
definitions for pet food blending facilities, pet food digest 
facilities, pet food manufacturing facilities, pet food rendering 
facilities, and pet food spraying and drying facilities, as those terms 
would no longer be used in part 130.

Executive Order 12866 and Regulatory Flexibility Act

    This proposed rule has been reviewed under Executive Order 12866. 
The rule has been determined to be not significant for the purposes of 
Executive Order 12866 and, therefore, has not been reviewed by the 
Office of Management and Budget.
    APHIS is proposing to use hourly and premium hourly rate user fees 
listed in Sec.  130.30 to cover the cost of providing services for the 
approval of U.S. pet food manufacturing, rendering, blending, digest, 
and spraying and drying facilities in lieu of the current flat rate 
user fees contained in Sec.  130.11. Facilities that process or 
manufacture pet food ingredients or products for export are required by 
the EU and other foreign countries to be inspected and approved by 
APHIS in order for the pet food to be imported. APHIS is proposing to 
replace the flat rates with hourly rates to recover its full costs for 
these inspection and approval services.
    User fees recover the cost of operating a public system by charging 
those members of the public who use the system, rather than the public 
as a whole, for its operation. It is justifiable to recover the costs 
of the inspection and approval of U.S. pet food manufacturing, 
rendering, blending, digest, and spraying and drying facilities through 
user fees. These facilities benefit from the inspection service as it 
provides the approvals required by the countries to which they export; 
user fees thus internalize the costs of this service to those who 
require the service and benefit from it.
    APHIS user fees are intended to cover the full cost of providing 
the service for which the fee is charged. The cost of providing a 
service includes direct labor and direct material costs. It also 
includes administrative support, Agency overhead, and departmental 
charges. Due to changes in the inspection and approval requirements of 
certain countries, APHIS has found that providing these services can 
now require up to 1\1/2\ times the labor estimated as being necessary 
when the flat rate annual user fees were set. Therefore, APHIS is not 
currently recovering all appropriate costs. In addition, the EU's 
requirements for inspection and approval of facilities that wish to 
export pet food to the EU changed dramatically on May 1, 2003. 
Inspections under these new requirements are more complex and thus 
require more labor, meaning that the labor estimates used for the 
current flat rates have become yet more outdated.
    The amount of time required to perform an inspection can vary 
widely, depending on such factors as the size of the facility, the 
complexity of the operation, and the preparation that has occurred at 
the facility in anticipation of the inspection. However, the labor time 
associated with inspections is generally underrepresented by the 
current fees, and will become more so as requirements change. The 
current flat rate user fee of $404.75 for an initial inspection and 
approval at a pet food manufacturing, rendering, blending, or digest 
facility is the equivalent of approximately 5 hours at the hourly rate, 
but we have found it can easily take 10 or more hours to approve some 
facilities. It can, therefore, be expected that the total user fees 
charged under the hourly rate will be greater than the current flat 
rate for inspection and approval services.
    To the extent that changes in user fees alter operational costs, 
any entity that utilizes APHIS services that are subject to user fees 
would be affected by a rule that changed those fees. The degree to 
which an entity is affected depends on its market power, or the ability 
to which costs can be either absorbed or passed on to its buyers. 
Without information on either profit margins and operational expenses 
of the affected entities, or the supply responsiveness of the pet food 
industry,\1\ the scale of potential economic effects cannot be 
precisely predicted.
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    \1\ The measurement of supply responsiveness would provide 
information on the likely impact on an entity's activities due to 
changes in operating costs.
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    However, we do not expect that the proposed change in user fees 
would significantly impact users. Even at higher levels, the inspection 
fees represent a very small portion of the value of shipments from 
these facilities. In 1997,\2\ dog and cat food manufacturers \3\ had an 
average total annual value of shipments of $46.6 million, and even the 
smallest operations (1 to 4 employees) had an average total annual 
value of shipments of nearly $700,000. Other animal food manufacturers 
\4\ had an average total annual value of shipments of $12.7 million, 
with the smallest operations (1 to 4 employees) having an average total 
annual value of shipments of $2.3 million. Renderers and other meat 
byproduct processors \5\ had an average total annual value of shipments 
of $10.7 million, with the smallest operations (1 to 4 employees) 
having an average total annual value of shipments of nearly $800,000. 
Those processors specifically dealing with animal and marine feed and 
fertilizer byproducts \6\ had an average total annual value of 
shipments of $16.2 million. Even if the proposed hourly rate user fees 
were to triple the inspection and approval costs of pet food 
facilities, the fees charged to these facilities would continue to be 
very small compared to their revenues.
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    \2\ U.S. Census Bureau, 1997 Economic Census. The 2002 Census is 
not yet available.
    \3\ North American Industry Classification System (NAICS) code 
311111, Dog & Cat Food Manufacturing.
    \4\ NAICS code 311119, Other Animal Food Manufacturing.
    \5\ NAICS code 311613, Rendering & Meat Byproduct Processing.
    \6\ NAICS code 3116134, Animal & Marine Feed and Fertilizer 
Byproducts.
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    Because the EU and other countries require U.S. facilities that 
process or manufacture pet food ingredients or products for export be 
inspected and

[[Page 40820]]

approved by APHIS in order for the pet food to be imported into those 
countries, those facilities directly benefit from the inspections, as 
they are a necessary element for exports of these products to occur. In 
addition, using hourly rates would allow the fee to be tied directly to 
the amount of time required to perform the service at a given facility.

