On October 28, 2000, the President signed the Appropriations Act, which provides that 180 days after the date of its enactment, U.S. establishments that slaughter or process ratites (such as ostriches, emus, and rheas) or squabs for distribution into commerce as human food will be subject to the requirements of the PPIA (21 U.S.C. 451, et seq. ), rather than the voluntary poultry inspection program under section 203 of the AMA (7 U.S.C. 1622). This provision of the Appropriation Act is effective on April 26, 2001.

Ratites are members of a superorder (Ratitae) of flightless birds that have small or rudimentary wings and flat breastplates, e.g., ostriches, emus, and rheas. Squabs are young pigeons that have not yet flown.

Ratites are currently inspected under the Voluntary Poultry Inspection Regulations as an experimental program. Operators who wish to continue to slaughter or process ratites or squabs after April 26, 2001, for transport or sale in commerce must apply to FSIS for a grant of inspection for mandatory inspection service (§§ 381.6 and 381.16). As of April 26, 2001, grants of voluntary inspection for ratites and squabs will no longer be valid. Fees for ratite and squab inspection services will no longer be charged, except for overtime and holiday inspection services. Applications for mandatory inspection must be submitted on an FSIS application form available from any FSIS District Office or from FSIS Headquarters, Washington, DC 20250. FSIS will give notice in writing to each applicant granted (or denied) inspection.

Under the regulations that implement the PPIA, before being granted Federal inspection, an establishment must have written Sanitation Standard Operating Procedures (SOPs) (§ 381.22(a)) and a Hazard Analysis and Critical Control Point (HACCP) plan that the establishment has validated (§ 381.22 (b) and (c)). Establishments can receive conditional grants of inspection for a period of not more than 90 days while they validate their HACCP plans (§ 381.22(b)).

This interim final rule will be effective on April 26, 2001. Within 18 months of that date, imported ratite or squab products will have to originate in countries that are eligible to export poultry to the United States and will have to be processed in establishments certified by the government of the foreign country as eligible to export to the United States. Currently, these countries include Canada, France, Great Britain, and Israel. Hong Kong and Mexico have not yet been approved by the United States to slaughter poultry; therefore, they are only eligible to export to the United States processed poultry products that originate from Canada, France, Great Britain, Israel, or the United States (§ 381.196).

All countries exporting or wanting to export ratite and squabs products to the United States, regardless of their current eligibility status regarding meat and poultry product exports to the United States, may do so for the next 18 months subject to the following. Countries already eligible to export poultry to the United States will be able to export ratites and squabs as soon as they certify to FSIS those establishments eligible to export to the United States. These countries are Canada, Israel, Great Britain, and France. Animal health restrictions continue to apply so there is no change with regard to the eligibility of specific products based on APHIS regulations.

Countries eligible to export meat to the United States will be permitted to export ratites to the United States provided the animals are slaughtered in an establishment certified to export to the Unites States and provided the countries submit a request for establishing equivalency. Certified establishments are required to meet FSIS HACCP and Pathogen Reduction requirements. At this point, Australia and New Zealand, which are both eligible to export meat to the United States, have indicated that they want to export ratites.

Countries not eligible to export meat or poultry to the United States will need to submit a request for equivalency and FSIS will need to make an equivalency determination according to 9 CFR Part 327.

As indicated above, however, each country desiring to begin or continue exporting such products to the United States will have to apply for an equivalence determination of its ratite and squab inspection system. Countries' ratite and squab export inspection systems must be found to be equivalent with the U.S. domestic inspection system within 18 months of the effective date of the Agency's new mandatory ratite and squab inspection requirements (April 26, 2001).

After the 18 month period has ended, all shipments of ratites and squabs from eligible countries must be accompanied with the appropriate veterinary health certificate (§ 381.197) and must be presented to FSIS for import reinspection prior to entry (§ 381.199).

Countries wanting to export ratites and squab to the United States should make a written request to export poultry to FSIS through the United States Embassy located in the country. FSIS will conduct both a document review and an on-site audit to determine if the country operates an equivalent poultry inspection system.

During the review, FSIS will work cooperatively with the Animal and Plant Health Inspection Service, which approves the entry of poultry products according to the disease status of the exporting country.

If the country's export inspection system is found to be equivalent with the U.S. domestic inspection system, FSIS will publish a proposal in the Federal Register to list the country as eligible to export poultry products to the United States. After the public has had 60 days to comment on this proposed rule, FSIS will review all of the public comments and make a final determination of equivalence. The determination to list a country as equivalent, and, therefore, eligible to export poultry products to the United States, is published as a final rule in the Federal Register , along with FSIS's responses to the public comments. At that time, the country's inspection service may certify establishments for export of poultry products, including ratites and squabs, to the United States.

FSIS is making a number of technical changes in its regulations, which it believes are noncontroversial, to provide for the inspection of ratites and squabs. The Agency is amending 9 CFR 362.1(d) to remove squab from the definition of “Poultry” in the Voluntary Poultry Inspection Regulations. FSIS is also amending § 362.1(e) to include ratites and squabs with chickens, turkeys, ducks, geese, and guineas in the definition of “Poultry Product.” The Agency is also amending § 381.1(b) to include ratites and squabs within the definition of “Poultry” in the Poultry Products Inspection Regulations.

FSIS is amending § 381.36(b) to require a pen for the ante mortem inspection of ratites. It is necessary to specify that a pen be available for ratites because ante mortem inspection of ratites is done on an individual bird basis, rather than a lot basis as is done for other amenable poultry.

The Agency is amending § 381.66 to exempt ratites from the chilling requirements of § 381.66 paragraphs (b), (c), and all of (d), except for (d)(1). Ratites are air-chilled rather than water-chilled, as is the case with most amenable poultry.

FSIS is amending § 381.67 to include squabs with young chickens under traditional inspection procedures. The two types of birds are of similar size and weight and thus can be inspected in a similar manner.

The Agency is amending § 381.70 to permit an exception to examining and inspecting ratites on the day of slaughter for humane reasons or, for low volume establishments, under certain conditions. This amendment allows the humane handling of ratites to be the same as that for livestock.

FSIS is amending § 381.71 to provide information on how suspect and condemned ratites are to be handled. This amendment is necessary because the treatment of suspect and condemned ratites is different than the treatment of suspect and condemned birds of other amenable species.

FSIS is amending § 381.72 to reflect the fact that ratites showing disease symptoms at ante mortem will be handled differently than other diseased poultry.

The Agency is amending § 381.76 to add Ratite Inspection as the fifth post mortem poultry inspection system. This amendment is necessary because inspection of ratites must be done in a different manner than inspection of other amenable poultry species. Thus, inspection of ratites cannot be done under the existing four inspection systems.

FSIS is amending § 381.96 to provide that ratite carcasses and parts that are shipped unpacked must bear the official brand. This addition is necessary because ratites are the only species of amenable species that are likely to be shipped unpacked.

Finally, FSIS is proposing to make some editorial changes to § 362.1 to correct inaccuracies and to provide for greater clarity.

Currently, ratites and squabs are inspected on a voluntary, fee-for-service basis under section 203 of the AMA. The interim final rule will amend § 362.1(d) to remove squab from the definition of poultry in the Voluntary Poultry Inspection Regulations and will amend § 381.1 to include ratites and squabs under the Agency's mandatory poultry inspection requirements.

Congress mandated, in the FY 2001 Agriculture Appropriation Act, that 180 days from the date of enactment (April 26, 2001) U.S. establishments that slaughter or process ratites or squabs will come under mandatory inspection by FSIS.

Ratites and squabs are considered non-amenable species and are currently inspected by the Agency on a voluntary, fee-for-service basis. 1 These species are also inspected on a mandatory or voluntary basis under State programs. Ratites are an order of flightless birds that includes ostriches, emus, rheas, cassowaries, and kiwis. The most economically important species of ratites are the ostrich and the emu. Squabs are young domesticated pigeons that have never flown. Ratite and squab meat is valued for its flavor and nutritional characteristics.

Since 1992, when FSIS first granted a request for voluntary inspection for ostriches, approximately 166 establishments have been issued a grant of inspection for ratite operations. Currently 99 establishments possess a grant of inspection. In 1999, there were a total of 48,286 (76%) ratites inspected in Federal establishments and 14,427 (24%) ratites inspected in State establishments, or a total of 62,713 ratites inspected (Table 1). Ostriches made up the largest share (69%) of the ratites inspected under the Federal program, whereas emus made up the largest share (56%) of the ratites inspected under State programs.

In 1999, states with a large share of ratites inspected under the Federal program were California, Georgia, Illinois, Louisiana, Oklahoma, and Texas. Alabama, California, Mississippi, North Carolina, Ohio, and Texas inspected a large share of ratites under State programs. There were almost an equal number of establishments involved in slaughter of ratites under the Federal (99) and State (95) inspection programs.

Ostrich is the largest bird in the world, standing about seven to eight feet tall and weighing 300-400 pounds when fully grown. Industry representatives indicate that there were about 600 ostrich growers 1998, down from 1000 growers in 1996. There is significant uncertainty about the annual production of ostriches and other ratites at this time. The Agency requests reliable information on the annual number of ratites and squab produced and the number of producers.

Ostriches are slaughtered at an average age of 12 months. The average weight at slaughter is 350 pounds. Ostrich meat is sold as steaks, fillets, medallions, roasts, and ground meat. Currently, ostriches are processed in establishments that are equipped to process other red meat species such as cattle, sheep, goats, and swine.

A mature emu reaches a height of 5 to 6 feet tall, weighing 90 to 120 pounds. In 1999, 22,813 emus were inspected under Federal and State programs (Table 1). There are a number of valuable products derived from emus in addition to their meat.

There is also significant uncertainty about the annual production of emus. Some source indicate that there may be as many as 500,000 birds on 5,000 to 6,000 farms in the U.S., with the majority of them in Texas, Oklahoma, and elsewhere in the Southwest.

Squabs are young domesticated pigeons that have never flown. Squabs usually weigh 1 pound or less at the time of slaughter (about 4 weeks old). In 1999, California and Oregon were the only two states that inspected squabs under the Federal voluntary inspection program. In that year, 175,496 squabs were inspected (Table 1). During that same period 1,122,131 squabs were inspected under the inspection programs of California and South Carolina.

FSIS considered two options in developing its interim final rule. The first option the Agency considered was to only change the definition of poultry in the Poultry Products Inspection Regulations to include ratites and squabs. This approach may have caused confusion in the industry because it would be difficult to apply some of the current poultry regulations to ratites and squabs, e.g., chilling and certain handling requirements.

The Agency's second option was to make the changes required by statute and other changes as noted above. FSIS selected this option because it will provide a more orderly transition from voluntary inspection to mandatory inspection of ratites and squabs than the first option at little or no additional cost.

There are three primary benefits that may result from extending mandatory inspection services to ratites and squabs: industry growth, public health, and industry cost savings.

Having the inspection mark on the ratite and squab products could lead to greater consumer confidence and acceptability of the products. Demand could be expected to increase as a result. Establishments that are able to capitalize on the change in consumer preference may realize increased sales of these products. To the extent that inspection promotes growth in the ratite and squab industry, society could benefit also from the increased employment and earnings of workers in these establishments. Studies are not available to identify the potential growth in the industry that may occur.

The public health benefits of inspection are related to the reduction in risk associated with consumption of all ratite and squab meat that must be inspected using the same procedures employed in the meat and poultry industries. HACCP systems, Sanitation SOPs, and process control practices have been shown to reduce contamination by harmful foodborne pathogens.

A shift to the mandatory inspection system will eliminate the payment of fees for inspection services. This is not a benefit from an economic perspective as the costs of inspection are transferred elsewhere in the economy. Since FSIS will recover these costs through appropriated funds, the change to a mandatory inspection system results in an income transfer from the public to the ratite and squab industry. The total cost savings to the industry would be about $2 million in 2001, with the possibility of increasing over time with the expansion of the industry.

The compliance cost of extending mandatory inspection to ratite and squab species will be negligible. All establishments involved in slaughtering amenable species, as of January 25, 2000, must be in compliance with the provisions of Pathogen Reduction/Hazard Analysis Critical Control Point (PR/HACCP) final rule. Under the provisions of the rule, all slaughter establishments under mandatory inspection are required to have HACCP plans and meet process control requirements. Nearly all establishments that slaughter and process ratites and squabs because they also slaughter other species under mandatory inspection have already implemented HACCP, Sanitation SOPs, and other measures consistent with the requirements of this rule. These establishments will still be required to make changes to their HACCP or sanitation procedures to include ratites and squabs. Establishments that have not included ratites and squabs in their HACCP plans  2 would incur minimal costs associated with HACCP plan modification.

As poultry is subject to mandatory Federal inspection, ratites and squabs will be subject to E. coli testing requirements. Establishments that slaughter more than one kind of poultry and livestock are required to test the kind of species slaughtered in the greatest number. The number of establishments where ratites and squabs will be the species being slaughtered in the greatest number is very low. Consequently, very few establishments will be required to perform additional E. coli testing for process control verification. The costs per establishment for E. coli testing are shown in Table 2. The Agency is requesting information on the number of establishments where ratites or squabs are, or would become, the major species for slaughter.

For those establishments slaughtering and processing ratites and squabs under voluntary inspection, the transition to mandatory inspection will not require changes in equipment and processing methods. Ratites are currently being slaughtered and processed in establishments that are equipped to process cattle, sheep, goats, and swine. Squabs are processed using the same equipment and procedures as those used for young chickens.

The Agency estimates that 50% of the Federal establishments (50 establishments) and 25% of the State establishments (24 establishments) may be required to make minor changes in their HACCP plan to accommodate mandatory inspection requirements for ratites.

The Agency seeks comment or further information pertaining to its cost figures for mandatory inspection.

Other additional costs that would apply to all establishments applying for Federal mandatory inspection will be the application cost. This cost will be negligible, as it is limited to a one-time cost for filling out an application, about $10. The total compliance cost to the establishments identified above are estimated to be $105,100.

FSIS is aware that some State inspected ratite product may contain sodium nitrite and/or sodium nitrate even though the Food and Drug Administration (FDA) regulations do not authorize such use of these substances for ratite products. However, once ratites are officially defined as poultry under PPIA regulations, such use will not be allowed in FSIS inspected products. FSIS does not have information on the types or amounts of product affected by this change, but is seeking information.

The Agency anticipates the need to conduct baseline microbiological and chemical residue studies. These studies constitute the major costs to the Agency totaling $600,000.

The microbiological studies would help the Agency determine the prevalence of harmful bacteria or pathogens in ratites and squabs. These studies can also be used to develop performance standards for pathogen reduction. The costs of a microbiological baseline testing for ratites are $110,000 and for squabs, $95,000 (Tables 3 and 4).

Chemical residue studies would help the Agency determine the presence of violative chemical and drug residues in ratites and squabs. Chemical residue testing would be necessary to determine how these additional species would be incorporated in the Agency's annual residue testing program. FSIS' one-time costs for chemical residue studies for ratites and squabs are $210,000 and $185,000, respectively (Tables 3 and 4).

Under voluntary inspection, establishments pay for inspection services. The funds for mandatory inspection activities are appropriated from Federal tax revenues. The transition from voluntary to mandatory inspection changes the source of inspection program funding. The Agency estimates that the industry cost of inspection of ratites and squabs for 1999 in Federal establishments was $1,975,000, of which ratites accounted for $1,959,000 and squabs, $16,400, including overhead (Tables 3 and 4).

When ratite and squab inspection becomes mandatory, it is possible that the volume of ratites and squabs inspected at Federally inspected establishments will increase beyond what is currently being inspected. First, there may be significant volumes of ratites and squabs that are currently slaughtered and consumed without inspection that would be brought under inspection. Second, an establishment currently under a State inspection program that is shipping ratites and squabs in interstate commerce would have to shift to Federal inspection to maintain its markets. It is expected that 25% of the establishments under State voluntary inspection would migrate to the Federal mandatory program. The analysis does not take into account the potential increase in the demand for inspection services. Both species currently account for an extremely small share of meat and poultry inspection. Changes in the required level of inspection program personnel are not expected to be significant in the near-term.

The estimated total cost of inspection in State establishments is $554,400 for 14,427 ratites and 1,122,131 squabs for FY 1999. Under the current agreement the Agency has with state having a voluntary inspection program, the Agency pays half of the inspection program costs, or $277,191 (Table 5).

Under a mandatory program, states would no longer be able to collect fees for inspection services. States may decide to terminate their ratite and squab inspection program. If this occurs, FSIS will take over inspection at the facilities operating under a State program and thereby absorb the total costs of inspection at these establishments. For those states that do not have a State voluntary program for ratites and squabs, the impact of a Federal mandatory inspection program will be minimal. The payment of these costs at previously State inspected establishments is an income transfer similar to that occurring for Federally inspected establishments.

The total transfer payment to Federal and State establishments is $2,252,000 (1,975,000 plus 277,000).

In large part, the costs of ratite and squab inspection are transferred from producers to taxpayers. As the burden of paying for inspection service is eliminated, establishments may transfer these cost savings to consumers through lower prices.

Countries that previously had little interest in export certification may petition FSIS if additional species come under mandatory inspection. Foreign establishments that specialize in exotic species may seek to broaden their markets by exporting to the United States. The Agency may need to evaluate the equivalence of a greater number of foreign food regulatory inspection systems.

Because this interim final rule has been determined to be significant, the Office of Management and Budget (OMB) has reviewed it under Executive Order 12866.

The Administrator, FSIS, has determined that this interim final rule would not have a significant economic impact, as defined by the Regulatory Flexibility Act (5 U.S.C. 601), on a substantial number of small entities.

Small establishments will not be adversely affected by this interim final rule. Few establishments slaughter and process ratites or squabs exclusively. They usually slaughter and process both amenable and non-amenable species. For small slaughtering establishments as well as large ones, ratites and squabs do not comprise all or even most of their business. Of the 100 establishments that slaughter or process ratites and squabs, only two slaughter over 90% of the squabs consumed in the market. There are no establishments that dominate the slaughtering of ratites. Small entities will benefit along with the rest of the industry with the increased marketability of their product and the cost savings realized because they will no longer have to pay fees to either FSIS or the state for voluntary inspection service.

This interim final rule has been reviewed under Executive Order 12988, Civil Justice Reform. This interim final rule: (1) Preempts State and local laws and regulations that are inconsistent with this rule; (2) has no retroactive effect; and (3) does not require administrative proceedings before parties may file suit in court challenging this rule. However, the administrative procedures specified in 9 CFR 306.5, 381.35, and 590.320 through 590.370, respectively, must be exhausted before any judicial challenge of the application of the provisions of this proposed rule, if the challenge involves any decision of an FSIS employee relating to inspection services provided under the PPIA.

Executive Order 13132, “Federalism,” requires that Agencies assess the federalism implications of their policy statements and actions, i.e., the effects of those statements and actions on the States, on the relationship between the national government and the States, or on the distribution of power and responsibilities among the various levels of government. The Federal Meat Inspection Act (FMIA) and the Poultry Products Inspection Act (PPIA) preempt State and local laws in regard to the manufacture and distribution of meat and poultry products. Therefore, FSIS policy statements and actions impact federalism within the context of these statutory preemptions.

States and local jurisdictions are preempted by the FMIA and PPIA from imposing any marking, labeling, packaging, or ingredient requirements on federally inspected meat and poultry products that are in addition to, or different than, those imposed under the FMIA and the PPIA. States and local jurisdictions may, however, exercise concurrent jurisdiction over meat and poultry products that are within their jurisdiction and outside official establishments for the purpose of preventing the distribution of meat and poultry products that are misbranded or adulterated under the FMIA and PPIA, or, in the case of imported articles, that are not at such an establishment, after their entry into the United States.

Specifically, under section 301 of the FMIA and section 5 of the PPIA, a State may administer State meat and poultry inspection programs provided that it has developed and is effectively enforcing State meat and poultry inspection requirements at least equal to those imposed under titles I and IV of the FMIA and sections 1-4, 6-10, and 12-22 of the PPIA. These titles contemplate continuous ongoing programs. When States can no longer effectively enforce meat and poultry inspection requirements at least equal to Federal requirements, they must be “designated” by the Secretary to receive Federal inspection.

When FSIS revises its meat and poultry inspection requirements, States that administer their own inspection programs may be impacted, since they must continue to enforce requirements equal to those of FSIS. To minimize any additional costs States must incur to modify their inspection programs, FSIS grants the States significant flexibility under the “equal to” provisions of the FMIA and PPIA. Further, States are eligible to receive up to 50 percent Federal matching funds to cover the costs of their inspection programs.

Title: Mandatory Inspection of Ratites and Squabs.

Type of Collection: New.

The paperwork and recordkeeping requirements in this final rule will be approved on an emergency basis by OMB under control number 0583-01120. FSIS is seeking comments on the paperwork and recordkeeping requirements in this interim final rule so that the Agency may receive a three-year approval for these requirements.

Abstract: FSIS has reviewed the paperwork and record keeping requirements in this interim final rule in accordance with the Paperwork Reduction Act. Under this proposed rule, FSIS is requiring several information collection and record keeping activities. FSIS is requiring that establishments slaughtering and processing ratites and squabs apply for Federal Inspection. Also, these establishments will need to develop and maintain Sanitation SOPs, HACCP plans, and perform testing for E. coli.

Estimate of Burden: FSIS estimates that the time to apply for inspection would be two hours. The time to develop a Sanitation SOP will be two days (16 hours) and five minutes to file. FSIS estimates that an establishment will spend about 5 minutes a day developing an average of eight monitoring records, per Sanitation SOP, and two minutes a day filing each record. The time to develop a HACCP plan or process schedule would take an average of two days (16 hours) and five minutes to file. FSIS estimates that an establishment will spend about five minutes a day developing an average of eight monitoring records, per HACCP plan or process schedule, and two minutes a day filing each record. The time to record E. coli testing results would be five minutes a day.

Respondents: Meat and poultry product establishments and irradiation facilities.

Estimated Number of Respondents: 105 (100 ratite and 5 squab establishments).

Estimated Number of Responses per Respondent: 8,252.

Estimated Total Annual Burden on Respondents: 54,758 hours.

Copies of this information collection assessment can be obtained from Lee Puricelli, Paperwork Specialist, Food Safety and Inspection Service, USDA, 112 Annex, 300 12th SW., Washington, DC 20250.

Comments are invited on: (a) Whether the collection of information is necessary for the proper performance of the functions of the Agency, including whether the information will have practical utility; (b) the accuracy of the Agency's estimate of the burden of the collection of information including the validity of the methodology and assumptions used: (c) ways to enhance the quality, utility, and clarity of the information to be collected; and (d) ways to minimize the burden of the collection of information on those who are to respond, including through the use of appropriate automated, electronic, mechanical, or other technological collection techniques or other forms of information technology.

Comments are requested by July 2, 2001. To be most effective, comments should be sent to OMB within 30 days of the publication date.

