[Federal Register Volume 82, Number 200 (Wednesday, October 18, 2017)]
[Rules and Regulations]
[Pages 48594-48602]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 2017-22593]



[[Page 48593]]

Vol. 82

Wednesday,

No. 200

October 18, 2017

Part II





Department of Agriculture





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Grain Inspection, Packers and Stockyards Administration





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9 CFR Part 201





Scope of Sections 202(a) and (b) of the Packers and Stockyards Act; 
Rule; Unfair Practices and Undue Preferences in Violation of the 
Packers and Stockyards Act; Proposed Rule

Federal Register / Vol. 82 , No. 200 / Wednesday, October 18, 2017 / 
Rules and Regulations

[[Page 48594]]


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DEPARTMENT OF AGRICULTURE

Grain Inspection, Packers and Stockyards Administration

9 CFR Part 201

RIN 0580-AB28


Scope of Sections 202(a) and (b) of the Packers and Stockyards 
Act

AGENCY: Grain Inspection, Packers and Stockyards Administration, USDA

ACTION: Final rule; withdrawal.

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SUMMARY: The United States Department of Agriculture's (USDA) Grain 
Inspection, Packers and Stockyards Administration (GIPSA), Packers and 
Stockyards Program is withdrawing the interim final rule (IFR) 
published in the Federal Register on December 20, 2016. Had the IFR 
become effective, it would have added a paragraph to the regulations 
issued under the Packers and Stockyards Act (P&S Act) addressing the 
scope of sections 202(a) and (b) of the P&S Act, which enumerate 
unlawful practices under the Act. Specifically, the IFR would have 
added a paragraph to the regulations further explaining the scope of 
sections 202(a) and (b) of the P&S Act such that certain conduct or 
actions, depending on their nature and the circumstances, could be 
found to violate the P&S Act without a finding of harm or likely harm 
to competition.
    GIPSA accepted and analyzed comments on the IFR received on or 
before March 24, 2017. In addition, in the April 12, 2017 Federal 
Register, GIPSA solicited and analyzed comments received on or before 
June 12, 2017, on four alternative actions regarding the disposition of 
the IFR. After careful review and consideration of all comments 
received, GIPSA is withdrawing the IFR.

DATES: The interim final rule published on December 20, 2016 (81 FR 
92566), is withdrawn as of October 18, 2017.

FOR FURTHER INFORMATION CONTACT:  S. Brett Offutt, Director, Litigation 
and Economic Analysis Division, Packers and Stockyards Program, GIPSA, 
1400 Independence Ave. SW., Washington, DC 20250-3601, (202) 720-7051, 
<a href="/cdn-cgi/l/email-protection#1c6f327e6e79686832737a7a6968685c696f787d327b736a"><span class="__cf_email__" data-cfemail="8efda0ecfcebfafaa0e1e8e8fbfafacefbfdeaefa0e9e1f8">[email protected]</span></a>.

SUPPLEMENTARY INFORMATION: GIPSA is issuing this final rule to withdraw 
the interim final rule that would have revised the current regulations 
implementing the P&S Act to state that a finding of harm or likely harm 
to competition was not needed to find a violation of section 202(a) or 
(b) of that Act (7 U.S.C. 181-229c). See 7 U.S.C. 192(a) and (b). Below 
is the basis for this decision. The first section provides background 
on the interim final rule and on the proposed rule disposing of the 
interim final rule. The second and third sections discuss the public 
comments GIPSA received on the interim final rule and the proposed 
rule, respectively. The fourth section discusses GIPSA's action, the 
justification for that action, and responds to the comments received. 
The last section provides the required impact analyses, including the 
Regulatory Flexibility Act, the Paperwork Reduction Act, and the 
relevant Executive Orders.

I. Background

    The P&S Act at 7 U.S.C. 192(a) states that it is unlawful for any 
packer, swine contractor, or live poultry dealer to ``[e]ngage in or 
use any unfair, unjustly discriminatory, or deceptive practice or 
device.'' Further, section 192(b) provides that it is unlawful for 
those same types of business entities to ``[m]ake or give any undue or 
unreasonable preference or advantage to any particular person or 
locality in any respect, or subject any particular person or locality 
to any undue or unreasonable prejudice or disadvantage in any 
respect.'' In the June 22, 2010 Federal Register (75 FR 35338-35354), 
GIPSA published a notice of proposed rulemaking (NPRM) that would make 
several revisions to the regulations implementing the P&S Act, 
including one revision that would add a paragraph (c) to 9 CFR 201.3 to 
codify the agency's longstanding interpretation that, in some cases, a 
violation of 7 U.S.C. 192(a) or (b) can be established without proof of 
likelihood of competitive injury. 75 FR at 35340; see also id. at 35351 
(proposed rule text for Sec.  201.3(c)). GIPSA originally set the 
comment period for the NPRM to close on August 23, 2010, and later 
extended it until November 22, 2010 (75 FR 44163).
    The appropriations acts for fiscal years 2012 through 2015 
precluded USDA from finalizing the NPRM, including the proposed Sec.  
201.3(c). The appropriations acts for fiscal years 2016 and 2017, 
however, did not include this preclusion. Accordingly, on December 20, 
2016, GIPSA published in the Federal Register (81 FR 92566-92594) an 
interim final rule (IFR) adopting essentially the same language in 
proposed Sec.  201.3(c) as Sec.  201.3(a). GIPSA invited interested 
persons to submit comments on the IFR on or before its effective date 
of February 21, 2017.
    On February 7, 2017, GIPSA published in the Federal Register (82 FR 
9489) a notice delaying the effective date of the IFR to April 22, 
2017. The notice also extended the deadline for submitting comments to 
March 24, 2017. The delay and extension were consistent with the 
memorandum of January 20, 2017, to the heads of executive departments 
and agencies from the Assistant to the President and Chief of Staff 
entitled ``Regulatory Freeze Pending Review.''
    On April 12, 2017, GIPSA published a notice in the Federal Register 
(82 FR 17531) delaying the effective date for the IFR for an additional 
180 days, from March 24, 2017, to October 19, 2017. This extension 
allowed additional time for USDA to consider adequately all comments 
received and to make an informed policy decision.
    Concurrent with this notice, GIPSA published in the Federal 
Register (82 FR 17594) a proposed rule presenting four alternatives for 
disposing the IFR: (1) Allow the interim final rule to become 
effective, (2) suspend the interim final rule indefinitely, (3) delay 
the effective date of the interim final rule further, or (4) withdraw 
the interim final rule. The proposed rule gave interested persons until 
June 12, 2017, to comment on the four alternatives.
    GIPSA has analyzed the comments received on the interim final rule 
published on December 20, 2016. It has also evaluated the comments 
received in response to the proposed rule published on April 12, 2017, 
regarding disposition of that rule. Now, GIPSA is withdrawing the 
interim final rule.

