EJBD
ARCHIVE
EPA
730-
R-
88-
002
-------
\SSB;
UNITED STATES ENVIRONMENTAL PROTECTION AGENCY
\ ,/ WASHINGTON. O C 20460
MEMORANDUM P«T,C,OM A^o'VoVJc ,U.,TA,,CM
SUBJECT: Feasibility Study for the Development
of Post-Registration Fees
FROM: John A. Moore,
Assistant Administrator
for Pesticides and
Toxic Substances (TS-788)
TO: Lee M. Thomas, Administrator (A-100)
THRU: AX
Deputy Administrator
PURPOSE
The attached report addresses the feasibility of developing
post-registration fees for licensed pesticides.. Its purpose is to
help define the scope of a more detailed rule-making effort. It is
forwarded for your review and guidance prior to initiation of the
development of a Notice of Proposed Rulemaking for establishing
post-registration fees.
BACKGROUND -- AMD ISSUES FOR PESTICIDE RELATED FEES
Post-registration fees are the most recent development in a
considerable history of fee related activities in EPA's Pesticide
Program. For many years, EPA has been charging fees for its
pesticide tolerance review activities under the Federal Food, Drug,
and Cosmetic Act (FFDCA). More recently, both houses of Congress
have been considering bills that would amend the Federal
Insecticide, Fungicide, and Rodenticide Act (FIFRA) to establish
fees for post-registration activities. Lastly, a final rule
establishing fees for EPA's pesticide registration activities is
expected to become effective around June of this year. As part of
its review of the draft of that final rule, the Office of Management
and Budget directed EPA to include the following statement in the
preamble to the rule. "... EPA is continuing to explore alter-
natives concerning-'post-registration cost recovery and plans to
propose such a fee in the near future under existing authority,
unless a FIFRA reauthorization bill containing such a provision is
enacted."
-------
The registration fee rule establishes fees for voluntarily
requested pesticide licensing. As a result, we believe that rule
has a firm basis in the Independent Offices Appropriation Act
(IOAA), codified under 31 U.S.C. 9701, which permits the collection
of fees for requested services from the beneficiaries of those
services. In conducting this study of post-registration fees,
however, we have sought to explore a wider range of approaches to
cost recovery through fees. Post-registration activities are more
EPA-discretionary in nature, but we believe they may still satisfy
the conditions of the IOAA. In addition, we have concluded that, by
broadening the options to be considered in developing a Notice of
Proposed Rulemaking (NPRM) for post-registration fees, the Agency
may also find ways to establish financial incentives for pesticide
registrants that are in the public interest.
Thru post-registration fees, the Agency could recover costs for
activities not specifically sought by registrants and which also
benefit the public. These candidate activities are designed to
assess the continued registrability of pesticide products or to
effect their safe disposal. The Agency would therefore be
recovering costs which can be viewed as being incurred in providing
a special benefit to a private person (registrant), as well as
benefiting the public at large. Whether any elements of such an
approach stretch the IOAA too far will have to be further evaluated
during the development of the NPRM.
A post-registration fee system could be more difficult for EPA
to administer than the one for registration fees. The varied
categorization of Agency activities, the difficulties with'
definitions of critical concepts such as a pesticide "active
ingredient", and other related determinations are less straight
forward than the corresponding interpretations required for
registration fees. This is another issue which will require further
analysis during NPRM development.
CONCLUSIONS
Although considerable additional study will be required during
the rule development process, the principal, tentative conclusions
of the study are:
1. EPA should attempt to recover the costs of the following
post-registration activities:
(1) Pesticide Disposal;
(2) Administrative Maintenance of Individual Product
Registrations; and
(3) Generic (Active Ingredient) Reregistration: Data
Call-in, Initial Registration standards, Second Round
(and any subsequent) Reviews, Registration Standards
Follow-Up, Review of Studies, and special Reviews.
-------
2. At least some costs in the following areas associated with
the above activities should also be recovered through
fees: Research and Development, Enforcement,
Certification and Training, and Agency overhead.
3. Costs for Administrative Hearings probably should not be
recovered through fees.
4. Registrants could be charged fees on the following bases:
0 A one time disposal fee for an active ingredient paid
only by the immediate beneficiaries of the service
(registrants of the suspended and cancelled pesticides
involved!. Fees could perhaps be based on an allocation
of total disposal costs (including the costs of other
stockholders such as distributors, farmers, and other
users) by the fraction of affected product produced' by
each registrant. Ideally, a mechanism could be developed
to refine such an allocation on the basis of the actual
shipment, storage, and disposal costs associated with each
registrant's affected products (as influenced by
formulation type, concentration of active ingredient,
inert ingredients, location of stocks, etc.).
Optionally, the Agency may wish to explore the possibility
of a more general fee, to be paid by all registrants in
anticipation of disposal activities. This approach would
have the effect of financial risk-sharing.
0 Annual registration maintenance fees paid by all
registrants based on 3. proration of total EPA annual
registration maintenance costs (e.g., computer-based and
other record keeping activities and allied functions:
across registrants according to the number of products
(including those suspended under Section 3(c)(2)(B) for
failure to satisfy data requirements) per registrant; and
0 Annual fees for each registrant of at least one product
not eligible for FIFRA's "Generic Data Exemption", based
on a proration of most EPA costs for all post-
registration activities listed in 1 and Z above (except
for registration maintenance and disposal). The
allocation of total costs should consider at least the
number of active ingredients and the number of non-exempt
registrants for each active ingredient.
5. Fee waivers of the following types should be considered:
Minor Use, Inter-Regional Research. Project Number 4 (IR-4
Program), Severe Economic Impact, and Public Interest.
The four categories of waivers should be considered for
both types of annual fees, but only Public Interest
waivers far disposal fees.
