[Federal Register Volume 68, Number 210 (Thursday, October 30, 2003)]
[Proposed Rules]
[Pages 61944-61985]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 03-27249]



[[Page 61943]]

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Part IV





Department of Agriculture





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Agricultural Marketing Service



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7 CFR Part 60



Mandatory Country of Origin Labeling of Beef, Lamb, Pork, Fish, 
Perishable Agricultural Commodities, and Peanuts; Proposed Rule

  Federal Register / Vol. 68, No. 210 / Thursday, October 30, 2003 / 
Proposed Rules  

[[Page 61944]]


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DEPARTMENT OF AGRICULTURE

Agricultural Marketing Service

7 CFR Part 60

[No. LS-03-04]
RIN 0581-AC26


Mandatory Country of Origin Labeling of Beef, Lamb, Pork, Fish, 
Perishable Agricultural Commodities, and Peanuts

AGENCY: Agricultural Marketing Service, USDA.

ACTION: Proposed rule.

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SUMMARY: The Farm Security and Rural Investment Act of 2002 (Farm Bill) 
and the 2002 Supplemental Appropriations Act (Appropriations Act) 
amended the Agricultural Marketing Act of 1946 (Act) to require 
retailers to notify their customers of the country of origin of covered 
commodities beginning September 30, 2004. The law also requires the 
Department of Agriculture (USDA) to issue regulations to implement a 
mandatory country of origin labeling (COOL) program not later than 
September 30, 2004. Covered commodities include muscle cuts of beef 
(including veal), lamb, and pork; ground beef, ground lamb, and ground 
pork; farm-raised fish and shellfish; wild fish and shellfish; 
perishable agricultural commodities (fresh and frozen fruits and 
vegetables); and peanuts. This proposed rule contains definitions, the 
requirements for consumer notification and product marking, and the 
recordkeeping responsibilities of both retailers and suppliers.

DATES: Comments must be submitted on or before December 29, 2003 to be 
assured of consideration.

ADDRESSES: Send written comments to: Country of Origin Labeling 
Program, Room 2092-S; Agricultural Marketing Service (AMS), USDA; STOP 
0249; 1400 Independence Avenue, SW.; Washington, DC 20250-0249, or by 
facsimile to 202/720-3499, or by e-mail to [email protected]. State that 
your comments refer to Docket No. LS-03-04. Comments received will be 
posted to the AMS Web site at: http://www.ams.usda.gov/cool/. Comments 
sent to the above location that specifically pertain to the information 
collection and recordkeeping requirements of this action should also be 
sent to the Desk Officer for Agriculture, Office of Information and 
Regulatory Affairs, Office of Management and Budget (OMB), New 
Executive Office Building, 725 17th Street, NW., Room 725, Washington, 
DC 20503.

FOR FURTHER INFORMATION CONTACT: Robert Keeney, Deputy Administrator, 
Fruit and Vegetable Programs, AMS, USDA, by telephone on 202/720-4722, 
or via e-mail at: [email protected]; or William Sessions, 
Associate Deputy Administrator, Livestock and Seed Program, AMS, USDA, 
by telephone on 202/720-5705, or via e-mail at: 
[email protected].

SUPPLEMENTARY INFORMATION:

Questions and Answers Concerning This Proposed Rule

What Are the General Requirements of Country of Origin Labeling?

    The Farm Bill (Public Law 107-171) and the Appropriations Act 
(Public Law 107-206) amended the Act (7 U.S.C. 1621 et seq.) to require 
retailers to notify their customers of the country of origin of beef 
(including veal), lamb, pork, fish, perishable agricultural 
commodities, and peanuts beginning September 30, 2004. The law also 
requires USDA to issue regulations to implement this program no later 
than September 30, 2004. The law defines the terms ``retailer'' and 
``perishable agricultural commodity'' as having the meanings given 
those terms in the Perishable Agricultural Commodities Act of 1930 
(PACA)(7 U.S.C. 499 et seq.). Food service establishments are 
specifically excluded. In addition, the law specifically outlines the 
criteria a covered commodity must meet to bear a ``United States 
country of origin'' label.

Why Can't USDA Track Only Imported Products and Consider All Other 
Products To Be of ``U.S. Origin?''

    The COOL provision of the Farm Bill applies to all covered 
commodities. Moreover, the law specifically identifies the criteria 
that products of U.S. origin must meet. For beef, pork, and lamb, for 
example, U.S. origin can only be claimed if derived from animals that 
are born, raised, and slaughtered in the United States. The law further 
states that ``Any person engaged in the business of supplying a covered 
commodity to a retailer shall provide information to the retailer 
indicating the country of origin of the covered commodity.'' And, the 
law does not provide authority to control the movement of product, 
imported or domestic. In fact, the use of a mandatory identification 
system that would be required to track controlled product through the 
entire chain of commerce is specifically prohibited.

The Internal Revenue Service Essentially Uses Self-Certification, 
Backed Up by Selective Audits, for Those of Us Who File Income Taxes. 
Why Couldn't Self-Certification Work for COOL?

    The COOL law requires firms or individuals that supply covered 
commodities to retailers to provide information indicating the 
product's country of origin. This information must address the 
production steps included in the origin claim (i.e., born, raised, and 
slaughtered or produced). Self-certification documents or affidavits 
may play a role in assuring that auditable records are available 
throughout the chain of custody, but the auditable records must 
themselves also be available to ensure credibility of country of origin 
labeling claims.

With a Number of Covered Commodities, Particularly Produce Items, 
Already Labeled as to Country of Origin at Retail, How Big a Burden 
Will Mandatory Country of Origin Labeling Actually Cause?

    It is certainly true that some covered commodities, particularly 
produce items, are already being labeled as to country of origin at 
retail establishments. It is also the case that existing Federal law 
and regulation (e.g., PACA) help ensure the truthfulness of such 
labels. At the same time, the labeling of such commodities with country 
of origin information is neither mandatory nor universal at the current 
time. Thus, while the burden of implementing country of origin labeling 
for those commodities should be lessened, some additional effort may 
still be required. For example, suppliers will need to ensure that 
documentation is complete and properly maintained. Retailers will need 
to manage their product displays to ensure country of origin 
information is being properly conveyed to their customers.

Why Can't USDA Use The Same System To Verify Compliance With Country of 
Origin Labeling That It Uses for Meat Products Under USDA's Commodity 
Procurement Program?

    There are several reasons why the systems must be different. First, 
the requirements for origin are not the same. The COOL law for U.S. 
origin requires meat products to be from cattle, hogs, and sheep that 
are born, raised, and slaughtered in the United States. USDA's 
commodity procurement program requires meat products to come from U.S.-
produced livestock. The definition of U.S.-produced livestock excludes 
only imported meat and meat

[[Page 61945]]

from livestock imported for direct slaughter.
    The system for verifying compliance with USDA's commodity 
procurement program is a ``command and control'' type system. USDA, 
through various certification or audit programs, confirms the 
applicable claim at the beginning of the process, then tracks and 
controls the movement of the product throughout the rest of the 
marketing chain. A similar system for COOL would require USDA to verify 
that livestock were born in the United States, then track and control 
the movement of those livestock and resulting meat products through the 
marketing chain to retail. However, the COOL law specifically precludes 
USDA from imposing this type of control.

How Will the Mandatory Country of Origin Labeling Requirements Impact 
Existing U.S. Cow and Bull Herds?

    The law requires country of origin labeling for all covered 
commodities sold at retail beginning September 30, 2004, and does not 
contain a grandfathering provision that would exclude meat from these 
animals from the mandatory labeling requirements. If records as to 
where these animals were born, raised, and slaughtered do not exist, 
retailers could not substantiate a country of origin claim that would 
comply with the law.

Are Cattle, Hogs, and Sheep Covered Commodities?

    No. However, the law requires suppliers to provide country of 
origin information to retailers, including the ``born, raised, and 
slaughtered'' information required to make U.S. origin claims for the 
covered commodities beef, pork, and lamb. The records needed to 
substantiate this information can only be created by persons having 
first-hand knowledge of the country designation for each production 
step declared in the country of origin claim. Thus, livestock producers 
will need to create and/or maintain these records to enable retail 
suppliers to provide retailers with correct country of origin 
information.
    This proposed rule is issued pursuant to the Farm Bill and the 
Appropriations Act, which amended the Act.
    On October 11, 2002, AMS published Guidelines for the Interim 
Voluntary Country of Origin Labeling of Beef, Lamb, Pork, Fish, 
Perishable Agricultural Commodities, and Peanuts(67 FR 63367) providing 
interested parties with 180 days to comment on the utility of the 
voluntary guidelines.
    On November 21, 2002, AMS published a notice requesting emergency 
approval of a new information collection (67 FR 70205) providing 
interested parties with a 60-day period to comment on AMS' burden 
estimates associated with the recordkeeping requirements as required by 
the Paperwork Reduction Act of 1995 (PRA).
    On January 22, 2003, AMS published a notice extending this comment 
period (68 FR 3006) an additional 30 days.
    In response to these requests for comment, AMS received over 2,400 
written comments. In addition, as another means to receive public input 
with respect to this rulemaking action, AMS held 12 formal educational 
and listening sessions throughout the United States to afford 
interested parties the opportunity to provide comments and ideas on the 
mandatory COOL program's development. Over 3,300 people attended the 
listening sessions and approximately 580 people provided oral 
testimony.
    AMS has considered all of the comments received to date in 
developing this proposed rule. Several key concepts have emerged from 
both the written comments and the public testimony from the listening 
and educational sessions:
    [sbull] General opinions of the law (i.e., both pro and con).
    [sbull] Conflicting testimony regarding the costs that will be 
incurred by the industry in complying with the law.
    [sbull] Opinion that the law will improve the food safety of 
covered commodities.
    [sbull] Conflicting testimony as to whether there will be 
improvement in the marketplace because of consumers' willingness to pay 
for U.S. origin of covered commodities.
    [sbull] Opinion that poultry will be placed at a competitive 
advantage because it is exempt from labeling under COOL.
    [sbull] Opinion that significant pricing disparity will exist 
between retailers required to label under COOL and those that are 
exempt such as fish markets and butcher shops.
    [sbull] Opinion that the law requiring mandatory COOL should be 
repealed and the program should be made permanently voluntary.
    [sbull] Opinions that COOL should be implemented immediately due to 
the Canadian BSE incident.
    [sbull] Considerable testimony that presumption of U.S. origin 
should be allowed.
    [sbull] Considerable testimony that only imported products should 
be tracked and controlled.
    [sbull] Considerable testimonies that COOL should be implemented in 
the least costly manner possible.
    [sbull] Conflicting testimony on how to interpret the scope of 
covered commodities.
    [sbull] Considerable testimony that producers should be allowed to 
self-certify the origin of their animals.
    [sbull] Considerable testimony that required recordkeeping should 
be minimized and should allow for the use of existing records to the 
maximum extent possible.
    [sbull] Testimony that this law may violate United States trade 
obligations under the World Trade Organization.
    AMS has accepted many of the commenters' recommendations in 
developing this proposed rule. However, several of the recommendations 
provided by the commenters are not in conformance with the law and were 
therefore not adopted. Further discussion on the key concerns raised by 
the commenters can be found in each applicable section. AMS has also 
included a ``Questions and Answers'' section to address a few of the 
more common questions posed by the commenters.

Background

    Section 10816 of Public Law 107-171 (7 U.S.C. 1638-1638d) amended 
the Act (7 U.S.C. 1621 et seq.) to require retailers to inform 
consumers of the country of origin of covered commodities beginning 
September 30, 2004.
    The intent of this law is to provide consumers with additional 
information on which to base their purchasing decisions. It is not a 
food safety or animal health measure. COOL is a retail labeling program 
and as such does not address food safety or animal health concerns. 
Food products, both imported and domestic, must meet the food safety 
standards of FSIS and/or the Food and Drug Administration (FDA), as 
applicable. In addition, all food products must also meet FDA labeling 
standards as well as all other applicable FDA regulations and 
standards.
    The law defines the term ``covered commodity'' as muscle cuts of 
beef (including veal), lamb, and pork; ground beef, ground lamb, and 
ground pork; farm-raised fish and shellfish; wild fish and shellfish; 
perishable agricultural commodities (fresh and frozen fruits and 
vegetables); and peanuts. The law defines the terms ``retailer'' and 
``perishable agricultural commodity'' as having the meanings given 
those terms in PACA.
    The law specifically outlines the criteria a covered commodity must 
meet in order to bear a ``United States country of origin'' 
declaration. In the case of beef, lamb, and pork, the covered

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commodity must be derived from an animal that was exclusively born, 
raised, and slaughtered in the United States. In the case of beef, this 
definition also includes cattle exclusively born and raised in Alaska 
or Hawaii and transported for a period not to exceed 60 days through 
Canada to the United States and slaughtered in the United States. In 
the case of farm-raised fish and shellfish, the covered commodity must 
be derived from fish or shellfish hatched, raised, harvested, and 
processed in the United States. In the case of wild fish and shellfish, 
the covered commodity must be derived from fish or shellfish harvested 
in the waters of the United States or by a U.S. flagged vessel and 
processed in the United States or aboard a U.S. flagged vessel. In 
addition, the law also requires the country of origin declaration to 
distinguish between wild and farm-raised fish and shellfish. In the 
case of perishable agricultural commodities and peanuts, the products 
must be produced in the United States.
    To convey the country of origin information, the law states that 
retailers may use a label, stamp, mark, placard, or other clear and 
visible sign on the covered commodity or on the package, display, 
holding unit, or bin containing the commodity at the final point of 
sale to consumers. Food service establishments, such as restaurants, 
cafeterias, food stands, and other similar facilities are exempt from 
these labeling requirements.
    The law makes reference to the definition of ``retailer'' in PACA 
as the meaning of ``retailer'' for the application of the labeling 
requirements under the COOL law. Under PACA, a retailer is any person 
who is a dealer engaged in the business of selling any perishable 
agricultural commodity solely at retail when the invoice cost of all 
purchases of produce exceeds $230,000 during a calendar year. This 
definition excludes butcher shops, fish markets, and small grocery 
stores that either sell fruits and vegetables at a level below this 
dollar volume threshold or do not sell any fruits and vegetables at 
all.
    The law requires any person engaged in the business of supplying a 
covered commodity to a retailer to provide the retailer with the 
product's country of origin information. In addition, the law states 
the Secretary of Agriculture (Secretary) may require that any person 
that prepares, stores, handles, or distributes a covered commodity for 
retail sale maintain a verifiable recordkeeping audit trail. The law 
prohibits the Secretary from using a mandatory identification system to 
verify the country of origin of a covered commodity and provides 
examples of existing certification programs that may be used to certify 
the country of origin of a covered commodity. The law contains 
enforcement provisions for both retailers and suppliers that include 
civil penalties of up to $10,000 for each violation. The law also 
encourages the Secretary to enter into partnerships with States with 
enforcement infrastructure to the extent possible to assist in the 
program's administration.

Key Components of the Law

Defining Covered Commodities

    The law defines the term ``covered commodity'' as: Muscle cuts of 
beef (including veal), lamb, and pork; ground beef, ground lamb, and 
ground pork; farm-raised fish and shellfish; wild fish and shellfish; 
perishable agricultural commodities; and peanuts.

Exclusion for Ingredient in a Processed Food Item

    The law excludes items from needing to bear a country of origin 
declaration when a covered commodity is an ``ingredient in a processed 
food item.'' However, Public Law 107-171 does not define a ``processed 
food item.'' Therefore, AMS must define what constitutes a ``processed 
food item'' for each covered commodity in the context of Public Law 
107-171 for the purposes of this proposed regulation.
    In defining ``processed food item'' in the voluntary guidelines (67 
FR 63367), AMS recognized that the term ``processed'' has been 
previously defined in other regulations promulgated by AMS, such as 
those issued in conjunction with the National Organic Program. AMS also 
stated that it did not believe that these definitions were suitable for 
use in the COOL program because using such a broad definition would 
exempt commodities that Congress clearly intended to be governed under 
this law.
    AMS received numerous comments relating to the definition of a 
``processed food item.'' Many commenters suggested that the definition 
of processed food item published in the voluntary guidelines (67 FR 
63367) resulted in significantly reducing the number of food items 
Congress intended to be covered by the Act. These commenters contend, 
for example, that a roast remains a muscle cut of beef even if cooked, 
salted, or flavored.
    Conversely, many other commenters suggested that the definition 
published in the voluntary guidelines (67 FR 63367) was too narrow and 
resulted in the inclusion of products that Congress did not intend to 
be covered by the Act. These commenters contend that any item bearing 
an ingredient statement should not be required to be labeled under 
COOL.
    As this is a retail labeling law, to help guide AMS in determining 
how to define a ``processed food item,'' AMS viewed the scope of 
covered commodities in the context of how these products are marketed 
at the retail level. For example, most peanuts sold at retail are 
shelled and roasted. To interpret the law as only applying to green 
peanuts would result in the exclusion of most peanuts sold at retail. 
Similarly, to exclude canned fish would result in the exclusion of a 
large share of the fish products sold at retail.
    To address the concerns raised by the commenters, AMS has chosen to 
define a ``processed food item'' utilizing a 2-step approach. First, a 
retail item derived from a covered commodity that has undergone a 
physical or chemical change, causing the character to be different from 
that of the covered commodity is deemed to be a processed food item. 
Examples include oranges that have been squeezed and made into orange 
juice, a fresh leg of pork that has been cured and made into a ham, 
peanuts that have been ground and made into peanut butter, or flesh of 
a fish that has been restructured and made into a fish stick. These 
retail items have undergone a physical or chemical change such that 
they no longer retain the characteristics of the covered commodity and 
thus consumers would not use the items in the same manner as they would 
the covered commodities. Second, a retail item derived from a covered 
commodity that has been combined with either (1) other covered 
commodities, or (2) other substantive food components (e.g., chocolate, 
stuffing) resulting in a distinct retail item that is no longer 
marketed as a covered commodity. Examples include a salad mix that 
contains lettuce and tomatoes, peanuts in a candy bar, a stuffed pork 
chop, or seafood medley.
    Alternatively, some commenters suggested that a processed food item 
could be defined as to exclude any product that bears an ingredient 
statement. These commenters contend that this would establish a bright 
line standard that would enable companies throughout the marketing 
chain to readily determine whether the commodities they produce or sell 
would be covered commodities. Utilizing such a definition would result 
in the exclusion of many products, including those products in which 
the ingredient statement lists only the commodity itself. Accordingly, 
AMS invites further

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comment on the practicality of this alternative definition.
    Similarly, some commenters suggested that any covered commodity 
that has undergone processing as defined by other existing Federal 
regulations (e.g., PACA, National Organic Program, and AMS Processed 
Fruit and Vegetable Inspection Program) should be defined as an 
ingredient in a processed food item, thereby being excluded from 
country of origin labeling under this law. Under this alternative any 
food item that represents additional transformation (e.g., canning, 
cooking, dehydration, drying, fermentation, milling, the addition of 
chemical substances, etc.) of a covered commodity would be considered a 
processed food item. In addition, a covered commodity that has been 
combined with other covered commodities or other ingredients would also 
be considered an ingredient in a processed food item and excluded from 
labeling. Utilizing such a definition could result in the exclusion of 
many retail products. Accordingly, AMS invites further comment on the 
practicality of this alternative definition.
    As another alternative, some commenters suggested that a covered 
commodity that is further processed (i.e., cured, restructured, etc.) 
should not be excluded unless the covered commodity is mixed with other 
commodities to create a distinct food item such as a pizza or TV 
dinner. Accordingly, AMS also invites further comment on the 
practicality of this alternative definition.
    AMS invites further comment on its preferred approach, the three 
identified alternatives, or any other alternative to the statutory 
exclusion for an ingredient in a processed food item.

Muscle Cuts of Beef, Lamb, and Pork

    All muscle cuts of beef (including veal), lamb, and pork whether 
chilled, frozen, raw, cooked, seasoned, or breaded are covered 
commodities and would be subject to these regulations unless they are 
an ingredient in a processed food item.
    In cases where a retail item is derived from a muscle cut of beef, 
lamb, or pork that has undergone a physical or chemical change, causing 
the character to be different than that of the covered commodity, that 
item is considered a processed food item and would be excluded from 
needing to bear a country of origin declaration under these 
regulations. For example, products such as restructured steaks and 
cured products like hams, corned beef briskets, and bacon would be 
considered processed food items as they no longer retain the 
characteristics of the covered commodity and thus consumers would not 
use them in the same manner as they would the covered commodity. A 
consumer who desires a fresh pork leg for roasting would not substitute 
a cured product such as ham for the same purpose. In addition, these 
products also are not typically marketed with muscle meats at a retail 
establishment, but are generally marketed with other excluded meat 
products.
    In cases where a retail item is derived from a covered commodity 
that has been combined with non-substantive components, and the 
character of the covered commodity is retained, the resulting product 
would not be considered a processed food item and would be subject to 
these regulations. Examples include products such as needle-tenderized 
steaks; fully-cooked entrees containing beef pot roast with gravy; 
seasoned, vacuum-packaged pork loins; and water-enhanced case ready 
steaks, chops, and roasts. These items would not be considered 
processed food items because the combination of non-substantive 
components and a muscle cut of beef, lamb, or pork does not result in a 
retail item with characteristics that are different from that of the 
covered commodity and would generally be used by consumers in the same 
manner.
    In cases where a retail item consists of a muscle cut of beef, 
lamb, and pork and another covered commodity or other substantive food 
components resulting in a distinct retail item that is no longer 
marketed as a covered commodity, such an item is considered a processed 
food item and would be excluded from these regulations. An example 
includes an item such as a shish kabob containing beef and lamb, which 
would not be marketed as a muscle cut of beef or lamb, but would 
instead be marketed as a shish kabob.

Ground Beef, Lamb, and Pork

    Under the law, ground beef, ground lamb, and ground pork are 
required to bear a country of origin declaration. FSIS rules and 
regulations specifically define the requirements for products to be 
labeled as ``ground beef,'' ``ground pork,'' and ``ground lamb.'' As 
such, only those products that meet FSIS requirements to be labeled as 
``ground beef,'' ``ground pork,'' or ``ground lamb,'' must bear a 
country of origin declaration in accordance with this proposed rule.

Fresh and Frozen Fruits and Vegetables

    Under the law, perishable agricultural commodities as defined by 
PACA are required to bear a country of origin declaration. PACA defines 
perishable agricultural commodities as ``any of the following, whether 
or not frozen or packed in ice: Fresh fruits and vegetables of every 
kind and character; and * * * includes cherries in brine as defined by 
the Secretary in accordance with trade usages.'' Therefore, frozen 
fruits and vegetables (e.g., a package of frozen strawberries or frozen 
french fried potatoes made from sliced potatoes) would be covered 
commodities subject to these regulations; however, cooked and canned 
fruits and vegetables would be exempt.
    In order to maintain consistency with PACA, a frozen fruit or 
vegetable would be a covered commodity as long as it is not an 
ingredient in a processed food item and thus its ``kind or character'' 
has not been altered. For example, a retail item derived from a 
perishable agricultural commodity that has undergone a physical or 
chemical change, causing the character to be different from that of the 
covered commodity, is considered to be a processed food item and would 
be excluded from these regulations. For example, oranges that have been 
squeezed and made into orange juice or apples that have been mashed and 
made into fresh apple sauce would be considered processed food items as 
they no longer retain the characteristics of the covered commodity and 
thus consumers would not use them in the same manner as they would the 
covered commodity.
    In cases where a retail item is derived from a perishable 
agricultural commodity combined with non-substantive components and the 
character of the covered commodity is retained, the resulting product 
is not considered a processed food item and would be subject to these 
regulations. Examples include products such as strawberries packaged 
with sugar, a preservative, or other flavoring. These items would not 
be considered processed food items because the addition of non-
substantive components does not result in a retail item with 
characteristics that are different from that of the covered commodity 
and would generally be used by consumers in the same manner as the 
covered commodity.
    In cases where a retail item is derived from a perishable 
agricultural commodity that has been combined with another covered 
commodity or other substantive food components resulting in a distinct 
retail item that is not marketed as a covered commodity, such an item 
is considered a processed food item and would be excluded from

[[Page 61948]]

these regulations. Examples include a frozen prepared pie that includes 
frozen sliced apples, a fruit cup containing cantaloupe, honeydew, and 
watermelon, or a vegetable tray containing both carrots and celery.

Peanuts

    All peanuts, whether raw, roasted, in-shell, shelled, salted, 
seasoned, or canned are subject to these regulations unless they are an 
ingredient in a processed food item. Under the law, the term ``covered 
commodity'' includes ``peanuts.'' Because the vast majority of peanuts 
sold at retail are shelled, roasted, and salted, AMS believes these 
products were intended to be covered by the law. Accordingly, shelled 
and/or roasted peanuts would be subject to these regulations as these 
retail items do not have characteristics that are different from that 
of a covered commodity. Further, peanuts that have been combined with 
other non-substantive ingredients such as oil, salt, or other 
flavorings would also be subject to these regulations. However, peanut 
products such as candy coated peanuts, peanut brittle, and peanut 
butter would not be subject these regulations as they are processed 
food items with a character that is different than that of the covered 
commodity. In addition, in cases where the peanuts are ingredients in 
other food products (e.g., peanuts in a candy bar), they would also be 
excluded from these regulations as they are not marketed as a covered 
commodity.

Wild and Farm-Raised Fish and Shellfish

    All fish and shellfish, whether chilled, frozen, raw, cooked, 
breaded, or canned would be subject to these regulations unless they 
are an ingredient in a processed food item. This includes fillets, 
steaks, nuggets, and other flesh from wild or farm-raised fish and 
shellfish.
    In cases where a retail item is derived from fish or shellfish that 
has undergone a physical or chemical change, causing the character to 
be different than that of the covered commodity, that item is 
considered a processed food item and would be excluded from these 
regulations. For example, items such as restructured shrimp or fish 
sticks and smoked and cured products would be considered processed food 
items because they no longer retain the characteristics of the covered 
commodity and thus consumers would not use them in the same manner as 
they would the covered commodity.
    In cases where a retail item is derived from a fish or shellfish 
that has been combined with non-substantive ingredients such as 
seasonings, preservatives, or breading, that item would not be 
considered a processed food item as it does not result in a retail item 
with characteristics that are different from that of the covered 
commodity and would generally be used by consumers in the same manner 
as the covered commodity.
    In cases where a retail item is derived from a fish or shellfish 
that has been combined with another covered commodity or other 
substantive ingredients, that item would be considered a processed food 
item and would not be subject to these regulations as it results in a 
distinct retail item that is no longer marketed as a covered commodity. 
Examples include a bag of seafood medley, stuffed salmon, or surimi.

Labeling Country of Origin for Products Produced Exclusively in the 
United States

    The law prescribes specific criteria that must be met for a covered 
commodity to bear a ``United States country of origin'' declaration. 
The specific requirements for each commodity are as follows:
    (a) Beef--covered commodities must be derived exclusively from an 
animal that was born, raised, and slaughtered in the United States 
(including from an animal exclusively born and raised in Alaska or 
Hawaii and transported for a period not to exceed 60 days through 
Canada to the United States and slaughtered in the United States).
    (b) Lamb and Pork--covered commodities must be derived exclusively 
from an animal that was born, raised, and slaughtered in the United 
States.
    (c) Farm-raised Fish and Shellfish--covered commodities must be 
derived exclusively from fish or shellfish hatched, raised, harvested, 
and processed in the United States.
    (d) Wild Fish and Shellfish--covered commodities must be derived 
exclusively from fish or shellfish either harvested in the waters of 
the United States or by a U.S. flagged vessel and processed in the 
United States or aboard a U.S. flagged vessel.
    (e) Fresh and Frozen Fruits and Vegetables, and Peanuts--covered 
commodities must be derived exclusively from perishable agricultural 
commodities or peanuts grown in the United States.
    Products otherwise meeting the requirements of ``United States 
country of origin'' may retain that designation after export for 
further processing in a foreign country and reentry into the United 
States for retail sale provided a verifiable recordkeeping audit trail 
is maintained. However, in the case of meat and meat products, 
additional labeling information may be required by other Federal 
agencies.

