In an interim rule effective September 22, 1999, and published in the Federal Register on September 28, 1999 (64 FR 52211-52212, Docket No. 99-075-1), we amended the regulations by designating portions of San Bernardino and Riverside Counties, CA, as regulated areas because of an infestation of Mexican fruit fly. In a second interim rule effective December 14, 1999, and published in the Federal Register on December 21, 1999 (64 FR 71267-71270, Docket No. 99-075-2), we added a portion of San Diego and Riverside Counties, CA, to the list of regulated areas. In addition, the December 1999 interim rule provided for the use of a new alternative chemical treatment for premises; provided for the use of a cold treatment for citrons, litchis, longans, persimmons, and white zapotes; and removed kumquats from the list of regulated articles. In a third interim rule effective April 12, 2000, and published in the Federal Register on April 18, 2000 (65 FR 20705-20706, Docket No. 99-075-3), we removed the regulated portion of San Bernardino and Riverside Counties, CA, from the list of regulated areas based on our determination that the Mexican fruit fly had been eradicated from that area. Finally, in a fourth interim rule effective on June 7, 2000, and published in the Federal Register on June 13, 2000 (65 FR 37005-37006, Docket No. 99-075-4), we removed the regulated portion of San Diego and Riverside Counties, CA, from the list of regulated areas based on our determination that the Mexican fruit fly had been eradicated from those areas. Upon the effective date of our June 2000 interim rule, there were no longer any areas in California designated as regulated areas because of the Mexican fruit fly.

Comments on each interim rule were required to be received on or before 60 days after the date of its publication in the Federal Register . We did not receive any comments on any of the interim rules. Therefore, for the reasons given in the interim rules, we are adopting the interim rules as a final rule.

This action affirms the information contained in the interim rules concerning Executive Orders 12866, 12372, 12988, the Paperwork Reduction Act, and the information contained in the September 1999 and April 2000 interim rules concerning the Regulatory Flexibility Act.

Further, for this action, the Office of Management and Budget has waived the review process required by Executive Order 12866.

The following analysis addresses the economic effects and data available to us regarding the actions taken in our December 1999 and June 2000 interim rules.

In our December 1999 interim rule, we added a portion of San Diego and Riverside Counties, CA, to the list of areas regulated because of the Mexican fruit fly. Within this regulated area, there are approximately 2,090 small entities that may have been affected by the interim rule. These include 2,000 growers operating on 11,400 acres (72 square miles), 38 packing houses, 50 fruit sellers, and 2 farmers markets. The 2,090 entities, most of which we expect are small entities under Small Business Administration criteria, comprise less than 1 percent of the total number of similar entities operating in the State of California.

Those small entities sell regulated articles primarily for local intrastate, not interstate, movement; therefore, the distribution of regulated articles by those entities was not affected by the interstate movement restrictions contained in the regulations. Many of those entities also handle other items in addition to regulated articles. The effect on those few entities that do move regulated articles interstate was minimized by the availability of various treatments that, in most cases, allowed these small entities to move regulated articles interstate with very little additional cost. Therefore, the economic effect, if any, of the December 1999 interim rule on these entities appears to be minimal. In our June 2000 interim rule, we removed that portion of San Diego and Riverside Counties, CA, from the list of areas regulated because of the Mexican fruit fly and removed California from the list of States regulated because of the Mexican fruit fly. The June 2000 interim rule removed restrictions on the interstate movement of regulated articles from that portion of San Diego and Riverside Counties, CA.

In our December 1999 interim rule, we specifically invited comments concerning the potential economic effects of that interim rule on small entities. In particular, we requested information that would enable us to determine the number and kind of small entities that might incur benefits or costs from the implementation of the interim rule, including the new treatments for premises and regulated articles contained in that interim rule. We did not receive any comments. Based on the available information, the economic effect of the actions taken in our December 1999 and June 2000 interim appears to be minimal.

Under these circumstances, the Administrator of the Animal and Plant Health Inspection Service has determined that this action will not have a significant economic impact on a substantial number of small entities.

The Board issued an interim final rule addressing a statutory exception to the Board's repudiation powers, when acting as a conservator or liquidating agent, for extensions of credit from a Federal Home Loan Bank to a federally-insured credit union. 66 FR 11229 (Feb. 23, 2001). The final rule is identical to the interim final rule except for one minor technical amendment that corrects an inaccurate statutory citation.