On February 26, 2001, the FAA published in the Federal Register a direct final rule; request for comments, which established a Class E enroute domestic airspace area beginning at 1,200 feet above ground level in the vicinity of El Centro, CA (FR Document 01-4680, 66 FR 11531, Airspace Docket No. 01-AWP-1). Please note that when accessing this document it was published incorrectly by the Federal Register as 00-AWP-1. The FAA uses the direct final rulemaking procedure for a non-controversial rule where the FAA believes that there will be no adverse public comment. This direct final rule advised the public that no adverse comments were anticipated, and that unless a written adverse comment, or a written notice of intent to submit such an adverse comment, were received within the comment period, the regulation would become effective on June 15, 2001. No adverse comments were received; therefore this document confirms that this direct final rule will become effective, but on a delayed date of July 12, 2001. The delay in the effective date is so the change will be in conjunction with established aeronautical charting cycles.

Regulations implementing Amendment 7 to the FMP (64 FR 14835, March 29, 1999) redefined overfishing and revised the fishing mortality (F) reduction schedule through fishing year 2008. The reductions in F and associated sea scallop DAS schedule were intended to rebuild the sea scallop stock within 10 years. Amendment 7 also established an annual monitoring and review process to adjust management measures to meet the stock rebuilding objectives as conditions in the resource change. In addition, Amendment 7 included a measure that continued the closures of two sea scallop closed areas in the Mid-Atlantic region, known as the Hudson Canyon South and Virginia Beach Closed Areas, through March 1, 2001. These closed areas were originally implemented by interim rules (63 FR 15324, March 31, 1998; 63 FR 51862, September 29, 1998) to prevent the harvest of juvenile scallops and to allow time for scallop growth and rebuilding. Framework 14 renames the Hudson Canyon South Closed Area as the Hudson Canyon Area to avoid confusion that the “South” description may cause.

Based on information from the 29th Northeast Regional Stock Assessment Workshop (September 1999) and on the updated catch and survey data, the New England Fishery Management Council (Council) included new biological projections in its 2000 Stock Assessment and Fishery Evaluation (SAFE) Report for sea scallops (September 8, 2000) that conclude that scallop rebuilding is ahead of the rebuilding schedule specified in Amendment 7. As reported in the 2000 SAFE Report, the accelerated rebuilding has occurred primarily because of strong year classes of scallops in 1998 and 2000. The Scallop Plan Development Team (PDT), which completed the analysis in the 2000 SAFE Report, determined that DAS allocations could be increased from the Amendment 7 levels while still meeting the 2001 and 2002 F targets, provided that the Georges Bank and Southern New England multispecies closed areas remain closed to scallop fishing and that access to scallops in the Hudson Canyon and Virginia Beach Areas in the Mid-Atlantic is controlled. The PDT also recommended closing four new areas to scallop fishing to protect high concentrations of juvenile scallops.

At its January 25, 2001, meeting, the Council took final action on management measures for Framework 14. The Council recommended the following measures for fishing years 2001 and 2002: An annual DAS allocation of 120, 48, and 10 DAS for full-time, part-time, and occasional vessels, respectively; an Area Access Program for the Hudson Canyon and Virginia Beach Areas to control fishing effort, catch, and fishing mortality in these two previously closed areas; and a prohibition on the possession of more than 50 U.S. bushels (17.62 hl) of in-shell scallops inside the VMS demarcation line for vessels that fish in or transit the area south of 42°20′ N. latitude. Although the Scallop Oversight Committee supported two additional closures in Framework 14, the Council ultimately decided to recommend that no new closures (beyond the continuation of the Georges Bank and Southern New England multispecies closed areas) be implemented because such closures had the potential for unnecessary hardships on the industry and that new closures are not necessary to achieve the goals of the FMP given the improved condition of the resource.

This action implements an annual DAS allocation of 120, 48, and 10 DAS for full-time, part-time, and occasional vessels, respectively, for the 2001 and 2002 fishing years. This allocation represents an increase over the DAS allocations that became effective March 1, 2001, as scheduled under Amendment 7 (i.e., 49 full-time, 19 part-time, and 4 occasional).

Framework 14 implements a system (Area Access Program) for allowing controlled scallop fishing in the Hudson Canyon and Virginia Beach Sea Scallop Access Areas, similar to programs implemented under Frameworks 11 and 13 to the FMP that allowed scallop fishing in the multispecies closed areas. Vessels are prohibited from fishing for scallops in the Sea Scallop Access Areas unless they are fishing under the Area Access Program. The intent of this access program is to derive biological, social, and economic benefits from fishing in the areas over the course of 2 years. Measures included in the Area Access Program are described below.

This action also implements a prohibition on the possession of more than 50 U.S. bu (17.62 hl) of in-shell scallops inside the VMS demarcation line for vessels that fish in or transit the area south of 42°20′ N. latitude. Without this restriction, vessels could avoid the limitations of the seven-man crew and DAS restrictions by bringing in-shell scallops shoreward of the VMS demarcation line and shucking inside the line. Because DAS stop accruing once a vessel is inside the VMS demarcation line, vessels are able to bank this saved time for future trips. This measure also may have the incidental benefit of helping to prevent possible contamination of inshore habitats caused by any large discards of scallop viscera as a result of shucking near shore. Vessels fishing north of 42°20′ N. latitude will be exempt from this restriction, provided they do not enter the area south of 42°20′ N. latitude. This exemption is intended to allow a limited fishery to continue north of 42°20 N. latitude by some vessels that have traditionally landed in-shell scallops.

Finally, this final rule corrects a reference to the stowage provisions in the regulations for Closed Area I that inadvertently references a paragraph that formerly included gear stowage provisions but is now reserved. This regulation is found at § 648.81(b)(2)(ii).

The 2001 Area Access Program begins on May 1, 2001 and ends when the TAC is caught or when vessels have used up their allocated number of trips. The 2002 Area Access Program begins on March 1, 2002, unless the fishery is closed prior to February 28, 2002, in which case it will begin on April 1, 2002. A delay in the start date is intended to reduce possible bycatch of finfish that could occur in late winter and early spring.

The Area Access Program includes a TAC of 13.96 million lb (6,331 mt) and 0.62 million lb (283 mt) for the Hudson Canyon and Virginia Beach Sea Scallop Access Areas, respectively, for 2001, and 14.14 million lb (6,415 mt) and 0.60 million lb (273 mt) for the Hudson Canyon and Virginia Beach Sea Scallop Access Areas, respectively, for 2002. These TACs include set-asides of 2 percent and 1 percent to defray the costs of observers and research, respectively. The TACs achieve an F of 0.2 in each of the two areas.

All limited access scallop vessels, including vessels that replace vessels that hold a scallop Confirmation of Permit History, are eligible to fish for the sea scallop TAC under the Area Access Program. Full-time and part-time scallop vessels are restricted to a total of three annual trips to the Hudson Canyon and Virginia Beach Sea Scallop Access Areas. A trip to either of the areas counts as one of the allowed trips. Vessels participating in the Area Access Program are allowed to take only one of the three allocated trips before May 1 and only two of the three allocated trips before June 1. At least one trip must be started before September 1 to be eligible to fish the remainder of the allocated trips or any additional trips that may be authorized on or after October 1. This measure is meant to prevent a derby style fishery from occurring and may reduce the potential for bycatch by limiting trips in late spring when bycatch, particularly of summer flounder, could be problematic. Vessels in the occasional permit category may conduct only one trip and may fish in the area of their choice.

Participating scallop vessels are allowed to possess and land from the areas up to 17,000 lb (7,711.1 kg) of scallop meats per trip in fishing year 2001 and 18,000 lb (8,164.7 kg) of scallop meats per trip in fishing year 2002. Limits on both the amount of scallops possessed and landed and the number of trips are intended to help to control fishing mortality of scallops in the areas. These limits are also intended to increase social benefits by allowing all limited access vessels an opportunity to fish in the areas without creating a derby fishery, and to increase economic benefits by promoting an orderly fishery and reducing the possibility of market gluts that could be caused by high initial catches in these areas.

After taking into account data on the number of eligible vessels participating and on the total number of trips taken, the Administrator, Northeast Region, NMFS (Regional Administrator) may adjust the sea scallop possession limit for the Hudson Canyon and Virginia Beach Sea Scallop Access Areas any time during the season and on or after October 1 for fishing year 2001 and 2002 may allocate one or more additional trips for full-time and part-time vessels. In order for additional trips to be allocated, a sufficient amount of the sea scallop TAC must remain to warrant such an adjustment or allocation. In order for a vessel to participate in any additional Area Access Program trips allocated on or after October 1, that vessel must have started at least one Area Access Program trip prior to September 1 of the current fishing year. Vessels with occasional permits will not be allocated any additional trips.

Any trip of 10 DAS or less for a vessel fishing in the Area Access Program will count as 10 DAS. Any trip of over 10 DAS will count as the actual DAS (e.g., if a vessel used 12 DAS, 12 DAS would be deducted from its annual DAS allocation). The intended effect of the minimum 10 DAS count is to reduce the amount of days that are available to be fished in the 2001-2002 fishing years in other areas, where scallops are generally smaller, thereby reducing fishing mortality by potentially reducing the number of scallops caught under DAS.

Vessels will be allowed to use dredges or trawls when fishing in the Area Access Program. Dredge gear is required to be outfitted with a twine top with a minimum mesh size of 10 inches (25.40 cm). The purpose of increasing the minimum twine top mesh size measurement from 8 inches (20.32 cm) to 10 inches (25.40 cm) for the Area Access Program is to reduce bycatch of groundfish and other finfish. Recent research and experience from the Georges Bank and Southern New England Closed Area Sea Scallop Exemption Program demonstrate that the 10-inch (25.40 cm) mesh size may significantly reduce bycatch of certain species, especially flatfish species.

All scallop vessels fishing in the Area Access Program must have installed on board an operational VMS unit that meets the minimum performance criteria as specified in the regulations at § 648.9(b). (Vessels with occasional permits are the only limited access scallop vessels not currently required to have a VMS unit). Scallop vessels planning to fish in the Area Access Program must so declare by notifying the Regional Administrator through the VMS as described here.

Each vessel operator is required to inform NMFS of his/her intention to fish in the Sea Scallop Access Areas prior to the 25th day of the month preceding the month in question through the VMS e-mail system to facilitate placement of observers (e.g., if the vessel plans to fish in these areas in July, it would need to notify the Regional Administrator by June 25).

The following information must be reported to the Regional Administrator prior to the 25th day of the month preceding the month in question: Vessel name and permit number, owner and operator’s name, owner and operator’s phone numbers, the area to be fished, and the number of trips anticipated to be taken in the area in question. Vessels will be provided additional information by mail regarding all notification requirements.

Each vessel participating in the Area Access Program is required to report specific information on a daily basis through the VMS. For each day of an Area Access Program trip, a vessel must report the daily pounds (kg) of scallop meats kept, the area fished that day, and the Fishing Vessel Trip Report page numbers corresponding to the respective Sea Scallop Access Area trip. In addition, vessels on observed trips must provide a separate report of the daily pounds (kg) of scallop meats kept on tows that were observed.

Vessels that have declared a trip into the Area Access Program are prohibited from possessing more than 50 U.S. bu (17.62 hl) (400 lb (181.4 kg) of meats) of shell stock when outside the Sea Scallop Access Areas. This limit for shell stock (i.e., unshucked scallops) is considered part of the overall possession limit. A limit on the amount of sea scallops landed in the shell is necessary to monitor and enforce the overall meat weight possession limit requirement. Allowing vessels to retain a relatively minor amount of shell stock will help satisfy a market for large, whole scallops, yet not compromise the enforceability of the conservation intent of the possession limit.

General category permitted vessels and limited access scallop vessels fishing outside a scallop DAS are allowed to fish in the Sea Scallop Access Areas throughout the year, provided that no more than 100 lb (45.36 kg) of scallop meats are possessed on board the vessel when the vessel is in the Sea Scallop Access Areas. These vessels are prohibited from possessing in-shell scallops while inside the Sea Scallop Access Areas, except they may possess an equivalent of in-shell scallops that are necessary to provide 100 lb (45.36 kg) of scallop meats. Vessels not fishing under the Area Access Program may transit the Sea Scallop Access Areas with more than these possession limits on board, provided their gear is properly stowed according to the regulations at § 648.23(b). This measure is intended to allow an incidental catch of scallops for scallop vessels that fish for other species outside the areas and to allow for more direct transiting to and from other fishing areas.

To improve the enforceability of the Area Access Program, all limited access scallop vessels equipped with a VMS unit will be polled twice per hour, regardless of whether the vessel is enrolled in the Area Access Program or not. Also, vessels are required to stow all dredge or trawl gear while transiting to and from the Sea Scallop Access Areas and must land their scallop catch at one location for each trip.

Vessels are required to carry observers when requested. The Council has recommended, as a goal, a 10-percent observer coverage for the Hudson Canyon Sea Scallop Access Area and a 20-percent observer coverage for the Virginia Beach Sea Scallop Access Area. Observers will obtain information on catch, catch rates, and bycatch and may obtain information on gear efficiency and selectivity and on other characteristics of the fishery. The vessel owner will be responsible for paying for the cost of the observer, regardless of whether any scallops are caught on the trip. At the discretion of the Regional Administrator, scallop vessels may be allocated an additional amount of sea scallops, not to exceed a cumulative total of 127 mt or 6 mt in 2001 for the Hudson Canyon and Virginia Beach Sea Scallop Access Areas, respectively, and 128 mt or 5 mt in 2002 for the Hudson Canyon and Virginia Beach Sea Scallop Access Areas, respectively, for each trip on which an observer is taken, to help defray the cost of the observer. Additional scallops to fund observers cannot exceed 2 percent of the overall scallop TAC. A TAC set-aside of 1 percent to fund research is also included as part of the Area Access Program. This research program for the Sea Scallop Access Areas is modeled after the research program in the 2000 Georges Bank Sea Scallop Exemption Program. A Request for Proposals notice will be published in the Federal Register that will provide information on the submission process, eligibility criteria, proposal requirements and priorities, project evaluation, application deadlines and other requirements. A report of the project results must be submitted to the Council and NMFS. Successful applicants will receive grant awards to help defray the costs of the sea scallop research. Grant awards will be made consistent with the Department of Commerce’s grant policy and procedures. Amounts over the trip limits for sea scallop meats to be allocated for defraying research costs shall be limited by area up to 63 mt or 3 mt in 2001 for the Hudson Canyon and Virginia Beach Sea Scallop Access Areas, respectively, and 64 mt or 3 mt in 2002 for the Hudson Canyon and Virginia Beach Sea Scallop Access Areas, respectively.

NMFS is making these revisions to the regulations under the framework abbreviated rulemaking procedure codified at 50 CFR part 648, subpart F. This procedure requires the Council, when making specifically allowed adjustments to the FMP, to develop and analyze the actions over the span of at least two Council meetings. The Council must provide the public with advance notice of both the proposals and the analysis and with an opportunity to comment on them prior to and at a second Council meeting. Upon review of the analysis and public comment, the Council may recommend to the Regional Administrator that the measures be published as a final rule if certain conditions are met. NMFS may publish the measures as a final rule or as a proposed rule if additional public comment is determined to be needed.

Because this action was determined to have a significant impact on the human environment, the Council prepared a Draft SEIS (DSEIS) to consider a range of impacts of the proposed action and its alternatives. The public was provided the opportunity to comment on the measures contained in Framework 14, during the development of the framework, at the following meetings:

The public also was provided with the opportunity to comment on the Council’s Notice of Intent to Prepare an SEIS (NOI) (65 FR 60396, October 11, 2000), and during the public comment period following the Notice of Availability (NOA) of the DSEIS (65 FR 77025, December 8, 2000, corrected in 65 FR 78484, December 15, 2000), which ended on January 24, 2001.

Documents summarizing the Council’s proposed action, the draft FSEIS, and economic impacts analysis of the preferred and alternative actions, were available for public review 1 week prior to the final Council meeting on January 25, 2001, as is required under the framework adjustment process. Written and oral comments were accepted up to and during that meeting. Comments pertaining specifically to the NOI, DSEIS, and framework measures are included and responded to in the FSEIS.

NOAA codifies its OMB control numbers for information collection at 15 CFR part 902. Part 902 collects and displays the control numbers assigned to information collection requirements of NOAA by OMB pursuant to the Paperwork Reduction Act (PRA). This final rule codifies OMB control numbers for 0348-0043, 0348-0044, 0648-0202, 0648-0307, and 0648-0416 for § 648.58.

Under NOAA Administrative Order 205-11, dated December 17, 1990, the Under Secretary for Oceans and Atmosphere, NOAA, has delegated to the Assistant Administrator for Fisheries, NOAA (AA), the authority to sign material for publication in the Federal Register .

The Council prepared an FSEIS for this framework adjustment; an NOA was published on March 9, 2001 (66 FR 14141). Subsequent to the publication of the NOA on the FSEIS, NMFS received a comment letter on the FSEIS requesting that NMFS reject the environmental analysis because it failed to comply with the National Environmental Policy Act (NEPA) and the Magnuson-Stevens Fishery Conservation and Management Act. The commenter indicated that there were numerous procedural deficiencies during the FSEIS development and approval process, most notably that the Council failed to analyze the environmental impacts of Framework 14 and a range of alternatives to minimize the environmental effects before the Council took final action. The commenter also indicated that the FSEIS fails to analyze the environmental consequences of Framework 14 and a range of alternatives that would minimize the environmental impacts.

NMFS has determined, upon review of the framework, FSEIS, and upon consideration of all public comments received on the DSEIS, FSEIS, and framework measures that the Council considered an adequate analysis of the impacts and range of alternatives when it voted to submit Framework 14 to the agency for its consideration. NMFS, in making the decision to approve and implement Framework 14, also considered a broad range of alternatives in the FSEIS, which addresses measures to achieve objectives established by Amendment 7 and to achieve optimum yield. The Council is considering alternative ways to manage the resource and the fishery in its current development of Amendment 10. Many of the alternatives suggested in the comment letter on the FSEIS are more appropriate for consideration in this larger context.

The AA finds that, because public meetings held by the Council to discuss the management measures implemented by this final rule provided adequate prior notice and opportunity for public comment, further notice and opportunity to comment on this final rule is unnecessary. Therefore, the AA, under 5 U.S.C. 553(b)(B), finds good cause exists to waive prior notice and additional opportunity for public comment.

It is contrary to the public interest to delay for 30 days the effective date for the prohibition on the possession limit of more than 50 U.S. bu (17.62 hl) of in-shell scallops shoreward of the VMS demarcation line. Currently, some vessels are shucking their scallop catch inside the VMS demarcation line and thus compromising the conservation objectives of both the DAS and crew size restrictions of the FMP. To allow this activity to continue unrestricted could undermine the effects of the scallop management measures. In addition, a 30 day delay in effectiveness would delay the potential incidental benefits of reducing contamination of inshore waters that may be associated with high discards of scallop viscera from vessels shucking inshore of the VMS demarcation line. For these reasons, the AA finds, under 5 U.S.C. 553(d)(3), good cause not to delay for 30 days the effective date of this provision.

Because the annual DAS allocations implemented in this final rule are higher than the DAS allocations that went into effect on March 1, 2001, and because the Area Access Program (and associated information collection requirements as published in 15 CFR 902) allows access to areas that would otherwise be closed to scallop fishing, these measures relieve restrictions, and are therefore not subject to a 30-day delay in effectiveness under 5 U.S.C. 553(d)(1).

Also, this final rule corrects a reference to the stowage provisions in the regulations for Closed Area I that inadvertently references a paragraph that formerly included gear stowage provisions but is now reserved (§ 648.81(b)(2)(ii)). The correction to this crossreference imposes no new requirements and is not subject to the 30-day delay in effective date provisions of 5 U.S.C. 553 (d).

Because a prior notice and opportunity for public comment is not required for this rule under 5 U.S.C. 533, or any other law, the analytical requirements of the Regulatory Flexibility Act, 5 U.S.C. 601 et seq. , are inapplicable.

This final rule has been determined to be significant for the purposes of Executive Order 12866.

For purposes of the Congressional Review Act, this rule has been determined to be major within the meaning of 5 U.S.C. 804 (2). Because this rule establishes a regulatory program for a commercial activity related to fishing under 5 U.S.C. 808 (1), it is not subject to the Congressional Review Act 60-day delay in effective date.

This rule contains collection-of-information requirements subject to the PRA and which have been approved by OMB. The estimated response times and the OMB Control Numbers for these requirements are: 1 hour for installation of a vessel monitoring system (VMS) (0648-0416); 2 minutes for a monthly VMS declaration of an intent to fish during the next month (0648-0416); 2 minutes for notification at least 5 days prior to departure on a fishing trip (0648-0416); 10 minutes for a daily VMS catch report (0648-0416); 2 minutes for a notification of intent to leave on a fishing trip (0648-0202); and 5 seconds for VMS polling (0648-0416 and 0648-0307). The submission requirements for research proposals are cleared under OMB Control Numbers 0348-0043 and 0348-0044.

The response time estimates above include the time for reviewing instructions, searching existing data sources, gathering and maintaining the data needed, and completing and reviewing the collection of information. Send comments regarding this burden estimate, or any other aspect of this data collection, including suggestions for reducing the burden, to NMFS (see ADDRESSES ) and to OMB at the Office of Information and Regulatory Affairs, Office of Management and Budget, Washington, DC. 20503 (Attention: NOAA Desk Officer).

Notwithstanding any other provision of the law, no person is required to respond to, nor shall any person be subject to a penalty for failure to comply with, a collection of information subject to the requirements of the PRA, unless that collection of information displays a currently valid OMB Control Number.

Reporting and recordkeeping requirements.

Fisheries, Fishing, Reporting and recordkeeping requirements.

The Commission today is adopting amendments to rule 17Ad-7 [17 CFR 240.17Ad-7(f)] under the Act.

On May 25, 1999, the Commission issued a release requesting comment on proposed amendments to its transfer agent record retention rule, Rule 17Ad-7, 1 that would allow registered transfer agents to use electronic and micrographic records storage systems subject to certain conditions (“Proposing Release”). 2 The purpose of the proposal was to increase the flexibility and efficiency of transfer agent recordkeeping while maintaining necessary controls over accuracy, integrity, and access to those records. The proposed amendments would have codified, in most part, two staff no-action positions that permitted transfer agents to use optical storage technology. 3 However, based on the comments received and the experience gained by the staff in considering appropriate records management solutions, the Commission is adopting the proposed amendments with certain changes discussed herein.

Section 17A(a)(2)(A)(i) of the Act directs the Commission to use its authority under the Act “to facilitate the establishment of a national system for the prompt and accurate clearance and settlement of transactions in securities. * * *” 4 Transfer agents play a vital role in the operation of that system. Transfer agents cancel stock certificates presented for transfer, issue new stock certificates, and maintain the records reflecting the ownership of securities as agent for the issuer. They also may disburse dividends and interest payments and send securityowner communications, such as proxy materials and annual reports. Some transfer agents maintain custody of securities on behalf of individual investors and securities depositories.