Labeling Country of Origin for Imported Products (i.e., Produced 
Entirely Outside of the United States)

    Currently, under the Tariff Act of 1930, as amended (19 U.S.C. 
1304)(Tariff Act), most imported items, including food items, are 
required to be marked to indicate the ``country of origin'' to the 
``ultimate purchaser.'' The U.S. Bureau of Customs and Border 
Protection (CBP), which administers the Tariff Act, generally defines 
``ultimate purchaser'' as the last person in the United States who will 
receive the article in the form in which it was imported and defines 
``country of origin'' as the country of manufacture, production, or 
growth of any article of foreign origin entering the United States.
    For example, under the Tariff Act, containers (e.g., cartons and 
boxes) holding imported fresh fruits and vegetables must bear a country 
of origin declaration (as defined by current CBP regulations) when 
entering the United States. However, under current law, a retailer may 
remove loose produce from a labeled container and display it in an open 
bin, selling each individual piece of produce without a country of 
origin declaration. In contrast, this proposed rule would require the 
retailer to notify the consumer as to the country of origin of all 
covered commodities whether individually packaged or displayed in a 
bin.
    Currently, under the Federal Meat Inspection Act (FMIA)(21 U.S.C. 
601 et seq.), all meat products imported into the United States are 
required to bear the country of origin on the labeling of the container 
in which the products are shipped. If imported meat or meat products 
are intended to be sold intact to a grocer or household consumer (i.e., 
consumer-ready packaging), the country of origin is conveyed to those 
recipients. For example, if a bulk shipping container imported from 
country X, consists of pre-packaged and labeled meat cuts that are 
intended to be sold to grocers or at retail to household consumers as 
they are packaged, each package would bear a country of origin 
declaration (e.g., product of country X).
    Currently, under the Tariff Act, if an article is destined for a 
U.S. processor or manufacturer in which it will undergo ``substantial 
transformation,'' that processor or manufacturer is generally 
considered the ``ultimate

[[Page 61949]]

purchaser.'' As such, products that have been substantially transformed 
by a U.S. processor generally are not required to bear a country of 
origin declaration. Similarly, under current FSIS policies and 
directives, imported meat and meat products that are further processed 
in the United States are not required to bear country of origin 
declarations on the newly produced products or subsequent products made 
from them as these products are now considered to be domestic.
    Under this proposed rule, imported covered commodities for which 
origin has already been established as defined by this regulation 
(e.g., born, raised, and slaughtered in the case of meat products or 
grown in the case of peanuts), shall retain their origin, as determined 
by CBP at the time the product entered the United States, through 
retail sale. For example, if an imported lamb carcass derived from an 
animal that was born, raised, and slaughtered in country X, was further 
processed in the United States, the resulting products derived from 
that carcass would be labeled as ``product of the country X.'' However, 
in this example, additional labeling information may be required by 
FSIS.
    Products imported in consumer-ready packages, including food 
products (e.g., frozen green beans or canned ham), are currently 
required to bear a country of origin declaration on each individual 
package under both the Tariff Act and FMIA. This proposed rule would 
not change these requirements.

Labeling Country of Origin When the Product Has Entered the United 
States During the Production Process (i.e., Mixed Origin That Includes 
the United States)

    The law specifically defines the requirements for covered 
commodities to bear a ``United States country of origin'' declaration. 
However, the law is less specific for products produced completely or 
in part outside of the United States. In these instances, the law 
requires only that retailers inform consumers as to the country of 
origin of a covered commodity at the final point of sale.

Beef, Lamb, and Pork

    The law states that only covered commodities derived from animals 
that were born, raised, and slaughtered in the United States may bear a 
``United States country of origin'' declaration. AMS recognizes that a 
number of animals born in foreign countries are raised and slaughtered 
in the United States. In addition, some animals born in the United 
States are raised in foreign countries and then either slaughtered in 
that foreign country or returned to the United States for slaughter.
    The requirements for products to bear a ``Product of the United 
States'' declaration do not permit products derived from animals that 
were born, raised, or slaughtered in a foreign country to be labeled as 
``Product of the United States.'' However, AMS recognizes that to label 
products of an animal that was only born in country X, but raised and 
slaughtered in the United States solely as ``Product of country X'' 
does not reference the significant production steps that occurred in 
the United States. Therefore, under this proposed rule, products that 
were produced in both a foreign country and the United States would be 
labeled at retail as being imported from the foreign country and also 
for the production steps that occurred in the United States. For 
example, pork products derived from a pig that was born in country X, 
raised and slaughtered in the United States would be labeled as 
``Imported from country X, Raised and Slaughtered in the United 
States.'' Alternatively, products may also be labeled to specifically 
identify the production step(s) that occurred in the country other than 
the United States if the animal's identity was maintained along with 
records to substantiate the origin claims. For example, products 
derived from a pig that was born and raised in country X and 
slaughtered in the United States could either be labeled as ``Imported 
from country X, Slaughtered in the United States'' or ``Born and Raised 
in country X, Slaughtered in the United States.'' AMS invites further 
comment on the use of alternative terms for the term ``slaughtered.''
    AMS also recognizes that in some cases, an animal will undergo 
production steps in two or more foreign countries prior to entering the 
United States for additional processing or a final process such as 
slaughter. In these cases, the meat products derived from an animal 
that was born in country X, raised in country Y, and slaughtered in the 
United States would be labeled at retail as being imported from country 
Y and for any production steps occurring in the United States. For 
example, if a calf was born in country X and raised in country Y before 
being imported for slaughter in the United States, the resulting meat 
products derived from this animal would be labeled as ``Imported from 
country Y, Slaughtered in the United States.'' Alternatively, if the 
animal's identity was maintained along with the records to substantiate 
the origin claims, the product could be labeled to specifically 
identify the production step(s) (e.g., born, raised) occurring in the 
country(ies) other than the United States. In the example cited above, 
the product could be labeled ``Born in country X, Raised in country Y, 
Slaughtered in the United States.''
    AMS invites further comment on this approach to the labeling of 
beef, lamb and pork, and requests identification of alternative 
approaches to labeling such products.

Wild and Farm-Raised Fish and Shellfish

    In the case of wild fish and shellfish, the law states that a 
covered commodity can only bear a ``United States country of origin'' 
declaration if it is harvested in the waters of the United States or 
aboard a U.S. flagged vessel and processed in the United States or 
aboard a U.S. flagged vessel. In the case of farm-raised fish and 
shellfish, the law states that a covered commodity can only be labeled 
as ``Product of the U.S.'' if it is hatched, raised, harvested, and 
processed in the United States. However, the law does not define the 
term processed.
    AMS received numerous comments requesting that the regulations for 
the mandatory COOL program conform to existing regulations of CBP 
wherever possible to eliminate redundancies, costs, and conflicts. As 
such, for wild and farm-raised fish and shellfish, AMS has defined 
``processed'' as any process that effects substantial transformation as 
defined by CBP Rules of Origin.
    In the case of wild fish and shellfish, if a covered commodity was 
harvested in the waters of the U.S. or by a U.S. flagged vessel and 
processed in country X or aboard a country X flagged vessel, the 
covered commodity shall be labeled at retail as ``Product of country 
X.'' For example, if a fish was caught in U.S. waters and processed 
into individually quick-frozen fillets in country Y, such product would 
be labeled as ``Product of country Y'' because it has been 
substantially transformed as defined by CBP and thus does not meet the 
requirements to bear a U.S. origin declaration. Alternatively, the 
product may also be labeled to include the production step occurring in 
the United States if the product's identity was maintained along with 
records to substantiate the origin claims. In the example provided 
above, the product could be labeled as ``product of country Y, 
harvested in the United States.''
    If a covered commodity was harvested in country Y and processed in 
the United States or aboard a U.S. flagged vessel, the product shall be 
labeled at retail as ``Imported from country Y, processed in the United 
States.'' In all cases, the covered commodity must also

[[Page 61950]]

be labeled to indicate that it was derived from wild fish and/or 
shellfish.
    In the case of farm-raised fish, if a covered commodity was hatched 
in country X, and raised, harvested and/or processed in the United 
States, the product would be labeled as being imported from country X 
and for the production step(s) occurring in the United States. For 
example, if a fish was hatched in country X and processed in the United 
States, the product would be labeled as ``Imported from country X, 
Processed in the United States.''
    If a covered commodity was hatched, raised, and harvested in the 
United States and processed in country X, the product shall be labeled 
at retail as ``Product of country X.'' Alternatively, the product may 
also be labeled to include the production step(s) occurring in the 
United States if the product's identity was maintained along with 
records to substantiate the origin claims. In the example given above, 
the product could be labeled as ``Product of country X, hatched, 
raised, and harvested in the United States.'' In all cases, the covered 
commodity must also be labeled to indicate that it was derived from 
farm-raised fish and/or shellfish. Farm-raised fish means fish or 
shellfish that have been harvested in controlled or selected 
environments, including ocean-ranched (e.g., penned) fish and shellfish 
confined in managed beds; and fillets, steaks, nuggets, and any other 
flesh from a farm-raised fish or shellfish. For example, mussels on 
rope culture and oysters on leased land would be considered farm-
raised.
    AMS invites further comment on this approach to the labeling of 
wild and farm-raised fish and shellfish and requests identification of 
alternative approaches to labeling such products.

Defining Country of Origin for Blended Products

    Many of the covered commodities required to bear a country of 
origin declaration under the law are commingled or blended products 
that were prepared from raw material sources having different origins 
(e.g., bagged lettuce, ground beef, shrimp, etc.). However, the law 
does not specify how these products should be labeled.
    In defining country of origin for blended or mixed products in the 
voluntary guidelines (67 FR 63367), AMS recognized that it could be 
misleading to consumers if only a small percentage of a covered 
commodity mixture met the definition of United States origin and yet 
the mixture could list the United States first ahead of other countries 
in the country of origin declaration on the package. As such, under the 
voluntary guidelines, the country of origin declaration was to reflect 
the country of origin for each raw material source of the mixed or 
blended retail item by order of predominance by weight. In addition, 
under the voluntary guidelines, containers of mixed or blended products 
in which the individual constituents could be separately identified, 
would have to bear a country of origin declaration individually 
identifying the country of origin of each constituent.
    AMS received numerous comments on this issue stating that to 
require labeling in the order of predominance by weight and for each 
individual constituent would be cumbersome, impractical, and costly.
    In response to these comments, under this proposed rule, the 
country of origin declaration of blended or mixed retail food items 
comprised of the same covered commodity (e.g., bag of lettuce or 
package of ground beef) that are prepared from raw material sources 
having different origins must list alphabetically the countries of 
origin for all of the raw materials contained therein. For example, a 
bag of red and green leaf lettuce from country A and country B would be 
labeled as ``Product of country A, Product of country B.'' However, 
under this proposed rule, items such as a salad mix or a fruit cup 
would not be required to bear a country of origin declaration because 
these items would be considered processed food items and would be 
excluded from these regulations.

Method of Notification

    The law states that the country of origin declaration may be 
provided to consumers by means of a label, stamp, mark, placard, or 
other clear and visible sign on the covered commodity or on the 
package, display, holding unit, or bin containing the commodity at the 
final point of sale to consumers.
    Under this proposed rule, market participants can utilize a variety 
of different labeling nomenclatures to denote the country of origin of 
a covered commodity. For example, ``U.K.'' and ``United Kingdom of 
Great Britain and Northern Ireland'' would both be allowed under this 
proposed rule.
    AMS received numerous comments requesting acceptance for labels 
containing only the name of the country such as ``USA'' due to the 
limited amount of space on many retail items. Therefore, under this 
proposed rule, country of origin declarations may be in the form of a 
statement such as ``Product of USA,'' ``Grown in Mexico,'' or they may 
only contain the name of the country such as ``USA'' or ``Mexico'' 
provided it is in conformance with other existing Federal laws. 
However, the labeling requirements under this proposed rule do not 
supercede any existing labeling requirements, unless otherwise 
specified, and any such country of origin notification must not obscure 
other labeling information required by existing regulatory 
requirements.
    For those entities that are regulated by FSIS, all country of 
origin labels must be submitted to FSIS for pre-approval as required by 
current FSIS regulations.
    In order to provide the industry with as much flexibility as 
possible, this proposed rule does not contain specific requirements as 
to the exact placement or size of the country of origin declaration. 
However, such declaration must be conspicuous and allow consumers to 
determine the country of origin when making their purchases and 
provided that existing Federal labeling requirements must be followed.

State and Regional Labeling Programs

    The law requires retailers to notify consumers of the country of 
origin of covered commodities. Therefore, State and regional labeling 
programs such as ``Washington apples,'' ``Idaho potatoes,'' and 
``California Grown'' do not meet this requirement and cannot be 
accepted in lieu of country of origin labeling.

Existing State-Level Country of Origin Labeling Laws

    Several States have implemented mandatory programs for country of 
origin labeling of certain commodities. For example, Alabama, Arkansas, 
Mississippi, and Louisiana have origin labeling requirements for 
certain seafood products. Other States including Wyoming, Idaho, North 
Dakota, South Dakota, Louisiana, Kansas, and Mississippi have origin 
labeling requirements for particular meat products. In addition, the 
State of Florida and the State of Maine have origin labeling 
requirements for fresh produce items.
    AMS received several comments asserting that these State programs, 
particularly the State of Florida's program, should serve as models for 
the Federal mandatory COOL program. AMS has reviewed these existing 
programs and concluded that most of these programs do not meet the 
requirements of the Act. Accordingly, AMS has determined that, in 
general, these programs are not suitable models on which to base the 
regulations for the Federal mandatory COOL program.
    With regard to enforcement activities, while some of these States 
actively enforce their respective origin labeling

[[Page 61951]]

laws and impose fines on those found to be in violation and/or seize 
product found to be mislabeled, other States conduct no such 
enforcement activities. With respect to the Florida law that is 
actively enforced by the State, verification of a product's origin 
generally consists of the inspector observing the primary container the 
product was packaged in to determine if the retailer has accurately 
characterized the origin of the product on the shelf. This enforcement 
program is based on a presumption of truthfulness that allows the 
retailer to rely on the information printed either on the shipping 
container or on the product itself. Therefore, AMS does not believe 
this type of enforcement program could serve as a model for enforcement 
of the Federal program.

Remotely Purchased Products

    Many consumers are now purchasing products from retailers prior to 
having an opportunity to observe the final package (e.g., Internet 
sales, home delivery sales, etc.). In the voluntary guidelines (67 FR 
63367), AMS stated its belief that consumers should be made aware of 
the country of origin of a covered commodity before the purchase is 
made. Thus, under the voluntary guidelines retailers were required to 
provide the country of origin information on the sales vehicle (i.e., 
Internet site, home delivery catalog, etc.) as part of the information 
describing the covered commodity for sale.
    Numerous commenters stated that it would be nearly impossible and 
extremely impractical to have current country of origin information on 
an Internet site or catalog as this information changes rapidly 
depending on the store location or warehouse at which an order is 
processed and filled. Therefore, under this proposed rule, retailers 
must provide notification of country of origin at the time the product 
is delivered to the customer.

Recordkeeping Requirements

    The law states that the Secretary may require any person that 
prepares, stores, handles, or distributes a covered commodity for 
retail sale to maintain a verifiable recordkeeping audit trail that 
will permit the Secretary to verify compliance. As such, records and 
other documentary evidence to substantiate origin declarations and, if 
applicable, designations of wild or farm-raised, are necessary in order 
to provide retailers with credible information on which to base origin 
declarations.
    Under this proposed rule, any person engaged in the business of 
supplying a covered commodity to a retailer, whether directly or 
indirectly (i.e., distributors, handlers, etc.), would be required to 
maintain records to establish and identify the immediate previous 
source and immediate subsequent recipient of a covered commodity, in 
such a way that identifies the product unique to that transaction, for 
a period of 2 years from the date of the transaction. The supplier of a 
covered commodity that is responsible for initiating a country of 
origin declaration and, if applicable, designation of wild or farm-
raised, must possess or have legal access to records that substantiate 
that claim. For an imported covered commodity, the importer of record 
as determined by CBP, must ensure that records: (1) Provide clear 
product tracking from the U.S. port of entry to the immediate 
subsequent recipient, and (2) substantiate country of origin claims, 
and, if applicable, designations of wild or farm-raised and maintain 
such records for a period of 2 years from the date of the transaction. 
To the extent that existing records contain the necessary information 
to substantiate an origin declaration and, if applicable, designations 
of wild or farm-raised, it is not necessary to create or maintain 
additional records.
    AMS invites comment on all aspects of recordkeeping requirements. 
In particular, comment is invited on whether a shorter record retention 
requirement would still afford adequate time to conduct compliance 
activities. For example, FDA proposed a 1-year record retention 
requirement for perishable goods in their proposed rule, published on 
May 9, 2003, implementing sections of the Bioterrorism Act of 2002, and 
many firms would have to retain records for both this rulemaking and 
the FDA recordkeeping rule. At the same time, retailers and others in 
the marketing chain subject to PACA must continue to comply with its 2 
year record retention requirement.
    For suppliers that handle similar covered commodities from more 
than one country, the supplier must be able to document that the origin 
of a product was separately tracked, while in their control, during any 
production or packaging processes to demonstrate that the identity of 
the product wasmaintained.
    Under this proposed rule, retailers also have recordkeeping 
responsibilities. AMS received numerous comments requesting 
clarification of the types of records that must be kept at the retail 
level. Many of these commenters also suggested that a 2-year 
requirement for maintaining records at the store level was too onerous 
and unnecessary given the relatively short amount of time a product is 
on the shelf before it is sold. Therefore, under this proposed rule, 
records and other documentary evidence relied upon at the point of sale 
by the retailer to establish a product's country of origin and, if 
applicable, designation of wild or farm-raised, must be maintained at 
the point of sale or otherwise be reasonably available to any duly 
authorized representatives of USDA for at least 7 days following the 
retail sale of the product. Records that identify the retail supplier, 
the product unique to that transaction, and the country of origin 
information, and, if applicable, designation of wild or farm-raised, 
must be maintained for a period of 2 years from the date the origin 
declaration is made at retail. Such records may be located at the 
retailer's point of distribution, warehouse, central offices, or other 
off-site location.
    AMS invites comment on all aspects of recordkeeping requirements. 
In particular, comment is invited on whether a shorter record retention 
requirement would still afford adequate time to conduct compliance 
activities. For example, FDA proposed a 1-year record retention 
requirement for perishable goods in their proposed rule, published on 
May 9, 2003, implementing sections of the Bioterrorism Act of 2002, and 
many firms would have to retain records for both this rulemaking and 
the FDA recordkeeping rule. At the same time, retailers and others in 
the marketing chain subject to PACA must continue to comply with its 2 
year record retention requirement.
    AMS also received numerous comments from retailers emphasizing the 
need to hold retail suppliers accountable as the retailer would be 
unable to determine a product's country of origin in the absence of 
credible information from thesupplier. Under the statute, suppliers of 
covered commodities are required to supply country of origin 
information to retailers and sanctions may be assessed against 
retailers only for willful violations.
    However, to help address the concerns of retailers, AMS invites 
further comment on the practicality of requiring suppliers to provide 
an affidavit for each transaction to the immediate subsequent recipient 
certifying that the country of origin claims and, if applicable, 
designations of wild or farm-raised, being made are truthful and that 
the required records are being maintained.

[[Page 61952]]

Enforcement

    The law encourages the Secretary to enter into partnerships with 
States to the extent practicable to assist in the administration of 
this program. As such, USDA will seek to enter into partnerships with 
States that have enforcement infrastructure to conduct retail 
compliance reviews.
    Routine compliance reviews may be conducted at retail 
establishments and associated administrative offices, and suppliers 
subject to these regulations. USDA would coordinate the scheduling and 
determine the procedures for reviews. Only USDA will be able to 
initiate enforcement actions against a person found to be in violation 
of the law. USDA may also conduct investigations of complaints made by 
any person alleging violations of these regulations when the Secretary 
determines that reasonable grounds for such investigation exist.
    Retailers, upon being notified of the commencement of a compliance 
review, must make all records or other documentary evidence material to 
this review available to USDA representatives and provide any necessary 
facilities for such inspections.
    AMS invites further comment on all aspects of enforcement of this 
retail labeling rule. Specific comment is requested on the implications 
of the statutory mandate for retail labeling beginning September 30, 
2004, relative to the amount of lead time necessary for firms in the 
supply chain to comply with this rule.

Violations

    The law contains enforcement provisions for both retailers and 
suppliers that include civil penalties of up to $10,000 for each 
violation. For retailers, the law states that if the Secretary 
determines that a retailer is in violation of the Act, the Secretary 
must notify the retailer of the determination and provide the retailer 
with a 30-day period during which the retailer may take necessary steps 
to comply. If upon completion of the 30-day period the Secretary 
determines the retailer has willfully violated the Act, after providing 
notice and an opportunity for a hearing, the retailer may be fined not 
more than $10,000 for each violation.
    AMS received numerous comments requesting a clarification as to how 
AMS will apply the standard of willfulness. These commenters urge USDA 
to recognize that if a majority of covered commodity items bear a label 
indicating the product's country of origin, the retailer has met their 
obligation under these regulations. AMS recognizes that many suppliers, 
particularly in the case of produce, will apply stickers to individual 
covered commodities indicating the country of origin and that such 
labeling technology does not result in a 100 percent adhesion level. 
AMS also recognizes that consumers may separate hands of bananas that 
may only have one or two stickers per hand or otherwise move an item 
from one bin to another as they make their selections. AMS will take 
these and all other circumstances into account in determining whether 
or not a retailer has committed a willful violation.
    In addition to the enforcement provisions contained in the Act, 
statements regarding a product's origin must also comply with other 
existing Federal statutes. For example, if a firm misrepresents the 
State, country, or region of origin of a perishable agricultural 
commodity, the firm is in violation of PACA. In addition, both FMIA and 
the Federal Food, Drug, and Cosmetic Act prohibit labeling that is 
false or misleading. Thus, inaccurate country of origin labeling of 
covered commodities may lead to additional penalties under these 
statutes as well.

Executive Order 12988

    The contents of this proposed rule were reviewed under Executive 
Order 12988, Civil Justice Reform. This rule is not intended to have a 
retroactive effect. States and local jurisdictions are preempted from 
creating or operating country of origin labeling programs for the 
commodities specified in the Act and these regulations. With regard to 
other Federal statutes, all labeling claims made in conjunction with 
this regulation must be consistent with other applicable Federal 
requirements. Further, the Act does not restrict or modify the 
authority of the Secretary to administer or enforce FMIA(21 U.S.C. 601 
et seq.) or PACA (7 U.S.C. 499 et seq.). There are no administrative 
procedures that must be exhausted prior to any judicial challenge to 
the provisions of this rule.

Civil Rights Review

    AMS has considered the potential civil rights implications of this 
rule on minorities, women, or persons with disabilities to ensure that 
no person or group shall be discriminated against on the basis of race, 
color, national origin, gender, religion, age, disability, sexual 
orientation, marital or family status, political beliefs, parental 
status, or protected genetic information. This review included persons 
that are employees of the entities that are subject to these 
regulations. This proposed rule does not require affected entities to 
relocate or alter their operations in ways that could adversely affect 
such persons or groups. Further, this proposed rule would not deny any 
persons or groups the benefits of the program or subject any persons or 
groups to discrimination.

Executive Order 13132

    This proposed rule has been reviewed under Executive Order 13132, 
Federalism. This Order directs agencies to construe, in regulations and 
otherwise, a Federal statute to preempt State law only where the 
statute contains an express preemption provision or there is some other 
clear evidence to conclude that the Congress intended preemption of 
State law, or where the exercise of State authority conflicts with the 
exercise of Federal authority under the Federal statute. This proposed 
rule is required by the Farm Bill. While this statute does not contain 
an express preemption provision, it is clear from the language in the 
statute that Congress intended preemption of State law.
    Several States have implemented mandatory programs for country of 
origin labeling of certain commodities. For example, Alabama, Arkansas, 
Mississippi, and Louisiana have origin labeling requirements for 
certain seafood products. Other States including Wyoming, Idaho, North 
Dakota, South Dakota, Louisiana, Kansas, and Mississippi have origin 
labeling requirements for certain meat products. In addition, the State 
of Florida and the State of Maine have origin labeling requirements for 
fresh produce items.
    To the extent that these State country of origin labeling programs 
encompass commodities which are not governed by this regulation, the 
States may continue to operate them. With regard to consultation with 
States, as directed by the law, AMS has consulted with the States that 
have country of origin labeling programs. Further, State officials were 
invited to attend, and in many cases did participate in, the 12 
educational and listening sessions AMS held across the United States. 
Further, States are expressly invited to comment on this proposed rule 
as it relates to existing State programs.

Executive Order 12866

    USDA has examined the economic impact of this proposed rule as 
required by Executive Order 12866. USDA has determined that this 
regulatory action is economically significant, as it is likely to 
result in a rule that would have an annual effect on the economy of 
$100 million or more and therefore has been reviewed by OMB. Executive 
Order

[[Page 61953]]

12866 requires that a regulatory cost-benefit assessment be performed 
on all economically significant regulatory actions. In accordance with 
Executive Order 12866, this preliminary economic impact assessment 
contains a statement of need for the proposed rule, an examination of 
alternative approaches, and an analysis of benefits and costs.

Summary of the Economic Analysis

    The estimated benefits associated with this rule are likely to be 
negligible. The estimated first-year incremental cost for growers, 
producers, processors, wholesalers, and retailers ranges from $582 
million to $3.9 billion. The estimated cost to the U.S. economy in 
higher food prices and reduced food production in the tenth year after 
implementation of the rule ranges from $138 million to $596 million.
    Note that this analysis does not quantify certain costs of the 
proposed rule such as the cost of the rule after the first year, or the 
cost of any supply disruptions or any other ``lead-time'' issues. 
Except for the recordkeeping requirements, there is insufficient 
information to distinguish between first year start up and maintenance 
costs versus ongoing maintenance costs for this proposed rule. 
Maintenance costs beyond the first year are expected to be lower than 
the combined start up and maintenance costs required in the first year. 
AMS invites further comment on start up costs and maintenance costs for 
the first year and beyond for firms directly affected by this proposed 
rule.
    USDA finds little evidence that consumers are willing to pay a 
price premium for country of origin labeling. USDA also finds little 
evidence that consumers are likely to increase their purchase of food 
items bearing the U.S. origin label as a result of this rulemaking. 
Current evidence does not suggest that U.S. producers will receive 
sufficiently higher prices for U.S.-labeled products to cover the 
labeling, recordkeeping, and other related costs. The lack of 
participation in voluntary programs for labeling products of U.S. 
origin provides evidence that consumers do not have a strong preference 
for country of origin.