Federally-insured credit unions (FICUs) are eligible for membership at the Federal Home Loan Bank (FHLB) in their district provided they meet certain statutory requirements. 12 U.S.C. 1422(12)(B), 1424. As a member of an FHLB, an FICU may obtain a variety of advances for the purpose of providing funds for housing loans. See 12 U.S.C. 1430(a), (j).

The Board, when acting as a conservator or liquidating agent of an FICU, has the discretion to disaffirm or repudiate contracts or leases (i) to which the FICU is a party; (ii) the performance of which the Board determines to be burdensome; and (iii) the disaffirmance or repudiation of which the Board determines will promote the orderly administration of the FICU's affairs. 12 U.S.C. 1787(c)(1). The Federal Credit Union Act establishes an exception to the Board's authority to repudiate contracts entered into by an FICU before the Board is appointed the FICU's conservator or liquidating agent. The Board may not repudiate a contract regarding an extension of credit from any FHLB to an FICU. 12 U.S.C. 1787(c)(13).

The final rule sets forth the circumstances under which the Board, as conservator or liquidating agent, will honor a claim for prepayment fees by an FHLB when an FICU has an outstanding extension of credit with the FHLB. The rule allows the payment of a prepayment fee to an FHLB if set forth in a written contract, provided: (1) That the fee does not exceed the present value of any economic loss suffered by the FHLB; and, (2) the collateral is sufficient to pay in full the principal and interest due on secured advances and the applicable prepayment fee.

The rule tracks one used by the Federal Deposit Insurance Corporation (FDIC) when federally-insured banks with extensions of credit from an FHLB are conserved or placed in receivership. See 12 CFR 360.2(e). Like the Board, the FDIC has the statutory authority to repudiate contracts when appointed conservator or receiver for a bank under section 11(e) of the Federal Deposit Insurance Act, but it is prohibited from repudiating extension of credit agreements with FHLBs. 12 U.S.C. 1821(e).

The comment period ended on April 24, 2000. The Board received eight comments on the interim final rule. One credit union, one national credit union trade group, three state credit union leagues, one corporate credit union, one corporate credit union trade group and an association representing state regulators nationwide submitted comments. Of the commenters who commented on the general merits of the rule, all supported the Board's adoption of the rule. One commenter noted that the statutory provision that prohibits the Board from repudiating terms of a loan agreement with a FHLB is adequate without a rule. Two commenters stated that the rule places credit unions on equal footing with other depository institutions that obtain advances from FHLBs. One commenter specifically mentioned that prior to the rule, certain FICUs could not obtain long-term advances from the FHLB in their district.

Five commenters requested the Board extend the application of the rule to loan advances from corporate credit unions. One expressed concern that the rule shows a preference for FHLBs, but acknowledged that the rule is consistent with the statutory prohibition. This commenter noted that corporate credit unions, like FHLBs, make long-term advances to members and may suffer opportunity or real losses from prepayments. Two commenters asked that the Board recognize the role of corporates, in the credit union movement and as liquidity providers for natural-person credit unions, by honoring their claims for prepayment fees.

The Board may consider the comments regarding extensions of credit by corporate credit unions in another rulemaking. The Board issued § 709.12 as an interim final rule based on having made the requisite findings for issuance of an interim final rule as required by the Administrative Procedure Act. 5 U.S.C. 553. The Board believes an amendment of Part 709 limiting the Board's authority as conservator or liquidating agent to repudiate corporate credit union advances would require an opportunity for public notice and comment.

The Regulatory Flexibility Act requires NCUA to prepare an analysis to describe any significant economic impact any regulation may have on a substantial number of small entities. For purposes of this analysis, credit unions under $1 million in assets will be considered small entities.

The NCUA Board has determined and certifies that this rule will not have a significant economic impact on a substantial number of small entities. This rule allows FICUs that are members of Federal Home Loan Banks to receive advances at lower rates of interest for the benefit of their members without any additional regulatory burden or expense to credit unions. Accordingly, the NCUA has determined that a Regulatory Flexibility Analysis is not required.

NCUA has determined that this rule does not increase paperwork requirements under the Paperwork Reduction Act of 1995 and regulations of the Office of Management and Budget.

The Small Business Regulatory Enforcement Fairness Act of 1996 (Pub. L. 104-121) provides generally for congressional review of agency rules. A reporting requirement is triggered in instances where NCUA issues a final rule as defined by Section 551 of the Administrative Procedures Act. 5 U.S.C. 551. The Office of Management and Budget has determined that this is not a major rule.

