Regulatory Analysis and Development
Policy and Program Development Division
Animal and Plant Health Inspection Service
U.S. Department of Agriculture
Suite 3C03
4700 River Road Unit 118
Riverdale, MD 20737-1238
Dear Docket Manager:
On September 1, 1998, the Animal and Plan Health Inspection Service (APHIS) published a proposed rule to add orchids of the genus Phalaenopsis to the list of plants that may be imported in an approved growing medium under certain conditions. The government of Taiwan, already the largest exporter of this type of orchid to the United States in bare root form, requested permission to export the orchids established in sphagnum moss (--an approved growing medium).
APHIS is permitted to prohibit or restrict the importation of certain plants and plant products into the United States in order to prevent the introduction of plant pests. With certain exceptions, plants offered for importation into the United States must be free of sand, soil, earth and other growing media—a requirement intended to help prevent the introduction of plant pests present in such growing media. The exceptions take into account requirements that mitigate the plant pest risk (i.e., the plants were rooted and grown in certain greenhouse conditions, approved types of growing media were used, etc.).
Pursuant to the requirements in 7 C.F.R. part 319, APHIS conducted a pest risk analysis in accordance with its regulatory standards. Based on the conclusions of the pest risk analysis, APHIS determined that the importation of the designated orchids from Taiwan or any other country under the conditions required by section 319.37-8(e) would pose no greater pest risk than currently posed by the importation of the plant in bare root form. The effect of this regulatory amendment will be to allow, without any quantity restriction, importation of the designated genus of orchid from all foreign countries.
Effect of Proposal on Small Entities
The Office of the Chief Counsel for Advocacy of the U.S. Small Business Administration (SBA) was created in 1976 to represent the views and interests of small businesses in federal policy making activities.(1) The Chief Counsel participates in rulemakings 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 analyze and substantiate the impact that their decisions will have on small businesses.
The Office of Advocacy does not have sufficient expertise to question or challenge APHIS’s pest risk analysis. However, this office does wish to comment on the potential impact of this proposed amendment on small orchid growers and the agency’s failure to prepare an adequate initial regulatory flexibility analysis (IRFA).
APHIS Did Not Comply with the Requirements of the RFA
Section 603 of the RFA requires agencies to prepare an IRFA whenever the agency determines that there will be a significant economic impact on a substantial number of small entities. The analysis must describe the impact of the proposed rule on small entities and must contain, among other things, a description of the compliance requirements (i.e., the costs).
APHIS supplies information on approximate annual receipts, number of pots produced, and the number of growers for all types of orchids based on National Agricultural Statistics Service data in the proposed rule. The agency also provides information from USDA’s Foreign Agricultural Service regarding U.S. imports of all bare root orchid plants. Finally, the agency correctly concludes that most of the entities potentially affected by the proposed rule are small by U.S. Small Business Administration standards.
However, the agency’s analysis does not go beyond a very general discussion of the price differential between domestic and foreign plants and on the volume of plant imports—both of which are unknown to the agency. The agency does not address other potential impacts of the regulation. For instance, there is a niche industry that establishes Phalaenopsis imported bare root orchids in pots and then sells the potted orchids wholesale. In addition, there are factors that contribute to the likelihood that the U.S. market will be flooded and dominated by Taiwanese businesses. Some of those factors include the overwhelming size of the Taiwan orchid industry in comparison to that of the U.S., the low production costs in Taiwan (i.e., low employee wages), and government subsidies enjoyed by Taiwanese companies.
The orchid industry also has data regarding the number of domestic orchid growers, domestic production and sales, and the characteristics of orchid grower businesses (e.g., average cost to grow orchid plants, etc.). More importantly, the industry has historical data documenting the impact of foreign dumping on domestic flower growing generally.
