United States

Department of Agriculture Animal and Plant Health Inspection Service April 2014 **Initial Regulatory Flexibility Analysis Proposed Rule**  **APHIS -**  **2014 -**  **00 03**  **RIN 0579 -**  **AD89 Importation of Fresh Apples from China into the**  **Continental United States, 7CFR 319.56**

Policy & Program Development Policy Anal ys is & Developmenti



### Summary The Animal and Plant Health I nspection Service (APHI S) received a request from the national plant protection organization (NPPO) of China to grant U.S. importation of all varieties of commercially

produced fresh apples (

Malus pumila )

. The proposed rule would allow the importation of fresh apple s from China into the continental United States if they are produced in accordance with a s ys tems approach to pest risk mitigation. The specified sy stems approach integrate s prescribed measures th at would cumulatively achieve the appropriate level of phy tosanitary protection

. T his analy sis evaluates the potential effects of the proposed rule on small U.S. entities. A pples are the second most popular fresh fruit for U.S. consumers and the third mos t valuable fruit crop produced in the United States. We are the world’s second largest apple producer and became the world’s largest apple exporter in terms of value in 2012 , generat ing $909 million in fresh apple trade surplus (exports minus imports)

. That y ear, t he United States commerciall y produced 4.1 million metric tons (MT) of apples, valued at $3 billion , of which 3 million MT of apples were sold fresh and 1.1 million MT were used for processing. Although a

pple s are commerciall y grown in all 50 S tates , 9 States account for 96 percent of production. The State of Washington is by far the largest produc er, at more than 2.9 million MT per year . Almost all apple farms are family

- owned, and man y of these families have been engaged in apple production fo r man y generations. The United States imported 183, 000 MT of fresh apples, valued at $164 million , in 2012. Virtually all imports ca me from four trading partners: Chile, New Zealand, Canada and Argentina. By quantity , China is the world’s largest producer , consumer and exporter of apples. Apples are the l eading fruit produced in China , with production having increased from 2.3ii

million MT in 1978 , to 38.5 million MT (33.3 million MT for fresh markets and 5.2 million MT for processing) in 2012
. At the same time , its domestic demand for apples has grown to 37.5 million MT

. Unlike in the United States , the China’s apple industry relie s marginally on international trade

– it exported about 3 percent of fresh apples produced and imported 0.1 percent of fresh app les consumed in 2012 , while the United States exported about 30 percent of fresh apples produced and imported 9 percent of fresh apples consumed in 2012

. China’s exports of fresh apples peaked in 2009 at 1

. 2 million MT and declined to 0. 98 million MT in 20 12. Most of the 4.3 million apple growers in China operate on a small scale , with farm acreage s averaging 1.3 acres. The Fuji variety accounted for about 70 percent of China’s apple production in 2012

. China’s heav y dependence on the Fuji variet y sharply contrasts to the diverse varieties that are produced in the United States

. China’s export markets are concentrated in Russia, Southeast Asia, and the Middle East. Chinese fresh apples also have been exported for more than a decade to Canada ; howe ver, Canada accounted onl y for 0.4 percent of total Chin a’s fresh apple exports in 2012. I n fact, the combined export volume to Canada, European Union (EU) member countries, Australia and Mexico is very

small (0.8 percent of total fresh apple exports by Ch ina in 2012), and has significantl y declined in the last six y ears, from 45,267 MT in 2007 (4.4 percent of Chinese apple exports) to 8,273 MT in 2012. Average export prices of fresh apples from China in 2012 to the aforementioned countries (Canada, $1.50/K G ; EU, $1.10/KG ; Australia, $1.83/KG ; and Mexico, $1.55/KG) are consistently higher than the average export price for all 67 countries to which China exported fresh apples ($0.98/KG). It is reasonable to expect that prices for fresh apples exported to the United States would be similar to the prices paid by Canada and Mexico

. Since the trend for U.S. fresh apple import prices ha s been stead y at around $0.89/KG, a pple siii

import ed from China are not likely to compete solely

on price in the U.S. market

. U.S.
c onsumers make their purchasing decisions for fresh apples based not onl y on price , but also on qualitative attributes such as variet y , flavor, appearance, freshness, production method , and product origin. Based on historic trade data , not more than 10,000 MT of fr esh apples is expected to be imported from China in to the continental United States annually , which would be the equivalent of about 5 percent of U.S. imports and 0.44 percent of the U.S. domestic fresh appl e supply in 2012
. M ost of China ’s fresh apple exports to the United States would likely be shipped to W est C oast ports , primarily ones in California. California is also the large st market for Washington apples, and an y effects of the proposed rule may be borne mainl y by Washington and Californi a apple growers , in particular, U.S. apple growers of the Fuji variet y. U.S. apple growers of other varieties and in other areas may also experience limited effects in terms of increased competition. While China’s interest in obtaining market access to th e United States for its apples is a recognized concern of the U.S. apple industry , the industry is challenged by relativel y flat domestic apple consumption . T he industry ’s grow th can be fostered through expanded global trade

. G iven APHI S’ determination that the proposed rule will not result in significant adverse impacts on plant health , the proposed rule could provide additional trade opportunities for the two countries.iv



### Table of Contents Summary

................................ ................................ ................................ ................................ .......... i Introduction

................................ ................................ ................................ ................................ ..... 1 U.S. Apple Production and Trade

................................ ................................ ............................... 1 Apple production in the United States

................................ ................................ .................... 1 Apple trade b y the United States

................................ ................................ ............................ 5 China’s Apple production and trade

................................ ................................ ............................ 6 Apple production i n China

................................ ................................ ................................ ...... 6 Apple trade b y China