Statement of Need

    This proposed rule is the direct result of statutory obligations to 
implement the COOL provisions of the Farm Bill, which amended the Act 
by adding Subtitle D--Country of Origin Labeling. There are no 
alternatives to Federal regulatory intervention for implementing this 
statutory directive.
    The country of origin labeling provisions of the Farm Bill change 
current Federal labeling requirements for muscle cuts of beef, pork, 
and lamb; ground beef, ground pork, and ground lamb; farm-raised fish; 
wild fish; perishable agricultural commodities; and peanuts (hereafter, 
covered commodities). Under current Federal laws and regulations, 
country of origin labeling is not universally required for covered 
commodities. In particular, labeling of U.S. origin is not mandatory, 
and labeling of imported products at the consumer level is required 
only in certain circumstances.
    The Tariff Act, FMIA, and other legislation require most imports to 
bear labels informing the ``ultimate purchaser'' of the country of 
origin. ``Ultimate purchaser'' is defined as the last U.S. person who 
will receive the article in the form in which it was imported. The 
Tariff Act requires country of origin declarations on containers (e.g., 
cartons and boxes) holding imported fresh fruits and vegetables when 
entering the United States. Under the provisions of this statute, loose 
produce in a labeled container can be displayed and sold in an open bin 
at retail outlets without country of origin labels on each individual 
piece of produce. A placard or other bin label indicating country of 
origin is not required. If the produce in a shipping container is 
packed in consumer-ready packaging, however, those packages must bear a 
country of origin declaration. For example, grapes packaged in bags or 
shrink-wrapped English cucumbers must have country of origin labels on 
each consumer-ready package. Further, if the food item is destined for 
a U.S. processor or manufacturer where it will undergo ``substantial 
transformation,'' that processor or manufacturer is considered the 
ultimate purchaser. As a result, under the Tariff Act, these covered 
commodities are not required to carry a country of origin mark after 
processing in the United States.
    The strongest case for establishing a market failure justification 
for mandatory COOL is inadequate or asymmetric information. Country of 
origin is clearly a credence attribute, which means that consumers 
cannot observe the attribute before or after purchasing the product. 
Without labeling, there is no way for consumers to know the country of 
origin of a covered commodity. If the country of origin of the 
commodities covered by this proposed rule is an attribute desired by 
consumers and there is market failure that impedes the voluntary 
provision of this information, then market efficiency could be improved 
by providing credible information to consumers. With credible country 
of origin information, consumers could select products based on their 
preferences for country of origin, and the food industry could respond 
to consumer demand signals by providing products according to the 
expressed demands of consumers.
    Consumer surveys indicate that some consumers desire country of 
origin information on foods (Refs. 1, 2, and 3). The consumer surveys 
also indicate that consumers may desire COOL not out of any intrinsic 
value they place knowing the country of origin, but because it 
represents to them a proxy for product safety or quality, serves as an 
indicator of desirable environmental or labor practices, or represents 
a means for them to support U.S. or another country's producers.
    An important question to consider in weighing the economic basis 
for mandatory COOL is whether there are any barriers to the voluntary, 
private provision of the optimal level of country of origin 
information. Private costs incurred by firms in the supply chain 
represent the primary barrier to the voluntary provision of country of 
origin information. There are no significant regulatory barriers to the 
voluntary provision of this information.
    For the market to voluntarily provide credible country of origin 
declarations, information regarding country of origin must flow between 
firms involved in all stages of the food supply chain. Just as it is 
for consumers, country of origin information is a credence attribute 
for firms in the food supply chain. Firms must incur costs to provide 
credible country of origin information. If the increase in price firms 
in the supply chain expect to receive for providing consumers with 
country of origin information is less than the cost of providing it, 
then firms will not voluntarily incur the costs of providing this 
information.
    If there were profits to be made from country of origin labeling, 
there would be strong incentives for firms to advertise and market 
country of origin labeled foods. Firms in the food supply chain would 
not be expected to forgo opportunities for additional profits. 
Retailers would demand that food manufacturers supply them with 
products having verifiable origin information. If consumers favored 
product by origin, food manufacturers would demand food commodities 
specifying origin and verifiable origin information.
    U.S. farmers and fish harvesters could benefit financially from 
country of origin labels if consumers prefer domestic products to 
imports. In this

[[Page 61954]]

case labels would allow consumers to distinguish between imports and 
domestic products and make their choices accordingly. As a result, 
demand for domestic food products in the United States would rise along 
with domestic food prices. Further, domestic products would increase 
their market share relative to imports. However, if consumers do not 
generally prefer domestic products, labeling would confer little to no 
economic benefits to domestic producers.
    Overall, there does not appear to be a compelling market failure 
argument regarding the provision of country of origin information. 
There appear to be no barriers to the provision of this information 
other than private costs to firms in the supply chain and low expected 
returns. Firms that would incur private costs to provide country of 
origin information would also enjoy the private benefits, if any, from 
consumer demand for the information. Thus, from the point of view of 
society, market mechanisms would ensure that the optimal level of 
country of origin information would be provided.

Alternative Approaches

    Many aspects of the mandatory COOL provisions of Pub. L. 107-171 
are prescriptive and provide little regulatory discretion for this 
proposed rulemaking. The law requires a statutorily defined set of food 
retailers to label covered commodities regarding their country of 
origin. The law also prohibits USDA from using a mandatory 
identification system to verify the country of origin of covered 
commodities. In its guidance for conducting analyses of regulatory 
benefits and costs, OMB suggests several categories of alternative 
approaches that agencies should consider during their analysis. 
Applicable categories of alternative approaches for this proposed rule 
are discussed below.
    Different requirements for different segments of the regulated 
population: The mandatory COOL law explicitly defines the retailers 
required to provide country of origin labeling for covered commodities 
(namely, retailers as defined by PACA). Thus, there is no discretionary 
authority for designating which retailers are subject to the COOL 
labeling requirements. The law also requires that any person supplying 
a covered commodity to a retailer provide information to the retailer 
indicating the country of origin of the covered commodity. Again, the 
law provides no discretionary authority to this requirement.
    Neither the law nor the proposed rule requires that any entity that 
produces or supplies covered commodities must market those commodities 
to retailers as defined by the law. Suppliers of covered commodities 
could completely avoid the requirements of this proposed rule by 
distributing their products through channels other than to the 
retailers subject to the law. Examples include retailers not subject to 
the law, foodservice firms, or exports.
    The proposed rule does not require specific types of recordkeeping 
systems. Thus, retailers and suppliers of covered commodities will be 
able to develop their own least-cost systems to implement COOL 
requirements. For example, one firm may depend primarily on manual 
identification and paper recordkeeping systems, while another may adopt 
automated identification and electronic recordkeeping systems.
    Alternative levels of stringency: USDA interprets the law as 
providing essentially no discretionary authority for providing 
alternative levels of stringency regarding the provision of country of 
origin information for covered commodities by retailers as defined by 
the statute. That is, retailers either provide the required country of 
origin information to their customers or they do not, which provides no 
scope for alternative levels of stringency. There is, however, some 
degree of discretionary authority with regard to how the required 
information may be substantiated and how USDA may enforce the law and 
ensure compliance with this proposed rule.
    USDA received numerous comments suggesting self-certification as a 
means to identify country of origin, particularly for producers. USDA 
does not consider self-certification alone, absent records to 
substantiate the information, as a viable or credible alternative for 
compliance with this proposed rule. In addition, with no mechanism to 
verify compliance, such a system could be highly vulnerable to 
misrepresentation. USDA believes that some type of certification could 
be used as a means to transfer country of origin information from one 
level of the supply chain to the next, but such certification would 
need to be supported by adequate documentation to verify country of 
origin claims.
    An alternative to the proposed recordkeeping requirements would be 
to supplement the recordkeeping requirements with required affidavits 
attesting to the veracity of country of origin claims. Suppliers could 
be required to provide an affidavit for each transaction to the 
immediate subsequent recipient certifying that the country of origin 
claims and, if applicable, designations of wild or farm-raised, being 
made are truthful and that the required records are being maintained. 
This system of providing affidavits could provide enhanced assurance 
that each participant in the supply chain is fully accountable for 
providing valid country of origin claims.
    Alternative effective dates of compliance: The law states that 
country of origin labeling shall apply to the retail sale of a covered 
commodity beginning September 30, 2004. USDA interprets this 
requirement as providing no discretionary authority for alternative 
effective dates of compliance.
    Alternative methods of ensuring compliance: Country of origin 
labeling is, by its very nature, an information-based activity. Thus, 
USDA believes that there are essentially no alternatives for verifying 
compliance other than through the use of an audit-based system to 
review the information which is both generated to substantiate country 
of origin claims and passed along the supply chain. USDA is precluded 
by law from implementing any mandatory system that might be used to 
verify country of origin information.
    In terms of compliance activities, the law states that USDA shall, 
to the maximum extent practicable, enter into partnerships with States 
having enforcement infrastructure to assist in the administration of 
the law. USDA will seek to enter into such partnerships with States 
where possible to conduct compliance activities at retail 
establishments. Because suppliers of covered commodities are often 
located outside of a particular State's boundaries and jurisdictions, 
USDA concludes that it would be most practicable for States to focus 
their enforcement activities on entities in the supply chain within 
their boundaries.
    Informational measures: Providing information to consumers is the 
intent of this proposed rule and is the chosen regulatory alternative.
    More market-oriented approaches: There is no regulatory alternative 
to implementation of mandatory COOL by the statutorily specified 
retailers. The proposed rule, however, provides flexibility in allowing 
market participants to decide how best to implement mandatory COOL in 
their operations.
    Considering specific statutory requirements: Within the parameters 
established by the legislation, one area which allows for regulatory 
discretion relates to the definition of an ingredient in a processed 
food item. The legislation provides that the term ``covered commodity'' 
does not include an item

[[Page 61955]]

``if the item is an ingredient in a processed food item.'' The 
legislation does not, however, define a processed food item, nor what 
constitutes an ingredient in a processed food item. Therefore, 
alternative definitions of a processed food item are possible. The 
scope of commodities, or number of items, covered by the proposed rule 
changes under alternative definitions of a processed food item.

Analysis of Benefits and Costs

    The baseline for this analysis is the present state of the affected 
industries absent mandatory COOL. USDA recognizes that some directly 
affected firms have already begun to implement changes in their 
operations to accommodate the law and the expected requirements of this 
proposed rule. The benefits and costs examined in the analysis 
represent incremental impacts relative to their state prior to any 
changes resulting from the mandatory COOL statute or this proposed 
rule. If consumers would pay extra for the certainty that their food 
was produced in a particular country, and if labeling is relatively 
inexpensive, there is an economic incentive to make consumers aware of 
this product characteristic. Retailers, food manufacturers, and 
producers would share the increased net revenues and have an incentive 
to voluntarily label. Given that retailers and food manufacturers have 
the greatest incentive to be informed about what consumers desire, the 
fact that they do not currently provide country of origin information 
to consumers on a widespread basis suggests that they believe that the 
costs of labeling outweigh the returns.
    Some analysts argue that country of origin information does not 
matter to U.S. consumers (See, for example, Ref. 4). Freshness, 
quality, price, and other factors may be more important to consumers 
than country of origin. If country of origin does not influence demand, 
there is no incentive to provide country of origin labels. Retailers or 
food manufacturers providing country of origin labels would incur 
labeling costs (including the cost of segregating domestic and imported 
products) but receive no corresponding benefits. Even if consumers do 
favor labeled products over unlabeled products, labeling costs may 
outweigh the increase in market returns from increased demand and 
prices.
    In any event, economic efficiency of mandatory COOL will be 
maximized by implementing the program so that it reduces the cost of 
providing this information as much as possible.
    Benefits: The expected benefits from implementation of this rule 
are difficult to quantify. However, we believe that the benefits will 
be small and will accrue mainly to those consumers who desire country 
of origin information. We find little evidence to support the notion 
that consumers' stated preferences for country of origin labeling will 
lead to increased demands for covered commodities bearing the U.S.-
origin label.
    There is considerable research indicating that a majority of 
consumers have at least some interest in their food's origin, and a 
smaller but significant proportion of consumers that have a strong 
desire to know where their food was produced. However, this research 
indicates that consumer desire for country of origin labeling stems 
primarily from their concerns about the safety of the food they eat. To 
a lesser extent, this research indicates that consumer desire for 
country of origin labeling stems from concerns about the quality and 
freshness of products and a preference to support U.S. producers.
    There is less research on how much consumers would pay to know the 
origin of the food they eat. Some recently conducted surveys, however, 
report that 71 percent to 73 percent of consumers are willing to pay 
more to know the origin of their food (Refs. 1 and 2). Measures of 
willingness to pay, however, do not necessarily translate directly into 
measures of what consumers would actually pay when faced with 
marketplace decisions.
    One frequently cited study, Umberger, et al. (Ref. 2) assessed 
consumers' willingness to pay for labeled beef of U.S. origin. They 
found that 73 percent of survey participants in Denver, Colorado, and 
Chicago, Illinois, were willing to pay premiums of 11 percent or more 
for steak and 24 percent or more for ground beef when labeled as beef 
of U.S.-origin. These findings have been cited by others as an 
indicator of the potential benefits that would accrue from country of 
origin labeling.
    For example, using the average amounts that consumers were willing 
to pay for U.S.-labeled beef from the Umberger, et al. study, 
VanSickle, et al. (Ref. 5) estimated that benefits to consumers for 
country of origin labeling of fresh beef muscle cuts and ground beef 
would equal $5.8 billion per year based on recent per-capita 
consumption figures and price data for January and February 2003. We 
believe, however, that this estimate is based on an inappropriate use 
of the results from the Umberger, et al. study.
    There are several limitations with the willingness-to-pay studies 
that call into question the appropriateness of using this approach to 
make determinations about the benefits of this proposed rule. First, 
consumers in such studies often overstate their willingness to pay for 
a product. This typically happens because survey participants are not 
constrained by their normal household budgets when they are deciding 
which product or product feature they most value. In the case of the 
Umberger, et al. study, consumers ranked the importance of country of 
origin information 8th out of 17 factors, with food safety and 
freshness receiving the highest rankings. This suggests that, when 
faced with a real budget constraint, consumers might actually be 
willing to pay considerably less for the country of origin information 
than they indicate when surveyed.
    Second, in most of these willingness-to-pay studies, consumers are 
not faced with the actual choices they would face at retail outlets. 
For example, consumers in the Umberger, et al. study were only faced 
with making a hypothetical choice between U.S. beef and generic beef. 
Under the proposed rule, however, they may be faced with choosing 
between U.S. beef, beef from several other specific countries, and beef 
from a mixture of countries including the United States. In addition, 
the labels they see in the store will contain information about price 
and quality that may also affect the value they place on country of 
origin information. Visual characteristics and presentation of products 
in the store would also influence choice in addition to label 
information.
    Third, consumers' willingness-to-pay as elicited from a survey is a 
function of the questions asked. Different questionnaires will yield 
different results. For example, if consumers were told that nearly all 
of the beef they currently consume came from the United States before 
they were asked about their willingness to pay for U.S.-labeled beef, 
the strength of their preference for origin information would probably 
be less than if consumers were not told about the correct origin of the 
beef they consume.
    Finally, the results reported from these studies do not take into 
account changes in consumers' preferences for a particular product or 
product attribute over time. While consumers may be willing to pay more 
for a given attribute initially, as time goes on and they gain more 
experience with the product attribute, they may be less willing to pay 
for products with this attribute.
    The authors of the Umberger, et al. study acknowledge many of these 
limitations (Ref. 6). They state that the

[[Page 61956]]

results obtained from these types of surveys do not always predict 
consumer behavior. They also state that because of the limitations 
inherent in willingness-to-pay studies, the results of their study 
should not be used to determine the economic impact of COOL.
    This is not to say that willingness-to-pay studies, such as the 
study conducted by Umberger, et al., are not useful. They are valuable 
for improving our understanding of consumer preferences for product 
characteristics. The results of these studies support the notion that 
at least some consumers desire this information and are willing to pay 
some amount for it.
    With respect to agricultural producer benefits, even if consumers 
are willing to pay more for U.S.-labeled products, this does not 
necessarily mean that U.S. producers would benefit from an increase in 
the demand for their products. U.S. producers will only benefit if the 
country of origin labeling increases demand and ultimately the farm 
price enough to cover producers' costs of labeling itself. Current 
evidence on country of origin labeling, however, does not suggest that 
U.S. producers will receive sufficiently higher farm prices for U.S.-
labeled products to cover the costs of labeling. Moreover, it is even 
possible that producers could face lower farm prices as a result of 
labeling costs being passed back from retailers and processors.
    For the past 3 years, FSIS and AMS have offered a voluntary program 
by which suppliers can place U.S.-origin declarations (certified to be 
accurate by USDA) on many of the meat products covered by this rule. 
However, no suppliers of these covered commodities have participated in 
this program.
    The lack of participation in government-provided programs for 
labeling products of U.S. origin provides evidence that consumers do 
not have a strong preference for country of origin labeling. At the 
very least it indicates that retailers and food manufacturers do not 
believe consumer preferences for country of origin information are 
strong enough to cause demand and prices for labeled products to 
increase sufficiently to pay for the costs of implementing a labeling 
program.
    We can see what happens when consumers do have a strong desire for 
labeling by contrasting the lack of participation in the U.S.-origin 
labeling programs to the high level of participation in the organic 
labeling program. Labeling provided under the organic program provides 
compelling evidence that processors and retailers will provide 
consumers with the information they desire when they believe that 
consumers have a strong preference for this information and are willing 
to pay for it.
    Some may point to the fact that many of the commodities covered by 
this rule are already labeled as to country of origin as proof that 
consumers do desire this information. The existence of country of 
origin information by itself, however, does not indicate that consumers 
place any value on this information. For many covered commodities, the 
cost of identifying country of origin is minimal, and producers and 
processors face little added expense in differentiating their product 
from others by country of origin.
    The primary indication of the strength of consumer preference for 
country of origin information would be whether processors and retailers 
were able to extract a price premium for promoting this information. 
While many products sold by retailers have country of origin labels, 
there appear to be far fewer of these products that retailers attempt 
to sell based on this information. Even when they do, there is little 
evidence that they are able to extract a premium for country of origin 
information.
    The results from consumer surveys provide additional evidence that 
country of origin labeling may not lead to higher demand and prices for 
U.S.-labeled products. The results from these surveys indicate that the 
number of consumers with strong preferences for U.S.-origin labeled 
products is not sufficient for U.S. producers to benefit from labeling. 
This occurs because the supply of U.S.-origin products is likely to 
exceed the total quantity demanded by those who would pay a higher 
price for U.S. origin products (see, for example, Ref. 7).
    While consumers often state a preference for country of origin 
information, they also indicate that they desire this information 
because they believe it provides them with important information about 
the safety of their food. This suggests that consumers may use country 
of origin labeling as a proxy for food safety information.
    Country of origin labeling, as formulated under the proposed rule, 
does not provide valid information regarding food safety. This is 
because the proposed rule does not provide the traceability required to 
permit the government to rapidly respond to a contamination or disease 
outbreak.
    Furthermore, the country of origin information provided under this 
rule could cause some consumers to incorrectly attribute greater risks 
to products from a specific country than is justified. If this 
sentiment causes enough consumers to avoid this product and 
consequently pay a higher price for a competing country's product, the 
result would lead to a decline in consumer welfare.
    Costs: To estimate the costs of this proposed rule, USDA employed a 
two-pronged approach. First, USDA estimated implementation costs for 
firms in the industries directly affected by the proposed rule. The 
implementation costs on directly affected firms represent increases in 
capital, labor, and other input costs that firms will incur to comply 
with the requirements of the proposed rule. These costs are expenses 
that these particular firms must incur, but are not necessarily costs 
to the U.S. economy as measured by the value of goods and services that 
are produced. USDA then applied the implementation cost estimates to a 
general equilibrium model to estimate overall impacts on the U.S. 
economy after a 10-year period of economic adjustment. The model 
provides a means to estimate the change in overall consumer purchasing 
power after the economy has adjusted to the requirements of the 
proposed rule.
    To develop its estimates of implementation costs, USDA drew upon 
available studies, comments and testimony received on the voluntary 
COOL guidelines and this rulemaking, and its knowledge of the affected 
industries. USDA developed a range of estimated implementation costs to 
reflect the likely range of first-year costs for directly affected 
firms. At a minimum, all directly affected firms will need to comply 
with the recordkeeping requirements of the proposed rule. Thus, the 
lower range of incremental cost estimates reflect the costs to modify 
and maintain current recordkeeping systems. USDA believes, however, 
that firms will incur other capital and operational costs to comply 
with the proposed rule. For example, firms may need to modify their 
production, storage, distribution, and handling systems to enable 
country of origin information to be tracked and maintained from start 
to finish. Thus, the upper range of incremental cost estimates reflect 
not only additional recordkeeping costs, but also additional payments 
by the directly affected firms for capital, labor, and other expenses 
that will be incurred as a result of operational changes to comply with 
the proposed rule.
    Estimated first-year incremental costs for directly affected firms 
range from $582 million to $3.9 billion. Estimated costs per firm range 
from $180 to $443 for producers, $4,048 to $50,086 for intermediaries 
(such as handlers,

[[Page 61957]]

importers, processors, and wholesalers), and $49,581 to $396,089 for 
retailers. Although the estimated incremental costs represent 
additional payments individual firms will incur to comply with the 
proposed rule, the sum of such payments does not represent the overall 
impacts of the proposed rule on the entire U.S. economy.
    In effect, these incremental costs represent increases in the costs 
of production for the affected firms. Firms will need to recover these 
costs to stay in business in the long run. To do this, firms will 
either pass the higher costs back to their suppliers by paying lower 
prices for inputs or pass the higher costs forward to their customers 
by charging higher prices for outputs. The directly affected industries 
as well as other, indirectly affected sectors of the economy will thus 
adjust over the longer run to the higher costs imposed by the proposed 
rule.
    To estimate the overall impacts of the higher costs of production 
resulting from the proposed rule, USDA used a model of the entire U.S. 
economy. USDA adjusted the model by imposing the estimated 
implementation costs on the directly impacted segments of the economy 
in a computable general equilibrium model developed by the USDA's 
Economic Research Service (ERS). The model estimates changes in prices, 
production, exports, and imports as the directly impacted industries 
adjust to higher costs of production over the longer run (namely, 10 
years). Because the model covers the whole U.S. economy, it also 
estimates how other segments of the economy adjust to changes emanating 
from the directly affected segments and the resulting change in overall 
productivity of the economy.
    Annual costs to the U.S. economy in terms of reduced purchasing 
power resulting from a loss in productivity after a 10-year period of 
adjustment are estimated to range from $138 million to $596 million. 
Domestic production for all of the covered commodities at the producer 
and retail levels is estimated to be lower and prices to be higher. In 
percentage terms, however, the production declines are larger than the 
price increases, so estimated industry revenue declines for all of the 
covered commodities. In addition, U.S. exports are estimated to 
decrease for all covered commodities, and U.S. imports also are 
estimated to decrease for all covered commodities except fish, which 
shows no change to a slight increase.
    It may appear counterintuitive to have first-year incremental costs 
ranging from $582 million to $3.9 billion for directly impacted firms, 
but smaller overall costs ranging from $138 million to $596 million in 
reduced consumers' purchasing power after 10 years of adjustment. 
Nonetheless, these results are consistent with each other.
    Directly affected firms incur additional costs to implement the 
requirements of the proposed rule, which take the form of additional 
payments for capital, labor, and other operating expenses. For the most 
part, however, such additional expenses for directly affected firms 
ultimately return to the economy. For example, additional human 
resource costs incurred to develop and maintain recordkeeping systems, 
segregate and display product properly, and so forth are also wages 
that will be spent on food, transportation, housing, and other goods 
and services in the economy. Likewise, capital costs for warehouse 
reconfiguration or changes in processing plants involve equipment and 
supplies purchased from firms that pay wages, purchase raw materials, 
and supply goods and services. Thus, the implementation costs incurred 
by directly affected firms are not entirely lost to the economy, but 
these incremental costs do increase the costs of production and 
decrease the productivity of the affected industries.
    The findings indicate that directly affected industries recover the 
higher costs imposed by the proposed rule through slightly higher 
prices for their products. With higher prices, the quantities of their 
products demanded also decline to the extent that total industry 
revenues also decline. Consumers pay slightly more for the products and 
purchase less of the covered commodities. Overall, however, the covered 
commodities account for a comparatively small portion of the U.S. 
economy and of consumers' budgets. Thus, the ``deadweight'' economic 
burden of the proposed rule is considerably smaller than the 
incremental costs to directly affected firms. The remainder of this 
section describes in greater detail how USDA developed the estimated 
direct, incremental costs and the overall costs to the U.S. economy.
    Cost assumptions: The industries directly affected by this proposed 
rule are those responsible for producing and marketing the covered 
commodities at retail stores as defined by the law. Consumers of the 
covered commodities at these retail outlets are also directly affected 
by this proposed rule.
    This proposed rule directly regulates the activities of retailers 
(as defined by the law) and their suppliers. Retailers are required by 
the proposed rule to provide country of origin information for the 
covered commodities that they sell, and firms that supply covered 
commodities to these retailers must provide them with this information. 
In addition, all other firms in the supply chain for the covered 
commodities are potentially affected by the proposed rule because 
country of origin information will need to be maintained and 
transferred along the entire supply chain to enable retailers to 
correctly label the products at the point of final sale.
    In general, the supply chains for the covered commodities consist 
of farm or fishing operations, processors, wholesalers, and retailers. 
Table 1 contains a listing of the number of entities in the supply 
chains for each of the covered commodities.
    The total cost of this proposed rule will depend on the number of 
entities affected and the incremental cost to each affected firm in the 
supply chain for the covered commodities. The proposed rule requires 
that retailers provide consumers with country of origin information for 
the covered commodities and also requires that their suppliers provide 
them with the information needed to substantiate these country of 
origin claims. To provide credible country of origin claims, firms in 
the supply chain will need to create, maintain, and transfer 
information from one level of the chain to the next. The proposed rule 
allows industry participants to determine the recordkeeping and 
information transfer mechanisms needed for compliance. Consequently, 
firms will modify existing recordkeeping systems and business practices 
as necessary to ensure compliance with the proposed rule.
    Number of firms and number of establishments affected: USDA 
estimates that approximately 1,377,000 establishments owned by 
approximately 1,339,000 firms would be either directly or indirectly 
affected by this rule. In general, the supply chain for each of the 
covered commodities includes agricultural producers or fish harvesters, 
processors, wholesalers, and retailers. Imported products may be 
introduced at any level of the supply chain. Other intermediaries, such 
as auction markets, may be involved in transferring products from one 
stage of production to the next. Table 1 provides estimates of the 
affected firms and establishments.

