United States Department of Agriculture

Animal and Plant Health Inspection Service July 2013 Regulatory Impact Analysis & Final Regulatory Flexibility Analysis

Final Rule APHIS 2008-0010 RIN 0579- AC68
Bovine Spongiform Encephalopathy; Importation of Bovines and Bovine Products

Policy & Program Development Policy Analysis & Developmenti 

### Summary

This rule will make our bovine and bovine product import restrictions related to bovine spongiform encephalopathy (BSE) more reflective of current scientific thinking while continuing to guard against the introduction of BSE. The process for classifying regions with respect to BSE risk will be based on the comprehensive review of relevant, internationally accepted scientific literature and will be consistent wi th the process employed by the World Organization for Animal Health (OIE). The ru le will also remove BSE-relate d restrictions on the importation of live cervids and camelids and their products. While benefits of the rule are expected to justify its costs, effects on U.S. imports are expected to be minimal. Potential impacts of the rule on U.S. export markets, by influencing trading partners’ import policies, are not considered in this analysis. Live Bovines (Cattle and Bison) Essentially all U.S. imports of cattle and bison are from Ca nada and Mexico. Over the 10 years 2002-2011, the only live bovine im ports that did not come from Canada or Mexico were 33 animals from Australia, 12 from New Zealand, a nd 1 from Guatemala. APHIS is classifying Canada and Mexico as countries of controlled risk for BSE (t heir classification by the OIE). Imports from Canada will be unaffected by this rule because the requirements will cause no change in the number or type of animals that are eligible for importation, based on Canada’s status as a BSE minimal-risk region. Imports from Mexico also will be essentially unaffected, since nearly all cattle imported from Mexico (98 to 99 percent) are estimated to be less than 24 months of age; with this rule APHIS is esta blishing November 30, 2007, as the date of effective enforcement of a ruminant-to-ruminant feed ba n in Mexico (the earliest 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 91 percent of all U.S. bovine prod uct import volume (and 90 percent of the import value) over the five-year period 2007-2011. Impo rts from each of the six countries should continue essentially unchanged and without interr uption under the rule, because the protocols in place in these countries are already in full comp liance with the rule’s criteria. Argentina, Australia, New Zealand, and Uruguay will be classi fied by APHIS as negligible risk regions for BSE; they have never reported a case of BSE. Canada and Brazil, which will be classified by APHIS as controlled risk regions for BSE, al ready satisfy FSIS inspection requirements and prohibitions on certain animal stunning or p ithing and mechanically separated meat. Imports allowed by the rule from the 36 (pri marily European) countries listed in 9 CFR § 94.18 as prohibited from shi pping bovine products to the United States likely will be insignificant. In none of the years from 1990 through 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 recent EU trade in bovine products suggest a significant volume of imports from the 36 countries in the future, at least in the near term. While the nominal value of bovine product exports by the European Union (EU-27) increased more than four-fold in five years, from $0.36 billion in 2007 to near ly $1.57 billion in 2011, the valu e of bovine product imports by EU-27 member countries in 2011 ($2.42 billion) exceeded the value of their bovine product exports by more than $850 million. The EU-27 c ontinues to be a large net importer of bovine products overall. Emerging markets, such as Russia, are likely to take a growing share of Europe’s bovine product exports.iii Bovine product imports from other countries th at are not currently s ubject to BSE-related restrictions are not expected to be significantly affected. Ov er the five years 2007-2011, annual imports from such countries as a group averag ed 8 to 9 percent of all U.S. bovine product imports by volume (10 to 11 percent by value), with over 95 percent of these products coming from Mexico, Nicaragua, and Costa Rica. Imports from Mexico already meet the 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, wh ich APHIS is classifying 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 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 will 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. Over the five years 2007-2011, more than 99 percent of U.S. imports of meat and edible offal of deer have come from New Zealand, and that country’s dominance of this market is unlikely to change as a result of th is rule. The volume of U.S. imports of camelid products is very small. Their annual value av eraged less than $50,000 over the five-year period 2006-2010 (most recent data available), and 90 pe rcent of those imports were supplied by Canada and China.iv 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 an ticipate that the rule will have little impact on consumer choice or impo rt volumes, and therefore little or no impact on U.S. businesses as well. Although the impact of this rule on U.S. c onsumers and producers is expected to be minimal, the benefits of the rule are expected to justify its cost s. Leaving the bovine regulations unchanged would be unsatisfactory because it would perpetuate th e current situation in which our BSE-related import conditions are not fully supported by scientific evidence. Additionally, by maintaining the status quo APHIS would forgo the opportunity to establish a process for classifying a region’s BSE risk status in a more timely fashion than is possible under current regulations. Another alternative, amending the BSE regulat ions related to the importation of bovines and bovine-derived products to match precisely the OIE Code without al lowing for modification deemed necessary by APHIS, would also be un satisfactory; it would 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 perpetuate an unnecessary constraint on trade in those commodities. Effects for Small Entities Small entities prevail among the industries that may be affect ed by this rule, including cow-calf producers, cervid and camelid produ cers, feedlot establis hments, slaughtering establishments, meat packing and processing esta blishments, meat wholesalers, importers andv exporters, grocery stores and meat mark ets, and manufacturers of cosmetics and pharmaceuticals. However, as has been describe d, any changes because of this rule in U.S. imports of live bovines, cervids, camelids, or thei r products are expected to be minor. U.S. small entities are unlikely to be significantly affecte d. This rule contains no mandatory reporting, recordkeeping, or other compliance requirements for U.S. entities.Table of Contents
Summar y ....................................................................................................................... ..... 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, an d Alternatives to the Rule .............................................. 13 Final Regulatory Flexib ility Analysis .............................................................................. 141 