Impact on Small Entities

    The Regulatory Flexibility Act requires that agencies specifically 
consider the economic effects of their rules on small entities. The 
Small Business Administration (SBA) has set out criteria based on the 
North American Industry Classification System for determining which 
economic entities meet the definition of a small business. The entities 
potentially affected by this proposed rule will be U.S. manufacturers 
of pet food and pet food ingredients intended for export.
    Under the SBA's criteria, an entity engaged in the manufacture of 
pet food or in rendering and meat byproduct processing is considered to 
be a small entity if it employs 500 or fewer employees. In 1997, nearly 
99 percent of dog and cat food manufacturers would have been considered 
small under this criterion. Similarly, 100 percent of other animal food 
manufacturers and rendering and meat byproduct processors would have 
been considered small under this criterion. However, because, as 
discussed above, the inspection fees represent a very small portion of 
the value of shipments from these facilities, we expect that this 
proposed change in user fees should have a minimal impact on users, 
whether small or large.
    Under these circumstances, the Administrator of the Animal and 
Plant Health Inspection Service has determined that this action would 
not have a significant economic impact on a substantial number of small 
entities.

Executive Order 12372

    This program/activity is listed in the Catalog of Federal Domestic 
Assistance under No. 10.025 and is subject to Executive Order 12372, 
which requires intergovernmental consultation with State and local 
officials. (See 7 CFR part 3015, subpart V.)

Executive Order 12988

    This proposed rule has been reviewed under Executive Order 12988, 
Civil Justice Reform. If this proposed rule is adopted: (1) All State 
and local laws and regulations that are inconsistent with this rule 
will be preempted; (2) no retroactive effect will be given to this 
rule; and (3) administrative proceedings will not be required before 
parties may file suit in court challenging this rule.

Paperwork Reduction Act

    This proposed rule contains no new information collection or 
recordkeeping requirements under the Paperwork Reduction Act of 1995 
(44 U.S.C. 3501 et seq.).

List of Subjects in 9 CFR Part 130

    Animals, Birds, Diagnostic reagents, Exports, Imports, Poultry and 
poultry products, Quarantine, Reporting and recordkeeping requirements, 
Tests.
    Accordingly, we propose to amend 9 CFR part 130 as follows:

PART 130--USER FEES

    1. The authority citation for part 130 would continue to read as 
follows:

    Authority: 5 U.S.C. 5542; 7 U.S.C. 1622 and 8301-8317; 21 U.S.C. 
136 and 136a; 31 U.S.C. 3701, 3716, 3717, 3719, and 3720A; 7 CFR 
2.22, 2.80, and 371.4.


Sec.  130.1  [Amended]

    2. Section 130.1 would be amended by removing the definitions for 
pet food blending facility, pet food digest facility, pet food 
manufacturing facility, pet food rendering facility, and pet food 
spraying and drying facility.
    3. In Sec.  130.11, paragraph (a), the table would be revised to 
read as follows:


Sec.  130.11  User fees for inspecting and approving import/export 
facilities and establishments.

    (a) * * *

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                         Service                                             Unit                      User fee
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Embryo collection center inspection and approval (all      per year................................      $380.00
 inspections required during the year for facility
 approval).
Inspection for approval of biosecurity level three         per inspection..........................       977.00
 laboratories (all inspections related to inspection
 approving the laboratory for handling one defined set of
 organisms or vectors).
Inspection for approval of slaughter establishment:
    Initial approval (all inspections)...................  per year................................       373.00
    Renewal (all inspections)............................  per year................................       323.00
Inspection of approved establishments, warehouses, and
 facilities under 9 CFR parts 94 through 96:
    Approval (compliance agreement) (all inspections for   per year................................       398.00
     first year of 3-year approval).
    Renewed approval (all inspections for second and       per year................................       230.00
     third years of 3-year approval).
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* * * * *

    Done in Washington, DC, this 2nd day of July 2003.
Kevin Shea,
Acting Administrator, Animal and Plant Health Inspection Service.
[FR Doc. 03-17332 Filed 7-8-03; 8:45 am]
BILLING CODE 3410-34-P