### United States Department of Agriculture Animal and Plant Health Inspection Service January 2012 Regulatory Impact Analysis & Initial Regulatory Flexibility Analysis Proposed Rule APHIS 2008-0010 RIN 0579- AC68 Bovine Spongiform Encephalopathy; Importation of Bovine s and Bovine Products

Policy & Program Development Policy Analysis & Developmenti 

### Summary
The proposed rule would make our bovine and bovine product import restrictions related to bovine spongiform encephalopath y (BSE) more reflective of curre nt scientific thinking while continuing to guard against the introduction of BSE. The proposed process for classifying regions with respect to BSE risk would be ba sed on the comprehensive review of relevant, internationally accepted scientific literature and would be consistent with the process employed by the World Organization for Animal Health (O IE). The proposed rule would also remove BSE-related restrictions on the importation of live cervids and camelids and their products. While benefits of the proposed rule are e xpected to exceed its costs, effects on U.S. imports are expected to be minimal. Potent ial impacts of the proposed rule on U.S. export markets, by influencing trading partners’ import po licies, are not considered in this analysis. Live Bovines (Cattle and Bison) Canada and Mexico are the sources of nearly all U.S. bovine imports. In the past 15 years, they have accounted for 99.9 percent of all cattle and bison imported into the United States. APHIS is proposing to classify Canada a nd Mexico as countries of controlled risk for BSE (their classifi cation by the OIE). Imports from Canada are likely to be unaff ected by this proposed rule because the proposed requirements would cause no change in the number or type of anim als that are eligible for importation, based on Canada’s status as a BSE minimal-risk region. Imports from Mexico also are likely to be largely unaffected, since nearly all cattle imported from Mexico (98 to 99 percent) are estimated to be less than 24 months of age and APHIS is proposing in this rule to establish November 30, 2007, as the date of eff ective enforcement of a ruminant-to-ruminant feed ban in Mexico (the earli est date that bovines imported from Mexico could be born).ii Products Derived from Bovines Six countries, Argentina, Australia, Brazil, Canada, New Zealand, and Uruguay, accounted for 93 percent of all U.S. bovine prod uct import volume (and 92 percent of the import value) over the five-year period, 2006-2010. Im ports from each of the six countries should continue essentially unchanged and without interrupt ion under the proposed rule, because the protocols in place in these countries are already in full compliance with the proposed criteria. Argentina, Australia, New Zeal and, and Uruguay are APHIS-proposed negligible risk regions for BSE that have never reported a case of BSE. Canada and Brazil, as proposed controlled risk regions for BSE, already satisfy FSIS inspection requirements and prohibitions on certain animal stunning or pithing and mechan ically separated meat. Imports from the 36 (primarily European) countries listed in 9 CFR § 94.18 as prohibited from shipping bovine products to the United Stat es likely would be insignificant under the proposed rule. In none of the years from 1990 th rough 1996, that is, prior to the prohibition on ruminant product imports from all of Europe in 1997, did the volume of U.S. bovine product imports from the 36 countries account for more than 0.6 percent of imports of these products. Nor does the current trade climate suggest a significant volume of imports from the 36 countries in the future, at least in the near term. U.S. imports of beef and other bovine products have been in decline, a situat ion that makes it increasingly difficult for foreign exporters to compete in the U.S. market. Second, while bovine product exports by the European Union (EU27) more than doubled in nominal value in five years, from $0.43 billion in 2006 to $1.01 billion in 2010, the value of bovine product imports by EU -27 member countries in 2010 ($2.1 billion)
was twice the value of their bov ine product exports. The EU-27 continues to be a large netiii importer of bovine products overall. Emerging mark ets, such as Russia, are likely to take a growing share of Europe’s bovine product exports. Bovine product imports from other countries th at are not currently subject to BSE-related restrictions are not expected to be significantly affected. Over the five years, 2006-2010, annual imports from such countries as a group averag ed 6 to 7 percent of all U.S. bovine product imports by volume (7 to 8 percent by value), wi th virtually all of the products coming from Mexico, Nicaragua, and Costa Rica. Imports from Mexico already meet the proposed requirements of a region of controlled risk for BSE largely by way of FSIS requirements. The potential impact on imports from Nicaragua and Costa Rica, which APHIS is proposing to recognize as regions of undetermined risk for BSE, should be minimal at most. Almost all imports from those two countries are of boneless beef that already satisfy the proposed rule’s requirements, again, largely by way of FSIS requirements. Live Cervids and Camelids and their Products Removal of the prohibition on the importation of live cerv ids and camelids and their products from the 36 countries listed in 9 CFR § 94.18 would likely have little or no impact. The United States has not imported any live cervids or camelids from these countries since at least 1990. In none of the years from 1990 through 19 96, before the prohibition of ruminant meat, meat products, and other edible products from all of Europe in 1997, did the volume of U.S. imports of meat and edible offal of deer from the 36 countries account for more than 3.3 percent of total imports. Moreover, U.S. imports of meat and edible offal of d eer have declined since 2005, a situation that makes it incr easingly difficult for foreign exporters to compete in the U.S. market. The volume of U.S. imports of camelid products is very small. Their annual valueiv averaged less than $50,000 over the five-year period, 2006-2010, and 90 percent of those imports were supplied by Canada and China. Benefits, Costs, and Alternatives Consumers benefit from imports to the extent that consumer choice is broadened and the increased supply of the imported commodity leads to a price decline. We anticipate that the proposed rule would have little impact on cons umer choice or import volumes. Likewise, we anticipate little or no impact for U.S. busin esses because of changes in import volumes. Although the impact of this proposed rule on U.S. consumers and producers is expected to be minimal, the benefits of the rule are ex pected to outweigh its costs. Leaving the bovine regulations unchanged would be uns atisfactory, because it would perpetuate the current situation in which our BSE-related import conditions are not fully supported by scientific evidence. Additionally, maintainin g the status quo would not provide an opportunity to recognize a region’s BSE risk status in a more timely fash ion than is possible under current regulations. Another alternative, amending the BSE regulatio ns related to the importation of bovines and bovine-derived products to match precisely the OIE Code without allowing for modification deemed necessary by APHIS, would also be unsa tisfactory, because it woul d not allow APHIS to independently interpret the scientific literature and findings that underlie OIE risk categorization recommendations. Making no changes to the regul ations that govern the importation of cervids and camelids would also be unsatisfactory, because it would perpet uate an unnecessary constraint on trade in those commodities. Small entities are prevalent in industries potentiall y affected by the proposed rule, but as described, we expect at most a minimal economic impact for U.S. businesses. We invite publicv comment on the rule’s potential economic impact , including comment on the potential impact on small entities.vi 