### Introduction

APHIS is amending the regulations that govern the importation of live bovines and products derived from bovines with regard to bovine spongiform encephalopathy (BSE). We are basing 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 establishing a process for classifyi ng regions as to BSE risk that is consistent with the process employed by the World Organization for Animal Hea lth (OIE), the international standard-setting organization for animal health. APHIS conditions for the importation of specified commodities are based on internationally accepted scientific literature and, ex cept in a few instances, are consistent with the OIE Code. With this rule, we are classifying certain specified countries as to BSE risk and removing 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 regulatory approaches that maximize net benefits (including potential economic, environmen tal, public health and safety effects, and equity). Executive Order 13563 emphasizes the importance of quantifying both costs and benefits, of reducing costs, of harmonizing ru les, and of promoting flexibility. The economic analysis also examines the potential economic effects of this rule on small entities, as required by the Regulatory Flexibility Act.2 

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

This rule’s expected economic impact stems from its potential effect on certain animal and animal product imports that are regulated because of BSE. 1 For reasons discussed below, we expect any effect on U.S. imports will be minimal at most. We discuss first the anticipated impact on imports of live bovines and their products, followed by the anticipated impact on imports of live cervids and camelids and their products.

Live Bovines and Bovine Products

Live Bovines (Cattle and Bison) Essentially all U.S. imports of cattle and bi son come from Canada and Mexico. Over the three years 2009-2011, the United States imported an average of 2.2 million live bovines per year, valued at $1.5 billion and all from Canada and Mexico. 2 Over the 10 years 2002-2011, the only live bovine imports that did not come fr om Canada or Mexico were 33 animals from Australia, 12 from New Zeal and, and 1 from Guatemala. Imports from Canada, which is classified by th e OIE as a country of controlled risk for BSE and which APHIS likewise is classifying as c ontrolled risk, will be unaffected by the rule; the requirements will cause no change in the number or type of animals that are eligible for importation based on Canada’s status as a BSE minimal-risk region. Importation of live bovines from Canada is limited to those born on or afte r the date a ruminant-to -ruminant feed ban was

1 The rule has the potential to expand the U.S. export market , to the extent that it influences changes in our trading partners’ import policies. Because predicting if and when ot her countries will make changes to their trade policies is highly speculative, this analysis assumes no import policy changes by foreign countries as a result of the rule and therefore no impact on U.S. exports. 2 Unless otherwise indicated, all trade data in this analys is are from the Department of Commerce, U.S. Census Bureau, as reported by Global Trade Information Services, Inc.3 effectively enforced in that country. 3 Imports of live bovines from Canada will continue to be subject to that requirement. Canada is al ready satisfying requirements relating to the identification of live bovines from regions of cont rolled risk for BSE; current regulations require that all imports of cattle and bison from Canada be individua lly identified and ones not for immediate slaughter be permanently id entified as originating in Canada. 4 We expect that the rule will have, at most , minimal impact on the number and type of bovines imported from Mexico. Mexico, like Cana da, is classified by th e OIE as a country of controlled risk for BSE and APHIS is likewise cl assifying Mexico as controlled risk for BSE. Currently, there are no BSE age-related restric tions on cattle from Mexico. As a region of controlled risk for BSE under this rule, Mexico will 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 enforced in that country. In th is rule, APHIS is establishing N ovember 30, 2007, as the date of effective enforcement of a feed ban in Mexico. Nearly all cattle imported from Mexico (98 to 99 percent) are estimated to be less than 24 months of age. 5 Bovine imports from Mexico therefore will be essentially unaffected since Mexico’s feed ban has been effectively enforced for more than five years.

