[Federal Register Volume 73, Number 149 (Friday, August 1, 2008)]
[Rules and Regulations]
[Pages 45105-45151]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: E8-17562]



[[Page 45105]]

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

Part II





Department of Agriculture





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



Agricultural Marketing Service



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



7 CFR Part 65



Mandatory Country of Origin Labeling of Beef, Pork, Lamb, Chicken, Goat 
Meat, Perishable Agricultural Commodities, Peanuts, Pecans, Ginseng, 
and Macadamia Nuts; Interim Final Rule

Federal Register / Vol. 73, No. 149 / Friday, August 1, 2008 / Rules 
and Regulations

[[Page 45106]]


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

DEPARTMENT OF AGRICULTURE

Agricultural Marketing Service

7 CFR Part 65

[Docket No. AMS-LS-07-0081]
RIN 0581-AC26


Mandatory Country of Origin Labeling of Beef, Pork, Lamb, 
Chicken, Goat Meat, Perishable Agricultural Commodities, Peanuts, 
Pecans, Ginseng, and Macadamia Nuts

AGENCY: Agricultural Marketing Service, USDA.

ACTION: Interim final rule with request for comments.

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

SUMMARY: The Farm Security and Rural Investment Act of 2002 (2002 Farm 
Bill), the 2002 Supplemental Appropriations Act (2002 Appropriations), 
and the Food, Conservation and Energy Act of 2008 (2008 Farm Bill) 
amended the Agricultural Marketing Act of 1946 (Act) to require 
retailers to notify their customers of the country of origin of covered 
commodities. Covered commodities include muscle cuts of beef (including 
veal), lamb, chicken, goat, and pork; ground beef, ground lamb, ground 
chicken, ground goat, and ground pork; wild and farm-raised fish and 
shellfish; perishable agricultural commodities; macadamia nuts; pecans; 
ginseng; and peanuts. The implementation of mandatory country of origin 
labeling (COOL) for all covered commodities, except wild and farm-
raised fish and shellfish, was delayed until September 30, 2008.
    The 2008 Farm Bill contains a number of provisions that amended the 
COOL provisions in the Act. These changes include the addition of 
chicken, goat, macadamia nuts, pecans, and ginseng as covered 
commodities, the addition of provisions for labeling products of 
multiple origin, as well as a number of other changes that are 
discussed more fully in the Supplementary Information portion of this 
rule. However, the implementation date of September 30, 2008, was not 
changed by the 2008 Farm Bill. Therefore, in order to meet the 
September 30, 2008, implementation date and to provide the newly 
affected industries the opportunity to provide comments prior to 
issuing a final rule, the Department is issuing this interim final 
rule. This interim final rule contains definitions, the requirements 
for consumer notification and product marking, and the recordkeeping 
responsibilities of both retailers and suppliers for covered 
commodities. The provisions in this interim final rule do not affect 
the regulatory requirements for fish and shellfish that were published 
in the October 5, 2004, Federal Register.

DATES: This interim final rule is effective September 30, 2008. 
Comments must be submitted on or before September 30, 2008 to be 
assured of consideration. The requirements of this rule do not apply to 
covered commodities produced or packaged before September 30, 2008.

ADDRESSES: Comments should be submitted through the Internet at http://www.regulations.gov. Send written comments to: Country of Origin 
Labeling Program, Room 2607-S; Agricultural Marketing Service (AMS), 
USDA; STOP 0254; 1400 Independence Avenue, SW., Washington, DC 20250-
0254, or by facsimile to 202/354-4693. All comments received will be 
posted on the Web site at: http://www.regulations.gov. 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: Erin Morris, Associate Deputy 
Administrator, Poultry Programs, AMS, USDA, by telephone on 202/720-
5131, or via e-mail at: [email protected].

SUPPLEMENTARY INFORMATION: The information that follows has been 
divided into three sections. The first section provides background 
information including questions and answers about this interim final 
rule, a summary of the history of this rulemaking, and a general 
overview of the law, including the changes contained in the 2008 Farm 
Bill. The second section provides a discussion of the rule's 
requirements, including a summary of changes from the October 30, 2003, 
proposed rule as well as a summary of the comments received in response 
to the relevant prior requests for comments associated with this 
rulemaking and the Agency's responses to these comments. The prior 
requests for comments include: The proposed rule published in the 
October 30, 2003, Federal Register (68 FR 61944); the interim final 
rule for fish and shellfish published in the October 5, 2004, Federal 
Register (69 FR 59708); the reopening of the comment period (for costs 
and benefits) for the interim final rule that was published in the 
November 27, 2006, Federal Register (71 FR 68431); the reopening of the 
comment period for all aspects of the interim final rule that was 
published in the June 20, 2007, Federal Register (72 FR 33851); and the 
reopening of the comment period for the proposed rule for all covered 
commodities that was published in the June 20, 2007, Federal Register 
(72 FR 33917). The last section provides for the required impact 
analyses including the Regulatory Flexibility Act, the Paperwork 
Reduction Act, Civil Rights Analysis, and the relevant Executive 
Orders.

I. Background

Questions and Answers Concerning This Interim Final Rule

What are the general requirements of Country of Origin Labeling?
    The 2002 and 2008 Farm Bills amended the Act to require retailers 
to notify their customers of the country of origin of beef (including 
veal), lamb, pork, chicken, goat, wild and farm-raised fish and 
shellfish, perishable agricultural commodities, peanuts, pecans, 
ginseng, and macadamia nuts. The implementation of mandatory COOL for 
all covered commodities except wild and farm-raised fish and shellfish 
was delayed until September 30, 2008. The law defines the terms 
``retailer'' and ``perishable agricultural commodity'' as having the 
meanings given those terms in section 1(b) of the Perishable 
Agricultural Commodities Act of 1930 (PACA) (7 U.S.C. 499 et seq.). 
Under PACA, a retailer is any person engaged in the business of selling 
any perishable agricultural commodity at retail. Retailers are required 
to be licensed when the invoice cost of all purchases of perishable 
agricultural commodities exceeds $230,000 during a calendar year. The 
term perishable agricultural commodity means fresh and frozen fruits 
and vegetables.
    Food service establishments are specifically exempted as are 
covered commodities that are ingredients in a processed food item. In 
addition, the law specifically outlines the criteria a covered 
commodity must meet to bear a ``United States country of origin'' 
designation.
How do I find out if my product is considered a covered commodity or if 
it is labeled accurately under the COOL law?
    This regulation contains the requirements for labeling covered 
commodities and for determining whether a product is subject to this 
rule. However, additional questions regarding

[[Page 45107]]

whether a product is considered a covered commodity or is labeled 
accurately under this regulation may be e-mailed to [email protected].
Given that the law exempts covered commodities from mandatory COOL if 
they are an ingredient in a processed food item, what is the definition 
of a processed food item and what types of products are considered 
processed food items?
    A processed food item is a retail item derived from a covered 
commodity that has undergone specific processing resulting in a change 
in the character of the covered commodity, or that has been combined 
with at least one other covered commodity or other substantive food 
component (e.g., chocolate, breading, tomato sauce), except that the 
addition of a component (such as water, salt, or sugar) that enhances 
or represents a further step in the preparation of the product for 
consumption, would not in itself result in a processed food item. 
Specific processing that results in a change in the character of the 
covered commodity includes cooking (e.g., frying, broiling, grilling, 
boiling, steaming, baking, roasting), curing (e.g., salt curing, sugar 
curing, drying), smoking (hot or cold), and restructuring (e.g., 
emulsifying and extruding). Examples of items excluded include: 
Meatloaf, meatballs, fabricated steak, breaded veal cutlets, corned 
beef, sausage, breaded chicken tenders, and teriyaki flavored pork 
loin; a salad mix that contains lettuce and a dressing packet, a salad 
mix that contains lettuce and carrots, a fruit cup that contains 
melons, bananas, and strawberries; a bag of mixed vegetables that 
contains peas and carrots; and roasted peanuts.
What requirements must be met for a retailer to label a covered 
commodity as being of United States origin?
    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 covered commodities are as follows: 
Perishable agricultural commodities, pecans, ginseng, peanuts, and 
macadamia nuts--covered commodities must be produced in the United 
States; beef, lamb, pork, chicken, and goat--covered commodities must 
be derived exclusively from animals (1) born, raised, and slaughtered 
in the United States (including animals born and raised in Alaska and 
Hawaii and transported for a period of time not more than 60 days 
through Canada to the United States and slaughtered in the United 
States); or (2) present in the United States on or before July 15, 
2008, and once present in the United States, remained continuously in 
the United States.
How should I label a retail product that contains a single type of 
covered commodity (such as a bag of frozen strawberries) prepared from 
raw material sources having different origins?
    In this interim final rule, a single type of covered commodity 
(e.g., frozen peas), presented for retail sale in a consumer package, 
that has been prepared from raw material sources having different 
origins is referred to as a commingled covered commodity. Further, a 
commingled covered commodity does not include ground meat products. If 
the retail product contains two different types of covered commodities 
(e.g., peas and carrots), it is considered a processed food item and is 
not subject to mandatory COOL.
    In the case of perishable agricultural commodities, peanuts, 
pecans, ginseng, and macadamia nuts, for imported covered commodities 
that have not subsequently been substantially transformed in the United 
States that are commingled with imported and/or United States origin 
commodities, the declaration shall indicate the countries of origin for 
all covered commodities in accordance with Customs and Border 
Protection (CBP) marking regulations (19 CFR part 134).
What are the requirements for labeling ground meat products, which 
often contain raw material sources from multiple countries?
    The 2008 Farm Bill specifies that the notice of country of origin 
for ground beef, ground lamb, ground pork, ground goat, and ground 
chicken shall include a list of all of the countries of origin 
contained therein or reasonably contained therein. This interim final 
provides that when a raw material from a specific origin is not in a 
processor's inventory for more than 60 days, the country shall no 
longer be included as a possible country of origin.
Why can't the Department of Agriculture (USDA) track only imported 
products and consider all other products to be of ``United States 
Origin?''
    The COOL provision of the Farm Bill applies to all covered 
commodities. Moreover, the law specifically identifies the criteria 
that products of United States origin must meet. 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. 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.
When will the requirements of this regulation take effect?
    The effective date of this regulation is September 30, 2008, 
because the statute provides for a September 30, 2008, implementation 
date. However, because some of the affected industries (goat, chicken, 
pecans, ginseng, and macadamia nuts) did not have prior opportunities 
to comment on this rulemaking and because the 2008 Farm Bill made 
changes to several of the labeling provisions for meat covered 
commodities, it is reasonable to allow time for covered commodities 
that are already in the chain of commerce and for which no origin 
information is known or been provided to clear the system. Therefore, 
the requirements of this rule do not apply to covered commodities 
produced or packaged before September 30, 2008. In addition, during the 
six month period following the effective date of the regulation, AMS 
will conduct an industry education and outreach program concerning the 
provisions and requirements of this rule. AMS has determined that this 
allocation of enforcement resources will ensure that the rule is 
effectively and rationally implemented. This AMS plan of outreach and 
education should significantly aid the industry in achieving compliance 
with the requirements of this rule.
How will the requirements of this regulation be enforced?
    USDA has entered into agreements with States having existing 
enforcement infrastructure to assist in compliance reviews for fish and 
shellfish covered commodities. These agreements will be expanded to 
encompass all covered commodities. USDA determines the number of 
reviews to be conducted and has developed comprehensive procedures for 
the compliance reviews. Only USDA is able to initiate enforcement 
actions against a person found to be in violation of the law. The COOL 
statute does not provide for a private right of action. 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.

[[Page 45108]]

What are the recordkeeping requirements of this regulation?
    Any person engaged in the business of supplying a covered commodity 
to a retailer, whether directly or indirectly, must maintain records to 
establish and identify the immediate previous source (if applicable) 
and immediate subsequent recipient of a covered commodity for a period 
of 1 year from the date of the transaction. In addition, the supplier 
of a covered commodity that is responsible for initiating a 
country(ies) of origin claim, which in the case of beef, lamb, chicken, 
goat, and pork is the slaughter facility, must possess or have legal 
access to records that are necessary to substantiate that claim. In the 
case of beef, lamb, chicken, goat, and pork, a producer affidavit shall 
be considered acceptable evidence on which the slaughter facility may 
rely to initiate the origin claim, provided it is made by someone 
having first-hand knowledge of the origin of the animal(s) and 
identifies the animal(s) unique to the transaction.
    USDA continues to look for ways to minimize the burden associated 
with this rule. Therefore, under this interim final rule, slaughter 
facilities that slaughter animals that are part of a National Animal 
Identification System (NAIS) compliant system or other recognized 
official identification system (e.g., Canadian official system, Mexico 
official system) may also rely on the presence of an official ear tag 
and/or the presence of any accompanying animal markings (i.e., ``Can'', 
``M''), as applicable, on which to base their origin claims. This 
provision also applies to such animals officially identified as a group 
lot.
    For retailers, records and other documentary evidence relied upon 
at the point of sale by the retailer to establish a covered commodity's 
country(ies) of origin must be maintained for one year from the date 
the origin declaration is made at retail and, upon request, provided to 
any duly authorized representatives of USDA within 5 business days of 
the request.
    For pre-labeled products, the label itself is sufficient evidence 
on which the retailer may rely to establish a product's origin. Pre-
labeled products are those covered commodities that are labeled for 
country of origin by the firm or entity responsible for making the 
initial claim or by a further processor or repacker (i.e., firms that 
receive bulk products and package the products as covered commodities 
in a form suitable for the retailer). The country of origin information 
of pre-labeled covered commodities must be legibly printed on the 
shipping container, immediate container, or consumer ready package. In 
addition to indicating country of origin information, pre-labeled 
products must contain sufficient supplier information to allow USDA to 
trace-back the product to the supplier initiating the claim. Records 
that identify the covered commodity, the supplier, and for products 
that are not pre-labeled, the country of origin information must be 
maintained for a period of 1 year from the date the origin declaration 
is made at retail. Retailer and supplier records may be maintained in 
any location.
How does this regulation impact existing State country of origin 
labeling programs?
    To the extent that State country of origin labeling programs 
encompass commodities that are not governed by this regulation, the 
States may continue to operate them. For those State country of origin 
labeling programs that encompass commodities that are governed by this 
regulation, these programs are preempted. However, this preemption does 
not apply to State marketing programs for commodities such as 
Washington apples, Idaho potatoes, etc.
    While the COOL statute does not contain an express preemption 
provision, it is clear from the language in the statute that Congress 
intended preemption of State law. The law assigns enforcement 
responsibilities to the Secretary and encourages the Secretary to enter 
into partnerships with States with enforcement infrastructure to assist 
in the administration of the program. The law provides for a 30-day 
period in which retailers and suppliers may take the necessary 
corrective action after receiving notice of a nonconformance. The 
Secretary can impose a civil penalty only if the retailer or supplier 
has not made a good faith effort to comply, and only after the 
Secretary provides notice and an opportunity for a hearing. Allowing 
private rights of actions would frustrate the purpose of this 
comprehensive enforcement system in which Congress struck a delicate 
balance of imposing a requirement, but ensuring that the agency had 
wide latitude in enforcement discretion. Thus, it is clear that State 
laws and other actions were intended to be preempted.

Prior Documents in This Proceeding

    This interim final rule is issued pursuant to the 2002 Farm Bill, 
the 2002 Appropriations, and the 2008 Farm Bill, which amended the Act 
to require retailers to notify their customers of the origin of covered 
commodities. In addition, the FY 2004 Consolidated Appropriations Act 
(Pub. L. 108-199) delayed the implementation of mandatory country of 
origin labeling (COOL) for all covered commodities except wild and 
farm-raised fish and shellfish until September 30, 2006. The 
Agriculture, Rural Development, Food and Drug Administration, and 
Related Agencies Appropriations Act of 2006 (Pub. L. 109-97) delayed 
the applicability of mandatory COOL for all covered commodities except 
wild and farm-raised fish and shellfish until September 30, 2008.
    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.
    On October 30, 2003, AMS published the proposed rule for the 
mandatory COOL program (68 FR 61944) with a 60-day comment period. On 
December 22, 2003, AMS published a notice extending the comment period 
(68 FR 71039) an additional 60 days. On June 20, 2007, AMS reopened the 
comment period for the proposed rule for all covered commodities (72 FR 
33917).
    On October 5, 2004, AMS published the interim final rule for fish 
and shellfish (69 FR 59708) with a 90-day comment period. On December 
28, 2004, AMS published a notice extending the comment period (69 FR 
77609) an additional 60 days. On November 27, 2006, the comment period 
was reopened on the costs and benefits aspects of the interim final 
rule (71 FR 68431). On June 20, 2007, the comment period was reopened 
for all aspects of the interim final rule (72 FR 33851).

Overview of the Law

    Section 10816 of Public Law 107-171 (7 U.S.C. 1638-1638d) and 
Section 11002 of Public Law 110-234 amended the Act (7 U.S.C. 1621 et 
seq.) to require retailers to inform consumers of the

[[Page 45109]]

country of origin of covered commodities.
    The intent of this law is to provide consumers with additional 
information on which to base their purchasing decisions. COOL is a 
retail labeling program and as such does not provide a basis for 
addressing food safety. Food products, both imported and domestic, must 
meet the food safety standards of the Food and Drug Administration 
(FDA) and the Food Safety and Inspection Service (FSIS).
    Under the 2002 Farm Bill, the term ``covered commodity'' was 
defined as muscle cuts of beef (including veal), lamb, pork; ground 
beef, ground lamb, ground pork; farm-raised fish and shellfish; wild 
fish and shellfish; perishable agricultural commodities; and peanuts. 
The 2008 Farm Bill added muscle cuts and ground chicken and goat; 
pecans; ginseng; and macadamia nuts as covered commodities. 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.'' 
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 perishable agricultural commodities, 
peanuts, pecans, ginseng, and macadamia nuts, the covered commodity 
must be exclusively produced in the United States. In addition, under 
the 2008 Farm Bill, for perishable agricultural commodities, peanuts, 
pecans, macadamia nuts, and ginseng produced in the United States, 
designation of the State, region, or locality of the United States 
where such commodity was produced shall be sufficient to identify the 
country of origin.
    In the case of beef, lamb, pork, chicken, and goat, covered 
commodities, the law states that they may bear a U.S. origin 
declaration only if they are derived exclusively from animals born, 
raised, and slaughtered in the United States (including animals born 
and raised in Alaska and Hawaii and transported for a period of time 
not more than 60 days through Canada to the United States and 
slaughtered in the United States). In addition, under the 2008 Farm 
Bill, animals present in the United States on or before July 15, 2008, 
and once present in the United States, remained continuously in the 
United States, are also eligible to bear a United States origin 
declaration.
    The 2008 Farm Bill provided further direction on country of origin 
labeling for meat covered commodities. These changes include additional 
provisions concerning labeling meat covered commodities that have 
multiple countries of origin and specify that a retailer of a covered 
commodity derived from an animal that is imported into the United 
States for immediate slaughter shall designate the origin of such 
covered commodity as the country from which the animal was imported and 
the United States. In addition, the 2008 Farm Bill specifies that meat 
covered commodities derived from an animal that was not born, raised, 
or slaughtered in the United States shall designate a country other 
than the United States as the country of origin.
    The 2008 Farm Bill also specifies how ground meat products shall be 
labeled. The notice of country of origin for ground beef, ground pork, 
ground lamb, ground chicken, or ground goat shall include a list of all 
countries of origin contained therein or a list of all reasonably 
possible countries of origin contained therein.
    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 
section 1(b) of PACA as the meaning of ``retailer'' for the application 
of the labeling requirements under the COOL law. Under PACA and thus 
this interim final rule, a retailer is any person engaged in the 
business of selling any perishable agricultural commodity at retail. 
Retailers are required to be licensed when the invoice cost of all 
purchases of perishable agricultural commodities exceeds $230,000 
during a calendar year. Therefore, retail establishments, such as 
butcher shops, which do not generally sell fruits and vegetables, do 
not meet the PACA definition of a retailer and therefore are not 
subject to this rule.
    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 may conduct an audit of any person that 
prepares, stores, handles, or distributes a covered commodity for 
retail sale to verify compliance with the law and this regulation. Any 
person subject to such an audit shall provide the Secretary with 
verification of the country of origin of covered commodities. The 2008 
Farm Bill states that records maintained in the course of the normal 
conduct of the business of such person, including animal health papers, 
import or customs documents, or producer affidavits, may serve as such 
verification. The law prohibits the Secretary from using a mandatory 
identification system to verify the country of origin of a covered 
commodity. Under the 2008 Farm Bill, the Secretary is prohibited from 
requiring the maintenance of additional records other than those 
maintained in the normal conduct of business. The law provides examples 
of existing certification programs that may be used to certify the 
country of origin of a covered commodity.
    The 2008 Farm Bill also modified the enforcement provisions for 
both retailers and suppliers. Under the 2002 Farm Bill, civil penalties 
up to $10,000 per violation were specified for retailers and suppliers. 
Under the 2008 Farm Bill, civil penalties have been reduced to up to 
$1,000 for each violation. In addition, the 2008 Farm Bill specifies 
that the Secretary must provide retailers and suppliers with a 30-day 
period during which the retailer or supplier can take the necessary 
steps to comply with the law after receiving notice from the Secretary. 
Under the 2002 Farm Bill, only retailers were provided with this 30-day 
period. In addition, the 2008 Farm Bill states that the Secretary may 
fine a retailer or supplier, after providing notice and an opportunity 
for a hearing, only if the retailer or supplier has not made a good 
faith effort to comply with the law and continues to willfully violate 
the law. 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.

II. Summary of Changes From the Proposed Rule

    As previously mentioned, the 2008 Farm Bill made a number of 
changes to the COOL provisions contained in the Act. These changes have 
been incorporated into this interim final rule as appropriate. In 
addition, the Agency has made other modifications for clarity and to 
reduce the burden on regulated parties where practicable as the added 
costs of implementing this rule will likely be passed on to consumers. 
Many of these changes were incorporated in the interim final rule for 
fish and shellfish that was published in the October 5, 2004, Federal 
Register (69 FR 89708). Thus, readers may find it

[[Page 45110]]

helpful to review the interim final rule for fish and shellfish for 
further discussions of some of the changes that were made from the 
proposed rule such as those changes made to the definition of a 
processed food item and to the recordkeeping provisions.
    Further, enforcement of the interim final rule for fish and 
shellfish will be consistent with the statute as amended by the 2008 
Farm Bill. Comments are specifically requested concerning the revisions 
to recordkeeping provisions made herein. Any comments received pursuant 
to this rulemaking, to the extent relevant, will be reviewed in 
connection with the continuing regulatory action on the mandatory COOL 
program for fish and shellfish. A summary of the changes made in this 
interim final rule is discussed below.

Definitions

    The 2008 Farm Bill added muscle cuts and ground chicken and goat; 
pecans; macadamia nuts; and ginseng as covered commodities. Therefore, 
a definition for born in reference to chicken as well as definitions 
for chicken, ginseng, goat, ground chicken, and ground goat have been 
added for clarity. In addition, the definition of ``covered commodity'' 
has also been modified accordingly to include muscle cuts of beef 
(including veal), lamb, chicken, goat, and pork; ground beef, ground 
lamb, ground chicken, ground goat, and ground pork; perishable 
agricultural commodities; macadamia nuts; pecans; ginseng; and peanuts.
    The definitions of ``canned'' and ``produced in any other country 
other than the United States'' have been deleted as they have been 
determined to be unnecessary.
    A definition for ``commingled covered commodities'' and ``imported 
for immediate slaughter'' have been added for clarity.
    The following definitions have been deleted as the requirements for 
labeling wild and farm-raised fish and shellfish covered commodities 
were promulgated in a separate action: ``farm-raised fish'', 
``hatched'', ``processed (for fish and shellfish'', ``U.S. flagged 
vessel'', ``vessel flag'', ``waters of the United States'', and ``wild 
fish and shellfish''. In addition, other definitions such as ``covered 
commodity'', ``production step'', ``raised'', and ``United States 
country of origin'' have been modified to remove references to fish and 
shellfish.
    The definition of ``ground beef'' has been modified to provide 
clarity and to expand the scope of ground beef items covered by this 
rule. Under this interim final rule, the term ``ground beef'' has the 
meaning given that 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, and also includes 
products defined by the terms ``hamburger'' in 9 CFR 319.15(b) and 
``beef patties'' in 9 CFR 319.15(c). A full explanation of this change 
is discussed in the Comments and Responses section.
    The definition of ``processed food item'' has been modified to 
provide additional clarity as to the types of retail items that are 
considered processed food items and are therefore exempt from labeling 
under this interim final rule. Based on the comments received on the 
proposed rule in which numerous commenters suggested that the scope of 
what is considered a covered commodity should be narrowed and because 
the Department was concerned about the burden of this rule on affected 
entities as the added costs of implementing this rule will likely be 
passed on to consumers, AMS is adopting the definition of a processed 
food item in this interim final rule that was promulgated in the 
interim final rule for fish and shellfish. Thus, under this interim 
final rule, items that are cooked, cured, smoked, and restructured 
would all be considered processed food items. Under the proposed rule, 
items that were cooked would have been required to be labeled. A full 
explanation of this change is discussed in the Comments and Responses 
section.
    The definition of ``raised'' has also been modified to provide 
clarity. The term ``raised'' is defined in this interim final rule for 
the purpose of providing clarity with respect to the specific 
production steps specified in the law, born, raised, and slaughtered, 
and how the origin of covered commodities shall be labeled. This 
definition does not impact any other labeling claims subject to 
approval by FSIS.
    Pursuant to the 2008 Farm Bill, the definition of ``United States 
country of origin'' has also been modified. Under this interim final 
rule, beef, pork, lamb, chicken, and goat derived from animals present 
in the United States on or before July 15, 2008, and once present in 
the United States, remained continuously in the United States, shall be 
considered of United States origin. The 2002 Farm Bill and thus the 
October 30, 2003, proposed rule, did not contain such a provision. This 
provision will help address the issue of the lack of origin information 
on some animals currently residing in the United States.

Country of Origin Notification for Muscle Cuts and Ground Meat

    The October 30, 2003, proposed rule contained provisions for 
labeling covered commodities when the product entered the United States 
during the production process. In general, animals that were born and/
or raised in country X and slaughtered in the United States were to be 
labeled as being imported from country X and identifying the production 
steps that occurred in the United States. The 2008 Farm Bill contains 
provisions on labeling covered commodities of multiple countries of 
origin. Under this interim final rule, if an animal was born, raised, 
and/or slaughtered in the United States and was not imported for 
immediate slaughter as defined in Sec.  65.180, the origin of the 
resulting meat products derived from that animal may be designated as 
Product of the United States, Country X, and/or (as applicable) Country 
Y, where Country X and Country Y represent the actual or possible 
countries of foreign origin.
    If an animal was imported into the United States for immediate 
slaughter as defined in Sec.  65.180, the origin of the resulting meat 
products derived from that animal shall be designated as Product of 
Country X and the United States.
    In both cases above, the origin declaration may include more 
specific information related to production steps provided records to 
substantiate the claims are maintained and the claim is consistent with 
other applicable Federal legal requirements.

Labeling Ground Meat Covered Commodities

    The proposed rule contained provisions for labeling commingled 
products--including ground beef. However, the 2008 Farm Bill specifies 
how ground meat items shall be labeled.
    Under this interim final rule, the declaration for ground beef, 
ground pork, ground lamb, ground goat, and ground chicken covered 
commodities shall list all countries of origin contained therein or 
that may be reasonably contained therein. Further, this interim final 
rule provides that when a raw material from a specific origin is not in 
a processor's inventory for more than 60 days, the country shall no 
longer be included as a possible country of origin. Under the proposed 
rule, the label for these products was required to include an 
alphabetical listing of the countries of origin for all raw materials 
contained therein.