II. Interim Final Rule--Discussion of Comments

    GIPSA solicited comments concerning the IFR for a period of 90 days 
ending on March 24, 2017. GIPSA received 344 timely comments. 
Commenters were from all sectors of the livestock and poultry 
industries, including livestock producer groups; poultry grower 
interest groups; packers; poultry company associations; farmers and 
farmers' organizations; consumer organizations and consumers; and an 
animal rights group.
    A common theme of those opposed to the IFR was that it would lead 
to increased litigation. Commenters said that without the requirement 
to show harm to competition, the IFR would embolden producers and 
growers to sue for any perceived slight by a packer or integrator. Fear 
of litigation would cause packers and integrators to vertically 
integrate further, increase their volume of captive supplies, and rely 
even more on those suppliers and growers they currently use. Therefore, 
these commenters suggested the IFR would

[[Page 48595]]

result in new suppliers being shut out of markets.
    A major poultry trade association said that the IFR failed to 
describe what conduct or actions would constitute a violation of the 
P&S Act with sufficient clarity for people to understand prohibited or 
permitted conduct or actions and that this ambiguity would lead to 
arbitrary and discriminatory enforcement. It said that the IFR is not 
entitled to deference because, among other things, the plain language 
of 7 U.S.C. 192(a) and (b) requires a showing of competitive injury. 
Finally, it noted that, although the Department of Justice (DOJ) filed 
amicus briefs with several appellate courts arguing against the need to 
show competitive harm, DOJ's legal arguments failed to sway those 
courts' decisions.
    A livestock packing industry association pointed out that the 
Administrative Procedure Act (APA) (5 U.S.C. 551-559) requires the 
public to have an opportunity to comment timely on proposed rules. 
Because the substance of the IFR was part of the June 2010 NPRM, this 
commenter believed the rulemaking record was ``stale'' and said that 
GIPSA should have re-opened the comment period to refresh the 
rulemaking record or have terminated the rulemaking proceeding. 
Further, having failed to do so, GIPSA should not be entitled to 
deference.
    Two trade associations representing the pork and beef industries 
also opposed the IFR. These commenters said that GIPSA failed to 
identify specific systemic problems needed to justify it. Although 
GIPSA provided examples of conduct or actions that could be challenged 
under the IFR, they said that GIPSA provided no evidence that the 
referenced conduct or actions occur in the pork or beef industries, 
and, therefore, it was not clear if these problems occur in those 
industries. If problems existed, they felt that GIPSA should have 
tailored the rule to address those problems instead of issuing one that 
was over-inclusive and impacted the entire meat industry.
    These commenters also said that GIPSA failed to address adequately 
the judicial decisions interpreting 7 U.S.C. 192 that ran counter to 
the IFR. They said that court decisions held that the words used in 7 
U.S.C. 192, such as ``unfair'' and ``unjust,'' came from other 
antitrust statutes and reasoned their anti-competitive meaning 
transferred over to the P&S Act. They said that GIPSA also failed to 
argue against the conclusion drawn by multiple courts that the 
legislative history of the P&S Act shows that Congress intended Sec.  
192 to require competitive injury. Finally, they noted that GIPSA 
failed to show that its interpretation was in fact a longstanding one. 
They argued that this failure undermined the argument that the courts 
should defer to GIPSA's interpretation.
    Commenters opposed to the IFR also said that it would discourage 
incentives, premiums, and payment plans offering price differentials to 
producers or growers for supplying higher quality product or greater 
production efficiency. They claimed that the ambiguity of the terms 
used in the IFR would encourage limiting or abandoning alternative 
marketing arrangements that provide compensation that is both certain 
and necessary for producers to use in making financial investments.
    Self-identified contract growers for a major poultry company 
provided similar comments, saying that the IFR was not in the best 
interests of contract poultry growers, poultry companies, or consumers. 
They said that the pay system used in the poultry industry encouraged 
innovation and investment in the best practices and equipment. They 
predicted that the IFR might lead to changes to the pay system by 
removing incentives for innovation and investment, resulting in the 
U.S. poultry industry becoming less competitive in global markets and 
threatening jobs here in the U.S.
    A large poultry processing and livestock slaughtering corporation, 
along with many of its individual employees submitting form letters, 
said that GIPSA failed to prove the IFR was economically justified. The 
corporation argued that protection of competition must be the 
``underpinning'' of a regulation issued under the P&S Act and that 
GIPSA's competition-related justifications for the IFR were 
insufficient because the agency: (1) Failed to sufficiently cite 
economic studies to demonstrate that there is an imbalance of market 
power between livestock producers and poultry growers and (2) failed to 
show that regulated entities have an incentive to treat livestock 
producers and poultry growers in a manner that results in a lower 
supply of growers willing to contract. Moreover, this corporation 
claimed that the cost to the industry of the IFR would be $1 billion 
over the next decade, without specific quantifiable benefit.
    Supporters of the IFR included individual livestock producers, 
poultry growers, and farmers' organizations. They pointed to the 
hundreds of thousands or millions of dollars farmers invest to grow or 
produce for a company. Many expressed their belief that farmers need 
the IFR's protection to avoid losing their operations and their 
investments because of unfair, deceptive, and/or retaliatory practices. 
Support for the IFR was also rooted in the belief that requiring harm 
to competition was an impossibly high standard for individual farmers 
to meet.
    These commenters said increased concentration and imbalances of 
power in the marketplace facilitate abuse. They argued that small 
family farmers should not have to compete with one another because of 
the strong hold corporate and commercial farms and packers have on the 
agricultural sector. One commenter emphasized that it was unfair, 
unjustly discriminatory, or unduly preferential to require poultry 
growers to participate in a compensation system in which growers do not 
have full control over their production inputs. They said production 
inputs can be manipulated to the detriment of disfavored growers; and 
because there are limited contracting options, growers may not have the 
means to challenge abuses. Thus, family farmers face unfair practices 
because corporate concentration leads to power imbalances and this 
growing corporate concentration leaves consumers with fewer choices in 
the grocery stores.
    Supporters of the IFR also said it provided common-sense 
protections for farmers. They argued that the purpose of the P&S Act 
was to protect farmers from unfair treatment by companies and not just 
from anticompetitive practices. They said that the IFR simply ensured 
that farmers could challenge unfair treatment without having to bring a 
federal antitrust case. One commenter stated that as long as 
competitive injury is the law there is no deterrent preventing 
companies from treating an individual farmer as it wishes.

III. Disposition of the Interim Final Rule--Discussion of Comments

    In the April 12, 2017 proposed rule, GIPSA stated that there were 
significant policy and legal issues addressed within the IFR that 
warranted further review by USDA. For these reasons, the proposed rule 
requested public comments on four alternative actions that USDA could 
take with regard to the disposition of the IFR. The four alternatives 
listed in the proposed rule were as follows: (1) Allow the IFR to 
become effective; (2) suspend the IFR indefinitely; (3) further delay 
the effective date of the IFR; or (4) withdraw the IFR. The proposed 
rule gave interested persons until June 12, 2017, to comment on the 
four alternative actions.
    USDA received 1,951 timely comments. Of those comments, 1,466 
preferred alternative 4 (i.e., to withdraw the IFR). Another 469 
preferred

[[Page 48596]]

alternative 1 (i.e., to allow the IFR to become effective as planned). 
One commenter preferred alternative 2 (i.e., to suspend the IFR 
indefinitely). This commenter, however, also said that GIPSA should 
``allow the rule to die,'' possibly indicating a real preference for 
alternative 4, withdrawal, as opposed to an indefinite suspension. No 
one voiced a preference for alternative 3 (i.e., to further delay the 
IFR's effective date). Fifteen individuals provided comments on the 
proposed rule but did not state a preference.
    Many commenters who provided comments on the IFR also provided 
comments on this proposed rule, making largely the same arguments. 
Supporters of withdrawal were again concerned about increased 
litigation and vertical integration, reduction or elimination of 
alternative marketing agreements, and decreased market access for 
producers and growers. Those favoring the IFR reiterated their concern 
that increased concentration led to unfair practices and undue 
preferences against farmers. They believed that the IFR provided 
farmers the tools to address unfair practices and undue preferences.