In order to facilitate the prompt, accurate, and efficient clearance and settlement of securities transactions, the Commission, having due regard for the public interest, the protection of investors, the safeguarding of securities and funds, and the maintenance of fair competition among transfer agencies, is authorized to promulgate rules and regulations that are necessary or appropriate to implement the provisions of section 17A of the Act. 5 Section 17A of the Act prohibits registered transfer agents from engaging in any activity in contravention of the rules and regulations that the Commission may prescribe as necessary or appropriate in the public interest, for the protection of investors, or otherwise in furtherance of the Act. 6 Section 17 of the Act requires every registered transfer agent to make, keep, and furnish copies of such records that the transfer agent's appropriate regulatory agency prescribes by rule. 7 Finally, Section 23(a) of the Act grants the Commission the power to make such rules and regulations as may be necessary or appropriate to implement the provisions of the Act. 8

Because the Commission's oversight of transfer agents is substantially dependent on its own transfer agent examination process, which in turn relies on the records that transfer agents make and retain, the Commission promulgated Rules 17Ad-6 and 17Ad-7 under the Act to specify the types of records that transfer agents must make and keep and the amount of time and manner in which these records must be preserved. 91 The Commission's oversight of transfer agents would be seriously hindered if a transfer agent's records were inaccurate, inauthentic, or inaccessible. Accordingly, Rule 17Ad-7 seeks to protect investors and promote the integrity of the markets by protecting the accuracy, integrity, and accessibility of transfer agent records.

Rule 17Ad-7, as amended, allows transfer agents to use electronic or micrographic storage media to maintain their records. Specifically, the rule requires transfer agents to:

• Use storage mechanisms that are designed to ensure the accessibility, security, and integrity of the records, detect attempts to alter or remove the records, and provide means to recover altered, damaged, or lost records;

• Create an index of the records that are electronically or micrographically stored and store the index with the underlying records;

• Keep a duplicate of all records and indexes that are stored using electronic or micrographic storage media;

• Be able to promptly download electronically or micrographically stored records to an alternate medium such as paper, microfilm, or microfiche; and,

• Keep in escrow an updated copy of the software or other information that is necessary to access and download electronically stored records.

The amended rule does not require transfer agents that wish to continue to maintain their records in hard copy format to maintain their records any differently than they are doing so today. The requirements adopted today apply only to those transfer agents that choose to retain their records electronically or micrographically.

The new provisions of Rule 17Ad-7 define the term “micrographic media” to mean microfilm or microfiche or any similar medium and the term “electronic storage media” to mean any digital storage medium or system.  10

Registered transfer agents that choose to use electronic or micrographic records storage media must: have available at all times for examination by the Commission and the transfer agent's appropriate regulatory agency (“ARA”) 11 facilities to project or produce easily readable images of the records that it stores on electronic or micrographic storage media; be ready to provide the stored records to the Commission and its ARA; create an index of the records that it stores on electronic storage media or micrographic media and store the index with those records; have the index available at all times for examination by the Commission and its ARA; have quality assurance procedures to verify the quality and accuracy of the electronic or micrographic recording process; and maintain separately from the originals a duplicate of the records and the index that the transfer agent stores on electronic storage media or micrographic media.  12 The transfer agents may store the duplicates of the indexed records on any medium permitted by this rule. The electronic media that a transfer agent uses to store its records must: ensure the security and integrity of the records by means of manual and automated controls that assure the authenticity and quality of the electronic facsimile; detect attempts to alter or remove the records; provide means to recover altered, damaged, or lost records resulting from any cause; externally label all removable units of storage media using a unique identifier; internally label each file with its unique name, the date and time of file creation, the date and time of last modification or extension, and a file sequence number when the file spans more than one volume.  13

Transfer agents that use electronic or micrographic records storage media to store their records must establish an audit system that accounts for the inputting of and any changes to every record that is stored on electronic or micrographic storage media. The results of such audit system must be available at all times for examination by the Commission and the transfer agent's ARA and be preserved for the same time that is required by this rule for the underlying records.  14

Also, transfer agents that use electronic storage media or micrographic media to store their records must: Maintain, keep current, and provide promptly upon request by the Commission and their ARA all information necessary to access the records and indexes stored on electronic storage media or micrographic media and place in escrow and keep current a copy of the physical and logical format of the electronic or micrographic storage media, the field format of all different information types written on the electronic storage media and source code, and the appropriate documentation and information necessary to access records and indexes. The escrow agent must file a statement with the Commission that it will make this information available promptly upon request to the Commission's representatives or the ARA.  15

Finally, if a transfer agent uses another party to maintain or preserve the required records using electronic storage media or micrographic media, such third party shall file with the Commission an undertaking stating that such records are being maintained or preserved by the third party on behalf of the transfer agent and that such records will be surrendered promptly upon request of the transfer agent, the Commission's representatives, or the ARA to examine such records. The rule makes clear that the transfer agent retains ultimate responsibility for complying with the requirements of the rule.  16

The Commission received eleven comment letters in response to the Proposing Release.  17 While most of the comments were generally favorable, all of the commenters offered specific observations and suggestions about the proposed conditions on transfer agents' use of electronic storage media. As discussed below, the Commission is adopting the proposed amendments to Rule 17Ad-7 with certain modifications suggested by the comment letters.

In the Proposing Release, the Commission proposed to add subparagraph (f) to Rule 17Ad-7 to allow registered transfer agents to use micrographic media or electronic storage media to store the records that they are required to keep under Rule 17Ad-6. The term “micrographic media” was defined as microfilm or microfiche or any similar medium. The term “electronic storage media” was defined as any digital storage medium or system that meets the standard of this rule. The commenters did not raise any issues with regard to the proposed scope or definitions.

We are adopting these definitions substantially as proposed. For clarity, we have added another definition: the term “ARA” as used throughout the rule refers to a transfer agent's appropriate regulatory agency as that term is defined in 15 U.S.C. 78c(a)(34).

The Proposing Release would have required that transfer agents use an electronic or micrographic storage media system that met certain standards intended to deter the alteration of records. Specifically, the Commission proposed that transfer agents preserving their records electronically must do so in a non-rewriteable, non-erasable format  18 and that the storage system be able to automatically verify the quality and accuracy of the electronic recording process. 19 The Commission also proposed that the electronic storage media system label the storage units in sequential order and record the date and time that information is electronically stored. 20 Finally, as proposed, the storage system would have the capacity to download records stored on electronic storage media so that the records could be promptly transferred to an alternate medium such as paper, microfilm or microfiche. 21

The commenters had varying responses to these proposed standards. Schwab stated that the rule should not limit electronic storage media to WORM-based systems. StorageTek stated that the Commission should not favor a particular type of storage system because there are types of electronic storage systems other than optical disk systems that use WORM technology.

Chase stated that, with respect to downloading records stored on electronic storage media, the rule should only require that the electronic storage media system have the capability to print images or provide images in a format suitable for transfer to another acceptable medium, thereby allowing transfer agents the flexibility to determine the most suitable way to provide imaged data to an examining authority. Chase further stated that it would be comfortable with the proposed requirement as long as paper is an acceptable alternate medium. In addition, with respect to the requirement that an electronic storage media system automatically verify the accuracy of the quality and accuracy of its recording process, Chase stated it is unaware of any system that can automatically insure image quality and accuracy. Chase also suggested that the rule should require only that the transfer agent have quality assurance procedures in place.

Plasmon agreed with the Commission's interest in accommodating a wider range of storage media and suggested that there are at least four major varieties of optical disk media that should be considered for document storage applications. However, Plasmon contended that magnetic-optical disks offer the highest degree of data protection over the longest periods of time. Plasmon believes that linear (tape) media simply does not attain the same degree of data safety.

EMC wrote that specifying that records be retained on non-erasable, non-rewritable media is overly prescriptive because it would effectively dictate the storage technology ( i.e., WORM). It further argued that this technology has become obsolete and expensive to manage. Instead, EMC suggested that the focus of the Commission's rule should not be to create an immutable copy but rather on the ability of the storage system to create a copy that can be verified as authentic.

Fidelity argued that the rule should not require sequential serialization of storage units but instead should allow more flexibility ( e.g., serialization by unique media index and identifier numbers).

The final rule incorporates many of the commenters' suggestions. For example, we have eliminated the proposed “non-erasable, non-rewriteable” requirement and instead are adopting a goals-oriented set of requirements that electronic storage systems be designed to: ensure the security and integrity of the records by means of manual and automated controls; detect attempts to alter or remove the records; and provide means to recover altered, damaged or lost records. 22 The Commission believes that using a set of requirements to ensure security and integrity of records is appropriate in the transfer agent context, unlike the broker-dealer context, because of the lower risks from record alteration for transfer agents. There appear to be a lower incidence of altered transfer agent records and the Commission staff has brought few enforcement actions against transfer agents based on alteration of their records. In addition, transfer agents do not hold customer funds, open accounts, or recommend investments. Therefore, the Commission generally does not inspect transfer agents for financial and sales practice problems. Accordingly, requiring transfer agents to use WORM does not at this time seem necessary.

We have also removed the requirement that the storage system be able to “automatically verify the quality and accuracy” of the recording process and instead substituted language requiring the storage system to “have quality assurance procedures to verify the quality and accuracy of the electronic or micrographic recording process.”  23 In making the change, the Commission emphasizes the importance of the electronic recordkeeping system's ability to electronically store documents in a reliable and consistent manner.

Finally, in response to the comments discussed above, we have modified the requirement that the storage system label “all units of storage media in sequential order” in favor of a standard that requires the system to “label all removable units of storage media using a unique identifier * * *” and “uniquely identify files and internally label each file with its unique name, the date and time of file creation, the date and time of last modification or extension, and a file sequence number when the file spans more than one volume.” We believe that these changes will provide transfer agents greater flexibility to select appropriate and cost effective records organizing methodologies while still maintaining the ability of the transfer agent and the Commission to locate individual records and reconstruct the sequence of the records.

The Commission notes that the amendments to the Rule are technology-neutral as they establish standards and set forth features that the electronic storage media must satisfy to be considered an acceptable storage medium rather than specifying the use of a particular technology.

In the Proposing Release, the Commission proposed to require transfer agents using electronic or micrographic storage media to establish an audit system that accounts for the entry of and changes to every record that is electronically or micrographically stored. 24 As proposed, the results of the audit system would have to be available at all times for inspection by the transfer agent's ARA and the Commission and would have to be preserved for the same period of time as the underlying records.

Fidelity contended that the audit system should not be required to record the names of the people who add or change records stored on electronic storage media because it is possible for audit systems to identify people through the use of identifier numbers.

In response to these comments, we have modified the audit provisions to offer transfer agents flexibility over how to record and trace the identity of those who modify records. The rule does not specify the manner in which transfer agents should account for those who input or change the records. Rather, paragraph (f)(3) of the rule requires that transfer agents establish an audit system that can, at the least, readily identify when and by whom changes to records were made to the stored records.

The Proposing Release would have required transfer agents storing electronic or micrographic records to: (1) Have facilities for immediate projection or production of easily readable images of the records that are being stored electronically or micrographically; (2) be ready at all times to provide a facsimile enlargement of the records that are being stored electronically or micrographically; (3) create an index of the records that are being stored electronically or micrographically; and (4) maintain a duplicate of the index of the records. 25

Chase stated that the rule should not require that the index be stored on an optical disk or otherwise specify the location of the index. Chase further commented that being able to identify a needed image, locate the image, and retrieve it whenever necessary should be sufficient requirements for the index component of the rule. Fidelity stated that the requirement to maintain duplicates of records stored on micrographic media or electronic storage media should not be interpreted as a requirement to maintain backup storage systems.

In order to help ensure efficient and complete access to a transfer agent's records during examinations by the Commission or the transfer agent's ARA, we are adopting these requirements substantially as proposed. 26 The Commission notes that the rule does not specify the type of medium on which the index should be stored. The Commission, however, believes that it is important to keep the requirement that the index be stored with the indexed records so that Commission representatives will be able to locate records in cases where a transfer agent refuses to cooperate or is no longer operating. In addition, Commission agrees that the requirement to maintain duplicates of records stored on micrographic or electronic storage media is not a requirement to maintain backup storage systems.

In the Proposing Release, the Commission proposed that there be a mechanism to enable the Commission to access and download the electronically stored records in cases where a transfer agent is no longer operating, refuses to cooperate with the Commission or the transfer agent's ARA, or has not properly or fully indexed electronically stored records. 27 Accordingly, the proposed amendments would have required transfer agents to preserve, keep current, and surrender upon request the information necessary to download records stored on electronic or micrographic storage media. Moreover, under the proposed amendments, before a transfer agent would have been able to use electronic storage media, it would have had to have at least one party other than itself ( e.g. , the transfer agent's electronic storage media vendor) file a statement with the Commission that it, the third party, had the ability to download information from the transfer agent's electronic storage system and that it would do so at the request of either the Commission or the transfer agent's ARA. 28

ICI, Federated Investors, Chase, ChaseMellon, Schwab, and Fidelity commented on the proposed requirement that a third party file undertakings with the Commission and the transfer agent's ARA before a transfer agent uses electronic storage media. ICI and Federated asked for the Commission to clarify whether the third party access undertakings pursuant to the 1997 no action position would be sufficient to comply with the proposed amendments to Rule 17Ad-7. ICI and Federated both opined that the provisions of the 1997 no-action position are substantially similar to the proposed amendments and therefore should be sufficient for a transfer agent to comply with.

Chase, ChaseMellon, and Fidelity expressed concern that the proposed requirement raises security and confidentiality risks because it would require that the undertakings be filed by a third party that has direct access to the transfer agent's records. Schwab stated that it is unnecessary for a transfer agent that maintains its own records to contract with another party solely to comply with the requirement. Schwab also asserted that the requirement should be amended so that it is consistent with Rule 17a-4(f)(3)(vii)  29 and should only apply to transfer agents that use electronic storage media exclusively for some or all of their record retention.

The Commission has revised the proposed rule to reflect its intention that the third party access requirement be no more burdensome than necessary to allow the Commission to access a transfer agent's records. The proposed requirement was intended to assist the Commission or the transfer agent's ARA to access the transfer agent's records during, for example, some type of emergency (such as a transfer agent's insolvency or refusal to cooperate), yet recognize the potential security concerns if transfer agents provide “access” to their records system to third parties. In consideration of the comments received, the final rule clarifies that the third party is not required to have a continuous or unlimited right to use or have access to the records. 30 Instead, the transfer agent will be required to place in escrow with an independent third party  31 its records management software that will enable the Commission or the transfer agent's ARA to access records and indexes. The escrow agent will only have in its possession the records management software but will not have access to the underlying records. The amended rule also requires the escrow agent to file an undertaking with the Commission and the transfer agent's ARA that it will make such records management software available to the Commission or the transfer agent's ARA promptly upon the request of the Commission or the ARA.

ICI and Federated requested that the Commission elucidate the effect that amendments to Rule 17Ad-7 will have on transfer agents that are currently using electronic storage media under the terms of previously issued no-action letters. 32 ICI and Federated Investors believe that the terms of the no-action letters are sufficient to comply with the proposed amendments to the rule and that transfer agents using electronic storage media under the terms of no-action letters should not have to additionally comply with the third party undertaking requirement. ICI stated that if the Commission determines that new undertakings are necessary transfer agents should have a transition period of at least ninety days to obtain the required undertakings.

Fidelity requested that the Commission explain the effect of the proposed amendments on the no-action position relating to transfer agents that was issued when the Commission amended Rule 17a-4 to permit broker-dealers to use electronic storage media. 33 Specifically, Fidelity stated that the no-action position allowed transfer agents to use electronic storage media under the terms of the amended Rule 17a-4 to comply with their recordkeeping requirements under Rules 17Ad-6, 17Ad-10, 17Ad-11, 17Ad-13, and 17Ad-15 under the Act but that the proposed amendments in the Proposing Release only applied to Rule 17Ad-7.

The Commission notes that the amendments to Rule 17Ad-7 provide for the electronic or micrographic storage of all records that transfer agents are required to retain. The Commission also notes that the amendments to Rule 17Ad-7 will supersede all previously issued no-action letters and will be effective May 31, 2001, as opposed to ninety days from the date of publication in the Federal Register as suggested by ICI.

There are two reasons why the amendments to Rule 17Ad-7 will become effective on May 31, 2001. First, after May 31, 2001, and until the Commission's transfer agent record retention rule is effective, the differing provisions of ESIGN  34 would be applicable, which could potentially lead to confusion. Second, the Commission believes that the minor changes required to be made to transfer agents' recordkeeping systems currently operating under the no-action positions will not be burdensome to implement. 35

StorageTek and Chase stated that transfer agents should be able to destroy canceled certificates where an electronic record has been made. StorageTek included an analysis with its comment letter that concluded that organizations should be able to copy original records and store them on electronic storage media without significant legal consequences if the original records are destroyed.

The Commission has solicited comment on the issue of the destruction of canceled certificates in another proposing release and, thus, is not addressing that issue in the context of this rulemaking. 36

On June 30, 2000, Congress enacted ESIGN. 37 ESIGN, among other things, specifies that where a statute, regulation, or other rule of law requires records  38 to be retained, such requirement is met by retaining an electronic record that accurately reflects the information set forth in the record; remains accessible to all parties legally entitled to access such record; and is kept in a form capable of being accurately reproduced for later reference. 39

While ESIGN does not define how these requirements are to be met, it preserves the Commission's ability to interpret and apply ESIGN consistent with the statutes it administers pursuant to its existing legal authority. 40 To interpret ESIGN, the Commission may issue rules, orders, or guidance of general applicability under its organic statute. 41 On February 28, 2001, the Commission announced several upcoming rulemaking activities regarding recordkeeping requirements under the federal securities laws that are consistent with ESIGN. 42 Accordingly, under ESIGN section 107(b)(1)(B), the record retention provisions of Title I of ESIGN will become effective on June 1, 2001.

In order to facilitate the prompt, accurate, and efficient clearance and settlement of securities transactions, Congress authorized the Commission, having due regard for the public interest, the protection of investors, the safeguarding of securities and funds, and the maintenance of fair competition among transfer agencies, to promulgate rules and regulations that are necessary or appropriate to implement the provisions of the Act. For example, section 17(a)(3) requires every registered transfer agent to make, keep, and furnish copies of such records that the transfer agent's ARA prescribes by rule. 43 Section 17A prohibits registered transfer agents from engaging in any activity in contravention of the rules and regulations that the Commission may prescribe as necessary or appropriate in the public interest, for the protection of investors, or otherwise in furtherance of the Act. 44 Finally, Section 23(a) grants the Commission the power to make such rules and regulations as may be necessary or appropriate to implement the provisions of the Act. 45 Thus, the Act authorizes the Commission to issue rules that require registered transfer agents to keep such records as the Commission may prescribe in the public interest or for the protection of investors, and to make such records available for inspection. This grant of authority recognizes the importance of transfer agent recordkeeping to the Commission's regulatory function and investor protection objective.

Rules 17Ad-6 and 17Ad-7 under the Act specify the type of records that registered transfer agents must make and keep and the length of time and manner in which these records must be preserved. Depending on the type of record, the records covered by these rules generally must be maintained for two years, 46 six years, 47 or until one year after the termination of a transfer agency relationship. 48 Section 17(a)(1) of the Act  49 requires registered transfer agents to make and keep certain records that the Commission prescribes to be necessary or appropriate in the public interest, for the protection of investors, or otherwise in furtherance of the purposes of the Act. Rules 17Ad-6 and 17Ad-7 under the Act specify the type of records that registered transfer agents must make and keep and the length of time and manner in which these records must be preserved. Rule 17Ad-7(f) currently permits registered transfer agents to preserve the records listed in Rule 17Ad-6 either in hardcopy or on microfilm, subject to certain conditions. However, Rule 17Ad-7 provides no other alternatives to maintaining records. The amendments will allow registered transfer agents to electronically and micrographically preserve records that they are required to retain.

As discussed above, Rule 17Ad-7, as amended today, allows transfer agents to use electronic or micrographic storage media to store their records in a manner that will ensure the security and integrity of the records by means of manual and automated controls; will assure the authenticity and quality of the electronic facsimile; detect attempts to alter or remove the indexed records; and will provide means to recover altered, damaged, or lost indexed records.

Transfer agents that use electronic or micrographic storage media are also required to create an index of the records that are electronically or micrographically stored and store the index with those records. In addition, the rule requires that the electronic storage system label the storage units with unique identifiers and record the date and time that information was electronically stored. Transfer agents are also required to keep a duplicate of any records that are stored using electronic or micrographic storage media on any type of medium that is acceptable under Rule 17Ad-7. Finally, transfer agents are required to maintain a duplicate index that is stored with the duplicate set of records separately from the original records.

When adopting regulations, orders, or guidance to interpret ESIGN's impact on the statutes it administers, the Commission is subject to certain requirements. First, the interpretation must be “consistent” with Section 101 of ESIGN. 50 Second, the interpretation may not “add to the requirements” of Section 101. 51 Third, in issuing the interpretation, the Commission must find that: (1) There is substantial justification for the interpretation; (2) the methods selected to carry out that purpose are substantially equivalent to the requirements imposed on non-electronic records; (3) the methods selected to carry out that purpose will not impose unreasonable costs on the acceptance and use of electronic records; and (4) the methods selected to carry out that purpose do not require or accord greater legal status or effect to the implementation or application of a specific technology or technical specification. 52, 53

As discussed in the next section, the Commission finds that the electronic recordkeeping provisions of Rule 17Ad-7, as amended today, are consistent with the requirements established by ESIGN. Thus, registered transfer agents are required to comply with Rule 17Ad-7 as amended.

The amendments to Rule 17Ad-7 require transfer agents to preserve, keep current, and surrender upon request the information necessary to download records stored on electronic or micrographic storage media. Transfer agents must also be able to promptly download electronically or micrographically stored records to an alternate medium, such as paper, microfilm or microfiche. Moreover, if a transfer agent uses a third party to maintain its records, the amendments require the third party to file an undertaking with the Commission that the third party will permit the Commission or the transfer agent's ARA to examine such records upon request.

The Commission's investor protection objective is substantially dependent on the Commission's oversight of transfer agents through its transfer agent examination process, which relies on the records that transfer agents make and retain. This objective would be seriously undermined if transfer agents records were inaccurate, inauthentic, or inaccessible. Through Rule 17Ad-7, the Commission seeks to protect investors by promoting the accuracy, integrity, and accessibility of transfer agent records.

The Commission makes the following findings with respect to Rule 17Ad-7:

ESIGN provides that statutes or regulations that require the retention of certain contractual or transactional records may be complied with by storing such records electronically. Similarly, Rule 17Ad-7 allows transfer agents to maintain various records that they are required to retain in an electronic or micrographic format. In addition, Rule 17Ad-7 permits electronic or micrographic storage of a broader category of records than ESIGN requires because it permits the electronic and micrographic storage of all records registered transfer agents are required to create and maintain, not just contractual or transactional records. Moreover, consistent with ESIGN, the rule's electronic and micrographic storage provisions do not specify the use of a particular technology or technical specification. The Commission believes that the amended rule will help to ensure that records necessary for the supervision and regulation of registered transfer agents are maintained in a manner that is accurate, accessible, and that is consistent with ESIGN.