-------
6. Severe Economic Impact Waivers should consider the
combined effects of tolerance, registration, and post-
registration fees.
RECOMMENDATION
I recommend the initiation of development of a NPRM for post-
registration fees. The conclusions above should be considered
tentative; during the option development and selection process of
rulemaking, a more detailed assessment should be made of the basic
administrative feasibility of post-registration fees and the legal
risks of various options. The study does indicate, however, that a
considerable broadening of the existing fee structures is worth
further exploration.
Approval:
Disapproval:
Date:
-------
Feasibility Study for the
Development of Post-Registration Fees*
Office of Pesticides and Toxic Substances
Office of Pesticide Programs
Date: Mav 10. 19B8
* This document is an internal-Agency worlcing paper and should not
be interpreted or quoted as representing official EPA policy.
-------
Execut i v
INTRODUCTION AND POLICY ISSUES
This report addresses the feasibility of developing post-
registration fees for pesticides licensed under the Federal
Insecticide, Fungicide, and Rodenticide Act (FIFRA) in
anticipation of the preparation of a Notice of Proposed
RulemaJcing.
The following four broad issues are considered in the
study:
l) For what EPA services will there be cost recovery?
2} Who will be charged post-registration fees?
3) What procedures win be used to charge fees?
4) Under what conditions will all or a portion of the
fees be waived?
For each issue, consideration was given, where appropriate, to;
adequacy of legal authority, degree of cost recovery'for
services rendered, fairness, economic impact on registrants,
and administrative burden on EPA.
In the development of a Notice of Proposed RulemaJcing
(NPRM) for post-registration fees, there appears to be an
opportunity to broaden the Agency's policy objectives by
increasing the range of options to be considered for recovery
of costs under post-registration fees. While recovery of
government costs is a basic goal, recovery of some of these
costs may offer the additional advantage of establishing
financial incentives that are in the public interest.
i
-------
There may, However, be increased legal risks in pursuing a
policy of a broadly-based set of cost categories to be
recovered under post-registration fees. This is contrasted
with the relatively lower legal risk of the final rule on
registration fees, where costs are recovered for services
voluntarily requested by the beneficiaries of those services.
In broadening the options to be considered for recovery of
costs in a NPRM for post-registration fees, the Agency will be
recovering costs for activities not specifically sought by
registrants and which, like registration fees, also benefit the
public. Worse, some of these activities, like Registration
Standards and Special Review, can be early steps in the partial
or complete loss of right to market existing pesticide
products. On the other hand, it can be argued that registrants
often gain the continued right of access to the marketplace
through the same processes. In general, these activities are
designed to assess the continued registrability of products or
to effect their safe disposal. Whether an attempt to recover
such costs stretches the IOAA inappropriately will have to be
evaluated in greater detail during the development of the NPRM.
It also is very likely that a post-registration fee system
will be more difficult for EPA to administer than the one for
registration fees. The varied categorization of Agency
activities, the difficulties with definitions of critical
concepts such as "active ingredient", and other related
11
-------
determinations are less straightforward than the corresponding
interpretations required for registration fees. This is
another issue which win require further analysis during the
NPRM development.
CONCLUSIONS
Although considerable additional study will be required
during the rule development process, the principal, tentative
conclusions of the study are:
1. EPA should attempt to recover the costs of the
following post-registration activities:
(1) Pesticide Disposal;
(2) Administrative Maintenance of Individual Product
Registrations; and
(3) Generic (Active Ingredient) Reregistration: Data
Call-in, Initial Registration Standards, Second
Round (and any subsequent) Reviews, Registration
Standards Follow-Up, Review of Studies, and
Special Reviews.
2. At least some costs in the following areas associated
with the above activities should also be recovered
through fees: Research and Development, Enforcement,
Certification and Training, and Agency overhead.
111
-------
3. Costs for Administrative Hearings probably should not
be recovered through fees.
4. Registrants could be charged fees on the following
bases:
0 A one time disposal fee for an active ingredient paid
only by the immediate beneficiaries of the service
(registrants of the suspended and cancelled pesticides
involved). Fees could perhaps be based on an
allocation of total disposal costs (including disposal
of stocks held by distributors, farmers, and other
users) by the fraction of affected product produced by
each registrant. Ideally, a mechanism could be
developed to refine such an allocation on the basis of
the actual shipment, storage, and disposal costs
associated with each registrant's affected products
(as influenced by formulation type, concentration of
active ingredient, inert ingredients, location of
stocks, etc.). Optionally, the Agency may wish to
explore the possibility of a more general fee, to be
paid by all registrants in anticipation of disposal
activity. This approach would have the effect of
financial risk-sharing.
0 Annual registration maintenance fees paid by all
registrants based on a proration of total EPA annual
iv
-------
registration maintenance costs (e.g. , computer-based and
other record keeping activities and allied functions)
across registrants according to the number of products
(including those suspended under section 3(c)(2)(B) for
failure to satisfy data requirements) per registrant; and
0 Annual fees for each registrant of at least one product
not eligible for FIFRA's "Generic Data Exemption", based
on a proration of most EPA costs for all lumped post-
registration activities listed in 1 and 2 above (except
for registration maintenance and disposal). The
allocation of total costs should consider at least the
number of active ingredients and the number of non-exempt
registrants for each active ingredient.
5. Fee waivers of the following types should be
considered: Minor Use, Inter-Regional Research
Project Number 4 (IR-4 Program), Severe Economic
Impact, and Public Interest. The four categories of
waivers should be considered for both types of annual
fees, but only Public Interest waivers for disposal
fees.
6. Severe Economic Impact Waivers should consider the
combined effects of tolerance, registration, and
post-registration fees.