IV. Justification for Withdrawal of the Interim Final Rule and Response 
to Comments

    After reviewing the IFR and carefully considering the public 
comments, GIPSA is withdrawing the IFR because of serious legal and 
policy concerns related to its promulgation and implementation. First, 
the interpretation of 7 U.S.C. 192(a)-(b) embodied in the IFR is 
inconsistent with court decisions in several U.S. Courts of Appeals, 
and those circuits are unlikely to give GIPSA's proposed interpretation 
deference. Additionally, the IFR's justification for dispensing with 
notice and comment for ``good cause'' was inadequate to satisfy the 
APA's requirements.

A. Courts Are Unlikely To Give Deference to the Interim Final Rule

    The purpose of the IFR was to clarify that conduct or actions may 
violate 7 U.S.C. 192(a) and (b) without adversely affecting, or having 
a likelihood of adversely affecting, competition. This reiterated 
USDA's longstanding interpretation that not all violations of the P&S 
Act require a showing of harm or likely harm to competition.
    Contrary to comments that GIPSA failed to show that USDA's 
interpretation was longstanding, USDA has adhered to this 
interpretation of the P&S Act for decades.\1\ DOJ has filed amicus 
briefs with several federal appellate courts arguing against the need 
to show the likelihood of competitive harm for all violations of 7 
U.S.C. 192(a) and (b).\2\
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    \1\ E.g., In re Ozark County Cattle Co., 49 Agric. Dec. 336, 365 
(1990); In re Rodman, 47 Agric. Dec. 885, 912-13 (1988); In re Itt 
Cont'l Baking Co., 44 Agric. Dec. 748, 781 (1985) (citing Packers 
and Stockyards cases from 1957 through 1983); c.f. Sioux City Stock 
Yards Co. v. United States, 49 F. Supp. 801, 806 (N.D. Iowa 1943) 
(``[T]he statute, neither expressly nor impliedly, makes any 
[finding that a market injury was being threatened] a jurisdictional 
prerequisite to the Secretary's power to act.''); In re:Macy Live 
Poultry Co, 1 Agric. Dec. 479 (1942) (finding proof of weight fraud 
alone sufficient to sanction a live poultry dealer).
    \2\ E.g., Brief for Amicus Curiae the United States of America 
in Support of Plaintiff-Appellant, Terry v. Tyson Farms, Inc., 604 
F.3d 272 (6th Cir. 2010) (No. 08-5577), 2008 WL 5665508 at 11-26; En 
Banc Brief for Amicus Curiae the United States of America in Support 
of Plaintiffs-Appellees, Wheeler v. Pilgrim's Pride Corp., 591 F.3d 
355 (5th Cir. 2009) (No. 07-40651), 2009 WL 7349991 at 9-29.
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    However, as commenters have noted and GIPSA acknowledges, several 
federal appellate courts have declined to defer to USDA's 
interpretation (see discussion of cases below). There is good reason to 
believe that several of those courts would continue to do so even if 
USDA's interpretation were codified in a final rule.
    When determining whether an agency's interpretation of a statute 
that it administers is entitled to deference, the Supreme Court 
explained in Chevron, U.S.A., Inc. v. Natural Resources Defense 
Council, Inc.,\3\ that courts look at whether Congress has directly 
spoken to the precise question at issue. If the intent of Congress is 
clear, that is the end of the matter; the court, as well as the agency, 
must give effect to the unambiguously expressed intent of Congress. If, 
however, the court determines that Congress has not directly addressed 
the precise question at issue, the court does not simply impose its own 
construction on the statute, as would be necessary in the absence of an 
administrative interpretation. Rather, if the statute is silent or 
ambiguous with respect to the specific issue, the question for the 
court is whether the agency's answer is based on a permissible 
construction of the statute.\4\
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    \3\ 467 U.S. 837 (1984).
    \4\ Id. at 842-43 (endnotes omitted).
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    The courts have granted Chevron deference ``when it appears that 
Congress delegated authority to the agency generally to make rules 
carrying the force of law, and that the agency interpretation claiming 
deference was promulgated in the exercise of that authority.'' \5\ 
Moreover, even if a court has spoken as to the interpretation of a 
statute, ``[a] court's prior judicial construction of a statute trumps 
an agency construction otherwise entitled to Chevron deference only if 
the prior court decision holds that its construction follows from the 
unambiguous terms of the statute and thus leaves no room for agency 
discretion.'' \6\
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    \5\ Mayo Found. for Medical Educ. and Res. v. United States, 562 
U.S. 44, 45 (2011) (quoting United States v. Mead Corp., 533 U.S. 
218, 226-27 (2001)).
    \6\ Nat'l Cable & Telecomm. Ass'n v. Brand X Internet Serv., 545 
U.S. 967, 982 (2005) (emphasis added).
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    In the IFR, GIPSA acknowledged that multiple federal circuit courts 
had held that harm to competition is required to prove violations of 7 
U.S.C. 192(a) and (b). For example, in the Eleventh Circuit case of 
London v. Fieldale Farms Corp.,\7\ the plaintiffs alleged that 
defendant impermissibly terminated plaintiffs' contract.\8\ The court 
held that plaintiffs' failure to allege harm to competition was fatal 
to their 7 U.S.C. 192(a) claim.\9\ The court stated that ``in order to 
prevail under the [P&S Act], a plaintiff must show that the defendant's 
deceptive or unfair practice adversely affects competition or is likely 
to adversely affect competition.'' \10\
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    \7\ 410 F.3d 1295 (11th Cir. 2005).
    \8\ Id.
    \9\ Id. at 304.
    \10\ Id.
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    In the Tenth Circuit case of Been v. O.K. Industries, Inc.,\11\ the 
plaintiffs, who were growers, alleged that a variety of defendants' 
actions with respect to the growers' contracts were unfair.\12\ The 
court concluded that plaintiffs must show that defendants' conduct 
harmed or was likely to harm competition under 7 U.S.C. 192(a) stating:
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    \11\ 495 F.3d 1217 (10th Cir. 2007).
    \12\ Id. at 1223.

    We are concerned here only with whether unfairness requires a 
showing of a likely injury to competition, not whether deceptive 
practices require such a showing. We therefore join the [sic] those 
circuits requiring a plaintiff who challenges a practice under Sec.  
[192(a)] to show that the practice injures or is likely to injure 
competition.\13\
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    \13\ Id. at 1230.

    In the Fifth Circuit case of Wheeler v. Pilgrim's Pride Corp.,\14\ 
the plaintiffs alleged that one grower wrongfully received superior 
contract terms and that the disparity was unfair and deceptive under 7 
U.S.C. 192(a) and (b).\15\ The en banc court rejected this argument, 
finding ``[t]o support a claim