[[Page 61958]]



             Table 1.--Estimated Number of Affected Entities
------------------------------------------------------------------------
                    Type                        Firms     Establishments
------------------------------------------------------------------------
Beef, Lamb, and Pork:
    Cattle and Calves......................    1,032,670      1,032,670
    Sheep and Lambs........................       64,170         64,170
    Hogs and Pigs..........................       67,150         67,150
    Stockyards, Dealers & Market Agencies..        7,775          7,775
    Livestock Processing & Slaughtering....        3,098          3,358
    Meat & Meat Product Wholesale..........        3,185          3,305
Fish:
    Farm-Raised Fish and Shellfish.........        3,540          3,540
    Fishing................................       76,499         76,452
    Seafood Product Preparation & Packaging          741            823
    Fish & Seafood Wholesale...............        2,897          2,980
Perishable Agricultural Commodities:
    Fruits & Vegetables....................       47,986         47,986
    Frozen Fruit, Juice & Vegetable Mfg....          163            257
    Fresh Fruit & Vegetable Wholesale......        9,026         12,879
Peanuts:
    Peanut Farming.........................       12,221         12,221
    Roasted Nuts & Peanut Butter Mfg.......          140            159
    Peanut Wholesalers.....................           83             83
General Line Grocery Wholesalers...........        3,183          3,993
Retailers..................................        4,512         37,176
                                            --------------
          Totals:
              Producers....................    1,303,846      1,303,799
              Intermediaries...............       30,291         35,612
              Retailers....................        4,512         37,176
                                            --------------
                   Grand Total.............    1,338,649      1,376,587
------------------------------------------------------------------------

    Supply chains for the covered commodities are mostly specialized 
from farm production through manufacturing levels. After manufacturing, 
the degree of specialization diminishes, until products reach retail 
outlets where most affected retailers sell many of the covered 
commodities. Even after manufacturing, however, there are specialized 
wholesalers who distribute the products to retail outlets. Firms and 
establishments that specialize in the production and distribution of 
each covered commodity are listed within each group. General-line 
wholesalers and retailers that handle several of the covered commodity 
groups are listed separately at the bottom of the table.
    For all covered commodities, the numbers of manufacturing and 
wholesaling establishments are estimated from the 2001 County Business 
Patterns (Ref. 8) and the 2000 Statistics of U.S. Businesses (Ref. 9). 
An establishment is a single physical location where business is 
conducted or where services or industrial operations are performed. A 
firm is a business organization consisting of one or more domestic 
establishments in the same industry that was specified under common 
ownership or control. The firm and the establishment are the same for 
single-establishment firms. County Business Patterns and Statistics of 
U.S. Businesses report data for companies with at least one paid 
employee.
    Nonemployer Statistics are also reported by the U.S. Census Bureau 
(Ref. 10). Nonemployer Statistics reports data for companies with no 
paid employees, such as independent contractors. Because nonemployer 
businesses are generally very small, we assume that nonemployer 
manufacturing and wholesaling businesses do not supply commodities to 
retailers of the size covered by this proposed rule (i.e., retailers 
selling fresh and frozen fruits and vegetables with an invoice value of 
at least $230,000). Such small businesses likely are engaged in 
localized specialty operations that would not supply larger retailers. 
Therefore, nonemployer businesses are not included in the assessment of 
the firms and establishments impacted by the proposed rule. We invite 
comments on the validity of this assumption.
    We assume that all firms and establishments identified in Table 1 
will be impacted by the proposed rule, although some may not produce or 
sell products ultimately within the scope of the proposed rule. While 
this assumption likely overstates the number of affected firms and 
establishments, we believe that the assumption is reasonable. Detailed 
data on the number of entities categorized by the marketing channels in 
which they operate and the specific products that they sell are not 
available.
    Beef, lamb, and pork: USDA estimates that there are 1,032,670 
operations with cattle and calves (Ref. 11), 64,170 operations with 
sheep and lambs (Ref. 12), and 67,150 operations with hogs and pigs 
(Ref. 13). For farming operations, the firm and the establishment are 
considered to be one and the same. We assume that all of these 
livestock production operations are affected by the proposed rule, even 
though we recognize that substantial portions of the covered 
commodities produced from the livestock of these operations will fall 
outside of the proposed rule. Covered commodities sold at foodservice 
establishments, exported, used as ingredients in processed food items, 
or sold at retail outlets not covered by the proposed rule are outside 
the scope of the proposed rule. When livestock are born, the producer 
typically does not know the ultimate destination for the final product. 
We assume that all producers will seek to keep their market options 
open, whether the final product moves to a covered retailer or to 
another marketing outlet. In addition, there are 7,775 posted 
stockyards, bonded dealers and market agencies that are involved in

[[Page 61959]]

buying, selling, and marketing livestock (Ref. 14). Some of these 
stockyards, dealers, and market agencies may deal exclusively with 
other species such as horses, but that number is small and expected to 
minimally impact the estimated number of firms and establishments.
    We estimate that there are 3,358 livestock slaughtering and 
processing establishments and operated by 3,098 firms. These numbers 
may be slightly overstated, since businesses that do not slaughter or 
process cattle, sheep, or hogs are included in these totals. For 
example, a plant that slaughtered only bison would be included in the 
totals, but the number of such businesses is very small. Also, some 
plants that process beef, lamb, or pork may produce only processed 
products that are excluded from the scope of the proposed rule. The 
number of such firms and establishments is unknown, but expected to be 
small. The number of meat and meat product wholesale firms is estimated 
to be 3,185 and the number of establishments is estimated to be 3,305.
    Fish. Fish production includes both farm-raised or aquaculture 
production and wild-caught fishing operations. Aquaculture operations 
include those producing food fish, crustaceans, and mollusks, and the 
estimated number of operations is 3,540 (Ref. 15). Most wild fish 
harvesting operations are nonemployer businesses. Census Bureau data 
are used to estimate the number of fishing, seafood product preparation 
and packaging, and fish and seafood wholesale establishments and firms 
(Refs. 8, 9, and 10). As with the beef, lamb, and pork firms and 
establishments, some of these fish and seafood firms and establishments 
may not produce or sell covered commodities. While the number of such 
entities is unknown, we assume that all firms and establishments will 
be impacted by the proposed rule.
    Perishable agricultural commodities: Census of Agriculture data 
provide estimates of the number of fruit and vegetable farming 
operations (Ref. 16). The total number of fruit farms is estimated at 
81,956 and the total number of vegetable farms at 31,030. USDA 
estimates that 34.6 percent of fruit production and 62.0 percent of 
vegetable production is used for fresh and frozen products. USDA 
assumes that fruit and vegetable producers generally know whether their 
production is destined for fresh or processing use, meaning that some 
producers will be unaffected by the proposed rule depending upon the 
marketing channels for which they produce. Data on the number of 
farming operations categorized by the ultimate end uses of the products 
do not exist. Therefore, USDA assumes that the number of farms 
producing fruits and vegetables for fresh and frozen use is 
proportional to the production of fresh and frozen fruits and 
vegetables relative to total production. Hence, the number of affected 
fruit farms is estimated at 28,357 and the number of vegetable farms at 
19,339, for a total of 47,696 farming operations producing fruits and 
vegetables that will be impacted by this proposed rule.
    Businesses that process frozen fruits and vegetables and fresh 
fruit are estimated from Census Bureau data (Refs. 8, 9, and 10), and 
are estimated to include 163 firms operating 257 establishments. These 
estimates may be overstated by the inclusion of businesses that produce 
frozen juice and businesses that produce frozen fruits and vegetables 
in forms not covered by the proposed rule. Businesses wholesaling 
frozen fruits and vegetables are included in packaged frozen food 
wholesale firms and include 9,026 firms operating 12,878 
establishments.
    Peanuts: Census of Agriculture data provide an estimate of 12,221 
peanut farming operations (Ref. 16). Businesses that roast nuts and 
manufacture peanut butter are estimated from Census Bureau data to 
include 140 firms operating 159 establishments (Refs. 8, 9, and 10). 
These numbers include companies that produce only peanut butter (not a 
covered commodity) or that may roast nuts not covered by the proposed 
rule, but the number of such operations is unknown. Businesses that 
wholesale peanuts are estimated from peanut marketing agreement data 
(Ref. 17) to include 83 firms and the same number of establishments.
    General-line wholesalers and retailers: In addition to specialty 
wholesalers that primarily handle a single covered commodity, there are 
also general-line wholesalers that handle a wide range of products. We 
assume that these general-line wholesalers likely handle at least one 
and possibly all of the covered commodities. Therefore, we include the 
number of general-line wholesale businesses among entities affected by 
the proposed rule. This includes 3,183 firms operating 3,993 
establishments.
    Retailers covered by this proposed rule must meet the definition of 
a retailer as defined by PACA. The number of such businesses is 
estimated from PACA data (Ref. 18). The PACA definition includes only 
those retailers handling fresh and frozen fruits and vegetables with an 
invoice value of at least $230,000 annually. Therefore, the number of 
retailers impacted by this rule is considerably smaller than the total 
number of food retailers nationwide. Census Bureau data show that there 
were 92,383 food store firms and 102 warehouse club and superstore 
firms in 2000 (Ref. 9). There were 127,566 food store establishments 
and 2,051 warehouse club and superstore establishments in 2001 (Ref. 
8). Thus, we estimate that there are 92,485 retail firms and 129,617 
retail establishments that account for most of the retail sales of the 
covered commodities. However, only 4,512 retail firms operating 37,176 
retail establishments are included under the statutory definition of a 
PACA retailer.
    Source of cost estimates: Data on costs to implement mandatory COOL 
are largely unavailable. There are State programs for country of origin 
labeling of some products, CBP and regulations specify labeling 
requirements for imported products, and some companies choose to 
provide country of origin labels for marketing purposes. There are, 
however, no mandatory programs with similar requirements and coverage 
that would provide substantive guidance for estimating the costs of 
this proposed rule.
    On October 11, 2002, USDA published voluntary guidelines (67 FR 
63367) for country of origin labeling of the covered commodities. USDA 
invited public comments on the utility of these guidelines, including 
the costs and benefits of the program. USDA also prepared an estimate 
of the information collection burden that would be associated with 
implementation of the voluntary guidelines and invited comments on the 
estimated information collection burden. In addition, USDA also sought 
comments on this rulemaking for mandatory COOL and held 12 public 
listening and information sessions across the country. We also met with 
many industry groups and individuals to discuss this rulemaking and 
visited facilities at all levels of the supply chain to learn about 
current industry practices and changes that would be required to 
implement mandatory COOL. In addition, a number of studies have been 
produced to address various issues relating to the economic impacts 
associated with implementation of mandatory COOL.
    To develop estimates of the cost of implementing this proposed 
rule, we reviewed the comments received on the voluntary guidelines, 
the comments received regarding this rulemaking for mandatory COOL, and 
available economic studies. No single source of information, however, 
provided

[[Page 61960]]

comprehensive coverage of all economic benefits and costs associated 
with mandatory COOL for all of the covered commodities. We applied our 
knowledge about the operation of the supply chains for the covered 
commodities to synthesize the available information about the proposed 
rule's potential costs.
    Cost drivers: This proposed rule is a retail labeling requirement. 
Retail stores subject to this proposed rule will be required to inform 
consumers as to the country of origin of the covered commodities that 
they sell. To accomplish this task, individual package labels or other 
point-of-sale materials will be required. If products are not already 
labeled by suppliers, the retailer will be responsible for labeling the 
items or providing the country of origin information through other 
point-of-sale materials. This may require additional retail labor and 
personnel training. A recordkeeping system will be required to ensure 
that products are labeled accurately and to permit compliance and 
enforcement reviews. For most retail firms of the size defined by the 
statute (i.e., those retailing fresh and frozen fruits and vegetables 
with an invoice value of at least $230,000), we assume that 
recordkeeping will be accomplished primarily by electronic means. 
Modifications to recordkeeping systems will require software 
programming and likely will entail additional computer hardware. We 
expect that retail stores will also undertake efforts to ensure that 
their operations are in compliance with the proposed rule.
    Prior to reaching retailers, most covered commodities move through 
distribution centers or warehouses. Direct store deliveries (such as 
when a local truck farmer delivers fresh produce directly to a retail 
store) are an exception. Distribution centers will be required to 
provide retailers with country of origin information. This will require 
additional recordkeeping processes to ensure that the information 
passed from suppliers to retail stores permits accurate product 
labeling and permits compliance and enforcement reviews. Additional 
labor and training may be required to accommodate new processes and 
procedures needed to maintain the flow of country of origin information 
through the distribution system. There may be a need to further 
segregate products within the warehouse, add storage slots, and alter 
product stocking, sorting, and picking procedures.
    Packers and processors of covered commodities will also need to 
inform retailers and wholesalers as to the country of origin of the 
products that they sell. To do so, their suppliers will need to provide 
documentation regarding the country of origin of the products that they 
sell. Maintaining country of origin identity through the packing or 
processing phase is more complex if products from more than one country 
are involved. For example, the identity of fresh kiwi fruit from 
California and New Zealand entering the same packing house would need 
to be maintained throughout the packing operation. The efficiency of 
operations may be affected as products are segregated in receiving, 
storage, processing, and shipping operations. For packers and 
processors handling products from multiple origins, there may also be a 
need to separate shifts for processing products from different origins, 
or to split processing within shifts. In either case, costs are likely 
to increase. Records will need to be maintained to ensure that accurate 
country of origin information is retained throughout the process and to 
permit compliance and enforcement reviews.
    Processors handling only domestic origin products or products from 
a single country of origin may have lower implementation costs compared 
with processors handling products from multiple origins. A processor 
that already sources products from a single country of origin would not 
face additional costs associated with product segregation and tracking. 
Procurement costs also may be unaffected in this case, if the processor 
is able to continue sourcing products from the same suppliers. 
Alternatively, a processor that currently sources products from 
multiple countries of origin may choose to limit its source to a single 
country of origin to avoid costs associated with product segregation 
and tracking. In this case, such cost avoidance would be partially 
offset by additional procurement costs to source supplies from a single 
country of origin. Additional procurement costs may include higher 
transportation costs due to longer shipping distances and higher 
acquisition costs due to supply and demand conditions for products from 
a particular country of origin, whether domestic or foreign.
    At the production level, agricultural producers and fish harvesters 
will need to create and maintain records to establish country of origin 
information for the products they sell. This information will need to 
be transferred and maintained as the products move through the supply 
chains. In general, additional producer costs include the cost of 
establishing and maintaining a recordkeeping system for country of 
origin information, animal or product identification, and labor and 
training.
    Recordkeeping burden: On November 21, 2002, USDA published in the 
Federal Register a Notice of Request for Emergency Approval of a New 
Information Collection (67 FR 70205) for the interim guidelines for 
Voluntary Country of Origin Labeling for Beef, Lamb, Pork, Fish, 
Perishable Agricultural Commodities, and Peanuts that were published on 
October 11, 2002 (67 FR 63367). The Notice provided USDA's estimate of 
the recordkeeping burden imposed by voluntary COOL, under the 
requirements of PRA. That PRA cost estimate related solely to the 
recordkeeping burden and did not consider other costs imposed by COOL. 
Also, PRA requirements do not address the benefits of a program. Thus, 
PRA recordkeeping burden published by USDA did not reflect the full 
costs and benefits of voluntary COOL.
    Cost analyses: Despite the numerous comments that USDA has received 
on the voluntary guidelines and on this rulemaking, there is 
surprisingly little quantitative evidence on the likely costs of 
mandatory COOL. The proposed rule does not specify the systems that 
affected entities must put in place to implement mandatory COOL. 
Instead, market participants will be given flexibility to develop their 
own systems to comply with the proposed rule. There are many ways in 
which the proposed rule's requirements may be met, and this contributes 
to the difficulty in arriving at a quantitative assessment of cost 
impacts. Nonetheless, a number of studies and submitted comments shed 
light on the potential costs of mandatory COOL. Generally, comments 
addressed costs for a particular firm or a segment of a particular 
supply chain for a given covered commodity. Of the studies on potential 
economic impacts of mandatory COOL, only a handful developed estimated 
incremental implementation costs for market participants. We use the 
results of these studies, comments received, and knowledge of the 
affected industries to develop a range of the estimated incremental 
cost impacts of this proposed rule.

[[Page 61961]]

    Estimated costs from the studies considered by USDA are summarized 
in Table 2. The studies are VanSickle, McEowen, Taylor, Harl, and 
Connor (Ref.5); Sparks Companies Inc. (Ref. 19); Hayes and Meyer (Ref. 
20); and Davis (Ref. 21). All of the studies report annual costs, and 
the costs shown in Table 2 are assumed to represent first-year costs 
for mandatory COOL. In those cases in which the studies do not state so 
explicitly, USDA infers from the construction of the estimates that 
they represent first-year costs.

BILLING CODE 3410-02-P
[GRAPHIC] [TIFF OMITTED] TP30OC03.005

BILLING CODE 3410-02-C

[[Page 61962]]

    At a minimum, mandatory COOL will entail the transfer of 
information through the respective supply chains, from production 
through retail sales. While information currently flows through the 
system as products move through the supply chains, there is little 
evidence that country of origin information typically is a component of 
this information flow. Thus, we believe that transfer and maintenance 
of records to establish COOL claims will be accomplished through 
modification of the current recordkeeping and systems used for 
accounting, purchasing, sales, production, and related operations.
    VanSickle, et al. (Ref. 5) address the recordkeeping cost to 
producers in their critique of USDA's estimate of the recordkeeping 
burden for the voluntary COOL guidelines. This study notes that 
producers currently maintain a variety of records for taxes, health 
rules, and other programs and they conclude that producers would 
require no new recordkeeping. As part of their critique of USDA's 
recordkeeping burden estimates, VanSickle, et al. recalculated the 
recordkeeping burden using different producer numbers and different 
labor costs. Although the study does not separately show calculations 
for each type of producer, the report permits such calculations to be 
made. Table 2 shows the results of these calculations, with the 
estimated recordkeeping for producers of each covered commodity 
calculated separately.
    VanSickle, et al. used the National Agricultural Statistics Service 
(NASS) data to determine the number of producers, and although in 
disagreement with the assumption, they used USDA's assumption that 
producers would require 8 hours to establish a recordkeeping system and 
12 hours annually to maintain it. They then applied Bureau of Labor 
Statistics (BLS) data showing that the median value of farm labor is 
$7.67 per hour. Using these procedures, VanSickle, et al. estimated 
that the recordkeeping burden for cattle producers would be $63.2 
million to establish a mandatory COOL recordkeeping system and $94.8 
million to maintain it. Thus, the total first-year cost to cattle 
producers would be $158 million. Table 2 shows the results of similar 
calculations for lamb, pork, fruit, vegetable, and peanut producers, as 
well as processors and retailers. As discussed previously, however, 
recordkeeping costs are not the only costs that we anticipate will be 
incurred by many market participants when implementing the proposed 
rule. In addition, Vansickle, et al. did not adjust labor rates to 
account for benefits and other labor costs such as social security, 
unemployment insurance, and workers compensation. Thus, we believe that 
these estimated recordkeeping costs underestimate the total costs for 
affected entities to implement mandatory COOL.
    Sparks Companies, Inc., and Cattle Buyers Weekly (Sparks/CBW) 
submitted to USDA a study that provides estimated costs of mandatory 
COOL for the beef, pork, fish, and perishable agricultural commodity 
supply chains (Ref. 19). For each supply chain, the study identifies 
cost estimates for producers, packers/processors, retail distributors, 
and retailers.
    The Sparks/CBW study identifies additional cost factors expected to 
be incurred to implement mandatory COOL. For example, at the cow/calf 
rancher and backgrounder production level of the beef supply chain, the 
Sparks/CBW study identifies additional costs for animal identification 
tags/chips, data input and recordkeeping, and scanner hardware and 
software to read electronic tags. This study provides estimated costs 
for these processes, although supporting documentation for the cost 
estimates is not extensive. USDA concludes that most industry 
participants will likely incur the types of costs identified in the 
Sparks/CBW study. Based on comments received and knowledge of the 
affected industries, USDA further believes that the Sparks/CBW 
estimates represent the types of costs likely to be incurred as the 
affected entities implement the provisions of the proposed rule.
    Hayes and Meyer developed cost estimates for the pork supply chain 
to implement mandatory COOL (Ref. 20). The study estimated the cost for 
the pork industry to adopt a traceback system similar to the system 
implemented in the European Union. While USDA expects some firms to 
adopt such a system, we do not believe that a full traceback system on 
an individual animal basis will be required to implement the proposed 
rule. Other less costly approaches likely will meet the requirements of 
the proposed rule. For example, group identification of animals and 
pork products may suffice to establish country of origin claims. 
Therefore, USDA concludes that the Hayes and Meyer study presents a 
cost estimate that is at the upper end of the estimated costs needed to 
implement mandatory COOL.
    Davis developed cost estimates for the beef supply chain to 
implement mandatory COOL (Ref. 21). The study identifies factors 
anticipated to increase costs as a result of mandatory COOL, such as 
permanent animal identification, third party audit, and product 
segregation. The total estimated costs presented in the study are 
substantially higher than other studies suggest, and USDA concludes 
that actual costs for implementing the proposed rule likely will be 
lower.
    Incremental cost impacts on affected entities: USDA believes that 
at a minimum, affected entities will need to modify their existing 
recordkeeping systems to accommodate this proposed rule. Comments 
received on the voluntary COOL guidelines and on this rulemaking, 
USDA's knowledge of the affected industries, and visits to 
establishments of affected firms indicate that few existing 
recordkeeping systems currently provide the information that will be 
needed to substantiate COOL claims throughout the supply chain. We 
concur, however, with the many comments received on the voluntary 
guidelines and on the mandatory COOL rulemaking that many entities in 
the supply chains for the covered commodities already maintain the 
types of records that will be needed to implement the proposed rule. 
Thus, the marginal impact of adapting existing recordkeeping systems is 
expected to be relatively small. The large number of affected entities, 
particularly producers, leads to larger aggregate recordkeeping costs 
even with relatively low costs per entity. USDA's estimates of these 
costs are detailed in the PRA analysis, which describes the anticipated 
recordkeeping burden associated with this proposed rule. Table 3 
summarizes these estimated recordkeeping costs for the first year of 
implementation, which USDA assumes to be the lower range of potential 
implementation costs for this proposed rule because costs other than 
recordkeeping are not included.

[[Page 61963]]



                            Table 3.--Lower Range Estimates of First-Year Implementation Costs per Affected Industry Segment
                                                                [In millions of dollars]
--------------------------------------------------------------------------------------------------------------------------------------------------------
                                                                     Beef       Lamb       Pork       Fish      F & V      Peanut     Multi      Total
--------------------------------------------------------------------------------------------------------------------------------------------------------
Producer........................................................        196         13         12          9          5          1  .........        235
Intermediary....................................................      (\1\)      (\1\)      (\1\)          8         23          0         91        123
Retailer........................................................      (\1\)      (\1\)      (\1\)      (\1\)      (\1\)      (\1\)        224        224
                                                                 ------------
      Total.....................................................    \2\ 196     \2\ 13     \2\ 12     \2\ 16     \2\ 28      \2\ 2        315        582
--------------------------------------------------------------------------------------------------------------------------------------------------------
\1\ These costs are included in the ``Multi'' column.
\2\ This figure represents a partial total for this covered commodity, with remaining costs included in the ``Multi'' column.

    As shown in Table 3, USDA estimates that the direct, incremental 
cost for firms to implement this proposed rule will total at least $582 
million in the first year. This is the estimated incremental or 
marginal cost for firms to comply with the new recordkeeping 
requirements for mandatory country of origin labeling. Costs to 
producers are estimated at $235 million, costs to intermediaries such 
as handlers, processors and wholesalers are estimated at $123 million, 
and costs to retailers are estimated at $224 million. USDA believes, 
however, that there likely will be additional operational costs 
incurred as a result of this proposed rule.
    To estimate upper range costs of this proposed rule, we focus on 
units of production that are impacted rather than entities that are 
affected. The main reason for doing so is that available studies of the 
potential costs of mandatory country of origin labeling mainly estimate 
costs per unit. Thus, determining the appropriate number of units is an 
important step and provides a basis for comparing estimates from 
different sources.
    The upper range cost estimates developed by USDA represent the 
likely high end of costs to implement fully the proposed rule in the 
first year. The upper range cost estimates do not represent the 
absolute maximum cost estimates reported in available studies or in 
comments submitted to USDA. Rather, the upper range cost estimates 
represent USDA's assessment of available information on implementation 
costs and the reasonableness of estimated costs at the upper end of the 
spectrum.
    For livestock producers the relevant unit of production is an 
animal because there will be costs associated with maintaining country 
of origin information on each animal. These costs may include 
recordkeeping and ear tagging, segregation, and related means of 
identification on either an individual animal or lot basis. Annual 
domestic slaughter numbers are used to estimate the flow of animals 
through the live animal production segment of the supply chain. Table 4 
shows annual slaughter numbers for cattle, hogs, and sheep and lambs 
(Ref. 22).

         Table 4.--Estimated Annual Units of Production Affected by Mandatory Country of Origin Labeling
----------------------------------------------------------------------------------------------------------------
                                        Beef         Pork         Lamb         Fish        F & V       Peanuts
----------------------------------------------------------------------------------------------------------------
                                                 Million Head
                                                Million Pounds
                                   --------------
Producer..........................         36.8        100.3          3.3        7,707       97,083        4,239
                                   --------------
                                                                    Million Pounds
                                   --------------
Intermediary......................       26,914       18,375          367        4,112      115,982          713
Retailer..........................        7,800        2,214          135        1,702       48,017          222
----------------------------------------------------------------------------------------------------------------

    For fish producers, production is measured by round weight (live 
weight) pounds of fish, except mollusks, which excludes the weight of 
the shell. Wild-caught fish and shellfish production is measured by 
U.S. domestic landings for fresh and frozen human food, which was 
estimated at 6,691 million pounds for 2001 (Ref. 23). USDA assumes that 
fish harvesters generally know whether their catch is destined for 
fresh and frozen markets, canning, or industrial use. Overall 
production numbers for aquaculture or farm-raised fish are estimated 
from United Nations Food and Agriculture Organization data. In 2001, 
U.S. aquacultural production was estimated at 1,016 million pounds 
(Ref. 24). USDA thus estimates the total production of wild and farm-
raised fish and shellfish at 7.7 billion pounds.
    For fruits and vegetables, USDA assumes that essentially all 
production is predestined for fresh or processing use. That is, growers 
know before the crop is produced whether it will be sold for fresh 
consumption or for processing. However, USDA assumes that producers do 
not know whether their products ultimately will be sold to retailers, 
foodservice firms, or exporters. Therefore, USDA assumes that all fresh 
fruit and vegetable production and production destined for frozen 
processors at the producer level will be impacted by this proposed 
rule. The total production figure thus represents an estimate of volume 
of fresh and frozen production impacted by the proposed rule. Table 4 
presents production estimates for 2001 for fruits and vegetables (Ref. 
25).
    As with livestock production, USDA assumes that all peanut 
production will be impacted by this proposed rule. Peanut producers 
generally do not know what end uses or marketing channels their 
production will follow. Depending on qualities and grades produced, a 
given peanut producer's harvest could end up in a variety of product 
forms sold through several marketing outlets. U.S. peanut production 
for 2001 is shown in Table 4 (Ref. 25).
    USDA assumes that all sales by intermediaries such as handlers, 
packers, processors, wholesalers, and importers will be impacted by the 
proposed rule. Although some product is destined exclusively for 
foodservice or other channels of distribution not subject to the 
proposed rule, USDA assumes that these intermediaries will

[[Page 61964]]

seek to keep their marketing options open for possible sales to subject 
retailers. USDA Economic Research Service (ERS) estimates of food 
disappearance for 2001 are used to measure the flow of covered 
commodities through intermediaries (Ref. 26). Food disappearance 
includes imports, which are impacted by the proposed rule, but does 
exclude exports, which are not.
    For intermediaries, Table 4 shows total beef, pork, and lamb 
disappearance measured on a carcass-weight basis. Fresh, frozen, and 
canned fish and shellfish food disappearance is shown as edible meat 
weight. Total disappearance of fresh and frozen fruits and vegetables 
is computed from per capita consumption data measured on a farm-weight 
basis. Peanut disappearance is measured on a farmers' stock basis. The 
quantity of 713 million pounds shown in Table 4 is 32 percent of total 
peanut food disappearance to estimate peanut use in product forms 
subject to this proposed rule-'snack peanuts(23 percent) and roasted 
in-shell peanuts (9 percent) (Ref. 27).
    For retailers, food disappearance figures are adjusted to estimate 
consumption through retailers as defined by the statute. For each 
covered commodity, disappearance figures are multiplied by 0.414, which 
represents the estimated share of production sold through retailers 
covered by this proposed rule. To derive this share, the factor of 
0.629 is used to remove the 37.1 percent food service quantity share of 
total food in 2002 (Ref. 28). This factor is then multiplied by 0.658, 
which was the share of sales by supermarkets, warehouse clubs and 
superstores of food for home consumption in 2002 (Ref. 29). In other 
words, USDA assumes supermarkets, warehouse clubs and superstores 
represent the retailers as defined by PACA, and these retailers are 
estimated to account for 65.8 percent of retail sales of the covered 
commodities.
    Other retail food outlets were assumed not to meet the statutory 
definition of a retailer under PACA. These latter outlets include 
convenience stores, other grocery stores, specialty food stores, mass 
merchandisers, other stores, home delivered and mail order, and 
farmers, processors, wholesalers, and other. USDA recognizes that not 
all supermarkets meet the statutory definition of a PACA retailer, 
while other retail outlets would meet the definition. USDA assumes that 
the relative volumes of covered commodities moving through supermarkets 
that are not PACA retailers offset the quantities of commodities moving 
though PACA retailers that are not supermarkets or warehouse clubs and 
superstores. USDA invites comments on the validity of this assumption.
    Beef, pork, and lamb retail movement is measured on a retail-weight 
basis. Beef and lamb retailer estimates shown in Table 4 are retail-
weight food disappearance figures for 2001 multiplied by the factor of 
0.414. Unlike beef and lamb, however, much of the pork carcass 
typically is processed into products that would not be covered 
commodities under the proposed rule. For example, most of the ham and 
bacon are cured, and other cuts such as picnic meat are used for 
sausage and other processed products. Thus, an additional factor of 
0.375 is used for pork, which is the estimate of the proportion of the 
retail-weight pork carcass that is used for fresh pork cuts that would 
be classified commodities under the proposed rule. The cuts assumed to 
be covered commodities are fresh ham, all of the loin cuts, spareribs, 
and the entire Boston butt. Estimates of the retail weight of these 
cuts and other cuts are taken from the National Pork Board (Ref. 30). 
USDA recognizes that some of these cuts will be processed into items 
not covered by the proposed rule, while other cuts will be sold in 
unprocessed forms that would be covered by the proposed rule. 
Nonetheless, USDA believes that 37.5 percent represents the best 
available estimate of the proportion of the retail pork carcass that 
would be covered. When combined with the 41.4 percent of commodities 
estimated to be sold by subject retailers, USDA estimates that 15.5 
percent of estimated pork consumption would be covered by the proposed 
rule.
    Estimated fresh, frozen, and canned fish and shellfish retailer 
volume shown in Table 4 is measured by edible meat weight. Fresh and 
frozen fruit and vegetable retailer volume is measured by farm weight. 
Retailer peanut volume is measured on a kernel basis, as the majority 
of peanuts sold at retail are without the shell.
    Table 5 summarizes the upper range of direct, incremental costs 
that USDA believes firms will incur during the first year as a result 
of this proposed rule. These estimates are derived primarily from the 
available studies that addressed cost impacts of mandatory COOL. As 
discussed above, USDA believes that implementation of mandatory COOL 
will entail additional recordkeeping burden at the least and likely 
will entail other costs as well. Thus, to determine the upper range of 
implementation costs, we focus on available studies that attempt to 
account for costs beyond the recordkeeping burden.