[[Page 45111]]

Labeling Comingled Covered Commodities

    For covered commodities other than meat items, this interim final 
rule, to a great extent, includes the labeling provisions for 
commingled covered commodities that were developed in the interim final 
rule for fish and shellfish based on comments received on the proposed 
rule. Most of the commenters requested greater flexibility in labeling 
these types of products. Other commenters expressed concern as to 
whether listing the countries in alphabetical order is acceptable under 
FDA and CBP regulations. For a more complete discussion of the 
rationale for this change, readers are invited to review the interim 
final rule for fish and shellfish (69 FR 59708), which is posted on the 
AMS Web site at http://www.ams.usda.gov/AMSv1.0/. Further, changes are 
made in this regulation to make clear that in those instances in which 
CBP marking regulations apply pursuant to 19 CFR part 134, this 
regulation does not impose any additional marking requirements. 
Accordingly, under this interim final rule, for imported covered 
commodities that are commingled with covered commodities (of the same 
type) sourced from a different origin the declaration shall indicate 
the countries of origin in accordance with existing CBP marking 
regulations (19 CFR part 134).

Markings

    With regard to markings, in addition to the change made by the 2008 
Farm Bill with respect to State, region, and locality labels, which is 
further discussed below, the Agency has made several changes to provide 
for increased flexibility in labeling. In general, these changes mirror 
the changes that were made to the marking provisions contained in the 
interim final rule for fish and shellfish as a result of comments 
received on the proposed rule. Many commenters requested the use of 
check boxes to convey origin information. Other commenters requested 
that bulk commodities should be allowed to be commingled in bins as 
long as the signage indicates the countries of origin of the contents 
of the bin. Numerous other commenters recommended that State and 
regional designations should be accepted in lieu of country of origin. 
For a more complete discussion of the relevant comments, readers are 
invited to review the interim final rule for fish and shellfish.
    Accordingly, under this interim final rule, the declaration of the 
country of origin of a product may be in the form of a check box 
provided it is in conformance with other Federal labeling laws. Also, 
under this final rule, a bulk container (e.g., display case, 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 all possible origins are listed. Under the 
proposed rule, the use of check boxes was not expressly allowed and 
covered commodities from more than one origin that were offered for 
sale in a bulk container were required to be individually labeled.
    Under the proposed rule, State or regional label designations were 
not permitted in lieu of country of origin. However, the 2008 Farm 
Bill, and thus this interim final rule, expressly authorize the use of 
State, regional, or locality label designations in lieu of country of 
origin for perishable agricultural commodities, peanuts, pecans, 
ginseng, and macadamia nuts.

Recordkeeping

    The 2008 Farm Bill made changes to the recordkeeping provisions of 
the Act. Specifically, the 2008 Farm Bill states that records 
maintained in the course of the normal conduct of the business of such 
person, including animal health papers, import or customs documents, or 
producer affidavits, may serve as such verification. Under the 2008 
Farm Bill, the Secretary is prohibited from requiring the maintenance 
of additional records other than those maintained in the normal conduct 
of business. In addition to the changes made as a result of the 2008 
Farm Bill, other changes have been made to reduce the recordkeeping 
burden. In general, these changes, to a great extent, include the 
changes that were made to the recordkeeping provisions contained in the 
interim final rule for fish and shellfish as a result of comments 
received on the proposed rule. The majority of the commenters 
recommended shorter retention times for both retailer and supplier 
records. Other commenters expressed concern that the preamble for the 
proposed rule provided no explanation of the records that would be 
necessary to establish the chain of custody of a product. For a more 
complete discussion of the relevant comments, readers are invited to 
review the interim final rule for fish and shellfish. These changes 
include the removal of the store-level recordkeeping requirement, a 
reduction in the length of time that records must be maintained, the 
removal of the requirement for a unique identifier, and revisions to 
the recordkeeping requirements for pre-labeled products.
    With respect to establishing the chain of custody of a product, in 
response to comments received, the Agency has deleted this language 
from the rule. Any person engaged in the business of supplying a 
covered commodity to a retailer, whether directly or indirectly, must 
maintain records to establish and identify the immediate previous 
source and immediate subsequent recipient of a covered commodity for a 
period of 1 year from the date of the transaction. Under the proposed 
rule, records would have been required to be kept for 2 years.
    For retailers, this rule requires records and other documentary 
evidence relied upon at the point of sale by the retailer to establish 
a covered commodity's country(ies) of origin must be maintained for one 
year from the date the origin declaration is made at retail and, upon 
request, provided to any duly authorized representatives of USDA within 
5 business days of the request. Under the proposed rule, retailers were 
required to have maintained these records at the retail store for 7 
days following the sale of the product. For pre-labeled products, the 
rule provides that the label itself is sufficient evidence on which the 
retailer may rely to establish a product's origin. The proposed rule 
would not have provided for this method of substantiation. The rule now 
requires that records identify the covered commodity, the supplier, and 
for products that are not pre-labeled, the country of origin 
information. This information must be maintained for a period of 1 year 
from the date the origin designations are made at retail. Under the 
proposed rule, these records would have been required to be maintained 
for 2 years.
    Accordingly, under this interim final rule, upon request by USDA 
representatives, suppliers and retailers subject to this subpart shall 
make available to USDA representatives, records maintained in the 
normal course of business that verify an origin claim. Such records 
shall be provided within 5 business days of the request and may be kept 
in any location.
    USDA continues to look for ways to minimize the burden associated 
with this rule. Therefore, under this interim final rule, in addition 
to relying on producer affidavits to initiate an origin claim, 
slaughter facilities that slaughter animals that are part of a National 
Animal Identification System (NAIS) compliant system or other 
recognized official identification system (e.g., Canadian official 
system, Mexico official system) may also rely on the presence of an 
official ear tag and/or the presence of any accompanying animal

[[Page 45112]]

markings (i.e., ``Can'', ``M''), as applicable, on which to base their 
origin claims. This provision also applies to such animals officially 
identified as a group lot.

Responsibilities of Retailers and Suppliers

    With regard to the ``safe harbor'' language contained in the 
proposed rule, which allows retailers and suppliers to rely on the 
information provided unless they could have been reasonably expected to 
have knowledge otherwise, based on comments received, this ``safe 
harbor'' language has been removed from this interim final rule. The 
commenters contend that because the statute states that retailers are 
not subject to fines unless the Secretary determines they have 
willfully violated the statute, the standard of willfulness is a higher 
bar to liability than the standard of negligence that is encompassed in 
the reasonable reliance standard utilized in the ``liability shield.'' 
A complete discussion is contained in the Comments and Responses 
section of this interim final rule.
Highlights of This Interim Final Rule
Covered Commodities
    The term ``covered commodity'' includes: Muscle cuts of beef, lamb, 
pork, chicken, and goat; ground beef, ground lamb, ground pork, ground 
chicken, and ground goat; perishable agricultural commodities (fresh 
and frozen fruits and vegetables); peanuts; pecans; ginseng; and 
macadamia nuts.
Exemption for Food Service Establishments
    Under this interim final rule, food service establishments are 
exempt from COOL labeling requirements. Food service establishments are 
restaurants, cafeterias, lunch rooms, food stands, saloons, taverns, 
bars, lounges, or other similar facilities operated as an enterprise 
engaged in the business of selling food to the public. Similar food 
service facilities include salad bars, delicatessens, meal preparation 
stations in which the retailer sets out ingredients for different meals 
and consumers assemble the ingredients into meals to take home, 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.
Exclusion for Ingredient in a Processed Food Item
    Items are excluded from labeling under this regulation when a 
covered commodity is an ingredient in a processed food item. Under this 
interim final rule, a ``processed food item'' is defined as: A retail 
item derived from a covered commodity that has undergone specific 
processing resulting in a change in the character of the covered 
commodity, or that has been combined with at least one other covered 
commodity or other substantive food component (e.g., chocolate, 
breading, tomato sauce), except that the addition of a component (such 
as water, salt, or sugar) that enhances or represents a further step in 
the preparation of the product for consumption, would not in itself 
result in a processed food item. Specific processing that results in a 
change in the character of the covered commodity includes cooking 
(e.g., frying, broiling, grilling, boiling, steaming, baking, 
roasting), curing (e.g., salt curing, sugar curing, drying), smoking 
(cold or hot), and restructuring (e.g., emulsifying and extruding). 
Examples of items excluded from country of origin labeling include 
teriyaki flavored pork loin, meatloaf, roasted peanuts, breaded chicken 
tenders, fruit medley, mixed vegetables, and a salad mix that contains 
lettuce and carrots and/or salad dressing.
Labeling Covered Commodities of United States Origin
    The law prescribes specific criteria that must be met for a covered 
commodity to bear a ``United States country of origin'' declaration. 
Therefore, covered commodities may be labeled as having a United States 
origin if the following specific requirements are met:
    (a) Beef, pork, lamb, chicken, and goat--covered commodities must 
be derived from animals exclusively born, raised, and slaughtered in 
the United States; from animals born and raised in Alaska or Hawaii and 
transported for a period of time not more than 60 days through Canada 
to the United States and slaughtered in the United States; or from 
animals present in the United States on or before July 15, 2008, and 
once present in the United States, remained continuously in the United 
States.
    (b) Perishable agricultural commodities, peanuts, pecans, ginseng, 
and macadamia nuts--covered commodities must be from products 
exclusively produced in the United States.
Labeling Muscle Cut Covered Commodities of Multiple Countries of Origin 
(That Includes the United States)
    Under this interim final rule, if an animal was born, raised, and/
or slaughtered in the United States and was not imported for immediate 
slaughter as defined in Sec.  65.180, the origin of the resulting meat 
products derived from that animal may be designated as Product of the 
United States, Country X, and/or (as applicable) Country Y, where 
Country X and Country Y represent the actual or possible countries of 
foreign origin.
    If an animal was imported into the United States for immediate 
slaughter as defined in Sec.  65.180, the origin of the resulting meat 
products derived from that animal shall be designated as Product of 
Country X and the United States.
    In both cases above, the origin declaration may include more 
specific information related to production steps provided records to 
substantiate the claims are maintained and the claim is consistent with 
other applicable Federal legal requirements.
Labeling Imported Covered Commodities
    Under this interim final rule, an imported covered commodity for 
which origin has already been established as defined by this law (e.g., 
born, raised, slaughtered or grown) and for which no production steps 
have occurred in the United States shall retain its origin as declared 
to U.S. Customs and Border Protection (CBP) at the time the product 
enters the United States, through retail sale.
    Covered commodities imported in consumer-ready packages are 
currently required to bear a country of origin declaration on each 
individual package under the Tariff Act of 1930 (Tariff Act). This 
interim final rule does not change these requirements.
Labeling Commingled Covered Commodities
    In this interim final rule, a commingled covered commodity is 
defined as a single type of covered commodity (e.g., frozen peas), 
presented for retail sale in a consumer package, that has been prepared 
from raw material sources having different origins. Further, a 
commingled covered commodity does not include ground meat products. If 
the retail product contains two different types of covered commodities 
(e.g., peas and carrots), it is considered a processed food item and is 
not subject to mandatory COOL.
    In the case of perishable agricultural commodities, peanuts, 
pecans, ginseng, and macadamia nuts, for imported covered commodities 
that have not subsequently been substantially transformed in the United 
States that are commingled with imported and/or United States origin 
commodities, the declaration shall indicate the countries

[[Page 45113]]

of origin for all covered commodities in accordance with CBP marking 
regulations (19 CFR part 134). For example, a bag of frozen peas that 
were sourced from France and India is currently required under CBP 
regulations to be marked with that origin information on the package.
Defining Country of Origin for Ground Meat Products
    The law states that the origin declaration for ground beef, ground 
pork, ground lamb, ground goat, and ground chicken covered commodities 
shall list the countries of origin contained therein or shall list the 
reasonably possible countries of origin. Therefore, under this interim 
final rule, when a raw material from a specific origin is not in a 
processor's inventory for more than 60 days, the country shall no 
longer be included as a possible country of origin. This does not mean 
that labels must change every 60 days. Labels containing the applicable 
countries (e.g., Country X, Y, Z) may extend beyond a given 60-day 
period depending on how long raw materials from those countries are 
actually in inventory. In the event of a supplier audit by USDA, 
records kept in the normal course of business should provide the 
information necessary to verify the origin claim.
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 
may provide the country of origin notification either on the sales 
vehicle or at the time the product is delivered to the consumer.
Markings
    Under this interim final rule, the country of origin declaration 
may be provided to consumers by means of a label, placard, sign, stamp, 
band, twist tie, pin tag, 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. In 
general, abbreviations are not acceptable. Only those abbreviations 
approved for use under CBP rules, regulations, and policies, such as 
``U.K.'' for ``The United Kingdom of Great Britain and Northern 
Ireland'', ``Luxemb'' for Luxembourg, and ``U.S.'' for the ``United 
States'' are acceptable. The declaration of the country of origin of a 
product may be in the form of a statement such as ``Product of USA,'' 
``Produce of the USA'', or ``Grown in Mexico''; may only contain the 
name of the country such as ``USA'' or ``Mexico''; or may be in the 
form of a check box provided it is in conformance with CBP marking 
regulations and other Federal labeling laws (i.e., FDA, FSIS). For 
example, CBP marking regulations (19 CFR part 134) specifically require 
the use of the words ``product of'' in certain circumstances. The 
adjectival form of the name of 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. The labeling requirements 
under this rule do not supersede any existing Federal legal 
requirements, unless otherwise specified, and any country of origin 
designation must not obscure or intervene with other labeling 
information required by existing regulatory requirements.
    For domestic and imported perishable agricultural commodities, 
macadamia nuts, peanuts, pecans, and ginseng, State, regional, or 
locality label designations are acceptable in lieu of country of origin 
labeling.
    In order to provide the industry with as much flexibility as 
possible, this rule does not contain specific requirements as to the 
exact placement or size of the country of origin declaration. However, 
such declarations must be legible and conspicuous, and allow consumers 
to find the country(ies) of origin easily and read it without strain 
when making their purchases, and provided that existing Federal 
labeling requirements must be followed. For example, the country of 
origin declaration may be located on the information panel of a package 
of frozen produce as consumers are familiar with such location for 
displaying nutritional and other required information. Likewise, in the 
case of store overwrap and other similar type products, which is the 
type of packaging used for fresh meat and poultry products, the 
information panel would also be an acceptable location for the origin 
declaration as this is a location that is currently utilized for 
providing other Federally-mandated labeling information (i.e., safe 
handling instructions, nutrition facts, and ingredients statement). 
However, to the extent practicable, the Agency encourages retailers and 
suppliers to place this information on the front of these types of 
packages, also known as the principal display panel, so it will be 
readily apparent to consumers.
Recordkeeping Requirements and Responsibilities
    The law states that the Secretary may conduct an audit of any 
person that prepares, stores, handles, or distributes a covered 
commodity for retail sale to verify compliance. As such, records 
maintained in the normal course of business that verify origin 
declarations are necessary in order to provide retailers with credible 
information on which to base origin declarations.
    Under this interim final rule, any person engaged in the business 
of supplying a covered commodity to a retailer, whether directly or 
indirectly (i.e., growers, distributors, handlers, packers, and 
processors, etc.), must make available information to the subsequent 
purchaser about the country(ies) of origin of the covered commodity. 
This information may be provided either on the product itself, on the 
master shipping container, or in a document that accompanies the 
product through retail sale provided it identifies the product and its 
country(ies) of origin.
    Any person engaged in the business of supplying a covered commodity 
to a retailer, whether directly or indirectly, must maintain records to 
establish and identify the immediate previous source (if applicable) 
and immediate subsequent recipient of a covered commodity for a period 
of 1 year from the date of the transaction.
    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, pork, chicken, and goat is the slaughter 
facility, must possess or have legal access to records that are 
necessary to substantiate that claim. In the case of beef, lamb, 
chicken, goat, and pork, a producer affidavit shall be considered 
acceptable evidence on which the slaughter facility may rely to 
initiate the origin claim, provided it is made by someone having first-
hand knowledge of the origin of the animal(s) and identifies the 
animal(s) unique to the transaction.
    USDA continues to look for ways to minimize the burden associated 
with this rulemaking. Therefore, slaughter facilities that slaughter 
animals that are part of a National Animal Identification System (NAIS) 
compliant system or other recognized official identification system 
(e.g., Canadian official system, Mexico official system) may also rely 
on the presence of an official ear tag and/or the presence of any 
accompanying animal markings (i.e., ``Can'', ``M''), as applicable, on 
which to base their origin claims. This would also include such

[[Page 45114]]

animals officially identified as a group lot.
    For an imported covered commodity, the importer of record as 
determined by CBP, must ensure that records: Provide clear product 
tracking from the United States port of entry to the immediate 
subsequent recipient and accurately reflect the country(ies) of origin 
of the item as identified in relevant CBP entry documents and 
information systems; and maintain such records for a period of 1 year 
from the date of the transaction.
    Under this interim final rule, retailers also have recordkeeping 
responsibilities. Records and other documentary evidence relied upon at 
the point of sale by the retailer to establish a covered commodity's 
country(ies) of origin must be maintained for one year from the date 
the origin declaration is made at retail. Upon request, these records 
must be provided to any duly authorized representatives of USDA within 
5 business days of the request and may be maintained in any location. 
For pre-labeled products (i.e., labeled by the manufacturer/first 
handler) the label itself is sufficient evidence on which the retailer 
may rely to establish the product's origin. Pre-labeled products are 
those covered commodities that are labeled for country of origin by the 
firm or entity responsible for making the initial claim or by a further 
processor or repacker (i.e., firms that receive bulk products and 
package the products as covered commodities in a form suitable for the 
retailer). The country of origin information of pre-labeled covered 
commodities must be legibly printed on the shipping container, 
immediate container, or consumer ready package. In addition to 
indicating country of origin information, pre-labeled products must 
contain sufficient supplier information to allow USDA to trace-back the 
product to the supplier initiating the claim. Records that identify the 
covered commodity, the supplier, and for products that are not pre-
labeled, the country of origin information must be maintained for a 
period of 1 year from the date the origin declaration is made at 
retail.
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 has entered 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 at supplier 
establishments subject to these regulations. USDA will coordinate the 
scheduling and determine the procedures for compliance 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 and suppliers, 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 
within 5 business days of receiving a request and provide any necessary 
facilities for such inspections.
    The law contains enforcement provisions for both retailers and 
suppliers that include civil penalties of up to $1,000 for each 
violation. For retailers and persons engaged in the business of 
supplying a covered commodity to a retailer (suppliers), the law states 
that if the Secretary determines that a retailer or supplier is in 
violation of the Act, the Secretary must notify the retailer or 
supplier of the determination and provide the retailer or supplier with 
a 30-day period during which the retailer or supplier may take 
necessary steps to comply. If upon completion of the 30-day period the 
Secretary determines the retailer or supplier has (1) not made a good 
faith effort to comply and (2) continues to willfully violate the Act, 
after providing notice and an opportunity for a hearing, the retailer 
or supplier may be fined not more than $1,000 for each 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, the Federal Food, Drug, and 
Cosmetic Act prohibits labeling that is false or misleading. In 
addition, for perishable agricultural commodities, mislabeling country 
of origin is also in violation of PACA misbranding provisions. Thus, 
inaccurate country of origin labeling of covered commodities may lead 
to additional penalties under these statutes as well.
    With regard to the voluntary use of NAIS compliant tags on which to 
base origin claims, 9 CFR 71.22 prohibits the removal of official 
identification devices except at the time of slaughter.
Comments and Responses
    On October 30, 2003, AMS published the proposed rule for the 
mandatory COOL program (68 FR 61944) with a 60-day comment period. On 
December 22, 2003, AMS published a notice extending the comment period 
(68 FR 71039) an additional 60 days. AMS received over 5,600 timely 
comments from consumers, retailers, foreign governments, producers, 
wholesalers, manufacturers, distributors, members of Congress, trade 
associations and other interested parties. The majority of the comments 
received were from consumers expressing support for the requirement to 
label the method of production of fish and shellfish as either wild 
and/or farm-raised. Numerous other comments related to the definition 
of a processed food item, the recordkeeping requirements for both 
retailers and suppliers, and the enforcement of the program. In 
addition, over 100 late comments were received that generally reflected 
the substance of the timely comments received. To the extent that these 
comments applied to fish and shellfish covered commodities, these 
comments have already been addressed in the interim final rule for fish 
and shellfish (69 FR 59708).
    On June 20, 2007, AMS reopened the comment period for the proposed 
rule for all covered commodities (72 FR 33917). AMS received over 721 
comments from consumers, retailers, foreign governments, producers, 
wholesalers, manufacturers, distributors, members of Congress, trade 
associations and other interested parties. The majority of the comments 
received were from consumers expressing support for mandatory COOL for 
the remaining covered commodities. Numerous comments were received that 
provided insights and suggestions relating to the definitions for 
``processed food item,'' ``blended products,'' ``retailer,'' and 
``ground beef.'' Several foreign governments expressed concern that the 
law itself may not be consistent with the World Trade Organization or 
North American Free Trade Agreement obligations of the United States. 
Other commenters pointed out that COOL provides no food safety benefit 
to consumers. Some commenters expressed concerns that poultry and food 
service establishments are exempt from COOL regulations. Several 
commenters discussed the challenges and possible solutions for labeling 
country of origin when products have entered the United States during 
the production process. Many commenters requested an implementation 
period to allow clearing from channels of

[[Page 45115]]

commerce those preexisting animals and commodities for which accurate 
labeling would be difficult.
    Any comments received on the October 30, 2003, proposed rule that 
were not addressed previously in the interim final rule for fish and 
shellfish, as well as any new comments received in response to the June 
20, 2007, comment reopening, will be addressed in this rule.
    On October 5, 2004, AMS published the interim final rule for fish 
and shellfish (69 FR 59708) with a 90-day comment period. On December 
28, 2004, AMS published a notice extending the comment period (69 FR 
77609) an additional 60 days. On November 27, 2006, the comment period 
was reopened on the cost and benefit aspects of the interim final rule 
(71 FR 68431). AMS received over 192 comments from consumers, 
retailers, foreign governments, producers, wholesalers, manufacturers, 
distributors, members of Congress, trade associations and other 
interested parties. The majority of the comments received were from 
consumers expressing support for the requirement to label fish and 
shellfish with the country of origin and method of production as either 
wild and/or farm-raised, and to extend mandatory COOL to the remaining 
covered commodities. Most of the comments did not address the specific 
question of the rule's costs and benefits. A limited number of the 
comments did relate to the costs and benefits of the documentation and 
recordkeeping requirements of the law. Some commenters noted no 
increased sales or demand for seafood as a result of COOL. Several 
commenters provided evidence regarding the costs of compliance with the 
interim final rule covering fish and shellfish. Other commenters cited 
academic and Government Accountability Office studies to argue that 
USDA overestimated the costs to implement systems to meet COOL 
requirements, and that the true costs to industry will be much lower 
than those projected by the economic impact analysis contained in the 
interim final rule for fish and shellfish. To the extent that these 
comments apply to the overall costs and benefits of mandatory COOL for 
the remaining covered commodities, they will be addressed herein.
    When the proposed rule was published on October 30, 2003, the 
regulatory provisions were all proposed to be contained in a new part 
60 of Title 7 of the Code of Federal Regulations. Under this interim 
final rule, the regulatory provisions for the covered commodities other 
than fish and shellfish will appear at 7 CFR part 65. For the ease of 
the reader, the discussion of the comments will refer to the initial 
regulatory numbering scheme. The numbering scheme for the regulatory 
provisions in this interim final rule is different and therefore may 
not align with the proposed rule.
Definitions
Born
    Summary of Comments: One commenter recommended that a new 
definition be added that would define the term ``born'' in the case of:
    (a) Beef, pork, and lamb: The country in which cattle, hogs, and 
sheep were birthed on or after September 30, 2004.
    (b) Cattle, hogs, and sheep: All cattle, hogs, and sheep birthed 
prior to September 30, 2004, and residing within the United States on 
September 30, 2004, shall be deemed to be born in the United States, 
except those identified as foreign (through various means).
    Agency Response: The implementation date for covered commodities 
other than fish and shellfish was delayed until September 30, 2008. The 
2008 Farm Bill amended section 282(a)(2) of the Act such that beef, 
lamb, pork, chicken, and goat can be designated as having a United 
States origin if derived from an animal that was present in the United 
States on or before July 15, 2008, and once present in the United 
States, remained continuously in the United States. Accordingly, the 
issue raised in the comment has been addressed by the 2008 Farm Bill 
amendment, and this rule reflects that statutory change.
Covered Commodity
    Summary of Comments: Numerous commenters suggested that the 
definition of covered commodity should be amended to include poultry.
    Agency Response: The 2008 Farm Bill amended section 281(2)(A) of 
the Act to include chicken as a covered commodity as well as goat, 
pecans, ginseng, and macadamia nuts. Therefore, the term ``covered 
commodity'' has been defined in this interim final rule as ``muscle 
cuts of beef, lamb, chicken, goat, and pork; ground beef, ground lamb, 
ground chicken, ground goat, and ground pork; perishable agricultural 
commodities; peanuts; pecans; ginseng; and macadamia nuts.'' 
Accordingly, the commenters' concerns regarding adding poultry as a 
covered commodity have been addressed by the 2008 Farm Bill.
Food Service Establishment
    Summary of Comments: Several commenters stated their opposition to 
the labeling exemption for food service establishments and pointed out 
that this provision will result in a substantial amount of product 
being unlabeled for country of origin. One commenter encouraged USDA to 
retain the food service establishment definition and to add meal 
preparation services as another example.
    Agency Response: Section 282(b) of the Act provides for an 
exemption for food service establishments. Therefore, this interim 
final rule retains the provision for an exemption for food service 
establishments. In addition, language describing meal preparation 
stations as another example of a food service establishment has been 
added to the preamble. Accordingly, these recommendations have been 
adopted in part.
Ground Beef
    Summary of Comments: Several commenters suggested that the 
definition of ground beef be modified so that all beef products that 
are ground would be covered regardless of the amount of beef fat, and 
regardless of whether it contains added water, phosphates, binders, or 
extenders.
    Agency Response: In the October 30, 2003, proposed rule, the Agency 
defined the term ``ground beef'' as having 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. The Agency has considered the 
comments received and agrees that the definition of ground beef 
contained within the proposed rule was too narrow as it would have 
excluded products such as hamburger and potentially beef patties. 
Consumers likely would have been confused as to why certain ground beef 
products were labeled with country of origin while others were not. 
Accordingly, AMS has revised the definition of ground beef such that 
``ground beef'' has the meaning given that 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, and also includes products defined by the terms 
``hamburger'' in 9 CFR 319.15(b) and ``beef patties'' in 9 CFR 
319.15(c). This revised definition will result in the inclusion of 
hamburger and beef patties by allowing for the addition of beef fat and 
water. However, ground beef, hamburger, and beef