3 The effective enfor cement date in Canada was March 1, 1999. 4 Under the rule, live bovines from Canada for immediate slaughter will not be subject to the country of origin identification requirement 5 Data on the age of cattle imported into the United States from Mexico are not available. This estimate of the percentage of animals less than 24 months of age was provided by USDA’s Economic Research Service. It is consistent with anecdotal evidence, includ ing the observations of APHIS port veterinarians. It is also consistent with trade statistics that classify cattle imports by the animals’ we ight, 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. Cattle 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 entirel y of cattle between 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.4 Nor should the requirements relating to anim al identification pose a significant problem for Mexican exporters. As with imports from Cana da, current regulations re quire 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 Me xico in past years have been st eers and spayed heifers that are not for immediate slaughter. Because opportunitie s for feeder cattle sale s 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 ar e not steers and spayed heifers are also permanently identified as or iginating in Mexico, by way of requirements established by the importing States bordering Mexico. We anticipate that this rule is 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, primar ily because exporters in geographically distant countries are at a significant competitive disadvan tage in the U.S. livestock market, given the added cost of transporting the animals to the United States. The rule will not remove that disadvantage. Therefore, we believe importation of more than a minima l number of live bovines from countries other than Canada and Mexico is highly unlikely, with or without the rule in

effect. 6 Nearly all of the 36 countri es subject to the BSE ban on live bovines are located in Europe.

6 Imports of live bovines from regions classified as being of undetermined risk for BSE will be prohibited under this rule. Therefore, some regions that are not currently subject to any BSE-relate d restrictions under APHIS regulations will be prohibited from shipping live bovines to the United States. 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 undetermine d risk (from Guatemala in 2002).5 Products Derived from Bovines The potential for increased U.S. imports of bovine-derived products under this rule is greater than that for live bovines, if for no othe r reason than the former can be shipped more easily and at less cost. For foreign exporters of bovine products, geograp hical proximity to the U.S. market is not necessarily predictive of export potential, as evidenced by imports from Australia and New Zealand. Nevertheless, any impact of the rule on bovine product imports will likely be at most minimal. We expect that this rule will have littl e or no impact on imports from Argentina, Australia, Brazil, Canada, New Zealand, and Urugua y. These six countries have been the source of most U.S. imports of bovi ne products in recent years. 7 Over the five-year period 2007-2011, they accounted for 91 percent of all U.S. bovine product import volume (and 90 percent of the import value). 8 Imports from each of the six countries should continue e ssentially unchanged and without interruption, because the protocols in place in those countries are already in full compliance with the criteria established by this ru le. In this regard, for imports from Argentina, Australia, New Zealand, and Urugua y—countries that APHIS is classifying as negligible risk for

7 Unless noted otherwise, “bovine products” in this anal ysis includes commodities categorized by the Harmonized Tariff Schedule (HTS) as meat of bovin e animals (fresh/chilled, froz en); bovine edible offal (fresh/chilled, frozen); bovine meat and edible offal, cured; beef sausage and similar products; and bovine meat and edible offal, not elsewhere specified, prepared or preser ved. The HTS does not offer the level of detail necessary to identify all of the products specified in this rule. 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 factor affecting certain imports from OIE countries of undetermined risk. Nor does the HTS allow for the identification of imports of ruminant meat and bone meal (MBM), or products that contain ruminant MBM as an ingredient, possibly including some pet foods. To the extent that the volumes and values shown in this analysis for U.S. imports of bovine products include products unaffected by this rule, or exclud e products affected by this rule, those data overstate or understate imports 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 2007-2011, U.S. imports of bovine products from all sources averaged 0.86 million metric tons annually.6 BSE and that have never reported a case of BSE—the product import co nditions related to a