[[Page 48597]]

that a practice violates subsection (a) or (b) of Sec.  192 there must 
be proof of injury, or likelihood of injury, to competition.'' \16\
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    \14\ 591 F.3d 355 (5th Cir. 2009).
    \15\ Id. at 357.
    \16\ Id. at 363.
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    In the Sixth Circuit case of Terry v. Tyson Farms, Inc.,\17\ the 
plaintiff alleged, among other things, that the defendant poultry 
company cancelled his contract because plaintiff asserted his 
regulatory right to observe the weighing of his birds.\18\ He claimed 
this violated 7 U.S.C. 192(a) and (b).\19\ The court disagreed and held 
that ``in order to succeed on a claim under Sec.  192(a) and (b) of the 
[P&S Act], a plaintiff must show an adverse effect on competition.'' 
\20\ The Terry court cited cases from sister circuits, and claimed that 
seven of the circuits agreed with its legal conclusion.\21\ The Terry 
court also claimed that this ``tide'' of opinions from other circuits 
has ``now become a tidal wave.'' \22\
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    \17\ 604 F.3d 272 (6th Cir. 2010).
    \18\ Id. at 274.
    \19\ Id. at 277.
    \20\ Id. at 279.
    \21\ Id. at 277-79 (citing cases from the Fourth, Fifth, 
Seventh, Eighth, Ninth, Tenth, and Eleventh Circuits and electing to 
join those circuits).
    \22\ Id. at 277.
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    Many commenters argued that the plain language of the P&S Act 
requires competitive injury and that GIPSA therefore is not entitled to 
deference for a conflicting regulation. GIPSA recognizes that at least 
two federal circuits are unlikely to defer to USDA's interpretation. In 
the Fifth Circuit, the Wheeler court said that ``deference . . . is 
unwarranted where Congress has delegated no authority to change the 
meaning the courts have given to the statutory terms . . . .'' \23\ The 
court held USDA was not entitled to deference ``because the PSA is 
unambiguous.'' \24\ Likewise, the Eleventh Circuit refused to defer to 
USDA stating, ``[t]his court gives Chevron deference to agency 
interpretations of regulations promulgated pursuant to congressional 
authority. The [P&S Act] does not delegate authority to the Secretary 
to adjudicate alleged violations of [7 U.S.C. 192] by live poultry 
dealers. Congress left that task exclusively to the federal courts.'' 
\25\ It went on to say that ``[b]ecause Congress plainly intended to 
prohibit only those unfair, discriminatory or deceptive practices 
adversely affecting competition a contrary interpretation of [7 U.S.C. 
192(a)] deserves no deference.'' \26\
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    \23\ Wheeler v. Pilgrim's Pride Corp., 591 F.3d 355, 362 (5th 
Cir. 2009).
    \24\ Id. at 373 n.3.
    \25\ Id. at 1304 (internal citations omitted).
    \26\ Id. (internal quotations and citations omitted).
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    Commenters supporting the IFR cited the current court precedent as 
justification for its promulgation. They said showing harm to 
competition was a difficult standard to meet; and as long as it remains 
a requirement, growers and producers would continue to be subjected to 
unfair business practices, and their businesses would be at risk. GIPSA 
agreed with this view when it promulgated the IFR; however, current 
precedent poses a significant legal issue. As discussed above, the 
courts only grant Chevron deference to an agency's interpretation of a 
statute under its purview when the statute is ambiguous and the 
agency's interpretation is reasonable.\27\
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    \27\ Chevron, U.S.A., Inc. v. Nat. Resources Def. Council, Inc., 
467 U.S. 837, 842-43 (1984).
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    If the IFR becomes effective, it will conflict with Fifth, Sixth, 
Tenth, and Eleventh Circuit precedent. This conflict creates serious 
concerns. GIPSA is cognizant of the commenters who support this IFR 
becoming effective and of their concerns regarding a perceived 
imbalance of bargaining power. Also, GIPSA recognizes that the 
livestock and poultry industries have a vested interest in knowing what 
conduct or actions violate 7 U.S.C. 192(a) and (b). However, a 
regulation conflicting with relevant Circuit precedent will inevitably 
lead to more litigation in the livestock and poultry industries. 
Protracted litigation to both interpret this regulation and defend it 
serves neither the interests of the livestock and poultry industries 
nor GIPSA.
    To be sure, some commenters overstated the hostility in the case 
law to USDA's longstanding position. Contrary to some commenters' 
claims, GIPSA disagrees that the remaining U.S. Circuit Courts of 
Appeals that have had occasion to address the issue (Fourth, Seventh, 
Eighth, and Ninth Circuits) have gone as far as London, Been, Wheeler, 
and Terry, to declare that harm or likelihood of harm to competition is 
required in all cases brought under 7 U.S.C. 192(a) and (b).
    Some courts affirmed the position of the USDA that certain 
practices are unfair because they are likely to harm competition. In 
the Eighth Circuit case of IBP v. Glickman,\28\ the USDA brought an 
action against a packer respondent for alleged unlawful use of the 
packer's right of first refusal.\29\ Among other things, the USDA's 
Judicial Officer ruled that there was potential harm to competition 
based on the allegation that the respondent was not participating in 
the bidding for cattle.\30\ While the IBP court did not agree with the 
Judicial Officer's factual findings, the court agreed that the legal 
standard the Judicial Officer applied was the correct one: ``[w]e have 
said that `a practice which is likely to reduce competition and prices 
paid to farmers for cattle can be found an unfair practice under the 
Act, and be a predicate for a cease and desist order.' '' \31\
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    \28\ 187 F.3d 974 (8th Cir. 1999).
    \29\ Id. at 975-76.
    \30\ Id. at 976.
    \31\ Id. at 977 (quoting Farrow v. USDA, 760 F.2d 211, 214 (8th 
Cir. 1985)) (emphasis added in IBP).
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    Likewise, in the Ninth Circuit case of De Jong Packing Co. v. 
USDA,\32\ the appellate court agreed that collusion to force 
conditional bidding on livestock auctions was anti-competitive in 
nature holding:
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    \32\ 618 F.2d 1329 (9th Cir. 1980).

    The government contends that the purpose of the Act is to halt 
unfair trade practices in their incipiency, before harm has been 
suffered; that unfair practices under [7 U.S.C. 192] are not 
confined to those where competitive injury has already resulted, but 
includes those where there is a reasonable likelihood that the 
purpose will be achieved and that the result will be an undue 
restraint of competition. We agree.\33\
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    \33\ Id. at 1336-37.

    Other courts have only required a showing of harm or likelihood of 
harm to competition for the conduct or action at issue without 
generalizing their holdings to all violations of 7 U.S.C. 192(a) and 
(b). In the Fourth Circuit case of Philson v. Goldsboro Mill Co.,\34\ 
the plaintiff turkey growers claimed their contract was terminated in 
retaliation for ``vocalization of their grievances'' and that 
defendant's conduct was, among other things, an unfair or deceptive 
practice in violation of the P&S Act.\35\ The court held that, while 
``it is unnecessary to prove actual injury to establish an unfair or 
deceptive practice [under 7 U.S.C. 192(a) and (b)], a plaintiff must 
nonetheless establish that the challenged act is likely to produce the 
type of injury that the Act was designed to prevent.'' \36\ Thus, the 
court held that the district court did not err in instructing the jury 
that plaintiff must prove that ``the defendants' conduct was likely to 
affect competition adversely in order to prevail on their claims under 
the Packers and Stockyard Act.'' \37\
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    \34\ 164 F.3d 625, Nos. 96-2542, 96-2631, 1998 WL 709324 (4th 
Cir. Oct. 5, 1998).
    \35\ Id. at *2.
    \36\ Id. at *4 (emphasis in original).
    \37\ Id.
---------------------------------------------------------------------------

    In the Seventh Circuit case of Pacific Trading Co. v. Wilson & 
Co.,\38\ the plaintiffs claimed that the defendant packers had 
knowingly delivered ``off

[[Page 48598]]

condition'' hams in violation of 7 U.S.C. 192(a).\39\ The court 
concluded that ``the plaintiffs have failed to state a claim upon which 
relief can be granted under the Packers and Stockyards Act. For the 
purpose of that statute is to halt unfair business practices which 
adversely affect competition, not shown here . . . .'' \40\
---------------------------------------------------------------------------

    \38\ 547 F.2d 367 (7th Cir. 1976).
    \39\ Id. at 369.
    \40\ Id. at 369-70.
---------------------------------------------------------------------------

    One of the cases from the Eighth Circuit commonly cited by 
commenters as requiring a showing of harm to competition for all 
violations of 7 U.S.C. 192(a) and (b), does not convincingly support 
the commenters' position. In Jackson v. Swift Eckrich, Inc.,\41\ the 
plaintiffs claimed that 7 U.S.C. 192 entitled them the opportunity to 
obtain the same type of contract that defendant offered other 
independent growers.\42\ The court disagreed stating that ``[w]e are 
convinced that the purpose behind Sec.  202 of the [P&S Act], 7 U.S.C. 
192, was not to so upset the traditional principles of freedom of 
contract. The [P&S Act] was designed to promote efficiency, not 
frustrate it.'' \43\ But, the court also appeared to acknowledge that 
other alleged violations of the P&S Act did not require a showing of 
harm to competition. Specifically, the court explained that:
---------------------------------------------------------------------------

    \41\ 53 F.3d 1452 (8th Cir. 1995).
    \42\ Id. at 1458.
    \43\ Id.

