06-3889. Addition of the People's Republic of China to the List of Countries Eligible To Export Processed Poultry Products to the United States

AGENCY:

Food Safety and Inspection Service, USDA.

ACTION:

Final rule.

SUMMARY:

The Food Safety and Inspection Service (FSIS) is adding the People's Republic of China to the list of countries eligible to export processed poultry products to the United States. Reviews of the People's Republic of China's laws, regulations, and other materials show that its poultry processing system includes requirements equivalent to the provisions of the Poultry Products Inspection Act (PPIA) and its implementing regulations.

Processed poultry products from the People's Republic of China may be imported into the United States only if they are processed in certified establishments in the People's Republic of China from poultry slaughtered in certified slaughter establishments in other countries eligible to export poultry to the United States. China is not currently eligible to export poultry products to the United States that include birds that were slaughtered in China's domestic establishments. All poultry products exported from China must comply with all other U.S. requirements, including the restrictions under the Animal and Plant Health Inspection Service (APHIS). All poultry products exported from the People's Republic of China to the United States will be subject to reinspection at the U.S. ports of entry by FSIS inspectors as required by law.

DATES:

Effective Date: May 24, 2006.

FOR FURTHER INFORMATION CONTACT:

Ms. Sally White, Director, International Equivalence Staff, Office of International Affairs; (202) 720-6400.

SUPPLEMENTARY INFORMATION:

Background

On November 23, 2005, FSIS proposed to amend the Federal poultry products inspection regulations to add the People's Republic of China to the list of countries eligible to export processed poultry products to the United States (70 FR 70746). As discussed in that proposed rulemaking, in response to a request from the People's Republic of China for approval to export processed poultry products to the United States, FSIS conducted a review of the People's Republic of China's poultry processing inspection system to determine if it was equivalent to the U.S. poultry inspection system. Although the People's Republic of China requested approval to export processed poultry products, it will initially only export fully cooked, shelf-stable product (see 70 FR at 70747). FSIS evaluated the People's Republic of China's poultry inspection laws and regulations and compared them with U.S. requirements. FSIS concluded that the requirements contained in the People's Republic of China's poultry inspection laws and regulations are equivalent to those mandated by the PPIA and implementing regulations. FSIS also conducted an on-site review of the People's Republic of China's poultry processing inspection system in operation. The FSIS review team concluded that the People's Republic of China's implementation of poultry processing standards and procedures is equivalent to that of the United States. The full report on the audit of the People's Republic of China poultry inspection system can be found on the FSIS Web site at http://www.fsis.usda.gov/regulations/foreign_audit_reports/index.asp.

Listing the People's Republic of China as eligible to export poultry products to the United States would expand international markets and enhance the free flow of trade with the People's Republic of China. This rule is consistent with U.S. obligations under the WTO and will support U.S. trade initiatives and USDA's policy with respect to agricultural trade with the People's Republic of China. Under the World Trade Organization Agreement on the Application of Sanitary and Phyto-Sanitary Measures, FSIS makes equivalence determinations of the inspection systems of foreign countries that have requested to import meat, poultry, or egg products into the United States.

As a country eligible to export processed poultry products to the United States, the government of the People's Republic of China will certify to FSIS those establishments wishing to export such products to the U.S. and operating according to U.S. requirements. FSIS will retain the right to verify that establishments certified by the government of the People's Republic of China government are meeting the U.S. requirements. This will be done through on-site reviews of the establishments while they are in operation.

Products from a country eligible to export poultry products must also comply with all other U.S. requirements, including those of the U.S. Customs and Border Protection and the restrictions under Title 9, part 94 of the (APHIS) regulations that relate to the importation of poultry and poultry products from foreign countries into the United States. APHIS has classified China as a region where the highly pathogenic avian influenza (HPAI) subtype H5N1 is considered to exist (9 CFR 94.6(d)). Those products that APHIS has restricted from entering the United States because of animal disease conditions in the country of origin will be refused entry before reaching an FSIS import inspection facility. FSIS and APHIS work closely to ensure that poultry and poultry products imported into the United States comply with the regulatory requirements of both agencies. APHIS and FSIS communicate regularly to ensure that the products APHIS has restricted from entering the United States because of animal disease concerns are not imported into the United States.