ESIGN requires electronic records to be stored in a manner that ensures that they are accurate, accessible, and capable of being accurately reproduced for later reference. The electronic and micrographic storage provisions of Rule 17Ad-7 are designed to ensure that registered transfer agents store electronic and micrographic records in a manner consistent with the statutory goals of ESIGN—accurate, accessible and accurately reproduced records. For example, the quality assurance procedures requirement is designed to ensure that the records are accurate by providing verification that a record has been accurately stored in the electronic system. The indexing requirement is designed to ensure that the records are accessible by providing a means to search for specific records. The labeling provisions are intended to ensure both the accuracy and accessibility of the records by indicating the order in which records are stored, thereby making specific records easier to locate and authenticating the storage process.

Finally, the rule does not specify or require any type of records storage technology but instead permits a transfer agent to choose the method of electronic and micrographic storage subject to certain conditions. Thus, Rule 17Ad-7 provides flexibility and choice for registered transfer agents as new electronic and micrographic storage technologies are developed.

The amendments to Rule 17Ad-7 are substantially justified by the need to protect investors, ensure the soundness of the securities markets, and ensure the prompt and accurate clearance and settlement of securities transactions, which includes the transfer of record ownership. In order to ensure investor protection and compliance with its rules, the Commission requires, among other things, that registered transfer agents maintain records that document their transactions with customers and other entities with which they transact. 54 Examiners review these records to determine whether registered transfer agents are complying with the requirements of the securities laws and regulations. A failure to maintain accurate, accessible, and correct records could lead to situations where a transfer agent does not know whether an investor actually owns a security and could also provide an opportunity for deliberate alteration of records. Accordingly, if investors are to be adequately protected and systemic risk in the securities industry mitigated, a transfer agent's records must provide an accurate account of its operations.

To achieve its vital regulatory interests, the Commission believes that a rule that permits the use of electronic and micrographic storage media must contain certain requirements. 55 These requirements include prudent but reasonable safeguards to prevent the stored information from being modified or removed (accidentally or maliciously) without detection. To further this objective, the rule requires that transfer agents use electronic or micrographic records storage systems that are designed to insure the security and integrity of the records by means of manual and automated controls and can detect attempts to alter or remove the records. The rule also requires transfer agents to create duplicates of the original records. The duplicates must be accessible and verifiable as authentic. In addition, Rule 17Ad-7 requires registered transfer agents to maintain, keep current, and provide promptly upon request by the Commission or the transfer agent's ARA all information necessary to access the records and indexes stored on electronic or micrographic storage media. Finally, transfer agents must place in escrow a current copy of the electronic or micrographic storage media's software and all the other information necessary for the Commission or the transfer agent's ARA to access records and indexes.

These conditions also are necessary because electronic storage technology is relatively new and there currently does not appear to be an industry standard for its development and for compatibility among different electronic storage systems. In addition, the ability of the Commission to review a transfer agent's records would be severely compromised should a transfer agent refuse or not be available to cooperate with the Commission.

Amended Rule 17Ad-7 is designed to ensure the retention of legible, authentic, and complete records. These same goals are applicable to all registered transfer agent records regardless of their form: registered transfer agents have in place similar record retention requirements whether they store their records electronically, micrographically, or in hard copy. While Rule 17Ad-7 contains specific provisions that are only applicable to electronic or micrographic formats, these provisions are designed to take into account the different characteristics among paper, electronic, and micrographic formats, while not imposing disproportionate burdens on any format.

Another reason for requirements that apply to electronic storage derives from the differences in the way that paper, micrographic, and electronic media store images of records. Paper and micrographic systems store exact images while electronic systems often store the original information in digital form, which can potentially be tampered with. In addition, the use of electronic storage media requires technical expertise and knowledge of the media's proprietary hardware and software characteristics in order to access the records. Therefore, Rule 17Ad-7 requires transfer agents that use electronic and micrographic storage media place in escrow a copy of the physical and logical format of the storage media, the field format of all different information types written on the storage media and source code, and the appropriate documentation and information necessary to access records and indexes. 56 In the absence of such requirement, a transfer agent could store records that only it had the technology and knowledge to access. If the transfer agent went out of business or refused to cooperate, it would be similar to a situation where a transfer agent has stored hard copy records in an inaccessible place, which has always been prohibited by the rule.

Amended Rule 17Ad-7 will not result in unreasonable costs to any particular person or entity. The amendments will broaden the options that transfer agents have for the storage and retention of the records they are required to maintain. Specifically, because the amendments do not require the use of any particular technology, transfer agents are not obligated to change their present recordkeeping and retention systems.

Those transfer agents that choose to take advantage of the amendments to Rule 17Ad-7 will face certain fixed and variable costs to employ electronic or micrographic records management systems that would comply with the rule. However, it is practically impossible to estimate the costs for implementing a records management system for any given transfer agent, or the industry as a whole, that would be in compliance with Rule 17Ad-7. When a transfer agent selects the type of records management storage, such as micrographic (microfilm or microfiche) or electronic recording techniques (computers), it will likely consider solutions that will optimize its cost, based on factors such as risk and complexity, while enabling it to meet its regulatory obligations. Moreover, while the costs and types of these systems vary, numerous document storage vendors appear to make the market for these systems competitive. Further, Rule 17Ad-7 requires that any recordkeeping system, whether electronic or paper-based, selected by a registered transfer agent be designed to ensure the accuracy, integrity, and accessibility of the transfer agent's records.

The Commission believes that the costs are justified by the benefits that electronic or micrographic storage media offer. For example, with electronic records maintenance systems: Documents are less likely to be lost or misfiled; documents are likely to be retrieved more quickly; audit trails can be automated; risk reduction is improved for natural disasters; file centralization is automatic (electronic records need not be removed from their storage in order to reference them); multiple persons can view the same document simultaneously; access authorization can be automated; the space required for document storage is drastically reduced; document indexing and cross-referencing can be automatic; and documents can be copied, faxed, printed, and emailed without the paper originals.

Each transfer agent will ultimately evaluate the risk and cost effectiveness of its records management solution differently based upon the solution that is best for its business model, such as its business practices and volume, and will select a method that assures its ability to comply with Rule 17Ad-7. Moreover, the rule cannot envision the effect of future market competition, innovation, and the other solutions that transfer agents might employ. Because each transfer agent is able to select the method, whether electronic, micrographic, or paper-based, that works best for it based on its individual circumstances, Rule 17Ad-7 does not impose any unreasonable costs on the acceptance and use of electronic records.

Rather than prescribe a single technological solution to records management, the rule incorporates a goal-oriented approach based on the statutory scheme for transfer agent regulation. The goals of the rule include: Long-term retention and access to records; detection of fraud, including forged or illegally modified records; making information more useful; and allowing transfer agents to use modern information technology to handle their ever-expanding number of records. While the rule contains certain standards to achieve the Commission's statutory functions, the rule enables transfer agents to select from numerous types of records storage systems to maintain the records that they are required to retain. The Commission is aware of many types of electronic and micrographic storage media technology available for recordkeeping purposes that would comply with the rule's requirements and anticipates that additional methods will continue to be developed.

Rule 17Ad-7, as amended today, provides standards so that the transfer agents' use of record maintenance systems, including those using electronic and micrographic technologies, will accurately reflect the information contained in the original records and will be readily accessible to the Commission and other appropriate regulatory agencies. The rule does not specify a particular technology to carry out these standards. Therefore, the Commission finds that Rule 17Ad-7 is consistent with ESIGN's requirements.

Certain provisions of the amendments to Rule 17Ad-7 contain “collection of information” requirements within the meaning of the Paperwork Reduction Act of 1995, 58 and the Commission has submitted them to the Office of Management and Budget (“OMB”) for review in accordance with 44 U.S.C. 3507(d) and 5 CFR 1320.11. The title for the collection of information is: “Record Retention Requirements for Registered Transfer Agents.” The OMB control number for the collection of information is 3235-0136. The collection of information requirements are necessary to ensure the integrity of transfer agents' records that are maintained on electronic storage media and to ensure the Commission's ability to access such records.

In the Proposing Release, the Commission requested comment on the proposed collections of information. No comments were received that addressed the PRA submission.

Rules 17Ad-7(f)(2)(iii) and 17Ad-7(f)(2)(iv) contain a collection of information requirements that are intended to ensure that the Commission has complete access to transfer agents' records during examinations. Rule 17Ad-7(f)(2)(iii) and 17Ad-7(f)(2)(v) will require transfer agents that use electronic or micrographic storage media to create an index of all electronically or micrographically stored records and to maintain a duplicate of each index. The Commission has not specified the format of the index that is required to be maintained. The original and duplicate indexes are required to be kept in separate locations in order to protect against loss, damage, or alteration. The indexes are required to be maintained for as long as the transfer agent uses electronic or micrographic storage media.

Rule 17Ad-7(f)(4) contains a collection of information requirement that is intended to ensure the integrity of transfer agents' records that are stored on electronic or micrographic storage media. Rule 17Ad-7(f)(4) requires each registered transfer agent that uses electronic or micrographic storage media to establish an audit system to account for the inputting of or changes made to the records ( e.g., by unique identifier numbers) that are electronically or micrographically stored. While the rule does not specify the precise contents of each audit system, any data stored regarding inputting of records and changes made to existing records would be part of that audit system. The rule further requires that the results of the audit system be preserved for the period of time the underlying audited records are required to be preserved and that the results of the audit system be available to the Commission or ARA at all times.

Rule 17Ad-7(f)(5) contains collection of information requirements that ensures the Commission's access to records of a transfer agent that is no longer operating, refuses to cooperate with the investigative efforts of the Commission or another appropriate regulatory agency, or has not properly or fully indexed electronically or micrographically stored records. Rule 17Ad-7(f)(5) requires each transfer agent that uses electronic or micrographic storage media to place in escrow and keep current a copy of the physical and logical format of the electronic storage or micrographic media, the field format of all different information types written on the electronic storage media and source code, and the appropriate documentation and information necessary to access records and indexes. The information required by Rule 17Ad-7(f)(5) will be required to be maintained for as long as the transfer agent is using electronic or micrographic storage media.

Rule 17Ad-7(f)(6) requires that for each transfer agent that uses a third party to maintain or preserve the transfer agent's records with electronic or micrographic systems, the third party must file with the Commission a written statement to the effect that (1) such records are maintained or preserved by the third party on behalf of the transfer agent; (2) such records will be surrendered promptly on request of the transfer agent; and (3) the third party will permit Commission representatives or designees to examine such records. This requirement is intended to ensure that the appropriate examining authorities are able to access a transfer agent's electronically or micrographically stored records if the transfer agent does not maintain those records. This requirement can be fulfilled in the form of a letter to the Commission.

The collection of information required by the amendments to Rule 17Ad-7 should not result in any new significant burden to transfer agents. All information required as a condition of transfer agents' use of electronic or micrographic storage media is specifically tied to a transfer agent's decision to use electronic or micrographic storage media to satisfy its recordkeeping obligations.

The likely respondents to the collection of information are large registered transfer agents. At this time, the Commission estimates that there will be 500 respondents to the collection of information requirements contained in the amendments to Rule 17Ad-7. The frequency of response to the collection of information requirements varies depending on the specific requirement and whether the transfer agent stores its own records or uses the services of a third party. Thus, the collection of information requirements contained in Rules 17Ad-7(f)(5)(ii) and 17Ad-7(f)(6) might require more than one response.

The primary time burdens that are required by the amendments to Rule 17Ad-7 are the duplicate, labeling, index, audit trail, and statement-filing provisions. The Commission contemplates that the electronic and micrographic document storage systems that transfer agents are likely to utilize can automatically produce duplicate records, sequential labels, indexes, and audit trails. In the Proposing Release, the Commission estimated that each transfer agent would, on average, expend 125 hours per year to comply with the collection of information requirements of Rule 17Ad-7. The Commission solicited comments regarding this annual hourly burden but did not receive any comments. This time burden will apply only to registered transfer agents that choose to use electronic or micrographic storage media.

In the Proposing Release, the Commission estimated that approximately 40 transfer agents were likely to use electronic or micrographic storage systems. However, based on further consultations with transfer agent industry officials, vendors of electronic records storage systems, and Commission staff members, the Commission now believes that the number of likely respondents will be 500. 59 Accordingly, we estimate that the collection of information requirements will result in 62,500 additional burden hours (500 transfer agents x 125 annual hours) to the transfer agent industry. 60

If a transfer agent chooses to use electronic or micrographic storage media, then providing the information will be mandatory. Responses to the collection of information requirements will not be kept confidential. An agency may not conduct or sponsor, and a person is not required to respond to, a collection of information unless it displays a currently valid OMB control number.

The Commission has identified certain costs and benefits relating to the rule amendments. No comments were received about the costs and benefits of the proposed rule and the commenters did not cite cost concerns as the basis for their suggestions. We expect that registered transfer agents will chose to adopt electronic or micrographic recordkeeping if it is cost effective for them to do so.

The Commission envisions that transfer agents choosing to automate their paper-based records systems in favor of electronic or micrographic systems are likely to reduce their costs and risks associated with recordkeeping. While these benefits are not readily quantifiable in terms of a particular dollar value, many factors underlie the potential reduction of costs and gains in efficiency to transfer agents that elect to use micrographic or electronic storage systems:

• Documents are less likely to be lost or misfiled,

• Documents are likely to be retrieved more quickly,

• Audit trails can be automated,

• Risk reduction is improved for natural disasters,

• File centralization is automatic (file and records need not be removed from their storage in order to reference them),

• Multiple persons can view the same document simultaneously,

• Access authorization can be automated,

• Space required for document storage is drastically reduced,

• Document indexing and cross-referencing can be automatic, and

• Documents can be copied, faxed, printed, and e-mailed without the paper originals.

The amendments to Rule 17Ad-7 will not impose costs on any particular person or entity. Although the amendments will broaden the options for transfer agents to use for the storage and retention of the records that they are required to maintain, the amendments require no technology changes or even the use of any technology, provided the transfer agent is capable of producing copies of documents that the Commission, or the transfer agent's ARA, requests. 61 Therefore, transfer agents are not obligated to change their present recordkeeping and retention systems.

We expect, as noted above, that numerous transfer agents will determine that it is cost-effective for them to choose to maintain their records electronically or micrographically. However, it is practically impossible to estimate the costs for implementing a records management system for any given transfer agent, or the industry as a whole, that would be in compliance with Rule 17Ad-7(f). When a transfer agent selects the type of records management technology, such as photographic (microfilm or microfiche) or digital recording techniques (computer technology), it will likely consider solutions that will optimize its cost, based on individualized factors such as risk and complexity. Each transfer agent will evaluate the risk and cost effectiveness of their records management solution differently based upon the solution that is best for their business model, such as their business practices and volume, and that assures their ability to comply with Rule 17Ad-7. Moreover, we cannot predict the effect of future market competition and innovation on the technologies that transfer agents might employ for their recordkeeping.

Nevertheless, transfer agents that choose to change their recordkeeping system to electronic or micrographic storage systems may face the following costs. First, transfer agents that choose to store records electronically or micrographically will have to select the type of technology system they will use to store and maintain the required records. While the costs and types of these systems vary widely, numerous document storage vendors appear to make the market for these systems competitive. In addition, the expected life span of each system varies (e.g., some systems and their associated software might become obsolete sooner than others and some systems physically last longer than others). All systems, however, require physical and technological maintenance.

Second, transfer agents that choose to use micrographic media or electronic storage media will incur some costs associated with transferring hard copy records to micrographic or electronic storage media. These costs are likely to depend upon the volume of hard copy records needed to be transferred to electronic or micrographic format, the amount of labor needed to convert the records, and the type of storage media involved.

Third, transfer agents will incur costs in complying with the rule. Specifically, the rule requires that transfer agents using electronic or micrographic storage media create a duplicate of the records electronically or micrographically stored, that they create an index of the electronically or micrographically stored records, and that they establish an audit system to account for inputting of and changes to electronically or micrographically stored records. All of these requirements will result in costs to those transfer agents. Again, these costs are difficult to quantify in terms of labor and technology.

Section 23(a)(2) of the Act  62 requires the Commission to consider the impact that any rule promulgated under the Act would have on competition. The Commission is further required to state “the reasons for [its] determination that any burden on competition imposed by such rule or regulation is necessary or appropriate in furtherance of the purposes of [the Act]. 63

In the Proposing Release, the Commission solicited comments on whether the amendments to Rule 17Ad-7 would have any effects on competition. The Commission received no comments in response to this solicitation.

The Commission does not anticipate that the amendments will impose any burden on competition that is not necessary or appropriate in furtherance of the Act. The amended rule permits, but does not require, all registered transfer agents to use electronic and micrographic storage media to fulfill their recordkeeping obligations. In addition, the requirements that transfer agents must meet with respect to using electronic and micrographic storage media will apply to all registered transfer agents that choose to store their records electronically or micrographically. The amendments are intended to remove any remaining regulatory impediments facing transfer agents who decide to store records in an electronic or micrographic form. The Commission believes that by changing the regulatory scheme, transfer agents can have the certainty to adopt storage methods that best suits their business needs and can then be able to offer to the market a service they believe is more cost-effective and efficient.

Section 3 of the Act  64 as amended by the National Securities Markets Improvement Act of 1996  65 provides that whenever the Commission is engaged in rulemaking and is required to consider or determine whether an action is necessary or appropriate in the public interest, the Commission shall consider, in addition to the protection of investors, whether the action will promote efficiency, competition, and capital formation.

In the Proposing Release, the Commission solicited comments on whether the amendments to Rule 17Ad-7 would have any effects on competition, efficiency and capital formation. The Commission received no comments in response to this solicitation.

The amendments should promote efficiency. By allowing registered transfer agents to benefit from advances in recordkeeping technology, the time and labor in maintaining and accessing records should be reduced, resulting in operational and financial efficiencies. Although the amendments address how companies and its transfer agents keep records which are activities that occur after the issuance of securities, the amendments should also encourage capital formation. By allowing transfer agents to use a broader range of storage methods, transfer agents who decide to store records electronically or micrographically, will no longer have the facility or operational costs of a traditional paper based system. Transfer agents could then pass the cost savings to companies who can, in turn, see a similar reduction in their recordkeeping expenses. Lower recordkeeping expenses should assist companies in bringing their overall costs down and should benefit companies in their efforts in raising capital. The amendments, which apply equally to transfer agents, should also promote competition between the vendors who create and manufacture the new storage technologies and between the transfer agents who use the new methods. Vendors can compete with each other to develop systems that can allow transfer agents to mange the records on a more resourceful, economical basis. The improvement in storage technologies can then allow transfer agents to compete among one another in offering to companies a more cost-effective, efficient service.

The amendments should: (1) Promote efficiency by allowing registered transfer agents to benefit from advances in recordkeeping technology, (2) not adversely affect capital formation because the amendments relate solely to post-issuance activity, and (3) not impose any burden on competition among transfer agents because the amendments will apply equally to all registered transfer agents.

This Final Regulatory Flexibility Analysis (“FRFA”) has been prepared in accordance with the provisions of the Regulatory Flexibility Act (“RFA”). 66 This FRFA relates to the adoption of amendments to Rule 17Ad-7(f), which conditions registered transfer agents' use of micrographic and electronic storage systems in fulfilling their record retention requirements. 67 The FRFA notes that the new rule does not require transfer agents to maintain their records micrographically or electronically; however, those transfer agents choosing to do so must comply with the requirements of the rule.

The amendments are designed to increase the flexibility and efficiency of transfer agent recordkeeping. Section 17(a)(1) of the Act  68 requires registered transfer agents to make and keep certain records that the Commission prescribes to be necessary or appropriate in the public interest, for the protection of investors, or otherwise in furtherance of the purposes of the Act. Rules 17Ad-6 and 17Ad-7 under the Act specify the type of records that registered transfer agents must make and keep and the amount of time and manner in which these records must be preserved. Depending on the type of record, the records covered by these rules generally must be maintained for two years, 69 six years, 70 or until one year after the termination of a transfer agency relationship. 71 Rule 17Ad-7(f)  72 currently permits registered transfer agents to preserve the records listed in Rule 17Ad-6 on microfilm, subject to certain conditions. However, Rule 17Ad-7 currently provides no other alternative to maintaining records in hard copy.

The Commission received eleven comment letters in response to the Proposing Release. The commenters generally supported the goals of the Commission's proposals, although some expressed concerns with specific provisions and some suggested alternative approaches for addressing particular issues. The Commission has modified its proposal to incorporate many of these comments and suggested alternatives.

The Commission also requested comment with respect to the IRFA in the Proposing Release. The Commission did not receive any comments concerning the IRFA.

For purposes of Commission rulemaking, paragraph (h) of Rule 0-10 under the Act  73 defines the term “small business” or “small organization,” with reference to a transfer agent, to include any transfer agent that: (1) Received fewer than 500 items for transfer and fewer than 500 items for processing during the preceding six months (or in the time that it has been in business, if shorter); (2) transferred items only of issuers that would be deemed “small business” or “small organizations” as defined in Rule 0-10 under the Act; (3) maintained master shareholder files that in the aggregate contained less than 1,000 shareholder accounts or was the named transfer agent for less than 1,000 shareholder accounts at all times during the preceding fiscal year (or in the time that it has been in business, if shorter); and (4) is not affiliated with any person (other than a natural person) that is not a small business or small organization under Rule 0-10. The Commission estimates that 180 registered transfer agents qualify as small entities and would be subject to the amendments to Rule 17Ad-7.

The Commission estimates that approximately 150 transfer agents will receive fewer than 500 items for transfer during the preceding six months. However, the Commission believes that the amendments to Rule 17Ad-7 will not significantly affect small entities. The Commission notes that Rule 17Ad-4(b) under the Act  74 already exempts approximately 150 small transfer agents from several of the recordkeeping requirements of Rules 17Ad-6 (and as a result from 17Ad-7). In addition, any burden imposed by the amendments applies only to those transfer agents that choose to use electronic or micrographic storage media; many transfer agents might not have to maintain their records any differently than they are doing so prior to today. 75 The Commission also believes that it is not feasible to further clarify, consolidate, or simplify the amendments for small entities because a small entity choosing to store its records electronically or micrographically will not be disproportionately or unreasonably burdened by the new requirements of Rule 17Ad-7. Finally, the Commission believes that creating any new exemptions for small business entities in Rule 17Ad-7 would undermine the purpose of the Commission's transfer agent regulatory oversight responsibilities. Thus, small business entities are still required to maintain the same types of records as before; Rule 17Ad-7 merely provides alternate methods for doing so.