................................ ................................ ................................ ............ 10 Reasons Action is Being Considered

................................ ................................ ............................ 13 Objectives of and Legal Basis for the Rule

................................ ................................ .................. 14 Overview of the Action, Affected Entities, and Potential Effects

................................ ................ 15 Conditions of Entry

................................ ................................ ................................ ................... 15 Potentially

Affected Small Entities

................................ ................................ ........................... 17 Potential Effects

................................ ................................ ................................ ........................ 20 Projected Reporting, Recordkeeping, and Other Compliance Requirements

............................... 21 Duplication, Overlap, or Conflict with Existing Rules and Regulati ons ................................ ...... 21 Alternatives to minimize Significant Economic Im pacts of the Rule

................................ ........... 221



### Introduction APHI S received a request from the national plant protection organization ( NPPO ) of China to grant U.S. importation of all varieties of commerciall y pro duced fresh apple , Malus pumila Mill

. 1 The proposed rule would allow the importation of fresh apples from China into the continental United States if they are produced in accordance with a s ys tems approach to pest risk mitigation. The specified sy stems approach integrates prescribed measures that would cumulatively

achieve the appropriate level of phy tosanitary protection

. 2 The Regulat ory

Flexibility

Act requires agencies to evaluate the potential effects of their proposed and final rules on small businesses, small organizations and sma ll governmental jurisdictions. This initial regulatory flexibility

analy sis examines the prevalence of small entities in industries that may

be affected b y this proposed rule and considers whether its impacts on small entities are likely

to be significant, as requi red by section 603 of the Act. In this introduction, we describe fresh apple production and t rade for the United States and China. We then discuss the prevalence of small entities in industries that may be affected.
**U.S. Apple P**  **roduction and Trade**  **Apple production**  **in the United States** The United States is the second largest apple

- producing country in the world after China, both by quantit y and value

. We are also the second largest fresh apple exporter by quantity following China , and became the world’s largest apple exporter in terms of export value in 2012

. The United States commerciall y produced 4.1 million metric tons ( MT ) of apples, valued at $3 .1

1 [= Malus communis, M. domestica, M. sylvestris, Pyrus malus ] 2 Refer “Risk Management Document

– Im portation of apples (

Malus pumila ) from China into the continental United States.” The document details the risk management measures and choice of appropriate phytosanitary measures to mitigate pest risk.2

billion, in 2012. The volume was lower than the previous y ear’s 4.3 million MT as several central and eastern States, such as Michigan and New York, experienced crop losses due to unseasonabl y cold wea ther. 3 Apple production is reported in all 50 States; however, commercial apple production on farms with more than 100 apple trees was limited to 29 States in 2012

. In that y ear, U.S. commercial apple production was concentrated in nine States, which toget her account ed for 96 percent of production. The State of Washington was by far the largest , produc ing more than 2.9 million MT in 2012, 72 percent of the U.S. total. New York was second , accounting for 8 percent ( Figure 1 ). 4 **Figure 1**  **.** U.S. commercial apple production b y State in 2012 (1,000 metric tons )

Source: USDA

- ERS, Fruit and Tree Nut Yearbook, Table A17 “Utilized production of selected fruit and tree nuts, by State, US, 2012,” November 2013

. Note: a. Utilized production includes all apples marketed in either fresh or processed form , such as juice, cider, sauce, sliced fresh, dried, or frozen.

3 The situation for the 2013/14 apple crop is expected to improve significantly compared to 2012/13. 4 Crop production reports only cover apple production on commercial orchards, defined as orchards of 100 or more bearing trees (definition on page 74, http:/ /usda01.library.cornell.edu/usda/current/NoncFruiNu/NoncFruiNu

- 01

- 25

- 2013.pdf )

. **2,948**

**322 215**  **136 104**  **58 52**  **41 34**  **169** 

### U.S. Apple Utilized **Production by State,**  **2012**

**(in 1,000 MT) U.S. T**  **otal: 4.1 million MT a, b**  **WA (72.2%) NY (7.9%)**  **PA (5.3%) CA (3.3%)**  **VA (2.6%) OR (1.4%)**  **MI (1.3%) c WV (1.0%)**  **ID (0.8%) 20 Other States**  **(4.2%)**3

b. Unit of measurement was converted from short tons to MT
. c. Michigan normally ranks third in U.S. apple production ; how ever it dropped to seventh in 2012 as a result of serious crop damages. Commercially

produced apples are either sold fresh or used for p rocessing. In 2012, 3 million MT (73 percent ) of U.S. commercial apples w ere sold in fresh market s and 1.1 million MT (27 percent ) w ere used for processing ( Figure 2 ). The allocation of apples to the fresh and processing sectors differs significantl y between Washington State and other apple

- producing States. In 2012, Washington allocated about 80 percent of its production to the fresh market s for domestic consumption and exports , whereas, onl y 53 percent and 40 percent of apple production in New York and Michigan, respectivel y , were allocated to the fresh apple markets. 5 , 6 **Figure 2**  . U. S dom estic utilization (million metric tons ) for fresh and processed apples, 2000

- 2012

5 APHIS estimates and the Washington Growers Clearing House, 56 th Apple Price Summary, 2012

- 13 Marketing Season. http://www.waclearinghouse.org/members/summary/apples/applesum.pdf NY: New York Apple Association Fast Fact, http://www.nyapplecountry.com/fastfacts.htm , MI: Michigan Apple Committee, History, http://www.michiganapples.com/history.html 6 U tilization for processed apples, mainly apple juice, has declined from 1.8 million MT in 2000 to 1.1 million MT in 2012. The shar e of concentrated apple juice (CAJ) im ported, mainly from China, increased to ove r 80 percent during this period

. Price and available supply are the key CAJ purchasing factor s for manufacturers of apple juice products. The situation is fundamentally differ ent for apples that are sold fresh to consumers; not only price, but many other factors such as variety, size, appearance, flavor, freshness, product origin, and production method (traditional or organic) are key purchasing factors.