### Table of Contents Summary ....................................................................................................................... ....... i Introduction .................................................................................................................. ....... 1 Expected Effects of the Rule on U.S. Imports .................................................................... 2

Live Bovines and Bovine Products ................................................................................. 2 Cervids and Camelids an d their Products ..................................................................... 12 Expected Benefits and Costs, and Al ternatives to the Proposed Rule .............................. 13 Initial Regulatory Flex ibility Analysis .............................................................................. 141 

### Introduction
APHIS is proposing to amend the regulations that govern the importa tion of live bovines and products derived from bovines with regard to bovine spongiform encephalopathy (BSE). We are proposing to base importation conditions on the inherent risk of BSE infectivity in specified commodities, as well as on the BSE risk status of the region from which the commodities originate. We are proposing to establish a process for classifying regions as to BSE risk that is consistent with the process employed by the World Organization for Animal Health (OIE), the international standard-se tting organization for animal health. The conditions we are proposing for the impor tation of specified commodities are based on internationally accepted scientif ic literature and, except in a few instances, are consistent with the OIE Code. We are also proposing to classify certain specified countries as to BSE risk and are proposing to remove BSE restrictions on the importation of cervids and camelids and products derived from such animals. This economic analysis provides a cost-benef it analysis, as required by Executive Orders 12866 and 13563, which direct agencies to assess all costs and benefits of available regulatory alternatives and, if regulation is necessary, to select regulator y approaches that maximize net benefits (including potential economic, environmen tal, public health and safety effects, and equity). Executive Order 13563 emphasizes th e importance of quantifying both costs and benefits, of reducing costs, of harmonizing rule s, and of promoting fl exibility. The economic analysis also examines the potential economic eff ects of this rule on small entities, as required by the Regulatory Flexibility Act.2 

### Expected Effects of the Rule on U.S. Imports

To the extent that it would amend APHI S live animal and animal product import regulations as they relate to BSE, this propos ed rule’s impact would stem largely from its potential effect on U.S. imports of those commodities. 1 For the reasons discussed below, we believe the effect of this proposed rule on imports into the United States would be minimal at most. The anticipated impact on live bovines (and th eir products) and live cervids/camelids (and their products) are discu ssed separately.
Live Bovines and Bovine Products Live Bovines (Cattle and Bison) Together, Canada and Mexico have been the source of almost all imports of cattle and bison into the United States. In the past 15 years, the two countries accounted for no less than 99.9 percent of all U.S. cattle and bison imports. Canada exports both cattle and bison to the United States; Mexico exports cattle only. In 2009 and 2010, the United States imported 2.0 million and 2.3 million live bovines (a ll from Canada and Mexico), with values of $1.3 billion and $1.6 billion, respectively. 2 Imports from Canada, which is classified by th e OIE as a country of controlled risk for BSE and which APHIS likewise is proposing to cla ssify as controlled ri sk, are likely to be unaffected by the proposed rule; the proposed requirements would cause no change in the

1 The proposed rule has the potential to expand the U.S. export market, to the extent that it causes our trading partners to alter their trade policies. B ecause predicting if and when foreign countries would make changes to their trade policies is highly specula tive, this analysis assumes no trade policy changes in foreign countries as a result of the proposed rule and therefore no impact on U.S. exports.

