EPA Revises Proposed Tolerance Processing Fees for Inert Ingredients of Pesticides

Date: Mar 07, 2002

The Food Quality Protection Act of 1996 (FQPA) amended the Federal Insecticide,Fungicide, and Rodenticide Act (FIFRA) and the Federal Food Drug, and Cosmetic Act(FFDCA). Among the changes is a greater emphasis on inert ingredients of pesticides. FQPAclarified that these chemicals are covered by the definition of a pesticidechemical under FFDCA (For general background information see <ahref="admin target="_blank">Background on EPA's Regulation ofPesticide Inert Ingredients; for commentary regarding the impact of FQPA on datacompensation issues for inerts, see TheNext Pesticide Data Compensation Battleground: Inert Ingredients). Accordingly,every inert ingredient that may become a residue on food must be the subject of atolerance or an exemption from tolerance regulation. Data requirements for such clearancesfor inert ingredients are the same as those for active ingredients, and the datarequirements for pesticide chemicals have been increased. As such, the regulatory reviewprocess for inert ingredients has become quite costly. Improbably, and perhapsunconstitutionally, the Environmental Protection Agency (EPA) is authorized by 21 U.S.C §346a (m)(1) to condition its consideration of a citizen's petition seeking a tolerancerelated rulemaking action on the payment of fees. Thus, EPA proposed that, uponfinalization of a new fee schedule, it will charge fees for tolerance actions involvinginerts. 64Fed. Reg. 31,040 (June 9, 1999). In response to comments from industrystakeholders, EPA has now proposed a revised fee structure for processing tolerances forinert ingredients. <ahref="http: target="_blank">65 Fed. Reg.45,569 (July 24, 2000). EPA is accepting written comments on the new proposed ruleuntil August 23, 2000.</ahref="http:></ahref="admin>

A Self-Supporting Tolerance Processing System

EPA continues to interpret section 408 of FFDCA to mandate full recovery, via fees, ofthe costs of processing tolerances, including overhead. The language of FFDCA authorizesthe collection of "such fees as will in the aggregate . . . be sufficient over areasonable term to provide, equip, and maintain an adequate service for the performance ofthe Administrator's functions under [section408]." Although Congress has not rescinded appropriations to the tolerance feesystem, EPA noted that OMB is in favor of reducing allocation of funds from the generaltreasury by the amount of tolerance fees collected; thus the program would not net EPAadditional revenues.

Recalculation of Resource Estimates and Proposed Fees

EPA recalculated the cost of resources necessary to process tolerance actions for inertingredients, as distinct from other aspects of the registration process. For a moreaccurate and fair assessment of fees, the proposed tolerance exemption fee was subdividedinto those requiring scientific review and those requiring only a minimum of scientificreview. The latter fees will be significantly lower than originally proposed, but eventhose requiring scientific review are lower than originally proposed. The minimumscientific review classification applies to those petitions that are not accompanied bysupporting health and safety studies, such as petitions for the establishment of toleranceexemptions for polymers that are based on conformance with the Office of PollutionPrevention and Toxics' polymer exemption rule criteria. For background regarding thisexemption, see A Practical Understanding of the AmendedPolymer Exemption. The only fee to increase with the revised proposal is atolerance petition action for an inert ingredient. See Table 1.

Table 1

Proposed Fee

Original Revised
Tolerance Petition Action    
Tolerance for an Inert Ingredient $62,300 $70,900
Tolerance Exemption for an Inert Ingredient $59,300  
Tolerance Exemption for an Inert Ingredient (requiring scientific review)   $25,500
Tolerance Exemption for an Inert Ingredient (minimal scientific review required)   $2,800
Tolerance Reassessment Action    
Inert Ingredient Tolerance $201,400 $182,500
Inert Ingredient Tolerance Exemption $79,300  
Inert Ingredient Tolerance Exemption (requiring scientific review)   $62,100
Inert Ingredient Tolerance Exemption (minimal scientific review required)   $3,600

New Definition of Small Business and Reduction in Proposed Fee Waiver

FIFRA currently defines a small business as one with fewer than 150 employees and3-year average annual sales of less than $40 million. Realizing that this definition mayno longer fit the pesticide industry, for the purpose of tolerance exemption, EPA proposesto change the criteria to less than 500 employees and $60 million average gross revenuefrom global pesticide sales over the most recent 3-year period. For an entity with one ormore affiliates, the gross revenue limit would apply to the total global pesticide salesof the entity and all affiliates, including the parent and subsidiaries. The revisedproposal does not detail how the fee waiver process will work, but it indicates that EPAwill issue a Pesticide Registration (PR) notice in the near future that will outline how acompany may apply for a fee waiver. EPA retracted its original proposal to increase thefee waiver request fee from $1,700 to $7,500 in consideration of the fact that thosecompanies qualifying for the waiver can least afford the waiver request fee. The originalproposal anticipated the routine granting of fee waivers for certain tolerance actions,such as biopesticides (except plant-pesticides), minor use (except for the first food useor the sole use of an existing chemical), emergency exemptions, List 4A minimal riskinerts, chemicals exempted from FIFRA regulations under section 25(b), petitions submittedby U.S. Department of Agriculture's Interregional Research Project No. 4, and petitionsfor tolerance revocations. The revised proposal would not alter these policies.