ruminant-to-ruminant feed ban will not be a factor. 9 Imports from Canada and Brazil, both of wh ich we are classifying as controlled risk regions for BSE, already satisf y, by way of FSIS requirements, the requirement that products from regions of controlled risk for BSE not cont ain mechanically separate d meat from the skull and vertebral column of animals over 30 months of age. Also by way of FSIS requirements, all six countries already satisfy the requirement fo r satisfactory ante- and post-mortem inspections, and Canada and Brazil already sa tisfy the provisions prohibiting the export of certain animal

tissues and certain anim al stunning or pithing. 10 The volume of imports from the 36 (primar ily European) countries prohibited from shipping bovine products to the United States will be likely insignificant. (Most of these countries are classified by the OIE as either controlled or neg ligible risk for BSE.) Even prior to the prohibition on ruminant meat, meat products, and other edible pr oducts from all of Europe in 1997, U.S. imports of bovine products from the 36 countries were negligible when measured 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

9 For negligible risk regions that have never reported a case of BSE, there will be no product import conditions related to the date of a feed ban. However, in countries of negligible risk for BSE where there has been an indigenous case of BSE, the commodity will be required to be derived from bovines that passed ante-mortem and post-mortem inspection and were subject to a ban on the feeding of processed animal protein 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, skull 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 Ur uguay, such provisions will 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 cond itions 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 w hole cuts of boneless beef only—in December 2005.)7 immediately prior to the prohibition of most ru minant commodities 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 from 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 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’ comb ined share of total U.S imports was 77 percent and 100 percent, respectively, but the volume of imports of those products was miniscule. 13 These data indicate that, in the past, the 36 c ountries have not been a source of significant quantities of bovine products for the U.S. market. Nor does recent EU trade in bovine products suggest a significant volume of imports from the 36 countries in the future, at least in the near term. While the nominal value of bovine product exports by the European Union (EU-27) increased more than four-fold in five years, from $0.36 billion in 2007 to n early $1.57 billion in 2011, the value of bovine product imports

12 Department of Commerce, U.S. Census Bureau, as reported by USDA Foreign Agricultural Service. 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 2007-2011, Brazil was the source of 94 percent and Canada was the source of 2 percent of U.S. imports of all beef sausage (including sausage not in airtight containers). Annual imports over these five years averaged 791 metric tons.8 by EU-27 member countries in 2011 ($2.42 billion) exceeded the value of their bovine product exports by more than $850 million. 14 The EU-27 continues to be a large net importer of bovine products overall. Emerging markets, such as Ru ssia, are likely to ta ke a growing share of Europe’s bovine product exports. 15 Over the five years 2007-2011, EU-27 bovi ne product exports averaged about 247,900 metric tons. Even if it is assumed that 5 pe rcent (12,395 metric tons) of those exports were diverted to the U.S. market as a result of the rule, imports from the EU -27 countries would be equivalent to only about 1.5 percent of total U.S. bovine product imports, which averaged approximately 856,500 metric t ons 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 classifying as controlled risk for BSE, will be unaffected by the proposal. 16 This is because those imports already satisfy, largely by way of FSIS requirements, the requirements for imports fr om regions of controlled risk for BSE. Any new imports from Japan, which is allowed to sh ip whole cuts of boneless beef to the United States under certain conditions, will likely be mi niscule. Over the 15-year period from 1990 to 2004, Japan’s exports of bovine products worldwid e never exceeded 772 metric tons in any one