In the IRFA, the Commission requested comment on the costs of complying with each of the recordkeeping, reporting, and other requirements under the proposed rule amendments. It also requested comment as to whether there would be any ongoing costs associated with complying with the rule amendments and asked commenters to provide detailed estimates of these costs. The Commission did not receive any comments concerning this aspect of the IRFA.

The amendments to Rule 17Ad-7 impose certain reporting, recordkeeping, and compliance requirements. For example, the amendments require each registered transfer agent that chooses to use electronic or micrographic storage media to set up a system to record the inputting of records to electronic storage media and the inputting of any changes to records that are electronically or micrographically stored. However, the reporting, recordkeeping, and compliance requirements contained in the amendments to Rule 17Ad-7 apply only to registered transfer agents that choose to use electronic storage media. Some small transfer agents might not be able to afford the costs currently involved with storing records electronically or micrographically and therefore will not choose to use these storage medias. However, it is likely that as additional technologies are developed, these costs will be reduced and it may become cost-effective for more small transfer agents to use electronic or micrographic storage media. Therefore, the amendments to Rule 17Ad-7 should not have a significant economic impact on a substantial number of small entities.

As required by section 603 of the RFA, the Commission has considered adopting different compliance, reporting requirements, and effective dates with respect to transfer agents' use of electronic and micrographic storage media with the view that these measures would minimize the economic impact of the proposed rule amendments on small entities. However, the Commission believes that the compliance, reporting requirements, and effective dates as adopted today are necessary to ensure the accuracy and integrity of the records of those transfer agents that choose to store them electronically or micrographically and to ensure the access to such records by the Commission or another appropriate regulatory agency.

The Commission is adopting amendments to § 240.17Ad-7 of Chapter II of Title 17 of the Code of Federal Regulations pursuant to Sections 17, 17A, and 23  76 in the manner set forth below.

(ii) Agreement with a third party to maintain your records shall not relieve you from the responsibility to prepare and maintain records as specified in this section or in § 240.17Ad-6.

Section 334 of the Uruguay Round Agreements Act (URAA), Public Law 103-465, 108 Stat. 4809 (19 U.S.C. 3592), directs the Secretary of the Treasury to prescribe rules implementing certain principles for determining the origin of textiles and apparel products. Section 102.21 of the Customs Regulations (19 CFR 102.21) implements section 334 of the URAA.

On May 18, 2000, President Clinton signed into law the Trade and Development Act of 2000 (the Act), Public Law 106-200, 114 Stat. 251. Section 405 of Title IV of the Act amends section 334 of the URAA. Specifically, section 405(a) amends section 334(b)(2) of the URAA by redesignating paragraphs (b)(2)(A) and (B) as paragraphs (b)(2)(A)(i) and (ii), and by adding two special rules at new paragraphs (b)(2)(B) and (C) that change the rules of origin for certain fabrics and made-up textile products.

Under section 334, certain fabrics, silk handkerchiefs and scarves were considered to originate where the base fabric was knit or woven, notwithstanding any further processing. As a result of the statutory amendment to section 334 effected by section 405 of the Act, the processing operations which may confer origin on certain textile fabrics and made-up articles are changed to include dyeing, printing, and two or more finishing operations. In particular, the amendment to section 334 affects the processing operations which may confer origin on fabrics classified under the Harmonized Tariff Schedule of the United States (HTSUS) as of silk, cotton, man-made fibers or vegetable fibers.

Section 405(b) provides that the amendments to section 334 apply to goods entered, or withdrawn from warehouse for consumption, on or after May 18, 2000.

As the statutory amendments to section 334 of the URAA necessitate corresponding changes to the Customs Regulations, this document amends § 102.21 on an interim basis to implement the rules of origin for the textile products specified in section 405(a) of the Act.

Before adopting this interim regulation as a final rule, consideration will be given to any written comments timely submitted to Customs, including comments on the clarity of this interim rule and how it may be made easier to understand. Comments submitted will be available for public inspection in accordance with the Freedom of Information Act (5 U.S.C. 552), § 1.4 of the Treasury Department Regulations (31 CFR 1.4), and § 103.11(b) of the Customs Regulations (19 CFR 103.11(b)), on regular business days between the hours of 9 a.m. and 4:30 p.m. at the Regulations Branch, Office of Regulations and Rulings, U.S. Customs Service, 1300 Pennsylvania Avenue, NW., 3rd Floor, Washington, DC.

Because these regulations serve to align the Customs Regulations to the statutory amendments to section 334 of the URAA, as set forth in section 405 within Title IV of the Act, which went into effect May 18, 2000, Customs has determined, pursuant to the provisions of 5 U.S.C. 553(b)(B), that prior public notice and comment procedures on this regulation are unnecessary and contrary to the public interest. The regulatory amendments inform the public of changes to the processing operations deemed necessary to confer country of origin status to certain textile fabrics or made-up articles by way of amendment to the tariff shift rules applicable to select textile goods. For these reasons, pursuant to the provisions of 5 U.S.C. 553(d)(3), Customs finds that there is good cause for dispensing with a delayed effective date.

This document does not meet the criteria for a “significant regulatory action” as specified in Executive Order 12866.

Because no notice of proposed rulemaking is required for these interim regulations, the provisions of the Regulatory Flexibility Act (5 U.S.C. 601 et seq. ) do not apply.

The principal author of this document was Suzanne Kingsbury, Regulations Branch, Office of Regulations and Rulings, U.S. Customs Service. However, personnel from other offices participated in its development.

Under section 501 of the Trade and Development Act of 2000 (the “Act”) (Pub. L. 106-200, 114 Stat. 251; May 18, 2000), the Harmonized Tariff Schedule of the United States (HTSUS) was amended to establish a tariff-rate quota for certain worsted wool fabrics that are entered or withdrawn from warehouse for consumption, on or after January 1, 2001.

Generally, under a tariff-rate quota, the United States applies one tariff rate, known as the in-quota rate, to imports of a product up to a particular amount, known as the in-quota quantity, and another, higher rate, known as the over-quota rate, to imports of a product in excess of the given amount. The preferential, in-quota rate would be applicable to the product only to the extent that the aggregate in-quota quantity of the product that is entered or withdrawn for consumption is not exceeded during the quota year.

To establish the tariff-rate quota for worsted wool fabrics, subchapter 2 of Chapter 99, HTSUS, was amended by section 501(a) and (b) of the Act to add two new subheadings, 9902.51.11 and 9902.51.12, respectively.

The two new subheadings created by section 501(a) and (b) of the Act describe certain fabrics of worsted wool provided for in subheadings 5111.11.70, 5111.19.60, 5112.11.20 and 5112.19.90, HTSUS. Since the passage of the Act, the President issued Presidential Proclamation 7383 (December 1, 2000). The Annex to that Presidential Proclamation provided, in pertinent part, for the following HTSUS substitutions, effective on or after January 1, 2001:

Subheading 5112.11.20 is replaced by subheadings 5112.11.30 and 5112.11.60; and

Subheading 5112.19.90 is replaced by subheadings 5112.19.60 and 5112.19.95.

Further, it is noted that HTSUS subheadings 5111.11.70 and 5111.19.60 do not provide for worsted wool fabric so fabrics described in those subheadings would not meet the description of fabrics that could fall under the tariff rate quota.

Accordingly, the tariff rate quota is applicable to certain fabrics of worsted wool provided for in subheadings 5112.11.30, 5112.11.60, 5112.19.60 and 5112.19.95, HTSUS, that are described in and entered under subheadings 9902.51.11 and 9902.51.12, HTSUS.

Worsted wool fabrics as described in HTSUS subheadings 5112.11.30, 5112.11.60, 5112.19.60 and 5112.19.95 are subject to a duty rate of 28.3% ad valorem. However, articles, such as men's suits, that are made (cut and sewn) from this fabric, are dutiable at the lower rate of 18.8% ad valorem.

By applying a higher tariff rate to the input product, i.e. , the worsted wool fabric, than to the more labor-intensive and higher-value-added apparel items that are made from the fabric, the tariff schedule in effect provides an incentive for the importation of the finished apparel items at the lower rate of duty, to the competitive detriment of U.S. suit-makers. Furthermore, this tariff inversion is compounded by the additional reduction in tariffs on men's wool suits that are made in Canada or Mexico pursuant to the North American Free Trade Agreement Implementation Act (NAFTA) (Pub. L. 103-182; December 8, 1993). In this latter instance, U.S. suit-makers face greater competitive disadvantage due to the increased difference in tariff between the worsted wool fabric relative to the free rate of duty on imports of such suits under NAFTA.

Consequently, under the tariff-rate quota adopted in this case, the tariff on imported worsted wool fabric entered under HTSUS subheading 9902.51.11 or 9902.51.12 (which includes certain fabric of worsted wool provided for in HTSUS subheadings 5112.11.30, 5112.11.60, 5112.19.60 and 5112.19.95) is reduced in an effort to limit the above-described tariff inversion, and the resultant competitive disadvantage, faced by U.S. suit-makers in the purchase of such fabric that is intended for use in the manufacture of men's and boys' suits, suit-type jackets and trousers.

Specifically, under subheading 9902.51.11, which covers those worsted wool fabrics having an average fiber diameter greater than 18.5 micron, the applicable tariff rate is reduced from the current rate of 28.3% ad valorem to the rate in effect for worsted wool suit-type jackets in HTSUS subheading 6203.31.00 (currently, 18.8% ad valorem); and, under subheading 9902.51.12, which covers those worsted wool fabrics having an average fiber diameter of 18.5 micron or less, the applicable tariff rate is reduced from the current U.S. rate of 28.3% to a rate equivalent to the Canadian “most favored nation” (MFN) rate for imports of such fabric (currently, 6%).

Both subheadings 9902.51.11 and 9902.51.12 also require that the worsted wool fabric be certified by the importer as being suitable for use in making suits, suit-type jackets, or trousers.

This tariff-rate quota for worsted wool fabric is to be in effect for calendar years 2001, 2002 and 2003. The quota year is thus the calendar year (from January 1-December 31, inclusive) in which the subject fabric is entered or withdrawn for consumption.

The in-quota quantities of worsted wool fabric entered under HTSUS subheading 9902.51.11 or 9902.51.12 that are eligible for the reduced tariffs for each quota year are limited, respectively, to 2.5 million square meter equivalents and 1.5 million square meter equivalents (U.S. Notes 15 and 16 to subchapter II of Chapter 99, HTSUS, respectively, as amended by section 501(d) of the Act). These in-quota quantities may be adjusted on an annual basis as provided in section 504(b) of the Act.

In implementing the in-quota limits on the quantities of worsted wool fabric that may be entered or withdrawn for consumption subject to the reduced tariffs afforded by subheadings 9902.51.11 and 9902.51.12, the U.S. Department of Commerce has been delegated the authority under section 501(e) of the Act to fairly apportion these in-quota quantities among those persons, including firms, corporations and other legal entities, in the United States, who cut and sew men's and boys' worsted wool suits, suit-type jackets and trousers. This delegation of authority to the Department of Commerce was effected by Presidential Proclamation No. 7383 (December 1, 2000).

Accordingly, the Department of Commerce has issued regulations setting up a program for the allocation of the aggregate in-quota quantity established, respectively, for subheadings 9902.51.11 and 9902.51.12 (15 CFR 335.1-335.7; see Federal Register dated January 22, 2001 (66 FR 6459)).

In pertinent part, under this program, the usage of the quota is allocated to U.S. suit-makers by virtue of licenses issued to them by the Department of Commerce. Each license is issued for a stated quantity of fabric and is required to have a unique control number. A suit-maker who has been issued such a license (a licensee) may enter worsted wool fabric under subheading 9902.51.11 or 9902.51.12 at the related in-quota rate of duty, up to the amount authorized in the license.

However, if the importer of record is not the licensee, the importer must have received an authorization from the licensee to act on its behalf, in order to be entitled to the in-quota rate of duty. The licensee may only authorize an importer to import fabric under the license on its behalf by making such an authorization in writing or by an electronic notice to the importer and by providing a copy of such authorization to the Department of Commerce. This authorization must include the unique control number of the license; it must specifically cover the fabric being imported; and it must be in the possession of the importer at the time of filing the entry summary or warehouse withdrawal for consumption (Customs Form 7501), or its electronic equivalent, in order for the importer to be eligible for the applicable in-quota rate of duty.

A licensee may only withdraw an authorization from an importer by notifying the importer in writing or by electronic notice and by providing a copy of this withdrawal notification to the Department of Commerce. It is the responsibility of the licensee to safeguard the use of the license issued. Neither the Department of Commerce nor Customs is liable for any unauthorized or improper use of the license.

In accordance with the rulemaking of the Department of Commerce, Customs is issuing this interim rule in order to set forth a new § 132.18, Customs Regulations (19 CFR 132.18), that prescribes the form and manner by which an importer establishes that a valid license exists for worsted wool fabric subject to the tariff-rate quota that is entered under HTSUS subheading 9902.51.11 or 9902.51.12. In particular, the unique control number assigned to the license must be referenced on the entry summary or warehouse withdrawal for consumption, or its electronic equivalent, in order to entitle the importer to claim the in-quota rate of duty on the worsted wool fabric.

Section 132.18 also makes clear that by claiming the in-quota rate of duty for worsted wool fabric that is entered under HTSUS subheading 9902.51.11 or 9902.51.12, the importer is thus certifying that the worsted wool fabric is suitable for use in making suits, suit-type jackets, or trousers, as required under these subheadings.

In addition, this document revises the Interim (a)(1)(A) List set forth as an Appendix to part 163, Customs Regulations (19 CFR part 163, Appendix) to make reference to the license or written authorization required under new § 132.18. The (a)(1)(A) List provides a listing of the records and information required for the entry of merchandise.

Before adopting this interim regulation as a final rule, consideration will be given to any written comments that are timely submitted to Customs. Customs specifically requests comments on the clarity of this interim rule and how it may be made easier to understand. Comments submitted will be available for public inspection in accordance with the Freedom of Information Act (5 U.S.C. 552), § 1.4, Treasury Department Regulations (31 CFR 1.4), and § 103.11(b), Customs Regulations (19 CFR 103.11(b)), on regular business days between the hours of 9:00 a.m. and 4:30 p.m. at the Regulations Branch, U.S. Customs Service, 1300 Pennsylvania Avenue, NW., 3rd Floor, Washington, DC.

Pursuant to the provisions of 5 U.S.C. 553(b)(B), Customs has determined that good cause exists for dispensing with prior public notice and comment procedures for this interim rule. This interim rule implements a preferential tariff benefit in favor of the importing public; it provides a necessary and reasonable means for carrying out this preferential tariff benefit; and it closely parallels existing regulatory provisions that implement similar trade preference programs. Also, for these same reasons, there is no need for a delayed effective date under 5 U.S.C. 553(d). Because no notice of proposed rulemaking is required for interim regulations, the provisions of the Regulatory Flexibility Act (5 U.S.C. 601 et seq. ) do not apply. Nor does this document meet the criteria for a “significant regulatory action” as specified in Executive Order 12866.

The collections of information involved in this interim rule have already been approved by the Office of Management and Budget (OMB) in accordance with the Paperwork Reduction Act of 1995 (44 U.S.C. 3507) and assigned OMB Control Numbers 1515-0065 (Entry summary and continuation sheet) and 1515-0124 (General recordkeeping and record production requirements). This rule does not make any material change to the existing approved information collections.

An agency may not conduct or sponsor, and a person is not required to respond to, a collection of information unless the collection of information displays a valid control number assigned by OMB.

Pursuant to Treasury Order 120-01 (formerly 221), dated June 6, 1972, the Secretary of the Treasury delegated to the Director of the Bureau of Alcohol, Tobacco and Firearms (ATF), the authority to enforce, among other laws, the provisions of chapter 51 of the Internal Revenue Code of 1986 (IRC) and the Federal Alcohol Administration (FAA) Act. The Director has subsequently redelegated certain of these authorities to appropriate subordinate officers by way of various means, including by regulation, ATF delegation orders, regional directives, or similar delegation documents. As a result, to ascertain what particular officer is authorized to perform a particular function under chapter 51 of the IRC or the FAA Act, each of these various delegation instruments must be consulted. Similarly, each time a delegation of authority is revoked or redelegated, each of the delegation documents must be reviewed and amended as necessary.

ATF has determined that this multiplicity of delegation instruments complicates and hinders the task of determining which ATF officer is authorized to perform a particular function. ATF also believes these multiple delegation instruments exacerbate the administrative burden associated with maintaining up-to-date delegations, resulting in an undue delay in reflecting current authorities.

Accordingly, this final rule rescinds all authorities of the Director in part 250 that were previously delegated and places those authorities with the “appropriate ATF officer.” All of the authorities of the Director that were not previously delegated are also placed with the “appropriate ATF officer.” Along with this final rule, ATF is publishing ATF Order 1130.23, Delegation Order—Delegation of the Director's Authorities in 27 CFR Part 250, Liquors and Articles from Puerto Rico and the Virgin Islands, which delegates certain of these authorities to the appropriate organizational level. The effect of these changes is to consolidate all delegations of authority in part 250 into one delegation instrument. This action both simplifies the process for determining what ATF officer is authorized to perform a particular function and facilitates the updating of delegations in the future. As a result, delegations of authority will be reflected in a more timely and user-friendly manner.

In addition, this final rule also eliminates all references in the regulations that identify the ATF officer with whom an ATF form is filed. This is because ATF forms will indicate the officer with whom they must be filed. Similarly, this final rule also amends part 250 to provide that the submission of documents other than ATF forms (such as letterhead applications, notices and reports) must be filed with the “appropriate ATF officer” identified in ATF Order 1130.23. These changes will facilitate the identification of the officer with whom forms and other required submissions are filed.

This final rule also makes various technical amendments to Subpart A—Scope of Regulations of 27 CFR part 250. First, a new § 250.3 is added to recognize the authority of the Director to delegate regulatory authorities in part 250 and to identify ATF Order 1130.23 as the instrument reflecting such delegations. Second, § 250.2 is amended to provide that the instructions for an ATF form identify the ATF officer with whom it must be filed.

ATF has made or will make similar changes in delegations to all other parts of Title 27 of the Code of Federal Regulations through separate rulemakings. By amending the regulations part by part, rather than in one large rulemaking document and ATF Order, ATF minimizes the time expended in notifying interested parties of current delegations of authority.

We have given an option to file ATF Form 5154.1 for persons who require a statement of eligibility for flavors to be used in the computation of the effective tax rate for distilled spirits. This ATF form may be used in lieu of the statement of composition prescribed by 27 CFR 250.50a(b).

Two corrections have been made. First, we have corrected the text of § 250.118 to insure that the district director is referenced in this entire section. Second, we have removed § 250.277 which no longer applies because T.D. ATF-206 (50 FR 23949) eliminated the use and reports of strip stamps.

The provisions of the Paperwork Reduction Act of 1995, Public Law 104-13, 44 U.S.C. Chapter 35, and its implementing regulations, 5 CFR part 1320, do not apply to this final rule because there are no new or revised recordkeeping or reporting requirements.

Because no notice of proposed rulemaking is required for this rule, the provisions of the Regulatory Flexibility Act (5 U.S.C. 601 et seq. ) do not apply. A copy of this final rule was submitted to the Chief Counsel for Advocacy of the Small Business Administration in accordance with 26 U.S.C. 7805(f). No comments were received.

It has been determined that this rule is not a significant regulatory action because it will not: (1) Have an annual effect on the economy of $100 million or more or adversely affect in a material way the economy, a sector of the economy, productivity, competition, jobs, the environment, public health or safety, or State, local or tribal governments or communities; (2) Create a serious inconsistency or otherwise interfere with an action taken or planned by another agency; (3) Materially alter the budgetary impact of entitlements, grants, user fees, or loan programs or the rights and obligations of recipients thereof; or (4) Raise novel legal or policy issues arising out of legal mandates, the President's priorities, or the principles set forth in Executive Order 12866.

Because this final rule merely makes technical amendments and conforming changes to improve the clarity of the regulations, it is unnecessary to issue this final rule with notice and public procedure under 5 U.S.C. 553(b). Similarly it is unnecessary to subject this final rule to the effective date limitation of 5 U.S.C. 553(d).

The principal author of this document is Robert Ruhf, Regulations Division, Bureau of Alcohol, Tobacco and Firearms.

Rules for the ethical conduct of employees including Commission employees have been promulgated by the OGE at 5 CFR Part 2635, Standards of Ethical Conduct for Employees of the Executive Branch. The OGE has advised the Commission that these rules supersede 29 CFR Part 2202.

On June 20, 2000, we published a Notice of Proposed Rulemaking (NPRM) entitled Raising the Threshold of Property Damage for Reports of Accidents Involving Recreational Vessels (65 FR 38229). We received 17 letters commenting on the proposed rule. No public hearing was requested and none was held.

46 U.S.C. 6101 requires the Secretary (who has delegated the authority to the Commandant) to prescribe rules on the reporting of “marine casualties.” We use that authority to describe different types of marine casualties, including those involving certain amounts of property damage, that various parties must report. 33 CFR Part 173, Subpart C, contains the rules applicable to recreational vessels.

In 1972, the threshold of property damage for reports of accidents involving recreational vessels was $100. (This was the original threshold.) In 1979, the effects of inflation on the original threshold dictated that we raise the threshold to $200. The purpose of this adjustment was to reduce the number of reports filed for minor incidents.

Even the threshold of $200, however, eventually resulted in the submission of an excessive number of reports of accidents on minor incidents. This trend increased the reporting burden on the boating public, and the administrative burden on both the States and the Coast Guard. On February 6, 1989, to reduce these burdens, we published a Final Rule (54 FR 5608) raising the threshold to $500. As it had been in 1979, the effect of inflation on repair costs was the basis for this change.

The formula described in the preamble of the Final Rule of 1989 rested on a methodology allowing us to adjust the threshold annually by applying a deflator based on the Gross National Product (GNP) to account for inflation. In that preamble, we also stated our intent to review the threshold annually and, if necessary, adjust the threshold in law each time it rose by another $100.

After analyzing the formula described in the preamble of the Final Rule of 1989, we determined that further adjustments both in the threshold and in the methodology used to determine it were necessary. Non-safety-related accident reports continued even after the threshold rose to $500 in 1989. We now believe both that the threshold was too low and that the methodology itself was amiss. An inflation index based on the GNP and applied to a base-year value of $500 yields a threshold for 2001 still low enough for the reporting of too many damages that are merely cosmetic. We decided that it is necessary to adjust the base-year value of the threshold to reach the level only where damage due to accidents implicates safety.

The National Association of State Boating Law Administrators (NASBLA) is a professional association consisting of officials of States, commonwealths, and provinces responsible for administering or enforcing the boating laws of those bodies. Within NASBLA, the Committee on Boating Accident Investigation, Reporting, and Analysis (BAIRAC) has responsibility for reporting and analyzing accidents.