[[Page 45116]]

patties that contain seasonings and/or other ingredients such as 
binders or extenders would meet the definition of a processed food item 
and would therefore not be covered under this rule.
Processed Food Item
    Summary of Comments: AMS received numerous comments on the 
definition of a processed food item. Several commenters expressed the 
opinion that the number of exemptions allowed under the processed food 
item definition should be substantially limited so as to allow for 
labeling of the maximum number of commodities as possible. Some 
commenters offered specific recommendations as to what should not be 
included as a processing step such as marinating, breading, canning, 
smoking, curing, cooking, dividing into portions, etc. Some commenters 
offered specific recommendations as to what should be included as a 
processing step such as freezing, removing inedible portions (such as 
peeling, coring, and chopping a fresh pineapple), restructuring, 
cooking, curing, and smoking. With respect to recognizing freezing as a 
processing step, one commenter provided examples of other regulations 
administered by AMS that recognize freezing as a processing step. The 
commenter contends that these regulations have established an 
administrative precedent and a departure from such precedent would not 
be legally supported. The commenter also contends that imported frozen 
products are already required to be labeled with the country of origin 
under the Tariff Act and that requiring the labeling of these products 
under COOL would be duplicative. Finally, the commenter contends that 
there was no legislative intent for frozen foods to fall under the COOL 
labeling requirements.
    Several commenters requested that USDA clarify the types of 
products that would be considered processed food items under the second 
part of the definition. Some commenters stated that products such as 
hamburger, beef patties, meatballs, meat loaves, and fabricated steak 
should be defined as processed food items. Another commenter suggested 
that ground beef, ground lamb, and ground pork should be defined as 
processed food items. Several commenters suggested that roasted, dry 
roasted, and honey roasted peanuts should be defined as processed food 
items. Several commenters concurred with the agency's definition as 
published in the interim final rule for fish and shellfish.
    One commenter encouraged USDA to retain the definition as published 
in the fish and shellfish rule, but recognize that processing for 
perishable agricultural commodities is different than for the other 
covered commodities. The commenter pointed out that much value added 
processing occurs with respect to produce and stated that peeling, 
coring, chopping, and packaging a fresh pineapple for consumers changes 
the character of the covered commodity from a bristly fruit to a ready-
to-eat product. The commenter recommended that USDA should recognize 
that perishable agricultural commodities that retailers prepare and 
package for consumers immediate consumption should be considered 
processed food items.
    Other commenters expressed general concern about the proposed 
definition, but did not offer any alternatives. Other commenters 
expressed concern that the concept of substantial transformation, which 
is the basis for determining origin under CBP regulations, the World 
Trade Organization's Rules of Origin, and the Codex General Standard 
for the Labeling of Prepackaged Food, is being overwritten. Another 
commenter expressed their opinion that the addition of salt or sugar 
represents a change in nutritional properties and therefore should 
represent a processing step thereby creating a processed food item.
    Agency Response: In the October 30, 2003, proposed rule, the term 
``processed food item'' was defined as 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 a retail item derived from a covered commodity that has been 
combined with other covered commodities or other substantive food 
components. The Agency also contemplated a number of alternative 
definitions. In promulgating the definition of a processed food item in 
the interim final rule for fish and shellfish, the Agency reviewed and 
responded to all of the comments received on the October 30, 2003, 
proposed rule. The majority of the comments received argued for a 
broader definition of a processed food item such that more products 
would be excluded from labeling. Accordingly, under the interim final 
rule for fish and shellfish, the definition of a processed food item 
was modified such that cooked products, breaded products, and items 
that have been imparted with a particular flavor are all considered 
processed food items. For a more complete discussion of these comments 
and the Agency's responses, readers are invited to review the interim 
final rule for fish and shellfish.
    The Agency believes the definition of a processed food item 
contained in the interim final rule for fish and shellfish has 
established a bright line standard in terms of what products are 
covered by the regulation. Therefore, under this interim final rule, 
the definition of a processed food item is the same as that which was 
published in the interim final rule for fish and shellfish (69 FR 
89708). Further, to provide additional guidance to the industry, the 
Agency has added additional examples of the types of products that 
would be excluded in the Questions and Answers section of this rule.
    With respect to the issue of substantial transformation, the law 
specifically defines the criteria for a covered commodity to be labeled 
as having a United States country of origin. Imported covered 
commodities do not generally meet this criteria and, therefore, may not 
bear a declaration that identifies the United States as the sole 
country of origin.
    With regard to excluding ground meat products, the Act defines the 
term ``covered commodity'' to specifically include ground beef, ground 
pork, ground lamb, ground goat as well as ground chicken. Thus, these 
commodities must be labeled under this regulation. However, items such 
as meatballs, meat loaf, and similar items that contain seasonings and/
or binders, would not meet the definition of ``ground beef'' as defined 
in this regulation. With regard to fabricated steak, this product is 
restructured and therefore would be considered a processed food item 
under this interim final rule.
    With respect to considering freezing as a processing step, freezing 
is clearly a method of preservation and does not change the character 
of the product. In addition, in defining the term perishable 
agricultural commodity, Congress referenced the definition for this 
term under the Perishable Agricultural Commodities Act of 1930 (PACA). 
Under PACA, the term perishable agricultural commodity means ``any of 
the following, whether or not frozen or packed in ice * * *'' 
Therefore, it is clear that frozen fruits and vegetables are 
specifically included as covered commodities under the statute. As the 
commenter points out, many imported products (in consumer-ready 
packages) are already required to be labeled under the Tariff Act. This 
interim final rule does not change these requirements.
    With respect to the recommendation to recognize that perishable 
agricultural

[[Page 45117]]

commodities that retailers prepare and package for consumers' immediate 
consumption should be considered processed food items, many of these 
preparations must be done prior to a product being ready for 
consumption. For example, a consumer would not eat a pineapple that 
wasn't peeled, cored, and sliced and/or chopped. Such processing thus 
does not change the character of the product but rather prepares it for 
consumption. This is similar to the process of peeling shrimp. A 
consumer would not eat shrimp prior to it being peeled and accordingly, 
peeling shrimp is not considered a processing step under the interim 
final rule for fish and shellfish.
    With respect to roasted, dry roasted, and honey roasted peanuts, 
because these items are all cooked, under the definition of a processed 
food item in this interim final rule, these products are excluded from 
labeling. With regard to excluding items that contain added salt or 
sugar, the Agency believes the addition of these ingredients merely 
represent a further step in the preparation of the product for 
consumption and do not result in a change of character of the covered 
commodity. Therefore, this recommendation is not adopted.
Retailer
    Summary of comments: Several commenters were concerned that the 
definition of a retailer in the proposed rule does not conform to what 
the average consumer thinks of as a retailer because it excludes stores 
that do not sell fruits and vegetables such as fish markets, meat 
markets, small green grocers, and convenience stores. These commenters 
urged USDA to resolve any ambiguities surrounding the definition in a 
way that maximizes the number of food items and establishments subject 
to mandatory COOL. Another commenter noted that Congress intended to 
impose the new labeling requirements on sales conducted by a certain 
class of business entities (i.e., PACA retailers) but not on all retail 
sales of covered commodities. They further stated that any person that 
primarily sells food in wholesale or in bulk to independent businesses 
(e.g., restaurants and other food service establishments) should be 
exempt from COOL.
    Agency Response: The law specifically defines the term retailer as 
having the meaning given that term in section 1(b) of PACA. 
Accordingly, fish markets or any other retail entities that either 
invoice fruits and vegetables at a level below the $230,000 threshold 
or do not sell any fruits and vegetables at all are not included. 
Likewise, the Agency believes this definition clearly indicates that 
covered commodities sold by wholesalers to restaurants and other food 
service establishments are not covered by COOL. Accordingly, no 
modification to the definition of a retailer has been made.
Slaughter
    Summary of Comments: In the proposed rule, the Agency specifically 
invited comments on the use of alternative terms for the term 
``slaughtered.'' Numerous commenters suggested alternatives including 
abattoired, processed, harvested, prepared, and initial processing.
    Agency Response: The Agency believes that the alternative term 
``harvested'' as suggested by several of the commenters is an 
acceptable alternative for the term ``slaughtered'' that will be 
readily understood by consumers. Accordingly, this rule has been 
modified to allow the use of this term in lieu of the term 
``slaughtered''.

Country of Origin Notification

Exemption for Food Service Establishments

    Summary of Comments: Several commenters were not in favor of the 
exemption for food service establishments as it would limit the 
information available to consumers.
    Agency Response: The Act expressly states the exemption of food 
service establishments. Therefore, this exemption is retained in this 
regulation.

Labeling Covered Commodities of United States Origin

    Summary of Comments: One commenter supported labeling only those 
products derived from animals specifically born, raised, and processed 
in the United States as eligible for the ``product of the United 
States'' designation. This commenter opposed an all-inclusive label 
such as ``product of the United States, Canada, or Mexico'' when the 
commodity meets the specific qualifications for the ``product of the 
United States'' label. Another commenter advocated that the ``United 
States origin'' designation should only be available for peanut 
products in which the peanuts have been grown and harvested in the 
United States and have not been substantially transformed outside the 
United States. Other commenters supported a presumption of United 
States origin in which the absence of foreign import markings should be 
used to identify livestock exclusively born, raised, and processed in 
the United States. One commenter suggested that in the case of the 
covered commodities beef, pork, lamb, ground beef, ground pork, and 
ground lamb, the retail product should be labeled as ``product of the 
United States'' if in fact that product was produced in the United 
States.
    Agency Response: The law expressly states the criteria for products 
to be considered of United States origin, which are included in the 
definition of this term as stated in Sec.  65.260 of this interim final 
rule. The specific requirements for covered commodities are as follows: 
Perishable agricultural commodities, pecans, ginseng, peanuts, and 
macadamia nuts--covered commodities must be produced in the United 
States; beef, lamb, pork, chicken, and goat--covered commodities must 
be derived exclusively from animals (1) born, raised, and slaughtered 
in the United States (including animals born and raised in Alaska and 
Hawaii and transported for a period of time not more than 60 days 
through Canada to the United States and slaughtered in the United 
States); or (2) present in the United States on or before July 15, 
2008, and once present in the United States, remained continuously in 
the United States. The regulation also states that covered commodities 
further processed or handled in a foreign country after meeting the 
requirements to be labeled as United States origin (as defined in Sec.  
65.260) may bear the declaration that identifies the United States as 
the sole country of origin 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 legal 
requirements. Thus, peanuts grown in the United States and processed in 
another country such that a substantial transformation does not occur 
are still eligible to bear a United States origin declaration.
    In the case of all inclusive labels such as ``Product of the United 
States, Canada, or Mexico'', the 2008 Farm Bill provided further 
direction on country of origin labeling for meat covered commodities. 
These changes include additional provisions concerning labeling meat 
covered commodities that have multiple countries of origin. Under this 
interim final rule, if an animal was born, raised, and/or slaughtered 
in the United States and was not imported for immediate slaughter as 
defined in Sec.  65.180, the origin of the resulting meat products 
derived from that animal may be designated as Product of the United 
States, Country X, and/or (as applicable) Country Y, where Country X 
and Country Y represent the actual or possible countries of foreign 
origin. In addition, the origin declaration may include more specific 
information

[[Page 45118]]

related to production steps provided records to substantiate the claims 
are maintained and the claim is consistent with other applicable 
Federal legal requirements.
    With regard to allowing for presumption of United States origin, 
the law also 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.'' Accordingly, presumption of United States origin is not 
authorized under the statute.

Labeling Imported Covered Commodities That Have Been Substantially 
Transformed in the United States

    Summary of Comments: Two commenters supported the provisions 
contained in the interim final rule for fish and shellfish for labeling 
products that have been imported from country x and substantially 
transformed in the United States to be labeled as ``from country x, 
processed in the United States'' and recommended this provision also be 
used for other covered commodities. One commenter opposed requiring 
further itemization of exact production steps that occurred in the 
United States or in the foreign country. One commenter supported a 
label that expresses each country's specific role in the production of 
a product.
    Agency Response: The 2008 Farm Bill contains labeling provisions 
for the following categories: United States country of origin, multiple 
countries of origin, imported for immediate slaughter, foreign country 
of origin, as well as for labeling ground products. Accordingly, this 
interim final rule contains labeling provisions for these categories in 
accordance with the law. A complete discussion on how covered 
commodities should be labeled is contained in this regulation in the 
section entitled ``Highlights of this Regulation''.

Blended Products

    Summary of Comments: Several commenters stated that the provision 
for labeling blended products under the proposed rule, which required 
an alphabetical listing of countries contained therein and required 
facilities to document the origin of a product was separately tracked, 
was excessively costly. Commenters supported language in the interim 
final rule for fish and shellfish, which stated ``the declaration shall 
indicate the countries of origin contained therein or that may be 
contained therein.'' Several commenters supported labeling that 
indicates several countries may be represented in the finished product. 
As an example, the commenters suggested an all-inclusive label stating 
``product of the United States, Canada, or Mexico.'' The commenters 
contend that such a label will provide consumers with a reasonable 
indication of likely origin while reducing implementation costs.
    One commenter requested that USDA clarify what constitutes the 
``same covered commodity''. The commenter stated that the example in 
the proposed rule referred to green and red leaf lettuce as if they are 
a single commodity and that the produce industry would consider those 
two different items. The commenter noted this would render a bag 
containing red and green leaf lettuce as a processed food item. The 
commenter recommended that if a commodity has a unique identifier such 
as a unique price look up code (PLU) related to anything but size or 
region, it should be considered a unique item.
    Other commenters appeared to be confused as to labeling ``blended'' 
covered commodities and instead provided comments on labeling 
commodities of mixed origin. The relevant comments have been addressed 
in the appropriate sections.
    Agency Response: In an effort to clarify the labeling requirements 
for this type of product, the Agency has removed references to the term 
``blended'' covered commodities and has added a definition of 
``commingled'' covered commodities. Under this interim final rule, 
commingled covered commodities are defined as a single type of covered 
commodity (e.g., frozen peas), presented for retail sale in a consumer 
package, that has been prepared from raw material sources having 
different origins. If the retail product contains two different types 
of covered commodities (e.g., peas and carrots), it is considered a 
processed food item and is not subject to mandatory COOL. Further, a 
commingled covered commodity does not include ground meat products. 
However, because labeling of ground meat products was included in the 
blended (commingled) provisions of the proposed rule, for purposes of 
discussing the comments, they are included under this subheading.
    USDA is concerned about the burden imposed by the rule on 
facilities that produce a commingled retail product as the added costs 
of implementing this rule will likely be passed on to consumers. The 
proposed rule would have required such facilities to document that the 
origin of a product was separately tracked, while in their control, 
during production and packaging. The proposed rule also would have 
required that the labeling of all blended products specify precisely 
the countries of origin represented within each individually-packaged 
retail product.
    The Department believes that the statutory language makes clear 
that the purpose of the COOL law is to provide for a retail labeling 
program for covered commodities--not to impose economic inefficiencies 
and disrupt the orderly production, processing, and retailing of 
covered commodities. Therefore, in this interim final rule, the 
provision to separately track the product has been removed, and the 
labeling requirements have been made consistent with other Federal 
labeling requirements (i.e., CBP marking regulations). This interim 
final rule does not impose any additional burden with respect to the 
labeling of commingled products for which labeling is also required 
under CBP regulations.
    In the case of perishable agricultural commodities, peanuts, 
pecans, ginseng, and macadamia nuts, for imported covered commodities 
that have not subsequently been substantially transformed in the United 
States that are commingled with imported and/or United States origin 
commodities, the declaration shall indicate the countries of origin for 
all covered commodities in accordance with CBP marking regulations (19 
CFR part 134).
    The 2008 Farm Bill states that the origin declaration for ground 
beef, ground pork, ground lamb, ground goat, and ground chicken covered 
commodities shall list the countries of origin contained therein or 
shall list the reasonably possible countries of origin. This interim 
final provides that when a raw material from a specific origin is not 
in a processor's inventory for more than 60 days, the country shall no 
longer be included as a possible country of origin.
    In reference to the comment about clarifying the language ``the 
same covered commodity'', the Agency has added additional language 
describing the types of products this labeling provision covers in the 
preamble. In response to the commenter's recommendation regarding red 
and green leaf lettuce, the Agency disagrees with the commenter's 
recommendation to use price lookup codes as the standard for whether or 
not a covered commodity is considered ``the same''. While green leaf 
and red leaf lettuce are different varieties of lettuce, they are both 
still leaf lettuce and thus would not meet the definition of a 
processed food item. This is also the case with different varieties of 
apples or onions as each variety--red delicious, fuji, or

[[Page 45119]]

granny smith in the case of apples and red, yellow, and white in the 
case of onions--has its own PLU code. Thus, the provision for labeling 
commingled covered commodities apples to products such as a bag that 
contains frozen strawberries originating from the United States and 
Mexico, a bag that contains bananas originating from Ecuador and Costa 
Rica, and a bag of lettuce that contains romaine and iceberg lettuce 
originating from the United States and Mexico.

Remotely Purchased Products

    Summary of comments: One commenter recommended that suppliers 
should list the country of origin on the sales vehicle. Another 
commenter recommended that the country of origin notification should be 
allowed to be made either on the sales vehicle or at the time the 
product is delivered to the consumer.
    Agency Response: The Agency agrees that companies should be allowed 
flexibility in providing the notice of country of origin. As such, 
under this interim final rule, companies can provide the required 
notification either on the sales vehicle or at the time the product is 
delivered to the consumer.

Markings

Section 60.300(a)

    Summary of Comments: Several commenters stated that flexibility is 
critically important to help minimize costs in complying with the law. 
These commenters urged AMS to permit the use of the numerous 
declaration options as listed in the interim final rule for fish and 
shellfish. Commenters also supported the use of a check box to declare 
country of origin information on covered commodities. Several 
commenters recommended that the country of origin declaration be 
allowed to be made in the form of a statement such as ``product of the 
U.S.'' or as simply the country name such as ``USA''. The commenters 
pointed out that this provision was contained within the proposed rule, 
but was deleted from the interim final rule for fish and shellfish.
    Agency Response: The Agency believes that the law provides 
flexibility in providing the country of origin notification and this 
interim final rule has been drafted accordingly. As such, Sec.  
65.400(a) allows for the same flexibility in providing the origin 
information as allowed in the interim final rule for fish and 
shellfish, including allowing for the use of a check box. In addition, 
the use of the name of the country only is permitted under this interim 
final rule, provided it is in accordance with other Federal labeling 
laws. For example, in certain circumstances CBP regulations require the 
words ``product of'' or ``made in'' to precede the name of the country.

Section 60.300(b)

    Summary of Comments: Several commenters recommended that the 
conspicuous location requirement should include any place on the 
package or product. Several commenters supported the current 
application of this requirement under the interim final rule for fish 
and shellfish and recommended that USDA further explain the conspicuous 
standard to ensure a common understanding across all regulated 
communities as well as among compliance and enforcement personnel.
    Agency Response: At the request of the commenters, the Agency has 
included an additional discussion of this requirement in the preamble 
of this rule. Declarations must be legible and placed in a conspicuous 
location as to allow consumers to find the country(ies) of origin 
easily and read it without strain when making their purchases, and 
provided that existing Federal labeling requirements must be followed. 
For example, the country of origin information may be located on the 
information panel of a package of frozen produce as consumers are 
familiar with such location for displaying nutritional and other 
required information.
    Likewise, in the case of store overwrap and other similar type 
products, which is the type of packaging used for fresh meat and 
poultry products, the information panel of the package is also 
considered an acceptable location for the origin declaration as this is 
a location that is currently utilized for providing other Federally-
mandated labeling information (i.e., safe handling instructions, 
nutrition facts, and ingredients statement). However, to the extent 
practicable, the Agency encourages retailers and suppliers to place 
this information on the front, also known as the principal display 
panel, of these types of packages so it will be readily apparent to 
consumers.

Section 60.300(d)

    Summary of Comments: Several commenters expressed support for the 
provision in both the proposed rule and the interim final rule for fish 
and shellfish that allows for commingling like items in the same bulk 
bin even if they are from different origins. Several commenters 
asserted that it is impossible to label every single item in a bulk 
bin, that stickering efficacy is not 100%, and that it is likely that 
some stickers will fall off during transport and display. These 
commenters contend that the country of origin notification requirement 
should be met if the majority of perishable agricultural commodities in 
a bulk bin have labels as consumers will be able to determine the 
country of origin.
    Agency Response: The Agency agrees that flexibility should be 
provided to retailers to commingle like items from different origins in 
bulk bins. Thus, under this interim final rule, a bulk container (e.g., 
display case, 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 all possible origins are 
listed. The Agency also understands that stickering efficacy is not 
100%. The Agency agrees that consumers would likely be able to discern 
the country of origin if the majority of items were labeled; however, 
the Agency encourages retailers to use placards and other signage as a 
way to more clearly indicate information to consumers as to the origin 
of the covered commodity. Accordingly, the Agency does not believe it 
is necessary to change the language for this provision. The Agency will 
address the issue of preponderance of stickering in its compliance and 
enforcement procedures, as applicable, to ensure uniform guidance is 
provided to compliance and enforcement personnel.

Section 60.300(e)

    Summary of Comments: Several commenters recommended that the Agency 
allow for the use of abbreviations for country names as long as the 
abbreviation clearly indicates the origin of a covered commodity. The 
commenters made reference to the Agency's policy to follow CBP's 
interpretation of the Tariff Act with regard to abbreviations and 
stated their belief that the Agency is not bound by CBP's 
interpretation. Some commenters recommended that the Agency utilize the 
country abbreviations established by the International Organization for 
Standardization. One commenter pointed out the USDA accepts 
abbreviations from intermediary suppliers and others on records.
    Agency Response: The Agency believes that the limited application 
of abbreviations that unmistakably indicate the country of origin is 
appropriate. The CBP has a long history of administering the Tariff Act 
and has issued numerous policy rulings with regard to this subject. The 
Agency concurs with CBP's interpretation that most abbreviations may 
not be readily

[[Page 45120]]

understood by the majority of consumers. The Agency does permit the use 
of abbreviations in supplier records as long as a key or other similar 
document explaining what the abbreviations represent is provided. 
However, the Agency does not believe that providing a key in the store 
for consumers to have to locate and decipher is appropriate or 
reasonable. Accordingly, these recommendations are not adopted. 
However, the Agency has added clarifying language to Sec.  65.400(e).

Section 60.300(f)

    Summary of Comments: Numerous commenters recommended that the 
Agency accept State and regional label designations in lieu of country 
of origin labeling for commodities produced in the United States. Two 
commenters recommended that retailers be permitted to substitute more 
visually appealing and consumer-targeted labels, such as ones with 
American flags, in lieu of a standard or commodity label.
    Agency Response: The 2008 Farm Bill modified the Act to allow for 
the use of State, region, or locality label designations to meet the 
country of origin notification requirements of the statute for 
perishable agricultural commodities, peanuts, pecans, macadamia nuts, 
and ginseng that are produced in the United States. The Department 
believes it is appropriate to expand this provision to also allow 
State, regional, or locality labels for imported products. Therefore, 
under this interim final rule, for perishable agricultural commodities, 
peanuts, pecans, macadamia nuts, and ginseng covered commodities, State 
or regional label designations are acceptable in lieu of country of 
origin for both domestic and imported products. Accordingly, this 
recommendation is adopted in part.
    With regard to substituting more visually appealing labels, as long 
as country of origin information is provided in accordance with this 
regulation, additional labels can be applied to the package that are 
more eye appealing. In addition, there is no standardized format for 
labels under this regulation, so suppliers and retailers have 
flexibility in designing the appearance of the label provided the 
origin declaration is legible and placed in a conspicuous location.

Recordkeeping

General

    Summary of Comments: Numerous commenters supported the acceptance 
of existing records used in the normal course of business. These 
commenters stated that the rule does not need to establish new document 
or recordkeeping burdens to verify country of origin claims and that 
existing records should be sufficient. Several commenters recommended 
that the Agency provide a list of example documents that would 
illustrate acceptable normal business records. Some of these commenters 
offered the following examples of documents: Animal health papers, 
import or Customs documents, producer affidavits, and records 
maintained in compliance with assessments and remittances for Federally 
legislated promotion and research programs. Several commenters 
supported the use of producer affidavits.
    Agency Response: The Agency agrees that records kept in the normal 
course of business likely contain sufficient information to verify 
origin claims. The Act, as amended by the 2008 Farm Bill, states that 
records maintained in the course of the normal conduct of business, 
including animal health papers, import or customs documents, or 
producer affidavits may serve for verification purposes. The Act, as 
amended, further states that the Secretary may not require a person 
that prepares, stores, handles, or distributes a covered commodity to 
maintain a record of the country of origin of the covered commodity 
other than those maintained in the course of the normal conduct of the 
business of such person.
    Therefore, under this interim final rule, upon request by USDA 
representatives, suppliers and retailers subject to this subpart shall 
make available to USDA representatives, records maintained in the 
normal course of business that verify an origin claim. Such records 
shall be provided within 5 business days of the request and may be 
maintained in any location. In the case of beef, lamb, chicken, goat, 
and pork, a producer affidavit shall be considered acceptable evidence 
on which the slaughter facility may rely to initiate the origin claim, 
provided it is made by someone having first-hand knowledge of the 
origin of the animal(s) and identifies the animal(s) unique to the 
transaction. In addition, to further reduce the burden associated with 
labeling meat covered commodities with origin information, under this 
interim final rule, slaughter facilities that slaughter animals that 
are part of a National Animal Identification System (NAIS) compliant 
system or other recognized official identification system (e.g., 
Canadian official system, Mexico official system) may choose to rely on 
the presence of an official ear tag and/or the presence of any 
accompanying animal markings (i.e., ``Can'', ``M''), as applicable, on 
which to base their origin claims. This provision also applies to such 
animals officially identified as a group lot.
    With regard to providing examples of normal business records that 
may be useful in verifying origin claims, the Agency has included some 
examples of records in the regulation and additional examples have been 
posted on the AMS Web site.

Location of Records

    Summary of Comments: Several commenters requested flexibility in 
the regulation for establishing the manner and location in which 
regulated firms maintain records. Commenters noted that firms with 
multiple locations or a corporate headquarters might choose to 
centralize supplier records. Commenters requested that the rule permit 
firms to maintain records centrally, provided the information is 
readily available and that the firm has the capability to transfer it 
to the specific retail outlet if requested by USDA. The commenters 
stated that retailers and suppliers could make records available to 
USDA either electronically by transferring computer files or by 
facsimiles of paper documents. Some commenters requested that retailers 
and suppliers be given a reasonable period of time to produce records 
requested by the Agency.
    Agency Response: The regulation provides flexibility by allowing 
electronic or hard copy formats, by not requiring specific records, and 
by providing flexibility in where the records can be kept. The Agency 
agrees that retailers and suppliers could make records available to 
USDA representatives either electronically by transferring computer 
files or by providing facsimiles of paper documents. The Agency also 
agrees that retailers and suppliers should be allowed a reasonable 
amount of time to provide records to USDA representatives upon request. 
Under this interim final rule, the requirement to maintain records at 
the retail facility has been removed. Accordingly, the recommendation 
to allow retailers to provide records to the USDA representative within 
some reasonable period of time is adopted.