14 Data for the EU-27 members exclude in tra-EU trade. 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, Lithuania, and Malta. European regions listed in § 94.18 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, Mont enegro, and Serbia), the former Yugoslav Republic of Macedonia, Liechtenstein, Monaco, Norway, San Marino, and Switzerland. 15 The nominal value of Russian Federation bovine product imports rose 38 percent over the five-year period 2007- 2011, from $1.90 billion to $2.63 billion. 16 Over the five-year period 2007-2011, Japan’s annual expor ts of boneless cuts to the United States averaged 175 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 specialty market. The specialty meat, called "Wagyu beef," co mes from cattle genetically predisposed to intense marbling. The term “Kobe beef” refe rs to Wagyu beef that is produced in the Kobe area of Japan.9 year. 17 Given the aforementioned factors, as well as U. S. import history, this rule is unlikely to result in a significant volume of imports fr om the 36 countries lis ted in 9 CFR § 94.18. Finally, although this rule may affect imports from countri es other than Argentina, Australia, Brazil, Canada, New Zealand, Uruguay, and the 36 countries listed in 9 CFR § 94.18, we believe that any such impact will be minima l. Imports from such other countries are not currently subject to BSE-related restrictions under APHIS regulations, but will be subject to BSE-related restrictions under this rule. Over the five years 2007-2011, annual imports from such other countries as a group averaged 8 to 9 percent of all U.S. bovine product imports by volume (10 to 11 percent by value), with over 95 percent of these products coming from Mexico, Nicaragua, and Costa Rica. Imports from Mexic o, which we are classifying as a region of controlled risk for BSE, will likely be unaff ected because such imports already meet the requirements of the rule largel y by way of FSIS requirements. The potential impact of this rule on imports from Nicaragua and Costa Rica, which we are recognizing as regions of undetermined risk for BSE, should be minimal at most. This is because almost all imports from those two countri es are of boneless beef that already satisfy the rule’s requirements, again larg ely by way of FSIS requirements. 18 The rule’s potential impact on imports from ot her countries in this grouping (i.e., other than Mexico, Nicaragua, and Costa Rica) is uncertain. As regions of undetermined risk for BSE, they will be required to certify that the bovine s from which certain commodities intended for export were derived were not fed processed animal protein derived from ruminants, a requirement they are not subject to now. Whether these other countries will be able to make such

17 United Nations Statistics Division. Japan’s exports of beef sausages, if any, are not included. 18 Over the five-year period 2007-2011, boneless products comprised over 99 percent of Nicaragua’s and Costa Rica’s bovine product exports to the United States (USDA FSIS Office of International Affairs).10 a certification is unknown. Also, as countries of undetermined risk for BSE, these other countries will be prohibited from exporting produ cts that contain mechanically separated meat from the skull and vertebral column of animal s over 12 months of age. Currently, they are prohibited from exporting products th at contain mechanically separa ted meat from the skull and

vertebral column of anim als over 30 months of age. 19 Under this rule, these other countries will have the option of requesting that 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 altoge ther under the rule, the impact on the overall volume of U.S. bovine product imports would be insignificant, given their extrem ely small share (0.4 percent by volume and 0.6 percent by value, 2007-2011). In sum, we believe that any impact of this rule on imports into the United States of products derived from bovines will be minimal at most. In this regard, a very possible scenario is one in which a small volume of new imports (f rom the 36 countries listed in 9 CFR § 94.18) is offset entirely or in large part by a small declin e in the volume of imports from other countries subject to new restrictions. A commenter on the proposed rule stated that adopting the proposed changes could result in BSE-infected cattle entering the United States and cause the loss of export markets. Another commenter expressed concern that detection of BSE in imported cattle could cause domestic consumers to lose confidence in beef, resulting in economic harm to the U.S. cattle industry.

19 In addition to the feed ban certification for certai n products and the prohibition on products that contain mechanically separated meat from the skull and vertebral co lumn of animals over 12 months of age, the conditions for imports from BSE-undetermined risk regions: (1) requir e satisfactory ante- and post- mortem 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 prohibition on animal tissue exports from undetermined risk countries covers: (a) tonsils and distal ileum from animals of any age; (b) brains, eyes, sp inal cord, skull and vertebral column fr om animals over 12 months of age at the time of slaughter; and (c) nervous and lymphatic tissues exposed during the deboning process.11 We disagree with the commenters. We are c onfident that the risk mitigation measures in this rule will be effective at preventing BSE-in fected cattle from being imported into the United States. We note that economic effects of th e most recent BSE case in the United States, confirmed on April 24, 2012, in a dairy cow in Ca lifornia, were not significant, as evidenced by U.S. beef price levels and beef and cattle exports. Monthly retail prices of choice beef averaged $4.93 per pound for the 12 months between April 2011 and March 2012. 20 For the following 12 months, April 2012 through March 2013, the averag e monthly retail price of choice beef was $5.03 per pound. Comparing narrower time fram es, for the 4-month period January 2012 through April 2012, the average monthly retail price was $5.04 per pound, compared to an average monthly price of $4.96 per pound for th e 4 months between May 2012 and August 2012; that is, choice beef prices over the 4 months following the BS E discovery were less than 2 percent lower than prices during the 4 months preceding the discovery. A variety of marketing factors influence price movements, and this percen tage decline in 4-month average price levels is well within normal market fluctuations. With respect to U.S. beef exports, for the 12 months before the BSE discovery, monthly exports averaged about 71,500 metric tons (MT) , valued at about $383 million, compared to a monthly average of about 64,300 MT, valued at about $391 million, during the 12 months following the discovery. It appear s unlikely that much of this y ear-on-year quantity decline can be attributed to the BSE discovery when one co mpares average monthly U.S. beef export levels during the 2 months before and 2 months after the BSE discovery. The quantity of beef exported by the United States in March and April, 2012, averaged about 63,800 MT per month, valued at about $384 million, compared to an average for May and June 2012 of 65,700 MT per month, valued at about $394 million.