The Boating Law Administrators (BLAs) who serve on BAIRAC are experts in enforcement, in education for boating safety, and in investigation of boating accidents. From their ongoing relationships with facilities that repair recreational boats, as well as from their experience with and knowledge of various types of damage to boats and costs to repair it, they have strongly conveyed the need for the Coast Guard to raise the threshold of property damage for reports of accidents involving recreational vessels to a level that accurately reflects current prices of boats and costs of repair.

BAIRAC called on the Coast Guard to initiate rulemaking to raise the threshold for reports of accidents involving only property damage from $500 to $2,000 and to amend the reportable conditions to include all accidents involving collisions of two or more vessels. The BLAs and the Coast Guard agreed that a threshold of $2,000 for those accidents involving only property damage would enable States' accident investigators to focus on reports of safety-related damage and would eliminate most of the reports of cosmetic damage. However, as we stated in the NPRM we published in 2000, we did not then see the benefit of requiring reports of all accidents involving collisions of two or more vessels, regardless of the amount of damage to property.

In that NPRM, we attempted to define a level of cosmetic damage using data contained in the Boating Accident Report Database (BARD). Data for 1998 show that 1,718 reported collisions of two or more vessels involved only property damage. Of those 1,718, 1,002 involved property damage below the proposed threshold of $2,000. Taking a closer look at the data, we discovered that nearly 90% of those 1,002 involved property damage at or below a threshold of $1,500. At that time, we considered most of these more cosmetic than safety-related, notwithstanding that they involved collisions. So, recognizing the need to reduce the number of reports for minor or cosmetic damage, the need to reduce the administrative burden on the public and the States of reports for such damage, and the need for States' accident investigators to focus on safety-related damage, we did not plan to mandate reports of all accidents involving collisions of two or more vessels. However, as will become clear in our discussion of comments, our position has changed. We now fully concur with BAIRAC that we should require reports of such accidents, regardless of the amount of damage to property.

The threshold of property damage for reports of accidents involving recreational vessels when damage to vessels and other property totals $2,000 or more in any one accident or of accidents involving collisions of two or more vessels, regardless of the amount of damage to property, is the minimum set by Federal rule; but States are free to impose stricter requirements. Thus, a State could require reports of all accidents, even if each report results only in property damage below the threshold of $2,000.

We have also determined that it is necessary to find an inflation-index that tracks the trends in the boat-repair industry more accurately than does the GNP. The GNP gives the total market value of all final goods and services produced in the U.S. for a given year. It comprises spending by all sectors of the economy. Therefore, the GNP deflator measures all changes in prices affecting consumers, private industry, and government.

The Producer Price Index (PPI) is an alternative inflation-index. It gives the average change over time of prices received by sellers of domestic goods and services. The data constituting the PPI are organized by industry and product, making it possible to find specific data about prices of repairs to non-military boats. These data track the specific changes in prices of repairs to recreational boats. As this rulemaking concerns these very prices, we believe the PPI to be more suitable for measuring the changes in those prices with an appropriate threshold of property damage for reports of accidents involving those vessels.

How we calculate the new threshold. For 2001 and beyond, we will use the PPI for Standard Industrial Classification (SIC) 3732, “Boat Building and Repairing: Boat repairing, non-military boats”, to reckon the threshold. The new value for 2001, of $2,000, will serve as the base value. To reckon the value of the threshold for 2002 using 2001 as the base year, one should run the following calculation:

(Base threshold for 2001) × ([PPI for 2002] / [PPI for 2001])

For example, if the preliminary estimate of the PPI by the Bureau of Labor Statistics for 2002 were 191.0, and for 2001 it were 189.0, the calculation would run as follows:

$2,000 × (191.0 / 189.0) = $2,021.16

Since this increase, rounded to the nearest $100, is less than $500, the threshold would remain at $2000. (An increment of $500 is small enough to serve the interest of safety and yet not so small as to entail too-frequent changes in the threshold.) We will calculate the increase every year; once it, rounded to the nearest $100, reaches $500, we will raise the threshold accordingly.

We received a total of 17 comments on the proposed amendments to the rules. Eleven comments came from BLAs, and a twelfth from NASBLA. Two came from boating organizations, two from members of the general public, and one from an associate professor of education and safety research. Of the 17, one, from the State of California, arrived after the closing date of October 18, 2000; we accepted it because of the high volume of accident reports generated by the State each year, about 10 percent of all reported accidents occurring there, and because we could accept it without prejudice to other participants in the rulemaking.

Twelve comments, including seven submitted by BLAs and the one submitted by NASBLA, supported raising the threshold of property damage to $2,000 or more. Five of those twelve comments also supported requiring the reporting of all accidents involving collisions of two or more vessels, regardless of the amount of property damage.

The remaining five comments, including the remaining four submitted by BLAs, opposed raising the threshold of property damage at all.

Here follows a summary of each adverse comment:

The first stated that published accident figures are already too low by a factor of 16, and that raising the threshold would only worsen the situation. It further stated that the whole system of reporting accidents needs to be strengthened, not weakened.

The second, from the State of Alabama, suggested that we eliminate the threshold altogether. It argued that the amount of property damage has no relevance for analyzing accidents with the object of preventing them. It also presented criteria for reporting them that the State has been using for around 15 years.

The third, from the State of Connecticut, maintained that the cost of property damage alone does not furnish a fair proxy for safety and that adopting the revised threshold could eliminate the reporting of many important accidents involving smaller boats. Next, it concurs with NASBLA that any reporting should reach all collisions involving any numbers of vessels. Last, it states that eliminating or not mandating the reporting of all such collisions would likely reduce the value of BARD in illustrating the variety of boating accidents witnessed and investigated in Connecticut.

The fourth, submitted by the State of Ohio, presented a variety of arguments against raising the threshold. (1) We were failing to differentiate what we called “minor or cosmetic damage” from what we considered damage worthy of reporting. (2) An instant increase in the threshold from $500 to $2,000 would eliminate statistical comparability for most accidents. (3) Although the Coast Guard wishes to reduce the burden of paperwork on the public, (a) Congress, which enacted the reporting system, must have held that the information warranted the burden; (b) the threshold of $2,000 is totally arbitrary and subjective, with no basis in relevant experience; (c) the Coast Guard appears to have used a criterion other than inflation as the factor for determining the increase from $200 in 1979 to $500 in 1989; and (d) the Coast Guard has not defined a “non-safety-related accident,” it has not offered any authority for addressing itself solely to “safety-related accidents,” and it has not stated why one level of “material loss” is a proper concern of its while another is not. (4) If the Coast Guard accepts the demand of BAIRAC for proposing this change, it should also follow the full recommendation of BAIRAC-specifically, the call to cover all accidents involving collisions of two or more vessels, regardless of dollar amount of damage. (5) To set the threshold at a “proper” amount now, the Coast Guard should either fix it at $500 (where it arrived in 1989) but raise it with the PPI from now on or drop it back to the original $100 and raise it appropriately with the PPI. And, last, (6) the system for reporting accidents arose in the first place to benefit the boating community, and, if administered correctly, would be not a burden but rather a benefit.

The fifth, submitted by the State of California, stated that we had not demonstrated that all accidents in which property damage falls below $2,000 or even $500 are any less important, in establishing causation, than those where it falls above $2,000. California believes that even accidents where damage is nominal may serve in identifying problems and may benefit safety analysts as they conceive safety programs for needs emerging in their State. Further, California recommends the reporting of all accidents caused by factors under the control of operators as well as accidents involving defects in equipment, unmarked hazards, and other matters bearing on safety. When analyzing any accident, California considers two questions: whether, if this operator had acted in a more prudent manner, this accident could have been avoided and whether this accident could have been avoided but for the defects in equipment, unmarked hazards, and other matters. If the answer is yes to either question, California considers that accident very seriously when structuring safety programs.

Included in one comment was a recommendation to clarify that reports would be required when the damage in an accident stood not just above but at $2,000. Thus, it would have the Final Rule read not “Damage to vessels and other property totals more than $2,000 an accident * * *” but “Damage to vessels and other property totals $2,000 or more an accident * * *”

After thoughtfully considering all of the above comments, the Coast Guard has decided to raise the threshold of property damage for reports of accidents involving recreational vessels to a level where such damage totals $2,000 or more an accident and to require reports of accidents for collisions involving two or more vessels, regardless of amount of property damage. The higher threshold will go into effect for the remainder of calendar year 2001 after the EFFECTIVE DATE .

Our decision to amend the proposed rule so as to require reports of accidents for collisions involving two or more vessels, regardless of amount of property damage, rests on information furnished by the five comments that supported requiring reports of such accidents as well as raising the threshold to a level of $2,000 or more an accident. Even two of the five adverse comments agreed with BAIRAC, on requiring reports of such accidents. The primary justification for reporting all such accidents is that they owe to violation of the Navigation Rules (that is, No Proper Lookout, Excessive Speed, Reckless Operation, or the like). We concur, and add that these accidents are necessarily “safety-related.”

Over time, collisions involving two or more vessels are the most-reported kind of accident; every year, they represent about a third of all reported accidents. For 1999, BARD shows 2,774 such accidents. Of those, 1,707 (nearly two-thirds) resulted in property damage only: no fatalities and no injuries. The average damage for each of those 1,707 was around $2,900; but the damage for 1,023 (60%) of them came to less than $2,000, and the average damage for those 1,023 was around $1,000. We acknowledge that excluding those 1,023 (about 12 percent of all reported accidents) because of low damage alone would compromise the quality and scope of data captured by BARD. Next, the absence of 1,023 accidents most or all of which were due to violations of Navigation Rules would diminish the usefulness of the data in structuring safety programs. Last, we do not want to forgo valuable data on factors controllable by operators of less-expensive boats just because their boats incur less-expensive repairs. We agree that the reporting of all collisions involving two or more vessels is important both for understanding safety-related incidents at any moment and for tracking statistics over time. Thus, the benefits for the public of our collecting these data outweigh the burden on the public of supplying them.

In conclusion, our intent is to raise the threshold for reporting property damage to a level where we capture almost all useful data and almost no useless ones. Damage worthy of reporting comprises that whose cause implicates the safe operation and navigation of the vessel and whose effect implicates the “structural integrity” or “seaworthiness” of the vessel. Damage worthy of reporting is by definition worth the paperwork entailed by reporting. And more-selective reporting can only yield more-useful statistics. Again, States remain free to capture all the data they want.

In our previous Final Rule (54 FR 5608 (February 6, 1989)), we proposed to raise the threshold in increments of $100 over time to ensure the adjustment of the threshold to an appropriate level. We have not, nevertheless, raised it since then. Moreover, we doubt whether even the threshold of $500, set then, was high enough and we suspect that the methodology used to calculate it was amiss. (For instance, applying that methodology to the latter threshold would yield a threshold of barely $700 today. Our research suggests, and most of the comments confirm, that such a threshold would fail to capture many useful data.)

We will review the new threshold every year. When it should increase by $500, we will raise it to an appropriate level by appropriate means: Notice-and-comment rulemaking with the participation of all willing parties.

This Final Rule is not a “significant regulatory action” under section 3(f) of Executive Order 12866 and does not require an assessment of potential costs and benefits under section 6(a)(3) of that Order. The Office of Management and Budget (OMB) has not reviewed this Rule under that Order. It is not “significant” under the regulatory policies and procedures of the Department of Transportation (DOT) (44 FR 11040 (February 26, 1979)). We expect the economic impact of this Rule to be so minimal that a full Regulatory Evaluation under paragraph 10e of the regulatory policies and procedures of DOT is unnecessary.

This Final Rule would impose no added monetary costs on the operator or owner of a recreational vessel or on anyone else. On the contrary, it would decrease costs that the current rule imposes.

Raising the threshold of property damage for reports of accidents involving recreational vessels to $2,000 or more an accident and requiring the reporting of accidents involving collisions of two or more vessels, regardless of amount of damage, for most of the remainder of 2001 would benefit owners and operators of recreational vessels, and officials of States and the Coast Guard, by reducing the current burden of submitting and administering accident reports. In 1999, there were 1,189 reported accidents that involved only property damage—no fatalities and no injuries—and also did not involve any collisions of two or more vessels. Requiring a threshold of $2,000 or more in property damage for reporting an accident would have kept the following 1,189 accidents from being published in our statistics on accidents for 1999:

For these 1,189 accidents, the average amount of damage is about $762.00. If this level of property damage were enough to declare the particular vessel or vessels total losses, the accidents would meet Federal reporting-requirements. If not, this level of damage would count as more “cosmetic” than “safety-related” and therefore would not meet those requirements.

Under the Regulatory Flexibility Act (5 U.S.C. 601-612), we considered whether this Final Rule will have a significant economic impact on a substantial number of small entities. The term “small entities” comprises small businesses, not-for-profit organizations that are independently owned and operated and are not dominant in their fields, and governmental jurisdictions with populations of less than 50,000.

This Rule applies exclusively to private citizens who own or operate recreational vessels and by definition are not “small entities”. Further, this Rule will reduce the reporting burden on those private citizens for reporting accidents involving recreational vessels.

Because it expects the effects of this Rule to be minimal, the Coast Guard certifies under 5 U.S.C. 605(b) that this Rule will not have a significant economic impact on a substantial number of small entities. Furthermore, as private citizens own the vast majority of recreational vessels and are not small entities, the Regulatory Flexibility Act does not apply to most of the public that this Rule would regulate.

Under section 213(a) of the Small Business Regulatory Enforcement Fairness Act of 1996 (Pub. L. 104-121), we offered to assist small entities in understanding this Final Rule so that they could better evaluate its effects on them and participate in the rulemaking. We provided the name, telephone number, and e-mail address of a contact for any small entities that felt either that the Rule would affect their small businesses, organizations, or governmental jurisdictions or that had questions concerning its provisions or options for compliance.

Small businesses may send comments on the actions of Federal employees who enforce, or otherwise determine compliance with, Federal rules to the Small Business and Agriculture Regulatory Enforcement Ombudsman and the Regional Small Business Regulatory Fairness Boards. The Ombudsman evaluates these actions annually and rates each agency's responsiveness to small business. If you wish to comment on actions by employees of the Coast Guard, call 1-888-REG-FAIR (1-888-734-3247).

This Final Rule calls for no new collection of information under the Paperwork Reduction Act of 1995 (44 U.S.C. 3501-3520). In fact, it should result in an actual reduction of paperwork as it requires reports of fewer accidents.

We have analyzed this Final Rule under E.O. 13132, Federalism, and have determined that it does not have enough implications for federalism to warrant the preparation of a Federalism Assessment. States will remain free to impose stricter requirements for reports of accidents involving recreational vessels.

The Unfunded Mandates Reform Act of 1995 (2 U.S.C. 1531-1538) requires Federal agencies to assess the effects of their regulatory actions not specifically required by law. In particular, the Act addresses actions that may result in the expenditure by State, local, and tribal governments, in the aggregate, or by the private sector of $100,000,000 or more in any one year. Though this Final Rule will not result in such an expenditure, we do discuss the effects of this Rule elsewhere in this preamble.

This Final Rule will not effect a taking of private property or otherwise have taking implications under Executive Order 12630, Governmental Actions and Interference with Constitutionally Protected Property Rights.

This Final Rule meets applicable standards in sections 3(a) and 3(b)(2) of Executive Order 12988, Civil Justice Reform, to minimize litigation, eliminate ambiguity, and reduce burden.

We have analyzed this Final Rule under Executive Order 13045, Protection of Children from Environmental Health Risks and Safety Risks. This Rule is not an economically significant rule and does not concern an environmental risk to health or risk to safety that may disproportionately affect children.

This rule does not have tribal implications under Executive Order 13175, Consultation and Coordination with Indian Tribal Governments. A rule with tribal implications has a substantial direct effect on one or more Indian tribe, on the relationship between the Federal Government and Indian tribes, or on the distribution of power and responsibilities between the Federal Government and Indian tribes.

We have considered the environmental impact of this Final Rule and concluded that, under figure 2-1, paragraph (34)(a), of Commandant Instruction M16475.lC, this Rule is categorically excluded from further environmental documentation. The Rule would merely raise the threshold of property damage for reports of accidents involving recreational vessels. A Determination of Categorical Exclusion is available in the docket where indicated under ADDRESSES.

Throughout this document wherever “we”, “us”, or “our” are used, we mean EPA.

This is a synopsis of the Commission's Report and Order, MM Docket No. 00-13, adopted April 4, 2001, and released April 13, 2001. The full text of this Commission decision is available for inspection and copying during normal business hours in the FCC Reference Information Center (Room CY-A257), 445 12th Street, SW, Washington, DC. The complete text of this decision may also be purchased from the Commission's copy contractors, International Transcription Service, Inc., (202) 857-3800, 1231 20th Street, NW., Washington, DC 20036.

In addition, Channel 257C1 can be realloted to Elma in compliance with the Commission's minimum distance separation requirements with a site restriction of 14.5 kilometers (9.0 miles) west to avoid a short-spacing to the licensed site of Station KWJJ-FM, Channel 258C1, Portland Oregon. The coordinates for Channel 257C1 at Elma are 46-57-31 North Latitude and 123-35-18 West Longitude. The allotment of Channel 257C1 at Elma is short-spaced to the licensed site of Station CFOX(FM), Channel 257C, Vancouver, British Columbia, and to the proposed allotment of Channel 258A at Metchosin/Sooke, British Columbia. Also, the allotment of Channel 271C2 at Montesano is short-spaced to the licensed site of Station CFUV-FM, Channel 270B, Victoria, British Columbia, and to the proposed allotment of Channel 269A at Nanaimo, British Columbia. Since Elma and Montesano are located within 320 kilometers (200 miles) of the U.S.-Canadian border, Canadian concurrence for Channel 271C2 at Montesano, and for Channel 257C1 at Elma, as specially-negotiated, short-spaced allotments, were requested, but have not yet been received. Therefore, if a construction permit is granted prior to the receipt of formal concurrence by the Canadian government for these allotments, the construction permit will include the following condition: “Operation with the facilities specified herein is subject to modification, suspension, or termination without right to hearing, if found by the Commission to be necessary in order to conform to the USA-Canadian FM Broadcast Agreement.”

This is a summary of the Commission's Report and Order, MM Docket No. 00-54, March 28, 2001, and released April 6, 2001. The full text of this Commission decision is available for inspection and copying during normal business hours in the Commission's Reference Center, 445 12th Street, SW, Washington, DC. The complete text of this decision may also be purchased from the Commission's copy contractors, International Transcription Services, Inc., 1231 20th Street, NW., Washington, DC. 20036, (202) 857-3800, facsimile (202) 857-3805.

This is a synopsis of the Commission's Report and Order, MM Docket No. 00-166, adopted April 4, 2001, and released April 13, 2001. The full text of this Commission decision is available for inspection and copying during normal business hours in the FCC's Reference Information Center (Room CY-A257), 445 Twelfth Street, SW., Washington, DC. The complete text of this decision may also be purchased from the Commission's copy contractor, International Transcription Service, Inc., 1231 20th Street, NW., Washington, DC 20036, (202) 857-3800.

This is a synopsis of the Commission's Memorandum Opinion and Order in MM Docket No. 98-155, adopted April 4, 2001, and released April 13, 2001. The full text of this decision is available for inspection and copying during normal business hours in the FCC Reference Information Center at Portals ll, CY-A257, 445 12th Street, SW., Washington, DC. The complete text of this decision may also be purchased from the Commission's copy contractor, International Transcription Service, Inc., (202) 857-3805, 1231 M Street, NW., Washington, DC 20036.

This is a summary of the Memorandum Opinion and Order, MM Docket 89-120, adopted April 4, 2001, and released April 13, 2001. The full text of this Commission decision is available for inspection and copying during normal business hours in the Commission's Reference Information Center (room CY-A257), 445 12th Street, SW., Washington, DC 20554. The complete text of this decision may be also purchased from the Commission's copy contractor, International Transcription Service, 1231 20th Street, NW., Washington, DC 20036, (202) 857-3800.

This is a summary of the Commission's Memorandum Opinion and Order on Reconsideration (“ MO&O ”), FCC 01-123, adopted April 5, 2001; released April 13, 2001. The full text of the Commission's MO&O is available for inspection and copying during normal business hours in the FCC Dockets Branch (Room TW-A306), 445 12 St., SW., Washington, DC. The complete text of this MO&O may also be purchased from the Commission's copy contractor, International Transcription Services, (202) 857-3800, 1231 20th St., NW., Washington, DC 20036.

This document contains new or modified information collection requirements. Implementation of these new or modified reporting and recordkeeping requirements will be subject to approval by the Office of Management and Budget.

1. April 2000 we released a Report and Order (“ R&O ”), 65 FR 29985, May 10, 2000, establishing a Class A television service. Our action implemented the Community Broadcasters Protection Act of 1999 (CBPA), which was signed into law November 29, 1999. Community Broadcasters Protection Act of 1999, Public Law 106-113, 113 Stat. Appendix I at pp. 1501A-594—1501A-598 (1999), codified at 47 U.S.C. 336 (f) (CBPA). Pursuant to the CBPA and our implementing rules, certain qualifying low-power television (LPTV) stations will be accorded Class A status. Class A licensees will have “primary” status as television broadcasters, thereby gaining a measure of interference protection from full-service television stations, even as those stations convert to a digital format. The CBPA and our R&O will facilitate the acquisition of capital needed by LPTV stations to allow them to continue to provide free, over-the-air programming, particularly locally-produced programming, to their communities. In this MO&O , we dispose of petitions for reconsideration of the R&O , make changes to some of our rules, and provide clarification of other rules.

2. From its creation by the Commission in 1982, the low power television service has been a secondary spectrum priority service whose members may not cause objectionable interference to existing full-service stations, and * * * must yield to facilities increases of existing full-service stations or to new full-service stations where interference occurs. Currently, there are approximately 2,300 licensed LPTV stations in approximately 1,000 communities, operating in all 50 states. These stations serve both rural and urban audiences. Because they operate at reduced power levels, LPTV stations serve a much smaller geographic region than full-service stations and can fit into areas where a higher power station cannot be accommodated in the Table of Allotments. In many cases, LPTV stations may be the only television station in an area providing local news, weather, and public affairs programming. Even in some well-served markets, LPTV stations may provide the only local service to residents of discrete geographical communities within those markets. Many LPTV stations air “niche” programming, often locally produced, to residents of specific ethnic, racial, and interest communities within the larger area, including programming in foreign languages.

3. In the CBPA, Congress found that the future of low-power television is uncertain. Because LPTV stations had secondary spectrum status, they could be displaced by full-service TV stations that sought to expand their own service area, or by new full-service stations that entered the same market. The statute found that this regulatory status affects the ability of LPTV stations to raise necessary capital. In addition, Congress recognized that the conversion to digital television further complicates the uncertain future of LPTV stations. In assigning DTV channels, the Commission maintained the secondary status of LPTV stations and TV translators and, in order to provide all full-service stations with a second channel, was compelled to establish DTV allotments that will displace a number of LPTV stations. Although the Commission has taken a number of steps to mitigate the impact of the DTV transition on stations in the LPTV service, that transition nonetheless would have significant adverse effects on many stations, particularly LPTV stations operating in urban areas where there are few, if any, available replacement channels for displaced stations.