-------
RECOMMENDATION
Proceed with the development of an NPRM for post-
registration fees giving careful consideration to the
conclusions summarized above.
vi
-------
Table of Contents
Page
I. Background 1
II, Cost Recovery of EPA Services Through 2
Post-Registration Fees: For What
Services Will There Be Charges?
III. Who Will Be Charged Post-Registration Fees? 15
IV. Procedures for Charging Fees 27
V. Conditions for Waiving All or a Portion 32
of Fees
VI1
-------
I. BACKGROUND
The Federal Insecticide, Fungicide and Rodenticide Act
(FIFRA), 7 U.S.C. Section 136, et sea, as amended, authorizes EPA
to regulate pesticides. Regulation includes registering products
for sale and/or use within the United states and continued
regulation of these products and their uses for identification of
unreasonable adverse effects. A registration is, in effect, a
license that allows the registrant to market a pesticide product
in the United States. Through the annual appropriation of funds
by the U".S. Congress, the public is providing approximately $84
million to support the pesticide program in fiscal year 1988.
Recognizing that pesticide registrants receive certain economic
benefits from EPA's registration activities, the Agency has
embarked on a policy initiative to make the pesticide regulatory
program as self-supporting as possible by having registrants bear
some of the costs of the regulatory program through user fees.
EPA is now charging fees for its tolerance work (earning about $1
million per year in an EPA revolving fund), and a final rule is
expected to be published in late Spring of 1988 to begin charging
fees for registration actions (expected earnings of about $4
million in 1988 and $14 million in 1989 — not available directly
to EPA). Most registration fees entail charging applicants for
new registrations or changes to existing ones. This paper
addresses issues that are expected to arise in developing a
regulation to charge post-registration fees — fees for
maintaining existing registrations and other services.
-------
II. COST RECOVERY OF EPA SERVICES THROUGH POST-REGISTRATION
FEES: FOR WHAT SERVICES WILL THERE BE CHARGES?
A. Introduction
As a general Federal deficit reduction measure and/or
to generate additional revenue for EPA to accelerate its
pesticide post-registration efforts, it is important that
EPA recover as much as possible of its costs for post-
registration services. However, in so doing EPA must follow
the" direction provided by the Independent Offices Appro-
priation Act IIOAA3, codified into law as 31 U.S.C. 9701,
and: (1) charge registrants only for services for which they
receive a special benefit, directly or indirectly; (2) not
charge more than EPA's costs of providing the services,
including appropriate overhead and necessary support'costs;
and (3) impose fees in a fair and equitable manner in
relation to the services or benefits provided.
EPA wants to assure that post-registration fees will
not result in a severe economic impact on small businesses
or create disincentives for private behavior that is in the
public interest. Finally, the administrative burden on EPA
should be minimized to avoid excessive erosion of Agency
resources intended for essential scientific and
administrative reviews of pesticides.
-------
B. EPA Services That Are Candidates for Recovery Through
Fee Charges
The services generally associated with post-
registration are: Data Call-in (DCI), Initial Registration
Standards (RS) , Second Round (and any subsequent) Reviews
(SRR — formerly called FRSTRs - Final Registration
Standards and Tolerance Reassessments), Registration
Standards Follow-up, DCI-and-RS-Generated Review of Studies
(ROS) , Special Reviews (SR), Administrative Hearings, and
Administrative Maintenance Costs of Registrations (including
suspended registrations). Elements of Agency overhead in
support of these services would also be considered
candidates for recovery through post-registration fees.
A rapidly growing activity associated with post
registration is the indemnification and disposal of
suspended and cancelled pesticides. Other EPA activities
that need to be considered as necessary support functions to
post-registration are: pesticide research and development
(RS.D) , certification and training for applicators of
restricted use products (including the grants program) and
enforcement (including the state grants program).
A brief description of the activities under
consideration for cost recovery follows.
-------
I. Data Call-in
DCI letters are sent out to registrants under authority
of Section 3(c)(2)(B) of FIFRA to acquire specific data
needed for post-registration activities. DCI has generally
been used to acquire data in advance of Registration
Standards (RS) development as well as to respond to specific
environmental or regulatory concerns e.g., groundwater, and
anti-microbials.
2. " Initial Registration Standards
RS's are established by assessing the validity of all
existing data on an active ingredient and its completeness
with respect to current data requirements, requiring
registrants to supply all missing data, and reassessing the
terms of current registrations as existing data permit. This
reassessment may lead to labeling or formulation changes,
restrictions on use, and cancellations of all or some uses.
3. RS Follow-up
This activity tracks compliance of registrants in making
and meeting commitments to supply necessary data or revised
labels. The Agency takes regulatory action (suspends
products) when registrants do not agree to comply with data
requirements and may cancel registrations if labeling
-------
requirements are not met. Follow-up also entails the
evaluation of proposed scientific protocols for required
additional or replacement studies, requests for waiver of
requirements, requests for extensions of deadlines, etc.
4. Second Round (and any subsequent) Reviews (SRR)
SRR updates the Agency's evaluation of a pesticide
active ingredient based upon a substantially complete
generic data base produced in response to a RS. This stage
of"post-registration review generally permits a more compre-
hensive reassessment of the registrability of each of a
pesticide's current uses. This review is extended to end-
use products containing the active ingredient. In seeking
reregistration closure on such individual products, EPA
generally requires the generation of product-specific data
and revised labeling appropriate to both the generic
properties of the active ingredient and the specific
characteristics of each formulation.
5. Review of Studies
Selected studies required by DCI and RS, when received,
are reviewed quickly when they meet established criteria.
Such reviews can result in requirements for the submission
of further data or even immediate reassessment of the
-------
registrability of the ingredient through Special Review.
