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

Federal RegisterAug 1, 2008

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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:

erin.morris@usda.gov.

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

whether a product is considered a covered commodity or is labeled accurately under this regulation may be e-mailed to

cool@usda.gov.

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.

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).

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

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

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 § 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 § 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.

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

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 § 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.

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.

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.

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

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

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

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

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 § 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 § 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 § 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

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.

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

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, § 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

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 § 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

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

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

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 § 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 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

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

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

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

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 § 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

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