[Federal Register Volume 68, Number 220 (Friday, November 14, 2003)]
[Rules and Regulations]
[Pages 64504-64507]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 03-28512]


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DEPARTMENT OF AGRICULTURE

Animal and Plant Health Inspection Service

9 CFR Part 130

[Docket No. 03-036-2]


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

AGENCY: Animal and Plant Health Inspection Service, USDA.

ACTION: Final rule.

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SUMMARY: We are amending the user fee regulations to replace the flat 
rate annual user fees currently charged for the inspection and approval 
of pet food manufacturing, rendering, blending,

[[Page 64505]]

digest, and spraying and drying facilities with user fees based on 
hourly rates for inspections and approval. We have found that the flat 
rate annual user fees we have been charging no longer cover the costs 
of our inspections and cannot be adequately formulated to cover the 
costs of the inspections and reinspections mandated by various foreign 
regions to which those facilities export their pet food ingredients or 
products. This action will ensure that our user fees cover the cost of 
providing these services to pet food facilities.

EFFECTIVE DATE: December 15, 2003.

FOR FURTHER INFORMATION CONTACT: For information concerning program 
operations for Veterinary Services, contact Dr. Thomas W. Burleson, 
Staff Veterinarian, National Center for Import and Export, VS, APHIS, 
4700 River Road Unit 44, Riverdale, MD 20737-1231; (301) 734-8364.
    For information concerning user fee rate development, contact Mrs. 
Kris Caraher, User Fees Section Head, Financial Systems and Services 
Branch, APHIS, 4700 River Road Unit 54, Riverdale, MD 20737-1232; (301) 
734-5901.

SUPPLEMENTARY INFORMATION:

Background

    Pet food rendering facilities process animal byproducts by cooking 
them down into various products that are used as ingredients in pet 
foods and animal feeds. Pet food blending facilities take different 
materials and mix them according to manufacturers' specifications. Pet 
food digest facilities produce enzymatic meals in powdered or liquid 
form for use as pet food flavor enhancers. Pet food spraying and drying 
facilities produce powdered materials, which are also used as flavor 
enhancers. Pet food manufacturing facilities combine and cook 
ingredients to produce the finished pet food, which is then packaged 
for sale in the United States or for export to another country.
    Facilities that process or manufacture pet food ingredients or 
products for export, including manufacturing, rendering, blending, 
digest, and spraying and drying facilities, are required by the 
European Union (EU) and some other foreign regions to be inspected and 
approved by the Animal and Plant Health Inspection Service (APHIS). 
These inspections and approvals are carried out by APHIS in accordance 
with the regulations in 9 CFR part 156, ``Voluntary Inspection and 
Certification Service.''
    User fees to reimburse APHIS for the costs of providing veterinary 
diagnostic services and import- and export-related services for live 
animals and birds and animal products are contained in 9 CFR part 130. 
Section 130.11 lists flat rate annual fees for inspecting and approving 
pet food manufacturing, rendering, blending, digest, and spraying and 
drying facilities.
    On July 9, 2003, we published in the Federal Register (68 FR 40817-
40820, Docket No. 03-036-1) a proposal to amend the regulations by 
replacing the flat rate annual user fees currently charged for the 
inspection and approval of pet food manufacturing, rendering, blending, 
digest, and spraying and drying facilities in Sec.  130.11 with user 
fees for inspections and approval based on the hourly rates in Sec.  
130.30. We took this action because APHIS was not recovering its full 
costs for providing these services under the flat rate annual user fees 
and because the flat rate annual user fees could not be adequately 
reformulated due to changes in the inspection and approval requirements 
of the EU for pet food facilities that export their products to the EU.
    We solicited comments concerning our proposal for 60 days ending 
September 8, 2003. We received one comment by that date, from a pet 
food manufacturer. This commenter requested that, instead of 
establishing user fees for inspections and approval of pet food 
facilities based on hourly rates, we develop new flat rate annual user 
fees.
    We realize that flat rate annual user fees aid pet food facilities 
by allowing them to know in advance what their costs for inspection and 
approval will be; in fact, we previously established the flat rate 
annual user fees for these activities at the request of pet food 
industry representatives. However, as we discussed in the proposed 
rule, the EU's new requirements make it infeasible to address the 
present unrecovered costs by simply recalculating the current flat rate 
user fees for inspection and approval of pet food facilities.
    The amount of time needed to complete the inspection processes that 
are required by the EU varies widely between pet food facilities, even 
pet food facilities of the same type. Charging a flat rate user fee for 
inspections performed in accordance with these new requirements would 
thus be inequitable, as facility operators whose facilities could be 
inspected in a relatively short amount of time would, in effect, be 
subsidizing facility operators whose facilities required inspections of 
greater length.
    Furthermore, under the EU's new requirements, pet food facilities 
that are not found to be in compliance at the initial inspection must, 
if they still wish to export pet food to the EU, undergo reinspection. 
The APHIS flat rate annual user fees for inspection and approval and 
for renewal of approval in Sec.  130.11 are intended to cover APHIS' 
costs for all inspections required during the year. We developed these 
flat rate user fees based on an average of two inspections per year. 
However, the new EU requirements are likely to require more frequent 
reinspections for some facilities. The cost of these additional 
reinspections will not be recovered under the current flat rate user 
fees. A flat rate annual user fee that did take the possibility of 
these additional reinspections into account would also be inequitable; 
under such a fee, facility owners whose facilities required relatively 
few inspections would, in effect, be subsidizing those whose facilities 
required more inspections, to a far greater degree than under the EU's 
previous requirements.
    Finally, we cannot predict what changes foreign governments may 
make to their requirements for inspection and approval of pet food 
facilities in the future, or what changes we might need to make in the 
flat rate user fees because of those changes. A more flexible system, 
using the hourly rates established here, will reduce the need for 
future rulemaking while ensuring that APHIS properly recovers its full 
costs for providing these services and that all customers are charged 
fairly.
    These considerations have led us to conclude that the flat rate 
annual user fees for inspection and approval of pet food facilities, 
while providing cost certainty for facility operators, will not be able 
to achieve their primary goal: Ensuring that APHIS recovers the costs 
of inspecting and approving such facilities. Returning to an hourly 
rate user fee will allow us to charge facility operators an appropriate 
amount for the labor expended in inspecting and approving their 
facilities, will allow us to recover the costs of any reinspections 
that may be required, and will give us more flexibility should the 
requirements of importing countries for inspection and approval change 
in the future. We are not making any changes to the proposed rule in 
response to this comment.
    Therefore, for the reasons given in the proposed rule and in this 
document, we are adopting the proposed rule as a final rule, without 
change.