Executive Order 13132 encourages independent regulatory agencies to consider the impact of their regulatory actions on state and local interests. In adherence to fundamental federalism principles, NCUA, an independent regulatory agency as defined in 44 U.S.C. 3502(5), voluntarily complies with the executive order. This rule will apply to some state-chartered credit unions, but it will not have substantial direct effect 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. NCUA has determined that this rule does not constitute a policy that has federalism implications for purposes of the executive order.

On February 15, 2001, the NCUA Board requested comment on proposed changes to part 712 of its regulations. 66 FR 11125 (February 22, 2001). Part 712 sets forth the requirements for FCUs investing or lending to CUSOs. The first proposed amendment was a clarification of an existing authority and the second proposed amendment was an expansion of an existing authority.

The NCUA Board received 26 comments on the proposal: 16 from credit unions; one from a CUSO; two from credit union trade groups; one from a CUSO trade group; five from credit union leagues; and one from a bank trade group. Below is a summary of the comments.

The first proposed change clarified that the list of permissible activities in § 712.5 is intended to establish broad categories of permissible activities and that the listing of particular activities under these broad categories is for illustrative purposes and not meant to be exhaustive. Nineteen commenters fully supported the proposed change; five commenters objected because they thought the change should be more expansive; and one commenter, the bank trade group, objected to the expansion. The commenters in support of the proposal noted that the amendment would allow the rule to accommodate technological advances and a broader scope of business practices, as well as allow CUSOs to offer a variety of new and innovative products that will fit within the general categories. One of those commenters noted that the proposal provides an adequate illustration of the types of activities that are permissible without the loss of flexibility that would result from a list of specific activities. One commenter noted that the approved list of activities is only the beginning of what a CUSO can do and with the test of “relate to the routine daily operations” there is sufficient guidance.

Some of the commenters in support of further expansion suggested using the same approach as the approach taken in the incidental powers proposal. This amendment, in fact, is modeled after the incidental powers proposal. One commenter suggested using the same test for permissibility of a CUSO activity as is used to determine permissibility of an incidental powers activity. This commenter fails to recognize that the legal authority for an incidental powers activity is different from the legal authority for a CUSO activity. Incidental powers activities are governed by § 1757(17) of the Federal Credit Union Act (Act) and CUSO activities are governed by § 1757(5)(D) and (7)(I) of the Act. The statute is clear that an activity that is necessary for a credit union to carry on effectively the business for which it is incorporated is a permissible incidental powers activity. This is different than the statutory standard for a permissible CUSO activity, which is limited to activities that relate to the routine daily operations of credit unions.

A few commenters suggested the list is too restrictive, should include more examples, and should be an appendix to the rule, rather than in the rule. When the Board revised the list of permissible CUSO activities in its 1998 overhaul of the CUSO rule, an effort was made to include all permissible activities relating to the routine operations of credit unions. 63 FR 10743 (March 5, 1998). The Board is not aware of any activities relating to the routine operations of credit unions that were not either, considered and rejected, or included at that time and so, it will not be revising the list.

One commenter suggested adding business loan origination and consumer loan origination to the list of permissible activities. The Board specifically addressed both business and consumer loan origination in its 1998 revisions to the CUSO regulation and has not changed its view as to the proper role of CUSOs in this area. 1 As it noted then, the Board believes that, while CUSOs are not authorized to originate consumer loans, other than mortgage loans, or business loans, they may provide support services to credit unions for both types of loan.

Fifteen of the 20 commenters that responded to this issue supported the proposal. One of those commenters noted that this provision is especially helpful because it does not require an opinion if the credit union believes the activity is within the stated categories and can justify it if challenged.

Only one of the five negative commenters, the bank trade group, objected to this provision because it is too permissive. Some of the negative commenters suggested that the decision of whether an activity falls within a broad category should be made by the credit unions and their attorneys, not NCUA. The Board agrees and states that the rule does not require a credit union to come to OGC for an opinion every time a CUSO wants to engage in an activity not specifically listed as an example under a broad category. An opinion from OGC is recommended if there is doubt as to whether a specific activity falls within one of the broad categories or a new broad category is being proposed. In those situations, an FCU that doesn't consult with OGC runs the risk of engaging in an impermissible activity and being subject to supervisory action.