0.0 1.0 2.0 3.0 4.0 5.0

2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011 2012 **2.8 2.5**  **2.4 2.5**  **3.0 2.8**  **2.9 2.8**  **2.8 2.9**  **2.8 2.9**  **3.0 1.8**  **1.7 1.4**  **1.5 1.7**  **1.6 1.6**  **1.3 1.5**  **1.4 1.3**  **1.4 1.1** **m i** **l l** **i o** **n M** **T** 

### U.S. Apple Utilization: **Fresh vs. Processed**  **a**

**2000 -**  **2012 (1 million MT) Fresh Apples**  **Processed Apples Total 4.6**  **4.2 3.8 4.0 4.7 4.4 4.5 4.1 4.3 4.3 4.1 4.3 4.1**4

Source: USDA

- ERS, Fruit and Tree Nut Yearbook, Table G

- 1 “ Fresh apples: Supply and utilization,” November 2013. ( C onverted from pounds to metric tons .) a. Processed apple products include apple juice and cider, canned, frozen , dried, fresh slice, and other. U.S. crop acreage devoted to apple production has declined b y 29 percent since its peak in 1997 , from 467,950 acres to 330,600 acres in 2011 ( Figure 3 )

. M ost of the acreage contraction is attribut able to decreased production for the processing sector. 7 Meanwhile, apple production yi elds have increased to 12.9 MT per acre in 2011 from 8.5 MT per acre in 1978, as cultivation and storage technologies continue to advance

. **Figure 3**  **.** U.S. apple bearing acreage and y ield, 1978

- 2011

So urce: APHIS analysis based on FAOSTAT and various USDA

- ERS Fruit and Tree Nut Yearbook s . According to the U.S. Apple Association, there are about 7,500 commercial apple farms ( those with at least 100 bear ing trees ) in the United States. Virtually all apple farms are family owned, and man y o f these families have been engaged in apple production for man y generations

. 8 In addition to these commercial

- scale operations, there are a large number of

7 Refer to footnote 6 for the decline in the processing sector. 8 New York Apple Association , “New York apple fast facts,” http://www.nyapplecountry.com/fastfacts.htm The Michigan Apple Committee, “History of apples,” http://www.michiganapples.com/history.html 0.0 2.0 4.0 6.0 8.0 10.0 12.0 14.0

- 50,000 100,000 150,000 200,000 250,000 300,000 350,000 400,000 450,000 500,000**Y i** **e l** **d (** **t o** **n n** **e s** **/ a** **c r** **e )** **A c** **r e** **a g** **e** 

### U.S. Apple Bearing **Acreage and Yield 1978**  **- 2011 (in acres)**  **Acreage Yield (tons/acre)** 5

smaller apple farms. The 2007 Census of Agriculture , which i ncludes apple growers with annual sales of $1,000 or more , reports a total of 25,591 apple farms in all 50 States. 9 Nearly 72 percent of these apple farms had fewer than 5 acres , account ing for onl y about 6 percent of the total
acr eage devoted to apple far ming. The national average acreage per farm was 15.6 acres in 2007. **Apple trade by the United States**  The United States is a significant net exporter of fresh apples

. In 2012, U.S. fresh apple trade generated $909 million in surplus (exports minus imports)

. 10 The trade surplus in fresh apples more than tripled from 2000 to 2012 , as U.S. apple exports increased through the liberalization of export markets, intensive industry export promotion efforts and increased disposable income in developing countries. 11 In 2012, the United States exported 867,000 MT of fresh ap ples (about 30 percent of domestic production) valued at $1. 073 billion

. This was the first time U.S. fresh apple exports exceeded $1 billion in value

. The United States imported 183,453 MT of fresh a pples, valued at $164 million in 2012 ( Figure 4 ). Virtuall y all imports (99.96 percent ) come from four trading partners: Chile, New Zealand, Canada and Argentina. With a crop production cy cle opposite to that of the United States, Southern Hemisphere exporters help maintain y ear - round suppl y of fresh apples in the United States . B ilateral trade between Canada and the United States benefit s both countries due to the geog raphical proximit y of producers and key markets

. 12

Washington Apple Commission, “Meet your grower,” http://www.bestapples.com/growers/index.aspx 9 The 2012 Census of Agriculture is scheduled to be released on May 2, 2014. 10 Export values are based on Free Along Ship Export Value (F.A.S.) and import values are based on Custom Import Value (C.V. ) 11 Agricultural Marketing Resource Center

– Apple profile http://www.agmrc.org/commodities__products/fruits/apples/commodity

- apple

- profile/ 12 For example, M cIntosh apples from British Columbia complement the markets in western States where this variety does not grow

w ell. USDA

- ERS. 2013 “Imports Contribute to Year

- Round Fresh Fruit Availability” December 2013. http://www.ers.usda.gov/publications/fts