Executive Order 12866 and Regulatory Flexibility Act

    This rule has been reviewed under Executive Order 12866. The rule 
has

[[Page 64506]]

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

Impact on Small Entities

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

Executive Order 12372

    This program/activity is listed in the Catalog of Federal Domestic 
Assistance under No. 10.025 and is subject to

[[Page 64507]]

Executive Order 12372, which requires intergovernmental consultation 
with State and local officials. (See 7 CFR part 3015, subpart V.)

Executive Order 12988

    This final rule has been reviewed under Executive Order 12988, 
Civil Justice Reform. This rule: (1) Preempts all State and local laws 
and regulations that are inconsistent with this rule; (2) has no 
retroactive effect; and (3) does not require administrative proceedings 
before parties may file suit in court challenging this rule.

Paperwork Reduction Act

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

List of Subjects in 9 CFR Part 130

    Animals, Birds, Diagnostic reagents, Exports, Imports, Poultry and 
poultry products, Quarantine, Reporting and recordkeeping requirements, 
Tests.

0
Accordingly, we are amending 9 CFR part 130 as follows:

PART 130--USER FEES

0
1. The authority citation for part 130 continues to read as follows:

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


Sec.  130.1  [Amended]

0
2. Section 130.1 is amended by removing the definitions for pet food 
blending facility, pet food digest facility, pet food manufacturing 
facility, pet food rendering facility, and pet food spraying and drying 
facility.

0
3. In Sec.  130.11, paragraph (a), the table is revised to read as 
follows:


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

    (a) * * *

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                                                                                                     User fee
                         Service                                           Unit                      beginning
                                                                                                   Oct. 1, 2003
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Embryo collection center inspection and approval (all     per year..............................         $380.00
 inspections required during the year for facility
 approval).
Inspection for approval of biosecurity level three        per inspection........................          977.00
 laboratories (all inspections related to approving the
 laboratory for handling one defined set of organisms or
 vectors).
Inspection for approval of slaughter establishment:
    Initial approval (all inspections)..................  per year..............................          373.00
    Renewal (all inspections)...........................  per year..............................          323.00
Inspection of approved establishments, warehouses, and
 facilities under 9 CFR parts 94 through 96:
    Approval (compliance agreement) (all inspections for  per year..............................          398.00
     first year of 3-year approval).
    Renewed approval (all inspections for second and      per year..............................          230.00
     third years of 3-year approval).
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    Done in Washington, DC, this 7th day of November 2003.
Peter Fernandez,
Acting Administrator, Animal and Plant Health Inspection Service.
[FR Doc. 03-28512 Filed 11-13-03; 8:45 am]
BILLING CODE 3410-34-P