        Table 5.--Upper Range Estimates of First-Year Implementation Costs per Affected Industry Segment
                                            [In millions of dollars]
----------------------------------------------------------------------------------------------------------------
                                        Beef       Pork       Lamb       Fish      F & V     Peanuts     Total
----------------------------------------------------------------------------------------------------------------
Producer...........................        368        150         15         19         24          1        578
Intermediary.......................        538        368          7         21        580          4      1,517
Retailer...........................        780        155          9        119        720          3      1,787
                                    ------------
      Total........................      1,686        673         32        159      1,324          8      3,882
----------------------------------------------------------------------------------------------------------------

    For beef producers, the range of Sparks/CBW cost estimates is $8.63 
to $10.63 per head, with estimated costs of $4.88 per head for cow-calf 
producers and backgrounders and $3.75 to $5.75 per head for feedlots 
(Ref. 19). Davis (Ref. 21) estimates costs for beef producers of up to 
$15.30 per head, with $13.30 per head for cow-calf producers, $1 per 
head for stockers, and $1 per head for feedlots.
    USDA believes that implementation costs per head for cow-calf 
producers will be relatively small because many cow-calf operators 
likely already maintain much of the information that will be needed to 
substantiate country of origin, such as breeding records, production 
records, and other business records. Costs for backgrounders, stockers, 
and feeders likely will be higher because of the need to track country 
of origin information on cattle from multiple sources. Animal 
identification tags, development of data bases, and additional hardware 
for accounting and tracking likely will be

[[Page 61965]]

required for many operations, particularly larger operations, to 
maintain country of origin information on cattle that move through 
their operations. Segregation of animals by origin may be implemented 
at some operations to facilitate recordkeeping, and additional labor 
likely will be needed to tag or otherwise identify animals, record 
information, and transfer information to purchasers. Considering all 
producer segments together, USDA adopts $10 per head as an upper range 
estimate of costs to cattle producers to implement the proposed rule. 
This estimate reflects USDA's expectation of relatively small 
implementation costs at the cow-calf level of production, but 
relatively higher costs each time cattle are resold. Typically, fed 
steers and heifers change hands two, three, or more times from birth to 
slaughter, and each exchange will require the transfer of country of 
origin information. Thus, total upper range costs for beef producers 
are estimated at $368 million.
    For intermediaries in the beef sector, Sparks/CBW estimates costs 
of $15 per head to $18 per head for packers and processors of steers 
and heifers and $4 per head for cows and bulls for a total of $429 
million to $546 million. Assuming commercial beef production of about 
26 billion pounds for the 35 million head of cattle included in the 
Sparks/CBW estimates, estimated costs per pound are $0.017 to $0.021. 
Davis estimates costs of $11 million per plant for the 43 largest beef 
packing plants, resulting in a national total of $473 million. Assuming 
that these plants account for about 90 percent of total U.S. commercial 
beef production of about 27 billion pounds in 2002, this estimated cost 
works out to $0.0195 per pound.
    USDA expects that intermediaries will face increased costs 
associated with tracking cattle and the covered beef commodities 
produced from these animals and then providing this information to 
subsequent purchasers, which may be other intermediaries or covered 
retailers. Plain and Grimes estimate that 88.7 percent of the supply of 
steaks and roasts and 75.5 percent of the beef trimmings used to 
produce ground beef for U.S. consumption were U.S. born, raised, and 
slaughtered beef in 2002 (Ref. 7). Thus, substantial portions of the 
beef supply are from sources not meeting the definition of U.S. born, 
raised, and slaughtered. Consequently, incremental costs for beef 
packers likely will include additional capital and labor expenditures 
to enable cattle from different origins to be segregated for slaughter, 
fabrication, and processing. Considering the costs likely to be faced 
by intermediaries in the beef sector, USDA adopts $0.02 per pound as an 
estimate of upper range costs, which is consistent with estimates from 
the available studies. Total upper range costs are thus estimated at 
$538 million.
    Sparks/CBW estimates costs of $0.09 to $0.12 per pound for beef 
retailers, with a total of $805 million estimated for 8 billion pounds 
of beef sold assuming a cost of $0.10 per pound. FSIS estimates the 
cost of retail labeling at approximately $0.005 per package (Ref. 31), 
which is strictly the cost to apply a label and does not include costs 
such as recordkeeping or product segregation and tracking. Davis 
estimates total costs of $428,500 per retail store to implement 
mandatory COOL for beef alone, for a total of $4.6 billion nationally. 
Several supermarket retailers commented on the guidelines for voluntary 
country of origin labeling (67 FR 63367) and estimated costs to 
implement country of origin labeling at about $26,000 to $54,000 per 
store for all covered commodities (Refs. 32, 33, and 34). These 
estimates are an order of magnitude less than Davis' estimated cost per 
store, suggesting that the estimate of $428,500 per store for beef 
alone is substantially overstated. A comment from another retailer 
estimated costs of $0.075 to $0.08 per pound just for labeling and 
recordkeeping for beef, pork, and seafood at retail (Ref. 35). USDA 
adopts $0.10 per pound as an upper range estimate of implementation 
costs for beef retailers, for a total of $780 million. This figure 
reflects the costs for individual package labels, meat case 
segmentation, record keeping and information technology changes, labor, 
training, and auditing. In addition, there likely will be increased 
costs for in-store butcher department operations related to cutting, 
repackaging, and grinding operations.
    Total costs for affected entities in the beef sector are thus 
estimated at $1.7 billion.
    For pork producers, Sparks/CBW estimates costs at approximately $1 
per head for all types of production systems. Sparks/CBW takes into 
account cost efficiencies associated with integrated production and 
processing systems and large-scale production. Hayes and Meyer estimate 
costs at $2 per head for all producers. Both the Sparks/CBW and the 
Hayes and Meyer studies appear to account credibly for the cost 
increases that pork producers are likely to encounter. Therefore, USDA 
adopts the midpoint of the per-head costs estimated by these two 
studies as the estimated upper range costs for pork producers. With 
annual slaughter of 100.3 million head, total costs for producers are 
estimated at $150 million.
    For processors, Sparks/CBW estimates costs at $2 to $6 per head for 
non-integrated hog packers, $0.50 per head for vertically integrated 
hog production and packing systems (including costs associated with hog 
production), and $2 per head for sows and boars. In the Sparks/CBW 
study, vertically integrated systems account for approximately 26 
percent of total slaughter hog production. For all processors, the 
Sparks/CBW study estimates total costs of $158 million to $450 million, 
assuming that half of the costs per head for vertically integrated 
production and packing accrue to the packing operation. Based on 2002 
commercial pork production, the Sparks/CBW cost estimates range from 
$0.008 to $0.023 per pound. Hayes and Meyer estimate processing costs 
at $6.10 per head for all packers, which implies total costs of $612 
million based on slaughter of 100.3 million head or costs of $0.031 per 
pound based on 2002 commercial pork production. USDA believes that 
upper range costs for all pork sector intermediaries (including 
handlers, processors, and wholesalers) will be similar to costs for 
beef sector intermediaries. USDA therefore estimates upper range costs 
for pork industry intermediaries at $0.02 per pound, for a total of 
$368 million.
    For retailers, Sparks/CBW estimates costs for pork at $0.055 per 
pound at the retail store level and $0.02 to $0.03 per pound at the 
retail distribution center, for a total of $0.075 to $0.085 per pound 
at the retail level. Hayes and Meyer estimate retail costs at $1.87 per 
animal, or $0.01 per pound. As noted previously, FSIS estimates the 
cost of retail labeling at approximately $0.005 per package for the 
label alone (Ref. 31). Taking these sources into consideration, USDA 
estimates upper range costs for retailers of pork at $0.07 per pound. 
USDA's upper range per-pound cost estimate for pork is lower than for 
beef primarily to reflect the higher costs incurred by in-store 
grinding operations to produce ground beef. Although ground pork may 
also be produced in-store, most ground pork is processed into sausage 
and other products not covered by the proposed rule. Total estimated 
costs for pork retailers are $155 million. Total upper range costs for 
the pork sector are estimated at $673 million.
    USDA did not identify any quantitative analyses of costs of 
mandatory COOL on the lamb industry, other than the paperwork burden 
estimates developed by VanSickle, et al.

[[Page 61966]]

(Ref. 5). To obtain an estimate of the upper range on implementation 
costs for lamb producers, USDA assumed that cost impacts on a per-unit 
basis would fall between costs facing beef producers and pork 
producers. Lamb production is similar to beef production in several 
ways. Both sheep and cattle are ruminants, with breeding stock and 
young animals typically raised on open pasture and rangelands, and 
slaughter animals typically finished on grain-based diets in confined 
feeding operations. Cows normally produce one calf, while sheep 
normally produce one or two lambs. In other respects, lamb production 
is similar to pork production. These two industries have similar 
numbers of producers--about 64,000 sheep and lamb producers versus 
67,000 hog and pig producers (Table 1). Slaughter animals of both 
species are marketed at about the same age, about 6 months. Because 
both lambs and pigs are slaughtered at a relatively young age, the 
animals typically do not change ownership several times, as is most 
often the case with cattle. USDA believes that per-head costs for lamb 
producers will be considerably less than for beef producers but higher 
than for pork producers. USDA assumes that upper range costs per head 
for lamb producers will be $4.50 per head, which is three times the 
per-head costs assumed for pork producers and less than half the costs 
assumed for beef producers. Total upper range costs for lamb producers 
are estimated at $15 million.
    USDA assumes that intermediaries in the lamb sector will face per-
pound costs similar to costs faced by beef and pork sector 
intermediaries, which are estimated at $0.02 per pound. Total costs for 
lamb sector intermediaries are thus estimated at $7 million.
    USDA believes that costs to retailers for lamb will be similar to 
costs borne for pork, which was estimated at $0.07 per pound. Total 
upper range costs for retailers of lamb are estimated at $9 million.
    Summing the upper range estimates for producers, intermediaries, 
and retailers results in estimated upper range costs of $32 million for 
the lamb industry.
    Regarding potential cost impacts of mandatory COOL on the fish and 
seafood sector, Sparks/CBW conducted the only quantitative assessment 
identified by USDA. Sparks/CBW estimates negligible costs for 
producers, $0.005 per pound for processors and wholesalers, and $0.05 
to $0.07 per pound for retailers.
    USDA believes that costs to fish and seafood producers will be 
higher than projected by Sparks/CBW, which estimates total costs of $1 
million. For wild-caught fish, producers will need to maintain and 
transfer records on where fish are harvested and also transfer 
information on whether the vessel is U.S. flagged. Fish farming 
operations will need to maintain and transfer information regarding the 
location of production and of the origin of fish into the operation. 
USDA expects that fish and seafood producers will incur about half of 
the cost faced by processors and wholesalers. Producers will need to 
provide information on the products they sell while processors and 
wholesalers will need to track information on products that they both 
purchase and sell. Sparks/CBW estimates costs at $0.005 per pound for 
fish and seafood processors and wholesalers, so half of this amount is 
$0.0025 per pound. Total upper range costs for fish and seafood 
producers are thus estimated at $19 million.
    USDA adopts $0.005 per pound as an upper range estimate of costs 
for intermediaries in the fish and seafood sector, which is the Sparks/
CBW estimate for processors and wholesalers. Processors will need to 
collect country of origin information from producers, maintain this 
information, and supply this information to other intermediaries or 
directly to retailers. In addition, there may need to be segregation of 
the product before and after processing to facilitate tracking of 
country of origin identity. There will also be labeling costs 
associated with providing country of origin information on consumer-
ready packs of frozen and fresh fish that are labeled by processors. 
Total upper range costs for fish and seafood intermediaries are thus 
estimated at $21 million.
    At the retail level, Sparks/CBW estimates costs of $0.05 to $0.07 
per pound for fish and seafood. USDA adopts the higher end of this 
range as an upper range estimate of costs for retailers of fish and 
seafood. The upper range estimate of $0.07 per pound is consistent with 
the costs estimated for pork and lamb at retail, and results in total 
upper range costs of $159 million for retailers of fish and seafood.
    Total upper range costs for fish and seafood are estimated at $118 
million.
    As with fish and seafood, Sparks/CBW is the only quantitative study 
of the costs of mandatory COOL for perishable agricultural commodities 
of which USDA is aware. Sparks estimates total costs of $20 million for 
fruit and vegetable producers, $34 million for processors and 
wholesalers, and $1.5 billion to $3 billion for retailers.
    USDA agrees with Sparks/CBW that costs of mandatory COOL for fruit 
and vegetable producers will be relatively small, but believes that the 
Sparks/CBW estimate is too low. Although producers maintain many of the 
types of records that will be required to substantiate U.S. origin 
claims, USDA believes that this information is not universally 
transferred by producers to purchasers of their products. Producers 
will have to supply this type of information in a format that allows 
handlers and processors to maintain country of origin information so 
that it can be accurately transferred to retailers. USDA estimates 
upper range costs of $0.00025 per pound for producers for fruits and 
vegetables to make and substantiate COOL claims, which equates to $0.01 
for a 40 pound container. Total upper range costs for fruit and 
vegetable producers are estimated at $35 million.
    As with fruit and vegetable producers, Sparks/CBW estimates 
relatively small costs for processors and wholesalers. USDA believes 
that fresh and frozen fruit and vegetable intermediaries will incur 
higher costs than those estimated by Sparks/CBW to implement the 
proposed rule. USDA believes that fruit and vegetable intermediaries 
will shoulder a sizeable portion of the burden of tracking and 
substantiating country of origin information. Intermediaries will need 
to obtain information to substantiate COOL claims by producers and 
suppliers; maintain COOL identity throughout handling, processing, and 
distribution; and supply retailer with COOL information through product 
labels and records. USDA estimates that the cost of these activities 
will be $0.005 per pound for fruit and vegetable sector intermediaries, 
resulting in total estimated costs of $580 million.
    Sparks/CBW estimates costs of $0.03 to $0.06 per pound for 
retailers of fresh and frozen fruits and vegetables. USDA believes that 
costs at retail will be lower than estimated by Sparks/CBW. The Sparks/
CBW study reflects information that was available subsequent to the 
release of the voluntary COOL guidelines, which included mixed products 
as covered commodities required to be labeled. Mixed products comprised 
of two or more covered commodities are defined as processed items in 
this proposed rule, and thus do not require country of origin labels. 
Based on comments received by USDA, costs for providing country of 
origin information for mixed products would be high. Examples of mixed 
products prepared at retail stores include mixed fruit cups, vegetable 
trays, and salads. Because these mixed products will not

[[Page 61967]]

require the tracking, identification, and recordkeeping that will be 
needed for covered commodities, USDA believes that per-unit costs for 
implementation of the proposed rule will be lower than would be the 
case under the voluntary COOL guidelines.
    As discussed above, USDA believes that intermediaries will bear a 
portion of the burden of COOL tracking and labeling, which will lower 
implementation costs for retailers. USDA believes that virtually all 
frozen fruits and vegetables will be labeled by suppliers, thus 
imposing minimal incremental costs for retailers. In addition, a high 
proportion of fresh fruits and vegetables arrive at retail with labels 
or stickers that may be used to provide COOL information. USDA believes 
that fresh fruit and vegetable suppliers will provide COOL information 
on these labels and stickers, again imposing minimal incremental costs 
for retailers. Overall, USDA assumes that upper range costs for 
retailers will be $0.015 per pound of fresh and frozen fruits and 
vegetables, for a total of $720 million.
    USDA identified no quantitative studies of the costs of mandatory 
labeling on the peanut sector. The implementation costs for peanut 
farmers are assumed to be similar to costs incurred by fruit and 
vegetable farmers, because both groups of growers likely maintain 
similar types of records and information that will be needed to 
substantiate country of origin claims. As with fruits and vegetables, 
peanut farmers deliver raw product to intermediaries for processing and 
processors distribute product to wholesalers for distribution to retail 
and other outlets. Lacking additional information on implementation 
costs, USDA anticipates that upper range costs for the peanut sector 
will be similar to costs faced by the fresh and frozen fruit and 
vegetable sector. Therefore, USDA estimates that costs per pound for 
each segment of the industry will be the same: $0.00025 for producers, 
$0.005 for intermediaries and $0.015 for retailers. As a result, USDA 
estimates upper range costs for the peanut industry of $1 million for 
producers, $4 million for intermediaries, and $3 million for retailers, 
for a total of $8 million.
    USDA estimates total upper range incremental costs for this 
proposed rule of $589 million for producers, $1,517 million for 
intermediaries, and $1,787 million for retailers for the first year. 
Total upper range incremental costs for all supply chain participants 
are estimated at $3.9 billion for the first year.
    There are wide differences in average estimated implementation 
costs for individual entities in different segments of the supply chain 
(Table 6). At the lower range, costs are estimated at an average of 
$180 per producer, $4,048 per intermediary, and $49,581 per retailer at 
the firm level. At the establishment level, lower range costs are 
estimated at an average of $180 per producer, $3,443 per intermediary, 
and $6,018 per retailer. With the exception of a small number of 
fishing operations, producer operations are single-establishment firms. 
Thus, average estimated costs per firm and per establishment are the 
same after rounding to the nearest dollar. Retailers subject to the 
proposed rule operate an average of just over eight establishments per 
firm. As a result, average estimated costs per retail firm also are 
just over eight times larger than average costs per establishment.

                 Table 6.--Estimated First-Year Implementation Costs Per Firm and Establishment
----------------------------------------------------------------------------------------------------------------
                                                Lower range       Costs per       Upper range       Costs per
                                                   firm         establishment        firm         establishment
----------------------------------------------------------------------------------------------------------------
Producer....................................            $180              $180            $443              $443
Intermediary................................           4,048             3,443          50,086            42,602
Retailer....................................          49,581             6,018         396,089            48,073
----------------------------------------------------------------------------------------------------------------

    At the upper range, average estimated implementation costs per 
producer remain relatively small at $443. Estimated costs for 
intermediaries are substantially larger, averaging $50,086 per firm and 
$42,602 per establishment. At an average of $48,073, retailers have the 
highest average estimated costs per establishment. Retailers also have 
the highest average estimated costs per firm, $396,089.
    Whether at the lower or upper range of estimated costs, the costs 
per firm and per establishment represent industry averages for 
aggregated segments of the supply chain. Large firms and establishments 
likely will incur higher costs relative to small operations due to the 
volume of commodities that they handle and the increased complexity of 
their operations. In addition, different types of businesses within 
each segment are likely to face different costs. Thus, the range of 
costs incurred by individual businesses within each segment is expected 
to be large, with some firms incurring only a fraction of the average 
costs and other firms incurring costs many times larger than the 
average. Comments submitted by retailers on the voluntary guidelines 
(67 FR 63367) suggest that USDA's range of average estimated costs per 
store is reasonable. These firms estimated costs at approximately 
$26,000 to $54,000 per store, while USDA's range of estimated costs is 
approximately $6,000 to $48,000 per store (Refs. 32, 33, and 34).
    Average costs per producer operation can be calculated according to 
the commodities that they produce (Table 7). Lower range costs average 
$190 for livestock operations, $103 for fish operations, and $101 for 
fruit, vegetable, and peanut operations. At the upper range, average 
estimated costs are lowest for peanut producers ($101) and highest for 
hog operations ($2,241).

    Table 7.--Estimated First-Year Implementation Costs Per Producer
                                Operation
------------------------------------------------------------------------
                                                Lower range  Upper range
                 Producer type                     costs        costs
------------------------------------------------------------------------
Cattle........................................         $190         $356
Sheep.........................................          190          231
Hogs..........................................          190        2,241
Fish..........................................          103          252
Fruit & Vegetable.............................          101          510
Peanuts.......................................          101          101
All...........................................          180          443
------------------------------------------------------------------------

    The spread between the estimated lower and upper range costs is 
greatest for hog operations. The primary reason for this is that the 
lower range cost estimate reflects estimated recordkeeping burden and 
depends primarily on the number of operations rather than the volume of 
production per operation.
    The upper range cost estimate reflects estimated costs per head, 
and depends primarily on the volume of production

[[Page 61968]]

per operation. Because average production per hog operation is 
comparatively large relative to other types of producer operations, 
estimated upper range costs per hog producer operation are relatively 
larger.
    The lower range and upper range cost estimates do not reflect an 
absolute lower bound and an absolute upper bound on costs that may be 
incurred by affected firms during the first year of implementation of 
this proposed rule. Based on the wide disparity in comments received on 
the voluntary COOL guidelines and this rulemaking, the range of 
implementation costs for the proposed rule span from virtually nothing 
to many billions of dollars. Thus, USDA developed a range of cost 
estimates that reflects its assessment of costs that are reasonably 
likely to be incurred during the first year of implementation.
    USDA believes that the major cost drivers for the proposed rule 
occur when livestock or covered commodities are transferred from one 
firm to another, when livestock or covered commodities are commingled 
in the production or marketing process, and when products are assembled 
and then redistributed to retail stores. In part, we believe that some 
requirements of the proposed rule will be accomplished by firms using 
essentially the same processes and practices as are currently used, but 
with information on country of origin claims added to the processes. 
This adaptation generally would require relatively small marginal costs 
for recordkeeping and identification systems. In other cases, however, 
firms may need to revamp current operating processes to implement the 
proposed rule. For example, a processing or packing plant may need to 
sort incoming products by country of origin in addition to weight, 
grade, color, or other quality factors. This may require adjustments to 
plant operations, line processing, product handling, and storage. 
Ultimately, we anticipate that a mix of solutions will be implemented 
by industry participants to effectively meet the requirements of the 
proposed rule. Therefore, we anticipate that direct incremental costs 
for the proposed rule likely will fall in the middle to upper end of 
the estimated range of $582 million to $3.9 billion.
    One regulatory alternative considered by AMS would be to narrow the 
definition of a processed food item, thereby increasing the scope of 
commodities covered by the proposed rule. This could be achieved, for 
example, by deleting from the definition of a processed food item ``a 
retail item derived from a covered commodity that has undergone a 
physical or chemical change, and has a character that is different from 
that of the covered commodity.''
    There is insufficient information available to determine the cost 
impacts of expanding the number of items that would require country of 
origin labeling. There is, however, an indicator that provides a 
partial picture of how costs would increase with a wider scope of 
covered commodities. Altering the definition of a processed food item 
as indicated above would expand the scope of coverage to virtually all 
pork items, many of which would otherwise be excluded because they have 
undergone a physical or chemical change such as curing or smoking. This 
alternative would increase the scope of pork products required to be 
labeled at retail to virtually the entire carcass. As a result, the 
pounds of pork requiring retail labeling would increase from 2.2 
billion pounds to 5.9 billion pounds. Upper range costs to retailers 
would increase by $258 million, a 166 percent cost increase to 
retailers and a 38 percent cost increase to the pork supply chain. 
Supply chains for the other covered commodities likely would experience 
similar types of cost increases.
    Another alternative for narrowing the definition of a processed 
food item would be to strike from the definition the phrase ``a covered 
commodity that has been combined with * * * other covered 
commodities.'' In other words, mixed products would require country of 
origin labeling. This would greatly increase the burden of providing 
and substantiating country of origin information. When products are 
mixed, the burden of tracking and identifying labeling information 
rises as a multiple of the number of commodities in the product and the 
number of countries of origin for each commodity. Given the wide array 
of mixed products available, the range of countries of origin for the 
component ingredients and the lack of available data, quantifying the 
cost impacts of this alternative is not possible. Nonetheless, USDA 
expects that the costs would be large.
    A converse regulatory alternative would be to broaden the 
definition of a processed food item, thereby decreasing the scope of 
commodities covered by the proposed rule. Accordingly, such an 
alternative would decrease implementation costs for the proposed rule. 
At the retail level and to a lesser extent at the intermediary level, 
cost reductions would be at least partly proportional to the reduction 
in the volume of production requiring retail labeling. Start-up costs 
for retailers and many intermediaries likely would be little changed by 
a narrowing of the scope of commodities requiring labeling because 
firms would still need to modify their recordkeeping, production, 
warehousing, distribution, and sales systems to accommodate the 
requirements of the proposed rule for those commodities that would 
require labeling under the proposed definitions. Ongoing maintenance 
and operational costs, however, likely would decrease in some 
proportion to a decrease in the number of items covered by the proposed 
rule. On the other hand, implementation costs for the vast majority of 
agricultural producers would not be affected by a change in the 
definition of a processed food item. This is because USDA assumes that 
virtually all affected producers would seek to retain the option of 
selling their products through supply channels for retailers subject to 
the proposed rule.
    USDA expects that further broadening the definition of a processed 
food item would have a relatively small impact on the incremental cost 
estimates. Reducing the number of items requiring labeling by expanding 
the definition of a processed food item would have a minimal impact on 
the estimated costs for producers and intermediaries; altering this 
definition would have the greatest impact on estimated retailer costs. 
However, the definition developed for this rule has taken into account 
comments from retailers and has resulted in excluding products that 
would be more costly and troublesome for retailers to provide country 
of origin information.
    In any case, little information is available to determine the 
extent to which the volume of covered commodities changes under 
alternative definitions of a processed food item. Therefore, there is 
little basis for quantifying the cost impacts of changing the 
definition.
    Another alternative considered by AMS would be to require that 
suppliers provide an affidavit for each transaction to the immediate 
subsequent recipient certifying that the country of origin claims and, 
if applicable, designations of wild or farm-raised, being made are 
truthful and that the required records are being maintained. USDA does 
not have an estimate of the number of transactions that would be 
impacted. Assuming, however, costs of just $0.001 per pound of product 
sold by producers and intermediaries, and assuming that commodities are 
transferred at least twice between intermediaries, costs would increase 
by more than $500 million compared to the alternative of having no 
affidavits. This would nearly double USDA's estimated lower range

[[Page 61969]]

costs for the proposed rule, and increase the estimated upper range 
costs by more than 12 percent.
    Effects on the economy: The previous section estimated the direct, 
incremental costs of the proposed rule to the affected firms in the 
supply chains for the covered commodities. While these costs are 
important to those directly involved in the production, distribution, 
and marketing of covered commodities, they do not represent net costs 
to the U.S. economy or net costs to the affected entities for that 
matter.
    Several analyses have examined the potential market level impacts 
of the COOL legislation. Lusk and Anderson (Ref. 36) analyzed the 
effects of mandatory COOL on the U.S. livestock sector by varying the 
magnitude of the incremental increases in costs and the share of these 
direct costs incurred by the producer and the combined processor/
retailer segments of the beef and pork sectors. There are similarities 
between their approach and the approach used herein, which is discussed 
below. In particular, Lusk and Anderson examined market effects 
stemming from a range of incremental increases in costs for the beef 
and pork sectors. Their analysis did not, however, include other 
covered commodities, such as fruit and vegetables, commodities directly 
affected by changes in livestock production, like corn and soybeans, or 
the effect of mandatory COOL legislation on the rest of the U.S. 
economy. Also, the model used by Lusk and Anderson to analyze the 
impacts on the poultry, beef and pork sectors together did not enable 
the effects of mandatory COOL on consumers or on U.S. welfare to be 
estimated.
    Grier and Kohl (Ref. 37) examined the impact of mandatory COOL on 
the U.S. pork sector. Their analysis assessed impacts on employment, 
the environment, and hog production but did not do so in an integrated 
framework. As a result, their study does not account for the pork 
sector's adjustment to changes in consumption and production patterns. 
In addition, the major impacts of their study result from their 
assumption that mandatory COOL would cause U.S. imports of Canadian 
feeder pigs to cease. USDA finds this assumption to be implausible 
because there is no credible evidence that mandatory COOL, at least as 
outlined under the proposed rule, will lead to a cessation of the hog 
trade between Canada and the United States.
    The results of these analyses, while instructive, are limited in 
their usefulness because they only represent the results from an 
incomplete or partial adjustment of the agriculture sector and the U.S. 
economy to mandatory COOL. These analyses are not comprehensive in 
their coverage of affected commodity sectors, focusing on the livestock 
sector for instance. Nor are the analyses comprehensive in their 
depiction of the linkages between the covered commodities and the rest 
of the U.S. economy and consequently their depiction of the overall 
economic adjustments that occur as a result of COOL. Consequently the 
results from these analyses are not readily comparable to USDA's 
analysis of the impacts of the proposed rule on the U.S. economy 
discussed below.
    With respect to assessing the effect of this rule on the economy as 
a whole, it is important to understand that a significant portion of 
the costs directly incurred by the affected entities take the form of 
expenditures for additional production inputs, such as payments to 
others whether for increased hours worked or for products and services 
provided. As such, these direct, incremental costs to affected entities 
do not represent losses to the economy but rather transfers of money 
from one economic agent to another. As a result, the direct costs 
incurred by the participants in the supply chains for the covered 
commodities do not measure the impact of this rule on the economy as a 
whole. Instead, the relevant measure is the extent to which the 
proposed rule reduces the amount of goods and services that can be 
produced throughout the U.S. economy from the available supply of 
inputs and resources.
    Even from the perspective of the directly affected entities, the 
direct, incremental costs do not present the whole picture. Initially, 
the affected entities will have to bear the full cost of implementing 
the proposed rule. However, over time as the economy adjusts to the 
requirements of the proposed rule, the burden facing suppliers will be 
reduced as their production level and the prices they receive change. 
What is critical in assessing the effect of this rule on the affected 
entities over the longer run is to determine the extent to which the 
entities are able to pass these costs on to others and consequently how 
the demand for their commodities is affected.
    Conceptually, suppose that all the increases in costs from the 
proposed rule were passed on to consumers in the form of higher prices 
and that consumers continued to purchase the same quantity of the 
affected commodities from the same marketing channels. Under these 
conditions, the suppliers of these commodities would not suffer any net 
loss from the proposed rule even if the increases in their operating 
costs were quite substantial. However, other industries might face 
losses as consumers may spend less on other commodities. It is 
unlikely, however, absent the proposed rule leading to changes in 
consumers' preferences for the covered commodities, that consumers will 
maintain their consumption of the covered commodities in the face of 
increased prices. Rather, consumers will likely reduce their 
consumption of the covered commodities. The resulting changes in 
consumption patterns will in turn lead to changes in production 
patterns and the allocation of inputs and resources throughout the 
economy. The net result, once all these changes have occurred, is that 
the total amount of goods and services produced by the U.S. economy 
will be less than before.
    To analyze the effect of the changes resulting from the proposed 
rule on the total amount of goods and services produced throughout the 
U.S. economy in a global context, USDA utilized a computable general 
equilibrium (CGE) model developed by ERS. The ERS CGE model includes 
all the covered commodities and the products from which they are 
derived, as well as non-covered commodities that will be indirectly 
affected by the rule, such as poultry and feed grains. Peanuts, 
however, are aggregated with oilseeds in the model, and there is no 
meaningful way to modify the model to account for the impacts of the 
proposed rule on peanut production, processing, and consumption. The 
peanut sector, however, accounts for only 0.2 percent to 0.3 percent of 
the total estimated incremental costs for all directly impacted 
entities. Thus, omitting the direct costs on the peanut sector is 
expected to have negligible impacts withrespect to estimated impacts on 
the overall U.S. economy.
    The ERS CGE model traces the impacts from an economic ``shock,'' in 
this case an incremental increase in operating costs, through the U.S 
agricultural sector and the U.S economy to the rest of the world and 
back through the inter-linking of economic sectors. By taking into 
account the linkages among the various sectors of the U.S. and world 
economies, a comprehensive assessment can be made of the economic 
impact on the U.S. economy of the proposed rule implementing COOL. The 
model reports resulting economic changes after a ten-year period of 
adjustment.
    The results of this analysis indicate that the proposed rule 
implementing