- fruit

- and

- tree
- nuts
- outlook/fts

- 356

- 01.aspx6

**Figure 4**  **.** U.S. fresh apple imports, t op four trading countries ( metric tons ), 2012

Source: APHIS analysis based on Global Trade Atlas data. **China’s Apple production**  **and trade**  **Apple production in China China is the world’s largest producer**  **of apples, and a pples are**  **its leading fruit**  **by volume, followed by pears. Since volume, followed by pears. Since adopting market**  **- based agricultural reforms in 1978, China has**  **increased its apple**  **increased its apple production**  **from 2.3 m**  **illion MT in 1978 to 38.5 m**  **illion MT in 2012,**  **with the majority of production**  **majority of production (37.5 m**  **illion MT) absorbed**  **by China’s domestic apple markets**  **. China’s**  **sharp increase in apple**  **sharp increase in apple production**  **is in response to a robust increase in domestic**  **consumption ,**  **sharply contrasts wit**  **h the sharply contrasts**  **wit h the**  **relatively stable level of**  **U.S. apple production . U.S. apple production grew from**  **3.4 m illion**  **grew from**  **3.4 m illion MT in 1978**  **to 4.1 m**  **illion MT in 2012 (** 

Figure 5 )

. **121,917 33,978**  **22,767**

**4,718 72**  

### U.S. Fresh **Apple Imports (in MT), 2012** 

**To tal:**  **183,453 MT Chile (66%)**  **New Zealand (19%) Canada (12%)**  **Argentina (3%) Others: 3 countries**  **(0.04%)**7

**Figure 5**  **.** Apple Production: China and U.S. (million metric tons ), 1978

- 2012

Source: APHIS analysis based on the USDA

- ERS Fruit and Tree Nut Yearbook , USDA

- FAS GAIN Report “China

– Fresh deciduous fruit annual” November 29, 2013, FAOST AT Note: Marketing year (MY) for the U.S. data begins in July, and for the Chinese data begins in August. Table 1 compares the U.S. and China’s apple production , consumption , and trade in the marketing ye ar ( MY ) 2012/13. 13 Both countries are net exporters of fresh apples; however, the United States is muc h more heavil y dependent on global trade . In the United States , imports (196,000 MT in MY 2012/13) provided for 8.6 percent of domestic consumption, and 29.8 percent of the apples produced (889,000 MT in MY 2012/13) were exported . I n absolute quantity , Chi na produced far more apples (33.3 million MT for the fresh market in MY 2012/13) than the United States (about 3 million MT) ; however, China is much less reliant on global trade of fresh apples than the United States. I n MY 2012/13, China imported only 43, 000 MT of

13 For the U.S. data, the marketing year begins in August ; for China data, it begins in July. Marketing year (MY) based data do not correspond with calendar year (CY) based data in this analysis, because of the different reporting period s . 0

10 20 30 40

**2.3 38.5** 

**3.4 4.1** **m i** **l l** **i o** **n M** **T** 

### Apple Production: **China vs. U.S.A.** 

**1978 -**  **2012 (in million MT)** 

**China U.S.A.** 8

apples (0.1 percent of its domestic consumption) and exported 1 million MT of apples (3.1 percent of its domestic production)

. In MY 2012/13 , China’s fresh apple production exceeded domestic consumption by about 3 percent, whereas fresh apple pro duction in the United States exceeded domestic consumption by more than 3 0 percent
. 14 **Table 1**  . Fresh apple production, consumption, import s and export s by the United States and China (1,000 metric tons) , MY 2012/13 Fresh Apple Production, Consumption, Imports and Exports, MY 2012/13 (1,000 MT) Percentage Shares Marketing Year \ 1 2012/13 Domestic

Production Domestic

Consumption Import Export Import Share of Domestic Consump
tion \ 2 Export

Share of Domestic Produc

tion \ 3 Excess of

Production over Consump
tion \ 4 U.S.A. 2,980 2,287 196 889 8.6% 29.8 % 30.3 % China 33,300 \ 5 32,317 43 1,0 26 0.1% \ 6 3.1 % 3.0 % Source: APHIS calculation. For t he United States

– USDA

- ERS Fruit and Nut Tree 2013 Yearbook Table G

- 1 “ Fresh apples: Supply and utilization, 1980/81 to date ” For China

– USDA

- FAS GAIN Report, MY2012/2013 New Post, “China

– Fresh Deciduous Fruit Annual,” November 29, 201 3 Note: 1. Marketing year (MY) for the U.S. data begins in August , for China it begins in July. 2
. I mp ort s hare calculated by dividing import by domestic consumption. 3
. Export s hare calculated by dividing export by domestic production. 4
. Excess of production over consumption calculated by dividing domestic production by domestic consumption and subtracting 1

. 5
. Fresh apple domestic production for China was calculated by subtracting the processing (5.2 million MT) from total apple production (38.5 million MT) 6
. Share of import w ould be higher if fresh apple re

- exports from Hong Kong to China were included. China’s apple acreages significantly expanded from 1,482,000 acres in 1978 , peak ing at 7,377,717 acres in 1996 , and then declining b y 31 percent, to 5,068,440 acres in 2011 (

14 China’s import share would be higher if fresh apple re

- exports from H ong Kong were included.9

**Figure 6**  ). By contrast, average yi eld per acre has been steadil y increasing since 1992 and averaged 7.1 MT/acre in 2011. 15 , 16

**Figure 6**  **.** China apple planting acreage and y ield, 1978

- 2011

Source APHIS analysis based on the USDA

- FAS GAIN Report “China

– Fresh deciduous fruit annual” November 29, 2013 , http://gain.fas.usda.gov/Recent%20GAIN%20Publications/Fresh%20Deciduous%20Fruit%20Annual_Beijing_Chin a%20

- %20Peoples%20Republic%20of_11

- 29

- 2013.pdf

15 Average yield per acre includes both b earing and non

- bearing acres

. 16 According to the USDA

- FAS Beijing office , t he average yield in eight major producing provinces plus Beijing in 2011 w as 12 MT/acre, which is similar to the average yield in the United States. Nationally, yield on bearing acreage is estimated to be about 10 to 11 MT/acre. The current bearing percentage is estimated to be about 85