One commenter suggested that if an activity is “convenient and useful” the credit union's attorney should decide if it is permissible. As noted above, the test for CUSOs is not the “convenient and useful” test associated with incidental powers activities. The test for CUSOs, as stated in the rule and the Act, is that the activity must relate to the “routine, daily operations of credit unions.” 12 U.S.C. 1757(7)(I); 12 CFR 712.5.

The 21 commenters that responded to this issue agreed with allowing a federally-chartered corporation as a permissible CUSO structure. A few of those commenters suggested that the Board define “depository institution” in the CUSO rule so as to exclude from the definition an institution principally engaged in the business of providing trust services that holds only such deposits as are required to qualify for FDIC insurance. The commenters requested this definition so that a CUSO could obtain a trust charter from the Office of Thrift Supervision (OTS).

While the Act prohibits an FCU from acquiring control directly or indirectly of a financial institution, trust services have been identified as a permissible activity for CUSOs for almost twenty years. 12 U.S.C. 1757(7)(I); 47 FR 30462 (July 14, 1982). The NCUA's long-standing interpretation of financial institution has been that it means a deposit taking institution. 51 FR 10353, 10354 (March 26, 1986). The CUSO regulation reflects this policy and states that FCUs may not acquire control of “another depository financial institution.” 12 CFR 712.6. Thus, NCUA has viewed trust companies as permissible CUSOs as long as they were not deposit taking organizations.

The OTS requires Federal Deposit Insurance Corporation (FDIC) insurance for all institutions it charters. 12 CFR 543.2. Under the Federal Deposit Insurance Act (FDI Act), an applicant for insurance must be “engaged in the business of receiving deposits other than trust funds.” 12 U.S.C. 1815(a)(1). In March 2000, the FDIC interpreted this requirement in General Counsel Opinion No. 12, stating that this requirement can be satisfied if an institution maintains one or more non-trust deposit accounts in the aggregate amount of $500,000. 66 FR 20102, Appendix (April 19, 2001). The opinion was intended to clarify the meaning of the requirement, particularly in the context of the FDIC's long-standing interpretation of non-traditional depositories such as trust companies.

Recently, the FDIC issued a proposed rule that would incorporate its General Counsel Opinion No. 12. 66 FR 20102. The proposed rule contains an extensive discussion of the ambiguity of the FDI Act and various factors that led to issuance of the legal opinion. The impetus for the proposed rule is a recent federal court decision, discussed in the preamble to the proposed rule, in which the court disagreed with the FDIC's interpretation of this requirement. The FDIC states that the inconsistency between its interpretation and that of the court could have harmful results and has determined to address the issue in a rulemaking. Id. at 20105.

While the Board agrees with the commenters that “depository financial institution”, as used in 12 CFR 712.6, should not include a financial institution principally engaged in the business of providing trust services, and which holds only such deposit as is required for FDIC insurance, the Board is not inclined to include a definition in the regulation at this time. A regulatory definition adopted now might not adequately address issues that will be considered in the FDIC's rulemaking or in the pending litigation. Further, the Board does not believe it is necessary to include a definition as part of the regulation but, as necessary, NCUA's Office of General Counsel may provide further interpretation, in addition to that stated in this preamble.

One commenter suggested an FCU's trust powers be expanded in NCUA's incidental powers rule and that the Act be amended to allow NCUA to charter trust companies. Another commenter suggested adding a new structure that would allow a CUSO to be established under foreign law so that it could serve foreign nationals. These suggestions are outside the scope of this rulemaking process.

The Board is revising this provision to include federally-chartered corporations as a permissible CUSO structure.

The Board is adding a sentence to this section to state plainly that the listings under the broad categories are for illustrative purposes and not intended to be an exclusive or exhaustive list of permissible activities.

The Board is amending the provision for adding new activities to the regulation to advise FCUs to seek an advisory opinion from OGC as to whether a proposed activity fits into one of the authorized categories before requesting a regulatory change to add a new activity. An FCU is not required to seek an advisory opinion if a proposed activity, not listed as an example, clearly falls within one of the broad categories approved by the Board.

This amendment in conjunction with the change to § 712.5 will reduce regulatory burden by allowing the rule to expand as technology expands.

The Regulatory Flexibility Act requires NCUA to prepare an analysis to describe any significant economic impact a regulation may have on a substantial number of small entities (primarily those under 1 million in assets). The amendments will not have a significant economic impact on a substantial number of small credit unions and, therefore, a regulatory flexibility analysis is not required.