2 Unless otherwise indicated, all trade data in this analysis are from the Department of Commerce, U.S. Census Bureau, as reported by Global Trade Information Services, Inc.3 number or type of animals that are eligible for importation base d on Canada’s status as a BSE minimal-risk region. Importation of live bovines from Canada is limited to those born on or after the date a ruminant-to-ruminant feed ban was effectively enforced in that country. 3 Under the provisions we are proposing, imports of live bovines from Canada would continue to be subject to that requirement. Canada would also be ab le to satisfy the proposed requirements relating to the identification of live bovines from regions of controlled risk for BSE, because current regulations require that all impor ts of cattle and bison from Ca nada be individually identified, and that all of those not for i mmediate slaughter be permanently identified as originating in Canada. 4 We expect that these proposed changes would have, at most, minimal impact on the number and type of bovines eligible for impor tation from Mexico. Mexico, like Canada, is classified by the OIE as a count ry of controlled risk for BSE a nd APHIS is likewise proposing to classify Mexico as controlled risk for BSE. Cu rrently, there are no BSE ag e-related restrictions on cattle from Mexico. As a regi on of controlled risk for BSE under this proposed rule, Mexico would be allowed to export to the United States only those live bovines born on or after the date a ruminant-to-ruminant feed ban was effectively enfo rced in that country. In this rule, APHIS is proposing to establish November 30, 2007, as the date of effective enforcem ent of a feed ban in Mexico. Bovine imports from Mexico would be essent ially unaffected by the establishment of the feed ban requirement in this proposed rule. Virt ually all cattle imports from Mexico (98 to 99

3 The effective enforcement date in Canada was March 1, 1999.

4 Under the proposed rule, live bovines from Canada fo r immediate slaughter would not be subject to the country of origin identification requirement.4 percent) are estimated to be less than 24 months of age. 5 Furthermore, any impact of the rule on the relatively small volume of cattle imported from Mexico born before November 30, 2007, would be short-lived, since it woul d allow for imports of increasingly older animals over time. Nor should the proposed requirements relating to animal identificati on pose a significant problem for Mexican exporters. As with imports from Canada, current re gulations require that all imports of cattle from Mexico be individually identified. Current regulations also require that all steers and spayed heifers from Mexico be permanently identified as originating in that country. Virtually all U.S. imports from Mexico in past years have been steers and spayed heifers that are not for immediate slaughter. Because opportunities fo r feeder cattle sales within Mexico are limited, cattle imports from that country tend to be lighter cattle for stocker operations and eventual finishing in U.S. feedlots. Most, or all, of the few imports that are not steers and spayed heifers are also permanently identified as originati ng in Mexico, by way of requirements established by the im porting U.S. Border States. We anticipate that this proposed rule would be unlikely to have a significant impact on imports of cattle and bison into the United States from countries other than Canada and Mexico. Such imports have been extremely limited in the past, primarily because exporters in geographically distant countries are at a significant competitive disadvantage in the U.S.

5 Data on the age of cattle imported into the United St ates from Mexico are not available. This estimate of the percentage of animals less than 24 months of age was provided by USDA Economic Research Service. It is consistent with other anecdotal evidence, including the observations of APHIS port veterinarians. It is also consistent with trade sta tistics that classify cattle imports by the animals’ weight, thereby providing a strong clue as to their age. In 2010, for example, 56.0 percent of all cattle imports from Mexico weighed less than 200 kilograms (KG), a weight category likely to be comprised almost entirely of cattle less than 12 months of age. Ca ttle imports from Mexico in 2010 weighing from 200 KG to less than 320 KG, which accounted for 42.6 percent of all cattle imports from Mexico that year, are likely to be comprised almost entirely of cattle betw een 12 and 24 months of age. Many cattle weighing 320 KG or more (1.4 percent of all 2010 imports from Mexico) are also likely to be less than 24 months of age.5 livestock market, given the added cost of tran sporting the animals to the United States. The proposed rule would not remove th at disadvantage. Therefore, we believe importation of more than a minimal number of live bovine from count ries other than Canada and Mexico would be highly unlikely, with or without the proposed rule in effect. 6 Nearly all of the 36 countries subject to the BSE ban on live bovin es are located in Europe. Products Derived from Bovines The potential for increased U.S. imports of bovine-derived products under this proposed rule is greater than that for live bovines, if fo r no other reason than the former can be shipped more easily and at less cost. For foreign exporte rs of bovine products, geographical proximity to the U.S. market is not necessarily predictive of export potential, as evidenced by imports from Australia and New Zealand. Nevertheless, a ny impact of the proposed rule on bovine product imports would likely be at most minimal. We expect that this rule would have lit tle or no impact on imports from Argentina, Australia, Brazil, Canada, New Zealand, and Urugua y. These six countries have been the source of nearly all U.S. imports of bovine products in recent years. 7 Over the five-year period, 2006-