6. Special Reviews
When the Agency concludes through RS development or
other means that a pesticide may pose unreasonable adverse
effects, a Special Review may be started to determine
whether to suspend, cancel, return a product to
registration, or take other action to mitigate effects which
could be harmful to human'health or the environment. The
Special Review process is a formal risle-benefit evaluation
with opportunities for public involvement.
1. Administrative Hearings
FIFRA provides for hearings resulting from the
Administrator's denial of a request to register a pesticide,
a notice to change a classification, or a notice of
intention to cancel a pesticide. A request for a public
hearing is filed with the EPA Hearing Cleric and is generally
conducted by Administrative Law Judges who hear the cases
and file their decisions with the Administrator. The
proceedings are governed by the Administrative Procedures
Act and applicable sections of FIFRA.
The Agency is represented by an assigned attorney from
the EPA Office of General Counsel, with scientific and
-------
administrative support provided by a litigation team and
personnel from the program office.
Administrative hearings are authorized under the
cancellation and suspension provisions of FIFRA (Sections
6(b) and 6(c)) and could be an outcome of the Special Review
process as well. The Special Review Process is of a non-
adjudicatory nature but could lead to a decision to initiate
cancellation of a pesticide.
8. " Administrative Maintenance of Registrations
EPA incurs costs in maintaining records on current
registrations whether they are in active or suspended
status. Most suspensions are under Section 3(c)(2)(B), for
f
failure to submit required data. Such suspensions may be
lifted by satisfying overdue data requirements, perhaps
after years of suspension. As a result, OPP must maintain
careful records of such suspended products, including those
associated with continued tracking of other data
requirements, multiple suspensions, etc.
9. Indemnification and Disposal
FIFRA section 15 requires EPA to indemnify persons
holding stocks of suspended and cancelled pesticide products.
Currently, such payments are to be made by the U.S. Judgement
8
-------
Fund after claims are processed by EPA. FIFRA section 19
requires EPA to dispose of such pesticides when requested to do
so by the holder of the pesticide stock.
10. Research and Development (R&D)
Basic scientific and technological studies are conducted
to develop new information and tools for conducting reviews
of the registrability of pesticides. Agency R&O efforts also
will yield protocols for scientific studies which the Agency
will require registrants to perform to support continued
registrations.
11. Certification and Training (C&T)
Working through the states, EPA funds C&T activities
that train and certify pesticide applicators for the safe
use of relatively risky restricted use pesticide products.
12. Enforcement
Pesticide enforcement activities ensure that pesticide
users, producers and distributors comply with FIFRA, and
allied regulations and regulatory decisions. These
activities include providing direction and financial
assistance to States and, where States do not operate
comprehensive enforcement programs, operate these programs
-------
directly. Technical and compliance assistance/oversight
also is provided to the pesticide industry and to pesticide
users. Further, enforcement activities include the
development of response policies and compliance monitoring
strategies for regulations and other regulatory decisions.
Special Review decisions and Data Call-In activities also
require enforcement input and technical assistance.
13. Agency Overhead
These are costs related to the management of the Office
of Pesticides and Toxic Substances, as well as the Office of
the Administrator and supporting Agency activities.
10
-------
C. Preliminary cost Projections
The projected FY 88 EPA costs for the several activities
under consideration are shown below:
Post-registration
Cost Element
Data Call-in
Initial Registration Standards
Second Round Reviews
RS Follo"w-up
Review of Studies
Special Reviews
Administrative Hearings
Maintenance of Registrations1
Disposal
Research and Development
Certification and Training
Enforcement
Subtotals
Agency Overhead @ 40%2
Total
S/E E/M TOTAL
($000) ($000) ($000)
395 425 1,320
3,000 1,500 4,500
3,510 1,400 4,910
550 200 750
1,230 350 1,580
4,855 4,430 9,285
255 150 405
8,350 *' 8,350
6,037 6,845 12,882
1,031 4,000 5,031
4.852 8.808 13 .660
26,215 36,458 62,673
10.486 10.486
36,701 36,458 73,159
^•Estimate is for $200K of intramural and S400K of extramural, a
total of S600K. This is not an explicit item in the Agency
budget estimate but is already covered by budget items shown.
2 Used rounded amount from OC calculation for registration fees,
11
-------
D. Conclusions
It appears that there are obvious special benefits to
the payers of fees in the case of all activities discussed in
Section B, with the possible exception of: Special Reviews,
Administrative Hearings, Enforcement, and Disposal.
Special Reviews are a vital part of the decision process
as to whether or not to allow a registration to continue and.
if so. under what conditions. Many registrations are
continued after SR decision. On the other hand, others may
be expected to argue that EPA would be charging for an
activity that may terminate their registrations and the payer
of the fee derives negative benefit from the process. In
spite of the predictable controversy, because Agency costs
are high and a reasonable argument is available, the'Agency
should attempt to recover Special Review costs.
In the case of Administrative Hearings, EPA has already
rendered a decision adverse to the registrant (the one being
appealed). While a hearing may result in an outcome more
favorable to the registrant, it is difficult to portray such
required due process as of special benefit to registrants,
justifying the requirement for fee payments.
12
-------
Enforcement is principally a process that attempts to
ensure compliance with a product's terms of registration
(e.g., use restrictions, protective equipment, etc.). it is
therefore a cost incurred in the maintenance of a
registration. Precedent in the nuclear power arena supports
charging fees for enforcement inspections (Ref: Mississippi
Power and Light vs. U.S. Nuclear Regulatory Commission, U.S.
Court of Appeals, Fifth Circuit, August 24, 1979). It
appears that inspection types of enforcement activities could
be included in costs but prosecution activities may not be
supportable as clear benefits to users. We conclude that at
least some of enforcement costs should be recovered by fees.