NCUA has determined that this final rule does not increase paperwork requirements under the Paperwork Reduction Act of 1995 and regulations of the Office of Management and Budget.

The Small Business Regulatory Enforcement Fairness Act of 1966 (SBREFA) (Pub. L. 104-121) provides generally for congressional review of agency rules. A reporting requirement is triggered in instances where NCUA issues a final rule as defined by Section 551 of the Administrative Procedures Act. 5 U.S.C. 551. The Office of Management and Budget is reviewing this rule to determine if it is a major rule for purposes of SBREFA.

Executive Order 13132 encourages independent regulatory agencies to consider the impact of their actions on state and local interests. In adherence to fundamental federalism principles, NCUA, an independent regulatory agency as defined in 44 U.S.C. 3502(5), voluntarily complies with the executive order. This rule will apply only to federally-chartered credit unions. It will not have substantial direct effects 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. NCUA has determined that this proposal does not constitute a policy that has federalism implications for purposes of the executive order.

The NCUA has determined that this rule will not affect family well-being within the meaning of section 654 of the Treasury and General Government Appropriations Act, 1999, Pub. L. 105-277, 112 Stat. 2681 (1998).

NCUA's goal is to promulgate clear and understandable regulations that impose minimal regulatory burden. We requested comments on whether the proposed rules were understandable and minimally intrusive if implemented as proposed. We received three comments on this issue. Two commenters did not address the proposal, but rather stated that the question and answer format of the CUSO rule is confusing. One commenter stated that the proposal does meet the agency's regulatory goal.

NCUA published a proposal to revise its regulation governing the preservation of vital records. 66 FR 11239, February 23, 2001. At the end of the sixty-day public comment period, NCUA had received eleven comment letters. After carefully considering the comments, the NCUA Board is publishing this final rule, which is substantially identical to the proposal. Only one minor change was made to the appendix to the regulation: the reference to 5300 financial reports as semiannual and annual filings has been omitted since some credit unions now file such reports quarterly.

The revision makes three substantive modifications to the regulation and changes the format to question and answer. First, the revision clarifies that credit unions may store records in any format that is accurate, accessible and capable of being reproduced by printing, transmittal or other methods, as permitted by the Electronic Signatures in Global and National Commerce Act, 15 U.S.C. 7001. Second, it permits a credit union's board of directors to determine which employee will be responsible for carrying out the vital record preservation duties. The current regulation requires that the credit union's financial officer be designated as responsible for those duties. Third, to address the need for guidance about record retention, the revision incorporates an appendix on recommended retention periods for various types of credit union records.

NCUA received eleven comment letters, all of which expressed general support for the proposal. Four comments letters were from credit unions; two were from national credit union trade associations; four were from state credit union leagues; and one was from a credit union service provider.

Eight commenters strongly supported the change to the regulation to clarify that credit unions may retain records electronically.

Five commenters expressed approval for the addition of the appendix containing record retention guidelines. Of these, three suggested various changes in the guidance for retention periods and types of records that must be retained. The NCUA Board notes that the record retention guidelines are merely recommendations and credit unions may adopt other retention periods for these or other types of records.

Five commenters strongly supported the change to the regulation permitting a credit union's board of directors to determine which employee will be responsible for vital record preservation. Two commenters favored eliminating the requirement that the credit union's financial officer be responsible for vital records preservation but suggested that the credit union manager, rather than the board should determine which employee to designate. The NCUA Board did not adopt that suggestion in the final rule. The Board believes that a credit union's board of directors is in the best position to know who among the credit union staff should be responsible for carrying out the important responsibilities of the vital records preservation program. In revising this regulation to eliminate the requirement that designated the financial officer as responsible, the NCUA Board does not want to replace it with another provision removing the ability and responsibility of a credit union's board of directors to make the selection itself.

NCUA requested comment concerning whether the rule is understandable and minimally intrusive. One commenter praised the rule for being clear and understandable. Two commenters expressed dislike for the question and answer format. One commenter, while acknowledging that the proposal is designed to be more user friendly, questioned whether the question and answer format makes the rule easier to understand. The NCUA Board finds that the question and answer format is understandable and is appropriate for this regulation. One commenter suggested that additional records, sufficient for auditing or to detect fraud, should be included among vital records. Two commenters suggested that the term “vital record” should be defined with more specificity and the description should be augmented with more examples. The Board notes that the proposed rule did not materially alter the description of vital records from that in the current regulation. To give credit unions maximum flexibility, the description of vital records is brief and lists only the minimum types of records included. A credit union may include additional records it determines would be necessary to carry on its business in the event of a catastrophe.