6 Imports of live bovines from regions classified as being of undetermined risk for BSE would be prohibited under this proposed rule. Therefore, some regions that are not currently subject to any BSErelated restrictions under APHIS regulations would be prohibited fr om shipping live bovines to the United States under this proposed rule. However, the prohibition should have little or no practical impact, as the United States has imported only one live bovine since 1996 from any region currently classified by the OIE as undetermined risk (from Guatemala in 2002).

7 Unless noted otherwise, “bovine products” in this analysis includes commodities categorized by the Harmonized Tariff Schedule (HTS) as meat of bovine an imals (fresh/chilled, frozen); bovine edible offal (fresh/chilled, frozen); bovine meat and edible offal, cured; beef sausage and si milar products; and bovine meat and edible offal, not elsewhere specified, prep ared or preserved. The HTS does not offer the level of detail necessary to identify all of the products speci fied by this proposal. It does not, for example, allow for the disaggregation of imports of meat and meat products derived from animals over and under 12 months of age at the time of slaughter, a fact or affecting certain imports from OIE countries of undetermined risk. Nor does the HTS allow for the iden tification of imports of ruminant meat and bone meal (MBM), or products that contain ruminant MBM as an ingredient, possibly including some pet6 2010, they accounted for 93 percent of all U.S. bovine product import volume (and 92 percent of the import value). 8 Imports from each of the six countri es should continue essentially unchanged and without interruption, because the protocols in place in those countries are already in full compliance with the criteria that would be established by this proposed rule. In this regard, for imports from Argentina, Australia, New Zealand, and Uruguay—all of which are APHISproposed negligible risk countries for BSE that have never reported a case of BSE—the product import conditions related to a ruminant-to-ru minant feed ban would not be a factor. 9 Imports from Canada and Brazil, both of which we are proposing to recognize as controlled risk regions for BSE, already sati sfy, by way of FSIS requirements, the proposed requirement that products from regions of cont rolled risk for BSE not contain mechanically separated meat from the skull and vertebral colu mn of animals over 30 months of age. Also by way of FSIS requirements, all six countries already satisfy the pr oposed requirement for satisfactory ante- and post-mortem inspections, and Canada and Brazil already satisfy the proposed provisions prohibiting the export of certa in animal tissues and certain animal stunning or pithing. 10

foods. To the extent that the volumes and values show n in this analysis for U.S. imports of bovine products include products unaffected by this proposal, or exclude products affected by this proposal, those data overstate or understate impor ts of affected commodities. However, any such overstatement or understatement is minor relative to overall U.S. bovine product imports.

8 During the 5-year period, 2006-2010, U.S. imports of bovine products from all sources averaged 0.92 million metric tons annually.

9 For negligible risk regions that have never re ported a case of BSE, there would be no product import conditions related to the date of a feed ban. Howe ver, we are proposing that in countries of negligible risk for BSE where there has been an indigenous case of BSE, the commodity be derived from bovines that passed ante-mortem and post-mortem inspection and were s ubject to a ban on the feeding of meat and bone meal or greaves derived from ruminants to ruminants.

10 With certain exceptions, the prohibition on animal tissue imports from countries of controlled risk for BSE covers: (a) tonsils and distal ileum from animals of any age; and (b) brains, eyes, spinal cord, skull7 The volume of imports from the 36 (primar ily European) countries prohibited from shipping bovine products to the United States w ould be likely insignifi cant. (Most of these countries are classified by the OIE as either controlled or neglig ible risk for BSE.) Even prior to the prohibition on ruminant meat, meat products, and other edible products from all of Europe in 1997, U.S. imports of bovine products from the 36 countries were negligible when judged against total U.S. imports of those commodities. 11 In none of the years from 1990 through 1996 did the volume of U.S. bovine product imports from all 36 countries account for more than 0.6 percent of the volume of those imports from all countries combined. In 1996, the year immediately prior to the prohibi tion of most ruminant commoditi es from all of Europe, U.S. imports of bovine products from all 36 countries combined totaled 1,146 metric tons, with a value of $5.4 million. By comparison, overall U.S. imports of bovine products that year totaled 730,270 metric tons, with a value of $1.38 billion. 12 In 1996, U.S. imports of bovine products fr om all 36 countries were spread over 11 different product categories. In none of those cat egories did the volume of U.S. imports from all 36 countries combined exceed 828 metric tons; fo r 9 of the 11 categories, the volume of U.S. imports from all 36 countries combined was 87 metr ic tons or less. Moreover, for each of the two categories that did exceed 87 metric tons—bovi ne cuts with bone in (fresh/chilled) at 119

and vertebral column from animals over 30 months of age at the time of slaughter. For countries of negligible risk for BSE such as Argentina, Australia , New Zealand, and Uruguay, such provisions would not apply.