    With regard to the claims of `other' [P&S Act] violations, the 
breach of contract claim, and the fraud claim, the district court 
found that a jury question existed. We agree. The Jacksons presented 
evidence that Swift Eckrich had violated a number of PSA 
regulations, that it did not use the condemned carcass calculation 
formula provided in the floor contracts, and that it recorded bird 
weights without actually performing any measurements.\44\
---------------------------------------------------------------------------

    \44\ Id. at 1458-59 (internal citations omitted).

    On the other hand, other Eighth Circuit cases have required a 
showing of a likelihood of competitive injury when a plaintiff alleges 
that a practice is unfair because of its relationship to prices, 
bidding, or competition.\45\
---------------------------------------------------------------------------

    \45\ See Farrow v. USDA, 760 F.2d 211, 214 (8th Cir. 1985) (``We 
agree with the JO that a practice which is likely to reduce 
competition and prices paid to farmers for cattle can be found an 
unfair practice under the Act, and be a predicate for a cease and 
desist order. We conclude that this is so even in the absence of 
evidence that the participants made their agreement for the purpose 
of reducing prices to farmers or that it had that result.'').
---------------------------------------------------------------------------

    Nevertheless, because at least two courts of appeals have held that 
the text of the P&S Act unambiguously forecloses USDA's longstanding 
interpretation, allowing the IFR to go into effect would create an 
unworkable legal patchwork. Based on the comments received and the 
above legal analysis, GIPSA is withdrawing the IFR.

B. The Interim Final Rule Was Insufficiently Supported by a ``Good 
Cause'' Exception to the Administrative Procedure Act's Notice and 
Comment Procedure

    GIPSA is also withdrawing the IFR because we believe it did not 
satisfy the APA's notice and comment requirements at 5 U.S.C. 553(b) 
and (c). GIPSA justified promulgating the IFR without notice and pre-
promulgation opportunity for comment because we reasoned that its 
solicitation of comments over a five month period on the June 2010 NPRM 
satisfied those requirements. 81 FR at 92570. GIPSA reached this 
conclusion because proposed 9 CFR 201.3(c) in the June 2010 NPRM was 
largely the same as 9 CFR 201.3(a) in the IFR. Upon further 
examination, we recognize that this justification is not sufficient to 
meet the APA's bar for establishing ``good cause'' sufficient to 
dispense with normal notice and comment procedures.
    To promulgate a rule as an interim final rule and forego the normal 
notice and comment procedure, an agency must invoke a ``good cause'' 
exception under the APA and explain its rationale within the rule 
itself.\46\ To establish ``good cause,'' the agency must demonstrate 
that the normal procedure would be ``impracticable, unnecessary, or 
contrary to the public interest.'' \47\ ``[T]he inquiry into whether 
good cause has been properly invoked must proceed on a case-by-case 
basis, with a sensitivity to the totality of the factors at play.'' 
\48\ When agencies invoke ``good cause,'' ``the good cause exception is 
to be `narrowly construed and only reluctantly countenanced.' '' \49\
---------------------------------------------------------------------------

    \46\ 5 U.S.C. 553(b)(B).
    \47\ Id.
    \48\ Woods Psychiatric Inst. v. United States, 20 Cl. Ct. 324, 
332-33 (1990) (citing Alcaraz v. Block, 746 F.2d 593, 612 (9th Cir. 
1984)).
    \49\ Tennessee Gas Pipeline Co. v. FERC, 969 F.2d 1141, 1144 
(D.C. Cir.1992) (quoting State of New Jersey v. EPA, 626 F.2d 1038, 
1045 (D.C. Cir. 1980)).
---------------------------------------------------------------------------

    Within the good cause inquiry, courts have identified situations 
that are ``impracticable, unnecessary, or contrary to the public 
interest,'' based on a consideration of multiple factors. Those factors 
include:

the scale and complexity of the regulatory program the agency was 
required to implement; any deadlines for rulemaking imposed by the 
enabling statute; the diligence with which the agency approached the 
rulemaking process; obstacles outside the agency's control that 
impeded efficient completion of the rulemaking process; and the harm 
that could befall members of the public as a result of delays in 
promulgating the rule in question.\50\
---------------------------------------------------------------------------

    \50\ Northern Mariana Islands v. United States, 686 F.Supp.2d 7, 
14-15 (D.D.C. 2009) (internal citations omitted).

    A situation is ``impracticable'' if ``the agency cannot `both 
follow section 553 and execute its statutory duties.' '' \51\ 
``Unnecessary'' refers to situations where the rule at issue is 
``technical or minor'' \52\ or where it ``is a routine determination, 
insignificant in nature and impact, and inconsequential to the industry 
and to the public.'' \53\ Finally, ``contrary to the public interest'' 
arises when there is ``real harm to the public, not mere inconvenience 
to the Agency,'' \54\ and it ``connotes a situation in which the 
interest of the public would be defeated by any requirement of advance 
notice,'' such as a situation when announcing a rule would enable the 
harm the rule was designed to prevent.\55\
---------------------------------------------------------------------------

    \51\ Riverbend Farms, Inc. v. Madigan, 958 F.2d 1479, 1484 n.2 
(9th Cir. 1992) (quoting Levesque v. Block, 723 F.2d 175, 184 (1st 
Cir. 1983)).
    \52\ Id.
    \53\ Mack Trucks, Inc. v. EPA, 682 F.3d 87, 94 (D.C. Cir. 2012) 
(quoting Util. Solid Waste Activities Group v. EPA, 236 F.3d 749, 
755, (D.C. Cir. 2001).
    \54\ Action on Smoking and Health v. Civ. Aeronautics Board, 713 
F.2d 795, 801-02 (D.C. Cir. 1983).
    \55\ Util. Solid Waste Activities Group, 236 F.3d at 755 
(quoting United States Department of Justice, Attorney General's 
Manual on the Administrative Procedure Act 31 (1947)).
---------------------------------------------------------------------------

    The sole justification for invoking ``good cause'' in the IFR was 
that its June 2010 NPRM soliciting public comment satisfied the APA's 
notice and comment requirements. Courts have acknowledged that an 
agency does not always have to ``start from scratch'' and initiate new 
notice and comment proceedings to re-promulgate a rule.\56\ On the 
other hand, the ``mere presence of a prior notice and comment record'' 
does not automatically ``render the solicitation of new comments 
unnecessary.'' \57\ ``Although the [APA] does not establish a `useful 
life' for a notice and comment record, clearly the life of such a 
record is not infinite.'' \58\ Accordingly, ``[i]f the original record 
is still fresh, a new round of notice and comment might be unnecessary. 
Such a finding, however, must be made by the agency and supported in 
the record; it is not self-evident.'' \59\
---------------------------------------------------------------------------