This regulation will impose no additional information collection, reporting or record keeping requirements.

Pursuant to section 605(b) of the Regulatory Flexibility Act (RFA) (5 U.S.C. 605(b)), NCUA certifies that these amendments will not have a significant economic impact on a substantial number of small entities. NCUA expects that these regulations will not: (1) Have significant secondary or incidental effects on a substantial number of small entities; or (2) create any additional burden on small entities. Accordingly, a regulatory flexibility analysis is not required.

Executive Order 13132 encourages independent regulatory agencies to consider the impact of their regulatory actions on state and local interests. In adherence to fundamental federalism principles, NCUA, an independent regulatory agency as defined in 44 U.S.C. 3502(5), voluntarily complies with the Executive Order. Since this regulation will only apply to federal credit unions, it will not have a substantial direct effect 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 Office of Management and Budget has determined that this rule is not major for purposes of the Small Business Regulatory Enforcement Fairness Act of 1996.

On February 9, 2001, Ayres Corporation applied for a type certificate for their new Model LM 200 “Loadmaster.” The Model LM 200 operates with a multiengine/single propeller propulsion system and fixed landing gear. The system consists of two turbine engines driving a single propeller through a combining gearbox. The aircraft is conventional, semi-monocoque, aluminum construction with a high cantilever wing, fixed gear, mechanical and electro-mechanical controls, and it will be unpressurized. Certification will include single pilot and IFR operations.

It is not possible for this airplane to have literal compliance with some commuter category flight test regulations. The Model LM 200 must comply with all commuter category multiengine requirements; however, since this propulsion system will result in centerline thrust, this airplane will not have a V MC or V MCG . The propeller is independent of both or either engine such that, with the failure of an engine, the propeller will continue to operate normally but with less torque input. The propeller control system does have failure modes independent of both engines that need to be considered when determining airplane performance. 14 CFR part 23 does not contain adequate or appropriate requirements to address a multiengine/single propeller design that results in centerline thrust.

Under the provisions of 14 CFR 21.17, Ayres Corporation must show that the Model LM 200 “Loadmaster” meets the applicable provisions of part 23, as amended by Amendments 23-1 through 23-53, thereto.

If the Administrator finds that the applicable airworthiness regulations (i.e., part 23) do not contain adequate or appropriate safety standards for the Ayres Corporation Model LM 200 “Loadmaster” because of a novel or unusual design feature, special conditions are prescribed under the provisions of § 21.16.

In addition to the applicable airworthiness regulations and special conditions, the Model LM 200 must comply with the part 23 fuel vent and exhaust emission requirements of 14 CFR part 34 and the part 23 noise certification requirements of 14 CFR part 36, and the FAA must issue a finding of regulatory adequacy pursuant to section 611 of Public Law 92-574, the “Noise Control Act of 1972.”

Special conditions, as appropriate, as defined in 11.19, are issued in accordance with § 11.38, and become part of the type certification basis in accordance with § 21.17(a)(2).

Special conditions are initially applicable to the model for which they are issued. Should the type certificate for that model be amended later to include any other model that incorporates the same novel or unusual design feature, the special conditions would also apply to the other model under the provisions of § 21.101(a)(1).

The Model LM 200 will incorporate the following novel or unusual design features: The Model LM 200 will operate with a multiengine/single propeller propulsion system.

As discussed above, these special conditions are applicable to the Model LM 200. Should Ayres Corporation apply at a later date for a change to the type certificate to include another model incorporating the same novel or unusual design feature, the special conditions would apply to that model as well under the provisions of § 21.101(a)(1).

Notice of proposed special conditions No. 23-01-02-SC for the Ayres Corporation Model LM 200 “Loadmaster” airplane was published on May 8, 2001 (66 FR 23199). No comments were received, and the special conditions are adopted as proposed.

This action affects only certain novel or unusual design features on one model of airplane. It is not a rule of general applicability, and it affects only the applicant who applied to the FAA for approval of these features on the airplane.