- 90 percent of all apple acres. 0 1 2 3 4 5 6 7 8

- 1,000,000 2,000,000 3,000,000 4,000,000 5,000,000 6,000,000 7,000,000 8,000,000**Y i** **e l** **d (** **t o** **n n** **s /** **a c** **r e** **a )** **A c** **r e** **a g** **e** 

### China Apple **To tal Acreage**  **and Yield 1978**  **- 2011 (in acres)**  **Area Planted (Acre) Yield (tons/acre)** 10

Most apple growers in China operate on a very small scale

. There are app roximately 4 .3 million apple growers in China , and the average size of an orchard is 1.3 acres

. 17 Apple production in China is labor

- intensive, requiring significant labor resources to plant, tend, and harvest the crop

. China’s low labor cost s are a key factor to the industry ’s competitiveness , 18 although labor costs have been increasing in recent y ears . The Fuji variety

accounts for about 70 percent of China’s apple production , a concentration that sharply differs from the divers ity of apple varieties pro duced in the United States ( Figure 7 )

. 19 , 20 **Figure 7**  . Fresh apple varieties in China and the United States (in percent shares of total apple production), 2011

17 Source: China Agriculture Industrial Information Center and Washington Apple Commission. 18 USITC, “China's agricul tural trade: Competitive conditions and effects on U.S. exports” USITC Publication 4219 , March 2011. http://www.usitc.gov/publications/332/pub4219.pdf 19 In China, grow ers are also planting newly introduced varieties from New Zealand, Australia, Japan, France, and other European countries; however, Fuji variety apples still dominate acreage and production

. 20 USDA

- FAS GAIN report, “China

– Fresh deciduous fruit annual 2003” September 15,2003.11

Source: China

– Mo, Sheng and Tian, Ling, 2012. “ 当前国内外苹果主栽品 种 的 构 成与 发 展 趋势 (translation: T he current composition and development trend of key apple varieties planted in and out of China)” Yantai Fruits 1 :37, http://wenku.baidu.com/link?url=oohzn1_ZyOUIsOolrt0aXZ0pEj4

- ojnb3nnyYuIv74Z

iQ5Z1sgSGOF0k9ArgSu8TNga46 R9EX1dhAgMaMaJSfabV6Yu8yxFZ3I8pd1gJbK ) U.S.A.

– U.S. Apple Association/USDA

- ERS Apple Statistics Note: In China, other varieties include Hanfu, New World, Chiaki, American Eight, etc. In the United States, other varieties include Ambrosia, Lady Alice, Pinata, Ginger Gold, Golden Supreme, Pacific Rose, Sonya, etc. **Apple trade by China**  China is a net exporter of fresh apples. China’s trade surplus (exports minus imports) , in value terms, has been consistently increasing , from $35 million in 2000 to $737 million in 2012. In terms of quantit y, China’s trade surplus peaked in 2008 at 1,051,000 MT and declined to 822,000 MT in 2012 ( Figure 8 ). 21

21 Significant quantities of fresh apples that com e into mainland China through Hong Kong as re - exports are included. . Since Hong Kong’s apple exports are negligible, the net trade surplus is smaller than it w ould be for mainland China alone. 69.6%

9.2% 6.8% 6.3% 

### China Fresh **Apple Va**  **rieties**

**2011**

**Fuji Delicious**  **Qinguan Gala**  **Guoguang (Ralls) Arima**  **Golden Delicious (HuangYuanShuai) Jonagold**  **Red King Other varieties**  24% 15% 11% 8% 8% 4% 

### U.S.A. Fresh **Apple V**

**arieties 2011** 

**Red Delicious Gala**  **Golden Delicious Granny Smith**  **Fuji McIntosh**  **Rome Empire**  **Cripps Pink Braeburn**  **Idared York**  **Jonathan Cortland**  **Jonagold Cameo**  **Stayman Newtown**  **R.I. Greening Northern Spy**  **Other varieties**12

**Figure 8**  . China and Hong Kong fresh appl e trade surplus (in $ million and 1,000 MT), 2000

- 2012

Source: APHIS analysis based on Global Trade Atlas data. Note: Export values for China and Hong Kong are based on Free On Board (F.O.B.) prices and import values for China and Hong Kong are based on Cost, Insurance, and Freight Import Value (C.I.F.) prices. China’s e xport markets are concentrated in Russia, Southeast Asia, and the Middle East. Chinese fresh apples also have been exported for mor e than a decade to Canada ; h owever , Canada accounted onl y for 0.4 percent of total Chin e se fresh apple exports in 2012. In fact, the combined e xport volume to Canada, European Union (EU) member countries , Australia and Mexico is very

small (0. 8 percent of total fresh apple exports by China in 2012), and has significantl y declined , from 45,267 MT in 2007 ( 4.4 percent of Chinese apple exports ) to 8,273 MT in 2012

. Average 2012 e xport prices of fresh apple s from China to the aforementioned countries
were : $1.50/KG (Canada), $1.10/KG (EU), $1.83/KG (Australia) and $1.55/KG ( Mexico ) . The se average export prices are consistently higher than the average export price for all 67 countries to which China export ed fresh apples ($0.98/KG)

. Figure 9 compares average prices of fresh apples that were imported and exported by the United States and China

. Average prices associated with the U.S. fresh apple imports hav e been trending at a stead y pace of around $0.89/KG, while the

**35 584**  **737 214**  **1,051 822** 

- 200 400 600 800 1,000 1,200

2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011 2012**U s** **$ m** **i l** **l i** **o n** **/ 1** **, 0** **0 0** **M T**  