20 http://www.ers.usda.gov/data-pr oducts/meat-price-spreads.aspx12 U.S. monthly cattle exports averaged a bout 16,700 head, valued at $32.4 million, during the year preceding the 2012 BSE discovery, co mpared to a monthly average of about 15,100 head, valued at $30.9 million, during the year following the BSE discovery. Again, this difference falls well within th e range of monthly variation. Considering only the 2 months before and 2 months after the BSE discovery, exports for March and April 2012 averaged about 12,100 head per month, valued at $20.9 million, co mpared to about 17,900 head per month for May and June 2012, valued at $39.0 million.

Cervids and Camelids and their Products

Live Cervids and Camelids Under this rule, the removal of the prohibi tion of the importation of live cervids and camelids from the 36 countries listed in 9 CF R § 94.18 will 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 not imported any live cervids or camelids from the 36 countries since at least 1990. Furt hermore, nearly all of the 36 c ountries subject to the ban are located in Europe, a situation th at puts potential expor ters in those countries at a significant competitive disadvantage in the U.S. market comp ared to neighboring countries, given the added cost of transporting the animals to the United States. This rule will not remove that disadvantage. Importation of more than a very small number of live cervids and camelids from the 36 countries, therefore, is highly un likely, with or w ithout this rule. 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 will likely be insignificant under the rule. Before the prohibition of rumi nant meat, meat products, and other edible13 products from all of Europe in 1997, U.S. imports of meat and edible offal of deer from the 36 countries were negligible when judged agai nst total U.S. imports of those commodities. 21 In none of the years from 1990 th rough 1996 did the volume of U.S. imports of meat and edible offal of deer from all 36 countries exceed 23 metric tons or account for more than 3.3 percent of the volume of those imports from all countries. 22 For the five years 2007-2011, annual U.S. imports of meat and edible meat offal of deer averaged 994 metric tons, valued at $10.95 million. Over 99 percent was supplied by New Zealand. 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 2007-2011, and 90 percent of those imports were supplied by Canada and China. 23



### Expected Benefits and Costs, and Alternatives to the Rule

As discussed, this rule is e xpected to have, at most, a minimal impact on U.S. imports of live bovines, cervids, camelids, and their products. Consumers benefit from imports to the extent that consumer choice is broade ned and the increased supply of the imported commodity leads to a price decline. 24 We anticipate that the rule will have little impact on consumer choice or import volumes. Likewise, we anticipate little or no imp act for U.S. businesses because of changes in import volumes.

21 A search of the trade data shows th at 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 will be affected by th is proposal; APHIS regulations do not currently restrict or prohibit the importation of deer skins or camel hair. 22 Department of Commerce, U.S. Census Bureau, as reported by USDA Foreign Agricultural Service. 23 Ibid 24 Imports of a commodity generally serve to increase ne t social welfare, with gains in consumer surplus outweighing losses in domestic producer surplus. (Consumer surplus is the difference 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 amount a seller actually receives for a good and the amount he would be willing to receive.)14 Although the impact of this rule on U.S. c onsumers and producers is expected to be minimal, the benefits of the rule are expected to justify its cost s. Leaving the bovine regulations unchanged would be unsatisfactory, because it would perpetuate th e current situation in which our BSE-related import conditions are not fully supported by scientific evidence. Additionally, maintaining the status quo would not provide an opportunity to recognize a region’s BSE risk status in a more timely fashion than is possibl e under current regulations . Another alternative, amending the BSE regulations related to the impo rtation of bovines and bovine-derived products to match precisely the OIE Code without al lowing for modification deemed necessary by APHIS, would also, we believe, be unsatisfa ctory, because it would 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.