Under current authority, the Agency must indemnify
holders of stocks of pesticides which are both suspended and
cancelled under Section 6(c) of FIFRA. The Agency must also
provide, upon request of the holders of such stocks, disposal
of the pesticide. Indemnification would appear to be a
benefit received by the registrants, for it reimburses them
for losses resulting from suspension/cancellation (their
loss of the benefit provided by the license to sell/use the
pesticide). Under 31 U.S.C. 9701, provision is made for
recovery of the costs of providing the "benefit". In the
case of indemnification payments however, the payment (the
government cost) is the benefit received. As a result,
recovery of the cost from the direct beneficiaries would
seem to negate or deny the benefit authorized in FIFRA. A
13
-------
user fee to support indemnity payments, if charged solely to
recipients of indemnification, therefore seems inappropriate.
On the other hand, it may be worth exploring in the rule-
making process whether it makes sense to charge ail
registrants fees to recover the government's costs of
indemnifications, on the basis that the pesticide industry as
a whole benefits from the risk-pooling indemnification
provision.
For Agency-incurred disposal costs, however, the
payments to industry could be considered a benefit to the
holders (owners) of pesticide stocks, i.e., registrants and.
other private persons. That is, for a pesticide product
which is suspended and subsequently cancelled under Section
6(c), the costs to properly dispose of the product are
incurred by the Agency. In addition, the holders of the
pesticide stocks must request that the Agency dispose of the
pesticide. Thus, the holders of the stocks are receiving a
benefit from a voluntarily requested service from the Agency.
Consequently, under 31 U.S.C. 9701 the disposal costs of the
Agency would appear to be recoverable from the requesting
holders of the pesticide stocks. The Agency should attempt
to recover disposal costs through fees, unless and until
Congress amends FIFRA to make disposal costs a part of the
industry's cost of doing business.
-------
E. Rec ommendat i ons
The cost of all services lasted in Section c should be
included in post-registration fees except for: Administra-
tive Hearings. Under this recommendation EPA would charge
$72.8 million out of $73.2 million FY 88 post-registration
£
costs or 99.jF% of the total costs, ignoring waiver
considerations.
III. Who Will Be Charged Post-registration Fees?
ASSUMPTION: Post-registration activities described in
Section II, except for registration maintenance and disposal,
would be combined for purposes of recovering post-registration
costs attributable to generic, or active ingredient-based
services. Registration maintenance (attributable to individual
products) and disposal costs would each be separate items.
A. Product Registration Maintenance. This category involves
maintaining registration files for active and suspended (but not
cancelled) products, together with supporting processes associated
with those files (file room, computer systems, contractor
operations, mailing lists, label information). All registrants
receive benefits from the Agency's maintenance of its files in an
up-to-date manner. The benefits received can be directly linked
to the continuation of the registration, the opportunity to market
the product.
15
-------
The most equitable allocation of fees for registration
maintenance is on a product basis, rather than an active
ingredient or registrant basis. The Agency must maintain the same
infrastructure, and operate the same activities and systems for
each product, regardless of how many products a registrant has or
which ingredients the product contains. If a product-based fee is
to be adopted, the Agency will have to decide either, how broadly
to interpret the word "product" (e.g., does it include Special
Local Need registrations by States under FIFRA Section 24(c), or
"distributor" products sold under several product names?), or that
separate maintenance fees are required for several categories of
products.
Administratively, both product-oriented and active-ingredient-
based systems lend themselves to an annual fee structure.
However, the product-oriented system has certain advantages. Each
registrant could be charged an annual fee for each product for
which a continuing registration exists. The charging of fees for
products a registrant cannot legally sell (suspended products), as
well as those a registrant chooses for any other reason not to
market, will be an incentive to voluntarily cancel the product as
soon as its fee cost exceeds its potential value as a registered
product. Maintaining the registrations of such products is now a
free good to registrants but clutters Agency files. EPA might
expect an influx of voluntary cancellations immediately prior to
the fee rule implementation date. In addition, each fee bill from
the Agency could be designed to offer registrants a convenient
16
-------
mechanism for selecting voluntary cancellation in lieu of paying
the fee for each product. The result could be a useful and
continual cleansing of Agency records of inactive products. (This
may help to offset what may be for some products, an opposite
effect due to registration fees. The new rule establishes a
potential floor of $4,000 as the value of any product registration
which another manufacturer may wish to market. Since EPA permits
transfer of product registrations between registrants at no
charge, such a shift can save at least the minimum fee of $4,000
for a new registration.)
Even if EPA charged a fee for transfers, the cost seems
certain to be too low to alter these incentives.
An active-ingredient-based or registrant-based fee system
would be an inherently inequitable approach to recovering'product
maintenance costs, because two registrants might pay the same fees
even though one had many more product registrations for EPA to
maintain.
Recommendation
All registrants should be responsible for product
registration maintenance fees on a per product basis.
This is the only option for product registration maintenance
that seems to provide equity and meets the criteria of 31
U.S.C. 9701. It is lilcely that most Agency costs in this
17
-------
area are borne on a per-product basis, and it seems clear
that these Agency efforts provide the direct benefit of
continued registration to the registrants who would be
charged the fees.
B. Generic Post-Registration Activities Generally Attributable
to Scientic and Regulatory Review of Active Ingredients.