Recordkeeping Retention

    Summary of Comments: The Agency received numerous comments 
regarding the recordkeeping retention requirements. One commenter was 
in favor of the retention period contained in the proposed rule. 
Several commenters recommended the one-year

[[Page 45121]]

retention period contained in the interim final rule for fish and 
shellfish. Several commenters recommended that the COOL rule harmonize 
the record retention requirements with the FDA regulations on 
Bioterrorism. Several commenters recommended a retention period as 
short as possible and pointed out that many of the covered commodities 
are purchased by consumers within a matter of weeks, and in the case of 
fresh meat products, within 40 to 60 days of production. Another 
commenter added that even for the minimal amount of frozen meat covered 
commodities that are sold at retail, the time from production through 
retail sale would be less than 6 months. Another commenter recommended 
a retention period of 180 days. Another commenter recommended that the 
Agency consider a similar recordkeeping retention period as that 
required by FSIS with respect to HACCP documents for fresh products.
    Agency Response: Based on the comments received, the Agency agrees 
that it is appropriate to reduce the record retention requirements 
contained in the proposed rule. Many of these comments are similar to 
those that the Agency considered in promulgating the interim final rule 
for fish and shellfish. Thus, the Agency believes that the 
recordkeeping provisions in the interim final rule for fish and 
shellfish, which require a 1-year record retention requirement for 
suppliers and centrally located retail records, as opposed to the 2-
year requirement contained in the proposed rule, is appropriate. In 
addition, as discussed in more detail in the preamble of this 
regulation and the preceding responses to comments, the requirement to 
maintain records at the retail store has been removed. Under this 
interim final rule, these records may now be kept in any location and 
must be provided to USDA upon request within 5 business days of the 
request.
    With regard to the recordkeeping retention time implemented by FDA 
under the Bioterrorism Act, the recordkeeping retention requirements 
under the final rule (69 FR 71561) issued by FDA vary based on the type 
of product from six months to two years. Thus, the recordkeeping 
requirements contained in this interim final rule are similar to those 
in the FDA regulation and in some cases, are less burdensome. For a 
more complete discussion of the comments the Agency considered in 
promulgating the interim final rule for fish and shellfish, readers are 
invited to review that document.
    As to the recommendation for allowing for a shorter record 
retention period for supplier and centrally-located retail records, the 
Agency believes a 1-year period is necessary to provide the Agency with 
sufficient time to conduct supplier compliance reviews. These reviews 
often do not commence until several months after the product in 
question was displayed for retail sale. Accordingly, this 
recommendation is not adopted.
    With regard to the comment that the Agency should adopt the 
recordkeeping provisions required by FSIS with respect to HACCP 
documents, the record retention requirements contained in this interim 
final rule are shorter than those required by FSIS with relation to 
HACCP. Accordingly, this recommendation is not adopted.

Responsibilities of Suppliers and Retailers

    Summary of Comments: Several commenters pointed out that in the 
case of beef, lamb, and pork, most of the records necessary to verify 
the origin of the livestock used to produce the covered commodity will 
not be generated by the supplier of the covered commodity. The 
commenters contend that it is therefore important that the regulation 
allow the supplier to either have the records or have access to the 
records as the records to verify the birth country of the livestock 
will reside with the livestock producer that sold the livestock months 
or years earlier, and the animal may have changed hands several times 
before harvest. Several commenters expressed concern with placing undue 
recordkeeping and liability burdens on livestock producers. Other 
commenters noted that only livestock producers have first-hand 
knowledge of the origin of their animals. One commenter recommended 
that USDA distinguish between suppliers with first-hand knowledge and 
intermediary suppliers. The commenter suggested that intermediary 
suppliers should not be required to keep records beyond those necessary 
to identify their immediate suppliers and subsequent corporate 
recipients. Another commenter recommended that importers be required to 
maintain adequate records to reconcile purchase, inventories, and sales 
of imported and domestic commodities.
    One commenter suggested that the ``liability shield'' that entitles 
retailers and others handling covered commodities to rely on the 
information provided to them should be amended to reflect the statutory 
standard for liability that applies to retailers under the statute. The 
commenter contends that because the statute states that retailers are 
not subject to fines unless the Secretary determines they have 
willfully violated the statute, the standard of willfulness is a higher 
bar to liability than the standard of negligence that is encompassed in 
the reasonable reliance standard utilized in the ``liability shield.''
    Agency Response: The Agency agrees that the provision allowing a 
supplier of a covered commodity that is responsible for initiating a 
country(ies) of origin claim to possess or have legal access to records 
that are necessary to substantiate that claim is necessary. 
Accordingly, this provision is included in section 65.500(b)(1) of this 
interim final rule.
    With regard to the recommendation that intermediary suppliers be 
required to keep only those records that identify their immediate 
suppliers and subsequent recipients, this is the case with products 
that are pre-labeled with origin information. However, for products 
that are not pre-labeled, the intermediary supplier must provide the 
origin information (and identify the product unique to the transaction) 
in a document that accompanies the product through retail sale. 
Therefore, the Agency believes it is necessary for intermediary 
suppliers to also possess records that identify the origin information 
for compliance verification purposes for products that are not pre-
labeled.
    With respect to the recommendation to require importers to maintain 
adequate records to reconcile purchases, inventories, and sales of 
imported and domestic commodities, the law does not provide the Agency 
with the authority to require such detailed information nor is such 
information necessary to substantiate origin claims.
    With respect to the safe harbor provision, the 2008 Farm Bill 
modified the enforcement provisions of the Act such that retailers and 
suppliers can only be fined if after 30-days of receiving a notice from 
the Secretary that they are in violation of the Act, the retailer or 
supplier has not made a good faith effort to comply and continues to 
willfully violate the Act. Thus, the Agency agrees with the commenter's 
suggestion that the ``liability shield'' provides less protection for 
retailers and suppliers than the statute itself. Accordingly, the 
``liability shield'' language has been deleted from this interim final 
rule.

Enforcement

    Summary of Comments: The Agency received numerous comments on the 
issue of enforcement. Numerous commenters recommended that the Agency 
incorporate a transition period prior to the rule taking effect to 
allow

[[Page 45122]]

industries producing, processing, and retailing covered commodities 
time to clear the channels of commerce before enforcing the rule. Two 
commenters recommended that AMS implement COOL for all covered 
commodities no later than January 1, 2009. Several commenters did not 
offer a specific implementation timeframe other than to request that 
the Agency establish a ``reasonable'' period to carry out education and 
outreach activities. Several commenters referenced the language 
contained in the House version of the 2008 Farm Bill that states that 
all animals present in the United States on or before January 1, 2008, 
shall be considered of United States origin. Other commenters 
recommended that AMS should presume any meat product or animals in the 
channels of commerce prior to the rule's implementation date to be of 
United States origin.
    Several commenters urged AMS to establish commodity specific 
timeframes for the rule's implementation due to unique commercial life-
cycle attributes. One commenter suggested an 18-month implementation 
timeframe for peanuts. One commenter suggested a six to twelve month 
implementation period and another commenter suggested a one-year 
timeframe. One commenter suggested timeframes based on the average age 
of animals at time of harvest. Specifically, the commenter suggested: 
For imported beef, pork, lamb, ground beef, ground pork and ground 
lamb, a delayed effective date by at least six months; for beef, pork, 
lamb, ground beef, ground pork, and ground lamb produced from animals 
imported for direct harvest, a delayed effective date by at least six 
months; for beef produced from animals harvested from the United States 
herd, a delayed effective date by at least 30 months; for ground beef, 
which is traditionally produced from cull dairy and breeding stock, a 
delayed effective date of at least 8 years; for pork produced from 
animals harvested from the United States herd, a delayed effective date 
by six months; for ground pork, which is traditionally produced from 
cull breeding stock, a delayed effective date by at least 2 years; and 
for lamb and ground lamb produced from animals harvested from the 
United States herd, a delayed effective date by at least 12 months. The 
commenter further suggested that during the time allowed to clear the 
channels of commerce, the Agency could encourage retailers to 
voluntarily label products when the necessary information is available.
    Another commenter encouraged the Agency to utilize a similar 
approach for implementation as that used in the interim final rule for 
fish and shellfish. The commenter pointed out that frozen perishable 
agricultural commodities have a long shelf life and that many such 
products will have been harvested and frozen well before the rule is 
issued. The commenter recommended that the Agency allow these products 
to enter the chain of commerce and only require country of origin 
information on frozen produce that was harvested and processed after 
the final rule takes effect. The commenter pointed out that the timing 
for covered meat commodities is also complicated because of the 
lifecycle of animals. The commenter recommended that the Agency employ 
a uniform compliance date policy that is used by both FDA and FSIS for 
frozen perishable agricultural commodities and meat products, if not 
for all covered commodities.
    One commenter requested that the Agency recognize that a willful 
violation does not occur where a party is exercising good faith efforts 
to comply with the statute. The commenter further stated their belief 
that good faith efforts would include a clear program for providing 
comprehensive labeling of all covered commodities at the store level, 
recognizing that for various reasons, some small percentage (perhaps 10 
or 15%) of covered commodities might not bear labeling on any given 
day.
    Agency Response: The effective date of this regulation is September 
30, 2008, because the statute provides for a September 30, 2008, 
implementation date. However, because some of the affected industries 
(goat, chicken, pecans, ginseng, and macadamia nuts) did not have prior 
opportunities to comment on this rulemaking, and the 2008 Farm Bill 
made changes to several of the labeling provisions for meat covered 
commodities, it is reasonable to allow time for covered commodities 
that are already in the chain of commerce and for which no origin 
information is known or been provided to clear the system. Therefore, 
the requirements of this rule do not apply to covered commodities 
produced or packaged before September 30, 2008. In addition, during the 
six month period following the effective date of the regulation, AMS 
will conduct an industry education and outreach program concerning the 
provisions and requirements of this rule. AMS has determined that this 
allocation of enforcement resources will ensure that the rule is 
effectively and rationally implemented. This AMS plan of outreach and 
education should significantly aid the industry in achieving compliance 
with the requirements of this rule.

Existing State Programs

    Summary of Comments: The Agency invited comment on the proposed 
rule as it relates to existing State programs. One commenter 
recommended that USDA clarify the preemption language contained in both 
the proposed rule and the interim final rule for fish and shellfish. 
Specifically, the commenter stated that USDA should recognize that the 
Federal law ``occupies the field'' and hence, preempts State country of 
origin labeling laws for all products that are in the ambit of covered 
commodities. The commenter stated that States should not be able to 
impose country of origin labeling requirements on covered commodities 
that are ingredients in processed food items or on those prepared in 
food service establishments. The commenter believes that Congress has 
clearly spoken and concluded that labeling shall not apply to these 
items.
    Agency Response: In accordance with Executive Order 13132, the 
Agency does not believe there is basis to allow for preemption of State 
laws that would encompass commodities that are not regulated under this 
regulation either because they meet the definition of a processed food 
item or because they were prepared in food service establishments. No 
comments from States were received. Accordingly, this recommendation is 
not adopted.

Miscellaneous

    Summary of Comments: Many commenters discussed the use of import 
markings to differentiate cattle of foreign origin from cattle born and 
raised in the United States. These commenters noted that current APHIS 
regulations require live cattle imported from Canada to be branded with 
the letters ``CAN'' and live cattle imported from Mexico to be branded 
with the letter ``M.'' Commenters argued that processors could rely on 
these brands and other import markings to segregate animals and ensure 
accurate country of origin notification. Many of these commenters 
argued that the absence of import markings should indicate a 
``presumption of United States origin.'' AMS also received numerous 
comments expressing concern about the potential for COOL to create 
obstacles to international trade and possible conflicts with regard to 
United States trade agreements under the World Trade Organization, the 
North American Free Trade Agreement, and General Agreements on Tariffs 
and Trade. Several other commenters expressed their opinions regarding 
the justification

[[Page 45123]]

for COOL as a food safety or animal health measure. Several other 
commenters asserted that COOL will not ensure food safety or animal 
health.
    Agency Response: With respect to using import markings to segregate 
animals, the Agency believes the labeling provisions contained in Sec.  
65.300 of this interim final rule provide flexibility such that the 
need to segregate animals will be limited to those suppliers that want 
to provide more specific origin information. However, in an effort to 
further reduce the burden associated with labeling meat covered 
commodities with origin information, under this interim final rule, 
slaughter facilities that slaughter animals that are part of a National 
Animal Identification System (NAIS) compliant system or other 
recognized official identification system (e.g., Canadian official 
system, Mexico official system) may also rely on the presence of an 
official ear tag and/or the presence of any accompanying animal 
markings (i.e., ``Can'', ``M''), as applicable, on which to base their 
origin claims. This provision also includes such animals officially 
identified as a group lot.
    With regard to presumption of United States origin, the 2008 Farm 
Bill amended the Act such that animals present in the United States on 
or before July 15, 2008, and once present in the United States, 
remained continuously in the United States will be considered of United 
States origin.
    With respect to the commenters' concern regarding international 
trade obligations, the Agency has considered these obligations 
throughout the rulemaking process and concludes that this regulation is 
consistent with U.S. international trade obligations.
    With regard to the comments on COOL serving as a food safety or 
animal health measure, as stated in the preamble, the purpose of COOL 
is to provide additional information to consumers on which to base 
their purchasing decisions. COOL is a retail labeling program and as 
such does not provide a basis for addressing food safety. Food 
products, both imported and domestic, must meet the food safety 
standards of FDA and FSIS.

Preliminary Paperwork Reduction Act

    Summary of Comments: USDA received conflicting comments regarding 
liability burdens and the maintenance of records throughout supply 
channels between retailers, suppliers and producers. Generally, cattle, 
pork and lamb producers and their trade associations provided comments 
supporting protections for livestock producers from undue recordkeeping 
and liability burdens placed on them by retailers and packers. On the 
other hand, meat packers and retailers expressed that the rule should 
grant them the ability to pass liability for noncompliance with 
labeling or verification of country of origin back down the supply 
chain to product sources. Two commenters noted that the interim final 
rule for fish and shellfish deletes the requirement for chain of 
custody documentation. One commenter concluded that the rule should not 
require intermediary suppliers to maintain records beyond those 
necessary to identify their immediate suppliers and subsequent business 
customers.
    Four commenters advocated that USDA should require importers of 
designated commodities to maintain adequate records to reconcile 
purchases, inventories and sales of imported and domestic commodities 
in order to reduce the need for expensive and burdensome affidavits or 
audits on United States livestock producers. One commenter noted that 
the beef industry is more segmented than any other industry affected by 
COOL and that this segmentation complicates the transfer of origin 
information for United States beef producers.
    Another commenter warned that the requirement to document the 
country of birth, raising and slaughter of livestock will create a 
tremendous recordkeeping burden on both packers and producers; and in 
some cases, it may not even be possible to achieve. This commenter 
contended that those packers harvesting older animals might find it 
nearly impossible to find adequate supplies of livestock for which 
records exist regarding the location of the animal's birth. The 
commenter added that the recordkeeping burden placed on domestic 
processors might create a disadvantage relative to imported products, 
which will have no such requirements to document the animal's origin 
back to birth.
    Two commenters further illuminated this point. One of these noted 
that it would be more efficient in the lamb industry to focus on 
tracking the one to three percent of United States slaughter 
representing Canadian lambs imported by a handful of individuals or 
firms. The commenter also pointed out that due to recordkeeping 
requirements for assessments and remittances for the Lamb Promotion 
Research and Information (check-off) order, a current audit trail 
exists for country of origin of domestic sheep. The other commenter 
contended that imported meat, by its nature, is likely to have passed 
through more handling stages than domestic product by the time it 
reaches the point of final United States retail sale. The commenter 
stated that because imported beef, lamb and pork passes through at 
least two countries, and through handling by ranchers, exporters, 
importers, processors, and distributors, imported products will require 
a longer audit trail that demands more, and potentially more detailed, 
recordkeeping.
    Agency Response: The Agency has already addressed many of these 
comments earlier in this Comment and Response section. In general, the 
Agency has reduced the recordkeeping burden to the extent possible 
while still maintaining a verifiable audit trail.
    Compared to the proposed rule, this interim final rule reduces the 
length of time that records must be kept, revises the recordkeeping 
requirements for pre-labeled products, and removes the requirement to 
maintain records at the retail store. Any person engaged in the 
business of supplying a covered commodity to a retailer, whether 
directly or indirectly, must maintain records to establish and identify 
the immediate previous source and immediate subsequent recipient of a 
covered commodity for a period of 1 year from the date of the 
transaction. Under the proposed rule, records would have been required 
to be kept for 2 years.
    For retailers, records and other documentary evidence relied upon 
at the point of sale by the retailer to establish a covered commodity's 
country(ies) of origin must be maintained for one year from the date 
the origin declaration is made at retail and, upon request, provided to 
any duly authorized representatives of USDA within 5 business days of 
the request. Under the proposed rule, retailers were required to 
maintain these records at the retail store for 7 days following the 
sale of the product.
    For pre-labeled products, the interim final rule provides that the 
label itself is sufficient evidence on which the retailer may rely to 
establish a product's origin. The proposed rule did not provide for 
this method of substantiation. Under the interim final rule, records 
that identify the covered commodity, the supplier, and for products 
that are not pre-labeled, the country of origin information must be 
maintained for a period of 1 year from the date the origin designations 
are made at retail. Under the proposed rule, these records would have 
been required to be maintained for 2 years.
    In addition to these burden reducing changes made by the Agency, 
the 2008

[[Page 45124]]

Farm Bill also made several burden reducing changes. Accordingly, some 
of the concerns expressed by the commenters have been addressed by the 
2008 Farm Bill and by this interim final rule. For example, the statute 
expressly allows for the use of producer affidavits, so packers will be 
able to rely on affidavits to base the origin claims for covered 
commodities. This will alleviate many of the concerns expressed by 
producers. Likewise, under the 2008 Farm Bill, the Secretary is 
prohibiting from requiring the creation of records not already 
maintained in the normal course of business, which will also reduce the 
recordkeeping burden. In addition, the 2008 Farm Bill contains a 
provision such that all animals present in the United States on or 
before July 15, 2008, will be considered of United States origin, which 
addresses the concerns of commenters regarding adequate supplies of 
livestock for which origin is documented back to birth. A complete 
discussion of the changes made as a result of the 2008 Farm Bill can be 
found earlier in this document.

Preliminary Regulator Impact Analysis

    Summary of Comments: Numerous comments were submitted stating that 
USDA underestimated the implementation and maintenance costs of the 
COOL program. One commenter stated that the implementation costs plus 
two years of maintenance costs totaled $49 million. Another commenter 
provided an estimated total implementation cost of $236,000 for 
planning, software, training, and capital. It provided an estimated 
annual maintenance cost of $279,300 for maintenance of hardware/
software, operation costs, and packaging. Their reported net economic 
impact was -$516,200. A third commenter stated that retailers 
experienced actual first year implementation costs of $9,000 to $16,500 
per store for seafood labeling, and intermediary suppliers experienced 
costs between $200,000 and $250,000 per firm. They reported that one 
retailer saw a $0.07 per pound (less than 2 percent) increase in cost 
of goods from its suppliers directly attributable to the requirements 
necessary to comply with country of origin labeling. A fourth commenter 
discussed the capital expenditures necessary to meet the product 
segregation requirements for beef and pork slaughter plants. This 
commenter estimated that cost to exceed $2 billion. The commenter 
stated their belief that even with those plants that can be identified 
as ``All-American'' and exempt from the segregation requirement, the 
cost still could exceed $1 billion.
    Agency Response: While the Agency believes its analysis conducted 
in the PRIA in 2003 was accurate for that time, the Agency has 
conducted a new economic impact analysis because economic conditions 
have changed, updated data are available, and additional commodities 
have been added. The commodities to be regulated by this regulation are 
muscle cuts of beef, lamb, goat, pork, and chicken; ground beef, ground 
lamb, ground chicken, ground goat, and ground pork; perishable 
agricultural commodities; ginseng; peanuts; macadamia nuts; and pecans.
    The results of this updated analysis show estimated first-year 
incremental cost for growers, producers, processors, wholesalers, and 
retailers at $2.5 billion. The estimated cost to the United States 
economy in higher food prices and reduced food production in the tenth 
year after implementation of the rule is $211.9 million. The Agency 
also re-estimated the paperwork costs and estimated those to be $126 
million in initial and startup costs during the first year and $499 
million per year to store and maintain the records thereafter.
    With regard to the commenters' statements regarding segregation, 
this interim final rule provides flexibility in how products of 
multiple origin can be labeled. Thus, the costs associated with 
labeling products of multiple origin will likely be less than the upper 
range estimate in the PRIA as the proposed rule did not contain this 
flexibility. A complete discussion on labeling products of multiple 
origin is contained in the Highlights of this Interim Final Rule 
section earlier in this document.
    Summary of Comments: One commenter stated their belief that statute 
is intended to disadvantage imported meat.
    Agency Response: Both importers and domestic suppliers are required 
to meet the requirements of the rule. The Agency believes that firms 
will find efficient ways to comply with the requirements of the rule.
    Summary of Comments: One commenter stated that the authorizing 
legislation was not a ``Pro-Consumer'' safety measure.
    Agency Response: As discussed in more detail in the preamble and in 
other responses to comments earlier in this section, COOL is not a food 
safety measure. COOL provides more information to consumers on which to 
base their purchasing decisions.
    Summary of Comments: Several commenters believe that COOL will have 
an adverse impact on beef demand. Another commenter believes COOL will 
hurt consumers because it will discourage the use of imported beef, 
which will result in less ground beef being produced and driving up the 
price. Other commenters stated their belief that consumers think 
domestic products are superior and are willing to pay more for it. One 
commenter included a paper written by an economics professor entitled, 
``An Overview of the Impact of COOL on Production Costs for the U.S. 
Cattle Producer and Results of the TFOG Experiment'' who concluded, in 
part, that the impact of COOL on the demand for beef in the United 
States is uncertain. The paper referenced different opinions expressed 
by economists and others and stated that there is really no consensus 
about the impact of COOL on the demand for beef in the United States.
    Agency Response: The Agency interprets all of these comments as 
discussing COOL's impact on the demand for covered commodities. The 
Agency maintains its position concerning the impact of COOL on the 
demand for all the covered products as presented in the Regulatory 
Impact Analysis.
    Summary of Comments: One commenter stated that COOL implementation 
and maintenance costs can be minimized by streamlining regulatory 
requirements.
    Agency Response: As previously discussed, the Agency has made 
changes that streamline both the regulatory and paperwork burden 
aspects of COOL. For example, the definition of a processed food item 
has been changed such that a greater number of products are now exempt 
from COOL requirements. The fewer the number of products that must be 
labeled, the lower implementation and maintenance costs will be for 
many affected entities. Another example is that the overall 
recordkeeping retention period for retailers and suppliers is reduced 
from 2 years to 1 year for centrally located records and the 
requirement to maintain records at the retail store has been removed. 
These records can now be maintained in any location.
    In addition to the changes made by the Agency in an effort to 
reduce the burden of complying with this rule, changes have also been 
made as a result of the 2008 Farm Bill. For example, the 2008 Farm Bill 
and this interim final rule provide for flexibility in labeling 
products of multiple origin. In addition, the 2008 Farm Bill allows for 
the use of producer affidavits and prohibits the Secretary from 
requiring the creation of

[[Page 45125]]

records that are not already maintained as part of the normal course of 
business. A complete discussion of the changes made by the Agency, 
including the changes made as a result of the 2008 Farm Bill, can be 
found earlier in this document. The Agency believes these changes as a 
whole have greatly reduced the burden on affected industries and the 
cost estimates for the implementation of this rule have been lowered 
significantly as discussed in the RIA.
    Summary of Comments: Several commenters pointed out that many 
products are already labeled as to country of origin pursuant to 
existing laws. One commenter illustrated that retailers provide origin 
labeling on more than 60 percent of the top 20 fruits and top 20 
vegetables (by consumption). This commenter added that the industry is 
now providing such labeling and will continue to do so. These same 
commenters also contended that additional country of origin labeling 
requirements are unnecessary and would impose enormous additional costs 
on all segments of the food chain. They argued that the cost of 
mandatory country of origin labeling is significant and will not 
provide consumer benefit.
    Agency Response: If 60 percent of the top 20 fruits and the top 20 
vegetables are already labeled with origin information as stated by the 
commenter, the Agency would expect that the cost of implementing COOL 
for the remaining fruit and vegetable products may be less than what 
the Agency is estimating. However, it is difficult to quantify the 
associated cost savings. As for the cost of implementing and 
maintaining COOL, these commenters did not offer any quantitative data 
to support their claim.
    Summary of Comments: One commenter reported that they implemented 
COOL without burden or noticeable expense. This commenter is a retailer 
who believed its customers are demanding to know the origin of the 
foods they see for sale. They have completed labeling the country of 
origin on all of its beef, pork, lamb, peanuts and fresh produce (in 
addition to seafood) without any burden or noticeable expense. They 
believe this improved traceability reduced their risk.
    Agency Response: The Agency views this comment as supporting the 
Agency's contention that firms will adapt their existing infrastructure 
as needed to comply with COOL and that firms will find the most cost 
effective way of doing so.
    Summary of Comments: In support of the benefits of the mandatory 
COOL program, one commenter noted that USDA Economic Research Service 
(ERS) data revealed that United States origin lamb enjoyed a $.40 per 
pound price advantage compared to imported lamb products. The commenter 
further stated that using ERS retail data released in January 2003, the 
two-year combined volume-weighted average price of domestic lamb was 
$4.30 per pound. For imported lamb, it was $3.90 per pound.
    Agency Response: The Agency has determined that the relationship 
between domestic and imported lamb prices change over time. In some 
years domestic prices will be higher and in other years imported prices 
will be higher. The commenter was examining 2001 and 2002 data. An 
examination of monthly retail scanner prices provided by ERS from 
January 2004 through December 2005 indicates that imported lamb prices 
per pound sold as a premium as compared to domestic lamb for this time 
period. Thus, it cannot be assumed that origin information consistently 
provides a net benefit in the form of higher prices for domestic lamb.
    Summary of Comments: One commenter cited three studies (surveys) 
that found consumers overwhelmingly desire COOL and believe they have a 
right to know such information. One study, conducted in early June 
2007, found that 92 percent thought that imported food should be 
labeled as to its country of origin. Another study (survey), conducted 
in March 2007, found that 82 percent of the people polled supported 
mandatory COOL. Finally, a study (survey) conducted in mid-July 1997 
found that 88 percent of those polled said all retail food should have 
COOL. This study also showed that 94 percent believe that consumers 
have a right to know the country of origin of the foods they purchase.
    Agency Response: The Agency does not believe that these types of 
studies provide a sufficient basis to estimate the quantitative 
benefits, if any, of COOL. As discussed in the Regulatory Impact 
Analysis, 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 rule. First, 
consumers in such studies often overstate their willingness to pay for 
a product. Second, in most of these willingness-to-pay studies, 
consumers are not faced with the actual choices they would face at 
retail outlets. Third, consumers' willingness-to-pay as elicited from a 
survey is a function of the questions asked. Different questionnaires 
will yield different results. 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.
    Summary of Comments: One commenter noted that COOL could serve as a 
risk management measure. Some countries, which may not have as 
stringent food safety regulations and/or have not implemented/enforced 
those regulations as rigorously as the U.S., may export hazardous food 
products. COOL could allow consumers to avoid such food items as the 
need arose.
    Agency Response: As previously discussed in the preamble of this 
rule and in other responses to comments, COOL provides consumers with 
more information on which to base their purchases. Food products, both 
imported and domestic, must meet the food safety standards of FDA and 
FSIS. COOL will permit consumers to choose the origin of the foods they 
purchase.
    Summary of Comments: Two commenters asserted their belief that the 
utility of COOL is unsubstantiated and that it imposes onerous costs on 
covered commodities with no quantifiable benefits. The commenters 
believe that mandatory COOL should thus be repealed and replaced with a 
voluntary program.
    Agency Response: While it may be difficult to quantify the benefits 
associated with mandatory COOL, the COOL program must be implemented on 
September 30, 2008, in accordance with the statute.