4. Congress sought in the CBPA to address some of these issues by providing certain low power television stations—to be known as Class A stations—“primary” spectrum use status. Congress also recognized, however, that, because, of the emerging DTV service, not all LPTV stations could be guaranteed a certain future. Congress recognized the importance and engineering complexity of the Commission's plan to convert full-service stations to digital format, and protected the ability of these stations to provide both digital and analog service during the transition.

5. Congress also recognized, however, that, because of the emerging DTV service, not all LPTV stations could be guaranteed a certain future. Congress recognized the importance and engineering complexity of the FCC's plan to convert full-service stations to digital format, and protected the ability of these stations to provide both digital and analog service during the transition.

6. Section 336(f)(1)(B) of the CBPA states: “* * * Within 60 days after such date of enactment, licensees intending to seek class A designation shall submit to the Commission a certification of eligibility based on the qualification requirements of this subsection. * * * section 336(f)(1)(C) provides that, consistent with the requirements set forth in the CBPA, a licensee “may” submit an application for Class A designation within 30 days after final regulations are adopted implementing the CBPA. 47 U.S.C. 336(f)(1)(B), (C).

7. The 60-day certification period was clearly specified by Congress in 47 U.S.C. 336(f)(1)(B) of the CBPA. The statute states that licensees intending to seek Class A designation “shall” submit a certification of eligibility within 60 days after the date of enactment of the Act. The CBPA was signed into law on November 29, 1999; thus, the time for filing a certificate of eligibility ended 60 days later, on January 28, 2000. To comply with the requirements of the statute, parties must have made the requisite submission within the time period specified. Section 47 U.S.C. 336(f)(1)(C) states that applicants “may” file license applications within 30 days from the adoption of final implementing rules. Section 336(f)(1)(B), in contrast, states that licensees intending to seek Class A designation “shall” file a certification of eligibility within 60 days after enactment. Thus, even though no licensee was required to file a certificate of eligibility, any licensee that wished to do so was required to file within 60 days after enactment. The use of the word “may” in relation to applications indicates that the 30 day filing period is permissive only, and not mandatory. Thus, applicants were not required to file within 30 days following adoption of final rules, although they were permitted to do so. Allowing a longer filing period was appropriate to give LPTV licensees adequate time to prepare and file their Class A applications.

8. The intent of Congress in enacting the CBPA was to establish the rights of a very specific, already-existing group of LPTV stations. The statute itself states its intent to apply to a small number of stations: “Since the creation of low-power television licensees by the Federal Communications Commission, a small number of license holders have operated their stations in a manner beneficial to the public good providing broadcasting to their communities that would not otherwise be available.” The statute specifically states that an eligible low-power station must have met certain requirements “during the 90 days preceding the date of the enactment of the Community Broadcasters Protection Act of 1999.” 47 U.S.C. 336(f)(2)(A)(i). During that 90-day period, a qualifying station was to have “broadcast a minimum of 18 hours per day and an average of at least 3 hours weekly of local programming * * *” and been “in compliance with the Commission's requirements applicable to low-power television stations * * *” 47 U.S.C. 336(f)(2)(A)(i)(III). To comply with the requirements of the statute, parties must make the requisite showing for the time period specified.

9. Section 336(f)(2)(A) of the CBPA requires that, during the 90 days preceding the date of enactment of the CBPA, LPTV stations must have broadcast an average of at least 3 hours per week of programming produced within the “market area” served by the station. In the R&O , we determined that the predicted Grade B contour was the appropriate measure for determining the provision of locally oriented programming for the communities served by LPTV stations. We clarify the “local programming” requirement. For a Class A station's programming to qualify as “local programming” under the CBPA, the programming must be produced within the same “market area” in which it is broadcast. For a single Class A station, “locally produced programming” is programming produced within the predicted Grade B contour of the station broadcasting the program or produced at the station's main studio. With respect to a group of commonly controlled stations, Class A stations whose predicted Grade B contours are physically contiguous to each other may consider the programming produced within any of these contours as “local programming.” If a Class A station is one of a group of commonly controlled Class A stations, but its predicted Grade B contour is not physically contiguous to that of another Class A station in the commonly-owned group, it may not consider the programming produced in any of those distant stations' contours “local programming.”

10. To qualify for Class A status, the CBPA provides that, during the 90 days preceding enactment of the statute, a station must have been in compliance with the Commission's requirements for LPTV stations. 47 U.S.C. 336(f)(2)(A)(i)(III). In addition, beginning on the date of its application for a Class A license and thereafter, a station must be “in compliance with the Commission's operating rules for full-power stations.” 47 U.S.C. 336(f)(2)(A)(ii). We intend to apply to Class A licensees all part 73 rules, except for those which are inconsistent with the manner in which LPTV stations are authorized or the lower power at which these stations operate. We will apply the part 73 regulations to Class A applicants or licensees, except for those that cannot apply for technical or other reasons, because this course of action is most consistent with the language in the CBPA.

11. Main Studio Requirements. The Commission requires stations licensed under part 73 to maintain a “meaningful management and staff presence” at the station's main studio in order to serve the needs and interests of the residents of the station's community of license. The Commission has defined a minimally acceptable “meaningful presence” as full-time managerial and full-time staff personnel. It stated that there must be “management and staff presence” on a full-time basis during normal business hours to be considered “meaningful.” It further explained that the standard does not necessarily require two people at the main studio; rather, management and staff presence are required on a full-time basis, which may consist of more than two people working on part-time bases. Jones Eastern of the Outer Banks, Inc., 6 FCC Rcd 3615 (1991), clarified, 7 FCC Rcd 6800 (1992), 10 FCC Rcd 3759 (1995).

12. While we recognize that LPTV stations face financial constraints due to their generally smaller coverage areas, we do not believe it is appropriate to exempt Class A stations from the same staffing requirements we impose on full service stations under part 73. The CBPA defines a “qualifying” LPTV station as one that “from and after the date of its application for a class A license, * * * is in compliance with the Commission's operating rules for full-power television stations.” The Commission's main studio staffing requirements are intended to ensure that stations maintain a local responsive presence in the community. Exposure to daily community activities and other local media of communications helps stations identify community needs and interests, which is necessary to operate in today's competitive marketplace and to meet our community service requirements. To accomplish these objectives, stations must maintain, at a minimum, full-time managerial and full-time staff personnel. In light of the CBPA's intent that Class A stations comply with all of the requirements of full-power TV stations, we believe it is both reasonable and appropriate to require Class A stations to meet the same obligations with respect to maintaining a local community presence as their full service counterparts.

13. We will, however, amend our main studio requirement. For a single Class A station, a station's main studio shall be located within the station's predicted Grade B contour. With respect to a group of commonly controlled stations, Class A stations whose predicted Grade B contours are physically contiguous to each other may locate their main studio within any of these contours. Thus, two or more commonly owned Class A stations having contiguous predicted Grade B contours may construct and maintain one main studio within their combined boundaries, provided that main studio functions as the main studio for all the stations. If a Class A station is one of a group of commonly controlled Class A stations, but its predicted Grade B contour is not physically contiguous to that of another Class A station in the commonly-owned group, its main studio shall be located within its own predicted Grade B contour. We will amend our rule accordingly, and note that our requirement applies only to newly created main studios.

14. Power Limits. We will not raise the ERP limit for Class A stations beyond the current LPTV maximum power levels. These power levels are sufficient to preserve existing service, which is consistent with Congress' objective underlying the CBPA. Congress emphasized in the CBPA the importance of balancing the needs of LPTV licensees against the needs of full-service stations as they transition to a digital format. We do not wish to risk hindering the implementation of digital television. We will retain the current LPTV maximum power level requirements for Class A stations.

15. Ongoing Obligations. In the R&O, we adopted a rule requiring Class A television broadcast stations to broadcast a minimum of eighteen hours per day and an average of at least three hours per week of locally produced programming each quarter. The CBPA makes clear that Class A licensees must “continue” to meet the qualifying low-power station eligibility criteria, indicating an intent that the criteria to qualify for Class A status create ongoing obligations. Moreover, it would be inconsistent with the overall intent of the CBPA—to afford Class A status only to stations that provide a substantial amount of locally-originated programming—to relieve stations of that obligation once Class A status has been achieved. We thus affirm our previous conclusion that Class A licensees must continue to meet the minimum operating hours and locally-produced programming obligations. Of course, Class A licensees may apply to the Commission for a waiver of the rules.

16. Fines and Penalties. We clarify that Class A licensees are subject to the regulations regarding fines and penalties applicable to full power stations. Although Class A licensees will not be subject to loss of license for failure to continue to comply with the eligibility requirements in 47 U.S.C.(f)(2)(A) of the CPBA, they are subject to loss of Class A status if they fail to meet these ongoing obligations.

17. DTV Broadcast Requirements. We permit Class A television stations that convert to digital operation to offer telecommunications services of any nature, consistent with the public interest, convenience and necessity, on an ancillary or supplementary basis in the same manner as full power DTV stations. In this regard, digital Class A stations must broadcast a free over-the-air video program service at least comparable to NTSC technical quality under the digital transmission standard applicable to full service stations. Such services will be subject to the fees due under § 73.624(g) and be subject to the same requirement that they not derogate the free over-the-air video program stream required of digital broadcasters. Taking this action furthers the Commission's goal of encouraging the transition of television broadcasting from analog to digital operation. By enabling Class A stations to generate additional revenues from ancillary or supplementary services, we seek to encourage the early conversion of Class A stations from analog to digital operation. Sections 73.624(c) and 73.624(g) will, therefore, apply to Class A television stations converting to digital operations. Section 73.624(b) will apply only to the extent that such stations must also transmit at least one over-the-air video program signal at no direct charge to viewers of the digital Class A station.

18. Both the language of the CBPA and the accompanying conference report are silent with respect to the issue of must carry rights for Class A stations. It is unlikely that Congress intended to grant Class A stations full must carry rights, equivalent to those of full-service stations, without addressing the issue directly. This conclusion with respect to Class A must carry rights is consistent with the view recently expressed by the Commission in its R&O implementing the Satellite Home Viewer Improvement Act of 1999. In that Order, the Commission concluded that Class A stations are low power stations for mandatory carriage purposes, and are therefore not entitled to mandatory satellite carriage. R&O, In the Matter of Implementation of the Satellite Home Viewer Improvement Act of 1999: Broadcast Signal Carriage Issues, Retransmission Consent Issues, CS Docket Nos. 00-96 and 99-363, FCC 00-417 (released November 30, 2000).

19. We believe that Congress intended that Class A stations have the same limited must carry rights as LPTV stations. Section 614(a) of the Communications Act, as amended, requires the carriage of local television broadcast stations and “qualified” low power television stations in certain limited circumstances. Section 614(h)(2) defines the term “qualified low power station” as any television broadcast station “conforming to the rules established for Low Power Television Stations contained in part 74 of title 47, Code of Federal Regulations” that complies with the other criteria established in that section. 47 U.S.C. 534(h)(2). Thus, to be eligible for must carry, Class A stations, like other low power television stations, must comply with the part 74 rules and the other eligibility criteria established by statute and our rules.

20. Just as it is unreasonable to conclude that Congress intended to confer on Class A stations the same must carry rights as full-service stations without addressing this issue directly in the CBPA, we also believe that it is unlikely that Congress intended to take away from LPTV stations their existing must carry rights if they elect to convert to Class A. The principal intent of the CBPA was to provide additional certainty to LPTV stations during the digital transition and to alleviate the limitations that “secondary service” imposed on the ability of these stations to attract capital and to continue to provide high quality broadcast programming. Given the severe impact loss of must carry rights would impose on Class A stations who enjoyed these rights as LPTV stations, we conclude it is unlikely that Congress intended to remove these rights without specific mention in the CBPA.

21. Section 336(f)(2)(A) of the CBPA defines the eligibility criteria for Class A stations. Section 336(f)(2)(B) provides that a station may also qualify for Class A status if the Commission determines that the public interest, convenience, and necessity would be served by treating the station as a qualifying low-power television station for purposes of this section, or for other reasons determined by the Commission.

22. Foreign language stations should have the same eligibility requirements as any other potential Class A station. We recognize that foreign language stations provide a valuable service in providing access to national news and entertainment that might not otherwise exist for non-English speaking communities. In enacting the CBPA, however, Congress intended to preserve the service of a small class of existing LPTV stations that were providing a specified level of local programming to their communities. To fulfill the intent of the statute, foreign language stations, like other potential Class A stations, must meet the local programming criteria to qualify for Class A status. We will not establish different criteria for foreign language stations that do not meet the local programming criteria. We also decline to establish alternative criteria under the CBPA for foreign language stations based on the foreign language nature of their programming. An applicant's qualification for Class A status is not contingent upon whether it serves a particular audience, but upon whether it meets the eligibility criteria set out in the CBPA.

23. We also allow deviation from the CBPA Class A eligibility criteria by waiver only where such deviations are insignificant or when compelling circumstances exist in individual cases. We disagree with CBA and other petitioners who contend that section 336(f)(2)(B) establishes a broad obligation independent of section 336(f)(2)(A) under which the Commission may determine that other groups of LPTV stations may qualify for Class A status for public interest or any other reasons. Congress intended to protect a small group of LPTV stations that were providing local programming.

24. The CBPA requires that the Commission preserve the service areas of LPTV stations pending the final resolution of a Class A application. We concluded in our R&O, that that provision requires protection from the date of filing of an acceptable certification of eligibility for Class A status. With respect to NTSC facilities, section 336(f)(7)(A) of the CBPA provides that the Commission may not grant a Class A license, nor approve a modification of license, unless the applicant shows that the proposed Class A station will not cause interference within the predicted Grade B contour (as of the date of enactment of the * * * [CBPA] * * * or as proposed in a change application filed on or before such date) of any television station transmitting in analog format. In our R&O, we interpreted this provision to require Class A stations to protect both existing analog stations and full-service applicants where the Commission has completed all processing short of grant necessary to provide a reasonably ascertainable Grade B contour. Specifically, we required Class A applicants to protect the predicted Grade B contour (as of November 29, 1999, or as proposed in a change application filed on or before that date) of full-power analog stations licensed on or before November 29, 1999. We also required Class A applicants to protect the Grade B contour of full-power analog facilities for which a construction permit was authorized on or before November 29, 1999. Finally, we required Class A applicants to protect the facilities proposed in any application for full-power analog facilities that was pending on November 29, 1999, for which the Commission had completed all processing short of grant as of that date, and for which the identity of the successful applicant was known. The applications in this latter category are post-auction applications, applications proposed for grant in pending settlements, and any singleton applications cut off from further filings. We did not require Class A applicants for initial Class A authorization to protect pending rule making petitions for new or modified NTSC channel allotments or full-service applications that were not accepted for filing by November 29, 1999, including most pending television freeze waiver applications.

25. Our decision to protect the delineated categories of pending NTSC applications is not inconsistent with either the language of the CBPA or the underlying intent of Congress. Section 336(f)(7)(A)(i) of the statute requires Class A applicants and licensees to protect the predicted Grade B contour (as of * * * [November 29, 1999], or as proposed in a change application filed on or before such date) of analog facilities. Thus, Class A stations must protect the predicted Grade B contour of analog stations licensed or granted a construction permit as of November 29, 1999, as well as of facilities proposed in certain pending analog applications. As we noted in the R&O, the phrase “predicted Grade B contour” is singular. The assertion that the phrase “transmitting in analog format” is ambiguous is not relevant to our interpretation of the separate phrase “predicted Grade B contour.” This latter phrase, as modified by the parenthetical in section 336(f)(7)(A)(i), limits the facilities proposed in applications pending as of November 29, 1999 that must be protected by Class A stations to those for which there is a single, reasonably ascertainable predicted Grade B contour as of that date. These applications consist of post-auction applications, applications proposed for grant in pending settlements, and any singleton applications cut off from further filing. The applications in each of these categories have progressed through the cut-off stage and the identity of the successful applicant in each case has been determined. Class A applicants can identify a single predicted Grade B contour with respect to these applications for which protection must be afforded and are not required to show that they will not interfere with multiple, hypothetical contours that may not turn out to be actual contours, if the applicant in question does not ultimately receive the station license.

26. This interpretation is consistent with both the language of section 336(f)(7)(A)(i) and with the intent of Congress as expressed in the overall statutory scheme. Throughout the CBPA, Congress attempted to balance the enhanced rights it conferred on Class A stations against those of full service stations in light of the limited spectrum available. Requiring Class A applicants to protect applications that have progressed through the cut-off stage strikes an appropriate balance between the rights of pending NTSC applicants and the interests of LPTV stations seeking primary status. Applicants that have prosecuted their applications through the cut-off stage and to the point that the identity of the successful applicant is known have in most cases invested substantial resources in filing and prosecuting their applications. Most of these applications have been pending for some time, and LPTV stations affected by the facilities proposed in these applications have long been on notice that they would ultimately be displaced or be required to reduce their facilities. Requiring Class A applicants to protect applications that had progressed through this stage by November 29, 1999 is both equitable and a reasonable reading of the CBPA.

27. We estimate that there are still pending before the Commission applications that may account for approximately 180 potential new NTSC stations. The grant of this number of new full service stations would likely displace a significant number of LPTV stations, many of which would be unlikely to be able to successfully locate replacement spectrum within the core. In light of the primary intent of the CBPA to protect those presently operating LPTV stations that can qualify under the statute, we conclude that our interpretation of section 336(f)(7)(A)(i) appropriately balances the rights of these stations against those of pending NTSC applicants.With respect to applications for which a settlement is pending as of the date of enactment of the CBPA, we clarify that where such a settlement includes a channel change, and the application for the channel change has not been accepted for filing with the Commission, we will treat that channel change application in the same way as any other pending NTSC application for purposes of determining priority vis a vis Class A. Thus, where a pending settlement depends upon a channel change which has not been accepted for filing by the Commission, and that new channel proposal conflicts with the protected facilities of a Class A-certified LPTV station, the settlement will not be protected.

28. The CBPA provides that a Class A application for license or license modification may not be granted where the proposal would interfere with DTV stations seeking to “maximize power” under the Commission's rules, for those stations that complied with the notification requirements of section 336(f)(1)(D) of the statute. Section 336(f)(1)(D) requires that, to be entitled to protection by Class A applicants, DTV stations were required to have filed an application for maximization or a notice of intent to seek maximization by December 31, 1999, and have filed a bona fide application for maximization by May 1, 2000. Approximately 370 DTV maximization applications were filed in accordance with that statutory deadline. In the R&O, we interpreted the use of the term “maximization” in the statute to refer to power and/or antenna height increases above the values given in the DTV Allotment Table, and to site changes that would extend the service area of DTV facilities beyond a station's NTSC replication facilities.

29. The CBPA provided an exception to the provision for preservation of the service areas of Class A-certified LPTV stations. According to section 336 (f)(1)(D), if, thereafter, “technical problems arise requiring an engineering solution to a full-power station's allotted parameters or channel assignment in the digital television Table of Allotments, the Commission shall make such modifications as necessary (i) to ensure replication of the full-power digital television applicant's service area * * * and (ii) to permit maximization of a full-power digital television applicant's service area * * *” (if the applicant complied with the notification and application requirements established by that section).

30. As we indicated in the R&O, the statutory language is somewhat ambiguous regarding the protection to be accorded by Class A applicants to DTV stations seeking to replicate or maximize power. Although section 336(f)(1)(D) appears to tie replication and maximization to resolution of technical problems, section 336(f)(7) appears to require all applicants for a Class A license or modification of license to demonstrate protection to stations seeking to replicate or maximize power, as long as the station seeking to maximize has complied with the notification and application requirements of section 336(f)(1)(D), without reference to any need to resolve technical problems on the part of the DTV station. Despite the reference in section 336(f)(1)(D) to technical problems, we concluded in the R&O, that it was most consistent with the statutory schemes for both Class A LPTV service and digital full-service broadcasting to require Class A stations to protect all DTV stations seeking to replicate or maximize facilities, as provided in section 336(f)(7)(A)(ii), regardless of the existence of “technical problems,” provided stations seeking to maximize complied with the notification requirements of section 336(f)(1)(D) of the statute. We interpreted section 336(f)(1)(D) as providing DTV stations with the flexibility to make adjustments to the facilities proposed in these maximization applications, including channel changes, where necessary to resolve technical problems that prevented implementation of the facilities proposed therein. Consistent with this statutory interpretation, we also provided that the maximized service areas resulting from timely filed maximization application proposals could be carried over to a DTV station's final in-core DTV channels, such as a station's in-core analog channel, to the extent the in-core channel facilities for maintaining the maximized service area would provide the required protection to other DTV stations. Such maximized facilities on post-transition channels will have priority over conflicting Class A facilities.

31. We are persuaded to modify our decisions in the R&O, regarding use of carrier offsets by Class A station entities. Requiring use of carrier offsets will provide for greater spectrum efficiency by making room for more new LPTV or Class A stations and/or by allowing more existing stations to increase facilities. First, we will require that, within nine months of the date of release of this MO&O, all Class A station licensees operate with a carrier offset. Within that time period, we will also require that Class A construction permits and pending applications for such permits be modified or amended to specify a carrier offset. To do so, station licensees, permittees, and applicants shall specify the carrier offset in a letter to the Commission staff, referencing their license, permit, or pending application. Class A stations operating with an offset must meet the +/− 1 kilohertz frequency tolerance requirements of § 73.1545(c) of the Commission's Rules. We understand that most stations not currently operating with an offset could readily do so at modest cost by modifying their existing transmitters. A small number of stations may have to obtain new transmitters equipped for offset operation. With regard to offset conversion, we will not impose the transmitter equipment performance requirements of § 73.1590 of our rules. However, stations converting to offset or changing their offset will be required to measure the visual carrier frequency and the difference between the aural and visual carriers to determine compliance with the requirements of § 73.1545(c). This data must be kept on file at the transmitter or remote control point, and be made available upon request to authorized Commission representatives.

32. Second, we will require all Class A stations or Class A-eligible LPTV stations seeking facilities increases to specify a carrier offset in their modification applications, regardless of whether the advantages of offset operation can be realized with respect to all neighboring co-channel stations. As noted above, such a requirement will improve spectrum efficiency generally for new as well as existing stations.

33. Finally, until the time at which all Class A entities are required to specify use of a carrier offset, we may, on a case-by-case basis, direct Class A station licensees, permittees and Class A-eligible LPTV applicants (affected stations) to operate their stations with a carrier offset at the request of a displaced Class A station, displaced Class A-eligible LPTV station, or applicant or allotment petitioner for a new NTSC television station (requesting stations). The requesting party must first attempt to negotiate a voluntary offset agreement with the affected Class A entity. Such agreements should be included with the applications of the requesting station and offset notification of the affected station. The Commission staff will process the related applications and offset notifications in a coordinated manner. In the event a voluntary agreement cannot be reached, the requesting station may file (or amend) its application, despite the interference conflict with the affected station. The application must set forth the requesting station's efforts to reach agreement with the affected station and request that the affected station be directed to specify a carrier offset. A copy of the application (or amendment to a pending application) must be sent to the affected station, which will be given 30 days to file comments. If the requesting station's application is otherwise acceptable (that is, except for the conflict with the affected station), the Commission staff may direct the affected station to file within 30 days a letter notification specifying a particular carrier offset. It will process the related applications and offset notifications in a coordinated manner.