    \56\ Mobile Oil Corp. v. EPA, 35 F.3d 579, 584 (D.C. Cir. 1994).
    \57\ Action on Smoking and Health v. Civ. Aeronautics Board, 713 
F.2d 795, 801 (D.C. Cir. 1983).
    \58\ Id. at 800.
    \59\ Mobile Oil Corp., 35 F.3d at 584.
---------------------------------------------------------------------------

    We are unable to identify circumstances sufficient to dispense

[[Page 48599]]

with traditional notice and comment procedures. Although a large number 
of comments were received over a five-month period, USDA is unwilling 
to assert--and the record does not support the inference that--the June 
2010 NPRM was still ``fresh.'' \60\ Accordingly, the IFR's good cause 
explanation is unlikely to withstand judicial scrutiny. As one 
commenter said, the record from the June 2010 rulemaking was ``stale.'' 
Thus, according to the commenter, GIPSA should have re-opened the 
comment period to refresh the rulemaking record or terminated the 
rulemaking record. GIPSA's decision to seek post-promulgation comment 
in the IFR, noting the high stakeholder interest, the intervening six 
years since the NPRM, and an interest in open and transparent 
government, suggests that the agency recognized the need to refresh the 
rulemaking record.
---------------------------------------------------------------------------

    \60\ See id.
---------------------------------------------------------------------------

    Failing ``to incorporate an adequate statement of good cause for 
dispensing with prior notice and comment has not been held fatal if 
good cause indeed existed,'' \61\ but we can offer no further 
justifications as to why the normal notice and comment procedure was 
``impracticable, unnecessary, or contrary to the public interest.'' The 
``impracticable'' prong was not applicable because GIPSA could have 
executed its statutory duties by issuing a new proposed rule and 
soliciting comments in compliance with the APA. The ``unnecessary'' 
prong was also not applicable because GIPSA estimated the 
implementation costs of the rule for the livestock and poultry 
industries would be millions of dollars. For this reason alone, the IFR 
was not ``technical or minor.'' Finally, there was no evidence that 
prior notice and opportunity for comment would have been ``contrary to 
the public interest,'' as the IFR memorialized GIPSA's well known and 
longstanding interpretation.
---------------------------------------------------------------------------

    \61\ Kollett v. Harris, 619 F.2d 134, 144-45 (1st Cir. 1980).
---------------------------------------------------------------------------

    GIPSA thus recognizes that no good cause existed. Neither Congress 
nor a court mandated that GIPSA issue Sec.  201.3(a), nor were there 
any deadlines for its issuance.\62\ Because Sec.  201.3(a) only 
reiterated USDA's longstanding interpretation of the P&S Act as 
confirmed in the 2010 NPRM, the impacted livestock and poultry 
industries should have been aware of the interpretation, thereby 
negating the necessity to issue the rule immediately.\63\ Also, there 
was no evidence that the public would suffer harm following the normal 
notice and comment procedure.\64\ Although appropriations acts 
prevented GIPSA from taking any action for three years, this 
congressionally mandated delay alone is insufficient to constitute good 
cause.
---------------------------------------------------------------------------

    \62\ Id. at 15.
    \63\ Id.
    \64\ See U.S. Steel Corp. v. EPA, 595 F.2d 207, 214 n.15 (5th 
Cir. 1979) (listing as examples of harm regulations ``involving 
government price controls, because of the market distortions caused 
by the announcement of future controls'' and regulations involving 
``gas stations, where temporary shortages and discriminatory 
practices were found to have deprived some users of any supply and 
led to violence'').
---------------------------------------------------------------------------

    For the reasons discussed above, GIPSA concludes that its possible 
justifications for issuing the rule as an interim final rule fail to 
meet any of the prongs of the ``good cause'' exception, individually or 
cumulatively. Therefore, the prior decision to forgo notice and comment 
was flawed and compels GIPSA to withdraw the IFR.

V. Required Impact Analyses

A. Effective Date

    The IFR addressing the scope of 7 U.S.C. 192(a) and (b) will become 
effective on October 19, 2017, unless withdrawn or suspended. Pursuant 
to the APA at 5 U.S.C. 553(d)(3), GIPSA finds good cause for making 
this final rule effective less than 30 days after publication in the 
Federal Register because it would be contrary to the public interest to 
delay any further.
    Justifiable good cause includes situations where the interest of 
the public is defeated when following the normal procedure would create 
the harm the rule was designed to prevent.\65\ This situation is 
present here. A significant purpose in withdrawing the IFR is to avoid 
conflict with federal appellate courts. If the IFR goes into effect 
before this final rule to withdraw it can go into effect, the conflict 
with the federal appellate courts will occur. Accordingly, to eliminate 
this potential conflict, it is necessary to have this rule become 
effective immediately.
---------------------------------------------------------------------------

    \65\ See Util. Solid Waste Activities Group v. EPA, 236 F.3d 
749, 755 (D.C. Cir. 2001).
---------------------------------------------------------------------------

    Additionally, because GIPSA erred in promulgating the IFR without 
following the APA's normal notice and comment procedure, it is in the 
public's interest for GIPSA to respect the rule of law and withdraw the 
IFR. Immediately withdrawing the IFR prevents confusion in the 
livestock and poultry industries that may occur if the interim rule was 
only briefly effective. Thus, this final rule will be effective upon 
publication in the Federal Register.

B. Executive Orders 12866 and 13771, and Regulatory Flexibility Act

    This final rule has been determined to be significant for the 
purposes of Executive Order 12866 and, therefore, has been reviewed by 
the Office of Management and Budget. This final rule is an Executive 
Order 13771 deregulatory action. Assessment of the cost of allowing the 
interim final rule to take effect and the cost savings attributed to 
not allowing the interim final rule to take effect may be found in the 
economic analysis below.
    The first section of the analysis discusses the two regulatory 
alternatives considered and presents a summary cost-benefit analysis of 
each alternative. GIPSA then discusses the impact on small businesses.
Cost-Benefit Analysis of Sec.  201.3(a)
Regulatory Alternatives Considered
    Executive Order 12866 requires an assessment of costs and benefits 
of potentially effective and reasonably feasible alternatives to the 
planned rulemaking and an explanation of why the planned regulatory 
action is preferable to the potential alternatives. In the IFR, GIPSA 
considered three alternatives. The first alternative considered was to 
maintain the status quo and not finalize Sec.  201.3(a). The second 
alternative considered was to issue Sec.  201.3(a) as an IFR. The third 
alternative considered was to issue Sec.  201.3(a) as an IFR but exempt 
small businesses, as defined by the Small Business Administration, from 
having to comply with the rule. GIPSA chose the second alternative, to 
issue Sec.  201.3(a) as an IFR. The IFR announced GIPSA would add a 
paragraph to section 201.3 of the regulations addressing the scope of 7 
U.S.C. 192(a) and (b). After multiple delays of the effective date, the 
IFR was scheduled to become effective on October 19, 2017.
    In preparing this final rule, GIPSA initially considered four 
alternatives, as described in Section III above. After soliciting 
comments on the four alternatives, GIPSA is only further analyzing two 
of the alternatives, allowing the IFR to become effective (alternative 
1) and withdrawing the IFR (alternative 4). GIPSA is only further 
analyzing these two alternatives because all of the commenters who 
selected a preferred alternative selected alternatives 1 and 4, save 
one commenter. That commenter, as discussed in Section III, appears to 
have had a real preference for alternative 4.
    In analyzing these two alternatives, GIPSA used the same data and 
analysis as presented in the IFR. GIPSA used the