[[Page 61970]]

COOL after the economy has had a period of ten years to adjust will 
have a more limited impact on the overall U.S. economy than the direct 
costs for the first year, alone, would suggest. Under the assumption 
that COOL will not change consumers' preferences for the covered 
commodities, USDA estimates that the overall costs to the U.S. economy 
of the proposed rule will, in terms of a reduction in consumers' 
purchasing power, range from $138 million to $596 million. This 
represents the cost to the U.S. economy after all transfers and 
adjustments in consumption and production patterns have occurred.
    Overall costs to the U.S. economy after a decade of adjustment are 
significantly smaller than the first-year implementation costs to 
directly affected firms. This result does not imply that the 
implementation costs for directly affected firms have been 
substantially reduced from the initial estimates. While some of the 
increase in their costs will be offset by reduced production and higher 
prices over the longer term, the suppliers of the covered commodities 
will still bear direct implementation costs. Prior to full economic 
adjustment, economic impacts on directly affected firms in the short 
term are expected to be larger than impacts on the economy after 
adjustment has taken place.
    USDA estimates of the overall costs to the U.S. economy are based 
on our estimates of the incremental increases in operating costs to the 
affected firms. The model does not permit supply channels for covered 
commodities that require country of origin information to be separated 
from supply channels for the same commodities that do not require 
country of origin labeling. Thus, the direct cost impacts must be 
adjusted to accurately reflect changes in operating costs for all firms 
supplying covered commodities. Table 8 reports these adjusted estimates 
in terms of their percentage of total operating costs for each of the 
directly impacted sectors. The percentages used are based on our 
estimate of the percentage change in operating costs for the entire 
supply channel and are adjusted between the various segments of each 
covered commodities' supply chain (producers, processors, importers, 
and retailers) based on USDA's estimate of how the costs of the 
regulation will be distributed among them. As a result, the cost 
changes shown in Table 8 only approximate the range of direct cost 
estimates previously described.
    In addition, USDA assumes that domestic and foreign suppliers of 
the affected commodities located at the same level or segment of the 
supply chain face the same percentage increases in their operating 
costs. In reality, imported covered commodities likely would enjoy some 
measure of competitive advantage as a portion of those products already 
enter the United States with country of origin labels.

   Table 8.--High and Low Increase in Operating Costs by Supply Chain
                          Segment and Industry
------------------------------------------------------------------------
                                           Pork &                Fresh
                                 Beef       lamb       Fish     produce
------------------------------------------------------------------------
                                             Percent change
                             ------------
Low Cost:
    Farm Supply:
        Domestic............       0.50       0.25       0.25       0.25
        Imported............       0.50       0.25       0.25       0.25
    Processing:
        Domestic............       0.50       0.50      (\1\)      (\1\)
        Imported............       0.50       0.50      (\1\)      (\1\)
    Retail:
        Domestic............       0.50       0.50       0.50       0.75
        Imported............       0.50       0.50       0.50       0.75
High Cost:
    Farm Supply:
        Domestic............       2.00       1.00       1.00       1.00
        Imported............       2.00       1.00       1.00       1.00
    Processing:
        Domestic............       2.00       2.00      (\1\)      (\1\)
        Imported............       2.00       2.00      (\1\)      (\1\)
    Retail:
        Domestic............       2.00       2.00       2.00       3.00
        Imported............       2.00       2.00       2.00       3.00
------------------------------------------------------------------------
\1\ Not applicable.

    As discussed above, consumption and production patterns will change 
as the incremental increases in operating costs outlined above are 
passed on, at least partially, to consumers in the form of higher 
prices by the affected firms. The increases in the prices of the 
covered commodities will in turn cause exports and domestic consumption 
and ultimately domestic production to fall. The results of our analysis 
indicate that U.S. production of all the covered commodities combined 
will decline from 0.15 percent to 0.92 percent and that the overall 
price level for these commodities (a weighted average index of the 
prices received by suppliers for their commodities) will increase by 
0.06 percent to 0.64 percent.
    The structure of the model does not enable changes in net revenues 
to suppliers of the covered commodities to be determined. Likewise, the 
model cannot be used to determine the extent to which the reductions in 
production arise from some firms going out of business or all firms 
cutting back on their production. To provide an indication of what 
effect this will have on the suppliers of the covered commodities, USDA 
estimated changes in revenues using the model results. The result of 
this calculation shows that revenues to suppliers of the covered 
commodities will decline by $175 million to $195 million.
    The costs of the proposed rule, however, will not be shared equally 
by all suppliers of the covered commodities. The distribution of the 
final costs of the rule will be determined by several factors in 
addition to the

[[Page 61971]]

direct costs of complying with the rule. These are the availability of 
substitute products not covered by the rule and the relative 
competitiveness of the affected suppliers with respect to other sectors 
of the U.S and world economies.
    Although the increases in operating costs are the initial drivers 
behind the changes in consumption and production patterns resulting 
from this rule, they do not, as can be seen by examining Table 9, 
determine which commodity sector will be most affected. Table 9 
contains the percentage changes in prices, production, exports, and 
imports for the three main segments of the marketing chain by covered 
commodity. The results are reported for the low and high end of the 
estimated range of increases in incremental costs. Table 9 also 
presents results for chicken, which is not a covered commodity but is a 
substitute for beef, lamb, and pork and as a result could be 
significantly affected by changes in consumption of these products. As 
mentioned previously, in the ERS CGE model peanuts are included with 
oilseed products. As a result they are not included in this analysis.

    Table 9.--Estimated Impact of Proposed Rule on U.S. Production, Prices and Trade of Impacted Sectors \1\
----------------------------------------------------------------------------------------------------------------
                                                       Price        Production        Exports         Imports
----------------------------------------------------------------------------------------------------------------
                                                                 Percent change from the base year
                                                 -----------------
Low Incremental Cost:
    Fruits and Vegetables.......................            0.11           -0.15           -0.17           -0.20
    Cattle and Sheep............................            0.05           -0.14           -0.11           -0.06
    Broilers....................................            0.01            0.01           -0.00            0.02
    Hogs........................................            0.05           -0.07           -0.05            0.01
    Beef and Lamb...............................            0.07           -0.15           -0.05           -0.10
    Chicken.....................................            0.01            0.04            0.01            0.03
    Pork........................................            0.06           -0.17           -0.09           -0.12
    Fish........................................            0.15           -0.26           -0.12            0.01
High Incremental Cost:
    Fruits and Vegetables.......................            0.43           -0.49           -0.62           -0.26
    Cattle and Sheep............................            0.24           -0.33           -0.37           -0.08
    Broilers....................................            0.02            0.03           -0.00            0.03
    Hogs........................................            0.07           -0.15           -0.16           -0.03
    Beef and Lamb...............................            0.27           -0.34           -0.40           -0.25
    Chicken.....................................            0.11            0.07           -0.07            0.16
    Pork........................................            0.26           -0.39           -0.48           -0.08
    Fish........................................            0.64           -0.92           -1.04            0.22
----------------------------------------------------------------------------------------------------------------

    Fish and fruit and vegetables are affected relatively more than the 
other covered commodities even though the increases in incremental 
costs summed over their entire supply chains are lower than the sum of 
the increases in incremental costs for the supply chains of the other 
covered commodities. This is because the demands for fruits and 
vegetables and fish are more responsive to changes in prices than are 
the demands for the other covered commodities.
    Demand for U.S. fish production is particularly sensitive to 
increases in prices because in the model, U.S. fish suppliers have less 
of a competitive advantage over their foreign counterparts than do the 
U.S. suppliers of the other covered commodities. As a result, fish 
imports increase as a result of the estimated cost increases, causing 
U.S. production to fall more (one percent) than it would if imports of 
fish had declined similar to imports of all the other covered 
commodities.
    U.S. poultry suppliers are also affected by the proposed rule even 
though they are not directly covered by the rule. This is because 
consumers will substitute chicken for beef and pork when their prices 
increase relative to the price of chicken. Consequently, the increases 
in pork and beef prices cause consumer demand to shift towards chicken. 
The resulting increase in demand for chicken causes the price of both 
chicken and broilers and ultimately their production to increase.
    To put these impacts in more meaningful terms, the percentage 
changes reported in Table 9 were converted into changes in current 
prices and quantities produced, imported, and exported (Table 10). The 
base values used for calculating these changes are the projected values 
for 2003 as reported in the UDSA Agricultural Baseline Projections to 
2012 (Ref. 38), except for fish, which comes from Fisheries of the 
United States, 2001 (Ref. 23). The base values in Table 10 vary from 
those reported in Table 4 because they are derived from projected 
levels reported in the USDA Agricultural Baseline for 2003, while 
values in Table 4 represent actual reported values for 2002 as compiled 
by the USDA's National Agricultural Statistical Service. Baseline 
values were used to accommodate the structure of the model.
    Increases in prices for all covered commodities are small, less 
than one cent per pound. Production changes are similarly small, less 
than 100 million pounds for all covered commodities except fresh fruit 
and vegetables, which under the high cost ``shock'' declines by over a 
billion pounds. The declines in production of cattle and hogs mirroring 
the declines in beef and pork production fall by less than 200,000 
head.
BILLING CODE 3410-02-P

[[Page 61972]]

[GRAPHIC] [TIFF OMITTED] TP30OC03.006

BILLING CODE 3410-02-C

[[Page 61973]]

    The estimated changes in prices and production cause revenues for 
the fruit and vegetable industry to decline an estimated $12 million to 
$18 million. The estimated changes in production and prices cause 
revenues to beef cattle producers to fall $28 million and revenues from 
production and sale of beef to fall an estimated $70-$62 million 
dollars. In addition, revenues to hog production fall slightly, down $2 
million to $8 million and revenues from production and sale of pork 
fall $58 million to $68 million. Finally, revenues to the fish industry 
fall $5 million to $12 million.
    While revenues to the suppliers of the covered commodities fall, 
revenues to broiler and chicken suppliers increase. This is because the 
quantity of chicken demanded increases as consumers reduce their 
consumption of beef and pork in response to the increase in prices. The 
resulting changes in chicken and broiler production and prices, 
however, are relatively small (Table 10). The increase in both chicken 
and broiler prices is less than one cent, while broiler production 
increases by up to 1 million birds and chicken production increases by 
up to 23 million pounds. The increases in prices and production will 
cause revenues for broiler production to increase by an estimated $3 
million to $8 million and revenues from chicken production to increase 
an estimated $26 to $94 million.
    The increase in the prices of all affected commodities (except for 
fish) causes both exports and imports to decline (Table 10). Although 
these declines are small, they are for the most part smaller than the 
declines in U.S. production of these commodities, except for chicken 
where U.S. production increases.
    The results presented here are based on one possible modeling 
framework. Consequently, the results depend on the representation of 
supply and demand relationships embedded in the ERS CGE model. Other 
types of modeling frameworks likely would yield different results. 
Unless these frameworks, however, are comprehensive in their coverage 
of both covered commodities and the linkages of these industries to the 
rest of the U.S. and world economy, their results would only represent 
the outcomes from a partial or incomplete adjustment of the economy to 
COOL. While their analysis may be useful for identifying the key 
factors for determining how specific industries or sub-sectors would be 
affected, they would not be useful for determining the effects of COOL 
on these industries and sub-sectors after the U.S. economy has 
completely adjusted.
    Other CGE models that are as detailed in their coverage of the 
covered commodities as the ERS model may also provide different results 
than the ones presented here. In particular, the direction of change in 
the prices received by hog, cattle and fruit and vegetable producers 
may change if these models make a different assumption about the 
ability of firms to influence input and output prices. The ERS CGE 
model assumes that firms behave as though they have no influence on 
either their input or output prices. On the other hand, for example, a 
model that assumed that processors could influence their input and 
output prices could find that prices received by agricultural producers 
decreased because processors passed their cost increases down to their 
suppliers rather than increase the price they charged their customers.
    Finally, the estimates of the economic impact of the proposed rule 
on the United States are based on the assumption that country of origin 
labeling does not shift consumer demand toward the covered commodities 
of U.S.-origin. This assumption is based on the earlier finding that 
there was no compelling evidence to support the view that mandatory 
country of origin labeling will increase the demand for U.S. products. 
Despite this lack of evidence, we examined how much of a shift or 
increase in demand for U.S.-origin labeled commodities would have to 
occur to offset the costs imposed on the economy by the proposed rule. 
We found that consumer demand for the covered commodities would have to 
increase from 0.4 percent to 2.1 percent to offset the costs to the 
economy of COOL as outlined in the proposed rule.
    The 0.4 percent to 2.1 percent increase in demand for covered 
commodities represents the overall increase in demand from all outlets. 
If there were such a demand increase for domestically produced covered 
commodities, however, it would presumably occur at those retailers 
required to provide country of origin information. As previously 
discussed, USDA estimates the percentage share of covered commodities 
sold by retailers subject to this proposed rule at 41.4 percent of 
total consumption. This suggests that demand at covered retailers 
actually would have to increase by 1 percent to 5.1 percent, assuming 
no change in demand at other domestic outlets or in export demand.
    As previously mentioned, our estimates of the overall economic 
effects of the proposed rule are derived from a CGE model developed by 
ERS. The results from this model show the changes in production and 
consumption patterns after the economy has adjusted to the incremental 
increase in costs (medium run results). In reality, such changes occur 
over time and the economy does not adjust instantaneously.
    The results of this analysis describe and compare the old 
production and consumption patterns to the new ones, but do not reflect 
any particular adjustment process. In addition, these results assume 
that the only changes that are occurring in the agriculture sector or 
the economy as a whole are those that are driven by COOL. The purpose 
of using the ERS CGE model is not to forecast what prices and 
production will be over any particular time frame, but to explore the 
implications of COOL on the U.S. economy and capture the direction of 
the changes.
    The ERS CGE model is global in the sense that all regions in the 
world are covered. Production and consumption decisions in each region 
are determined within the model following behavior that is consistent 
with economic theory. Multilateral trade flows and prices are 
determined simultaneously by world market clearing conditions. This 
permits prices to adjust to ensure that total demand equals total 
supply for each commodity in the world.
    The general equilibrium feature of the model means that all 
economic sectors--agricultural and non-agricultural--are included. 
Hence, resources can move among sectors, thereby ensuring that 
adjustments in the feed grains and livestock sectors, for example, are 
consistent with adjustments in the processed sectors.
    The model is static and this implies that gains (or losses) from 
stimulating (or inhibiting) investment and productivity growth are not 
captured. The model allows the existing resources to move among 
sectors, thereby capturing the effects of re-allocation of resources 
that results due to policy changes. However, because the model fixes 
total available resources it underestimates the long-run effects of 
policies on aggregate output.
    The ERS CGE model uses data from the Global Trade Analysis Project 
(GTAP database, version 5.2). The database represents the world as of 
1997 and includes information on macroeconomic variables, production, 
consumption, trade, demand and supply elasticities, and policy 
measures. The GTAP database includes 57 commodities and 76 country/
regions. For this analysis, the regions were represented by the 
following country/regions: the United States, Canada,

[[Page 61974]]

Mexico, the European Union-15 (EU), Japan, Australia and New Zealand, 
South America (including Central America), and the rest of the World. 
The agricultural sector is subdivided into the following eight 
commodity aggregations: food grains (rice, wheat), feed grains (corn, 
barley, sorghum), oil crops (oilseeds, peanuts), vegetables and fresh 
fruits, other crops (sugar, cotton), bovine cattle and sheep, hogs and 
poultry. The non-agricultural sector is subdivided into the following 
seven commodity aggregations, cattle and sheep meats (beef, veal, lamb 
and mutton), pork, chicken, vegetable oils and fats, other processed 
food products, beverages and tobacco, and fish. The remaining sectors 
in the database were aggregated into one broad category of 
manufacturing.

Regulatory Flexibility Analysis

    This proposed rule has been reviewed under the requirements of the 
Regulatory Flexibility Act (RFA)(5 U.S.C. 601 et seq.). The purpose of 
RFA is to consider the economic impact of a proposed rule on small 
businesses 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 
marketplace. AMS believes that this rule will have a significant 
economic impact on a substantial number of small entities. As such, AMS 
has prepared the following regulatory analysis of the rule's likely 
economic impact on small entities pursuant to the RFA.
    The proposed rule is the direct result of statutory obligations to 
implement the COOL provisions of the Farm Bill, which amended the Act 
by adding Subtitle D--Country of Origin Labeling.
    The COOL provisions of the Farm Bill require USDA to issue 
regulations to implement a mandatory COOL program not later than 
September 30, 2004. The intent of this law is to provide consumers with 
additional information on which to base their purchasing decisions. 
Specifically, the law imposes additional Federal labeling requirements 
for covered commodities. Covered commodities include muscle cuts of 
beef (including veal), lamb, and pork; ground beef, ground lamb, and 
ground pork; farm-raised fish and shellfish; wild fish and shellfish; 
perishable agricultural commodities (fresh and frozen fruits and 
vegetables); and peanuts.
    Under current Federal laws and regulations, country of origin 
labeling is not universally required for the commodities covered by 
this rule. In particular, labeling of U.S. origin is not mandatory, and 
labeling of imported products at the consumer level is required only in 
certain circumstances. Thus, USDA has not identified any Federal rules 
that would duplicate or overlap with this proposed rule.
    Many aspects of the mandatory COOL provisions are prescriptive and 
provide little regulatory discretion in rulemaking. The law requires a 
statutorily defined set of food retailers to label the country of 
origin of covered commodities. The law also prohibits USDA from using a 
mandatory identification system to verify the country of origin of 
covered commodities. However, the proposed rule provides flexibility in 
allowing market participants to decide how best to implement mandatory 
COOL in their operations. In addition, market participants other than 
those retailers defined by the statute may decide to sell products 
through marketing channels not subject to the proposed rule.
    The objective of the proposed rule is to regulate the activities of 
retailers (as defined by the law) and their suppliers so that retailers 
will be able to fulfill their statutory obligations. The proposed rule 
requires retailers to provide country of origin information for all the 
covered commodities that they sell. It also requires all firms that 
supply covered commodities to these retailers to provide the retailers 
with the information needed for them to correctly label the covered 
commodities. In addition, all other firms in the supply chain for the 
covered commodities are potentially affected by the proposed rule, 
because country of origin information will need to be maintained and 
transferred along the entire supply chain. In general, the supply 
chains for the covered commodities consist of farms, fishing 
operations, processors, wholesalers, and retailers. A listing of the 
number of entities in the supply chains for each of the covered 
commodities can be found in Table 1.
    Retailers covered by this proposed rule must meet the definition of 
a retailer as defined by PACA. The PACA definition includes only those 
retailers handling fresh and frozen fruits and vegetables with an 
invoice value of at least $230,000 annually. Therefore, the number of 
retailers impacted by this rule is considerably smaller than the total 
number of retailers nationwide. In addition, there is no requirement 
that firms in the supply chain must supply their products to retailers 
subject to the proposed rule.
    Because country of origin information will have to be passed along 
the supply chain and made available to consumers at the retail level, 
we assume that each participant in the supply chain as identified in 
Table 1 will likely encounter recordkeeping costs as well as changes or 
modifications to their business practices. Absent more detailed 
information about each of the entities within each of the marketing 
channels, USDA assumes that all such entities will be affected to some 
extent even though some producers and suppliers may choose to market 
their products through channels not subject to the requirements of this 
proposed rule. Therefore, USDA estimates that approximately 1,377,000 
establishments owned by approximately 1,339,000 entities will be either 
directly or indirectly impacted by this rule.
    This proposed rule potentially will have an impact on all 
participants in the supply chain, although the nature and extent of the 
impact will depend on the participant's function within the marketing 
chain. The rule likely will have the greatest impact on retailers and 
intermediaries (handlers, processors, wholesalers, and importers), 
while the impact on individual producers is likely to be relatively 
small.
    USDA estimates direct incremental costs for the proposed rule will 
likely range from a total of $582 million to $3.9 billion.
    There are two measures used by the Small Business Administration 
(SBA) to identify businesses as small: sales receipts or number of 
employees. In terms of sales, SBA classifies as small those grocery 
stores with less than$23 million in annual sales and specialty food 
stores with less than $6 million in annual sales (13 CFR 121.201). 
Warehouse clubs and superstores with less than $23 million in annual 
sales are also defined as small. SBA defines as small those 
agricultural producers with less than $750,000 in annual sales and 
fishing operations with less than $3.5 million in annual sales. Of the 
other businesses potentially impacted by the proposed rule, SBA 
classifies as small those manufacturing firms with less than 500 
employees and wholesalers with less than 100 employees.
    Retailers: While there are many potential retail outlets for the 
covered commodities, food stores, warehouse clubs, and superstores are 
the primary retail outlets for food consumed at home. In fact, food 
stores, warehouse clubs, and superstores account for 82.5 percent of 
all food consumed at home (Ref. 29). Therefore, the number of these 
stores provides an indicator of the number of entities potentially 
impacted by this proposed rule. The 1997 Economic Census (Ref. 39) 
shows there were 67,916 food store, warehouse club, and superstore 
firms operated for the entire year. Most of these firms,

[[Page 61975]]

however, would not be subject to the requirements of this proposed 
rule.
    Retailers covered by this proposed rule must meet the definition of 
a retailer as defined by PACA. The number of such businesses is 
estimated from PACA data (Ref. 18). The PACA definition of a retailer 
includes only those retailers handling fresh and frozen fruits and 
vegetables with an invoice value of at least $230,000 annually. 
Therefore, the number of retailers impacted by this rule is 
considerably smaller than the number of food retailers nationwide. USDA 
data indicate that there are 4,512 retail firms as defined by PACA that 
would thus be subject to the proposed rule. As explained below, most 
small food store firms have been excluded from mandatory COOL based on 
the PACA definition of a retailer.
    The 1997 Economic Census data provide information on the number of 
food store firms by sales categories. Of the 67,916 food store, 
warehouse club, and superstore firms, USDA estimates that there are 
66,868 firms with annual sales meeting the SBA definition of a small 
firm and 1,048 other firms. USDA has no information on the identities 
of these firms, and the PACA database does not identify firms by North 
American Industry Classification System code that would enable matching 
with Economic Census data. USDA assumes, however, that all or nearly 
all of the 1,048 large firms would meet the definition of a PACA 
retailer because most of these larger food retailers likely would 
handle fresh and frozen fruits and vegetables with an invoice value of 
at least $230,000 annually. Thus, USDA estimates that 77 percent (3,464 
out of 4,512) of the retailers subject to the proposed rule are small. 
However, this is only 5.2 percent of the estimated total number of 
small food store retailers. In other words, an estimated 94.8 percent 
of small food store retailers would not be subject to the requirements 
of the proposed rule.
    USDA estimates retailer costs under the proposed rule from a low of 
$224 million to a high of $1.8 billion. Costs per retail firm are 
estimated to range from a low of $49,581 to a high of $396,089. At the 
low end of the range of estimates, additional costs arise from setting 
up and maintaining a recordkeeping system, which USDA expects will be 
accomplished by modification of businesses' current recordkeeping 
systems. Average startup costs for setting up such recordkeeping 
systems are estimated at $1,309 and recurring costs are estimated at 
$48,272 per retail firm. On an establishment basis, average startup 
costs are estimated at $159 and recurring costs are estimated at $5,859 
per retail establishment. At the high end of the range, implementation 
costs are estimated at $48,073 per retail establishment. Costs at the 
upper range of the range of estimates cannot be disaggregated into 
startup and recurring costs, but rather represents total first-year 
costs associated with implementation of the proposed rule. Retailers 
will face recordkeeping costs, costs associated with supplying country 
of origin information to consumers, costs associated with segmenting 
products by country of origin, and possibly additional handling costs. 
These cost increases may result in changes to retailer business 
practices. The proposed rule does not specify the systems that affected 
retailers must put in place to implement mandatory COOL. Instead, 
retailers will be given flexibility to develop their own systems to 
comply with the proposed rule. There are many ways in which the 
proposed rule's requirements may be met and firms will likely choose 
the least cost method in their particular situation to comply with the 
proposed rule.
    Wholesalers: Any establishment that supplies retailers with one or 
more of the covered commodities will be required by retailers to 
provide country of origin information so that retailers can accurately 
supply that information to consumers. Of wholesalers potentially 
impacted by the proposed rule, SBA defines those having less than 100 
employees as small. Importers of covered commodities will also be 
impacted by the proposed rule and are categorized as wholesalers in the 
data.
    The 2000 Statistics of U.S. Businesses (Ref. 9) provides 
information on wholesalers by employment size. For meat and meat 
products wholesalers there is a total of 3,185 firms. Of these, 3,057 
firms have less than 100 employees. This provides information that 
indicates that approximately 96 percent of meat wholesalers are 
considered as small firms using the SBA definition.
    For fish and seafood wholesalers there are a total of 2,897 firms. 
Of these, 2,837 firms have less than 100 employees. Therefore, 
approximately 98 percent of the fish and seafood wholesalers could be 
considered as small firms.
    For fresh fruit and vegetable wholesalers there are a total of 
5,355 firms. Of these, 5,113 firms have less than 100 employees, 
resulting in approximately 95 percent of the fresh fruit and vegetable 
wholesalers being classified as small businesses.
    In addition to specialty wholesalers that primarily handle a single 
covered commodity, there are also general-line wholesalers that handle 
a wide range of products. We assume that these general-line wholesalers 
likely handle at least one and possibly all of the covered commodities. 
Therefore, we include the number of general-line wholesale businesses 
among entities affected by the proposed rule.
    The 2000 Statistics of U.S. Businesses provides information on 
general-line grocery wholesalers by employment size. There were 3,183 
firms in total, and 2,983 firms had less than 100 employees. This 
results in approximately 94 percent of the general-line grocery 
wholesalers being classified as small businesses.
    In general, over 94 percent of the wholesalers are classified as 
small businesses. This indicates that most of the wholesalers impacted 
by mandatory COOL may be considered as small entities as defined by 
SBA.
    USDA estimates that intermediaries (importers and domestic 
wholesalers, handlers, and processors) will incur costs under the 
proposed rule ranging from a low of $123 million to a high of $1.517 
billion. Costs per intermediary firm are estimated to range from a low 
of $4,048 to a high of $50,086. As with retailers, lower-range costs 
for intermediaries arise from setting up and maintaining a 
recordkeeping system. Average startup costs for setting up such 
recordkeeping systems are estimated at $1,309 and recurring costs are 
estimated at $2,739 per intermediary firm. Average startup costs are 
estimated at $1,113 and recurring costs are estimated at $2,330 per 
intermediary establishment. At the high end of the range, 
implementation costs are estimated at $42,602 per intermediary 
establishment. Costs at the upper range of estimates cannot be 
disaggregated into startup and recurring costs, but rather represent 
total first year costs associated with implementation of the proposed 
rule.
    Wholesalers will encounter increased costs in complying with the 
mandatory COOL. Wholesalers will likely face increased recordkeeping 
costs, costs associated with supplying country of origin information to 
retailers, costs associated with segmenting products by country of 
origin, and possibly additional handling costs. Some of the comments 
received on the voluntary guidelines (67 FR 63367) from wholesalers and 
retailers have indicated that retailers may choose to source covered 
commodities from a single supplier that procures the covered commodity 
from only one country in an attempt to minimize the costs associated 
with complying with mandatory COOL. These changes in business practices

