Office of Advocacy

August 27, 1998

Mr. William J. Hundall
Assistant Deputy Administrator
Office of Policy, Planning and Evaluation
USDA/FSIS
South Building
1400 Independence Avenue, SW
Washington, DC 20250

Re: Notice of Procedural Change in the Meat, Poultry and Egg Products Labeling Review Process—Elimination of Appointments with Label Courier/Expediter Firms; 63 Fed. Reg. 40,010 (July 27, 1998).

Dear Mr. Hundall:

On July 27, 1998, the Food Safety and Inspection Service (FSIS) issued a notice of procedural change with a 30-day comment period announcing a drastic change in the way the labeling review process for meat, poultry and egg products will operate. Currently, labeling for these products that requires prior approval is submitted daily for review and approval to the Labeling and Compounds Review Division (LCRD) via mail, delivery service (e.g. FedEx), personal visits by a company or their trade representative, and through services provided by local courier firms/expediter services. Labeling reviews for the last category are conducted during routine, daily, time-set, face-to-face appointments with labeling review staff during a 4-hour time period each day. Under the proposed procedural change, FSIS would eliminate the daily face-to-face appointments.

The Office of the Chief Counsel for Advocacy of the U.S. Small Business Administration was created in 1976 to represent the views and interests of small business in federal policy making activities.(1) The Chief Counsel participates in rulemakings and other agency actions when he deems it necessary to ensure proper representation of small business interests. In addition to these responsibilities, the Chief Counsel monitors compliance with the Regulatory Flexibility Act (RFA), and works with federal agencies to ensure that their rulemakings demonstrate an analysis of the impact that their decisions will have on small businesses.

The Office of Advocacy believes that the instant "Notice of Procedural Change" constitutes a rulemaking under the Administrative Procedure Act (APA). Accordingly, the Office of Advocacy believes that FSIS should have followed established notice and comment procedures under the APA prior to changing its label review policy. The APA defines a rule as:

• "the whole or a part of an agency statement of general or particular applicability and future effect designed to implement, interpret, or prescribe law or policy or describing the organization, procedure, or practice requirements of an agency and includes the approval or prescription for the future of rates, wages, corporate or financial structures or reorganizations thereof, prices, facilities, appliances, services or allowances therefor or of valuations, costs, or accounting or practices bearing on any of the foregoing." 5 U.S.C. § 551(4).

After determining whether an agency action is in fact a rulemaking under the APA, the next question is whether APA rulemaking procedures apply. Section 553 of the APA outlines the procedures an agency must follow when promulgating rules—including notice and comment procedures. These procedures must be followed with few exceptions. Section 553(b)(A) states: "except when a notice or hearing is required by statute, this subsection [outlining the procedural requirements] does not apply to interpretative rules, general statements of policy or rules of agency organization, procedure, or practice..."

FSIS has issued a statement of general applicability with future effect designed to alter policy and procedure, and therefore, generally meets the definition of a rule under section 551 of the APA. FSIS does not explain why its "notice" is not tantamount to a rule, nor why such a rule is exempt from notice and comment. There are examples in case law where courts have struck down rules for failure to comply with notice and comment procedures—regardless of whether the agency had the authority to promulgate a particular rule or policy, and regardless of the label attached to the agency’s rule (e.g., "notice of procedural change"). The test is whether an agency’s proposal will have a substantial impact on the regulated industry, or an important class of the members or the products of that industry. (2)

In National Association of Home Health Agencies v. Schweiker, 690 F.2d 932, 949 (D.C. Cir. 1982) cert. denied, 459 U.S. 1205 (1983), the court explained that the notice and comment requirements were included in the APA for two main reasons.

• "First, ‘to reintroduce public participation and fairness to affected parties after governmental authority has been delegated to unrepresentative agencies.’ And second, to ‘assure that the agency will have before it the facts and information relevant to a particular administrative problem, as well as suggestions for alternative solutions.’ The dual purpose of fairness and agency self-education is advanced if ‘(e)xceptions (are) recognized only where the need for public participation is overcome by good cause to suspend it, or where the need is too small to warrant it.’ Therefore, the ‘exception of section 553(b)(A) . . . does not extend to those procedural rules that depart from existing practice and have a substantial impact on those regulated.’ Or, to use the words of this court, ‘(t)he exemption (for rules of agency procedure) cannot apply. . . where the agency action trenches on substantive rights and interests.’" (citations and footnotes omitted).