Preliminary Regulatory Flexibility Analysis

    Summary of Comments: Several commenters urged the Agency to ensure 
that small businesses were not burdened with unnecessary recordkeeping 
requirements. One commenter noted that paperwork and recordkeeping 
burdens continue to be top concerns for small businesses.
    Agency Response: In the initial regulatory flexibility analysis, 
the Agency noted that costs of implementation may be proportionately 
higher for smaller versus larger firms given the potential scale of 
economies associated with the operation of systems to comply with the 
requirements of mandatory country of origin labeling. In particular, 
larger firms would have the ability to spread fixed costs of 
implementation over a greater number of units of production, thereby 
incurring lower average costs per unit.
    However, the Agency has drafted this rule to provide as much 
regulatory relief for small entities as possible within the limits of 
the discretionary authority provided by the law. For example, the

[[Page 45126]]

Agency has reduced the recordkeeping retention period and has provided 
flexibility in labeling commingled covered commodities and commodities 
of multiple origin. In addition, the rule allows market participants to 
decide how best to implement COOL in their operations. And, market 
participants other than those retailers defined by the statute can 
decide to sell products through marketing channels not subject to the 
rule. The Agency further assumes that in the longer run, higher costs 
will be passed on to consumers in the form of higher prices for the 
covered commodities.
    Summary of Comments: Several commenters said that recordkeeping and 
other costs of compliance will fall disproportionately on smaller, 
independent farmers. One of these commenters noted that the position of 
small, independent farmers may be weakened due to this additional 
burden.
    Agency Response: As noted in the Agency's previous response, the 
initial regulatory flexibility analysis showed that costs of 
implementation may be proportionately higher for smaller versus larger 
firms. However, the Agency believes smaller farmers may have some 
implementation cost advantages over larger farms. Smaller farms likely 
have simpler recordkeeping systems, and thus would incur lower 
development costs relative to larger farms. The rule does not prescribe 
a particular recordkeeping system; so for example, a small fruit and 
vegetables operation likely would be able to maintain records in 
hardcopy form rather than developing a complicated electronic 
recordkeeping system.
    Summary of Comments: Several commenters asserted their belief that 
COOL would provide benefits to small producers and consumers at 
reasonable implementation costs. One commenter explained that for truly 
small producers (less than 50 animals), mandatory COOL will create a 
niche market.
    Agency Response: The Agency believes that the firms within each of 
the industries will competitively adjust to the provisions of COOL. 
Some may create niche markets while others may provide covered 
commodities to retailers, the food service industry, and the away from 
home food markets which are not covered by COOL.
Executive Order 12866--Regulatory Impact Analysis
    USDA has examined the economic impact of this interim final 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 effect on the economy of $100 
million or more in any one year. This rule has been reviewed by the 
Office of Management and Budget (OMB). Executive Order 12866 requires 
that a regulatory impact analysis be performed on all economically 
significant regulatory actions.
    This interim final rule defines covered commodities as muscle cuts 
of beef, lamb, goat, pork, and chicken; ground beef, ground lamb, 
ground pork, ground goat, and ground chicken; perishable agricultural 
commodities; ginseng; peanuts; macadamia nuts; and pecans. This interim 
final rule together with the interim final rule for fish and shellfish 
that was published in the October 5, 2004, Federal Register (69 FR 
89708) define the full scope of covered commodities as defined by law.
    This regulatory impact assessment reflects revisions to the 
Preliminary Regulatory Impact Assessment (PRIA)(68 FR 61944). Revisions 
to the PRIA were made as a result of changes to the rule relative to 
the October 30, 2003, proposed rule, and comments received on the 
proposed rule for all covered commodities.
    The Comments and Responses section lists the comments received and 
provides the Agency's responses to the comments. Where substantially 
unchanged, results of the PRIA are summarized herein, and revisions are 
described in detail. Interested readers are referred to the text of the 
PRIA for a more comprehensive discussion of the assumptions, data, 
methods, and results.
Summary of the Economic Analysis
    The estimated benefits associated with this interim final rule are 
likely to be small. The estimated first-year incremental costs for 
growers, producers, processors, wholesalers, and retailers are $2.5 
billion. The estimated cost to the United States economy in higher food 
prices and reduced food production in the tenth year after 
implementation of the rule is $211.9 million.
    Note that this analysis does not quantify certain costs of the 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 startup and maintenance costs versus 
ongoing maintenance costs for this interim final rule. Maintenance 
costs beyond the first year are expected to be lower than the combined 
startup and maintenance costs required in the first year.
    USDA finds little evidence that consumers are willing to pay a 
price premium for country of origin labeling (COOL). USDA also finds 
little evidence that consumers are likely to increase their purchase of 
food items bearing the United States origin label as a result of this 
rulemaking. Current evidence does not suggest that United States 
producers will receive sufficiently higher prices for United States-
labeled products to cover the labeling, recordkeeping, and other 
related costs. The lack of widespread participation in voluntary 
programs for labeling products of United States origin provides 
evidence that consumers do not have strong enough preferences for 
products of United States origin to support price premiums sufficient 
to recoup the costs of labeling.
Statement of Need
    Justification for this interim final rule remains unchanged from 
the PRIA. This rule is the direct result of statutory obligations to 
implement the COOL provisions of the 2002 and 2008 Farm Bills. There 
are no alternatives to Federal regulatory intervention for implementing 
this statutory directive.
    The COOL provisions of the Act change current Federal labeling 
requirements for muscle cuts of beef, pork, lamb, goat, and chicken; 
ground beef, ground pork, ground lamb, ground goat, and ground chicken; 
perishable agricultural commodities; ginseng; peanuts; macadamia nuts; 
and pecans (hereafter, covered commodities). Under current Federal laws 
and regulations, COOL is only universally required for wild and farm-
raised fish and shellfish covered commodities. In particular, labeling 
of United States origin is not currently mandatory for the other 
commodities and labeling of imported products at the consumer level is 
required only in certain circumstances.
    As described in the PRIA, the conclusion remains that there does 
not appear to be a compelling market failure argument regarding the 
provision of country of origin information. Comments received on the 
PRIA and subsequent requests for comments elicited no evidence of 
significant barriers to the provision of this information other than 
private costs to firms in the supply chain and low expected returns. 
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
    The PRIA noted that many aspects of the mandatory COOL provisions

[[Page 45127]]

contained in the Act are prescriptive and provide little regulatory 
discretion for this rulemaking. Some commenters suggested that USDA 
explore more opportunities for less costly regulatory alternatives. 
Specific suggestions focused on methods for identifying country of 
origin, recordkeeping requirements, and the scope of products required 
to be labeled.
    A number of comments on the PRIA suggested that USDA adopt a 
``presumption of United States origin'' standard for identifying 
commodities of United States origin. Under this standard, only imported 
livestock and covered commodities would be required to be identified 
and tracked according to their respective countries of origin. Any 
livestock or covered commodity not so identified would then be 
considered by presumption to be of United States origin. A presumption 
of origin standard would require mandatory identification of products 
not of United States origin. The law, however, specifically prohibits 
USDA from using a mandatory identification system to verify the country 
of origin of a covered commodity. In addition, as discussed in the 
proposed rule, the Agency does not believe that a presumption of United 
States origin standard provides a means of providing country of origin 
information that is credible and can be verified. Comments on the 
proposed rule did not identify how to overcome these obstacles. Thus, a 
presumption of United States origin standard is not a viable 
alternative.
    With regard to alternatives for recordkeeping, a number of 
commenters suggested that USDA reduce the recordkeeping burden for the 
rule. In this interim final rule, the requirement to maintain records 
at the retail store has been removed. In addition, the overall 
recordkeeping retention period for retailers and suppliers is reduced 
from 2 years to 1 year.
    The interim final rule also ``streamlines'' the required 
recordkeeping for items that are pre-labeled (i.e., labeled by the 
manufacturer/first handler) with the required country of origin 
information. Records that demonstrate the chain of custody (immediate 
previous source and subsequent recipient) for all covered items must be 
maintained, but the underlying records (e.g., invoices, bills of 
lading, production and sales records, etc.) do not need to identify the 
country of origin of these pre-labeled products. For example, if a 
processor labels the country of origin on a bag of apples, and the 
apples ultimately are sold in that package at retail, then that label 
may serve as sufficient evidence on which the retailer may rely to 
establish the product's origin. Thus, the retailer's records would not 
need to show country of origin information for that bag of apples, but 
the retailer's records would need to include information to allow the 
source of those apples to be tracked back through the system to allow 
the country of origin claim to be verified at the point in the system 
at which the claim was initiated. Under the proposed rule, the retailer 
would have also been required to identify the country of origin of the 
bag of apples within its recordkeeping system; the information provided 
on the bag itself would not have been sufficient. This change in 
recordkeeping requirements should lessen the number of changes that 
entities in the distribution chain need to make to their recordkeeping 
systems and should lessen the amount of data entry that is required.
    This interim final rule changes the definition of a processed food 
item such that a greater number of products are now exempt from COOL 
requirements. The fewer the number of products that must be labeled, 
the lower implementation and maintenance costs for many affected 
entities.
    The 2008 Farm Bill contains a number of provisions that amended the 
COOL provisions in the Act. In general, these changes provide for 
greater flexibility in labeling by retailers and suppliers and reduces 
the burden on livestock producers. For example, the 2008 Farm Bill 
provides for flexibility in labeling ground products by allowing the 
notice of country of origin to include a list of countries contained 
therein or that may reasonably be contained therein. In addition, the 
law provides flexibility in labeling meat covered commodities derived 
from animals of multiple countries of origin. For example, under this 
interim final rule, if an animal was born, raised, and/or slaughtered 
in the United States and was not imported for immediate slaughter as 
defined in Sec.  65.180, the origin of the resulting meat products 
derived from that animal may be designated as Product of the United 
States, Country X, and/or (as applicable) Country Y where Country X and 
Country Y represent the actual or possible countries of foreign origin.
    The law also provides that meat from animals present in the United 
States on or before July 15, 2008, and once present in the United 
States, remained continuously in the United States, may be labeled as 
having a United States origin. Additionally, the law states that 
producer affidavits shall be considered sufficient records documenting 
animals' origin.
    The law also states that for perishable agricultural commodities, 
peanuts, pecans, macadamia nuts, and ginseng produced in the United 
States, designation of the State, region, or locality of the United 
States where such commodity was produced shall be sufficient to 
identify the country of origin.
    As noted in the PRIA, the law stated that COOL applies to the 
retail sale of a covered commodity beginning September 30, 2004. 
Subsequent to the publication of the proposed rule, the law was amended 
to change the implementation date to September 30, 2008, for all 
covered commodities except farm-raised and wild fish and shellfish. The 
implementation date for fish and shellfish covered commodities was 
September 30, 2004. The delay of the effective date of the labeling 
requirements under the law provides affected entities with additional 
time to adjust their systems to comply with the requirements of the law 
and this rule.
Analysis of Benefits and Costs
    As in the PRIA, the baseline for this analysis is the present state 
of the affected industries absent mandatory COOL. USDA recognizes that 
some affected firms have already begun to implement changes in their 
operations to accommodate the law and the expected requirements of this 
interim final rule.
    Because the Act contains an implementation date of September 30, 
2004, for wild and farm-raised fish and September 30, 2008, for all 
other covered commodities, the economic impacts of the rule will be 
staggered by four years. The analysis herein of economy wide costs of 
the rule abstracts away from the staggered dates of implementation and 
treats all commodities as having the same effective date of 
implementation. As discussed more fully below, a two-pronged approach 
was used to estimate the costs of this rule. While direct fish costs 
are not specifically included and discussed in this analysis, they have 
been updated using more recent data and used to estimate the overall 
impacts of this rule on the United States economy even though labeling 
of fish was implemented in 2004 and no new regulations for fish are 
forthcoming from this rule. This was done to take into account all the 
cross-commodity effects of this rule. The results of the analysis are 
not significantly affected by this simplifying assumption.
    Benefits: The expected benefits from implementation of this rule 
are difficult to quantify. The Agency's conclusion remains unchanged, 
which is that the

[[Page 45128]]

benefits will be small and will accrue mainly to those consumers who 
desire country of origin information. Several analysts conclude that 
the main benefit is the welfare effect resulting from removing 
informational distortions associated with not knowing the origin of 
products (Ref. 1). Numerous comments received on previous COOL 
rulemaking actions indicate that there clearly is interest by some 
consumers in the country of origin of food. The mandatory COOL program 
may provide additional benefits to these consumers. However, commenters 
provided no additional substantive evidence to alter the Agency's 
conclusion that the measurable economic benefits of mandatory COOL will 
be small. Additional information and studies cited by commenters were 
of the same type identified in the PRIA--namely, consumer surveys and 
willingness-to-pay studies, including the most recent studies reviewed 
for this analysis (Ref. 2; Ref. 3). The Agency does not believe that 
these types of studies provide a sufficient basis to estimate the 
quantitative benefits, if any, of COOL.
    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 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. Second, in most of these 
willingness-to-pay studies, consumers are not faced with the actual 
choices they would face at retail outlets. Third, consumers' 
willingness-to-pay as elicited from a survey is a function of the 
questions asked. Different questionnaires will yield different results. 
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.
    As was the case in the interim final rule for fish and shellfish, a 
number of commenters pointed to additional food safety incidents that 
occurred in 2007, suggesting that mandatory COOL would provide food 
safety benefits to consumers. As discussed in the PRIA, however, 
mandatory COOL does not address food safety issues. Appropriate 
preventative measures and effective mechanisms to recall products in 
the event of contamination incidents are the means used to protect the 
health of the entire consuming public regardless of the form in which a 
product is consumed or where it is purchased. In addition, foods 
imported into the United States must meet food safety standards 
equivalent to those required of products produced domestically.
    Costs: To estimate the costs of this rule, a two-pronged approach 
was employed. First, implementation costs for firms in the industries 
directly affected by the rule were estimated. 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 rule. These costs are expenses that these particular firms must 
incur, and thus represent the opportunity costs of the rulemaking.
    These costs, however, are not necessarily dead weight losses to the 
United States economy, as measured by the value of goods and services 
that are produced. This is simply because increases in capital, labor, 
and other inputs necessary to comply with the rule will benefit the 
providers of such inputs. In order to estimate the net decrease in 
economic activity as a result of this rulemaking, the implementation 
cost estimates were applied to a general equilibrium model to estimate 
overall impacts on the United States economy after a 10-year period of 
economic adjustment. The general equilibrium model provides a means to 
estimate the change in overall consumer purchasing power after the 
economy has adjusted to the requirements of the rule. In addition, 
since the Department has not identified a market failure associated 
with this rulemaking and therefore does not believe the rule would have 
measurable benefits, we believe this net decrease in economic activity 
can be considered the overall net costs (benefits minus costs) of this 
rulemaking.
    Details of the data, sources, and methods underlying the cost 
estimates are provided in the PRIA. This section provides the revised 
cost estimates and describes revisions made to the PRIA.
    In the PRIA, a range of estimated implementation costs were 
developed to reflect the likely range of first-year costs for directly 
affected firms to comply with the proposed rule. The lower range of 
incremental cost estimates reflected the costs to modify and maintain 
current recordkeeping systems, while the upper range of estimates 
reflected other capital and operational costs to comply with the 
proposed rule. We concluded in the PRIA that costs likely would fall in 
the middle to upper end of the range of estimated costs. Taking into 
account comments received on the proposed rule and the PRIA, as was the 
case in the regulatory impact analysis in the interim final rule for 
fish and shellfish, this revised regulatory impact assessment presents 
only a single set of anticipated costs. Comments representing affected 
entities clearly described that compliance with the rule would require 
changes beyond recordkeeping alone. The revised incremental cost 
estimates reflect not only the revised definition of a processed 
product but the changes made as a result of the 2008 Farm Bill, the 
additional recordkeeping costs and 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 rule.
    First-year incremental costs for directly affected firms are 
estimated at $2.5 billion, a reduction of $1.4 billion or 36 percent 
from the upper range estimate presented in the proposed rule. Costs per 
firm are estimated at $376 for producers, $53,948 for intermediaries 
(such as handlers, importers, processors, and wholesalers), and 
$235,551 for retailers.
    To assess the overall net impacts of the higher costs of production 
resulting from the rule, we used a computational general equilibrium 
(CGE) model of the United States economy developed by USDA's Economic 
Research Service (ERS) (Ref 4). The model was adjusted by imposing the 
estimated implementation costs on the directly impacted segments of the 
economy. That is, the costs of implementation increase costs of 
production for directly impacted firms, and these increased costs of 
production were imposed on the CGE model. 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 (10 
years). The CGE model covers the whole United States economy, and 
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.
    Overall net costs to the United States economy in terms of reduced 
purchasing power resulting from a loss in productivity after a decade 
of adjustment are estimated at $211.9 million in the tenth year. 
Domestic production for all of the covered commodities at the producer 
and retail levels, except for fruits and vegetables, is estimated to be 
lower, and prices are estimated to be higher, compared to the absence 
of this rulemaking. Fruit and vegetable production, exports, and 
imports are estimated to increase even though costs increase due to 
this rulemaking, likely due to substitution

[[Page 45129]]

effects attributable to the differential cost impacts of the rule. In 
addition, United States exports are estimated to decrease for all 
covered commodities except for fruits and vegetables. Compared to the 
baseline of no mandatory COOL, United States imports are estimated to 
increase for fruits and vegetables, cattle and sheep, hogs, chicken, 
and fish. United States imports of broilers, beef and veal, and pork 
are estimated to decrease.
    The findings indicate that, consistent with standard economic 
theory, directly affected industries recover a portion of the higher 
costs imposed by the rule through slightly higher prices for their 
products. With higher prices, the quantities of their products demanded 
also decline. Consumers pay slightly more for the products and purchase 
less of the covered commodities. Overall, the model indicates that the 
net loss to society, or the ``deadweight'' burden of the rule, is 
considerably smaller than the incremental opportunity costs to directly 
affected firms that were imposed on the model. The remainder of this 
section describes in greater detail how the estimated direct, 
incremental costs and the overall net costs to the United States 
economy are developed.
    Cost assumptions: This rule directly regulates the activities of 
retailers (as defined by the law) and their suppliers. Retailers are 
required by the 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, virtually all other firms in the supply chain for the 
covered commodities are potentially affected by the rule because 
country of origin information will need to be maintained along the 
entire supply chain.
    Number of firms and number of establishments affected: This rule is 
estimated to directly or indirectly affect approximately 1,256,000 
establishments owned by approximately 1,222,000 firms. Table 1 provides 
estimates of the affected firms and establishments.

             Table 1--Estimated Number of Affected Entities
------------------------------------------------------------------------
               Type                       Firms          Establishments
------------------------------------------------------------------------
Beef, Lamb, Pork, and Goat:
    Cattle and Calves.............            971,400            971,400
    Sheep and Lamb................             69,090             69,090
    Hogs and Pigs.................             65,540             65,540
    Goats.........................              9,146              9,146
    Stockyards, Dealers & Market                6,807              6,807
     Agencies.....................
    Livestock Processing &                      2,943              3,207
     Slaughtering.................
    Meat & Meat Product Wholesale.              2,509              2,706
Chicken:
    Chicken Producer and Processor                 38                168
    Chicken Wholesaler/Distributor                510                564
Perishable Agricultural
 Commodities:
    Fruits & Vegetables...........             79,800             79,800
    Ginseng Farms.................                190                190
    Ginseng Dealers...............                 46                 46
    Frozen fruit, juice &                         155                247
     vegetable mfg................
    Fresh fruit & vegetable                     4,654              5,016
     wholesale....................
Peanuts, Pecans, & Macadamia Nuts:
    Peanut Farming................                650                650
    Macadamia Farming.............                 53                 53
    Pecan Farming.................              1,119              1,119
    Roasted nuts & peanut butter                    8                  9
     mfg..........................
    Peanuts, Pecans, & Macadamia                    5                  5
     Wholesalers..................
General line grocery wholesalers..              3,037              3,436
Retailers.........................              4,040             36,392
                                   -------------------------------------
    Totals:
        Producers.................          1,197,026          1,197,156
        Handlers, Processors, &                20,674             22,043
         Wholesalers..............
        Retailers.................              4,040             36,392
                                   -------------------------------------
            Grand Total...........          1,221,740          1,255,591
------------------------------------------------------------------------

    Information in the PRIA for the numbers of affected producers has 
been updated with more recent information. Other changes from the PRIA 
are reductions in the numbers of affected entities in the peanut 
sector, and consequently, in the totals. In addition, affected entities 
in the chicken, goat, ginseng, macadamia nut, and pecan industries have 
been added. The rule covers only ginseng root. As previously discussed, 
the rule does not cover most product forms of peanuts, macadamia nuts, 
and pecans sold at retail, such as roasted and dry-roasted peanuts. 
Only green and raw nuts are required by COOL because other product 
forms are not covered by this regulation due to the definition of a 
processed food item. Market shares for green and raw nuts sold at 
affected retailers are not available, but the volume of sales is 
certainly very small in comparison to roasted peanuts. For purposes of 
estimation, the numbers of affected entities at each level of the 
peanut, macadamia nuts, and pecan sectors were reduced to 5 percent of 
their totals, consistent with levels reported in the PRIA (as 
applicable) due to the large percentage of product forms not covered by 
this rule. The number of peanut producers is reduced from 13,000 to 
650, the number of macadamia nut producers is estimated at 53, the 
number of pecan producers is estimated at 1,119, the number of peanut, 
macadamia nut and pecan processing (which includes drying) firms is 
estimated at 8, and the number of peanut, macadamia nut, and pecan 
wholesaling firms is estimated at 5.

[[Page 45130]]

    The chicken industry is somewhat different from the other covered 
commodities. One major difference is that chicken firms are highly 
vertically integrated and the integrators own the birds from the time 
they hatch to the time they sell the birds directly to retailers or to 
another processor or distributor. There are 38 chicken companies in the 
United States operating 168 slaughtering plants. The integrators 
dictate all aspects of the production process to the growers who are 
under contractual obligation to grow-out chickens for one of the 
integrators. All decisions from when to populate a grower's farm, to 
feed formulation, veterinarian services, and harvesting the mature 
chickens are made by the integrator. The grower supplies the chicken 
houses and the labor.
    Of all the chicken sold to retailers, 68.9 percent comes directly 
from the integrator, 27.7 percent through a distributor, and the 
remaining from brokers and further processors. With 95 percent of the 
chickens produced/processed under vertical integration, keeping track 
of the product should be less burdensome than for other covered 
commodities. For the vertically integrated firms, the main cost will be 
stepping-up their on-going tracking system, if they do not have an 
adequate system already, more labeling, and more involvement in 
ensuring the required information is sent to retailers for each load of 
product, if the product is not already pre-labeled for COOL.
    It is assumed that all firms and establishments identified in Table 
1 will be affected by the rule, although some may not produce or sell 
products ultimately within the scope of the rule. While this assumption 
may overstate the number of affected firms and establishments, we 
nevertheless believe the assumption is reasonable. Detailed data are 
not available on the number of entities categorized by the marketing 
channels in which they operate and the specific products that they 
sell.
    Source of cost estimates: To develop estimates of the cost of 
implementing this rule, comments on the proposed rule as well as the 
interim final rule for fish and shellfish were reviewed and available 
economic studies were also examined. No single source of information, 
however, provided comprehensive coverage of all economic benefits and 
costs associated with mandatory COOL for all of the covered 
commodities. Available information and knowledge about the operation of 
the supply chains for the covered commodities were used to synthesize 
the findings of the available studies about the rule's potential costs.
    Cost drivers: This rule is a retail labeling requirement. Retail 
stores subject to this 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. Modification to existing recordkeeping systems likely 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 annually), we 
assume that recordkeeping will be accomplished primarily by electronic 
means. Modifications to recordkeeping systems will require software 
programming and may entail additional computer hardware. Retail stores 
are also expected to undertake efforts to ensure that their operations 
are in compliance with the 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 likely will 
require modification of existing 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 separate 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 may be more complex if products are from more than one 
country. The efficiency of operations may be affected as products move 
through the 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, to split processing within shifts, or to alter 
labels to correctly identify the country or countries of origin. 
However, in the case of meat covered commodities, there is flexibility 
in labeling covered commodities of multiple origins under this interim 
final rule. In the case where products of different origins are 
segregated, 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 available to permit compliance and 
enforcement reviews. In the case of beef, lamb, chicken, goat, and 
pork, a producer affidavit shall be considered acceptable evidence on 
which the slaughter facility may rely to initiate the country of origin 
claim.
    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. 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 may 
choose to limit its source to fewer countries or a single country. In 
this case, such cost avoidance would be partially offset by additional 
procurement costs to source supplies from a single or narrower 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 need to maintain 
information in existing records to establish country of origin 
information for the products they produce and sell. Country of origin 
information will need to be transferred to the first handler of their 
products, and records sufficient to allow the source of the product to 
be traced back will need to be maintained as the products move through 
the supply chains. In the case of beef, lamb, chicken, goat, and pork, 
a producer affidavit shall be considered acceptable evidence on which 
the slaughter facility may rely to initiate the country of origin

[[Page 45131]]

claim. In general, additional producer costs include the cost of 
modifying and maintaining a recordkeeping system for country of origin 
information, animal or product identification, and labor and training.
    Incremental cost impacts on affected entities: To estimate the 
direct costs of this rule, the focus is on those units of production 
that are affected (Table 2). Relative to the PRIA, estimated quantities 
are reduced for peanut producers and for all commodities at the 
intermediary and retailer levels.