### China and Hong Kong Fresh **Apple T ra**  **de Surplus**

**2000 -**  **2012, Surplus**  **= Exports -**  **Imports Value (US$ million)**  **Quantity (1,000 MT)**13

unit value for China’s imported fresh apples has increased substantially, from $0.46/KG in 2000 to $1.50/KG in 2012. U.S. fresh apple export prices have been consistentl y higher than China’s
ex port prices, reflecting the two countries’ different export markets. **Figure 9**  . U.S. and China

– Average prices for imported and exported fresh apples ($/KG), 2000

- 2012

Source: APHIS analysis based on Global Trade Atlas data. Note: Export values for China are based on Free On Board (F.O.B.) prices and import values are based on Cost, Insurance, and Freight Import Value (C.I.F.) prices. Export values for the United States are based on Free Along Ship Export Value (F.A.S.) prices and import values are based on Custom Import Value (C.V.) prices. It is reasonable to expect that prices for fresh apples exported by China to the United States would be similar to the prices paid b y Canada, the EU, Australia, and Mexico

. Since the trend for U.S. fresh apple import prices have been steady at around $0.89/KG , Chinese apple imports are not likely

to compete with dome stic US apples solely on price. USDA

- FAS Bei

jing office estimate s that the quantity of fresh apples imported from China by the United States w ould likely be less than 10,000 MT per y ear . 22 This upper range of

22 We consulted with t he Agricultural Affairs Office of the U.S. Embassy Beijing in estimating that the U.S. market for fresh apples from China would be less than 10,000 MT per year

. **0.56 0.89**  **0.58 1.24** 

$0.00 $0.20 $0.40 $0.60 $0.80 $1.00 $1.20 $1.40 $1.602000200120022003200420052006200720082009201020112012 

### U.S. Fresh **Apple T ra**  **de Avereage Prices: 2000**  **- 2012**  **Import ($/KG) Export ($/KG)** 

**0.46 1.50** 

**0.32 0.98** 

$0.00 $0.20 $0.40 $0.60 $0.80 $1.00 $1.20 $1.40 $1.602000200120022003200420052006200720082009201020112012 

### China's **Fresh Apple T**  **ra de**  **Average Prices: 2000 -**  **2012 Import ($/KG)**  **Export ($/KG)**14

10,000 MT is equivalent to about 5 percent of current U.S. apple imports and is 20 percent more than China exported in 2012 to Canada, the EU , Australia and Mexico combin ed. It is also equivalent to 0.44 percent of the U.S. domestic supply in MY 2012 /13 of 2,286,800 MT ( production plus imports minus exports). The relatively high price of fresh apples exported by China to markets similar those of the United States , China’s l imited varieties, and its robust domestic demand are underly ing factors supporting our expectation that the proposed rule would result in relativel y low volumes of fresh apples imported from China

. 

### Reasons **Action is Being Considered**  The proposed rule is in response to a request made by the NPPO of China for APHIS to allow the importation of commercial consignments of fresh apples ( Malus pumila ) from China into the continental United States

. Risks posed by certain plant pests would be appropriatel y mitigated using a sy stems approach. 23 The proposed combination of mitigations satisfies APHI S commitment under the International Plant Protection Convention to allow the importation of plants and pla nt products subject to the least restrictive measures consistent with ensuring phy tosanitary securit y . 24 APHI S has concluded that the prevention and control measures established by

China would be sufficient to minimize the risk of plant pest introduction in to the United States via fresh apple imports.

23 APHIS uses a systems approach process when evaluating a request from another country to export plant or plant products to the United States. The recommended regulatory action is based on the relevant plant health situation existing in the region, proposed risk mitigations that have proven effective in similar situations, and international standards. 24 FAO, “International Standards for Phytosanitary Measures (ISPMs) No. 14, The use of integrated measures in a systems approach for pest risk management 2002,” http://www.a cfs.go.th/sps/downloads/16210_ISPM_14_E.pdf Updates (January 8, 2014) https://www.ippc.int/publications/use

- integrated

- measures - systems
- approac h

- pest
- risk

management , other ISPMs relevant to the proposed rule are: No. 1 (Principles of plant quarantines as related to international trade), No. 2 (Guidelines for pest risk analysis), No. 8 (Determination of pest status in an area), No. 12 (Guidelines for phytosanitary certificates), No. 20 (Guidelines for a phytosanitary import regulatory system), and No. 28 (Phytosanitary treatments for regulated pests)15



### Objectives of and Legal Basis for the Rule The objective of the proposed rule is to allow fresh apples to be imported into the continental United States from China. The proposed rule would amend the current reg ulations found in Title 7 § 319.56 of the Code of Federal Regulations that grant regulatory authority for setting ph yt osanitary

requirements for the importation of fruits and vege tables into the United States. The proposed rule is part of a continuing prog ram to allow the importation of foreign agricultural products that APHI S has determined are without significant risk of introducing pests or diseases into the United States. The legal basis for this action is the Plant Protection Act (7 U.S.C. 7701

- 7772), which authorizes the Secretary

of Agriculture to prohibit or restrict the importation of any plant product if the Secretary

determines that the prohibition or restriction is necessary to prevent the introduction of a plant pest or noxious weed into the Uni ted States. The proposed rule is part of a continuing program to allow the importation of foreign agricultural products that APHI S has determined are without significant risk of introducing pests or diseases into the United States. 