Sharing the Costs of Reassessment

Comments on the original proposal pointed out that, unlike registrants of activeingredients, the identities of those subject to inert ingredient tolerance assessments arenot public. The original proposal lacked a mechanism to bring together the affectedbusinesses to join in cost sharing arrangements. EPA's proposed solution is to publish anotice in the Federal Register six months in advance of initiatingreassessments of inert tolerances or exemptions. Also, a letter would be sent to allregistrants that have the affected ingredients in their products and all known producersof the ingredient who are not registrants. The letters would announce the pending action,call for a fee, and suggest to registrants that they coordinate with their suppliers. EPAalso anticipates that trade associations could assist in the coordination efforts.Companies not participating in a coordinated response could "contribute"directly to EPA. In the event of an overage, EPA will refund the excess in proportion tothe amount each company submitted. In the event of a shortage, it will contact those whohave already paid a portion and request additional money.

Potential Problems

The revised proposal still lacks any provision to force payment of tolerance fees forinert ingredients. Tolerances are unlike registrations. A tolerance is a publicrulemaking, belonging to no one, whereas a registration is a license. An inert ingredientmanufacturer could simply choose not to pay a share of the tolerance fees and still enjoythe ability to market the product for use in pesticides as long as somebody paid the fee.In the revised proposal, EPA recognizes that not all inert manufacturers may wish tosupport the reassessment of a tolerance or exemption, but anticipates that those with aneconomic stake will.

As EPA concedes, some or all manufacturers may find it most strategic to simply abandonthe pesticide inert market rather than incur tolerance reassessment expenses. Sincepesticide inerts often represent only a small percentage of total production of acommodity chemical, the number of such abandonments may well be significant. As envisionedby EPA, as each manufacturer decides to abandon the pesticide inert market, the pool ofpotential contributors to the tolerance fee decreases, thus driving up the cost to anyremaining manufacturers who might have otherwise been willing to pay some of the fee. Thefrustrating prospect of giving the others a free ride adds additional pressure for theremaining manufacturers to either abandon the market or shift all of the costs to theparties that actually hold registrations. The result could be loss of some perfectlysuitable alternatives in the already limited universe of formulation components or anunmanageable need to allocate costs among hundreds of registrants whose identities cannotbe publicly disclosed without revealing confidential information about their productformulations. Having six months notice may provide for more orderly withdrawal of inertsfrom the market, but it does nothing to solve the problem of collecting fees from multipleparties to support a clearance that is not a license.

Even when there are companies willing to pay a share of the costs of tolerance fees,EPA's proposal may lead to "gamesmanship" strategy among those who would seek topay as little as possible and still enjoy a tolerance. EPA states that redistribution ofany overage would be based in proportion to the amount each company already submitted,rather than the amount each company should have submitted (based on some economicmodel yet to be determined). Therefore, there is an incentive to underpay rather thanoverpay. EPA does not state how it will calculate a suggested additional contribution inthe event of a shortage, but, if it uses the proportionality method, those who paid themost will be asked for the most additional funds. Again, this would be a disincentive tomake a generous initial contribution. But, all of this assumes there are volunteers tomake payments. All manufacturers and registrants can keep the playing field level bysimply not volunteering to pay anything. Unless and until EPA suspends registrations (nomean feat), the existing tolerance remains in place. Unlike existing fees, which are paidby petitioners anxious for a rulemaking to be commenced, few petitioners are likely towant to accelerate the reassessment process. Will EPA refuse to conduct a reassessment ifno fee for reassessment is forthcoming?

As noted above, if all the significant manufacturers of an inert do not commit tovoluntary coordination, the registrants of formulations containing the substance will havean even harder time achieving a fair allocation of costs because of the complicationsposed by large numbers of registrants that use the substance for a variety ofapplications. Undoubtedly, there will be many formulations where the choice of aparticular inert is largely a matter of convenience. For others, the inert may be crucial.Allocating a "fair level" of contribution among such diverse users will not besimple.