OPTION 1: Charge All Registrants. Under this option, fees would
be charged to all registrants. Sub-options include
allocation of costs equally by registrant, active
ingredient, or product.
a. Legal Considerations. Since 31 U.S.C. 9701 requires a
fee structure based upon equitable allocation of fees to
beneficiaries of services provided, the Agency seems
obligated to charge fees to all beneficiaries of those
services, except where waiver criteria for special
circumstances are met. Clearly, the more direct the link
that is made between the service and the recipient the more
clearly the 31 U.S.C. 9701 mandate is being fulfilled, and
the less vulnerable the Agency is to legal challenge. The
question is whether or not (and the degree to which) all
registrants receive benefits from post-registration
activities. Arguably, not all registrants receive equal
benefits in any one year from these generic post-registration
activities. However, it is OGC's opinion that all
registrants are beneficiaries of these services in the
aggregate and over time, and that it is therefore justifiable
18
-------
to charge fees to all registrants.
b. Policy considerations. The principal policy
consideration concerns whether the fees should be allocated
equally by registrant, by active ingredient employed in
formulating products, or by the number of products registered
by each registrant. Fees to recover generic costs could be
allocated in any of three obvious ways: the lumped costs
could be allocated uniformly among all registrants
(approximately 5,000) without regard to the number of active
ingredients used or products registered, by active ingredient
(approximately 600 to 1100, depending on definition
employed), or on a product basis (approximately 40,000).
c. Administrative considerations. Clearly, a fee system
that charges all registrants, active ingredients, or products
equally will be easier for EPA to administer than one that
allocates charges in a more complex manner.
d. Equity Considerations. Any system which charges
registrants equally on either a registrant or active
ingredient basis will tend to impose higher fees on smaller
producers, in proportion to pesticide sales. A system which
charges on a product basis could be somewhat more equitable,
although some small companies have numerous low-volume
products. Still, for simplicity's sake, EPA might assume
that the number of products is roughly proportional to the
19
-------
size of a company and its ability to pay. Therefore charging
on a product basis may provide built-in equity and might
reduce the need for extensive consideration of economic
impact or small business waivers.
OPTION 2: Charge Qnlv Registrants Who do not Possess a Genprir nfltfl
Exemption (GDE)^ for One or More Ingredients in Thgir
Products. Under this option, fees would be charged
primarily for Technicals and Manufacturing Use Products
(MUPs) with no GDE. In addition, there are a number of
active ingredients for which there are no registered
Technicals or MUPs. In that case, all products containing
the ingredient obtain it from unregistered sources and none
of those products are exempt.
a. Legal Considerations. 31 U.S.C. 9701 authorizes'fees for
services which benefit the person receiving the service. The
more closely the provision of services can be linked to the
fee-payer, the less likely it is that the fee can be
challenged successfully.
In accordance with 3(c)(2)(D) of FIFPA, a generic data
exemption for an active ingredient is granted by EPA to
registrants who use registered products as the sole source
of the active ingredient in the formulation of their
products (typically, end-use products). Such a registrant
is exempt from requirements to provide data about the active
ingredient (such as chronic feeding studies) and is only
responsible for less extensive data (such as acute toxicity)
required for the specific products sold).
20
-------
Most Agency post-registration reviews are generic,
potentially affecting all products containing a particular
active ingredient. However, these activities more directly
affect registrants of Technicals and MUPs, since they are
responsible for providing the bulk of the costly data
required to support the continued registration of the
ingredient's uses. Typically, they also have the greatest
opportunity to profit from continued registration. As a
result, the GDE appears to be a useful criterion to establish
the link between generic fees charged and benefits received.
b. Administrative Considerations. This option would require
that the Agency ascertain and maintain the GDE status of each
product. While this entails some burden for EPA, the GOE
information is useful for other purposes and much of it is
already gathered through existing processes.
Recommendation: From the standpoint of established patterns
of equity among registrants and EPA administrative burden,
Option 2 is recommended for serious consideration.
C. Indemnification and Disposal (I&D). Section 15 of FIFRA
requires the Agency to make indemnity payments to owners of a
pesticide which is' suspended to prevent an imminent hazard and is
subsequently cancelled. Section 19 requires the Agency to "accept
.... for safe disposal" any remaining stocks of such pesticide.
Money to fund these requirements has, in the past, come from a
21
-------
1
/'
variety of sources including the Judgement fund administered by
the U.S. General Accounting Office (GAO), specific appropriates**3;
unobligated carryover funds and diversion from ongoing programs,
including both OPP and other Agency programs. The common elements
in I&D activities to date have been the unpredictability of the
requirement, per se, and uncertainty of the required funding
levels.
The very unpredictability of these requirements poses a
significant impediment to including these costs in a fee schedule.
The initiation of an emergency suspension can not be forecast with
any precision. By its nature, an emergency suspension is based on
a scientific finding not previously determinable. The level of
funding required depends on the time of the year of the suspension
(which has an impact on the amount of pesticide in inventory), the
unit cost of the pesticide, the specific formulations, container
types, product condition, the technology required for disposal,
and the geographic distribution of the product. Costs for
,^,h(.d (•><-«"• Oi fbn. •-i>£**^ift^j-4^Oivv-V\,/
suspended pesticides have ranged from about $100 thousand in 1982
/~*\ -, .-.-..
(disposal only) to the estimate of about /$250 million as the
fh.-e^'iAi, l^^X
Agency's currentAliability. This current liability will be paid
A
over an unknown number of years, depending on availability of
funds and possible court actions. This lack of a specific basis
for anticipating costs on which fees would be determined could
run afoul of the currently accepted cost accounting principles
enunciated in several court decisions on lOAA-based fee programs.
22
-------
There are, however, several possible avenues for establishing
and collecting fees in these areas.
Option 1: Establishment of a general fee to cover, in advance, t-.t^
average costs of these activities. EPA could establish
a rough cost basis for such a fee through use of
historical costs (e.g., expenditures of $300 million
from 1981-1990 leading to the need for a mean cost
recovery of afcout $30 million per year). This would be
similar to an insurance fund, in the sense that an
annual fee would be levied equally on all pesticide
products (or active ingredients) in order to pool the
financial risks of facing I&D costs.
a. Legal considerations. This approach would levy an equal fee
on all pesticides, including those which would be extremely
unlikely to ever be suspended. This could be interpreted as a
cross subsidy from producers of relatively safe pesticides to
producers of more hazardous pesticides.