The authority citation for these special conditions is as follows:

On April 19, 2001, the FAA issued AD 2001-08-25, amendment 39-12202 (66 FR 21074, April 27, 2001). That AD is applicable to certain Airbus Model A330-301, -321, -322, and -342 series airplanes and certain Airbus Model A340 series airplanes. That AD requires reinforcement of the wing structure at the inboard pylon rear pickup area. That AD was prompted by issuance of mandatory continuing airworthiness information by a foreign civil airworthiness authority. The requirements of that AD are intended to prevent fatigue cracking of the bottom skin and reinforcing plate of the wing due to bending, which could lead to reduced structural integrity of the airplane wing.

Since the issuance of AD 2001-08-25, the FAA has been advised by the manufacturer that Airbus Model A330-341 series airplanes should have been included in the applicability of that AD. The FAA has determined that Model A330-341 series airplanes were inadvertently omitted from the applicability of that AD.

These airplane models are manufactured in France and are type certificated for operation in the United States under the provisions of section 21.29 of the Federal Aviation Regulations (14 CFR 21.19) and the applicable bilateral airworthiness agreement.

Since an unsafe condition has been identified that is likely to exist or develop on other airplanes of the same type design that may be registered in the United States at some future time, this AD supersedes AD 2001-08-25 to continue to require reinforcement of the wing structure at the inboard pylon rear pickup area. This AD expands the applicability of the existing AD to include Model A330-341, which was inadvertently omitted from the existing AD.

None of the airplanes affected by this action are on the U.S. Register. All airplanes included in the applicability of this AD currently are operated by non-U.S. operators under foreign registry; therefore, they are not directly affected by this AD action. However, the FAA considers that this AD is necessary to ensure that the unsafe condition is addressed in the event that any of these subject airplanes are imported and placed on the U.S. Register in the future.

Should an affected airplane be imported and placed on the U.S. Register in the future, for Model A330 series airplanes to follow Airbus Service Bulletin A330-57-3021, it would require approximately 380 work hours to accomplish the required replacements, at an average labor rate of $60 per work hour. Required parts would cost approximately $44,800 per airplane. Based on these figures, the expected cost of these replacements per airplane would be $67,600.

Also for Model A330 series airplanes, to follow Airbus Service Bulletin A330-54-3005, it would require approximately 36 work hours to accomplish the required replacements, at an average labor rate of $60 per work hour. Required parts would cost approximately $15,774 per airplane. Based on these figures, the expected cost of these replacements per airplane would be $17,934.

For Airbus Model A340 series airplanes, to follow Airbus Service Bulletin A340-57-4025, it would require approximately 380 work hours to accomplish the required replacements, at an average labor rate of $60 per work hour. Required parts would cost approximately $44,800 per airplane. Based on these figures, the expected cost of these replacements per airplane would be $67,600.

Also for Model A340 series airplanes, to follow Airbus Service Bulletin A340-54-4003, it would require approximately 26 work hours to accomplish the required replacements, at an average labor rate of $60 per work hour. Required parts would cost approximately $15,358 per airplane. Based on these figures, the expected cost of these replacements per airplane would be $16,918.

The cost impact figures discussed above are based on assumptions that no operator has yet accomplished any of the requirements of this AD action, and that no operator would accomplish those actions in the future if this AD were not adopted. The cost impact figures discussed in AD rulemaking actions represent only the time necessary to perform the specific actions actually required by the AD. These figures typically do not include incidental costs, such as the time required to gain access and close up, planning time, or time necessitated by other administrative actions.

Since this AD action does not affect any airplane that is currently on the U.S. register, it has no adverse economic impact and imposes no additional burden on any person. Therefore, prior notice and public procedures hereon are unnecessary and the amendment may be made effective in less than 30 days after publication in the Federal Register .

Although this action is in the form of a final rule and was not preceded by notice and opportunity for public comment, comments are invited on this rule. Interested persons are invited to comment on this rule by submitting such written data, views, or arguments as they may desire. Communications shall identify the Rules Docket number and be submitted in triplicate to the address specified under the caption ADDRESSES. All communications received on or before the closing date for comments will be considered, and this rule may be amended in light of the comments received. Factual information that supports the commenter's ideas and suggestions is extremely helpful in evaluating the effectiveness of the AD action and determining whether additional rulemaking action would be needed.

Submit comments using the following format:

• Organize comments issue-by-issue. For example, discuss a request to change the compliance time and a request to change the service bulletin reference as two separate issues.