34. This Class A proceeding has not addressed carrier offset issues with regard to television translator and non-Class A LPTV stations. Therefore, the above provisions do not, as a matter of policy, apply to these stations. Many translators and LPTV stations do not operate with a frequency offset. Channel displacement among LPTV and translator stations has been extensive. The difficulties faced by translator and LPTV licensees, including Class-A eligibles, in finding replacement channels could be lessened if translators and LPTV stations operated with carrier offsets. We strongly encourage such stations to enter into voluntary offset agreements, particularly where this would accommodate use of a replacement channel by a displaced station. On a case-by-case basis, we reserve the right to modify the license of a TV translator or non-Class A LPTV station subject to the provisions of the Communications Act of 1934, as amended.

35. In the R&O, we concurred with commenters who favor permitting Class A stations to enter into interference or relocation agreements with full-service, LPTV, TV translator and other Class A licensees, permittees or applicants. We required agreements to be submitted with the related applications for initial or modified broadcast facilities. We said we would approve of such agreements if we find them to be consistent with the public interest. We reaffirm our decision in the R&O. We will approve interference or relocation agreements between Class A applicants and applicants for full-service television stations, provided we find the agreements to be consistent with the public interest.

36. In the R&O, we adopted interference protection requirements for Class A applicants, as directed by the CBPA. These require protection to certain authorized and proposed NTSC TV, DTV, LPTV and TV translator and land mobile radio services. Applicants for Class A authorizations must certify in their applications that their proposed facilities comply with the applicable interference protection requirements in the Commission's Rules.

37. As requested and to guide applicants for initial Class A authorizations, we provide the following clarification. Existing waivers of the LPTV station interference protection requirements may be used as a basis for certifying compliance with the Class A interference protection requirements provided: (1) Construction of the facilities for which Class A status is sought was authorized on the basis of a waiver of the interference standards with respect to a protected station; (2) all engineering parameters under that LPTV authorization remain unchanged; (3) all authorized engineering parameters of the protected station associated with the waiver remain unchanged; and (4) the LPTV licensee has no knowledge that its station is causing interference to the reception of the protected station within its protected service area; e.g., Grade B contour for NTSC TV stations. We also reiterate that any interference from existing LPTV facilities within the protected contour of later authorized or proposed LPTV or TV translator facilities is permitted by the LPTV rules and is also grandfathered.

38. The CBPA, at section 336(f)(7)(C), provides that the Commission may not authorize a Class A station that will cause interference to certain land mobile radio uses of television channels. In the R&O, we stated that it is most consistent with the statutory scheme and the waiver granted for public safety land mobile use of Channel 16 in the New York City metropolitan area that LPTV station WEBR-LP and the New York police and public safety agencies continue to cooperate to ensure that neither party interferes with the other's transmission. Pursuant to our decision in the R&O, because the application reflected the parties' commitment to the agreement, the Mass Media Bureau granted the application on August 21, 2000 and did not impose a condition that WEBR-LP's authority to operate as a Class A station be subject to the agreement.

39. In the R&O, we noted that Class A stations may convert their existing channel to digital broadcasting at any time. We also concluded that the plain reading of the CBPA, as well as its legislative history, does not require us to issue an additional license for DTV services to Class A or TV translator licensees, but does require us to accept DTV applications from licensees of Class A or TV translator stations that meet the interference protection requirements set forth in the statute. Recognizing that a number of outstanding issues regarding the transition to DTV must be resolved, we said we would defer matters regarding the issuance of additional DTV licenses for Class A stations to a future DTV rulemaking.

40. We reaffirm our decision in the R&O. The statute requires that we shall accept a license application for such services that meet certain interference protection requirements. Nothing in the statute requires that we assign a second DTV channel to Class A stations. A Class A station may convert its existing channel to digital broadcasting at any time, or it may compete with other interested parties for additional channels for DTV.

41. We must exercise restraint with respect to issuing additional DTV licenses in order to preserve spectrum to accommodate needs associated with the transition of full-service stations to digital service. For instance, in our DTV periodic review proceeding we expressed our belief that more out-of-core stations than initially anticipated must be accommodated with in-core channels and that this effort will be made more difficult because there are more stations occupying core channels than initially planned for. We therefore defer matters regarding the issuance of additional DTV licenses for Class A stations to a future rulemaking. Issues regarding the means of issuing such licenses will be considered in that proceeding.

42. In the R&O, we decided not to impose any time limit on the filing of a Class A application by LPTV licensees operating on channels outside the core channels 2-51. We said that the CBPA provides that, if a qualified applicant for a Class A license operating on an out-of-core channel locates an in-core channel, the Commission “shall issue a Class A license simultaneously with the assignment of such channel,” but does not impose a time limit on the filing of such applications. We required stations operating on these channels to have filed a certification of eligibility within the time frame established in the statute (i.e., by January 28, 2000), and granted these stations a presumption of displacement, permitting them to file displacement applications immediately if they can locate a replacement channel within the core spectrum.

43. We also stated that, when a qualified LPTV station outside the core seeking Class A status locates an in-core channel, we will require the station to file a Class A application simultaneously with its application for modification of license to move to the in-core channel. We said we will provide interference protection to such stations on the in-core channel from the date of grant of a construction permit for the in-core channel. Because the CBPA prohibits the award of Class A status to stations outside the core, we believed it would be inconsistent with the statute to provide interference protection on a channel outside the core. We stated that contour protection would commence with the award of a construction permit on the in-core channel, rather than a license to cover construction.

44. We decline to reconsider our decision not to impose a six month time limit on LPTV licensees on out-of-core channels seeking Class A status. The CBPA provides that, if a qualified applicant for a Class A license operating on an out-of-core channel locates an in-core channel, the Commission “shall issue a Class A license simultaneously with the assignment of such channel.” The statute does not require that we impose a time limit on the filing of such applications, and we believe many LPTV stations outside the core will need additional time to locate an in-core channel. In most cases, it would be in the best interest of qualified LPTV stations operating outside the core to try to locate an in-core channel now, as the core spectrum is becoming increasingly crowded and it is likely to become increasingly difficult to locate an in-core channel in the future.

45. We wish to clarify our policy with respect to those certified-eligible LPTV stations that are licensed on a core channel, and have received or applied for a displacement construction permit on an out-of-core channel. The authorized or proposed non-core facilities will not receive Class A protections. However, stations having a non-core construction permit or pending displacement application for such a permit as of the Class A filing deadline, and that have filed timely certifications of eligibility, will not be required to file a Class A application by that deadline, but rather at such later time as they file a displacement application for an available in-core channel. This will preserve Class A opportunities for a number of displaced LPTV stations.

46. In the R&O, we allowed Class A stations to use standard television call signs with the suffix “-CA” to distinguish the stations from “-LP” stations. We said that, upon grant of its initial Class A application, the qualifying LPTV licensee can change its station's existing numerical or four-letter low power call sign to a four-letter call sign with the “CA” suffix.

47. We reaffirm our decision. As we have stated elsewhere in this proceeding, Congress in the CBPA intended to create a distinct group of stations that are neither LPTV stations nor full power broadcast stations. Use of the “-CA” suffix appropriately distinguishes this unique group of stations from secondary LPTV stations that use the “-LP” suffix and from primary full power stations that use the “-TV” suffix. We note further that use of the suffix is not required for purposes of station promotion, such as station letterhead.

48. In this MO&O, we generally reaffirm the decisions we reached in the R&O, although we make some changes and clarify certain aspects of our rules, as described previously. Pursuant to the CBPA and our implementing rules, certain qualifying LPTV stations will be accorded “primary” status as television broadcasters. The actions we have taken today and in the R&O will facilitate the acquisition of capital needed by these stations to allow them to continue to provide free, over-the-air programming to their local communities. By improving the viability of these stations, our action today promotes our fundamental goals of ensuring diversity and localism in television broadcasting.

49. Regulatory Flexibility Analysis. Pursuant to the Regulatory Flexibility Act of 1980, as amended, See 5 U.S.C. 601 et seq., the Commission's Supplemental Final Regulatory Flexibility Analysis has been completed.

50. Paperwork Reduction Act Analysis. The actions taken in this MO&O have been analyzed with respect to the paperwork Reduction Act of 1995, and found to impose new or modified reporting and recordkeeping requirements or burdens on the public. Implementation of these new or modified reporting and recordkeeping requirements will be subject to approval by the Office of Management and Budget (OMB) as prescribed by the Act.

51. As required by the Regulatory Flexibility Act (RFA), see 5 U.S.C. 601 et seq. , an Initial Regulatory Flexibility Analysis (IRFA) was incorporated in the Notice and a Final Regulatory Flexibility Analysis (FRFA) was incorporated in the R&O. The Commission sought written public comment on the proposals in the Notice, including comment on the IRFA. No comments were received in response to the IRFA or the FRFA. This present Supplemental Final Regulatory Flexibility Analysis (Supplemental FRFA) conforms to the RFA. See 5 U.S.C. 604.

52. The Community Broadcasters Protection Act of 1999 (CBPA) directed the Commission, within 120 days after the date of enactment, to prescribe regulations establishing a Class A television license available to licensees of qualifying low-power television (LPTV) stations. The CBPA directs that Class A licensees be subject to the same license terms and renewal standards as full-power television licensees, and that Class A licensees be accorded primary status as a television broadcaster as long as the station continues to meet the requirements set forth in the statute for a qualifying low-power station. In addition to other matters, the CBPA sets out certain certification and application procedures for low-power television licensees seeking to obtain Class A status, prescribes the criteria low-power stations must meet to be eligible for a Class A license, and outlines the interference protection Class A applicants must provide to analog (or NTSC), digital (DTV), LPTV, and TV translator stations.

53. The Commission adopted the R&O, to implement the CBPA. In that Order, we determined that the service areas of LPTV licensees would be preserved from the date the Commission receives a certification of eligibility for Class A status, as long as the certification is ultimately approved by the Commission. The R&O, interpreted the CBPA to require that Class A stations protect both existing analog stations and full power analog applicants that have completed all processing short of grant. Similarly, the R&O required Class A stations to protect the digital service areas of DTV facilities proposed in an application pending as of the CBPA enactment date (November 29, 1999) and that had completed all processing short of grant as of that date. The R&O, generally applied to Class A applicants and licensees all part 73 regulations except those that cannot apply for technical or other reasons. The R&O also addressed a wide range of other issues related to the implementation of the CBPA, including the protected service area of Class A stations, Class A interference protection requirements vis-a-vis other TV stations, common ownership restrictions applicable to Class A stations, and the treatment of modification applications filed by Class A licensees.

54. In this MO&O, we do not change most of the determinations made in the R&O. We do, however, adopt the following changes. We modify our main studio location requirements with respect to LPTV stations in a commonly owned group. We also clarified our definition of “local programming” with respect to LPTV stations in a commonly owned group. We permit Class A television stations that convert to digital operation to offer ancillary or supplementary services in the same manner as full power DTV stations. We clarify that Class A stations have the same limited must carry rights as LPTV stations, but do not have the same must carry rights as full service television stations under part 73 of the Commission's rules. To foster efficient spectrum utilization, we modify our decision regarding the use of carrier frequency offsets by Class A stations, by establishing a deadline for the required use of offsets and requiring the use of such offsets to accommodate, where possible, certain Class A and full-service NTSC station proposals.

55. No comments were received in response to the IRFA. Furthermore, no petitions or comments were received on the R&O, concerning the FRFA. Two petitioners, however, did file Petitions for Reconsideration raising concerns about the main studio staffing requirements. These petitioners advised that the Commission Class A staffing requirements were too costly. As a result of petitioners' comments, we clarified that the staffing standard does not necessarily require two full-time staff to be present at the main studio. Rather, management and staff presence are required on a full-time basis, which may consist of more than two people working on part-time bases. In addition, the Commission amended the main studio requirement so that commonly owned Class A stations having contiguous boundaries may share a single main studio. Further analysis of this issue may be found below in the section on minimizing significant impacts.

56. The RFA directs agencies to provide a description of and, where feasible, an estimate of the number of small entities that may be affected by the rules. 5 U.S.C. 603(b)(3). The RFA generally defines the term “small entity” as having the same meaning as the terms “small business,” “small organization,” and “small governmental jurisdiction.” 5 U.S.C. 601(6). In addition, the term “small business” has the same meaning as the term “small business concern” under the Small Business Act. 5 U.S.C. 601(3). A small business concern is one which: (1) is independently owned and operated; (2) is not dominant in its field of operation; and (3) satisfies any additional criteria established by the Small Business Administration (SBA). 15 U.S.C. 632.

57. Small TV Broadcast Stations. The SBA defines small television broadcasting stations as television broadcasting stations with $10.5 million or less in annual receipts. 13 CFR 121.201 (SIC Code 4833). The MO&O modifies certain rules applicable to Class A television licenses, which are available to licensees of qualifying LPTV stations. According to the Commission staff review of the BIA Publications, Inc., Master Access Television Analyzer Database, virtually all LPTV broadcast stations have revenues of less than $10.5 million. Currently, there are approximately 2,200 licensed LPTV stations. Public Notice, “Broadcast Station Totals as [of] September 30, 1999” (released November 22, 1999). The Commission notes, however, that under SBA's definition, revenues of affiliates that are not LPTV stations should be aggregated with the LPTV station revenues in determining whether a concern is small. The Commission's estimate may thus overstate the number of small entities since the revenue figure on which it is based does not include or aggregate revenues from non-LPTV affiliated companies.

58. We anticipate that the frequency offset requirement in the MO&O will result in changes to the reporting and recordkeeping requirements of Class A stations. When a Class A station begins operating with a frequency offset, it will be necessary for it to notify the Commission in writing.

59. The RFA requires an agency to describe any significant alternatives that it has considered in reaching its proposed approach, which may include the following four alternatives (among others): (1) The establishment of differing compliance or reporting requirements or timetables that take into account the resources available to small entities; (2) the clarification, consolidation, or simplification of compliance or reporting requirements under the rule for small entities; (3) the use of performance, rather than design standards; and (4) an exemption from coverage of the rule, or any part thereof, for small entities. 5 U.S.C. 603(c)(1)-(4).

60. The R&O, adopted a number of rules designed to help LPTV stations seeking to convert to Class A status and exempts Class A licensees from part 73 rules that clearly could not apply, either due to technical differences in the operation of low-power and full-power stations, or for other reasons. Although the R&O applied the main studio rule for the first time to LPTV stations who qualify as Class A stations, requiring them to locate their main studios within the station's Grade B contour, as determined pursuant to the Commission's rules, the R&O grandfathers the main studios at the site in use as of November 28, 1999. As discussed, several petitioners expressed concern about the main studio requirement and its effect on small entities. Petitioners argued that the cost of the main studio staffing requirement, as adopted in the R&O , was financially prohibitive for small businesses and would result in the demise of Class A stations. This MO&O both clarifies and modifies the rules set forth in the R&O . These revisions work together to reduce both the staffing burden and the burden of maintaining multiple studios by permitting commonly owned LPTV stations having contiguous boundaries to share a main studio and staff. This alternative significantly reduces the costs associated with maintaining multiple studios and additional staff. In contrast the Commission could have merely clarified the staffing rule as set forth in the R&O and not modified the main studio location rule; however, the result works to benefit those small entities with multiple stations. Any further relaxation of the main studio rules would have been inconsistent with the intention and language of the CPBA which requires Class A stations to have a local presence and local programming.

61. In the MO&O we permit Class A television stations that convert to digital operation to offer ancillary or supplementary services in the same manner as full power DTV stations. A petitioner to the R&O requested a modification of the rules to allow such stations to offer telecommunications services on either an ancillary or supplemental basis in the event that the station decides to convert to DTV. We have complied with this request and have created an alternative for Class A stations which are interested in converting to digital operation. Since this is optional, it in no way should be perceived as a requirement for Class A licensure or operation. Class A stations are not required to convert to DTV under the CBPA.

62. Lastly, we modify our decision regarding the use of carrier frequency offsets by Class A stations. We now require the use of frequency offsets to accommodate, where possible, certain Class A and full-service NTSC stations and, more generally, will require all Class A stations to specify operation with an offset within nine months of the release of this MO&O . In response to the R&O , two parties requested this modification in order to allow the stations to make more efficient use of scarce broadcast spectrum. These frequency offsets are of a nominal nature and if required, would result in the expenditure of modest financial resources. We believe that offset operations will greatly facilitate an increase in the number of Class A stations by maximizing use of the broadcast spectrum. The alternative, if we had not granted petitioners' requests, would have been to continue with the existing rule. Such a continuation would have resulted in fewer LPTV stations becoming Class A stations. Furthermore, this modification only affects those LPTV stations which choose to apply for a Class A license.

63. Report to Congress: The Commission will send a copy of the MO&O , including this Supplemental FRFA, in a report to be sent to Congress pursuant to the Congressional Review Act. See 5 U.S.C. 801(a)(1)(A). In addition, the Commission will send a copy of the MO&O , including the Supplemental FRFA, to the Chief Counsel for Advocacy of the SBA. A copy of the MO&O and Supplemental FRFA (or summaries thereof) will also be published in the Federal Register . See 5 U.S.C. 604(b).

64. Pursuant to authority contained in sections 1, 4(i), 303, and 336(f) of the Communications Act of 1934, as amended, 47 U.S.C. 151, 154(i), 303, and 336(f), part 73 of the Commission's rules, are amended as set forth.

65. The amendments set forth shall be effective May 31, 2001, except for 47 CFR 73.1545(e), which contains information collection requirements that have not been approved by OMB. The Federal Communications Commission will publish a document in the Federal Register announcing the effective date.

66. The petitions for reconsideration or clarification listed are granted to the extent provided herein and otherwise are denied .

67. The Motion for Acceptance of late-Filed Petition for Reconsideration, filed on June 12, 2000 by Larry L. Schrecongost, is granted .

68. The Emergency Petition for Extension of Time, filed on December 4, 2000 by John W. Smith, Jr., is dismissed .

69. The Commission's Consumer Information Bureau, Reference Information Center, shall send a copy of this MO&O , including the Supplemental Final Regulatory Flexibility Analysis, to the Chief Counsel for Advocacy of the Small Business Administration.

This proceeding is terminated.

NMFS manages the groundfish fishery in the GOA exclusive economic zone according to the Fishery Management Plan for Groundfish of the Gulf of Alaska (FMP) prepared by the North Pacific Fishery Management Council under authority of the Magnuson-Stevens Fishery Conservation and Management Act. Regulations governing fishing by U.S. vessels in accordance with the FMP appear at subpart H of 50 CFR part 600 and 50 CFR part 679.

The 2001 A season Pacific cod TAC apportioned to vessels catching Pacific cod for processing by the offshore component in the Western Regulatory Area of the GOA is 1,098 metric tons (mt) as established by the Final 2001 Harvest Specifications and Associated Management Measures for the Groundfish Fisheries Off Alaska (66 FR 7276, January 22, 2001).

In accordance with § 679.20(d)(1)(i), the Administrator, Alaska Region, NMFS (Regional Administrator), has determined that the A season amount of the Pacific cod TAC apportioned to vessels catching Pacific cod for processing by the offshore component of the Western Regulatory Area of the GOA will be reached. Therefore, the Regional Administrator is establishing a directed fishing allowance of 948 mt, and is setting aside the remaining 150 as bycatch to support other anticipated groundfish fisheries. In accordance with § 679.20(d)(1)(iii), the Regional Administrator finds that this directed fishing allowance will soon be reached. Consequently, NMFS is prohibiting directed fishing for Pacific cod by vessels catching Pacific cod for processing by the offshore component in the Western Regulatory Area of the GOA.

Maximum retainable bycatch amounts may be found in the regulations at § 679.20(e) and (f).

This action responds to the best available information recently obtained from the fishery. The Assistant Administrator for Fisheries, NOAA, finds that the need to immediately implement this action to prevent exceeding the amount of the 2001 A season Pacific cod TAC specified for the offshore component constitutes good cause to waive the requirement to provide prior notice and opportunity for public comment pursuant to the authority set forth at 5 U.S.C. 553(b)(3)(B) and 50 CFR 679.20 (b)(3)(iii)(A), as such procedures would be unnecessary and contrary to the public interest. Similarly, the need to implement these measures in a timely fashion to prevent exceeding the 2001 A season Pacific cod TAC specified for the offshore component constitutes good cause to find that the effective date of this action cannot be delayed for 30 days. Accordingly, under 5 U.S.C. 553(d), a delay in the effective date is hereby waived.

This action is required by § 679.20 and is exempt from review under Executive Order 12866.

NMFS manages the groundfish fishery in the BSAI exclusive economic zone according to the Fishery Management Plan for the Groundfish Fishery of the Bering Sea and Aleutian Islands Area (FMP) prepared by the North Pacific Fishery Management Council under authority of the Magnuson-Stevens Fishery Conservation and Management Act. Regulations governing fishing by U.S. vessels in accordance with the FMP appear at subpart H of 50 CFR part 600 and 50 CFR part 679.

The second seasonal apportionment of the 2001 halibut bycatch allowance specified for the BSAI trawl yellowfin sole fishery category, which is defined at § 679.21(e)(3)(iv)(B)(1), is 196 metric tons through May 20 (66 FR 7276, January 22, 2001).

In accordance with § 679.21(e)(7)(v), the Administrator, Alaska Region, NMFS (Regional Administrator), has determined that the second seasonal apportionment of the 2001 halibut bycatch allowance specified for the trawl yellowfin sole fishery in the BSAI has been caught. Consequently, the Regional Administrator is closing directed fishing for yellowfin sole by vessels using trawl gear in the BSAI.

Maximum retainable bycatch amounts may be found in the regulations at § 679.20(e) and (f).

This action responds to the best available information recently obtained from the fishery. The Assistant Administrator for Fisheries, NOAA, finds that the need to immediately implement this action to avoid exceeding the halibut bycatch allowance for the yellowfin sole fishery category constitutes good cause to waive the requirement to provide prior notice opportunity for public comment pursuant to the authority set forth at 5 U.S.C. 553(b)(3)(B) and 50 CFR 679.20(b)(3)(iii)(A) as such procedures would be unnecessary and contrary to the public interest. Similarly, the need to implement these measures in a timely fashion to avoid exceeding the halibut bycatch allowance for the yellowfin sole fishery category constitutes good cause to find that the effective date of this action cannot be delayed for 30 days. Accordingly, under 5 U.S.C. 553(d), a delay in the effective date is hereby waived.

This action is required by 50 CFR 679.21 and is exempt from review under Executive Order 12866.