Response to Comments

FSIS received 34 comments in response to the proposed rule. Commenters included individual U.S. Start Printed Page 20868citizens, the U.S. poultry industry, the South Dakota Department of Agriculture, and the South Dakota Animal Industry Board. FSIS also received a comment from the China Chamber of Commerce for Import/Export of Food Stuffs, Native Produce and Animal By-Products, and comments from individuals from the People's Republic of China and from the Chinese food industry.

In addition, the Department of Agriculture received 5 letters from members of Congress opposed to the rule. The Department also received 6 letters from members of Congress that forwarded letters from their constituents concerning the proposal.

The China Chamber of Commerce for Import/Export of Food Stuffs, Native Produce and Animal By-Products and other comments from individuals and food industry representatives from the People's Republic of China supported the proposed rule. All other commenters opposed adding the People's Republic of China to the list of countries eligible to export processed poultry products to the United States.

Comment: Most commenters opposed to the rule stated that China should not be added to the list of countries eligible to export processed poultry and poultry products to the United States because of outbreaks of the infectious H5N1 strain of avian influenza in the country's poultry.

Response: USDA has determined that this rule will not adversely affect human health. FSIS is relying on a systematic equivalence determination of the poultry processing system in China to ensure the processing procedures in place in China are adequate to destroy the avian influenza virus in the preparation of shelf-stable, fully cooked poultry products.

Additionally, USDA has determined this rule will not adversely affect animal health. APHIS is the USDA Agency primarily responsible for preventing the introduction and dissemination of foreign animal diseases into the United States. Under Title 9, part 94 of its regulations (9 CFR 94), APHIS sets restrictions on the importation of certain fresh, frozen, and chilled poultry, poultry products, and edible products from countries in which certain animal diseases exist. APHIS has classified China as a region where the highly pathogenic avian influenza (HPAI) subtype H5N1 is considered to exist (9 CFR 94.6(d)). In addition, the United States Department of Health and Human Service, Centers for Disease Control and Prevention, restricts the entry of birds and unprocessed bird products from China because of concerns over the human health risks these items may pose (42 CFR 71.32(b), emergency order dated February 4, 2004). Even if a foreign country is listed in FSIS regulations as eligible to export poultry products, those poultry products must also comply with all other applicable U.S. requirements. Before a shipment of processed poultry or poultry products may be presented for reinspection at the port of entry by FSIS, it must have first met the requirements for both U.S. Customs and Border Protection and APHIS. Therefore, because APHIS has classified China as a region where the highly pathogenic avian influenza (HPAI) subtype H5N1 is considered to exist (9 CFR 94.6(d)), APHIS has restricted the importation of fresh, frozen, and chilled poultry, and poultry products to protect animal health in the United States. China's slaughter establishments have not at this time been determined equivalent for the slaughtering of poultry intended to be processed in China as shelf-stable, fully cooked poultry.

Comment: Commenters opposed to the rule questioned how FSIS will ensure that poultry products processed in China for export to the United States will contain no poultry that was raised or slaughtered in China. Similarly, several commenters questioned whether FSIS can be certain that poultry plants in China are consistently cooking their products sufficiently to kill the avian influenza virus, that no improperly cooked poultry products will be shipped to the U.S., and that adequate safety measures are in place to guarantee that poultry sent to China for processing would be safe for consumption in the U.S. A commenter stated that annual inspections will do very little to make certain that Chinese plants meet U.S. requirements for exporting their product to the U.S. One commenter was concerned that shipping containers could contain microbes that should not be transferred into the U.S.