11 BSE-related restrictions on imports of ruminant products were first established by APHIS in 1991, but the restrictions did not prohibit beef imports if certain conditions were met. In late 1997, APHIS prohibited ruminant and ruminant product imports from all of Europe. (Imports from Japan were prohibited in September 2001 but the prohibition was lifted—for whole cuts of boneless beef only—in December 2005.)

12 Department of Commerce, U.S. Census Bureau, as reported by USDA Foreign Agricultural Service.8 metric tons and bovine meat (p repared/preserved) at 828 metric tons—the volume of imports from the 36 countries accounted for less than tw o percent of the volume of U.S. overall imports of these commodities. For 9 of the 11 categories, the 36 countries’ combined share of total U.S. imports was no higher than 7.8 percent; for beef saus ages (canned) and beef sausages (in airtight containers, but not canned), the 36 countries’ combined share of total U.S imports was 77 percent and 100 percent, respec tively, but the volume of im ports of those products was miniscule. 13 These data indicate that, in the past, the 36 countries have not been a source of significant quantities of bovine prod ucts for the U.S. market. Nor does the current trade climate suggest a significant volume of imports from the 36 countries in the future, at least in the near term. There are a nu mber of reasons. First, U.S. imports of bovine products, including beef, have been in decline, a situation that makes it increasingly difficult for foreign export ers to compete in the U.S. market. 14 Second, while bovine product exports by the European Union (E U-27) more than doubled in nominal value in five years, from $0.43 billion in 2006 to $1.01 bi llion in 2010, the value of bovine product imports by EU-27 member countries in 2010 ($2.1 b illion) was twice the value of their bovine product exports. 15 The EU-27 continues to be a large ne t importer of bovine products overall.

13 Ibid. In 1996, the U.S. imported 22 metric tons of beef sausage (canned) and 0.1 metric ton of beef sausage (in airtight containers, not canned) from all sources, including the 36 countries. During the period, 2006-2010, Brazil was the source of 94 percent and Canada was the source of 3 percent of U.S. imports of all beef sausage (including sausage not in airtight containers). Annual imports over these five years averaged 838 metric tons.

14 U.S. imports of bovine products from all sources ove r the five years, 2006-2010, fell by 23 percent in volume (from 1.03 million metric tons to 0.79 million me tric tons) and by 11.6 percent in nominal value (from $3.3 billion to $2.9 billion).

15 Data for the EU-27 members exclude intra-EU trad e. While member countries of the European Union for the most part match the European regions listed in 9 CFR § 94.18, for which importation of meat and edible products from ruminants are restricted due to BSE, there are some differences. EU-27 members not listed in § 94.18 are Cyprus, Estonia, Latvia, Lith uania, and Malta. European regions listed in § 94.189 Emerging markets, such as Russia, are likely to take a growing share of Europe’s bovine product exports. 16 Over the five years, 2006-2010, EU-27 bovine product exports averaged 201,545 metric tons. Even if it is assumed that 5 percent (10,077 metric tons) of those e xports were diverted to the U.S. market as a result of the proposed rule, imports from the EU-27 countries would be equivalent to only about 1 percent of total U.S. bovine product imports, which averaged 919,276 metric tons over the same period. Imports of boneless beef from Japan, which is classified by the OIE as a country of controlled risk for BSE and which APHIS likewise is proposing to classify as controlled risk for BSE, would be unaffected by the proposal. 17 This is because those imports already satisfy, largely by way of FSIS requirements, the proposed requirements for imports from regions of controlled risk for BSE. Any ne w imports from Japan, which is al lowed to ship whole cuts of boneless beef to the United States under certain conditions, would likely be miniscule. Over the 15-year period from 1990 to 2004, Japan’s exports of bovine products worldwide never exceeded 772 metric tons in any one year. 18 Given the aforementioned factors, as well as U.S. import

that are not EU-27 members are Albania, Andorra, Bosnia-Herzegovina, Croatia, the Federal Republic of Yugoslavia (now Kosovo under UN Security Council Resolution 1244, Montenegro, and Serbia), the former Yugoslav Republic of Macedonia, Liechtenste in, Monaco, Norway, San Marino, and Switzerland.

16 The nominal value of Russian Federation bovine product imports rose 40 percent over the five-year period, 2006-2010, from $1.69 billion to $2.37 billion.