         Table 2--Estimated Annual Units of Production Affected by Mandatory Country of Origin Labeling
 
----------------------------------------------------------------------------------------------------------------
                                                                                                       Peanuts,
                                                                Lamb and                   Fruit,    pecans, and
                                        Beef         Pork         goat       Chicken     vegetable,   macadamia
                                                                                        and ginseng      nuts
----------------------------------------------------------------------------------------------------------------
                                                 Million Head
                                                Million Pounds
----------------------------------------------------------------------------------------------------------------
Producer..........................         33.9        104.8          2.9     45,012.9    120,388.5        212.7
----------------------------------------------------------------------------------------------------------------
                                                                   Million Pounds
----------------------------------------------------------------------------------------------------------------
Intermediary......................       24,890        6,721          354       27,710       99,449           11
Retailer..........................        8,193        2,330          133       17,645       47,078            5
----------------------------------------------------------------------------------------------------------------

    For livestock, 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 and other 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. Estimates have changed from the PRIA due 
to the addition of the new commodities (chicken, goats, macadamia nuts, 
pecans, and ginseng), the use of more up-to-date information for 
previously included commodities, the revised definition of a processed 
product and of ground beef, and changes made to the COOL provisions by 
the 2008 Farm Bill.
    For chicken producers, production is measured by round weight (live 
weight) pounds.
    For fruits and vegetables, we assume that essentially all 
production is predestined for either 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, producers do not know 
whether their products ultimately will be sold to retailers, 
foodservice firms, or exporters. Therefore, it is assumed that all 
fresh fruit and vegetable production and production destined for frozen 
processors at the producer level will be affected by this rule. Ginseng 
production has been included with the fruit and vegetable production. 
The total fruit and vegetable production has been updated with 2006 
data from the PRIA.
    As previously discussed, only green and raw peanuts, macadamia 
nuts, and pecans sold at retail are subject to the requirements of this 
rule because of the definition of a processed food item. Green and raw 
peanuts are specialty items typically sold at roadside stands, through 
mail order, and at specialty shops. These items frequently are not 
carried by many of the retailers subject to this rule. Statistics on 
the size of this niche market are not readily available. We assume that 
no more than 5 percent of the sales of peanuts at subject retailers are 
sold as green or raw peanuts. Therefore, the initial estimates of the 
volume of peanuts affected by this rule are reduced to 5 percent of the 
amounts estimated in the PRIA. Macadamia nuts and pecans have been 
included with peanuts.
    We assume that all sales by intermediaries such as handlers, 
packers, processors, wholesalers, and importers will be affected by the 
rule. Although some product is destined exclusively for foodservice or 
other channels of distribution not subject to the rule, we believe 
these intermediaries will seek to keep their marketing options open for 
possible sales to subject retailers. Estimated units of production for 
most commodities at the intermediary level are reduced from the PRIA 
due to the definition of a processed food item.
    Beef production at the intermediary level is reduced 10 percent 
from the PRIA estimate to account for the change in the definition of a 
processed food item. Data are not readily available on the sales of 
beef in different product forms. Based on discussions with industry 
experts, it is assumed that approximately 10 percent of beef products 
are sold in forms exempt from this rule (e.g., cooked products, 
seasoned products).
    Pork production at the intermediary level is reduced by 12.2 
billion pounds. Unlike beef and lamb, much of the pork carcass 
typically is processed into products that would not be covered under 
the COOL 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, a factor of 0.375 is applied to pork production at both 
the intermediary and retailer levels, which is the estimate of the 
proportion of the retail-weight pork carcass that is used for fresh 
pork cuts that would require country of origin labeling under the rule. 
The cuts assumed to be covered commodities are fresh ham, all of the 
loin cuts, spareribs, and the entire Boston butt. We recognize that 
some of these cuts will be processed into items not covered by the 
rule, while other cuts will be sold in unprocessed forms that would be 
covered by the rule. In the PRIA, the 37.5 percent adjustment factor 
was applied at the retailer level, but not at the intermediary level. 
In this analysis, we have also applied the adjustment at intermediary 
levels, because products destined for items exempt from the rule would 
not require COOL. In addition to the 37.5 percent adjustment factor, a 
further reduction of 10 percent is applied to account for the increase 
in the number of items exempt from the labeling requirements due to the 
revised definition of a processed food item.
    Lamb production at the intermediary level is unchanged from the 
PRIA, as there are relatively few of the value-added types of products 
that would be excluded from labeling. Goat meat has been included with 
lamb.
    Fruit and vegetable production at the intermediary level is reduced 
by 21.2

[[Page 45132]]

billion pounds to exclude products not covered by this rule under the 
definition of a processed food item. The revised estimate includes only 
frozen, plain vegetables in the frozen vegetables category because 
items such as mixed frozen vegetables and vegetables with sauce are not 
covered by this rule. Frozen, plain vegetable sales at retail are 
estimated at 5.5 billion pounds (Ref. 5).
    Information and data on ginseng is limited. However, the Wisconsin 
Department of Agriculture reports the number of growers at 190, the 
number of dealers at 46, and grower sales at 282,055 dry root pounds 
for 2006 (Ref. 6). While some other regions in the country likely 
produce ginseng, information could not be found and it is believed that 
Wisconsin is the largest producing state. The information from 
Wisconsin likely underestimates the total number of farms, dealers, and 
production of ginseng. However, we believe that Wisconsin represents 
most of the ginseng production; therefore, this information is used for 
this rule. Since the number of entities and production are likely 
underestimated and the production is relatively small as compared to 
other covered commodities, the production was not adjusted for retail 
consumption.
    The Census of Agriculture provides an estimate of the number of 
macadamia nut farming operations. The total number of macadamia farms 
is estimated at 1,059 [Ref. 7]. Businesses that husk and crack 
macadamia nuts are unofficially estimated by the Hawaii Field Office of 
the National Agricultural Statistical Service (NASS) at 8 firms and 
establishments. Businesses that wholesale macadamia nuts are estimated 
by the Hawaii Department of Agriculture at 21 firms and establishments. 
Similar to peanuts, the rule exempts most product forms of macadamia 
nuts sold at retail. While data on macadamia nuts sold at retail that 
are covered by this rule are not available, the volume of sales is 
certainly very small. For purposes of estimation, the number of 
affected entities at each level of the macadamia nut sector has been 
reduced to 5 percent of the total estimated. The number of farms has 
been reduced from 1059 to 53 and the number of wholesalers has been 
reduced from 21 to 1.
    The Census of Agriculture provides an estimate of 22,371 pecan 
farming operations [Ref. 7]. Similar to peanuts and macadamia nuts, the 
rule exempts most product forms of pecans sold at retail. For purposes 
of estimation, the number of affected entities at each level of the 
pecan sector has been reduced to 5 percent of the total 22,371 farms to 
1,119 farms.
    As with peanut, macadamia nut, and pecan production at the producer 
level, peanut, macadamia nut, and pecan production at the intermediary 
level is also reduced by 95 percent. The estimate of peanut, macadamia 
nut, and pecan production is intended to include only green and raw 
peanuts, macadamia nuts, and pecans.
    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 0.470, which 
represents the estimated share of production sold through retailers 
covered by this rule. To derive this share, the factor of 0.622 is used 
to remove the 37.8 percent food service quantity share of total food in 
2006 (Ref. 8). This factor is then multiplied by 0.756, which was the 
share of sales by supermarkets, warehouse clubs and superstores of food 
for home consumption in 2006 (Ref 9). In other words, supermarkets, 
warehouse clubs and superstores represent the retailers as defined by 
PACA, and these retailers are estimated to account for 75.6 percent of 
retail sales of the covered commodities.
    Estimated beef and pork volumes at the retailer level are reduced 
by 10 percent from the PRIA to account for the larger number of items 
exempt from labeling under the revised definition of a processed food 
item. Lamb volume is unchanged from the PRIA estimate. Goat meat has 
been included with lamb.
    Estimated total retailer volume is increased by 18.0 billion pounds 
because chicken was not a covered commodity in the PRIA.
    Fruit and vegetable retailer volume is reduced by 8.5 billion 
pounds from the PRIA estimate because of the exclusion of a large 
volume of frozen vegetable products under the revised definition of a 
processed food item. Retailer peanut volume is reduced 95 percent from 
the PRIA estimate due to the revised definition of a processed food 
item.
    Table 3 summarizes the direct, incremental costs that firms will 
incur during the first year as a result of this rule. These estimates 
are derived primarily from the available studies that addressed cost 
impacts of mandatory COOL.

                                   Table 3--Estimates of First-Year Implementation Costs per Affected Industry Segment
                                                                    [Million dollars]
--------------------------------------------------------------------------------------------------------------------------------------------------------
                                                                                                                                  Peanuts,
                                                                                                                                 pecans, &
                                                                   Beef         Pork     Lamb & goat    Chicken       F & V      macadamia      Total
                                                                                                                                  nuts \1\
--------------------------------------------------------------------------------------------------------------------------------------------------------
Producer.....................................................          305          105           10            0           30            0          450
Intermediary.................................................          373          101            5          139          497            0        1,115
Retailer.....................................................          574           93            5           44          235            0          952
                                                              ------------------------------------------------------------------------------------------
    Total....................................................        1,252          299           21          183          763            0        2,517
--------------------------------------------------------------------------------------------------------------------------------------------------------
\1\ Indicates a value greater than zero, but less than 0.5.

    Assumptions and procedures underlying the cost estimates are 
described fully in the discussion of the ``upper range'' estimates 
presented in the PRIA. Changes from the PRIA estimates are highlighted 
herein. One of the major changes is that all the data from the PRIA has 
been updated by using more recent data.
    Considering all producer segments together, we have estimated a $9 
per head cost to cattle producers to implement the rule. This estimate 
reflects the 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 
costs for beef producers are estimated at $305 million, a 16 percent 
reduction from the PRIA upper range estimate due to the lower level of 
slaughter in 2006 and the slightly lower per head cost estimate. In

[[Page 45133]]

addition, as provided in the 2008 Farm Bill, in the case of livestock, 
a producer affidavit shall be considered acceptable evidence on which a 
packer may rely to initiate an origin claim.
    We assume that intermediaries will face increased costs associated 
with tracking cattle and the covered beef commodities produced from 
these animals and providing this information to subsequent purchasers, 
which may be other intermediaries or covered retailers. Incremental 
costs for beef packers may include additional capital and labor 
expenditures to enable cattle from different origins to be tracked for 
slaughter, fabrication, and processing. As previously mentioned, under 
this interim final rule, if an animal was born, raised, and/or 
slaughtered in the United States and was not imported for immediate 
slaughter as defined in Sec.  65.180, the origin of the resulting meat 
products derived from that animal may be designated as Product of the 
United States, Country X, and/or (as applicable) Country Y where 
Country X and Country Y represent the actual or possible countries of 
foreign origin. In addition, the rule also provides for flexibility in 
labeling ground products by allowing the notice of country of origin to 
include a list of countries contained therein or that may reasonably be 
contained therein. However, we believe that some segregation will still 
occur in order to provide the marketplace with product strictly of 
United States origin. Considering the costs likely to be faced by 
intermediaries in the beef sector, $0.015 per pound is adopted as an 
estimate of costs, which is consistent with estimates from the 
available studies. Total costs are thus estimated at $373 million, a 31 
percent reduction from the PRIA upper range estimate due to the reduced 
estimate of the volume of production affected and the slightly lowered 
per pound cost estimate. The cost per pound was lowered due to the 
increasing use of pre-packaged and pre-labeled beef products, which 
lowers costs for retailers as well as intermediaries.
    The implementation costs are estimated at $0.07 per pound for beef 
retailers, for a total of $574 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. As with the estimate for intermediaries, the estimate for 
retailers is reduced by 10 percent from the PRIA upper range estimate.
    Total costs for affected entities in the beef sector are thus 
estimated at $1,252 million, a 26 percent reduction from the PRIA 
estimate.
    Costs for pork producers are estimated at $1.00 per head. With 
annual slaughter of 104.8 million head, total costs for producers are 
estimated at $105 million, which is a 30 percent reduction from the 
PRIA estimate due to a slightly lower per head slaughter estimate.
    Costs for all pork sector intermediaries (including handlers, 
processors, and wholesalers) should be similar to costs for beef sector 
intermediaries. These estimated costs for pork industry intermediaries 
are $0.015 per pound, for a total of $101 million, a reduction of $267 
million from the PRIA estimate. The reduction is due to the downward 
revision of the volume of pork production estimated to be affected at 
the intermediary level and a slightly lower per pound cost estimate.
    Costs for retailers of pork are estimated to be $0.04 per pound. 
The 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 rule. Total estimated costs for pork retailers are 
$93 million, a 40 percent decrease from the PRIA estimate. Total costs 
for the pork sector are estimated at $299 million, which is $374 
million less than the PRIA upper range estimate.
    Costs per head for lamb and goat producers are estimated at $3.50 
per head. Total costs for lamb and goat producers are estimated at $10 
million, which is $5 million less than the PRIA estimate even with the 
addition of goat.
    Intermediaries in the lamb and goat sector will likely face per-
pound costs similar to costs faced by beef and pork sector 
intermediaries, which are estimated at $0.015 per pound. Total costs 
for lamb and goat sector intermediaries are thus estimated at $5 
million, which is $2 million less than the PRIA upper range estimate.
    Costs to retailers for lamb and goat should be similar to costs 
borne for pork, which was estimated at $0.04 per pound. Total costs for 
retailers of lamb and goat are estimated at $5 million, which is $4 
million lower than the PRIA upper range estimate.
    Summing the estimates for producers, intermediaries, and retailers 
results in estimated costs of $21 million for the lamb and goat 
industries. This total is $11 million less than the PRIA upper range 
estimate even with the inclusion of goat as a covered commodity.
    Costs for chicken producers who grow-out chicken for an integrator 
(the firm that will slaughter and possibly further process the 
chickens) is $0.00 because these individuals do not own or control the 
movement of the chickens they are raising. All chickens produced are 
owned, and their movement is controlled, by the integrator, which is 
the main intermediary in the chicken supply chain. We do not expect 
that producers will need change any current practices and thus will not 
incur any additional costs due to this rule.
    Costs for the intermediaries in the chicken supply chain are 
estimated to be $0.005 per pound. Since the integrators own their 
chickens from the time they hatch to time they are sold to a retailer 
or distributor, there is no need to ``collect'' country of origin 
information. Costs to the integrator are mainly due to system changes 
to incorporate COOL information into existing recordkeeping systems and 
supplying required information to the retailers and food distributors. 
Approximately 69 percent of chicken covered by COOL is supplied 
directly to the retailer from the integrator. The vast majority, if not 
all, of the chicken supplied by the integrator is pre-labeled. The bulk 
of the rest is supplied by the distributors whose costs will be 
slightly higher since they are receiving product from integrators and 
selling product to retailers. Total costs for intermediaries are 
estimated at $139 million.
    Costs for retailers are estimated to be $0.0025 per pound. As noted 
above, most, if not all, chicken is purchased directly from integrators 
and will have been pre-labeled. This will significantly lower the 
retailers cost in terms of meeting COOL requirements. Most of the costs 
retailers will bear will be from distributors. Total cost for retailers 
are $44 million.
    Total estimated costs for chicken producers, intermediaries, and 
retailers are $183 million. Since chicken costs were not included in 
the PRIA, the total estimated costs for chicken is an increase in the 
total cost of covered commodities in the PRIA.
    Although fruit, vegetable, and ginseng producers maintain the types 
of records that will be required to substantiate United States origin 
claims, it is believed 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.

[[Page 45134]]

For fruit, vegetable, and ginseng producers, costs are estimated at 
$0.00025 per pound to make and substantiate COOL claims, which equates 
to $0.01 for a 40 pound container. Because fruits and vegetables only 
have a single point of origin, which is where they are grown, 
substantiating country of origin claims is substantially simpler for 
fruit and vegetable producers than for livestock producers. Total costs 
for fruit, vegetable, and ginseng producers are estimated at $30 
million, which is $6 million higher than the PRIA upper range estimate 
for fruits and vegetables due to higher levels of production in 2006.
    Fruit, vegetable, and ginseng 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 
retailers with COOL information through product labels and records. The 
estimated cost for these activities for fruit and vegetable sector 
intermediaries is $0.005 per pound, resulting in total estimated costs 
of $497 million. This amount is $83 million less than the PRIA upper 
range estimate because of the lowered estimate of the volume of 
production affected by the rule.
    Because intermediaries will bear a large portion of the burden of 
COOL tracking and labeling, implementation costs for retailers will be 
reduced. It is believed that virtually all frozen fruits and vegetables 
will be labeled by suppliers, thus imposing minimal incremental costs 
for retailers. In addition, over 60 percent of fresh fruits and 
vegetables arrive at retail with labels or stickers that may be used to 
provide COOL information. It is believed that fresh fruit and vegetable 
suppliers will provide COOL information on these labels and stickers, 
again imposing minimal incremental costs for retailers. Costs for 
retailers are estimated at $0.005 per pound of fresh and frozen fruits 
and vegetables, $0.005 less than the amount assumed for the PRIA upper 
range estimates. The lower per-unit cost is supported by the revised 
recordkeeping requirements. For pre-labeled products, the label itself 
is sufficient evidence on which the retailer may rely to establish a 
product's country of origin. For these pre-labeled products, the 
product label or sticker carries the required country of origin 
information, while the recordkeeping system maintains the information 
necessary to track the product back through the supply chain. Total 
costs for fruits, vegetables, and ginseng at retail are estimated at 
$235 million, a reduction of $485 million from the PRIA. The lowered 
cost estimate is attributable to both a lowered estimate of the volume 
of affected production and a lowered estimated cost per unit for 
retailers.
    Costs per pound for each segment of the peanut, macadamia nut, and 
pecan industries is estimated at $0.00025 for producers, $0.005 for 
intermediaries and $0.015 for retailers. As a result, costs for the 
peanut, macadamia nut, and pecan industries are estimated at about 
$400,000, with negligible costs for producers and costs of less than 
$200,000 at the intermediary and retailer levels. Total upper range 
costs for all the peanut sectors were estimated at $8 million in the 
PRIA. The reduced estimates are due to the drastically lowered 
estimates of the volumes of affected peanut, macadamia nut, and pecan 
production.
    Total incremental costs are estimated for this rule at $450 million 
for producers, $1,115 million for intermediaries and $952 million for 
retailers for the first year. Total incremental costs for all supply 
chain participants are estimated at $2,517 million for the first year, 
a reduction of $1,365 million from the PRIA upper range estimate even 
though a number of new commodities have been added for COOL coverage. 
The reduced estimates are due to lower volumes of affected products at 
the intermediary as well as the retailer level and slightly lower cost 
estimates.
    There are wide differences in average estimated implementation 
costs for individual entities in different segments of the supply chain 
(Table 4). With the exception of a small number of chicken producers, 
producer operations are single-establishment firms. Thus, average 
estimated costs per firm and per establishment are somewhat similar. 
Retailers subject to the rule operate an average of just over nine 
establishments per firm. As a result, average estimated costs per 
retail firm also are just over nine times larger than average costs per 
establishment.

   Table 4--Estimated Implementation Costs per Firm and Establishment
------------------------------------------------------------------------
                                                  Cost estimates per
                                             ---------------------------
                                                  Firm     Establishment
------------------------------------------------------------------------
Producer....................................         $376          $376
Intermediary................................       53,948        50,598
Retailer....................................      235,551        26,149
------------------------------------------------------------------------

    Average estimated implementation costs per producer are relatively 
small at $376. This is $67 per firm lower than the PRIA estimates. The 
difference is attributable to the reduction in the number of peanut 
producers. Estimated costs for intermediaries are substantially larger, 
averaging $53,948 per firm and $50,598 per establishment. The average 
cost per firm is $3,862 higher than the PRIA upper range estimated 
cost, with the higher cost attributable to the lower number of 
estimated firms. Similarly, the average cost per intermediary 
establishment is $7,996 higher than PRIA the upper range estimate due 
to the lower number of establishments. At an average of $235,551 per 
firm, retailers have the highest average estimated costs per firm. This 
is $160,538 lower than the PRIA upper range estimate. The lower 
estimated cost per retailer is attributable to the reduction in the 
number of retailing firms from the PRIA time period and the lower total 
estimated costs. Retailers' average estimated costs per establishment 
are $26,149. This amount is $21,924 lower than the PRIA upper range 
estimate.
    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.
    Average costs per producer operation can be calculated according to 
the commodities that they produce (Table 5). Average estimated costs 
are lowest for lamb and goat producers ($128) and highest for hog 
operations ($1,599). Again, chicken ``producers'' do not own or control 
the movement of the birds they are growing-out. We do not expect that 
the rule will result in any changes in their current production 
practices, and thus their average cost is zero. Because average 
production volume per hog operation is large relative to other types of 
producer operations, estimated costs per hog operation are large 
relative to other producer operations.

[[Page 45135]]



     Table 5--Estimated First-Year Implementation Costs per Producer
                                Operation
------------------------------------------------------------------------
                                                               Average
                          Producer                               cost
------------------------------------------------------------------------
Beef.......................................................         $314
Lamb & Goats...............................................          128
Pork.......................................................        1,599
Chicken....................................................            0
Fruits, Vegetables & Ginseng...............................          376
Peanuts, Pecans, & Macadamia Nuts..........................          258
------------------------------------------------------------------------

    It is believed that the major cost drivers for the 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, some requirements of the 
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 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, it is 
anticipated that a mix of solutions will be implemented by industry 
participants to effectively meet the requirements of the rule. 
Therefore, it is anticipated that direct, incremental costs for the 
rule likely will fall within a reasonable range of the estimated total 
of $2,517 million.
    In the PRIA, 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 rule. This alternative is not 
adopted in this rule. An increase in the number of commodities that 
would require COOL would increase implementation costs of the rule with 
little expected economic benefit. Additional labeling requirements may 
also slow some of the innovation that is occurring with various types 
of value-added, further processed products.
    A different regulatory alternative would be to broaden the 
definition of a processed food item, thereby decreasing the scope of 
commodities covered by the rule. Accordingly, such an alternative would 
decrease implementation costs for the 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, although if the broader definition excluded 
products for which incremental costs are relatively high, such as beef 
products, the impact could be more than proportional. 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 rule for those commodities that would require 
labeling. Ongoing maintenance and operational costs, however, likely 
would decrease in some proportion to a decrease in the number of items 
covered by the 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 it 
is assumed that virtually all affected producers would seek to retain 
the option of selling their products through supply channels for 
retailers subject to the rule. Agricultural producers generally would 
have little influence on the ultimate product form in which their 
products are sold at retail, and thus would be little affected by 
changes in the definition of a processed food item.
    The definition of a processed food item developed for this rule has 
taken into account comments from affected entities and has resulted in 
excluding products that would be more costly and troublesome for 
retailers and suppliers to provide country of origin information. Total 
incremental costs for this rule are estimated at $1,365 million less 
than the upper range costs estimated in the PRIA, with much of the 
reduction attributable to the revised definition of a processed food 
item.
    Net Effects on the economy: The previous section estimated the 
direct, incremental costs of the 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 United States economy or net costs to the affected entities for 
that matter.
    With respect to assessing the net 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 represent opportunity costs of the rule, but they do 
not represent net losses to the economy. As a result, the direct costs 
incurred by the participants in the supply chains for the covered 
commodities do not measure the net impact of this rule on the economy 
as a whole. Instead, the relevant measure of net impact is the extent 
to which the rule reduces the amount of goods and services that can be 
produced throughout the United States 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 incur the operational adjustments 
and expenses necessary to implement the rule. However, over time as the 
economy adjusts to the requirements of the rule, the burden facing 
suppliers will be reduced as their production level and the prices they 
receive change. What is critical in assessing the net 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 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 rule even if the increases in their operating costs were quite 
substantial. However, other industries might face losses as consumers 
would spend less on other commodities. It is unlikely, however, absent 
the 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, many or 
most 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

[[Page 45136]]

throughout the economy. The net result, once all these changes have 
occurred, is that the total amount of goods and services produced by 
the United States economy will be less than before.
    To analyze the effect of the changes resulting from the rule on the 
total amount of goods and services produced throughout the United 
States economy in a global context, a computable general equilibrium 
(CGE) model developed by the Economic Research Service (ERS) is 
utilized (Ref. 4). 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 feed grains. Even though COOL for fish was implemented in 2004, 
the costs for fish and shellfish are included here to account for the 
cross-commodity effects between covered commodities. Ignoring the costs 
for fish and shellfish would result in assuming that COOL did not apply 
to fish and the cross-commodity effects may be distorted. 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 
rule on peanut production, processing, and consumption. Given the 
revised definition of a processed food item, almost all peanut products 
are exempt from this rule. As a consequence, the peanut sector accounts 
for only a negligible fraction of the total estimated incremental costs 
for all directly affected entities. Thus, omitting the small direct 
costs on the peanut sector is expected to have negligible impacts with 
respect to estimated net impacts on the overall United States economy.
    The ERS CGE model traces the impacts from an economic ``shock,'' in 
this case a permanent incremental increase in costs of production, 
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 
United States and world economies, a comprehensive assessment can be 
made of the economic impact on the United States economy of the rule 
implementing COOL. The model reports economic changes resulting after a 
ten-year period of adjustment.
    The results of this analysis indicate that the rule implementing 
COOL after the economy has had a period of ten years to adjust will 
have a smaller net impact on the overall United States economy than the 
incremental costs for directly affected entities for the first year. 
Under the assumption that COOL will not change consumers' preferences 
for the covered commodities, it is estimated that the overall net costs 
to the United States economy due to the rule, in terms of a reduction 
in consumers' purchasing power, will be $211.9 million. This represents 
the net cost to the United States economy after all transfers and 
adjustments in consumption and production patterns have occurred.
    Overall net costs to the United States economy after a decade of 
adjustment are significantly smaller than the 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.
    The estimates of the overall net costs to the United States economy 
are based on the 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 COOL. Thus, the direct cost impacts must be adjusted to 
accurately reflect changes in operating costs for all firms supplying 
covered commodities. Table 6 reports these adjusted estimates in terms 
of their percentage of total operating costs for each of the directly 
affected sectors. The percentages used are based on the 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 
the estimate of how the costs of the regulation will be distributed 
among them. As a result, the cost changes shown in Table 6 only 
approximate the direct cost estimates previously described.

[[Page 45137]]

[GRAPHIC] [TIFF OMITTED] TR01AU08.000

    In addition, it is assumed 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, the incremental costs for some imported covered 
commodities may be lower, as a portion of those products already enter 
the United States with country of origin labels.
    The percentage changes in operating costs reported in Table 6 
differ from the percentage changes in operating costs reported for the 
High Cost scenario as listed in Table 8 in the PRIA. The differences in 
percentage changes reported in the PRIA and those reported here are 
attributable to changes in implementation costs of the rule as well as 
recalibration of our estimates of total operating costs for the various 
segments of the supply channels of the directly affected sectors. Thus, 
for example, even though changes in the rule reduced our estimate of 
the incremental costs incurred by intermediaries and retailers in the 
beef and lamb sectors, the recalibration of our estimate of their 
operating costs causes the estimated percentage change in costs applied 
to processing and retailing segments of these sectors to increase.
    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 United States production of all the covered commodities 
combined will decline 0.02 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 0.02 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, 
changes in revenues using the model results are estimated. The result 
of this calculation shows that revenues to suppliers of the covered 
commodities will decrease by $461 million. This decrease in revenue is 
due to the decrease in estimated revenues in all the covered 
commodities; all affected sectors show a small revenue decrease due to 
the increased costs of the rule.
    The costs of the rule will not be shared equally by all suppliers 
of the covered commodities. The distribution of the costs of the rule 
will be determined by several factors in addition to the 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 7, 
determine which commodity sector will be most affected. Table 7 
contains the percentage changes in prices, production, exports, and 
imports for the three main segments of the marketing chain by covered 
commodities.

[[Page 45138]]



           Table 7--Estimated Impact of Rule on U.S. Production, Prices and Trade of Impacted Sectors
----------------------------------------------------------------------------------------------------------------
                                                                                          Exports      Imports
                          Commodity                              Price      Production    (volume)     (volume)
----------------------------------------------------------------------------------------------------------------
                                                                         Percent change from base year
                                                             ---------------------------------------------------
Fruits and Vegetables.......................................         0.21        -0.20        -0.39         0.04
Cattle and Sheep............................................         0.52        -0.94        -1.18         0.25
Broilers....................................................         0.03        -0.56        -0.36        -0.03
Hogs........................................................         0.26        -0.46        -0.60         0.16
Beef and Veal...............................................         0.99        -1.09        -1.93        -2.32
Chicken.....................................................         0.82        -0.90        -1.54         0.29
Pork........................................................         0.68        -0.81        -1.37        -0.86
Fish........................................................         0.50        -0.68        -0.06         0.04
----------------------------------------------------------------------------------------------------------------

    As mentioned previously, peanuts, macadamia nuts, and pecans are 
included with oilseed products in the ERS CGE model. As a result, they 
are not included in this analysis.
    The rule increases operating costs for the supply chains of the 
covered commodities. As shown in Table 7, the increased costs result in 
higher prices for these products. The quantity demanded at these higher 
prices falls, with the result that the production of all of the covered 
commodities decreases.
    Imports of fruits, vegetables, cattle, sheep, chicken, fish, and 
hogs increase because United States domestic suppliers respond more to 
changes in their operating costs than do foreign suppliers. The 
resulting gap between the supply response of United States and foreign 
producers provides foreign suppliers with a cost advantage in United 
States markets that enables them to increase their exports to the 
United States even though they face similar increases in operating 
costs.
    To put these impacts in more meaningful terms, the percentage 
changes reported in Table 7 were converted into changes in current 
prices and quantities produced, imported, and exported (Table 8). The 
base values in Table 8 vary from those reported in Table 2 above 
because they are derived from projected levels reported in the USDA 
Agricultural Baseline for 2006 (Ref. 18), while values in Table 2 
represent actual reported values for 2006 as compiled by USDA's NASS. 
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. The declines in 
the production of cattle, broilers, and hogs mirrors the declines in 
the production of beef, chicken, and pork.