[[Page 61976]]

could lead to the further consolidation of firms in the wholesaling 
sector. The proposed rule does not specify the systems that affected 
wholesalers must put in place to implement mandatory COOL. Instead, 
wholesalers will be given flexibility to develop their own systems to 
comply with the proposed rule. There are many ways in which the 
proposed rule's requirements may be met. In addition, wholesalers have 
the option of supplying covered commodities to retailers or other 
suppliers that are not covered by the proposed rule.
    Manufacturers: Any manufacturer that supplies retailers or 
wholesalers with a covered commodity will be required by retailers to 
provide country of origin information to retailers so that the 
information can be accurately supplied to consumers. Most manufacturers 
of covered commodities will likely print country of origin information 
on retail packages supplied to retailers. Of the manufacturers 
potentially impacted by the proposed rule, SBA defines those having 
less than 500 employees as small.
    The 2000 Statistics of U.S. Businesses (Ref. 9) provides 
information on manufacturers by employment size. For livestock 
processing and slaughtering there is a total of 3,098 firms. Of these, 
2,981 firms have less than 500 employees. This suggests that 96 percent 
of livestock processing and slaughtering operations would be considered 
as small firms using the SBA definition.
    For seafood product preparation and packaging there is a total of 
741 firms. Of these, 714 have less than 500 employees and thus, 96 
percent are considered to be small firms.
    For frozen fruit, juice, and vegetable manufacturers there is a 
total of 163 firms. There are 131 of these firms that are considered to 
be small. This suggests that 80 percent of the frozen fruit, juice, and 
vegetable manufacturers would be considered as small using the SBA 
definition.
    There are a total of 140 roasted nuts and peanut butter 
manufacturers. Of these 140 firms, 121 could be considered as small. 
This results in 86 percent of the operations being considered small.
    In general, approximately 95 percent of the manufacturers are 
classified as small businesses. This indicates that most of the 
manufacturers of covered commodities impacted by the proposed rule 
would be considered as small entities as defined by SBA.
    Manufacturers are included as intermediaries and additional costs 
for these firms are discussed in the previous section addressing 
wholesalers. Manufacturers of covered commodities will encounter 
increased costs in complying with the mandatory COOL. Manufacturers 
like wholesalers will likely face increased recordkeeping costs, costs 
associated with supplying country of origin information to retailers, 
costs associated with segmenting products by country of origin, and 
possibly additional handling costs. Some of the comments received on 
the voluntary guidelines (67 FR 63367) from manufacturers have 
indicated that they may limit the number of sources from which they 
procure raw products. These changes in business practices could lead to 
the further consolidation of firms in the manufacturing sector. The 
proposed rule does not specify the systems that affected manufacturers 
must put in place to implement mandatory COOL. Instead, manufacturers 
will be given flexibility to develop their own systems to comply with 
the proposed rule. There are many ways in which the proposed rule's 
requirements may be met.
    Producers: Producers of the covered commodities fish, perishable 
agricultural commodities, and peanuts are directly impacted by this 
proposed rule. Producers of cattle, hogs, and sheep, while not directly 
covered by this rule will nevertheless be impacted because covered meat 
commodities are produced from livestock. Whether directly or indirectly 
impacted, these producers will more than likely be required by handlers 
and wholesalers to create and maintain country of origin information 
and transfer it to them so that they can readily transfer this 
information to retailers.
    SBA defines a small agricultural producer as having annual receipts 
less than $750,000. The 1997 Census of Agriculture (Ref. 16) shows 
there are 1,011,809 farms that raise beef cows, and USDA estimates that 
20,696 of these have annual receipts greater than $750,000. Thus, at 
least 98 percent of these beef cattle farms would be classified as 
small businesses according to the SBA definition. Similarly, an 
estimated 93 percent of hog farms would be considered as small and an 
estimated 99 percent of sheep and lamb farms would be considered as 
small.
    Based on 1997 Census of Agriculture information, 92 percent of 
vegetable farms, 94 percent of fruit, nut, and berry farms, and 91 
percent of peanut farms could be classified as small.
    Based on 1998 Census of Aquaculture data, USDA estimates that at 
least 90 percent of fish and shellfish farming operations are small.
    Similar information on fishing operations is not known to exist. 
However, it is assumed that the majority of these producers would be 
considered as small businesses.
    At the production level, agricultural producers and fish harvesters 
will need to create, if necessary, and maintain records to establish 
country of origin information for the products they sell. This 
information will need to be conveyed as the products move through the 
supply chains. In general, additional producer costs include the cost 
of establishing and maintaining a recordkeeping system for the country 
of origin information, animal or product identification, and labor and 
training. Based on USDA's knowledge of the affected industries as well 
as comments received on the voluntary guidelines (67 FR 63367), USDA 
believes that producers already have much of the information available 
that could be used to substantiate country of origin. Cattle, hog, and 
lamb and sheep producers may have a slightly larger burden for 
recordkeeping than fruit, vegetable, and peanut producers because 
animals can be born in one country and fed and slaughtered in another 
country.
    The costs for producers are expected to be relatively limited and 
should not have a larger impact on small producers than large 
producers. Producer costs are estimated to range from $235 million to 
$578 million, or an estimated $180 to $443 per firm. As with other 
affected businesses, lower-range costs for producers arise from setting 
up and maintaining a recordkeeping system. Average startup costs for 
setting up such recordkeeping systems are estimated at $60 and 
recurring costs are estimated at $121 per producer operation. In the 
case of producers, the firm and the establishment are considered as one 
and the same, with the exception of a small number of fishing 
operations. Thus, costs per firm and per establishment are the same 
after rounding to the nearest dollar. At the high end of the range, 
implementation costs are estimated $443 per producer operation. Costs 
at the upper range of estimates cannot be disaggregated into startup 
and recurring costs, but rather represent total first year costs 
associated with implementation of the proposed rule.
    Economic impact on small entities: Information on sales or 
employment is not available for all firms or establishments shown in 
Table 1. However, it is reasonable to expect that this proposed rule 
will have a substantial impact on a number of small businesses. At the 
wholesale and retail levels of the supply chain, the efficiency of 
these operations may be impacted as

[[Page 61977]]

products are segregated in receiving, storage, processing, and shipping 
operations. For packers and processors handling products from multiple 
origins, there may also be a need to operate separate shifts for 
processing products from different origins, or to split processing 
within shifts. In either case, costs are likely to increase. Records 
will need to be maintained to ensure that accurate country of origin 
information is retained throughout the process and to permit compliance 
and enforcement reviews.
    Even if only domestic origin products or products from a single 
country of origin are handled, there may be additional procurement 
costs to source supplies from a single country of origin. Additional 
procurement costs may include higher transportation costs due to longer 
shipping distances and higher acquisition costs due to supply and 
demand conditions for products from a particular country of origin, 
whether domestic or foreign.
    These additional costs may result in a number of consolidations 
within the processor, manufacturer, and wholesaler sectors for these 
covered commodities. Also, to comply with the proposed rule, retailers 
may seek to limit the number of entities from which they purchase 
covered commodities.
    Additional alternatives considered: As previously mentioned, the 
COOL provisions of the 2002 Farm Bill leaves very little regulatory 
discretion in defining who is directly covered by this rule. The law 
explicitly identifies those retailers required to provide their 
customers with country of origin information for covered commodities 
(namely, retailers as defined by PACA).
    The law also requires that any person supplying a covered commodity 
to a retailer provide information to the retailer indicating the 
country of origin of the covered commodity. Again, the law provides no 
discretion regarding this requirement for suppliers of covered 
commodities to provide information to retailers.
    The proposed rule has no mandatory requirement, however, for any 
firm other than statutorily defined retailers to make country of origin 
claims. In other words, no producer, processor, wholesaler, or other 
supplier is required to make and substantiate a country of origin claim 
provided that the commodity is not ultimately sold in the form of a 
covered commodity at the establishment of a retailer subject to the 
proposed rule. Thus, for example, a processor and its suppliers may 
elect not to maintain country of origin information nor to make country 
of origin claims, but instead sell products through marketing channels 
not subject to the proposed rule. Such marketing alternatives include 
foodservice, export, and retailers not subject to the proposed rule. 
USDA estimates that 41.4 percent of U.S. food sales occur through 
retailers subject to the proposed rule, with the remaining 58.6 percent 
sold by retailers not subject to the proposed rule or sold as food away 
from home. Additionally, food product sales into export markets provide 
marketing opportunities for producers and intermediaries that are not 
subject to the provisions of the proposed rule.
    The law provides no discretionary authority for granting differing 
implementation timetables that could be used to ease the burdens on 
small entities. The law states that retailers subject to the statute 
are to label covered commodities with country of origin information 
beginning September 30, 2004. For retailers to meet this requirement, 
their suppliers will need to provide the necessary information to the 
retailers on or before this date. Retailers and their suppliers also 
will need to have the information and records necessary to substantiate 
all country of origin claims ultimately made at subject retailers. In 
short, the supply chains for the covered commodities will need to have 
the necessary systems and records in place to enable valid, verifiable 
country of origin labeling by retailers of covered commodities 
beginning September 30, 2004.
    The proposed rule does not dictate systems that firms will need to 
put in place to implement the proposed requirements. Thus, different 
segments of the affected industries will be able to develop their own 
least-cost systems to implement COOL requirements. For example, one 
firm may depend primarily on manual identification and paper 
recordkeeping systems, while another may adopt automated identification 
and electronic recordkeeping systems.
    The proposed rule has no requirements for firms to report to USDA. 
Compliance audits will be conducted by USDA at firms' places of 
business. As stated previously, required records may be kept by firms 
in the manner most suitable to their operations and may be hardcopy 
documents, electronic records, or a combination of both. In addition, 
the proposed rule provides flexibility regarding where records may be 
kept. Such flexibility should reduce costs for small entities to comply 
with the proposed rule.
    In effect, the proposed rule is a performance standard rather than 
a design standard. The proposed rule requires that covered commodities 
at subject retailers be labeled with country of origin information, 
that suppliers of covered commodities provide such information to 
retailers, and that retailers and their suppliers maintain records and 
information sufficient to verify all country of origin claims. The 
proposed rule provides flexibility regarding the manner in which 
country of origin information may be provided by retailers to 
consumers. The proposed rule provides flexibility in the manner in 
which required country of origin information is provided by suppliers 
to retailers, and in the manner in which records and information are 
maintained to substantiate country of origin claims. Thus, the proposed 
rule provides the maximum flexibility practicable to enable small 
entities to minimize the costs of the proposed rule on their 
operations.

Paperwork Reduction Act

    This proposed rule announces that AMS is requesting OMB approval 
for a new information collection and contains information collection 
provisions that are subject to review by OMB under PRA (44 U.S.C. 3501-
3520). A description of these provisions is given below with an 
estimate of the annual recordkeeping burden.
    Title: Recordkeeping and Records Access Requirements for Producers 
and Food Facilities.
    OMB Number: 0581-new.
    Type of Request: New collection.
    Expiration Date: Three years from the date of approval.
    Abstract: The country of origin labeling provision in the 2002 Farm 
Bill requires that specified retailers inform consumers as to the 
country of origin of covered commodities. This proposed rule requires 
that records and other documentary evidence used to substantiate an 
origin claim must, upon request, be made available to USDA 
representatives in a timely manner during normal business hours and at 
a location that is reasonable in consideration of the products and firm 
under review. Any person engaged in the business of supplying a covered 
commodity to a retailer (i.e., including but not limited to growers, 
distributors, handlers, packers, and processors), whether directly or 
indirectly, must make country of origin information available to the 
retailer and must maintain records to establish and identify the 
immediate previous source and immediate subsequent recipient of a 
covered commodity, in such a way that identifies the product unique to 
that transaction, for a period of 2 years from the date of the 
transaction. For an imported covered commodity, the

[[Page 61978]]

importer of record as determined by CBP, must ensure that records: (1) 
Provide clear product tracking from the port of entry into the United 
States to the immediate subsequent recipient, and (2) substantiate 
country of origin claims and, if applicable, designations of wild or 
farm-raised and must maintain such records for a period of 2 years from 
the date of the transaction. Records and other documentary evidence 
(e.g., shipping receipt from central warehouse) relied upon at the 
point of sale to establish a product's country of origin and, if 
applicable, designation of wild or farm-raised, must be maintained at 
the point of sale or otherwise be reasonably available to any duly 
authorized representative of USDA at the facility for at least 7 days 
following the retail sale of the product. In addition, records which 
identify the retail supplier, the product unique to that transaction, 
and the country of origin information, and, if applicable, designation 
of wild or farm-raised, must be maintained for a period of 2 years from 
the date the origin declaration is made at retail. Such records may be 
located at the retailer's point of distribution, or at a warehouse, 
central office or other off-site location.
    Description of Recordkeepers: Individuals who supply covered 
commodities, whether directly to retailers or indirectly through other 
participants in the marketing chain, are required to establish and 
maintain country of origin information for the covered commodities and 
supply this information to retailers. As a result, producers, handlers, 
manufacturers, wholesalers, importers, and retailers of covered 
commodities will be impacted by this proposed rule.
    Burden: USDA estimates that approximately 1,377,000 establishments 
owned by approximately 1,339,000 firms would be either directly or 
indirectly impacted by this rule. In general, the supply chain for each 
of the covered commodities includes agricultural producers or fish 
harvesters, processors, wholesalers, importers, and retailers. Imported 
products may be introduced at any level of the supply chain. Other 
intermediaries, such as auction markets, may be involved in 
transferring products from one stage of production to the next. USDA 
estimates that the proposed rule's paperwork burden will be incurred by 
the number and types of firms and establishments listed in Table 11 of 
this document.

                                Table 11.--Costs Associated With Paperwork Burden
----------------------------------------------------------------------------------------------------------------
                                                 Initial                         Maintenance
              Type                   Firms        costs      Establishments         costs          Total costs
----------------------------------------------------------------------------------------------------------------
Producers:
    Cattle & Calves.............    1,032,670   61,847,680         1,032,670       133,951,509       195,799,189
    Sheep & Lambs...............       64,170    3,843,208            64,170         8,323,732        12,166,940
    Hogs & Pigs.................       67,150    4,021,683            67,150         8,710,279        12,731,962
    Farm-Raised Fish & Shellfish        3,540      212,014             3,540           459,187           671,201
    Fishing.....................       76,499    4,581,605            76,452          3,305,62         7,887,230
    Fruits & Vegetables.........       47,596    2,850,574            47,596         1,967,230         4,817,804
    Peanut Farming..............       12,221      731,928            12,221           505,116         1,237,045
Intermediaries:
    Stockyards, Dealers & Market        7,775   10,177,475             7,775         6,489,500        16,666,975
     Agencies...................
    Livestock Processing &              3,098    4,055,282             3,358        56,055,927        60,111,209
     Slaughtering...............
    Meat & Meat Product                 3,185    4,169,165             3,305         2,758,559         6,927,724
     Wholesale..................
    Seafood Product Preparation           741      969,969               823           686,927         1,656,896
     & Packaging................
    Fish & Seafood Wholesale....        2,897    3,792,173             2,980         2,487,294         6,279,467
    Frozen Fruit, Juice &                 163      213,367               257           214,508           427,875
     Vegetable Mfg..............
    Fresh Fruit & Vegetable             9,026   11,815,034            12,879        10,749,617        22,564,651
     Wholesale..................
    Roasted Nuts & Peanut Butter          140      183,260               159           132,711           315,971
     Mfg........................
    Peanut Wholesalers..........           83      108,647                83            69,277           177,924
    General Line Grocery                3,183    4,166,547             3,993         3,332,807         7,499,354
     Wholesalers................
Retailers.......................        4,512    5,906,208            37,176       217,802,585       223,708,793
Totals:
    Producers...................    1,303,846   78,088,693         1,303,799       157,222,678       235,311,371
    Handlers, Processors, &            30,291   39,650,919            35,612        82,977,128       122,628,047
     Wholesalers................
    Retailers...................        4,512    5,906,208            37,176       217,802,585       223,708,793
                                 --------------
    Grand Total.................    1,338,649  123,645,820         1,376,587       458,002,391       581,648,211
----------------------------------------------------------------------------------------------------------------

    The impacted firms and establishments will broadly incur two types 
of costs. First, firms will incur initial or start-up costs to comply 
with the proposed rule. USDA assumes that initial costs will be borne 
by each firm, even though a single firm may operate more than one 
establishment. Second, enterprises will incur additional recordkeeping 
costs associated with storing and maintaining records on an ongoing 
basis. USDA assumes that these activities will take place in each 
establishment operated by each affected business.
    With respect to initial recordkeeping costs, USDA believes that 
most producers currently maintain many of the types of records that 
would be needed to substantiate country of origin claims. However, 
producers do not typically record or pass along country of origin 
information to subsequent purchasers. Therefore, producers will incur 
some additional incremental costs to record, maintain, and transfer 
country of origin information to substantiate country of origin claims 
made at retail. Because much of the necessary recordkeeping is already 
developed during typical farm, ranch, and fishing operations, USDA 
estimates that the incremental costs for producers to supplement 
existing records with country of origin information will be relatively 
small. Examples of initial or start-up costs would be any additional 
recordkeeping burden needed to record the required country of origin 
information and transfer this information to handlers, processors, 
wholesalers, or retailers.
    USDA estimates that producers will need 4 hours to establish a 
system for organizing records to carryout the

[[Page 61979]]

purposes of these regulations. This additional time would be required 
to modify existing recordkeeping systems to incorporate any added 
information needed to substantiate country of origin claims. Although 
not all farm products ultimately will be sold at retail establishments 
covered by this proposed rule, USDA assumes that virtually all 
producers will wish to keep their marketing options as flexible as 
possible. Thus, USDA assumes that all producers of covered commodities 
or livestock (in the case of the covered meat commodities) will 
establish recordkeeping systems sufficient to substantiate country of 
origin claims. USDA also recognizes that some operations will require 
substantially more than 4 hours to establish their recordkeeping 
systems. In particular, USDA believes that livestock backgrounders, 
stockers, and feeders will face a greater burden in establishing 
recordkeeping systems. These types of operations will need to track 
country of origin information for animals brought into the operation as 
well as for animals sold from the operation, increasing the burden of 
substantiating country of origin claims. Conversely, operations such as 
fruit and vegetable farms that produce only U.S. products likely will 
require little if any change to their existing recordkeeping systems in 
order to substantiate country of origin claims. Overall, USDA believes 
that 4 hours represents a reasonable estimate of the average additional 
time that will be required across all types of producers.
    For producers, USDA assumes that the added work needed to initially 
set up a recordkeeping system for country of origin information is 
primarily a bookkeeping task. This task may be performed by independent 
bookkeepers, or in the case of operations that perform their own 
bookkeeping, will require equivalent skills. The Bureau of Labor 
Statistics (BLS) (Ref. 40) publishes wage rates for bookkeepers, 
accounting, and auditing clerks. USDA assumes that this wage rate 
represents the cost for producers to hire an independent bookkeeper. In 
the case of producers who currently perform their own bookkeeping, USDA 
assumes that this wage rate represents the opportunity cost of the 
producers' time for performing these tasks. The January 2001 wage rate, 
the most recent data available, is estimated at $11.94 per hour. For 
this analysis, an additional 25.4 percent is added to the wage rate to 
account for total benefits which includes social security, unemployment 
insurance, workers compensation, etc. The estimate of this additional 
cost to employers is published by the BLS (Ref. 40). At 4 hours per 
firm and a cost of $14.97 per hour, initial recordkeeping costs to 
producers are estimated at approximately $78 million to modify existing 
recordkeeping systems in order to substantiate country of origin 
claims.
    The recordkeeping burden on handlers, processors, wholesalers, and 
retailers is expected to be more complex than the burden most producers 
face. These operations will need to maintain country of origin 
information on the covered commodities purchased and subsequently 
furnish that information to the next participant in the supply chain. 
This will require adding additional information to a firm's bills of 
lading, invoices, or other records associated with movement of covered 
commodities from purchase to sale. Similar to producers, however, USDA 
believes that most of these operations already maintain many of the 
types of necessary records in their existing systems. Thus, USDA 
assumes that country of origin information will require only 
modification of existing recordkeeping systems rather than development 
of entirely new systems.
    The Label Cost Model Developed for FDA by RTI International (Refs. 
41 and 42) is used to estimate the cost of including additional country 
of origin information to an operation's records. USDA assumes a limited 
information, one-color redesign of a paper document will be sufficient 
to comply with the proposed rule's recordkeeping requirements. The 
number of hours required to complete the redesign is estimated to be 29 
with an estimated cost at $1,309 per firm. While the cost will be much 
higher for some firms and lower for others, USDA believes that $1,309 
represents a reasonable average cost for all firms. Based on this, USDA 
estimates that the initial recordkeeping costs to intermediaries such 
as handlers, processors, and wholesalers (importers are included with 
wholesalers) will be approximately $40 million, and initial 
recordkeeping costs at retail will be approximately $6 million.
    The total initial recordkeeping costs for all firms are thus 
estimated at approximately $124 million.
    In addition to these one-time costs to establish recordkeeping 
systems, enterprises will incur additional recordkeeping costs 
associated with storing and maintaining records. These costs are 
referred to as maintenance costs in Table 11. Again, the marginal cost 
for producers to maintain and store any additional information needed 
to substantiate country of origin claims is expected to be relatively 
small.
    For wild fish harvesters, fruit and vegetable producers, and peanut 
producers, country of origin generally is established at the time that 
the product is harvested, and thus there is no need to track country of 
origin information throughout the production lifecycle of the product. 
This group of producers is estimated to require an additional 4 hours a 
year, or 1 hour per quarter, to maintain country of origin information.
    Compared to wild fish harvesters, fruit and vegetable producers, 
and peanut producers, USDA expects that fish farmers and livestock 
producers will incur higher costs to maintain country of origin 
information. Wild fish, fruits, vegetables, and peanuts are generally 
harvested once and then shipped by the producer to the first handler. 
In contrast, farm-raised fish and livestock can and often do move 
through several geographically dispersed operations prior to final sale 
for processing or slaughter. Cattle, for example, typically change 
ownership between 2 to 3 times before they are slaughtered and 
processed. Fish and livestock may be acquired from other countries by 
U.S. producers, complicating the task of tracking country of origin 
information. Because animals are frequently sorted and regrouped at 
various stages of production and may change ownership several times 
prior to slaughter, country of origin information will need to be 
maintained on animals as they move through their lifecycle. Thus, USDA 
expects that the recordkeeping burden for fish farmers and livestock 
producers will be higher than it will be for producers of other covered 
commodities. USDA estimates that these producers will require an 
additional 12 hours a year, or 1 hour per month, to maintain country of 
origin records. Again, this is an average for all enterprises. Some 
will require substantially more time, while others will require little 
additional time to maintain country of origin information.
    USDA assumes that farm labor will primarily be responsible for 
maintaining country of origin information at producers' enterprises. 
NASS data (Ref. 43) are used to estimate average farm wage rates--$8.62 
per hour for livestock workers and $8.24 per hour for other crops 
workers. Applying the rate of 25.4 percent to account for benefits 
results in an hourly rate of $10.81 for livestock workers and $10.33 
for other crops workers. (Wage rates for fish workers were unavailable, 
so the average wage rate for livestock workers is used.) Assuming 12 
hours of labor per year for livestock and farmed fish operations and 4 
hours per year for all other

[[Page 61980]]

operations results in estimated total annual maintenance costs to 
producers of $157 million.
    USDA expects that intermediaries such as handlers, processors, and 
wholesalers will face higher costs per enterprise to maintain country 
of origin information compared to costs faced by producers. Much of the 
added cost is attributed to the larger average size of these 
enterprises compared to the average producer enterprise. In addition, 
these intermediaries will need to track products both coming into and 
going out of their businesses.
    With the exception of livestock processing and slaughtering 
establishments, USDA estimates the maintenance burden hours for country 
of origin recordkeeping to be 52 hours per year per establishment. For 
this part of the supply chain, the recordkeeping activities are on-
going and are estimated to require an additional hour a week. USDA 
expects, however, that livestock processing and slaughtering 
enterprises will experience a more intensive recordkeeping burden. 
These enterprises disassemble carcasses into many individual cuts, each 
of which must maintain its country of origin identity. In addition, 
businesses that produce ground beef, lamb, and pork may commingle 
product from multiple origins, requiring careful tracking and 
recordkeeping to substantiate the country of origin information 
provided to retailers. Maintenance of the recordkeeping system at these 
establishments is estimated to total 1,040 hours per establishment, or 
20 hours per week.
    Maintenance activities will include inputting, tracking, and 
storing country of origin information for each covered commodity. Since 
this is mostly an administrative task, USDA estimates the cost using 
the BLS wage rate for administrative support occupations ($12.80 per 
hour with an additional 25.4 percent added to cover overhead costs for 
a total of $16.05 per hour). This occupation category includes stock 
and inventory clerks and record clerks. Coupled with the assumed hours 
per establishment, the resulting total annual maintenance costs to 
handlers, processors, and wholesalers and other intermediaries are 
estimated at approximately $83 million.
    Retailers will need to supply country of origin information for 
each covered commodity sold at each store. Therefore, additional 
recordkeeping maintenance costs are believed to impact each 
establishment. Because tracking of the covered commodities will be done 
daily, USDA believes that an additional hour of recordkeeping 
activities for country of origin information will be incurred daily at 
each retail establishment. This results in an estimated 365 additional 
hours per year per establishment. Using the BLS wage rate for 
administrative support occupations ($12.80 per hour with an additional 
25.4 percent added to cover overhead costs for a total of $16.05 per 
hour) results in total estimated annual maintenance costs to retailers 
of $218 million.
    The total maintenance recordkeeping costs for all enterprises are 
thus estimated at approximately $458 million.
    The total first-year recordkeeping burden is calculated by summing 
the initial and maintenance costs. The total recordkeeping costs are 
estimated for producers at approximately $235 million; for handlers, 
processors, and wholesalers at approximately $123 million; and for 
retailers at approximately $224 million. USDA estimates the total 
recordkeeping cost for all participants in the supply chain for covered 
commodities at $582 million for the first year, with subsequent 
maintenance costs of $458 million per year.
    The recordkeeping burden estimated for the voluntary country of 
origin guidelines (67 FR 63367) was $2 billion for the first year. 
There are several reasons that the estimated recordkeeping burden for 
this proposed rule is substantially lower. First, the estimated number 
of affected entities is fewer due to the use of less aggregated data to 
estimate the numbers of impacted firms and establishments. Second, the 
estimated wage rates are lower to reflect more accurately the types of 
work skills expected to be needed to implement and maintain the records 
needed for this proposed rule. Third, the estimated number of labor 
hours is reduced overall as a result of reassessing expected hours 
needed to carry out recordkeeping tasks associated with this proposed 
rule.
    Annual Reporting and Recordkeeping Burden for the First Year 
(Initial): Public reporting burden for this initial recordkeeping set 
up is estimated to average 4.7 hours per year per individual 
recordkeeper.
    Estimated Number of Firms Recordkeepers: 1,338,649.
    Estimated Total Annual Burden: 6,224,671 hours.
    Annual Reporting and Recordkeeping Burden (Maintenance): Public 
reporting burden for this recordkeeping storage and maintenance is 
estimated to average 24.2 hours per year per individual recordkeeper.
    Estimated Number of Establishments Recordkeepers: 1,376,634.
    Estimated Total Annual Burden: 33,294,392 hours.
    AMS is committed to implementation of the Government Paperwork 
Elimination Act (GPEA) to provide the public with the option to submit 
or transact business electronically to the extent practicable. This new 
information collection has no forms and is only for recordkeeping 
purposes. Therefore, the provisions of an electronic submission 
alternative is not required by GPEA.
    AMS is soliciting comments from all interested parties concerning 
these recordkeeping requirements. Comments are specifically invited on: 
(1) Whether the recordkeeping is necessary for the proper operation of 
this program, including whether the information would have practical 
utility; (2) the accuracy of USDA's estimate of the burden of the 
recordkeeping requirements, including the validity of the methodology 
and assumptions used; (3) ways to enhance the quality, utility, and 
clarity of the records to be maintained; and (4) ways to minimize the 
burden of the recordkeeping on those who are to maintain and/or make 
the records available, including the use of appropriate automated, 
electronic, mechanical, or other technological recordkeeping techniques 
or other forms of information technology. Comments concerning the 
recordkeeping requirements contained in this proposed rule should 
reference the date and page number of this issue of the Federal 
Register and should be sent to Country of Origin Labeling Program, Room 
2092-S; Agricultural Marketing Service (AMS), USDA; STOP 0249; 1400 
Independence Avenue, SW.; Washington, DC 20250-0249, or by facsimile to 
202/720-3499, or by e-mail to [email protected].
    Comments sent to the above location should also be sent to the Desk 
Officer for Agriculture, Office of Information and Regulatory Affairs, 
Office of Management and Budget, New Executive Office Building, 725 
17th Street, NW., Room 725, Washington, DC 20503. All responses to this 
action will be summarized and included in the request for OMB approval. 
All comments will become a matter of public record.

