On Jan. 30, 2017, President Donald Trump issued an executive order (EO) intended to reduce regulatory burdens on businesses. The EO directs federal agencies to repeal at least two regulations for every new regulation. Moreover, the EO places federal agencies on a “regulatory budget,” meaning the costs of new regulations will need to be offset by repealing other regulations. For Fiscal Year (FY) 2017 (ending Sept. 30, 2017), the total incremental costs of new regulations must be no greater than zero.
Subsequent to issuance of the EO, the White House released an interim guidance document explaining how federal agencies should implement the order, at least for FY 2017. According to the guidance, the EO only applies to new rules or interpretive guidance issued on or after Jan. 20 that are deemed “significant regulatory actions.” A regulation is “significant” if it would: (1) have an annual economic effect of $100 million or more; (2) create a conflict with another federal agency action; (3) materially alter the budgetary impact of entitlement programs, user fees or loan programs; or (4) raise novel legal or policy issues.
There are exceptions to the EO for some significant regulatory actions. For example, rules promulgated in response to critical health, safety or financial matters, or “some other compelling reason” may qualify for a waiver. Also, the EO does not apply to “independent” federal agencies, such as the Federal Trade Commission or the Commodity Futures Trading Commission. Moreover, if a rule must be finalized pursuant to a statutory or judicially imposed deadline, the agency cannot delay the rule’s implementation because offsetting regulations cannot be identified at the time of implementation. But the agency would be required to eventually identify offsetting regulations – likely within the same fiscal year.
The most important aspect of the EO is the implementation of regulatory budgeting. For all new significant rules issued in FY 2017, federal agencies must completely offset the costs of the new significant rule by repealing at least two other regulations. In future fiscal years, federal agencies will be assigned a “regulatory budget” that would cap the amount of incremental regulatory burdens an agency can impose on businesses. For some agencies, the regulatory budgets may be less than zero, meaning agencies would need to incrementally reduce regulatory burdens.
In calculating the costs of regulations (and deregulatory actions), the federal agencies will have to focus on the opportunity cost to society associated with a regulation. Opportunity cost accounts for the opportunities that a business would forgo to comply with a regulation. Any existing regulatory action that imposes costs and, therefore, its repeal or revision would produce savings, can qualify for cost reduction. This means even though only significant regulatory actions are required to be offset, they do not have to be offset by repealing or revising significant regulatory actions. However, federal agencies cannot rely on previous cost estimates of regulations that are intended to be repealed. To demonstrate the costs of a new regulation would be offset by the costs of two or more repealed regulations, an agency would have to update the cost estimates of the regulations to be repealed.
Based on the Office of Information and Regulatory Affair’s (OIRA) guidance, there are a few regulations relevant to the meat and poultry industry that could be immediately affected by the EO. The forthcoming proposal for the National Bioengineered Standard, the two proposed rules included in the Grain Inspection, Packers and Stockyards Administration (GIPSA) Farmer Fair Practices Rules (unfair competition/under preferences; tournament system), and the USDA Food Safety and Inspection Service (FSIS) proposed rule on nutrition labeling would be considered “significant regulatory actions” covered by the EO. Because any final rules implementing these proposals would go into effect after Jan. 20, the costs of any final rules would have to be offset by identifying other regulations for removal. But the new Agricultural Marketing Service (AMS) Organic animal practices rule and the GIPSA Interim Final Rule to eliminate the competitive injury requirement for proving certain violations of the Packers and Stockyards Act will not likely be affected by the EO because they were finalized before Jan. 20.
At the present time, it is uncertain what real impact the EO will have on the industry. At the very least, we believe that the EO will significantly delay new regulatory actions that will have an affect on the industry, both bad and good. The cost-offsetting requirement will be the most difficult aspect of the EO for federal agencies to implement; however, federal agencies will also have to follow the Administrative Procedure Act when removing regulations, meaning that the justification for removing a regulation cannot be “arbitrary or capricious.” The EO just provides another hurdle for regulatory agencies to overcome when enacting a new regulation. NP