Response: Under FSIS’ regulations, maintenance of eligibility of a country for importation of poultry products into the United States depends on the results of FSIS’ periodic reviews (audits) of the foreign poultry inspection system in operation, and the timely submission of such documents and other information related to the conduct of the foreign inspection system as FSIS may find pertinent to and necessary for the determinations concerning a foreign country's eligibility (§ 381.196(a)(2)(iii)). These are standard procedures that FSIS carries out for all countries for continuing evaluation of equivalence. These are similar to the procedures used by other countries in evaluating foreign systems for equivalency and continuing eligibility. The process inherently has the ability to adjust verification scope and frequency based on findings.

Equivalency requirements for the sanitary handling of product must be maintained to ensure that product is protected during processing, handling, storage, loading and unloading, at and during transportation from official establishments.

Under the regulations, only those establishments that an official of the People's Republic of China's poultry inspection system certifies as fully complying with requirements equivalent to the provisions of the PPIA and the regulations issued thereunder will be eligible to have their products imported to the United States. The People's Republic of China will be required to renew these certifications annually (§ 381.196(a)(3)). China has agreed that it will require, and have procedures in place to ensure, that there is separation by time or space of product destined for export to the United States separate from product intended for distribution domestically. Appropriate records will be available for audit by U.S. officials.

During FSIS' audits of certified establishments in the People's Republic of China, FSIS will review records, including supplier sheets and import and export records, to determine the origin of incoming poultry product received for further processing and the final destination of the product. Through these audits, FSIS will verify that any poultry product received for further processing in a certified establishment and ultimately exported to the U.S. was derived from poultry slaughtered in certified slaughter establishments in other countries eligible to export poultry to the United States.

The regulations also require that a foreign inspection system, such as that in the People's Republic of China, maintains a program to assure that the requirements equivalent to those in the U.S. are met. To assure that these requirements are being met, the regulations require that a representative of the foreign inspection system periodically visit each establishment certified as complying with requirements equivalent to those of the PPIA and implementing regulations. The regulations also require that this representative prepare written reports documenting findings concerning requirements equivalent to those of the poultry inspection system in the United States (§ 381.196(a)(2)(iv)). FSIS will evaluate these reports during audits. Start Printed Page 20869

Furthermore, each consignment containing any slaughtered poultry or other poultry product consigned to the United States from a foreign country, such as the People's Republic of China, must be accompanied with a foreign inspection certificate that certifies that the products are sound, healthful, wholesome, clean and otherwise fit for human food; are not adulterated and have not been treated with and do not contain any dye, chemical, preservative, or ingredient not permitted by FSIS' regulations; that the poultry products have been handled only in a sanitary manner in the foreign country; and are otherwise in compliance with requirements at least equal to those in the PPIA and FSIS' regulations (§ 381.197). Thus, a representative of the Chinese government must certify that the product is not adulterated and has undergone adequate cooking and processing.

In addition to relying on its initial determination of a country's eligibility and performing ongoing reviews to ensure that products shipped to the U.S. are safe, wholesome and properly labeled and packaged, all poultry products exported to the United States from the People's Republic of China will be subject to reinspection at the ports of entry for transportation damage, labeling, proper certification, general condition, and accurate count. Other types of inspection will also be conducted, including examining the product for defects and performing laboratory analyses that will detect chemical residues on the product or determine whether the product is microbiologically contaminated.

Products that pass reinspection will be stamped with the official mark of inspection and allowed to enter U.S. commerce. If they do not meet U.S. requirements, they will be “Refused Entry” and must be re-exported, destroyed or converted to animal food.

Comment: One commenter questioned whether FSIS will visit each Chinese plant annually. This same commenter stated that the USDA's Office of Inspector General (OIG) found that problems identified by FSIS in Canada's meat and poultry inspection system went uncorrected for two years or more. Another commenter stated that an initial FSIS equivalence audit of the People's Republic of China revealed numerous serious deficiencies involving sanitation, cross contamination, and complete failure to understand FSIS' requirements.