   Table 8--Estimated Changes in U.S. Production Prices, and Trade for
                          Affected Commodities
------------------------------------------------------------------------
                                                             Change from
          Indicator                 Units           Base         base
------------------------------------------------------------------------
U.S. Production:
    Veg. & Fruits............  Mil. Lbs.......      191,523         -383
    Cattle...................  Thous. Hd......       32,229         -303
    Broilers.................  Mil. Hd........        6,503          -36
    Hogs.....................  Thous. Hd......      103,015         -474
    Beef.....................  Mil. Lbs.......       24,784         -270
    Chicken..................  Mil. Lbs.......       35,733         -322
    Pork.....................  Mil. Lbs.......       20,706         -168
    Fish.....................  Mil. Lbs.......        7,997          -54
U.S. Price:
    Veg. & Fruits............  $/Lb...........         0.25       0.0005
    Cattle and sheep.........  $/Cwt..........        89.55       0.4657
    Broilers.................  $/Lb...........         0.43       0.0001
    Hogs.....................  $/Cwt..........        49.62       0.1290
    Beef and veal............  $/Lb...........         4.09       0.0405
    Chicken..................  $/Lb...........         1.74       0.0143
    Pork.....................  $/Lb...........         2.83       0.0192
    Fish.....................  $/Lb...........         0.93       0.0047
U.S. Exports (volume):
    Fruits & Vegetables......  Mil. Lbs.......       19,990          -78
    Beef.....................  Mil. Lbs.......          697          -13
    Chicken..................  Mil. Lbs.......        5,203          -80
    Pork.....................  Mil. Lbs.......        2,498          -34
    Fish.....................  Mil. Lbs.......        6,384           -4
U.S. Imports (volume):
    Fruits & Vegetables......  Mil. Lbs.......       37,573           15
    Beef.....................  Thous. Hd......        2,502          -58
    Chicken..................  Mil. Hd........            0            0
    Pork.....................  Thous. Hd......        5,741          -49

[[Page 45139]]

 
    Fish.....................  Mil. Lbs.......       10,158            4
------------------------------------------------------------------------
Sources: Base values for meat and fruits and vegetables come from USDA
  Agricultural Baseline Projections to 2016, Staff Report WAOB-2007-1.
  USDA, Office of the Chief Economist, 2007. Changes are derived from
  applying percentage changes obtained from the ERS CGE model to the
  base values. \a\ Live animal estimates derived from baseline values
  for meat product using 2005 average dress weight for cattle, hogs and
  broilers. \b\ Base values for fish come from Fisheries of the United
  States, 2005. National Marine Fisheries Service, National Oceanic and
  Atmospheric Administration, U.S. Department of Commerce, 2006. \c\
  Fruit and vegetable price derived by dividing the total value of fruit
  and vegetable production by total quantity of fruit and vegetables
  produced as reported in USDA baseline for 2005. \d\ Fish price derived
  by dividing total value of commercial and aquaculture production,
  excluding other, by total commercial and aquaculture production.

    The estimated changes in prices and production cause revenues for 
the fruit and vegetable industry to increase an estimated $5 million. 
The small revenue increase in the fruit and vegetable industry is 
attributed to the fact that the price increase just offsets the 
production decrease. The estimated changes in production and prices 
result in revenues decreasing by $94 million for beef cattle producers 
while revenues from production and sale of beef decrease by an 
estimated $112 million dollars. Revenues for broiler production decline 
by $91 million and revenues for the production and sale of chicken 
decrease by $54 million. In addition, revenues for hog production 
decrease by $21 million and revenues from production and sale of pork 
decrease by $79 million. Finally, revenues to the fish industry fall by 
nearly $14 million.
    The increase in the prices of all affected commodities causes 
exports to decline (Table 8). These declines are small; they are for 
the most part smaller than the declines in United States production of 
these commodities.
    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, 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.
    The estimates of the net economic impact of the 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 United 
States origin. This assumption is based on the earlier finding that 
there was no compelling evidence to support the view that mandatory 
COOL will increase the demand for United States products. Despite this 
lack of evidence, we examine how much of a shift or increase in demand 
for commodities of United States origin would have to occur to offset 
the costs imposed on the economy by the rule. Consumer demand for the 
covered commodities would have to increase 0.90 percent to offset the 
costs to the economy of COOL as outlined in the rule.
    The hypothetical 0.90 percent increase in demand for covered 
commodities represents the overall increase (shift) 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, the percentage share of covered commodities sold 
by retailers subject to this rule is estimated at 47.0 percent of total 
consumption. This indicates that demand at covered retailers would need 
to increase by 1.9 percent for purposes of this hypothetical exercise, 
assuming no change in demand at other domestic outlets or in export 
demand.
    As previously mentioned, the estimates of the overall net economic 
effects of the 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). 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. 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 net implications of COOL on 
the United States 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 are the result of policy changes. However, because the model fixes 
total available resources, it likely significantly underestimates the 
long-run effects of policies on aggregate output. For example, the 10-
year average real growth of GDP between 1997 and 2007 was approximately 
3.1% (Ref 8). If applied to the next 10 years, this implies an economy 
approximately 36% larger at the end of this analysis than at the 
beginning of this analysis.
    The ERS CGE model uses data from the Global Trade Analysis Project 
(GTAP database, version 7.2). The database represents the world as of 
2004 and includes information on macroeconomic variables, production, 
consumption, trade, demand and supply elasticities, and policy 
measures. The GTAP database includes 57 commodities and 101 countries/
regions. For this analysis, the regions were represented by the 
following country/regions: The United States, Canada, Mexico, the 
European Union-25 (EU), Oceania, China, Other East Asian Countries, 
India, Other South Asian Countries, South America and Central America, 
OPEC Countries, Russia, Africa and the rest of the World. The 
agricultural sector is subdivided into the following 7 commodity 
aggregations: Rice, wheat, corn, other feed grains (barley, sorghum), 
soybeans, sugar (cane

[[Page 45140]]

and beets), vegetables and fresh fruits, other crops (cotton, peanuts), 
cattle and sheep, hogs and goats, poultry, and fish. The food 
processing sectors are subdivided into the following 6 commodity 
aggregations, bovine cattle and sheep meat, pork meat, chicken meat, 
vegetable oils and fats, other processed food products, beverages and 
tobacco, and fish. The remaining sectors in the database were 
represented by 18 aggregated non-agricultural sectors.
Interim Final Regulatory Flexibility Analysis
    This 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 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. The Agency 
believes that this rule will have a significant economic impact on a 
substantial number of small entities. As such, the Agency has prepared 
the following regulatory analysis of the rule's likely economic impact 
on small entities pursuant to the RFA. The Comments and Responses 
section lists the comments received on the preliminary RFA and provides 
the Agency's responses to the comments.
    The rule is the direct result of statutory obligations to implement 
the COOL provisions of the 2002 and 2008 Farm Bills. The Act requires 
USDA to issue regulations to implement a mandatory COOL program for the 
remaining covered commodities not later than September 30, 2008. 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 sold by retailers subject to the law. Covered commodities 
include muscle cuts of beef (including veal), lamb, pork, chicken, and 
goat; ground beef, ground lamb, ground pork, ground goat, and ground 
chicken; perishable agricultural commodities; ginseng; peanuts; 
macadamia nuts; and pecans.
    Under preexisting Federal laws and regulations, COOL is not 
universally required for the commodities covered by this rule. In 
particular, labeling of United States origin is not mandatory, and 
labeling of imported products at the consumer level is required only in 
certain circumstances. Thus, the Agency has not identified any Federal 
rules that would duplicate or overlap with this 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 rule provides flexibility in allowing 
market participants to decide how best to implement mandatory COOL in 
their operations. Market participants other than those retailers 
defined by the statute may decide to sell products through marketing 
channels not subject to the rule. Taking into account comments received 
on the proposed rule, the rule decreases the length of time that 
records are required to be kept, providing some relief to affected 
entities both large and small. A complete discussion of the information 
collection and recordkeeping requirements and associated burdens 
appears in the Paperwork Reduction Act section. In addition, although 
recent amendments have added additional covered commodities, the number 
of products required to be labeled is reduced because the definition of 
a processed food item has been broadened, thus providing additional 
regulatory relief.
    The objective of the 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 rule requires 
retailers to provide country of origin information for all of 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 to correctly label the covered commodities. 
In addition, all other firms in the supply chain for the covered 
commodities are potentially affected by the 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, 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 rule must meet the definition of a 
retailer as defined by the Perishable Agricultural Commodities Act of 
1930 (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 affected 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 
rule.
    Because country of origin information will have to be passed along 
the supply chain and made available to consumers at the retail level, 
it is assumed 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, it is assumed 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 
rule. Therefore, it is estimated that approximately 1,256,000 
establishments owned by approximately 1,222,000 firms will be either 
directly or indirectly affected by this rule. The only changes from the 
Preliminary Regulatory Impact Analysis (PRIA) are reductions in the 
numbers of affected firms and establishments in the peanut sector and 
the addition of chicken, goat, ginseng, macadamia nuts, and pecans as 
covered commodities. These changes and the use of more up-to-date 
information resulted in the number of establishments and firms 
decreasing from the PRIA.
    This 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.
    The direct incremental costs are estimated for the rule at 
approximately $2,517 million. The decrease in the direct incremental 
cost in the rule as compared to the PRIA is mainly the result of 
broadening the definition of a processed food item, which exempts more 
products from the labeling requirements of the rule.
    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 $25 million in annual sales and specialty food 
stores with less than $6.5 million

[[Page 45141]]

in annual sales (13 CFR 121.201). Warehouse clubs and superstores with 
less than $25 million in annual sales are also defined as small. SBA 
defines as small those agricultural producers with less than $750,000 
in annual receipts. Of the other businesses potentially affected by the 
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 75.6 percent of 
all food consumed at home (Ref. 9). Therefore, the number of these 
stores provides an indicator of the number of entities potentially 
affected by this rule. The 2002 Economic Census (Ref. 10) shows there 
were 42,318 food store, warehouse club, and superstore firms operated 
for the entire year. Most of these firms, however, would not be subject 
to the requirements of this rule.
    The law defines the term retailer as having the meaning given that 
term in section 1(b) of the Perishable Agricultural Commodities Act of 
1930 (PACA). Thus, under this interim final rule, a retailer is defined 
as any person licensed as a retailer under PACA. The number of such 
businesses is estimated from PACA data (Ref. 11). 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 affected by this rule is 
considerably smaller than the number of food retailers nationwide. USDA 
data indicate that there are 4,040 retail firms as defined by PACA that 
would thus be subject to the rule. As explained below, most small food 
store firms have been excluded from mandatory COOL based on the PACA 
definition of a retailer.
    The 2002 Economic Census data provide information on the number of 
food store firms by sales categories. Of the 42,318 food stores, 
warehouse club, and superstore firms, an estimated 41,629 firms had 
annual sales meeting the SBA definition of a small firm plus 689 other 
firms that would be classified as above the $25 million threshold. 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 689 
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, an estimated 83 percent (3,351 out of 4,040) of the 
retailers subject to the rule are small. However, this is only 8.0 
percent of the estimated total number of small food store retailers. In 
other words, an estimated 92.0 percent of small food store retailers 
would not be subject to the requirements of the rule.
    Retailer costs under the rule are estimated at $952 million. Costs 
are estimated at $235,551 per retail firm and $26,149 per retail 
establishment. These estimated costs are lower than the PRIA upper 
range estimates. Retailers will face recordkeeping costs, costs 
associated with supplying country of origin information to consumers, 
and possibly additional handling costs. These cost increases may result 
in changes to retailer business practices. The 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 
or modify their own systems to comply with the rule. There are many 
ways in which the rule's requirements may be met and firms will likely 
choose the least cost method in their particular situation to comply 
with the 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 
affected by the rule, SBA defines those having less than 100 employees 
as small. Importers of covered commodities will also be affected by the 
rule and are categorized as wholesalers in the data.
    The 2004 Statistics of U.S. Businesses (Ref. 12) provides 
information on wholesalers by employment size. For meat and meat 
products wholesalers there is a total of 2,509 firms. Of these, 2,401 
firms have less than 100 employees. This indicates that approximately 
96 percent of meat wholesalers are considered as small firms using the 
SBA definition.
    There are 510 chicken wholesaler/distributor firms operating 564 
facilities. Of these, there are 332 firms which have less than 100 
employees, resulting in approximately 65 percent of the chicken 
wholesalers/distributors being classified as small businesses.
    For fresh fruit and vegetable wholesalers there are a total of 
4,654 firms. Of these, 4,418 firms have less than 100 employees, 
resulting in approximately 95 percent of the fresh fruit and vegetable 
wholesalers being classified as small businesses.
    While information on ginseng wholesalers is not available, 46 
dealers have been identified and they would all be considered 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. It is assumed that these general-line 
wholesalers likely handle at least one and possibly all of the covered 
commodities. Therefore, the number of general-line wholesale businesses 
is included among entities affected by the rule.
    The 2004 Statistics of U.S. Businesses provides information on 
general-line grocery wholesalers by employment size. There were 3,037 
firms in total, and 2,858 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 affected 
by mandatory COOL may be considered as small entities as defined by 
SBA.
    It is estimated that intermediaries (importers and domestic 
wholesalers, handlers, and processors) will incur costs under the rule 
of approximately $1,115 million. Costs are estimated at $53,948 per 
intermediary firm and $50,598 per establishment.
    Wholesalers will encounter increased costs in complying with 
mandatory COOL. Wholesalers will likely face increased recordkeeping 
costs, costs associated with supplying country of origin information to 
retailers, and possibly costs associated with segmenting products by 
country of origin, and additional handling costs. Some of the comments 
received on the proposed rule 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 could lead to 
the further consolidation of firms in the wholesaling sector. The rule 
does not specify the systems that affected wholesalers must use to 
implement mandatory COOL. Instead, wholesalers will be given 
flexibility to modify or develop their own systems to comply with the 
rule. There are many ways in which the rule's requirements

[[Page 45142]]

may be met. In addition, wholesalers have the option of supplying 
covered commodities to retailers or other suppliers that are not 
covered by the rule.
    Manufacturers: Any manufacturer that supplies retailers or 
wholesalers with a covered commodity will be required 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 
affected by the rule, SBA defines those having less than 500 employees 
as small.
    The 2004 Statistics of U.S. Businesses (Ref. 12) provides 
information on manufacturers by employment size. For livestock 
processing and slaughtering there is a total of 2,943 firms. Of these, 
2,834 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 chicken processing there are a total of 38 firms, only two of 
which are classified as small. Thus, only 5 percent of the chicken 
processors are small businesses.
    For frozen fruit, juice, and vegetable manufacturers there is a 
total of 155 firms. There are 132 of these firms that are considered to 
be small. This suggests that 85 percent of the frozen fruit, juice, and 
vegetable manufacturers would be considered as small using the SBA 
definition.
    There are a total of 161 roasted nuts and peanut butter 
manufacturers, which includes firms that do drying. Because only green 
and raw peanuts, macadamia nuts, and pecans will require retail country 
of origin labeling under this rule, it is estimated that no more than 5 
percent of peanut, macadamia nut, and pecan manufacturing firms will be 
affected. Therefore, 8 peanut, macadamia nut, and pecan manufacturers 
are estimated to be affected, most if not all of which likely could be 
considered as 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 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 mandatory COOL. Manufacturers like 
wholesalers will likely face increased recordkeeping costs, costs 
associated with supplying country of origin information to retailers, 
and possibly costs associated with segmenting products by country of 
origin and additional handling costs. Some of the comments received on 
the proposed rule 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 rule does not specify the 
systems that affected manufacturers must use to implement mandatory 
COOL. Instead, manufacturers will be given flexibility to modify or 
develop their own systems to comply with the rule. There are many ways 
in which the rule's requirements may be met.
    Producers: Producers of perishable agricultural commodities, 
peanuts, macadamia nuts, pecans, and ginseng are directly affected by 
mandatory COOL. Producers of cattle, hogs, sheep, and goats while not 
directly covered by this rule, will nevertheless be affected because 
covered meat commodities are produced from livestock. Whether directly 
or indirectly affected, these producers will more than likely be 
required by handlers and wholesalers to maintain country of origin 
information and transfer it to them so that they can readily transfer 
this information to retailers. Individuals who grow-out chickens for an 
integrator are not expected to be affected by this rule.
    SBA defines a small agricultural producer as having annual receipts 
less than $750,000. The 2002 U.S. Census of Agriculture (Ref. 13) shows 
there are 1,018,359 farms that raise beef cows, and 2,458 are estimated 
to have annual receipts greater than $750,000. Thus, at least 99 
percent of these beef cattle farms would be classified as small 
businesses according to the SBA definition. Similarly, an estimated 82 
percent of hog farms would be considered as small and an estimated 99 
percent of sheep, lamb, and goat farms would be considered as small.
    Based on 2002 U.S. Census of Agriculture information, 92 percent of 
vegetable farms, 94 percent of fruit, nut, and berry farms, and 91 
percent of peanut, macadamia nut, and pecan farms could be classified 
as small.
    At the production level, agricultural producers will need to 
maintain records to establish country of origin 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 modifying and maintaining a recordkeeping system 
for the country of origin information, animal or product 
identification, and labor and training. Based on our knowledge of the 
affected industries as well as comments received on the proposed rule 
and the voluntary guidelines, it is believed that producers already 
have much of the information available that could be used to 
substantiate country of origin claims. Cattle, hog, lamb, sheep, 
chicken, and goat producers may have a slightly larger burden for 
recordkeeping than fruit, vegetable, ginseng, peanut, macadamia nut, 
and pecan producers because animals can be born in one country and fed 
and slaughtered in another country. However, this rule provides 
flexibility in labeling meat covered commodities of multiple origins.
    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 at $450 million, or an 
estimated $376 per firm.
    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 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 affected. For packers and processors handling 
products sourced from multiple countries, there may also be a desire 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 consolidations within the 
processor, manufacturer, and wholesaler sectors for these covered 
commodities. Also, to comply with the rule, retailers may seek to limit 
the number of entities from

[[Page 45143]]

which they purchase covered commodities.
    Additional alternatives considered: As previously mentioned, the 
COOL provisions of the Act leave 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 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 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 
rule. Such marketing alternatives include foodservice, export, and 
retailers not subject to the rule. It is estimated that 47.0 percent of 
United States food sales occur through retailers subject to the rule, 
with the remaining 53.0 percent sold by retailers not subject to the 
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 rule. The 
majority of product sales are not subject to the rule, and there are 
many current examples of companies specializing in production of 
commodities for foodservice, export markets, and other channels of 
distribution that would not be directly affected by the rule.
    The rule does not dictate systems that firms will need to put in 
place to implement the requirements. Thus, different segments of the 
affected industries will be able to modify or 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 use automated identification and electronic 
recordkeeping systems.
    The rule has no requirements for firms to report to USDA. 
Compliance audits will be conducted 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 rule 
provides flexibility regarding where records may be kept. If the 
product is pre-labeled with the necessary country of origin 
information, records documenting once-forward and once-back chain of 
custody information are sufficient as long as the source of the claim 
can be tracked and verified. Such flexibility should reduce costs for 
small entities to comply with the rule.
    The 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 rule provides flexibility 
regarding the manner in which the required information may be provided 
by retailers to consumers. The 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 rule provides the maximum flexibility practicable to enable 
small entities to minimize the costs of the rule on their operations.
    The recordkeeping burden associated with this rule was reduced 
based on public comments. USDA seeks comments on whether the regulatory 
impact analysis accurately reflects the potential population of 
impacted small entities and the extent to which the regulation 
economically impacts those entities.
Paperwork Reduction Act
    Pursuant to the Paperwork Reduction Act (PRA) (44 U.S.C. 3501-
3520), the information collection provisions associated with this 
interim final rule have been submitted to OMB for approval as a new 
collection. The Comments and Responses section lists the comments 
received on the preliminary PRA analysis contained in the October 30, 
2003, proposed rule and provides the Agency's responses to the 
comments. 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 COOL provisions in the 2002 and 2008 Farm Bills 
require that specified retailers inform consumers as to the country of 
origin of covered commodities. Covered commodities included in this 
rulemaking are: Muscle cuts of beef (including veal), lamb, chicken, 
goat, and pork; ground beef, ground lamb, ground chicken, ground goat, 
and ground pork; perishable agricultural commodities; macadamia nuts; 
pecans; ginseng; and peanuts.
    The key changes from the preliminary PRA analysis are reductions in 
the numbers of affected firms and establishments in the peanut sector 
and the addition of chicken, goat, ginseng, macadamia nuts, and pecans 
as covered commodities. These changes, and the use of more recent data 
for the other covered commodities, results in the number of 
establishments and firms decreasing from the preliminary PRA. In 
addition, as discussed in more detail below, the recordkeeping 
retention period has been reduced for both supplier and retailer 
records. Further, the 2008 Farm Bill specifically allows for the use of 
producer affidavits and prohibits the Secretary from requiring the 
maintenance of additional records not already maintained in the normal 
course of business.
    While the Agency believes there will be savings to firms as a 
result of these changes, such savings are difficult to quantify. In 
addition, a number of affected firms commented that the initial 
paperwork burden estimates published in the proposed rule were too low. 
Therefore, the estimated labor hours per firm and per establishment 
remain unchanged in this PRA analysis. Comments are specifically 
invited on this issue.
    Upon request by USDA representatives, suppliers and retailers 
subject to this subpart shall make available to USDA representatives, 
records maintained in the normal course of business that verify an 
origin claim. Such records shall be provided within 5 business days of 
the request and may be maintained in any location. Any person engaged 
in the business of supplying a covered commodity to a retailer (i.e., 
including but not limited to producers, distributors, handlers, 
packers, and processors), whether directly or indirectly, must make

[[Page 45144]]

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 for a 
period of one year from the date of the transaction. In addition, the 
supplier of a covered commodity that is responsible for initiating a 
country(ies) of origin claim, which in the case of beef, lamb, chicken, 
goat, and pork is the slaughter facility, must possess or have legal 
access to records that are necessary to substantiate that claim. In the 
case of beef, lamb, chicken, pork, and goat, a producer affidavit shall 
be considered acceptable evidence on which the slaughter facility may 
rely to initiate the origin claim, provided it is made by someone 
having first-hand knowledge of the origin of the animal(s) and 
identifies the animal(s) unique to the transaction.
    For an imported covered commodity, the importer of record must 
ensure that records provide clear product tracking from the port of 
entry into the United States to the immediate subsequent recipient. In 
addition, the records must accurately reflect the country of origin in 
relevant CBP entry documents and information systems and must be 
maintained for a period of 1 year from the date of the transaction.
    As previously mentioned, upon request by USDA representatives, 
suppliers and retailers subject to this subpart shall make available to 
USDA representatives, records maintained in the normal course of 
business that verify an origin claim. Such records shall be provided 
within 5 business days of the request and may be maintained in any 
location. In addition, records that identify the covered commodity, the 
retail supplier, and for products that are not pre-labeled the country 
of origin information must be maintained for a period of one year 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 affected by this rule.
    Burden: Approximately 1,255,591 establishments owned by 
approximately 1,221,740 firms are estimated to be either directly or 
indirectly affected by this rule. As previously discussed in previous 
sections of this document, several changes have been made in this 
interim final rule compared to the October 30, 2003, proposed rule. 
These changes are a result of changes made by the Agency in an effort 
to reduce the burden on regulated entities as well as changes made by 
the 2008 Farm Bill.
    In general, the supply chain for each of the covered commodities 
includes agricultural producers, 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. The rule's paperwork burden will be incurred by the number and 
types of firms and establishments listed in Table 9, which follows.

                                 Table 9--Costs Associated With Paperwork Burden
----------------------------------------------------------------------------------------------------------------
                                                                                    Maintenance
              Type                     Firms       Initial costs  Establishments       costs        Total costs
----------------------------------------------------------------------------------------------------------------
Producers:
    Cattle & Calves.............         971,400      75,699,259         971,400     145,651,716     221,350,975
    Sheep & Lambs...............          69,090       5,384,046          69,090      10,359,355      15,743,400
    Hogs & Pigs.................          65,540       5,107,401          65,540       9,827,068      14,934,469
    Goats.......................           9,146         715,745           9,146       1,371,381       2,084,126
    Chicken Producer and                      38           2,961             168          25,190          28,151
     Processor..................
    Fruits & Vegetables.........          79,800       6,218,654          79,800       3,788,984      10,007,638
    Ginseng.....................             190          14,806             190           9,021          23,828
    Peanuts.....................             650          50,653             650          30,863          81,516
    Pecans......................           1,119          87,192           1,119          53,130         140,323
    Macadamia...................              53           4,130              53           2,516           6,647
Handlers, Processors, &
 Wholesalers:
    Stockyards, Dealers & Market           6,807       8,910,363           6,807       6,589,040      15,499,403
     Agencies...................
    Livestock Processing &                 2,943       3,852,387           3,207      62,086,237      65,938,624
     Slaughtering...............
    Meat & Meat Product                    2,509       3,284,281           2,706       2,619,354       5,903,635
     Wholesale..................
    Chicken Processor and                    510         667,590             564         545,941       1,213,531
     Wholesaler.................
    Frozen Fruit, Juice &                    155         202,895             247         239,091         441,986
     Vegetable Mfg..............
    Fresh Fruit & Vegetable                4,654       6,092,086           5,016       4,855,388      10,947,474
     Wholesale..................
    Ginseng Dealers.............              46          60,214              46          44,527         104,741
    Roasted Nuts & Peanut Butter               8          10,472               9           8,712          19,184
     Mfg........................
    Peanut, Pecans, & Macadamia                5           6,545               5           4,840          11,385
     Nut Wholesalers............
    General Line Grocery                   3,037       3,975,433           3,436       3,325,979       7,301,412
     Wholesalers................
Retailers.......................           4,040       5,288,360          36,392     247,264,534     252,552,894
                                 -------------------------------------------------------------------------------
    Totals:
        Producers...............       1,197,026      93,281,849       1,197,156     171,119,224     264,401,073
        Handlers, Processors, &           20,674      27,062,266          22,043      80,319,108     107,381,374
         Wholesalers............
        Retailers...............           4,040       5,288,360          36,392     247,264,534     252,552,894
                                 -------------------------------------------------------------------------------
            Grand Total.........       1,221,740     125,632,475       1,255,591     498,702,866     624,335,341
----------------------------------------------------------------------------------------------------------------

    The affected firms and establishments will broadly incur two types 
of costs. First, firms will incur initial or start-up costs to comply 
with the rule. 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