References

    1. Wimberley, R.C., et al. Food from Our Changing World: The 
Globalization of Food and How Americans Feel About It. February 
2003, http://sasw.chass.ncsu.edu/global-food/foodglobal.html.

[[Page 61981]]

    2. Umberger, W.J., D.M. Feuz, C.R. Calkins, and B.M. Sitz. 
``Country-of-Origin Labeling of Beef Products: U.S. Consumers'' 
Perceptions,'' paper presented at the 2003 FAMPS Conference: 
``Emerging Roles for Food Labels: Inform, Protect, Persuade,'' 
Washington, DC, March 20-21, 2003.
    3. Schupp, A. and J. Gillespie. ``Consumer Attitudes Toward 
Potential Country-of-Origin Labeling of Fresh or Frozen Beef,'' 
Journal of Food Distribution Research, 33(3): 34-44, 2001.
    4. Blank, S.C. 1998. The End of Agriculture in the American 
Portfolio. Westport, CT: Quorum Books.
    5. VanSickle, J., R. McEowen, C.R. Taylor, N. Harl, and J. 
Connor. ``Country of Origin Labeling: A Legal and Economic 
Analysis,'' International Agricultural Trade and Policy Center, 
University of Florida, PBTC 03-05, May 2003.
    6. Umberger, W.J., D.M. Feuz, C.R. Calkins, and B.M. Sitz. 
``Fact Sheet on Country-of-Origin Labeling Research,'' May 15, 2003.
    7. Plain, R. and G. Grimes. ``Benefits of COOL to the Cattle 
Industry,'' University of Missouri-Columbia, AEWP 2003-2, May 21, 
2003.
    8. U.S. Census Bureau. 2001 County Business Patterns for the 
United States.
    9. U.S. Census Bureau. 2000 Statistics of U.S. Businesses.
    10. U.S. Census Bureau. 2000 Nonemployer Statistics.
    11. NASS, USDA. Cattle. January 2003.
    12. NASS, USDA. Sheep and Goats. January 2003.
    13. NASS, USDA. Quarterly Hogs and Pigs. December 2002.
    14. GIPSA, USDA. Packers and Stockyards Statistical Report, 2000 
Reporting Year. October 2002.
    15. NASS, USDA. 1998 Census of Aquaculture.
    16. NASS, USDA. 1997 Census of Agriculture.
    17. AMS, USDA. Peanut marketing agreement data.
    18. AMS, USDA. Perishable Agricultural Commodities Act database.
    19. Sparks Companies Inc., ``Cool Cost Assessment,'' Prepared 
for the Sparks/CBW COOL Consortium, April 2003.
    20. Hayes, D.J. and S.R. Meyer. ``Impact of Mandatory Country of 
Origin Labeling on U.S. Pork Exports.''
    21. Davis, E.E. ``Estimate of Start-up Costs for Country of 
Origin Labeling Requirements to the Texas Beef Cattle and Beef 
Sectors.''
    22. NASS, USDA. Livestock Slaughter 2002 Summary. March 2003.
    23. NMFS, NOAA, U.S. Dept. of Commerce. Fisheries of the United 
States 2001. September 2002.
    24. Food and Agriculture Organization. FAO Yearbook, Fishery 
Statistics, Aquaculture Production 2001. Vol 92/2.
    25. NASS, USDA. Agricultural Statistics, 2002.
    26. ERS, USDA. Food Consumption (Per Capita) Data System, http://www.ers.usda.gov/Data/foodconsumption/datasystem.asp.
    27. Dohlman, E. ``Peanut Consumption Rebounding Amidst Market 
Uncertainties.'' In ERS, USDA Agricultural Outlook, March 2002.
    28. ERS, USDA. Food CPI, Prices and Expenditures: Food Service 
as a Share of Food Expenditures, http://www.ers.usda.gov/Briefing/CPIFoodAndExpenditures/Data/table12.htm.
    29. ERS, USDA. Food CPI, Prices and Expenditures: Sales of Food 
at Home by Type of Outlet, http://www.ers.usda.gov/Briefing/CPIFoodAndExpenditures/Data/table16.htm.
    30. National Pork Board. Pork Facts 2002/2003. November 2002.
    31. FSIS, USDA. Mandatory Country of Origin Labeling of Imported 
Fresh Muscle Cuts of Beef and Lamb. January 2000.
    32. Weis Markets, Inc. Comments on Guidelines for Voluntary 
Country of Origin Labeling Program. Letter to Secretary Veneman, May 
1, 2003.
    33. Schnuck Markets, Inc. Comments on Guidelines for Voluntary 
Country of Origin Labeling Program. Letter to Secretary Veneman, 
April 7, 2003.
    34. Wegmans Food Markets. Country of Origin Labeling Comments. 
April 7, 2003.
    35. Spartan Stores, Inc. Comments on Guidelines for Voluntary 
Country of Origin Labeling Program. April 9, 2003.
    36. Lusk, J. L. and J. D. Anderson. ``Country of Origin Labeling 
on Meat Producers and Consumers,'' Purdue University, Department of 
Agricultural Economics, Staff Paper 03-07, June 2003.
    37. Grier, Kevin and David M. Kohl. Impacts of U.S. Country of 
Origin Labeling on U.S. Hog Producers. Virginia Polytechnic 
Institute and State University and the George Morris Centre. April 
2003.
    38. Office of the Chief Economist, USDA. USDA Agricultural 
Baseline Projections to 2012. Staff Report WAOB-2003-1. February 
2003.
    39. Bureau of Labor Statistics, Department of Labor, National 
Compensation Survey, 3rd quarter 2003, Employer Cost for Employee 
Compensation.
    40. U.S. Census Bureau. 1997 Economic Census. Retail Trade 
Subject Series. Establishment and Firm Size. EC97R44S-SZ. Issued 
October 2000.
    41. Food and Drug Administration. ``Establishment and 
Maintenance of Records Under the Public Health Security and 
Bioterrorism Preparedness and Response Act of 2002,'' proposed rule. 
May 9, 2003.
    42. RTI, International 2000. FDA Labeling Cost Model: Final 
Report. Revised April 2002.
    43. NASS, USDA. Farm Labor, August 15, 2003.

List of Subjects in 7 CFR Part 60

    Agricultural commodities, Fish, Food labeling, Meat and meat 
products, Peanuts, Reporting and recordkeeping requirements.

    For the reasons set forth in the preamble, 7 CFR chapter I is 
proposed to be amended by adding part 60 to read as follows:

PART 60--COUNTRY OF ORIGIN LABELING

Subpart A--General Provisions

Definitions

Sec.
60.101 Act.
60.102 AMS.
60.103 Beef.
60.104 Canned.
60.105 Consumer package.
60.106 Covered commodity.
60.107 USDA.
60.108 Farm-raised fish.
60.109 Food service establishment.
60.110 Ground beef.
60.111 Ground lamb.
60.112 Ground pork.
60.113 Hatched.
60.114 Ingredient.
60.115 Lamb.
60.116 Legibly.
60.117 Perishable agricultural commodity.
60.118 Person.
60.119 Pork.
60.120 Processed (for fish and shellfish).
60.121 Processed food item.
60.122 Produced.
60.123 Produced in any country other than the United States.
60.124 Production step.
60.125 Raised.
60.126 Retailer.
60.127 Secretary.
60.128 Slaughter.
60.129 United States.
60.130 United States country of origin.
60.131 U.S. flagged vessel.
60.132 Vessel flag.
60.133 Waters of the United States.
60.134 Wild fish and shellfish.

Country of Origin Notification

60.200 Country of origin notification.
60.300 Markings.

Recordkeeping

60.400 Recordkeeping requirements.
Subpart B--[Reserved]

    Authority: 7 U.S.C. 1621 et seq.

Subpart A--General Provisions

Definitions


Sec.  60.101  Act.

    Act means the Agricultural Marketing Act of 1946, (7 U.S.C. 1621 et 
seq.).


Sec.  60.102  AMS.

    AMS means the Agricultural Marketing Service, United States 
Department of Agriculture.


Sec.  60.103  Beef.

    Beef means meat produced from cattle, including veal.


Sec.  60.104  Canned.

    Canned means packaged in a shelf-stable container including but not 
limited to cans, jars, flexible containers (e.g., pouches), or semi-
rigid containers.

[[Page 61982]]

Sec.  60.105  Consumer package.

    Consumer package means any container or wrapping in which a covered 
commodity is enclosed for the delivery and/or display of such commodity 
to retail purchasers.


Sec.  60.106  Covered commodity.

    (a) Covered commodity means:
    (1) muscle cuts of beef (including veal), lamb, and pork;
    (2) ground beef, ground lamb, and ground pork;
    (3) farm-raised fish and shellfish (including fillets, steaks, 
nuggets, and any other flesh);
    (4) wild fish and shellfish (including fillets, steaks, nuggets, 
and any other flesh);
    (5) perishable agricultural commodities as defined by the 
Perishable Agricultural Commodities Act of 1930 (7 U.S.C. 499a(b)); and
    (6) peanuts;
    (b) Covered commodities are excluded from this part if the 
commodity is an ingredient in a processed food item.


Sec.  60.107  USDA.

    USDA means the United States Department of Agriculture.


Sec.  60.108  Farm-raised fish.

    Farm-raised fish means fish or shellfish that have been harvested 
in controlled or selected environments, including ocean-ranched (e.g., 
penned) fish and shellfish confined in managed beds; and fillets, 
steaks, nuggets, and any other flesh from a farm-raised fish or 
shellfish.


Sec.  60.109  Food service establishment.

    Food service establishment means a restaurant, cafeteria, lunch 
room, food stand, saloon, tavern, bar, lounge, or other similar 
facility operated as an enterprise engaged in the business of selling 
food to the public. Similar food service facilities include salad bars, 
delicatessens, and other food enterprises located within retail 
establishments that provide ready-to-eat foods that are consumed either 
on or outside of the retailer's premises.


Sec.  60.110  Ground beef.

    Ground beef has the meaning given the term in 9 CFR 319.15(a), 
i.e., chopped fresh and/or frozen beef with or without seasoning and 
without the addition of beef fat as such, and containing no more than 
30 percent fat, and containing no added water, phosphates, binders, or 
extenders.


Sec.  60.111  Ground lamb.

    Ground lamb means comminuted lamb of skeletal origin that is 
produced in conformance with all applicable Food Safety Inspection 
Service labeling guidelines.


Sec.  60.112  Ground pork.

    Ground pork means comminuted pork of skeletal origin that is 
produced in conformance with all applicable Food Safety Inspection 
Service labeling guidelines.


Sec.  60.113  Hatched.

    Hatched means emerged from the egg.


Sec.  60.114  Ingredient.

    Ingredient means a component either in part or in full, of a 
finished retail food product.


Sec.  60.115  Lamb.

    Lamb means meat, other than mutton (or yearling mutton), produced 
from sheep.


Sec.  60.116  Legibly.

    Legibly means English language text that can be easily read by a 
consumer.


Sec.  60.117  Perishable agricultural commodity.

    Perishable agricultural commodity means fresh and frozen fruits and 
vegetables of every kind and character that have not been manufactured 
into articles of food of a different kind or character and includes 
cherries in brine as defined by the Secretary in accordance with trade 
usages.


Sec.  60.118  Person.

    Person means any individual, partnership, corporation, association, 
or other legal entity.


Sec.  60.119  Pork.

    Pork means meat produced from hogs.


Sec.  60.120  Processed (for fish and shellfish).

    Processed in the case of wild and farm-raised fish and shellfish 
means any process that effects substantial transformation as defined by 
the U.S. Bureau of Customs and Border Protection (CBP).


Sec.  60.121  Processed food item.

    Processed food item means:
    (a) a retail item derived from a covered commodity that has 
undergone a physical or chemical change, and has a character that is 
different from that of the covered commodity; or
    (b) a retail item derived from a covered commodity that has been 
combined with: other covered commodities; or other substantive food 
components (e.g., chocolate, stuffing), resulting in a distinct retail 
item that is no longer marketed as a covered commodity, provided that 
the addition of components that enhance or represent further steps in 
the preparation of the product for consumption, such as water, 
seasonings, sugars, or breading would not in itself exclude a covered 
commodity from labeling under this subpart.


Sec.  60.122  Produced.

    Produced means in the case of fresh and frozen fruits and 
vegetables, and peanuts means grown.


Sec.  60.123  Produced in any country other than the United States.

    Produced in any country other than the United States means in the 
case of:
    (a) Beef, Pork, and Lamb: born, raised, and/or slaughtered outside 
the United States.
    (b) Farm-raised Fish and Shellfish: hatched, raised, harvested, 
and/or processed outside the United States, and the waters of the 
United States.
    (c) Wild Fish and Shellfish: harvested and/or processed outside the 
United States, and the waters of the United States, or by a vessel not 
registered in the United States.
    (d) Fresh and frozen fruits and vegetables: grown outside the 
United States.
    (e) Peanuts: grown outside the United States.


Sec.  60.124  Production step.

    Production step means, in the case of:
    (a) Beef, pork and lamb: born, raised, and slaughtered.
    (b) Farm-raised fish and shellfish: hatched, raised, harvested, and 
processed.
    (c) Wild fish and shellfish: harvested and processed.


Sec.  60.125  Raised.

    Raised means in the case of:
    (a) Beef, pork, and lamb: the period of time from birth until 
slaughter.
    (b) Farm-raised fish and shellfish: grown by means of aquaculture 
management techniques from the period of time from hatched to 
harvested.


Sec.  60.126  Retailer.

    Retailer means any person licensed as a retailer under the 
Perishable Agricultural Commodities Act of 1930 (7 U.S.C. 499a(b)).


Sec.  60.127  Secretary.

    Secretary means the Secretary of Agriculture of the United States 
or any person to whom the Secretary's authority has been delegated.


Sec.  60.128  Slaughter.

    Slaughter means the point in which a livestock animal is prepared 
into meat products for human consumption.

[[Page 61983]]

Sec.  60.129  United States.

    United States means the 50 States, the District of Columbia, the 
Commonwealth of Puerto Rico, the U.S. Virgin Islands, American Samoa, 
Guam, the Northern Mariana Islands, and any other Commonwealth, 
territory, or possession of the United States, and the waters of the 
United States as defined in Sec.  60.133.


Sec.  60.130  United States country of origin.

    United States country of origin means in the case of:
    (a) Beef: from animals born, raised, and slaughtered in the United 
States (including animals born and raised in Alaska and Hawaii and 
transported for a period not to exceed 60 days through Canada to the 
United States and slaughtered in the United States).
    (b) Lamb and pork: from animals born, raised, and slaughtered in 
the United States.
    (c) Farm-raised fish and shellfish: from fish or shellfish hatched, 
raised, harvested, and processed in the United States.
    (d) Wild-fish and shellfish: from fish or shellfish harvested in 
the waters of the United States or by a U.S. flagged vessel and 
processed in the United States or aboard a U.S. flagged vessel.
    (e) Fresh and frozen fruits and vegetables: from products grown in 
the United States.
    (f) Peanuts: from products grown in the United States.


Sec.  60.131  U.S. flagged vessel.

    U.S. flagged vessel means:
    (a) Any vessel documented under chapter 121 of title 46, United 
States Code, or
    (b) Any vessel numbered in accordance with chapter 123 of title 46, 
United States Code.


Sec.  60.132  Vessel flag.

    Vessel flag means the country of registry for a vessel, ship, or 
boat.


Sec.  60.133  Waters of the United States.

    Waters of the United States means those fresh and ocean waters 
contained within the 200-mile boundary of the Exclusive Economic Zone 
(EEZ) surrounding the United States.


Sec.  60.134  Wild fish and shellfish.

    Wild fish and shellfish means naturally-born or hatchery-originated 
fish or shellfish released in the wild, and caught, taken, or harvested 
from non-controlled or non-selected waters or beds; and fillets, 
steaks, nuggets, and any other flesh from a wild fish or shellfish.

Country of Origin Notification


Sec.  60.200  Country of origin notification.

    In providing notice of the country of origin as covered by the Act, 
the following requirements shall be followed by retailers:
    (a) General. Each covered commodity offered for sale individually, 
in a bulk bin, carton, crate, barrel, cluster, or consumer package 
shall bear a legible declaration of the country of origin as set forth 
in this regulation.
    (b) Exemptions. Food service establishments as defined in Sec.  
60.109 are exempt from labeling under this subpart.
    (c) Exclusions. A covered commodity is excluded from this subpart 
if it is an ingredient in a processed food item as defined in Sec.  
60.121.
    (d) Designation of Wild Fish and Farm-Raised Fish. The notice of 
country of origin for fish and shellfish shall include and distinguish 
between wild and farm-raised fish and shellfish as those terms are 
defined in this regulation.
    (e) Labeling Covered Commodities of United States Origin.
    (1) A covered commodity may only bear the declaration of ``Product 
of the U.S.'' at retail if it meets the definition of United States 
Country of Origin as defined in Sec.  60.130.
    (2) Products further processed or handled in a foreign country 
after meeting the requirements to be labeled as U.S. origin as defined 
in Sec.  60.130 (e.g., born, raised, and slaughtered or grown) may bear 
the declaration of ``Product of the U.S.'' at retail provided the 
identity of the product is maintained along with records to 
substantiate the origin claims and the claim is consistent with other 
applicable Federal requirements.
    (f) Labeling Imported Products. Imported covered commodities for 
which origin has already been established as defined by this law (e.g., 
born, raised, slaughtered or grown), shall retain their origin, as 
determined by CBP at the time the product entered the United States, 
through retail sale.
    (g) Labeling Covered Commodities When the Product Has Entered the 
United States During the Production Process.
    (1) Beef, Lamb, Pork:
    (i) If an animal was born and/or raised in country X prior to 
slaughter or further raising and slaughter in the United States, the 
resulting meat products derived from that animal shall be labeled at 
retail as being imported from country X and shall include the 
production step(s) occurring in the United States. Alternatively, such 
products may be labeled to specifically identify the production step(s) 
occurring in the country other than the United States if the animal's 
identity was maintained along with records to substantiate the origin 
claims.
    (ii) If an animal was born in country X and raised in country Y 
prior to slaughter or further raising and slaughter in the United 
States, the resulting meat products derived from that animal shall be 
labeled at retail as being imported from country Y and shall include 
the production step(s) occurring in the United States. Alternatively, 
such products may be labeled to specifically identify the production 
step(s) occurring in the country(ies) other than the United States if 
the animal's identity was maintained along with records to substantiate 
the origin claims.
    (2) Wild fish and shellfish:
    (i) If a covered commodity was harvested in the waters of the 
United States as defined in Sec.  60.133 or by a U.S. flagged vessel 
and processed in country X or onboard a country X flagged vessel, the 
product shall be labeled at retail as product of country X. 
Alternatively, the product may also be labeled to include the 
production step occurring in the United States if the product's 
identity was maintained along with records to substantiate the origin 
claims. The covered commodity shall also be labeled at retail to 
indicate that it was derived from wild fish and/or shellfish.
    (ii) If a covered commodity was harvested in country X and 
processed in the United States or aboard a U.S. flagged vessel, the 
product shall be labeled at retail as being imported from country X and 
processed in the United States. The covered commodity shall also be 
labeled at retail to indicate that it was derived from wild fish and/or 
shellfish.
    (3) Farm-raised fish and shellfish:
    (i) If a covered commodity was hatched in country X and raised, 
harvested, and/or processed in the United States, the product shall be 
labeled at retail as being imported from country X and shall include 
the production step(s) occurring in the United States. The covered 
commodity shall also be labeled at retail to indicate that it was 
derived from farm-raised fish and/or shellfish.
    (ii) If a covered commodity was hatched, raised, and harvested in 
the United States and processed in country X, the product shall be 
labeled at retail as product of country X. Alternatively, the product 
may also be labeled to include the production step occurring in the 
United States if the product's identity was maintained along with

[[Page 61984]]

records to substantiate the origin claims. The covered commodity shall 
also be labeled at retail to indicate that it was derived from farm-
raised fish and/or shellfish.
    (h) Blended Products. For commingled or blended retail food items 
comprised of the same covered commodity (e.g., bagged lettuce, ground 
beef, shrimp) that are prepared from raw material sources having 
different origins, the label shall list alphabetically the countries of 
origin (as set forth in these regulations) for all raw materials 
contained therein.
    (i) Remotely Purchased Products. For sales of a covered commodity 
in which the customer purchases a covered commodity prior to having an 
opportunity to observe the final package (e.g., Internet sales, home 
delivery sales, etc.), the retailer shall provide the country of origin 
notification at the time the product is delivered to the consumer.


Sec.  60.300  Markings.

    (a) Country of origin declarations can either be in the form of a 
placard, sign, label, sticker, or other format that allows consumers to 
identify the country of origin and, if applicable, designation of wild 
or farm-raised, of particular covered commodities. The declaration of 
the country of origin of a product may be in the form of a statement 
such as ``Product of USA,'' ``Grown in Mexico,'' or may only contain 
the name of the country such as ``USA'' or ``Mexico'' provided it is in 
conformance with other existing Federal labeling laws.
    (b) The declaration of the country of origin and, if applicable, 
the designation of wild or farm-raised, (e.g., placard, sign, label, 
sticker, band, twist tie, or other display) must be placed in a 
conspicuous location, so as to render it likely to be read and 
understood by a customer under normal conditions of purchase, and 
written in English; additional accompanying languages are permissible.
    (c) The declaration of country of origin information and, if 
applicable, the designation of wild or farm-raised, may be typed, 
printed, or handwritten provided it is in conformance with other 
existing Federal labeling laws and does not obscure other labeling 
information required by existing Federal regulations.
    (d) A bulk container (e.g., shipper, bin, carton, and barrel), used 
at the retail level to present product to consumers, may contain a 
covered commodity from more than one country of origin provided the 
covered commodity is individually labeled (e.g., PLU sticker).
    (e) Abbreviations and variant spellings that unmistakably indicate 
the country of origin, such as ``U.K.'' for ``The United Kingdom of 
Great Britain and Northern Ireland'' are acceptable. The adjectival 
form of the name of a country or region/city within a country may be 
used as proper notification of the country of origin of imported 
commodities provided the adjectival form of the name does not appear 
with other words so as to refer to a kind or species of product. 
Symbols or flags alone may not be used to denote country of origin.
    (f) State or regional label designations are not acceptable in lieu 
of country of origin labeling.

Recordkeeping


Sec.  60.400  Recordkeeping requirements.

    (a) General.
    (1) All records must be legible and written in English and may be 
maintained in either electronic or hard copy formats. Due to the 
variation in inventory and accounting documentary systems, various 
forms of documentation and records will be acceptable provided the 
chain of custody of the covered commodity can be determined and the 
origin claims, and, if applicable, designations of wild or farm-raised, 
substantiated.
    (2) Upon request by USDA representatives, suppliers and retailers 
subject to this subpart shall make available to USDA representatives, 
records and other documentary evidence that will permit substantiation 
of an origin claim and, if applicable, designation of wild or farm-
raised, in a timely manner during normal hours of business and at a 
location that is reasonable in consideration of the products and firm 
under review.
    (b) Responsibilities of Suppliers.
    (1) Any person engaged in the business of supplying a covered 
commodity to a retailer, whether directly or indirectly, must make 
available information to the buyer about the country of origin and, if 
applicable, designation of wild or farm-raised, of the covered 
commodity. In addition, the supplier of a covered commodity that is 
responsible for initiating a country of origin declaration, which in 
the case of beef, lamb, and pork is the meat packing facility, and, if 
applicable, designation of wild or farm-raised, must possess or have 
legal access to records that substantiate that claim.
    (2) Any intermediary supplier (i.e., not the supplier responsible 
for initiating a country of origin declaration, and if applicable, 
designation of wild or farm-raised) handling a covered commodity that 
is found to be mislabeled for country of origin shall not be held 
liable for a violation of the Act by reason of the conduct of another 
if the intermediary supplier could not have been reasonably expected to 
have had knowledge of the violation from the information provided by 
the previous supplier.
    (3) Any person engaged in the business of supplying a covered 
commodity to a retailer, whether directly or indirectly (i.e., 
including but not limited to growers, distributors, handlers, packers, 
and processors), must maintain records to establish and identify the 
immediate previous source and immediate subsequent recipient of a 
covered commodity, in such a way that identifies the product unique to 
that transaction, for a period of 2 years from the date of the 
transaction.
    (4) For an imported covered commodity, the importer of record as 
determined by CBP, must ensure that records: provide clear product 
tracking from the port of entry into the United States to the immediate 
subsequent recipient; and substantiate country of origin claims and, if 
applicable, designations of wild or farm-raised and must maintain such 
records for a period of 2 years from the date of the transaction.
    (5) Each supplier that handles similar covered commodities from 
more than one country must be able to document that the origin of a 
product was separately tracked, while in their control, during any 
production and packaging processes to demonstrate that the identity of 
a product was maintained.
    (c) Responsibilities of Retailers.
    (1) Records and other documentary evidence (e.g., shipping receipt 
from central warehouse) relied upon at the point of sale to establish a 
product's country of origin and, if applicable, designation of wild or 
farm-raised, must be maintained at the point of sale or otherwise be 
reasonably available to any duly authorized representative of USDA at 
the facility for at least 7 days following the retail sale of the 
product.
    (2) Records that identify the retail supplier, the product unique 
to that transaction, and the country of origin information and, if 
applicable, designation of wild or farm-raised, must be maintained for 
a period of 2 years from the date the origin declaration is made at 
retail. Such records may be located at the retailer's point of 
distribution, warehouse, central offices or other off-site location.
    (3) Any retailer handling a covered commodity that is found to be 
mislabeled for country of origin shall

[[Page 61985]]

not be held liable for a violation of the Act by reason of the conduct 
of another if the retailer could not have been reasonably expected to 
have had knowledge of the violation from the information provided by 
the supplier.
    (4) In construing and enforcing the provisions of the Act and the 
regulations contained in this part, the act, omission, or failure of 
any agent, officer, or other person acting for or employed by a person 
subject to the provisions of the Act within the scope of his/her 
employment or office, shall in every case be deemed the act, omission, 
or failure of the person subject to these provisions.

Subpart B--[Reserved]

    Dated: October 24, 2003.
A.J. Yates,
Administrator, Agricultural Marketing Service.
[FR Doc. 03-27249 Filed 10-27-03; 12:00 pm]
BILLING CODE 3410-02-P