Response: The final report regarding FSIS' audit of the People's Republic of China is found at http://www.fsis.usda.gov/regulations/foreign_audit_reports/index.asp. This report highlights that the predominance of deficiencies were in slaughter facilities. However, this rule addresses the segment of the industry that is responsible for further processing of poultry. The few deficiencies that were identified in further processing were corrected by China and detailed corrective action plans were submitted by the Chinese government to FSIS. Regarding the violations that were found in the slaughter plants, the Chinese government continues to work with FSIS. Therefore, no equivalency determination has been made at this time for the slaughter segment of the system. The final report does indicate that the People's Republic of China's implementation of poultry processing standards and procedures for fully cooked, shelf stable processed poultry products are equivalent to those of the United States. The OIG findings concerning Canada's meat and poultry inspection system are not related to FSIS' audits of the People's Republic of China.

During audits of the People's Republic of China's inspection system, FSIS will conduct at least annual random audits of the establishments certified by the People's Republic of China as complying with requirements equivalent to those in the PPIA and implementing regulations. While every establishment may not be visited annually, FSIS will conduct audits of one or more establishments annually or when deemed necessary. FSIS determines which establishments to visit based on performance history from re-inspection at import, audit history, information from other Federal agencies, and number of certified establishments.

Comment: Several commenters expressed concerns regarding reports of illegal smuggling of poultry products from China and other areas affected by avian flu.

Response: This rule is not expected to have any impact on illegal entry of products. The U.S. Customs and Border Protection, rather than FSIS, addresses smuggling. U.S. Customs and Border Protection works closely with FSIS on identifying illegal entry products and other ineligible products. Additionally, U.S. Customs and Border Protection serves as a first line of defense for all products entering the country. Products are first presented to U.S. Customs and Border Protection and if products are found to contain amenable product, FSIS is notified as appropriate.

Comment: Numerous commenters objected to the rule for economic reasons. Commenters stated that the public perception of poultry imports from China and other Asian countries has been extremely negative and that the rule could undermine U.S. consumers' confidence in poultry products. Several commenters stated that the proposal could negatively affect the U.S. poultry industry, particularly the smaller sectors of the U.S. poultry industry, such as duck, goose, and squab. According to these commenters, low grade Chinese products are produced at a fraction of the price of U.S. products because of lower wages and benefits. Some commenters stated that FSIS underestimated the volume of product that would be imported into the U.S. from the People's Republic of China.

One commenter that supported the rule stated that the benefits outlined in the proposal have been severely understated. This commenter opined that the rule would bring about greater competition and efficiency within the industry and lower prices for consumers.

Response: Import quotas cannot be established to limit the potential economic impacts speculated upon by certain of the commenters. Economic and market realities, however, make it very unlikely that substantially larger amounts of processed poultry product than those estimated in the preliminary analysis would be available for the People's Republic of China to export to the U.S. The People's Republic of China's internal market is experiencing a major growth in demand for poultry that is unlikely to abate for some time. The main prospective growth area for the People's Republic of China's agricultural exports is East Asia rather than North America. Energy costs, predicted to rise steadily in the foreseeable future, would also limit the economic capability of the People's Republic of China to export significant amounts of processed poultry product to the U.S. However, in response to comments that stated that the preliminary analysis underestimated the volume of product that would be imported from the People's Republic of China, FSIS estimated a range for the volume of fully cooked, shelf-stable poultry product that would be imported into the U.S. from the People's Republic of China. In the final analysis, FSIS estimates that the volume of imported poultry product from China would range from 2,500,000 pounds (1,134 metric tons) to 6,250,000 pounds (2,835 metric tons) per year, for the next four years. Then, the growth would likely level off. The annual volume of imported poultry product from China would range from approximately 0.007 Start Printed Page 20870percent to 0.018 percent of the total poultry products production in the U.S. Although U.S. firms that produce products such as duck and geese products may compete with the People's Republic of China's imports and could conceivably face short-run difficulty, such firms will likely adjust their product mix and be able to compete effectively.