[[Page 48600]]

same data and analysis because only a relatively short period of time 
has elapsed since the economic analysis was conducted for the IFR. 
Therefore, the underlying facts and reasoning used in the estimates 
prepared for the IFR have not changed to any material extent. Also, 
because of the relatively short period of time since the publication of 
the IFR, the livestock and poultry industries have not had time to make 
significant changes in their structures, practices, or methodologies--
if they have made any changes. Moreover, GIPSA anticipated that many 
firms would take a ``wait and see'' approach and would not make 
significant changes to their operations or procurement practices until 
they were sure that the IFR would become effective.
    Given the multiple delays of the effective date of the IFR and the 
proposed rule seeking comments on the disposition of the IFR, GIPSA 
believes that few, if any, livestock and poultry producers and 
stakeholders changed their operations or procurement practices in 
reliance on the assumption that the IFR would become effective. In 
fact, no commenters on this proposed rule said they changed their 
operations or procurement practices, nor has GIPSA otherwise been made 
aware of anyone or any business making changes to their operations or 
procurement practices in reliance on the IFR's becoming effective. 
Therefore, the conditions in the livestock and poultry industries 
likely remain as they were when the IFR was published.
Alternative One: Allow the Interim Final Rule To Become Effective
    The costs and benefits described for alternative number two in the 
IFR, to finalize the IFR, equate to current alternative 1, allowing the 
IFR to become effective. In the absence of any action by GIPSA, the IFR 
will become effective on October 19, 2017, and the costs and benefits 
associated with the rule will start to be incurred once the IFR becomes 
effective. Although none of these costs or benefits associated with the 
IFR result under current practice, they will result from allowing the 
IFR to become effective. As such, GIPSA analyzed the post-regulatory 
world in preparing the regulatory analysis associated with the IFR as 
the best estimate of the legal status quo.
    As described in the IFR, given the applicability of the regulation 
to the livestock and poultry industries in their entirety, it was 
difficult to predict how those industries would respond. Therefore, in 
the IFR, GIPSA assigned a range to the expected costs of the 
regulation. At the lower boundary of the cost spectrum, GIPSA 
considered the scenario where the only costs were increased litigation 
costs and where there were no adjustments by the livestock and poultry 
industries to reduce their use of Alternative Marketing Agreements 
(AMA) or incentive pay systems--such as poultry grower ranking 
systems--and there were no changes to existing marketing or production 
contracts. For the upper boundary of the cost spectrum, GIPSA 
considered the scenario in which the livestock and poultry industries 
adjusted their use of AMAs and incentive pay systems and made 
systematic changes in its marketing and production contracts to reduce 
the threat of litigation.\66\
---------------------------------------------------------------------------

    \66\ GIPSA specifically looked at the following range of 
expected costs if the interim final rule became effective:
    A. Lower Boundary of Cost Spectrum-Litigation Costs of Preferred 
Alternative (81 FR 92578-92580).
    B. Lower Boundary-Ten-Year Total Costs of the Preferred 
Alternative (81 FR 92580-92581).
    C. Lower Boundary-Net Present Value of Ten-Year Total Costs of 
the Preferred Alternative (81 FR 92581).
    D. Lower Boundary-Annualized NPV of Ten-Year Total Costs of the 
Preferred Alternative (81 FR 92581).
    E. Upper Boundary of Cost Spectrum-Preferred Alternative (81 FR 
92581-92585).
    F. Upper Boundary-NPV of Ten-Year Total Costs of the Preferred 
Alternative (81 FR 92585).
    G. Upper Boundary-Annualized Costs of the Preferred Alternative 
(81 FR 92585).
    H. Sensitivity Analysis of the Upper Boundary (81 FR 92585).
    I. Range of Annualized Costs of the Preferred Alternative (81 FR 
92585-92586).
    J. Point Estimate of Annualized Costs of the Preferred 
Alternative (81 FR 92586).
    K. Sensitivity Analysis of Point Estimates of Annualized Costs 
(81 FR 92586-92587).
---------------------------------------------------------------------------

    GIPSA estimated the annualized costs of Sec.  201.3(a) to range 
from $6.87 million to $96.01 million at the three percent discount rate 
and from $7.12 million to $98.60 million at the seven percent discount 
rate. The range of potential costs is broad. GIPSA relied on its 
expertise to arrive at a point estimate range of expected annualized 
costs. GIPSA expected that the cattle, hog, and poultry industries 
would primarily take a ``wait and see'' approach to how courts would 
interpret Sec.  201.3(a), and the industries would only slightly adjust 
their use of AMA's and performance-based payment systems in the 
meantime. GIPSA estimated that the annualized cost of Sec.  201.3(a) 
would be $51.44 million at a three percent discount rate and $52.86 
million at a seven percent discount rate based on an anticipated ``wait 
and see'' approach and limited industry adjustments.
    Although GIPSA was unable to quantify the benefits of Sec.  
201.3(a), GIPSA determined that this rule did provide a qualitative 
benefit. The primary qualitative benefit would be broader protection 
and fair treatment for livestock producers, swine production contract 
growers, and poultry growers, which could lead to more equitable 
contracts. GIPSA contended that the enactment of Sec.  201.3(a) would 
allow for the increased ability to enforce the P&S Act for violations 
of 7 U.S.C. 192(a) and (b), which do not result in harm or likely harm 
to competition. GIPSA believed that increased enforcement actions would 
help in reducing the ability of packers, swine contractors, and live 
poultry dealers to monopolize or exercise market power. This, in turn, 
would help provide livestock producers, swine production contract 
growers, and poultry growers with some degree of negotiating power 
parity. GIPSA also believed that enforcement could serve as a deterrent 
to future violations of 7 U.S.C. 192(a) and (b).
Alternative Two: Withdraw the Interim Final Rule
    Withdrawing the IFR negates the $51.44 million with a range of 
$6.87 million to $96.01 million at a three percent discount rate and 
$52.86 million with a range of $7.12 million to $98.60 million at a 
seven percent discount rate in projected annualized costs described 
above that would be incurred should the IFR become effective. It also 
means that the qualitative benefit of Sec.  201.3(a)--broader 
protection and fair treatment for livestock producers, swine production 
contract growers, and poultry growers, which may lead to more equitable 
contracts are not expected to occur as a result of this rule. Instead, 
GIPSA expects that packers and live poultry dealers would continue with 
their current practices and that current rates of enforcement of the 7 
U.S.C. 192(a) and (b) would remain unchanged.
Cost-Benefit Comparison of Regulatory Alternatives
    Alternative 1, allowing the IFR to become effective, results in 
annualized costs estimated at $51.44 million with a range of $6.87 
million to $96.01 million at a three percent discount rate and $52.86 
million with a range of $7.12 million to $98.60 million at a seven 
percent discount rate. As stated above, GIPSA was unable to quantify 
the benefits of Sec.  201.3(a), but it did identify qualitative 
benefits of allowing the IFR to become effective. The primary 
qualitative benefit of this alternative was broader protection and fair 
treatment for livestock producers, swine production contract growers, 
and poultry growers, which may lead to