[[Page 45145]]

storing and maintaining records on an ongoing basis. These activities 
will take place in each establishment operated by each affected 
business.
    Compared to the proposed rule, this rule reduces the length of time 
that records must be kept and revises the recordkeeping requirements 
for pre-labeled products. Any person engaged in the business of 
supplying a covered commodity to a retailer, whether directly or 
indirectly, must maintain records to establish and identify the 
immediate previous source and immediate subsequent recipient of a 
covered commodity for a period of 1 year from the date of the 
transaction. Under the proposed rule, records would have been required 
to be kept for 2 years.
    Upon request by USDA representatives, suppliers and retailers 
subject to this subpart shall make available to USDA representatives, 
records maintained in the normal course of business that verify an 
origin claim. Such records shall be provided within 5 business days of 
the request and may be maintained in any location. Under the proposed 
rule, retailers would have to have maintained these records at the 
retail store for 7 days following the sale of the product.
    For pre-labeled products, the rule provides that the label itself 
is sufficient evidence on which the retailer may rely to establish a 
product's origin. The proposed rule did not provided for this method of 
substantiation. The rule now requires that records identify the covered 
commodity, the supplier and for products that are not pre-labeled, the 
country of origin information. This information must be maintained for 
a period of 1 year from the date the origin and production designations 
are made at retail. Under the proposed rule, these records would have 
been required to be maintained for 2 years.
    With respect to initial recordkeeping costs, it is believed that 
most producers currently maintain normal business that would contain 
the information needed to substantiate country of origin claims. 
However, producers do not typically pass along country of origin 
information to subsequent purchasers. Therefore, producers likely will 
incur some additional incremental costs to record, maintain, and 
transfer country of origin information to substantiate required claims 
made at retail. Because much of the necessary recordkeeping has already 
been developed during typical farm and ranch operations, it is 
estimated that the incremental costs for producers to supplement 
existing records with country of origin information will be relatively 
small per firm. 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 via records used in the normal 
course of business.
    Producers will need an estimated 4 hours to modify an established 
system for organizing records to carry out the purposes of this 
regulation. 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 rule, 
it is assumed that virtually all producers will wish to keep their 
marketing options as flexible as possible. Thus, all producers of 
covered commodities or livestock (in the case of the covered meat 
commodities) will modify recordkeeping systems sufficient to 
substantiate country of origin claims. It is also recognized that some 
operations will require substantially more than 4 hours modifying their 
recordkeeping systems. In particular, it is believed that livestock 
backgrounders, stockers, and feeders will face a greater burden in 
modifying 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 via records 
used in the normal course of business, increasing the burden of 
substantiating country of origin claims. Conversely, operations such as 
fruit and vegetable farms that produce only United States products 
likely will require little if any change to their existing 
recordkeeping systems in order to substantiate country of origin 
claims. Overall, it is believed that 4 hours represents a reasonable 
estimate of the average additional time that will be required per year 
across all types of producers.
    In estimating initial recordkeeping costs, 2001 wage rates and 
benefits published by the Bureau of Labor Statistics from the National 
Compensation Survey were used. Subsequently, the National Compensation 
Survey has been updated and 2006 wage rates and benefits are now 
available. These updated wage rates and benefits are used in estimating 
the recordkeeping costs and results in an increase in the estimated 
costs.
    For producers, it is assumed that the added work needed to 
initially adapt an existing 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, an individual with equivalent skills. The Bureau 
of Labor Statistics (BLS) publishes wage rates for bookkeepers, 
accounting, and auditing clerks (Ref. 15). It is assumed 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, it is assumed that this wage rate represents the 
opportunity cost of the producers' time for performing these tasks. The 
May 2006 wage rate, the most recent data available, is estimated at 
$15.28 per hour. For this analysis, an additional 27.5 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. 15). At 4 hours per firm and a cost of $19.48 per hour, initial 
recordkeeping costs to producers are estimated at approximately $93.3 
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, it is 
believed that most of these operations already maintain the types of 
necessary records in their existing systems. Thus, it is assumed that 
country of origin information will require only modification of 
existing recordkeeping systems rather than development of new systems.
    The Label Cost Model Developed for FDA by RTI International (Ref. 
16; Ref. 17) is used to estimate the cost of including additional 
country of origin information to an operation's records. It is assumed 
that a limited information, one-color redesign of a paper document will 
be sufficient to comply with the 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, it is believed that $1,309 
represents a reasonable estimate of average cost for all firms. Based 
on this, it is estimated

[[Page 45146]]

that the initial recordkeeping costs to intermediaries such as 
handlers, processors, and wholesalers (importers are included with 
wholesalers) will be approximately $27 million, and initial 
recordkeeping costs at retail will be approximately $5 million. The 
recordkeeping cost to producers increases due to the increase in the 
number of firms from the additional covered commodities; goat, chicken, 
macadamia nuts, pecans, and ginseng. The recordkeeping cost to 
intermediaries and retailers declines slightly from the initial 
recordkeeping cost estimate in the proposed rule due to the reduction 
in the number intermediaries and retailers from continuing 
consolidation in those sectors.
    The total initial recordkeeping costs for all firms are thus 
estimated at approximately $125 million. This increase in the 
recordkeeping cost as compared to the initial recordkeeping costs in 
the proposed rule is due to the higher estimated wage rates and 
benefits.
    In addition to these one-time costs to modify recordkeeping 
systems, enterprises will incur additional recordkeeping costs 
associated with storing and maintaining records. These costs are 
referred to as maintenance costs in Table 9. 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 fruit, vegetable, ginseng, peanut, macadamia nut, and pecan 
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. 
Likewise, this is also the case for chicken as the vast majority of 
chicken products sold by covered retailers are from chickens that are 
produced in a controlled environment in the United States. 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 chicken, fruit, vegetable, ginseng, peanut, macadamia 
nut, and pecan producers, it is expected that livestock producers will 
incur higher costs to maintain country of origin information. Chicken, 
fruits, vegetables, ginseng, peanuts, and macadamia nuts are generally 
harvested once and then shipped by the producer to the first handler. 
In contrast, livestock can and often do move through several 
geographically dispersed operations prior to sale for processing or 
slaughter.
    Cattle, for example, typically change ownership between 2 to 3 
times before they are slaughtered and processed. Livestock may be 
acquired from other countries by United States producers, which may 
complicate 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, it is expected that the 
recordkeeping burden for livestock producers will be higher than it 
will be for producers of other covered commodities. It is estimated 
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.
    It is assumed that farm labor will primarily be responsible for 
maintaining country of origin information at producers' enterprises. 
NASS data (Ref. 18) are used to estimate average farm wage rates--$9.80 
per hour for livestock workers and $9.31 per hour for other crops 
workers. Applying the rate of 27.5 percent to account for benefits 
results in an hourly rate of $12.50 for livestock workers and $11.87 
for other crops workers. Assuming 12 hours of labor per year for 
livestock operations and 4 hours per year for all other operations, the 
estimated total annual maintenance costs to producers is $171 million, 
which is higher than the initial maintenance costs in the proposed 
rule. The increase in the estimated maintenance cost is due to the 
higher estimated wage rates and benefits and the increase in the number 
of producers due to the inclusion of chickens, goats, ginseng, 
macadamia nuts, and pecans as covered commodities.
    It is expected 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, the maintenance burden hours for country of origin 
recordkeeping is estimated 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. It is 
expected, however, that livestock processing and slaughtering 
enterprises will experience a more intensive recordkeeping burden. 
These enterprises disassemble carcasses into many individual cuts, 
which must maintain their country of origin identity. In addition, 
businesses that produce ground beef, lamb, goat and pork may commingle 
product from multiple origins, which will require some monitoring and 
recordkeeping to ensure accurate labeling and 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, the cost is estimated by using 
the May 2006 BLS wage rate from the National Compensation Survey for 
Administrative Support Occupations ($14.60 per hour with an additional 
27.5 percent added to cover overhead costs for a total of $18.62 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 $80 
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 affect each 
establishment. Because tracking of the covered commodities will be done 
daily, it is believed that an additional hour of recordkeeping 
activities for country of origin information will be incurred daily at 
each retail establishment. These additional activities result in an 
estimated 365 additional hours per year per establishment. Using the 
BLS wage rate for administrative support occupations ($14.60 per hour 
with an additional 27.5 percent added to cover overhead costs for a 
total of $18.62 per hour) results in total estimated annual maintenance 
costs to retailers of $247 million. This estimated cost is higher than 
the initial maintenance cost for retailers in the proposed rule due to 
the higher wage rate and benefits from the updated BLS information.
    The total maintenance recordkeeping costs for all enterprises are 
thus estimated at approximately $499 million. The increase in the total 
maintenance cost over the initial

[[Page 45147]]

maintenance cost estimate in the proposed rule is due to the higher 
wage rates and benefits which were updated with more recent information 
and the addition of more covered commodities.
    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 $264 million; for handlers, 
processors, and wholesalers at approximately $107 million; and for 
retailers at approximately $253 million. The total recordkeeping cost 
for all participants in the supply chain for covered commodities is 
estimated at $624 million for the first year, with subsequent 
maintenance costs of $499 million per year.
    Annual Reporting and Recordkeeping Burden for the First Year 
(Initial): Public reporting burden for this initial recordkeeping set 
up is estimated to average 4.5 hours per year per individual 
recordkeeper.
    Estimated Number of Firms Recordkeepers: 1,221,740.
    Estimated Total Annual Burden: 5,504,811 hours.
    Annual Reporting and Recordkeeping Burden (Maintenance): Public 
reporting burden for this recordkeeping storage and maintenance is 
estimated to average 24.9 hours per year per individual recordkeeper.
    Estimated Number of Establishments Recordkeepers: 1,255,591.
    Estimated Total Annual Burden: 31,909,210 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 are 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 interim final rule should 
be submitted through the Internet at http://www.regulations.gov. 
Written comments should be sent to Country of Origin Labeling Program, 
Room 2607-S; Agricultural Marketing Service (AMS), USDA; STOP 0254; 
1400 Independence Avenue, SW.; Washington, DC 20250-0254, or by 
facsimile to 202/354-4693.
    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. Dinopoulos, Elias, Grigorios Livanis, and Carol West. ``How Cool 
is C.O.O.L.?'' Working Paper WPTC 05-11, University of Florida, 
International Agricultural Trade and Policy Center, 2005.
2. Plastina, Alejandro and Konstantinos Giannakas. ``Market and 
Welfare Effects of Mandatory Country-of-Origin Labeling in the U.S. 
Specialty Crops Sector'' Selected Paper, American Agricultural 
Economics Association Annual Meeting, Portland, Oregon, July 2007.
3. Mabiso, Athur, James Sterns, Lisa House, and Allen Wysocki. 
``Estimating Consumers' Willingness-To-Pay for Country-Of-Origin 
Labels in Fresh Apples and Tomatoes: A Double-Hurdle Probit Analysis 
of American Data Using Factor Scores.'' American Agricultural 
Economics Association Annual Meeting, Providence, Rhode Island, July 
2005.
4. Krissoff, Barry, Fred Kuchler, Kenneth Nelson, Janet Perry, and 
Agapi Somwaru. ``County of Origin Labeling: Theory and 
Observation.'' USDA, ERS, WRS-04-02, January 2004.
5. Information Resources, Inc. InfoScan 2002.
6. NASS, USDA, Wisconsin Department of Agriculture. Wisconsin 2007 
Agricultural Statistics. http://www.nass.usda.gov/Statistics_by_State/Wisconsin/.
7. NASS, USDA, Hawaii Department of Agriculture. Hawaii 2007 
Agricultural Statistics. http://www.nass.usda.gov/hi/stats/t_of_c.htm.
8. Bureau of Economic Analysis. http://www.bea.gov/national/index.htm#gdp.
9. 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.
10. U.S. Census Bureau. 2002 Economic Census. Retail Trade Subject 
Series. Establishment and Firm Size. EC97R44S-SZ. Issued September 
2004.
11. AMS, USDA. Perishable Agricultural Commodities Act database.
12. U.S. Census Bureau. 2004 Statistics of U.S. Businesses.
13. NASS, USDA. 2002 Census of Agriculture.
14. NASS, USDA. 2005 Census of Aquaculture.
15. Bureau of Labor Statistics, Department of Labor, National 
Compensation Survey, May 2006, Employer Cost for Employee 
Compensation.
16. 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.
17. RTI, International 2000. FDA Labeling Cost Model: Final Report. 
Revised April 2002.
18. NASS, USDA. Farm Labor, August 17, 2007.
19. Office of the Chief Economist, USDA. USDA Agricultural Baseline 
Projections to 2016, Staff Report WAOB-2007-1. February 2007.
Executive Order 12988
    The contents of this 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. There are no administrative procedures that must be 
exhausted prior to any judicial challenge to the provisions of this 
rule.
Civil Rights Review
    AMS 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 interim final rule does not require affected entities 
to relocate or alter their operations in ways that could adversely 
affect such persons or groups. Further, this rule will not deny any 
persons or groups the benefits of the program or subject any persons or 
groups to discrimination.

[[Page 45148]]

Executive Order 13132
    This 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 rule is 
required by the 2002 Farm Bill, as amended by the 2008 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. The law assigns enforcement 
responsibilities to the Secretary and encourages the Secretary to enter 
into partnerships with States with enforcement infrastructure to assist 
in the administration of the program. The law provides for a 30-day 
period in which retailers and suppliers may take the necessary 
corrective action after receiving notice of a nonconformance. The 
Secretary can impose a civil penalty only if the retailer or supplier 
has not made a good faith effort to comply and only after the Secretary 
provides notice and an opportunity for a hearing. Allowing private 
rights of actions would frustrate the purpose of this comprehensive 
enforcement system in which Congress struck a delicate balance of 
imposing a requirement, but ensuring that the agency had wide latitude 
in enforcement discretion. Thus, it is clear that State laws and other 
actions were intended to be preempted.
    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 that are not governed by this regulation, the 
States may continue to operate them. For those State country of origin 
labeling programs that encompass commodities that are governed by this 
regulation, these programs are preempted. In most cases, the 
requirements contained within this rule are more stringent and 
prescriptive than the requirements of the State programs. 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, 
States were expressly invited to comment on the proposed regulation as 
it related to existing State programs. No States submitted any comments 
pertaining to this issue.
    This interim final rule contains those provisions of the October 
30, 2003 (68 FR 61944), proposed rule that pertain to muscle cuts of 
beef, lamb and pork; ground beef, ground lamb, ground pork; perishable 
agricultural commodities; and peanut covered commodities as well as the 
additional commodities that were added by the 2008 Farm Bill: Chicken, 
macadamia nuts, pecans, ginseng, and goat meat. Modifications to these 
provisions have been made as discussed herein.
    This interim final rule is made effective on September 30, 2008. 
The requirements of this rule do not apply to covered commodities 
produced or packaged before September 30, 2008. This will allow 
existing product to clear through the channels of commerce and permit 
AMS to conduct an industry education and outreach program concerning 
the provisions contained within this rulemaking.
    Further, pursuant to 5 U.S.C. 553, it is found and determined upon 
good cause that it is impractical, unnecessary, and contrary to the 
public interest to give preliminary notice prior to putting this rule 
into effect. This action is authorized under the Agricultural Marketing 
Act of 1946, as amended. This interim final rule reflects changes made 
as a result of comments received in response to the 2003 proposed rule 
and the 2004 interim final rule on fish and shellfish, as well as the 
changes made by the 2008 Farm Bill. After issuance of this interim 
final rule, the Department will provide all affected persons, including 
the newly affected industries--goat, chicken, macadamia nuts, pecans, 
and ginseng--the opportunity to provide additional comments prior to 
issuing a final rule. In addition, this action is needed to meet the 
statutory implementation date. Further, this rule provides for a 60-day 
comment period.

List of Subjects in 7 CFR Part 65

    Agricultural commodities, Food labeling, Meat and meat products, 
Macadamia nuts, Peanuts, Pecans, Reporting and recordkeeping 
requirements.


0
For the reasons set forth in the preamble, 7 CFR chapter I is amended 
by adding part 65 to read as follows:

PART 65--COUNTRY OF ORIGIN LABELING OF BEEF, PORK, LAMB, CHICKEN, 
GOAT MEAT, PERISHABLE AGRICULTURAL COMMODITIES, MACADAMIA NUTS, and 
PEANUTS

Subpart A--General Provisions

Definitions

Sec.
65.100 Act.
65.105 AMS.
65.110 Beef.
65.115 Born.
65.120 Chicken.
65.125 Commingled covered commodities.
65.130 Consumer package.
65.135 Covered commodity.
65.140 Food service establishment.
65.145 Ginseng.
65.150 Goat.
65.155 Ground beef.
65.160 Ground chicken.
65.165 Ground goat.
65.170 Ground lamb.
65.175 Ground pork.
65.180 Imported for immediate slaughter.
65.185 Ingredient.
65.190 Lamb.
65.195 Legible.
65.200 NAIS-compliant system.
65.205 Perishable agricultural commodity.
65.210 Person.
65.215 Pork.
65.220 Processed food item.
65.225 Produced.
65.230 Production step.
65.235 Raised.
65.240 Retailer.
65.245 Secretary.
65.250 Slaughter.
65.255 United States.
65.260 United States country of origin.
65.265 USDA.

Country of Origin Notification

65.300 Country of origin notification.
65.400 Markings.

Recordkeeping

65.500 Recordkeeping requirements.
Subpart B--[Reserved]

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

Subpart A--General Provisions

Definitions


Sec.  65.100  Act.

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


Sec.  65.105  AMS.

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


Sec.  65.110  Beef.

    Beef means meat produced from cattle, including veal.

[[Page 45149]]

Sec.  65.115  Born.

    Born in the case of chicken means hatched from the egg.


Sec.  65.120  Chicken.

    Chicken has the meaning given the term in 9 CFR 381.170(a)(1).


Sec.  65.125  Commingled covered commodities.

    Commingled covered commodities means covered commodities (of the 
same type) presented for retail sale in a consumer package that have 
been prepared from raw material sources having different origins (e.g., 
bag of frozen strawberries).


Sec.  65.130  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.  65.135  Covered commodity.

    (a) Covered commodity means:
    (1) Muscle cuts of beef, lamb, chicken, goat, and pork;
    (2) Ground beef, ground lamb, ground chicken, ground goat, and 
ground pork;
    (3) Perishable agricultural commodities;
    (4) Peanuts;
    (5) Macadamia nuts;
    (6) Pecans; and
    (7) Ginseng.
    (b) Covered commodities are excluded from this part if the 
commodity is an ingredient in a processed food item as defined in Sec.  
65.220.


Sec.  65.140  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.  65.145  Ginseng.

    Ginseng means ginseng root of the genus Panax.


Sec.  65.150  Goat.

    Goat means meat produced from goats.


Sec.  65.155  Ground beef.

    Ground beef has the meaning given that 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, and also includes products defined by the terms 
``hamburger'' in 9 CFR 319.15(b) and ``beef patties'' in 9 CFR 
319.15(c).


Sec.  65.160  Ground chicken.

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


Sec.  65.165  Ground goat.

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


Sec.  65.170  Ground lamb.

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


Sec.  65.175  Ground pork.

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


Sec.  65.180  Imported for immediate slaughter.

    Imported for immediate slaughter means imported into the United 
States for ``immediate slaughter'' as that term is defined in 9 CFR 
93.400, i.e., consignment directly from the port of entry to a 
recognized slaughtering establishment and slaughtered within 2 weeks 
from the date of entry.


Sec.  65.185  Ingredient.

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


Sec.  65.190  Lamb.

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


Sec.  65.195  Legible.

    Legible means text that can be easily read.


Sec.  65.200  NAIS-compliant system.

    NAIS-compliant system means Animal and Plant Health Inspection 
Service (APHIS)/Veterinary Services (VS) official animal identification 
numbers, tags, devices, or protocols, and location identifiers that are 
consistent with any APHIS/VS official disease program or activity, and 
animal tracking databases that have been reviewed and approved by 
APHIS/VS Chief Information Officer for utilizing NAIS standards 
regarding animal movement information.


Sec.  65.205  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 a different kind or character and includes cherries in 
brine as defined by the Secretary in accordance with trade usages.


Sec.  65.210  Person.

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


Sec.  65.215  Pork.

    Pork means meat produced from hogs.


Sec.  65.220  Processed food item.

    Processed food item means a retail item derived from a covered 
commodity that has undergone specific processing resulting in a change 
in the character of the covered commodity, or that has been combined 
with at least one other covered commodity or other substantive food 
component (e.g., chocolate, breading, tomato sauce), except that the 
addition of a component (such as water, salt, or sugar) that enhances 
or represents a further step in the preparation of the product for 
consumption, would not in itself result in a processed food item. 
Specific processing that results in a change in the character of the 
covered commodity includes cooking (e.g., frying, broiling, grilling, 
boiling, steaming, baking, roasting), curing (e.g., salt curing, sugar 
curing, drying), smoking (hot or cold), and restructuring (e.g., 
emulsifying and extruding). Examples of items excluded include teriyaki 
flavored pork loin, roasted peanuts, breaded chicken tenders, and fruit 
medley.


Sec.  65.225  Produced.

    Produced in the case of a perishable agricultural commodity, 
peanuts, ginseng, pecans, and macadamia nuts means grown.


Sec.  65.230  Production step.

    Production step means, in the case of beef, pork, goat, chicken, 
and lamb, born, raised, or slaughtered.


Sec.  65.235  Raised.

    Raised means, in the case of beef, pork, chicken, goat, and lamb, 
the period of time from birth until slaughter or in the case of animals 
imported for immediate slaughter as defined in Sec.  65.180, the period 
of time from birth

[[Page 45150]]

until date of entry into the United States.


Sec.  65.240  Retailer.

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


Sec.  65.245  Secretary.

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


Sec.  65.250  Slaughter.

    Slaughter means the point in which a livestock animal (including 
chicken) is prepared into meat products (covered commodities) for human 
consumption. For purposes of labeling under this part, the word 
harvested may be used in lieu of slaughtered.


Sec.  65.255  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.


Sec.  65.260  United States country of origin.

    United States country of origin means in the case of:
    (a) Beef, pork, lamb, chicken, and goat:
    (1) From animals exclusively born, raised, and slaughtered in the 
United States;
    (2) From animals born and raised in Alaska or Hawaii and 
transported for a period of not more than 60 days through Canada to the 
United States and slaughtered in the United States; or
    (3) From animals present in the United States on or before July 15, 
2008, and once present in the United States, remained continuously in 
the United States.
    (b) Perishable agricultural commodities, peanuts, ginseng, pecans, 
and macadamia nuts: From products produced in the United States.


Sec.  65.265  USDA.

    USDA means the United States Department of Agriculture.

Country of Origin Notification


Sec.  65.300  Country of origin notification.

    In providing notice of the country of origin as required by the 
Act, the following requirements shall be followed by retailers:
    (a) General. Labeling of covered commodities offered for sale 
whether individually, in a bulk bin, carton, crate, barrel, cluster, or 
consumer package must contain country of origin as set forth in this 
regulation.
    (b) Exemptions. Food service establishments as defined in Sec.  
65.135 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.  
65.220.
    (d) Labeling covered commodities of United States origin.
    (1) A covered commodity may bear a declaration that identifies the 
United States as the sole country of origin at retail only if it meets 
the definition of United States country of origin as defined in Sec.  
65.260.
    (2) Covered commodities further processed or handled in a foreign 
country after meeting the requirements to be labeled as United States 
origin as defined in Sec.  65.260 (e.g., born, raised, and slaughtered 
or produced) may bear a declaration that identifies the United States 
as the sole country of origin 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 legal 
requirements.
    (e) Labeling muscle cut covered commodities of multiple countries 
of origin that include the United States.
    (1)(i) If an animal was born, raised, and/or slaughtered in the 
United States and was not imported for immediate slaughter as defined 
in Sec.  65.180, the origin of the resulting meat products derived from 
that animal may be designated as Product of the United States, Country 
X, and/or (as applicable) Country Y where Country X and Country Y 
represent the actual or possible countries of foreign origin.
    (ii) If an animal was imported into the United States for immediate 
slaughter as defined in Sec.  65.180, the origin of the resulting meat 
products derived from that animal shall be designated as Product of 
Country X and the United States.
    (2) In both cases of paragraph (e)(1)(i) and (e)(1)(ii) of this 
section, the origin declaration may include more specific information 
related to production steps provided records to substantiate the claims 
are maintained and the claim is consistent with other applicable 
Federal legal requirements.
    (f) Labeling imported covered commodities. Imported covered 
commodities for which origin has already been established as defined by 
this law (e.g., born, raised, slaughtered or grown) and for which no 
production steps have occurred in the United States, shall retain their 
origin, as declared to U.S. Customs and Border Protection (CBP) at the 
time the product entered the United States, through retail sale.
    (g) Labeling commingled covered commodities. In the case of 
perishable agricultural commodities; peanuts; pecans; ginseng; and 
macadamia nuts: For imported covered commodities that have not 
subsequently been substantially transformed in the United States that 
are commingled with covered commodities sourced from a different origin 
that have not been substantially transformed (as established by CBP) in 
the United States, and/or covered commodities of United States origin, 
the declaration shall indicate the countries of origin in accordance 
with existing Federal legal requirements.
    (h) Labeling ground beef, ground pork, ground lamb, ground goat, 
and ground chicken. The declaration for ground beef, ground pork, 
ground lamb, ground goat, and ground chicken covered commodities shall 
list all countries of origin contained therein or that may be 
reasonably contained therein. In determining what is considered 
reasonable, when a raw material from a specific origin is not in a 
processor's inventory for more than 60 days, that country shall no 
longer be included as a possible country of origin.
    (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 may provide the country of origin 
notification either on the sales vehicle or at the time the product is 
delivered to the consumer.


Sec.  65.400  Markings.

    (a) Country of origin declarations can either be in the form of a 
placard, sign, label, sticker, band, twist tie, pin tag, or other 
format that allows consumers to identify the country of origin. The 
declaration of the country of origin of a product may be in the form of 
a statement such as ``Product of USA,'' ``Produce of the USA,'' or 
``Grown in Mexico,'' may only contain the name of the country such as 
``USA'' or ``Mexico,'' or may be in the form of a check box provided it 
is in conformance with other Federal labeling laws.
    (b) The declaration of the country of origin (e.g., placard, sign, 
label, sticker, band, twist tie, pin tag, or other display) must be 
legible and placed in a conspicuous location, so as to render it likely 
to be read and understood by a customer under normal conditions of 
purchase.

[[Page 45151]]

    (c) The declaration of country of origin may be typed, printed, or 
handwritten provided it is in conformance with other Federal labeling 
laws and does not obscure other labeling information required by other 
Federal regulations.
    (d) A bulk container (e.g., display case, 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 all possible origins are listed.
    (e) In general, abbreviations are not acceptable. Only those 
abbreviations approved for use under CBP rules, regulations, and 
policies, such as ``U.K.'' for ``The United Kingdom of Great Britain 
and Northern Ireland'', ``Luxemb'' for Luxembourg, and ``U.S.'' for the 
``United States'' are acceptable. The adjectival form of the name of 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) With the exception of perishable agricultural commodities, 
peanuts, pecans, and ginseng, State or regional label designations are 
not acceptable in lieu of country of origin labeling.

Recordkeeping


Sec.  65.500  Recordkeeping requirements.

    (a) General.
    (1) All records must be legible 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.
    (2) Upon request by USDA representatives, suppliers and retailers 
subject to this subpart shall make available to USDA representatives, 
records maintained in the normal course of business that verify an 
origin claim. Such records shall be provided within 5 business days of 
the request and may be maintained in any location.
    (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(ies) of origin of 
the covered commodity. This information may be provided either on the 
product itself, on the master shipping container, or in a document that 
accompanies the product through retail sale. In addition, the supplier 
of a covered commodity that is responsible for initiating a 
country(ies) of origin claim, which in the case of beef, lamb, chicken, 
goat, and pork is the slaughter facility, must possess or have legal 
access to records that are necessary to substantiate that claim. For 
that purpose, in the case of beef, lamb, chicken, goat, and pork, a 
producer affidavit shall be considered acceptable evidence on which the 
slaughter facility may rely to initiate the origin claim, provided it 
is made by someone having first-hand knowledge of the origin of the 
animal(s) and identifies the animal(s) unique to the transaction. 
Packers that slaughter animals that are part of a NAIS compliant system 
or other recognized official identification system (e.g., Canadian 
official system, Mexico official system) may also rely on the presence 
of an official ear tag and/or the presence of any accompanying animal 
markings (i.e., ``Can'', ``M''), as applicable, on which to base their 
origin claims. This provision also applies to such animals officially 
identified as a group lot.
    (2) 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 (if applicable) and immediate subsequent 
recipient of a covered commodity for a period of 1 year from the date 
of the transaction.
    (3) For an imported covered commodity (as defined in Sec.  
65.300(f)), 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 
accurately reflect the country of origin of the item as identified in 
relevant CBP entry documents and information systems; and must maintain 
such records for a period of 1 year from the date of the transaction.
    (c) Responsibilities of Retailers.
    (1) Records and other documentary evidence relied upon at the point 
of sale to establish a covered commodity's country(ies) of origin must 
be provided to any duly authorized representative of USDA in accordance 
with Sec.  65.500(a)(2), and maintained for a period of 1 year from the 
date the origin declaration is made at retail. For pre-labeled 
products, the label itself is sufficient evidence on which the retailer 
may rely to establish the product's origin.
    (2) Records that identify the covered commodity, the retail 
supplier, and for products that are not pre-labeled, the country of 
origin information, must be maintained for a period of 1 year from the 
date the origin declaration is made at retail.

Subpart B--[Reserved]


    Dated: July 28, 2008.
Lloyd C. Day,
Administrator, Agricultural Marketing Service.
[FR Doc. E8-17562 Filed 7-28-08; 4:30 pm]
BILLING CODE 3410-02-P