FSIS does not believe that this rule will adversely affect the U.S. poultry industry, because the volume of trade that results from this rule will likely be small and have little effect on supply and prices or on U.S. consumers' confidence in poultry products. In addition, consumers will not be required to purchase poultry products produced and processed in the People's Republic of China.

FSIS does not believe that it underestimated the benefits in the preliminary analysis. The preliminary and final analyses recognize that the any significant effects of the rule will come through efficiency gains.

Comment: One commenter stated that the proposed rule was not disclosed to the public. Another commenter stated that the proposal was not given the public exposure that it warranted.

Response: The proposed rule was published in the Federal Register. In addition, FSIS made the proposed rule available on its Web site. FSIS also made copies of the proposal available through the FSIS Constituent Update, which is used to provide information regarding FSIS policies, procedures, and regulations that could affect or would be of interest to FSIS” constituents and stakeholders.

Comment: One commenter was opposed to allowing any foreign country to process food products for the U.S., several commenters recommended requiring country of origin labeling, and one comment stated that Chinese companies that do business with the U.S. should practice humane handling of poultry.

Response: These comments were beyond the scope of this regulation. They are not being addressed in the regulation, but the Agency appreciates the comments.

Executive Order 12866 and Regulatory Flexibility Act

This rule was reviewed by the Office of Management and Budget under Executive Order 12866 and was determined to be significant.

There are 10 to 25 establishments (based on recent information from the U.S. Embassy in Beijing, China) in the People's Republic of China that may be exporting product to the U.S. when this rule is effective. The establishments will export shelf-stable, fully cooked poultry products. U.S. imports from these establishments are expected to total 2,500,000 pounds (1,134 metric tons) to 6,250,000 pounds (2,835 metric tons) per year, for the next four years. Then, the growth would likely level off. In 2005, the U.S. produced about 35,365,000,000 pounds (16,041,459 metric tons) of poultry products. Thus, the annual volume of imported poultry product from China would range from 0.007 percent (1,134.0 metric tons/16,041,459 metric tons) to 0.018 percent (2,835 metric tons/16,041,459 metric tons) of the poultry products production in the U.S.

U.S. firms export large amounts of poultry and poultry products to the People's Republic of China. Table A reflects U.S. exports of poultry and poultry products to the People's Republic of China for the years 1998-2003.

This final rule will facilitate trade between the U.S. and the People's Republic of China in poultry products in a manner consistent with U.S. obligations under the WTO, which will result in benefits. U.S. consumers will not be required to purchase poultry products produced and processed in the People's Republic of China, although they may choose to do so. Expected benefits from this type of rule will theoretically accrue to consumers in the form of lower prices. The volume of trade stimulated by this rule, however, will likely be so small as to have little effect on supply and prices. Consumers, apart from any change in prices, will also benefit from increased choices in the marketplace.

The costs of this rule will theoretically accrue to producers in the form of greater competition from the People's Republic of China. Again, it must be noted that the volume of trade stimulated by this rule will likely be small and have little effect on supply and prices. Nonetheless, it is possible that U.S. firms that produce products, such as duck and geese products, that will compete with the People's Republic of China imports could face increased competition. However, in the long run, such firms will likely adjust their product mix and be able to compete effectively.

Any significant benefits of this rule will likely come through efficiency gains and potentially greater choice of products for consumers. FSIS reviewed the costs and benefits of the rule and determined that benefits will outweigh costs. The rule will not affect the safety of poultry products consumed in the U.S. Products will only be imported from the People's Republic of China if the People's Republic of China establishments can produce the products more efficiently than their U.S. counterparts. Then, U.S. firms will have the incentive to specialize in the production of products in which they are relatively more efficient. In the long run, this improved efficiency will make U.S. producers more competitive both domestically and internationally.