In National Association of Home Health Agencies v. Schweiker, the defendant, Secretary of the Department of Health and Human Services, issued an administrative instruction designating certain intermediaries to perform his reimbursement functions to home health agencies (HHAs) and required that HHAs deal exclusively with those intermediaries. APA notice and comment procedures were not followed. The court stated that:

• "although . . .these HHAs do not have an unlimited statutory right to deal directly with the Secretary, it is undisputed that for sixteen years freestanding HHAs had the option of choosing to deal with the Secretary or with an intermediary. Thus, freestanding HHAs had at least a qualified right to choose with whom they dealt. The [Secretary’s] instruction foreclosed that option, eliminating the qualified right. Furthermore, the elimination of this right will cause freestanding HHAs great expense and inconvenience . . . This disruption caused by the transfer may not be great enough to persuade the Secretary to rescind the instruction, but the potential impact is such that the fairness element of section 553 requires that the HHAs involved be given a chance to present their case to the Secretary before he acts."

The label courier/expediting firms who will be impacted by FSIS’ "procedural change" surely deserve an opportunity to comment as did the HHAs in the above-referenced case. Apparently, the existing system has been in place for 26 years. Such a drastic change in policy and procedure would result in a significant impact on a substantial number of small entities in the industry. The impact may also extend to many small meat, poultry and egg producers who use the expediting services to save time, and thus, to reduce costs. Expediting services are frequently able to make changes to label requests during face-to-face meetings with FSIS labeling staff. Mail requests may result in costly delays when the request has to be resubmitted for additional review. However, the major impact of this change is that the expediting industry, essentially will be out of work. While the actual number of expediters in the Washington, DC metropolitan area may be small, a substantial number (the entire industry) will be impacted.

FSIS did solicit comments in its July 27 notice, but the change in policy is scheduled to go into effect almost immediately—September 10, 1998. The comment period, therefore, seems slightly disingenuous, and appears to be little more than an afterthought. Courts typically frown on agency efforts to minimize the time allowed for notice and comment. For instance, in Sharon Steel Corp. v. EPA, 597 R.2d 377, 381 (3^rd Cir. 1979), the court stated that:

• "[i]f a period for comments, after issuance of a rule, could cure a violation of the APA’s requirements, an agency could negate at will the Congressional decision that notice and an opportunity for comment must precede promulgation. Provisions of prior notice and comment allows effective participation in the rulemaking process while the decision maker is still receptive to information and argument. After the final rule is issued, the petitioner must come hat-in-hand and run the risk that the decision maker is likely to resist change."

Although Sharon Steel Corp. v. EPA involves a post final rule comment period, it certainly could be argued that allowing only two weeks between the close of a comment period and the effective date of a rule effectively bars participation in the rulemaking process by affected or interested entities, and demonstrates that FSIS is unlikely to make any changes based on the comments received.

Of course, if APA rules of procedure apply, then the RFA applies as well. (3) When the RFA applies, agencies must prepare an analysis of the impacts if a regulation is likely to have a significant economic impact on a substantial number of small entities. (4) The purpose of this exercise is not to force agencies to alter their regulatory objectives or to bestow special privileges to small businesses. The purpose is to help agencies design better, less burdensome regulations while still allowing agencies to accomplish their regulatory objectives. An initial regulatory flexibility analysis (IRFA)may have yielded other, less burdensome alternatives. For instance, was any consideration given to limiting the number of days for direct representation from five to four days per week? This alternative may not be the best solution either, but the point is that the affected industry would have had an opportunity to comment and provide invaluable input.

Finally, the Office of Advocacy has received information that FSIS has attempted twice, by rulemaking, to change the existing policy concerning direct representation. Apparently, both attempts failed. The Office of Advocacy has no independent verification of this information, so we would like to receive a response from FSIS addressing the issue. If the industry claims are true, then the instant notice would seem to be nothing more than a back door attempt to push through a policy change without notice and comment. We remain hopeful that this is not the case.

In the meantime, the Office of Advocacy requests that FSIS republish its notice as a proposed rule with an adequate opportunity for notice and comment, and that FSIS prepare an IRFA pursuant to the RFA in order to determine the true impact and possibly reduce the burden on small entities. Please do not hesitate to contact our office if you require assistance in your RFA compliance efforts, 202-205-6532.

We appreciate your prompt attention to this matter.

Sincerely,

Jere W. Glover
Chief Counsel for Advocacy

Shawne Carter McGibbon
Asst. Chief Counsel for Advocacy

ENDNOTES

1. Regulatory Flexibility Act 5 U.S.C. § 601, as amended by the Small Business Enforcement Fairness Act, Pub. L. No. 104-121, 110 Stat. 866 (1996).

2. See Pharmceutical Manufacturers Association v. Finch, 307 F. Supp. 858 (D. Del. 1970); Brown Express, Inc. v. United States, U.S. 607 F.2d 695 (5^th Cir. 1979); United States Dept. of Labor v. Kast Metals Corporation, 744 F.2d 1145 (The substantial impact test is the primary means by which courts look beyond the label "procedural" to determine whether a rule is of the type Congress thought appropriate for public participation.).

3. See 5 U.S.C. § 601.

4. See 5 U.S.C. § 603.