NOTE: There have been proposals to establish a variable fee based
either on production volume or on relative hazard of the
pesticides in question. Establishing a fee based on relative
production amounts would very likely be interpreted by the courts
as an unconstitutional encroachment by the Executive Branch on the
inherently Congressional prerogative. Establishing relative
hazard rankings is an exceedingly complex process. The scientific
23
-------
evaluations required to do so reliably are essentially those
evaluations required in the reregistration program. At the
current level of effort this is a 30-40 year program.
b. Administrative Considerations. Depending on the Agency's
success in guessing future costs, this could soften the blow to
the treasury of sudden I&D costs requiring appropriations.
Option 2; Direct charge to company creating the funding
requirement. (This would be applicable to disposal
requirements only, since it would not make sense to
indemnify individuals and then charge them for that
cost, especially after adding a handling charge to cover
EPA administrative expenses.) The charge would be the
total cost to the Agency for disposing of the pesticide.
a. Legal and Economic considerations, it is unlikely that a
large company would request EPA disposal since the total cost,
including internal Agency costs, would probably exceed the
manufacturer's
-------
with an, at best, uncertain prospect for recovering those costs
from their customers.
c. Administrative Considerations. It would recover the total
costs to the Agency for disposal, including internal management
costs and applicable overhead. It would permit an exact
determination of the actual costs. It would be specific to the
pesticide occasioning the funding requirement.
Option 3: Charge the exact cost. spread across all pesticide
manufacturers, after the costs have been incurred.
a. Ecuitv and Legal Considerations. It would give the appearance
of providing a cross subsidy from producers of relatively safe
pesticides to one, specifically identified, producer of a
demonstrably hazardous pesticide.
b. Administrative Consideration. It permits an accurate
rendering of the costs. It is applicable to both indemnification
and disposal.
Option 4. Do not include I&D functions in the fee proposal.
a. Legal Considerations. It avoids an analytically difficult and
controversial component of the fee system which could endanger the
entire post-registration fee proposal.
25
-------
Congress and the Office of Management and Budget have shown
an increased sensitivity to I&D funding requirements and their
potential for causing significant harm to the regulatory program.
Inclusion of these costs, even in a proposed rule, could slow down
some momentum which has been building for a long term regulatory
fix to the I&D problem.
b. Administrative Considerations. Absent a legislative fix to
the problem, the Agency would continue to face the crisis
atmosphere and funding problems when it suspends (and subsequently
cancels)-a pesticide to prevent immediate harm. The possible fees
discussed above would not change that directly, since revenue
would go to the treasury under IOAA, but the existence of the fees
could improve the Agency's chances of obtaining appropriations for
that purpose.
Recommendation! Give priority in post-registration fee rule
development to options to recover disposal costs. Fees for
indemnification are likely to be seen as a circumvention of the
intent of FIFRA Section 15. To a lesser extent the same criticism
is likely in response to a proposal for disposal fees; but since
EPA performs a well-defined service, of clear benefit to the
holders of suspended/cancelled pesticides, disposal fees may merit
more serious consideration.
26
-------
IV. Procedures For Charging Fees
Option 1: Charge annual fees only. Two separate annual fee
systems would be set up to capture post-
registration costs other than disposal. The first
would charge a flat fee for product specific
registration maintenance and the second would be
charged to registrants of products associated with
each active ingredient for which there is no GDE.
Among other things, such a two-tiered fee system
would appear to be useful in establishing a clear
nexus between the Agency cost for providing a
service and the fee to be charged the beneficiary
of the service, as described earlier.
Fees based on generic, or active ingredient-related,'costs
could be levied on the registrants of Technicals and Manufacturing
Use Products (MUPs) and on other registrants (of EUPs) who are not
eligible for the Generic Data Exemption. These are the same
registrants responsible for active ingredient-specific data to
support registration and reregistration.
Fees could be flat fees determined by simply dividing the
number of registrants in a fee category into the total costs to be
recovered for that category.
-------
Pesticide disposal-based costs would include the cost to
dispose of the pesticide, including interim storage,
transportation, and handling, developing disposal technology, and
actual disposal of the pesticide and its bi-products. Options for
charging disposal fees were described earlier and are not
discussed further in this section.
a. Policy Considerations. The distinction drawn here between
costs associated with maintaining individual product
registrations, and those associated with active ingredient
reviews,- is an attempt to apportion the costs between the major
discrete subsets of the recipients of post-registration services.
Other distinctions may be possible and useful, such as separating
food and non-food use pesticides or establishing separate fee
schedules for certain classes of pesticides expected to have
distinct review costs, such as anti-microbials. Further analysis
of these issues will be necessary during the rule development
process.
b. Administrative Considerations. Management of a fee program
should not present any special problems, although there will be
costs involved. Maintenance of current, accurate lists of
products, by active ingredients, and with the correct Generic
Data Exemption status will be necessary. Fortunately, much of
this information is required for programmatic reasons anyway, so
additional costs of that kind should be modest.
23
-------
On the other hand, some conceivable approaches to allocating
generic fees could impose a far greater burden on the Agency.
For example, we have relied heavily on the concept of "active
ingredient" in discussing this fee system. In practice, however,
that concept is complex and difficult. The Agency sometimes
combines several different but related compounds in defining a
regulatory "case" for Registration Standards or other reviews. A
typical example entails the grouping of related salts and esters.