### Overview of the Action **, Affected Entities**  **, and Potential Effects**  **Conditions of Entry** The proposed rule would amend the regulations to allow the importation of commercial consignments of fresh apples from China into the continental United States only if they are produced under the following conditions : 1. An operational workplan detailing the sy stems approach will be developed by the NPPO of China subject to approval by APHIS. All oversight of the program will be done by the NPPO of China or their designate. The NPPO of Ch ina is expected to maintain program records for16

at least one ye ar and provide them to APHI S upon request. APHIS reserves the right to require APHI S oversight visits in the event of pest interceptions or other problems. 2. Commercial consignments only may b e exported. 3. Apples must be grown at production sites (orchards) regi stered with the NPPO of China. The growers with registered production sites will be responsible for following the phy tosanitary measures agreed upon b y APHI S and the NPPO of China, incl uding appl yi ng control measures that are authorized for use in China and the United States of America to reduce pest populations. 4. The NPPO of China is responsible for ensuring that registered places of production are inspected twice every

season, with s pecial emphasis on the control of quarantine pests listed above. 5. All apples must be bagged individuall y b y the time they reach 2cm in diameter. 6. Fallen fruit must be removed from orchards weekly

. 7. Packinghouses must be registered with the NPPO of Ch ina and must have a s ys tem of box markings allowing traceback to individual production sites. 8. Packinghouses must have a s ys tem of quality control of fruit, including culling to remove all leaves and an y damaged or infested fruit. 9. All apples must unde rgo washing and waxing. 10. The NPPO of China must inspect a biometric sample of the packed

- out apples for pests and disease. The sample size for this inspection will be specified in the workplan. 11. The NPPO must issue a Phy tosanitary Certificate indica ting that the consignment was inspected and found free of pests.17

12. An APHI S approved treatment is required for fruit produced south of 33rd parallel, to mitigate Bactrocera dorsalis fruit flies. Currentl y the only APHI S approved treatment for Bactrocera dorsalis in apples is T108, fumigation plus refrigeration of fruits, but any other treatment subsequentl y approved b y APHIS may be used. 13. Upon detection of Monilinia fructigena or Monilia polystroma in a consignment for export, APHI S may

reject the infe cted consignment and reject the production site for importation to the United States for the remainder of that season. If Monilinia fructigena or Monilia polystroma is detected in more than one registered production site in a Province, APHIS may prohibit t he importation into the United States of apples from the Province until an investigation is conducted and APHI S and the NPPO of China agree that appropriate remedial actions have been taken. Procedures for disqualification of production sites based on pest detections in export consignments will be detailed in the workplan approved b y APHI S and the NPPO of China. 14. The exportation to the United States of apples from the rejected production site may resume in the next growing season if an investigation is conducted and APHIS and the NPPO of China agree that appropriate remedial actions have been taken. 15. The fruit will be inspected b y U.S. Customs and Border Protection (CBP) at the first U.S. port of entry

for pests and disease s . **Potentially Affected Sma ll Entities**  Small

- entit y apple producers may be directl y affected by

the proposed rule , especiall y those that produce the Fuji variety . Other small entities that may be affected include auxiliary industries which support the production and distribution of fresh apples in the United States , as well as importers of fresh apples. P otentially affected entities are classified within the following18

industries, according to the North American Industry Classification S ys tem (NAICS) : Apple Orchards (NAI CS 111331), Po stharvest Crop Activities (except cotton ginning) (NAICS 115114), Fresh Fruit and Vegetable Merchant Wholesalers (NAICS 424480), Pesticide and Other Agricultural Chemical Manufacturing (NAICS 352320), Farm Product Warehousing and Storage (NAI CS 493130), Nu rsery and Tree Production (NAICS 111421), Fruit and Vegetable Markets (NAI CS 445230), Packing and Crating (NAI CS 488991), General Freight Trucking, local (NAICS 484110), Wood Container and Pallet Manuf acturing (NAI CS 321920). Establishments classified within Apple Orchards are considered small b y the Small Business Administration (SBA) if annual sales are not more than $750,000. According to 2007 Census of Agriculture data, there were 25,591 farms classified within Apple Orchar ds in 2007. Average annual sales per apple grower are estimated to have been about $102,000 in 2007. 25 Clearly , apple growers are predominantl y small entities according to the SBA standard of $750,000. Establishments classified within Postharvest Crop Act ivities (except cotton ginning) (NAICS 115114), are considered small by SBA standards if annual sales are not more than $7 million. The percentage of establishments that meet this standard is not known; neither the Census of Agriculture nor the Economic Ce nsus reports revenue for these establishments. Establishments classified within Fresh Fruit and Vegetable Merchant Wholesalers (NAICS 424480) are considered small by SBA standards if they

employ not more than 100 persons . 26 In 2007, there were 5,074 fresh fruit and vegetable merchant wholesalers in the United

25 Average sales per entity is based on the number of apple grow ers recorded in the 2007 Agricultur al Census, i.e. 25,591, and the total value of fresh and processed apples reported in the 2008 USDA

- NASS Non

- citrus fruits and nuts summary, i.e. $2.6 billion. 26 U.S. Small Business Administration, Table of Small Business Size Standards http://www.sba.gov/content/table

sm all

- business

- size

- standards19

States with a total of 104,749 paid employ ees, or on average, 21 paid employ ees per establishment. Out of the 5,074 vegetable merchant wholesalers, about 83 percent of the establishments in this category employ ed fewer than 100 people. 27 It is likel y that domestic fruit merchant wholesalers that may be affected b y the rule are predominantl y, if not entirely, small entities. Establishments classified within Pesticide and O ther Agricultural Chemical Manufacturing (NAICS 352320) is consider ed small by SBA if they employ

no more than 500 employ ees. In 2007, there were 240 of these establishments in the United States with a total of 10,039 paid employ ees , or on average 42 paid employ ees per establishment. According to the 2007 E conomic C

ensus , all the 240 Pesticide and other Agricultural Chemical Manufacturing establishments employ ed fewer than 100 people. 28 Establishments classified within Farm Product Warehousing and Storage (N AI CS 493130), are considered small by SBA standards if annual sales are not more than $25.5 million. In 2007 there were 1,156 entities with sales revenue less than $25.5 million, which is about 91 percent of all establishments. 29 Entities in Nursery and Tr ee Production (NAICS 111421) are considered to be small by SBA standards if annual sales are not more than $750.000. I n 2007 there were 34,532 with average sales revenue of $ 257,786 . I t can be concluded that virtually all Nursery and Tree Production are sm all entities. 30