17 Over the five-year period, 2006-2010, Japan’s a nnual exports of boneless cuts to the United States averaged 210 metric tons, less than 0.03 percent of all U.S. boneless cut imports. Beef imports from Japan are a unique product that serves a high-priced sp ecialty market. The specialty meat, called "Wagyu beef," comes from cattle genetically predisposed to in tense marbling. The term “Kobe beef” refers to Wagyu beef that is produced in the Kobe area of Japan.

18 United Nations Statistics Division. Japan’s exports of beef sausages, if any, are not included.10 history, we believe this proposed rule would be unlikely to resu lt in a signifi cant volume of imports from the 36 countries listed in 9 CFR § 94.18

. Finally, although this proposed rule has the po tential to affect imports from countries other than Argentina, Australia, Brazil, Cana da, New Zealand, Uruguay, and the 36 countries listed in 9 CFR § 94.18 , we believe that any such impact would be minimal. Imports from such other countries are not currently subject to BSE- related restrictions under APHIS regulations, but would be subject to BSE-related restrictions under this proposed ru le. Over the five years, 2006- 2010, annual imports from such other countries as a group averaged 6 to 7 percent of all U.S. bovine product imports by volume (7 to 8 percent by value), with virtually all of the products coming from Mexico, Nicaragua, and Costa Rica. 19 Imports from Mexico, which we are proposing to recognize as a region of controlled ri sk for BSE, would likely be unaffected by the proposed rule, because such imports already me et the proposed requirements largely by way of FSIS requirements. The potential impact of this proposed rule on imports from Nicar agua and Costa Rica, which we are proposing to recognize as region s of undetermined risk for BSE, should be minimal at most. This is because almost all imports from those two countries are of boneless beef that already satisfy the proposed ru le’s requirements, largely by way of FSIS requirements. 20 The rule’s potential impact on imports from other countries in this grouping (i.e., other than Mexico, Nicaragua, and Costa Rica) is uncertain. As regions of undetermined risk for BSE,

19 Together, Mexico, Nicaragua, and Costa Rica were the source of 96 percent of all U.S. imports of bovine products from these other countries, 2006-2010.
20 Over the five-year period, 2006-2010, boneless pr oducts comprised 95 percent of Nicaragua’s and Costa Rica’s bovine product exports to the United St ates (USDA FSIS Office of International Affairs).11 they would be required to certify that the bovi nes from which certain commodities intended for export were derived were not fe d meat and bone meal or greave s derived from ruminants, a requirement they are not subject to now. Whethe r these other countries would be able to make such a certification is unknown. Also, as countri es of undetermined risk for BSE, these other countries would be prohibited fr om exporting products that contai n mechanically separated meat from the skull and vertebral column of animals over 12 months of age. Currently, they are prohibited from exporting pr oducts that contain mechanically se parated meat from the skull and vertebral column of anim als over 30 months of age. 21 Under this proposed rule, these other countries would have the option of requesting th at APHIS conduct an evaluation to determine if they qualify for a BSE risk classification other than undetermined. However, even if shipments from these other countries were to cease alt ogether under the proposed rule, the impact on the overall volume of U.S. bovine product imports would be insignificant, given their extremely small share (0.3 percent by volume and 0.4 percent by value, 2006-2010). In sum, we believe that any impact of this proposed rule on imports into the United States of products derived from bovines would be minimal at most. In this regard, a very possible scenario is one in which a small volum e of new imports (from the 36 countries listed in 9 CFR §

21 In addition to the feed ban certification for certain products and the prohibition on products that contain mechanically separated meat from the skull and verteb ral column of animals over 12 months of age, the conditions for imports from BSE-undetermined risk regions: (1) require satisfactory ante- and postmortem animal inspections; (2) prohibit the import of certain animal tissues; and (3) prohibit the import of products derived from animals subjected to an air- or gas-injected stunning process or a pithing process. With certain exceptions, the OIE prohib ition on animal tissue exports from undetermined risk countries covers: (a) tonsils and distal ileum from animal s of any age; (b) brains, eyes, spinal cord, skull and vertebral column from animals over 12 months of age at the time of slaughter; and (c) nervous and lymphatic tissues exposed during the deboning process.12 94.18 ) is offset entirely or in large part by a sm all decline in the volume of imports from other countries. Cervids and Camelids and their Products Live Cervids and Camelids Under this proposed rule, the removal of the prohibition of the impor tation of live cervids and camelids from the 36 countries listed in 9 CFR § 94.18 would likely have little or no impact. Cervids and camelids are not typically imported into the United States from those countries. The trade data indicate that the United States has no t imported any live cervids or camelids from the 36 countries since at least 1990. Furthermore, nearly all of the 36 countries subject to the ban are located in Europe, a situation th at puts potential exporters in those countries at a significant competitive disadvantage in the U.S. market, given the added cost of transporting the animals to the United States. This proposed rule would not remove that disadvantage. Importation of more than a very small number of live cervids and cam elids from the 36 countries, therefore, would be highly unlikely, with or without th e proposed rule in effect. Products Derived from Cervids and Camelids We anticipate that the volume of imports from the 36 (primarily European) countries listed in 9 CFR § 94.18 of products derived from cervids or camelids would likely be insignificant under the proposed rule. Before the prohibition of ruminant meat, meat products, and other edible products from all of Europe in 1997, U.S. im ports of meat and edible offal of deer from the 36 countries were negligible when judged ag ainst total U.S. imports of those commodities. 22