According to a recent report titled The Changing Floriculture Industry: A Statistical Overview by the Society of American Florists (January 1997), production of carnations, roses and chrysanthemums fell sharply after foreign imports were allowed to flood the market. To wit:
"In 1971, U.S. domestic growers produced over 589 million carnations and supplied almost 95% of the domestic market. Imports accounted for about half of the carnations sold in the U.S. in 1980, and in 1991, the over 1 billion standard carnations imported accounted for almost 85% of the carnations sold in the U.S. In 1991, Columbia alone was the source of over 96% of imported carnations, with Ecuador and Mexico the next largest suppliers. The latest data, for 1995, shows domestic production falling to 113,8 million blooms representing only 12 percent of the supply. Imports now account for the remaining 88 percent."(2)
APHIS appears to be ambivalent about the impact of the proposal on small orchid producers. Initially, APHIS states that there is no basis to conclude that adoption of the proposed rule would result in any significant economic impact on a substantial number of small entities. Such a statement seems to contradict APHIS’s subsequent statement that the current imports from Taiwan are sold in the US below the price of domestic orchids. If the foreign orchids are sold at a lower price, it is reasonable to assume that the rule will allow expanded importation of foreign less expensive orchids, and therefore would have a negative impact on domestic growers. Furthermore, given the findings in the report on the impact of the importation of roses, carnations, and chrysanthemums, it is reasonable to assume that the importation will be in mass amounts that could lead to the crippling or closure of U.S. businesses.
Later, APHIS acknowledged that the proposed rule would likely impact domestic growers,(3) but the agency expressed uncertainty with regard to the degree of impact. The International Trade Commission furnishes studies, reports, and recommendations involving international trade to the President, Congress, and government agencies. Did APHIS contact the ITC to garner information about the potential economic impact of the importation of orchids on domestic producers?
Finally, APHIS concludes that retailers, importers and consumers may benefit from the proposed rule—at least in the near term—by allowing unrestricted dumping of foreign orchids. Whether or not benefits confer to consumers and retailers is entirely dependent on whether importers pass along savings. In any event, growers would surely be impacted severely.
APHIS Failed to Consider Significant Alternatives to the Proposed Rule
Section 603(c) of the RFA states that each IRFA shall contain a description of any significant alternatives to the proposed rule which accomplishes the stated objectives of applicable statutes and which minimize any significant economic that the proposed rule will have on small entities. Although the agency considered two alternatives to the proposal, they were not analyzed from the standpoint of obtaining alternatives that minimized economic impact. The alternatives considered were 1) no regulatory action, and 2) allowing importation from Taiwan only. Both alternatives were rejected solely on the basis of the pest risk analysis, not economics. In other words, cost/economic impact did not appear to have been a consideration in weighing less burdensome alternatives.
While APHIS may have lacked certain economic data that would enable the agency to select the alternatives with the least impact on small businesses, it is fairly clear that APHIS has selected the alternative with the greatest potential for harm. If the agency’s objective is to respond to a request for importation of orchids made by Taiwan, the alternative that accomplishes that goal is to allow importation from Taiwan only. To allow unrestricted importation from Taiwan and all other countries goes beyond the stated objective of the proposal and exacerbates the economic impact on small entities, thus usurping the purpose of the RFA.
Furthermore, other alternatives may have been available that accomplish the objective of allowing the importation of orchids while minimizing the economic impact. For instance, the International Trade Administration at the Department of Commerce imposes quotas on foreign imports of non-agricultural products to prevent dumping and to preserve domestic markets. Would the imposition of a quota for imports minimize the impact of the importation of orchids on small orchid growers?
Conclusion
In promulgating the RFA, Congress intended to create an analytical process through which agencies would consider the impact of their actions on small entities and assure that small entities were not being harmed economically by unduly burdensome regulations. Requiring agencies to perform an IRFA is intended to provide the public with sufficient information on an agency’s analysis to elicit informed public comment of an agency’s findings and alternatives. Public comments on an agency’s analysis help the agency achieve rational rulemaking. By failing to provide a thorough analysis and viable alternatives, APHIS has failed to meet its duty to comply with the requirements of the RFA and is depriving itself of an opportunity to elicit information that would help it craft a different regulatory solution.
If you have any questions, please do not hesitate to contact my office at (202) 205-6533.
Sincerely,
Jere W. Glover
Chief Counsel
Jennifer A. Smith
Asst. Chief Counsel
Economic Regulation & International Trade
Shawne Carter McGibbon
Asst. Chief Counsel
Food, Drug & Health Policy
ENDNOTES
1. Regulatory Flexibility Act, 5 U.S.C. § 601, as amended by the Small Business Regulatory Flexibility Act, Pub. L. No. 104-121, 110 Stat. 866 (1996).
2. The Changing Floriculture Industry at 9.
3. See 63 Fed. Reg. at 46,405.