### Final 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. Sec tion 604 of the Act requires agenci es to prepare a final regulatory flexibility analysis that describes expect ed impacts of a rule on small entities. The purpose of the rule is to amend the import regulations related to BSE such that they continue to sufficiently guard against the intr oduction of BSE into the United States, while making the bovine and bovine product import restrict ions more reflective of current scientific thinking. The process for classifying regions as to BSE risk will be based on a comprehensive review of relevant, internationally accepted scie ntific literature and will be consistent with the15 process employed by the OIE. The process will use risk categories for bovines and bovine products (negligible, controlled, and undetermined) and criteria that are also used in the OIE Code. Whether a bovine or a bovine-derived prod uct is eligible for importation into the United States, and under what conditions, will in many ca ses be determined by the BSE category of the region from which the animal or product originat es. We are also removing BSE restrictions on the importation of cervids and camelids and produc ts derived from such animals. The objective is to bring the import regulations related to BSE into closer alignment with our scientific understanding of this disease. No significant issues were ra ised by public comment in resp onse to the initial regulatory flexibility analysis. Also, no comments were filed by the Small Bu siness Administration’s Office of Advocacy in response to the proposed rule. 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, slaughtering establishments, meat packing and processing esta blishments, meat wholesalers, importers and exporters, grocery stores and m eat markets, and manufacturers of cosmetics and pharmaceuticals. Sales and employment information confirms the prevalence of small entities in the industries potentially affected, as categorized by the North American Industry Classification System (NAICS). The small-entity estimates are base d 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 small-16 entity standard of not more than $750,000. 25 That same year, there were 57,318 entities engaged in dairy cattle and milk production (NAICS 112120) , and their average annual sales were about $606,000, much higher than for beef producers but sti ll well below the small-entity standard of $750,000. 26 In 2007, there were 31,065 cattle feedlots (NAICS 112112). Average receipts for these establishments were $974,000, compared to the small-entity threshold of $2.5 million. 27

For the industries, animal (except poultry) slaughte ring (NAICS 311611) and meat processed from carcasses (NAICS 311612), the small-entity sta ndard is not more than 500 employees. Based on numbers of full-year esta blishments in these industries in 2007 (1,597 and 1,379, respectively), 92 percent and 80 percent of the establishm ents employed fewer than 100 employees. 28 The small-entity standard for meat and meat 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 small according to this criterion. 29 For supermarkets and other grocery (except convenience) st ores (NAICS 445110), there we re 55,926 establishments that operated throughout 2007 and their average receipt s were $8.2 million, significantly below the small-entity threshold of $30 million. 30 The small-entity standard for meat markets (NAICS

25 Animal products such as gelatin are used in the manufacture of cosmetics and pharmaceuticals. 26 USDA NASS, 2007 Census of Agriculture. http://www.agcensus.usda.gov/Publications/2007/Full_ Report/Volume_1,_Chapter_1_US/st99_1_046_04 6.pdf 27 Ibid. 28 Ibid. 29 Department of Commerce, 2007 Economic Census. http://factfinder.census.go v/servlet/IBQTable?_bm=y&- geo_id=&-ds_name=EC0731I1&-_lang=en. 30 Department of Commerce, 2007 Economic Census. http://factfinder.census.gov/servlet/IBQTable?_bm=y&- geo_id=&-fds_name=EC0700A1&-_skip=2900&-ds_name=EC0742SSSZ2&-_lang=en17 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. 31 Clearly, most businesses that may be directly affected by the rule are small. However, as has been described, any effects in terms of chan ges in U.S. imports of live bovines, cervids, camelids, or their products are exp ected to be minor. This rule contains no mandatory reporting, recordkeeping, or other compliance requirements for U.S. entities. The RFA requires agencies to identify, to the extent practicable, any Federal rule that may duplicate, overlap or conflict with this rule. APHIS has not identified any duplication, overlap, or conflict of this rule with other Federal rules. Finally, the RFA requires agencies to desc ribe steps taken to minimize significant economic impacts of the rule on small entities. As indicated above, APHIS considers it unlikely that the rule will have a significan t economic impact on small entities.

31 Ibid.