These grouping decisions are made, not only on the basis of
molecular similarity, but with consideration of the similarity of
pesticidal uses of the materials (which can change) and any hazard
information available on each (which can also change). In the
absence of post-registration fees, such decisions may be of scant
interest to registrants. With a fee system such as that
suggested, however, such decisions could have major consequences
on the fee obligations of some registrants, leading to likely
controversy and expense.
Other criteria that would be natural to apply in allocating
fees included volume of pesticides produced and sales information.
Both types of data are difficult and expensive to obtain in
reliable form and could further complicate the administration of
fees by introducing concerns about Confidential Business
Information.
Finally, the cumulative costs of developing and maintaining
fee systems could easily become a substantial cost that needs to
29
-------
be recognized and funded explicitly in the budget process. While
the cost of running the system can be recovered as part of the
fee, those fees are not returned to the Agency under IOAA. AS a
result, resources for running any fee must divert resources from
other essential functions.
c. Economic Considerations. Total economic impact on the
pesticide industry overall should be relatively minor. Depending
on which costs are ultimately selected for recovery and the amount
of overhead burden to be added, the expected recovery amount for
post-registration fees should be about $50-$55 million per year.
This would constitute approximately 0.9% of the $6-7 billion per
year pesticides industry.
Such a fee system could, however, result in market
distortions in some parts of the industry. A flat fee for'each
product, for example, may have a greater impact on the
profitability of a small volume product than it does on a large
volume product. To some extent, fee waiver provisions can be
devised to moderate such disruptions.
Option 2: Charge When Post-registration Events Occur. A fee
would be levied on products containing an active
ingredient upon the start or completion {for that
chemical) of a variety of processes that occur during
post-registration, including Registration standard
development, Special Review, etc.
30
-------
a. Policy Considerations. In some ways, this option is the
least arbitrary and therefore most readily defended, in theory,
actual Agency costs for accomplishing a variety of post-
registration events could be recorded and charged to the
registrants who may be said to benefit from those events. Again,
however, because some of these post-registration processes can,
and often do, result in restrictions or cancellations of
registered uses, some will argue that the benefits claimed -
continued registration - appear questionable, or at least somewhat
diluted.
b. Administrative Considerations, in terms of volume of
paperwork, the event-driven approach to post-registration fee
collection may have an advantage. Since only a minority of
active ingredients/ products undergo review in any year, the
number of fee bills to be prepared, issued, and monitored for
compliance is much smaller than in the more general annual fee
option (Option 1). On the other hand, internal record keeping
requirements for actual resource expenditures could rise markedly,
depending on how total post-registration costs are allocated to
individual fees.
c. Economic Considerations. Since major elements of the review
process for existing active ingredients operate as essentially a
continuous function, it does not seem equitable or feasible to
assign fees only to those products or active ingredients subject
to review in a given year. Costly Special Reviews, for instance,
31
-------
cannot be predicted with confidence since most are triggered by
the outcome of other reviews, adverse data submitted by industry
under FIFRA Section 6(a)<2), etc. An annual fee affecting all
registrants provides fair treatment without the potential market
interruptions that event-oriented fees might occasion due to high
fees. For example, an active ingredient that is subject to a
Registration Standard and/or Special Review may be expected to
trigger a fee of at least hundreds of thousands of dollars,
possibly for several consecutive years.
Recommendat ion
It is recommended that the two-tiered, annual post-
registration fee described in Option 1 be explored with high
priority in NPRM development.
V. CONDITIONS FOR WAIVING ALL OR A PORTION OF FEES
If the Agency decides that fees should be charged for
pesticide post-registration activities, there win be
circumstances under which it may be prudent to grant waivers from
fees, in whole or part. 31 U.S.C. 9701 is silent concerning
waivers. However, OMB Circular A-25 for implementation of IOAA,
contains guidelines for Federal user charge systems and provides
for exceptions to a general user fee policy under several
conditions. Of principal concern is that, in recovering the costs
of post-registration activities, the Agency not trigger other
32
-------
effects that are undesirable from a broader-based public policy
perspective. For example, without an opportunity to seek relief
from the payment of a fee for post-registration activities, a
registrant may decide to withdraw (voluntarily cancel the
registration of) a particular pesticide because it is no longer
economically viable to keep it on the market. That particular
pesticide may have some public value and be of interest to the
Agency, such as a pesticide which plays a key role in an
Integrated Pest Management approach or, more likely, is for a
minor use. In short, the Agency should remain alert to the
possibility that, in forcing firms to internalize, through fees,
the Agency's portion of the social costs of their pesticide
products, it may overlook certain social benefits that are also
external to the producing firm. Well-devised waivers can help
avoid this outcome.
In the final rule on registration fees, there are four basic
types of waivers that permit relief from fees and which appear to
be most promising to provide the desired flexibility in the case
of post-registration fees. These waiver types are: 1. Minor
Use, 2. Inter-Regional Research Project No. 4 (IR-4), 3. Severe
Economic Impact, and 4. Public Interest. Specific
recommendations are as follows:
o All four types of waivers should be considered for fees
for maintenance of registrations and fees for all other
post-registration activities, excluding disposal fees.
33
-------
o For the Severe Economic Impact Waiver (SEI), the
cumulative impact on the registrant of registration
fees, tolerance fees and post-registration fees should
be incorporated into determination of eligibility for
the waiver.
o Waivers for disposal fees should be restricted to
consideration of public interest, where exceptional
circumstances assessed on a case-by-case basis might
warrant waiving all or part of the fee.
During the development of an NPRM on post-registration
fees, the Agency should have the benefit of real-world
experience with the four fee waiver categories in the
registration fee final rule. This should provide additional
insight into their overall workability and suggest any
modifications appropriate for a post-registration fee
system.
34
------- |