22 A search of the trade data shows that since 1990, U.S. imports of cervid and camelid products from all sources have been in three different product categories: (1) meat and edible offal of deer; (2) deer skins; and (3) camel hair. Only meat and edible offal of deer would be affected by this proposal; APHIS regulations do not currently restrict or prohib it the importation of deer skins or camel hair.13 In none of the years from 1990 through 1996 did the volume of U.S. imports of meat and edible offal of deer from all 36 countries account fo r more than 3.3 percent of the volume of those imports from all countries combined, and in none of those years did the volume of U.S. imports of meat and edible offal of deer from all 36 countries combined exceed 23 metric tons. 23 Nor, as is the case with bovine products discussed a bove, does the current trade climate suggest a significant volume of imports of meat and edible offal of deer from the 36 countries in the near term. U.S. imports of meat and edible offal of deer have declined since 2005, a situation that makes it increasingly difficult for foreign e xporters to compete in the U.S. market. 24 The volume of U.S. imports of camelid produ cts is very small. Their annual value averaged less than $50,000 over the five-year period, 2006-2010, and 90 percent of those imports were supplied by Canada and China. 25 

### Expected Benefits and Cost s, and Alternatives to the Proposed Rule

As discussed, this proposed rule is expected to have, at most, a minimal impact on U.S. imports of live bovines, cervids, camelids, and th eir products. Consumer s benefit from imports to the extent that consumer choice is broa dened and the increased supply of the imported commodity leads to a price decline. 26 We anticipate that the pr oposed rule would have little

23 Department of Commerce, U.S. Census Bureau, as reported by USDA Foreign Agricultural Service.

24 Ibid. For the five years, 2006-2010, the annual value of U.S. imports of meat and edible meat offal of deer averaged $10.8 million. Over 99 percent was supplied by New Zealand. The volume of imports declined from 1,303 metric tons in 2006, to 945 metric tons in 2010.

25 Ibid.
26 Imports of a commodity generally serve to increase ne t social welfare. To the extent that consumer choice is broadened and the increased supply of the impor ted commodity leads to a price decline, gains in consumer surplus will outweigh losses in domestic producer surplus. (Consumer surplus is the difference14 impact on consumer choice or impo rt volumes. Likewise, we anti cipate little or no impact for U.S. businesses because of changes in import volumes. Although the impact of this proposed rule on U.S. consumers and producers is expected to be minimal, the benefits of the rule are ex pected to outweigh its costs. Leaving the bovine regulations unchanged would be uns atisfactory, because it would perpetuate the current situation in which our BSE-related import conditions are not fully supported by scientific evidence. Additionally, maintainin g the status quo would not provide an opportunity to recognize a region’s BSE risk status in a more timely fash ion than is possible under current regulations. Another alternative, amending the BSE regulatio ns related to the importation of bovines and bovine-derived products to match precisely the OIE Code without allowing for modification deemed necessary by APHIS, would also, we be lieve, be unsatisfactory, because it would not allow APHIS to independently interpret the scient ific literature and findings that underlie OIE risk categorization reco mmendations. Making no changes to the regulations that govern the importation of cervids and camelids would also be unsatisfactory, because it would perpetuate an unnecessary constraint on trad e in those commodities. 

### Initial Regulatory Flexibility Analysis
The Regulatory Flexibility Act (RFA) requires agencies to ev aluate the potential effects of their proposed and final rules on small businesses, small organizations and small governmental jurisdictions. S ection 603 of the Act requires ag encies to prepare and make