27 U.S. 2007 Economic Census http://www.census.gov/econ/census 07/ 28 Ibid 29 Ibid 30 U.S 2007 Agriculture Census table 46
. Selected characteristics of farms by North American Industry Classification System http://www.agcensus.usda.gov/Publications/2007/Full_Report/Volume_1,_Chapter_1_US/st99_1_046_046.pdf20

Establishments in Fruit and Vegetable Markets (NAI CS 445230) are considered small by SBA standards if annual sales are not more than $7.0 million. APHI S does not have information on the size distribution of these businesses , but according to the 2007 E conomic C ensus there were 2,938 with average annual sale s of $1.1 million. Establishments in Packing and Crating (NAICS 488991) are considered to be small by SBA standards if annual sales are not more than $25.5 million. APHI S does not have information on the size, but the latest E conomic C ensus states that in 2011 there were 1,243 packing and crating establishments. 31 Entities in General Freight Trucking, local (NAICS 484110) are considered to be small b y SBA standards if annual sales are not m o re than $25.5 million

. APHI S does not have information on the ir size, but the latest E conomic C ensus states that in 2011 there were 26,585 establishments. 32 Establishments in Wood Container and Pallet Manufacturing (NAICS 321920) are consid ered to be small if establishments employ no more than 500 employ ees . APHIS does not have information on the average number of employ ees per establishment in this industry ; we welcome public input to help us gather this information.
**Potential Effects** Cons umers make their purchasing decisions for fresh apples based not only on price but also qualitative attributes such as variet y , flavor (acids, sugars, aroma), juiciness, crispness, firmness, appearance (color, shape and size), freshness, perceived health b enefits, production method (organic or conventional ), and product origin (local, regional, domestic or import). Fresh apples imported from China would compete with other available fresh apples in the U.S. market based on these product attributes.

31 U.S. 2007 Economic Census http://www.census.gov/econ/census07/ 32 Ibid21

As described, t he volume of fresh apples expected to be imported from China, no more than 10,000 MT annuall y, is relatively small and is the equivalent of about 5 percent of U.S. imports and 0.44 percent of U.S. domestic fresh apply suppl y in 2012. We expect the majority of apples imported from China would be the Fuji variety , as about 70 percent of apples produced in China consists of that variety

. Most of China’s fresh apple exports to the United States would likely be shipped to West Coast ports, primarily ones in California. California is also the largest market for Washington apples. Therefore, we expect that the largest effects of the proposed rule would be borne b y Washington and California apple growers , particularly Fuji apple growers, and to an exten t by apple producers in neighboring States. To the extent that the Washington apples are diverted to markets currentl y served by other U.S. apple growers, producers in other States c ould face increased competition. While China’s interest in obtaining marke t access to the United States for its apples is a recognized concern of the U.S. apple industry , U.S. apple trade groups have publicly acknowledged the importance of fostering stable bilateral trade with China by making progress on their market access requ est
. 33 As of the time of writing this anal ys is, China continues to ban the importation of Red Delicious and Golden Delicious , two varieties which China had allowed to enter from three States: Washington, I daho, and Oregon. As a consequence, apples which
wou ld have been export ed to China have been diverted to domestic markets or other overseas destinations , contributing to downward pressure on domestic fresh apple prices. 34

33 Letters submitted to APH IS by the Washington Apple Commission, The U.S. Apple Association, and the U.S. Apple Export Council, dated July 22, 2013, August 20, 2013, and September 9, 2013, respectively. 34 The implication of the Washington fresh apples shipped to the eastern U.S. in stead of exported to China is described by the Fruit Grower News “ Are Chinese apples the biggest threat? ” http://fruitgrowersnews.com/index.php/ma gazine/article/are

- chinese

- apples

- the

- biggest

- threat22

U.S. domestic apple consumption remains relatively flat, and, in order for t he U.S. apple industry to grow, it needs to foster global trade. The example of China’s ban of U.S. fresh apples and how it can affect the U.S. domestic market illustrate s the close linkage between global and domestic markets. G iven APHI S’ determination that the proposed rule would not result in significant adverse impacts on plant health , the proposed rule could provide additional trade opportunities for the two countries

. 

### Projected Reporting, Recordkeeping, and Ot **h** 

### er Compliance **Requirements** Reporting and r ecordkeeping requirements associated with the proposed rule are discussed in the rule under the heading "Paperwork Reduction Act." 

### Duplication, Overlap, or Conflict with Existing Rules and **Regulations** APHI S has not identified any duplication, overlap, or c onflict of the proposed rule with other Federal rules. 

### Alternatives to minimize Significant Economic Impacts of **the Rule** Based on our review of available information, APHI S does not expect the proposed rule to have a significant econ omic impact on small en tities. We have prepared this initial regulatory flexibility anal ys is because our understanding of possible economic effects of the rule on small entities is incomplete. In the absence of apparent significant economic impacts, we have not identified altern atives th at would minimize such impacts.