[[Page 48601]]

more equitable contracts. Benefits to the industries and the markets 
were projected to come from improvements to the parity of negotiating 
power and from increased enforcement serving as a deterrent to future 
violations. Upon further consideration of comments, the amount of 
increased enforcement may have been overestimated, because GIPSA was 
only enshrining in the rulemaking USDA's longstanding view that proof 
of likelihood of harm to competition is not required in all instances. 
Additionally, GIPSA's estimates were based on the assumption that all 
courts would enforce the IFR, ignoring the case law to the contrary. 
Notwithstanding an expected lack of deference by the Federal Circuits 
to the regulation, an increase in litigation is unavoidable in the 
livestock and poultry industries to not only interpret this regulation, 
but also to uphold it. This serves neither the interests of the 
livestock and poultry industries nor GIPSA.
    Alternative 2, withdrawing the IFR, would result in the benefit of 
eliminating the projected annualized costs of $51.44 million with a 
range of $6.87 million to $96.01 million at a three percent discount 
rate and $52.86 million with a range of $7.12 million to $98.60 million 
at a seven percent discount rate that would be incurred if the IFR 
became effective. These figures represent the cost savings from 
withdrawing the IFR, however, these savings come at the arguable cost 
of the qualitative benefit GIPSA identified in the IFR. The projected 
broader protection and fair treatment for livestock producers, swine 
production contract growers, and poultry growers, which might possibly 
lead to more equitable contracts, will be lost.
    Having considered both alternatives, GIPSA believes that 
alternative 2, withdrawing the IFR, is the best option.
Regulatory Flexibility Act Analysis of Withdrawing the Interim Final 
Rule
    The Small Business Administration (SBA) defines small businesses by 
their North American Industry Classification System Codes (NAICS).\67\ 
SBA considers broiler and turkey producers and swine contractors, NAICS 
codes 112320, 112330, and 112210 respectively, to be small businesses 
if sales are less than $750,000 per year. Live poultry dealers, NAICS 
311615, are considered small businesses if they have fewer than 1,250 
employees. Beef and pork packers, NAICS 311611, are defined as small 
businesses if they have fewer than 1,000 employees.
---------------------------------------------------------------------------

    \67\ See: http://www.sba.gov/idc/groups/public/documents/sba_homepage/serv_sstd_tablepdf.pdf.
---------------------------------------------------------------------------

    The Regulatory Flexibility Analysis in the IFR published on 
December 20, 2016, analyzed the impact of enacting the IFR on small 
businesses (81 FR 92591-92594). As part of the analysis, GIPSA 
identified the approximate number of entities subject to the IFR that 
were small businesses and analyzed the costs for those small businesses 
to implement Sec.  201.3(a), both in the first full year of 
implementation (at that time 2017), and annualized over a ten-year 
period. Because of the relatively short period of time since the 
publication of the IFR, the numbers of subject entities that are small 
businesses have not appreciably changed; therefore, the same number of 
entities that were small businesses that would have been impacted by 
implementing the IFR are the same entities that would be impacted by 
withdrawing the IFR.
    The Census of Agriculture (Census) indicates there were 558 farms 
that sold their own hogs and pigs in 2012 and that identified 
themselves as contractors or integrators. GIPSA estimated that about 65 
percent of swine contractors had sales of less than $750,000 in 2012 
and would have been classified as small businesses. These small 
businesses accounted for only 2.8 percent of the hogs produced under 
production contracts. Additionally, there were 8,031 swine producers in 
2012 with swine contracts and about half of these producers would have 
been classified as small businesses.
    Based on U.S. Census data on county business patterns, in 2013, 
there were approximately 59 live poultry dealers employing fewer than 
1,250 people each, which would have been classified as small 
businesses. GIPSA records for 2014 indicated there were 21,925 poultry 
production contracts in effect, of which 13,370, or 61 percent, were 
held by the largest six live poultry dealers, and 90 percent (19,673) 
were held by the largest 25 firms. These 25 firms are all in the large 
business SBA category, whereas the 21,925 poultry growers holding the 
other end of the contracts are almost all small businesses by SBA's 
definitions. GIPSA determined that poultry dealers classified as large 
businesses are responsible for about 89.7 percent of the costs on 
poultry contracts and therefore, by extension, small businesses would 
be responsible for 10.3 percent of the costs. GIPSA records, as of June 
2016, included 227 firms reporting the slaughter of hogs. Of these, 219 
would be classified as small businesses. GIPSA estimated that small 
businesses accounted for approximately 17.8 percent of the hogs 
slaughtered in 2015. For that same year, GIPSA records, included 293 
firms reporting the slaughter of cattle. Of these, 287 would be 
classified as small businesses.
    As discussed earlier, because of the relatively short period of 
time since the publication of the IFR, the livestock and poultry 
industries have not changed their structures, practices, or 
methodologies. Also, GIPSA correctly predicted that many firms would 
take a ``wait and see'' approach and would not want to make significant 
changes to their operations or procurement practices until they were 
sure that the IFR would become effective. Consequently, no small 
businesses should incur any costs from the IFR's withdrawal.
    Based on this analysis, GIPSA certifies that withdrawal of the IFR 
is not expected to have a significant economic impact on a substantial 
number of small business entities as defined in the Regulatory 
Flexibility Act (5 U.S.C. 601, et seq.).

C. Executive Order 12988

    GIPSA reviewed this final rule under Executive Order 12988, Civil 
Justice Reform. This action is not intended to have retroactive effect 
nor will it pre-empt state or local laws, regulations, or policies, 
unless they present an irreconcilable conflict with this rule. There 
are no administrative procedures that must be exhausted before any 
judicial challenge to this final rule. Nothing in this final rule is 
intended to interfere with a person's right to enforce liability 
against any person subject to the P&S Act under authority granted in 
section 308 of the P&S Act.

D. Executive Order 13175

    GIPSA reviewed this final rule in accordance with the requirements 
of Executive Order 13175, ``Consultation and Coordination with Indian 
Tribal Governments.'' Executive Order 13175 requires Federal agencies 
to consult and coordinate with tribes on a government-to-government 
basis on policies that have tribal implications, including regulations, 
legislative comments or proposed legislation, and other policy 
statements or actions that have substantial direct effects on one or 
more Indian tribes, on the relationship between the Federal Government 
and Indian tribes, or on the distribution of power and responsibilities 
between the Federal Government and Indian tribes.
    Although GIPSA has assessed the impact of this final rule on Indian 
tribes and determined that this final rule does not, to its knowledge, 
have tribal implications that require tribal consultation under 
Executive Order

[[Page 48602]]

13175, GIPSA offered opportunities to meet with representatives from 
Tribal Governments during the comment period for the June 2010 NPRM 
(June 22 to November 22, 2010) with specific opportunities in Rapid 
City, South Dakota, on October 28, 2010, and Oklahoma City, Oklahoma, 
on November 3, 2010. GIPSA invited all tribal governments to 
participate in these venues for consultation. GIPSA has received no 
specific indication that the final rule will have tribal implications 
and has received no further requests for consultation as of the date of 
this publication. If a Tribe requests consultation, GIPSA will work 
with the Office of Tribal Relations to ensure meaningful consultation 
is provided where changes, additions, and modifications herein are not 
expressly mandated by Congress.

E. Paperwork Reduction Act

    This final rule does not contain new or amended information 
collection requirements subject to the Paperwork Reduction Act of 1995 
(44 U.S.C. 3501 et seq.). It does not involve collection of new or 
additional information by the federal government.

F. E-Government Act Compliance

    GIPSA is committed to compliance with the E-Government Act, to 
promote the use of the internet and other information technologies to 
provide increased opportunities for citizen access to Government 
information and services, and for other purposes.

List of Subjects in 9 CFR Part 201

    Contracts, Livestock, Poultry, Trade practices.

0
Accordingly, the interim final rule amending 9 CFR Part 201 that was 
published at 81 FR 92566-92594 on December 20, 2016, is withdrawn.

Randall D. Jones,
Acting Administrator, Grain Inspection, Packers and Stockyards 
Administration.

[FR Doc. 2017-22593 Filed 10-17-17; 8:45 am]
 BILLING CODE 3410-KD-P


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