Table A.—U.S. Exports of Poultry Products to the People's Republic of China, 1998-2003
[Data shown in metric tons]
Product	1998	1999	2000	2001	2002	2003
Poultry Meats	41493.0	61948.9	64787.2	62413.8	86871.4	136494.9
Chickens, Fresh/Frozen	39007.7	58762.5	61181.2	48786.6	70670.3	129617.8
Poultry, Misc	18391.9	15603.1	16204.1	19110.2	13962.8	47911.3
Poultry Meats, Prep	46.6	1518.1	1860.9	8562.6	8831.4	3796.6
Turkeys, Fresh/Frozen	2437.5	1624.7	1624.0	4764.1	6986.2	2236.6
Other Poultry Fresh/Frozen	1.2	43.6	121.2	300.4	383.5	843.9

The data in Table A have been compiled from tariff and trade data from the U.S. Department of Commerce and the U.S. International Trade Commission.

Effect on Small Entities

The Administrator, FSIS, has determined that this final rule will not have a significant impact on a substantial number of small entities, as defined by the Regulatory Flexibility Act (5 U.S.C. 601). This rule would add the People's Republic of China to the list of countries eligible to export Start Printed Page 20871poultry products into the United States. Once the People's Republic of China begins to export poultry products into the United States, the volume of shelf-stable, fully cooked poultry products available in the U.S. market will likely increase by approximately 2,500,000 pounds (1,134.0 metric tons) to 6,250,000 pounds (2,835 metric tons) per year. However, this small volume of trade is unlikely to impact the supply and prices of these products. Therefore, this rule should have no significant impact on small entities that produce these types of products domestically.

Paperwork Requirements

No new paperwork requirements are associated with this final rule. Foreign countries wanting to export poultry products to the United States are required to provide information to FSIS certifying that its inspection system provides standards equivalent to those of the United States and that the legal authority for the system and its implementing regulations are equivalent to those of the United States before they may start exporting such product to the United States. FSIS collects this information one time only. FSIS gave the People's Republic of China questionnaires asking for detailed information about the country's inspection practices and procedures to assist the country in organizing its materials. This information collection was approved under OMB number 0583-0094. The rule contains no other paperwork requirements.

Executive Order 12988

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

Additional Public Notification

Public awareness of all segments of rulemaking and policy development is important. Consequently, in an effort to ensure that this final rule comes to the attention of the public—including minorities, women, and persons with disabilities—FSIS will announce it on-line through the FSIS Web page located at http://www.fsis.usda.gov/regulations_&_policies/2006_Interim_&_Final_Rules_Index/index.asp.

The Regulations.gov Web site is the central online rulemaking portal of the United States government. It is being offered as a public service to increase participation in the Federal Government's regulatory activities. FSIS participates in Regulations.gov and will accept comments on documents published on the site. The site allows visitors to search by keyword or Department or Agency for rulemakings that allow for public comment. Each entry provides a quick link to a comment form so that visitors can type in their comments and submit them to FSIS. The Web site is located at http://www.regulations.gov.

FSIS also will make copies of this Federal Register publication available through the FSIS Constituent Update, which is used to provide information regarding FSIS policies, procedures, regulations, Federal Register notices, FSIS public meetings, recalls, and other types of information that could affect or would be of interest to our constituents and stakeholders. The update is communicated via Listserv, a free e-mail subscription service consisting of industry, trade, and farm groups, consumer interest groups, allied health professionals, scientific professionals, and other individuals who have requested to be included. The update also is available on the FSIS Web page. Through Listserv and the Web page, FSIS is able to provide information to a broader and more diverse audience.

In addition, FSIS offers an e-mail subscription service that provides automatic and customized access to selected food safety news and information. This service is available at http://www.fsis.usda.gov/news_and_events/email_subscription/. Options range from recalls to export information to regulations, directives and notices. Customers can add or delete subscriptions themselves and have the option to password protect their accounts.