between the amount a consumer would be willing to pay for a good and the amount actually paid. Producer surplus is the difference between the am ount a seller actually receives for a good and the amount he would be willing to receive.)15 available for public comment an initial regulatory flexibility analysis that describes expected impacts of a proposed rule on small entities. The purpose of the proposed rule is to amend the import regulations related to BSE such that they would continue to sufficiently guard against the introduction of BSE into the United States, while making the bovine and bovine product import restrictions more reflective of current scientific thinking. The proposed process for classifying regions as to BSE risk would be based on a comprehensive review of relevant, interna tionally accepted scientific literature and would be consistent with the process employed by th e OIE. The proposed process would use risk categories for bovines and bovine products (neg ligible, controlled, and undetermined) and criteria that are also used in the OIE Code. Whether a bovine or a bovi ne-derived product would be eligible for importation in to the United States, and under what conditions, would in many cases be determined by the BSE category of the region from which the animal or product originates. We are also proposi ng to remove BSE restrictions on the importation of cervids and camelids and products derived from such animals. The legal basis for this proposed rule is the Animal Health Protection Act (7 U.S.C. 8301 et seq.), by which the Secretary of Agriculture may restrict th e importation of any animal or article if the Secretary determin es that the prohibition is necessary to prevent the introduction into or dissemination within the United States of any pest or disease of livestock. The objective is to bring the import regulations related to BSE into closer alignment with our scientific understanding of this disease. Trade in live bovines, cervids, and camelids, a nd their products, has the potential to affect U.S. entities engaged in the production, processing, and sale of those commodities. They include cow-calf producers, cervid and camelid produ cers, feedlot establis hments, slaughtering16 establishments, meat packing and processing esta blishments, meat wholesalers, importers and exporters, grocery stores and meat mark ets, and manufacturers of cosmetics and pharmaceuticals. 27 Sales and employment information underscores the prevalence of small entities in the industries potenti ally affected, as categorized by the North American Industry Classification System (NAICS). The small-enti ty estimates are based on U.S. Small Business Administration (SBA) size standards. In terms of numbers of enti ties, beef cattle ranching and farming (NAICS 112111) is the largest single industry that could be affected. In 2007, there were 656,475 establishments in this industry, and their average annua l sales were less than $42,000, significantly below the smallentity standard of not more than $750,000. 28 That same year, there were 57,318 entities engaged in dairy cattle and milk production (NAICS 112120) , and their average a nnual sales were about $606,000, much higher than for beef producers but st ill well below the sma ll-entity standard of $750,000. 29 In 2007, there were 31,065 cattle feedlots (NAICS 112112). Average receipts for these establishments were $974,000, compared to the small-entity thre shold of $2.5 million. 30 For the industries, animal (except poultry) slaughtering (NAICS 311611) and meat processed from carcasses (NAICS 311612), the sma ll-entity standard is not more than 500 employees. Based on numbers of full-year esta blishments in these industries in 2007 (1,597 and

27 Animal products such as gelatin are used in the manufacture of cosmetics and pharmaceuticals.

28 USDA NASS, 2007 Census of Agriculture. http://www.agcensus.usda.gov/Publications/2007/ Full_Report/Volume_1,_C hapter_1_US/st99_1_046_04 6.pdf

29 Ibid.

30 Ibid.17 1,379, respectively), 92 percent and 80 percent of the establishm ents employed fewer than 100 employees. 31 The small-entity standard for meat and m eat product merchant wholesalers (NAICS 424470) is not more than 100 employees. Of the 2,295 full-year establishments in this industry in 2007, over 96 percent were sma ll according to this criterion. 32 For supermarkets and other grocery (except convenience) st ores (NAICS 445110), there we re 55,926 establishments that operated throughout 2007 and their average receip ts were $8.2 million, significantly below the small-entity threshold of $30 million. 33 The small-entity standard for meat markets (NAICS 445210) is annual receipts of not more than $7 million; average receipts for the 5,108 establishments in this industry in 2007 were about $1 million. 34 Clearly, most businesses that may be directly affected by the proposed rule are small. However, as has been described, any effects in terms of changes in U.S. imports of bovines and bovine products are expected to be minor. This proposed rule contains no mandatory reporting, recordkeeping, or other compliance requirements for U.S. entities. The RFA requires agencies to identify, to the extent practicable, a ny Federal rule that may duplicate, overlap or conflict with this proposed rule. APHIS has not identified any duplication, overlap, or conflict of this propos ed rule with other Federal rules.

31 Department of Commerce, 2007 Economic Census. http://factfinder.census.gov/servlet/IBQTabl e?_bm=y&-geo_id=&-ds_name=EC0731I1&-_lang=en

.
32 Department of Commerce, 2007 Economic Census. http://factfinder.census.gov/servlet/IBQTa ble?_bm=y&-geo_id=&-fds_name=EC0700A1&- _skip=2900&-ds_name=E C0742SSSZ2&-_lang=en

33 Department of Commerce, 2007 Economic Census. http://factfinder.census.gov/servlet/IBQTable?_bm =y&-geo_id=&-fds_name =EC0700A1&-_skip=900&- ds_name=EC0744SSSZ1&-_lang=en

34 Ibid.18 Finally, the RFA requires agencies to describe any significant alternatives to the proposed rule that accomplish the stated objectives of applicable statutes and that minimize any significant economic impact of the proposed rule on small entities. As indicated above, this rule is expected to have, at most, a minimal econo mic impact on small entities. We invite public comment on the rule’s potential economic impact, including any comment on the potential impact on small entities.