• For each issue, state what specific change to the AD is being requested.

• Include justification (e.g., reasons or data) for each request.

Comments are specifically invited on the overall regulatory, economic, environmental, and energy aspects of the rule that might suggest a need to modify the rule. All comments submitted will be available, both before and after the closing date for comments, in the Rules Docket for examination by interested persons. A report that summarizes each FAA-public contact concerned with the substance of this AD will be filed in the Rules Docket.

Commenters wishing the FAA to acknowledge receipt of their comments submitted in response to this rule must submit a self-addressed, stamped postcard on which the following statement is made: “Comments to Docket Number 20011-NM-195-AD.” The postcard will be date stamped and returned to the commenter.

The regulations adopted herein will not have a substantial direct effect 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. Therefore, it is determined that this final rule does not have federalism implications under Executive Order 13132.

For the reasons discussed above, I certify that this action (1) is not a “significant regulatory action” under Executive Order 12866; (2) is not a “significant rule” under DOT Regulatory Policies and Procedures (44 FR 11034, February 26, 1979); and (3) will not have a significant economic impact, positive or negative, on a substantial number of small entities under the criteria of the Regulatory Flexibility Act. A final evaluation has been prepared for this action and it is contained in the Rules Docket. A copy of it may be obtained from the Rules Docket at the location provided under the caption ADDRESSES.

Backlogs of applications for permanent alien employment certification have been a growing problem in ETA regional and SESA offices. These increasing backlogs have resulted in an increase in the time it takes to obtain a determination on an application for permanent employment in the United States.

Recent measures to reduce backlogs in ETA's regional offices have met with considerable success. Consequently, ETA is now turning its attention to reducing the number of backlogged cases in SESA's. Instituting measures to reduce backlogs in SESA's without first reducing backlogs in regional offices would not have resulted in a reduction in mean processing time, because it would have merely resulted in transfers of backlogged applications from the SESA's to ETA's regional offices.

On July 26, 2000, the Department published a Proposed Rule in the Federal Register soliciting comment on the proposed amendment to the permanent labor certification regulations.

Before the Immigration and Naturalization Service (INS) may approve petition requests and the Department of State may issue visas and admit certain immigrant aliens to work permanently in the United States, the Secretary of Labor must first certify to the Secretary of State and to the Attorney General that:

(a) There are not sufficient United States workers, who are able, willing, qualified, and available at the time of the application for a visa and admission into the United States and at the place where the alien is to perform the work; and

(b) The employment of the alien will not adversely affect the wages and working conditions of similarly employed United States workers. [8 U.S.C. 1182(a)(5)(A)].

If the Secretary, through ETA, determines that there are no able, willing, qualified, and available U.S. workers and that employment of the alien will not adversely affect the wages and working conditions of similarly employed U.S. workers, DOL so certifies to the INS and to the Department of State, by issuing a permanent alien labor certification.

If DOL cannot make one or both of the above findings, the application for permanent alien employment certification is denied. DOL may be unable to make the two required findings for one or more reasons, including, but not limited to:

(a) The employer has not adequately recruited U.S. workers for the job offered to the alien, or has not followed the proper procedural steps in 20 CFR part 656.

(b) The employer has not met its burden of proof under section 291 of the Immigration and Nationality Act (INA or Act.) (8 U.S.C. 1361), that is, the employer has not submitted sufficient evidence of its attempts to obtain available U.S. workers, and/or the employer has not submitted sufficient evidence that the wages and working conditions which the employer is offering will not adversely affect the wages and working conditions of similarly employed U.S. workers.

The Department of Labor has promulgated regulations, at 20 CFR part 656, governing the labor certification process described above for the permanent employment of immigrant aliens in the United States. Part 656 was promulgated pursuant to section 212(a)(14) of the INA (now at section 212(a)(5)(A)). 8 U.S.C. 1182(a)(5)(A).

The regulations at 20 CFR part 656 set forth the fact-finding process designed to develop information sufficient to support the granting of a permanent labor certification. These regulations describe the nationwide system of public employment service offices available to assist employers in finding available U.S. workers and how the fact-finding process is utilized by DOL as the basis of information for the certification determination. See also 20 CFR parts 651 through 658, and the Wagner-Peyser Act (29 U.S.C. Chapter 4B).

Part 656 also sets forth the responsibilities of employers who desire to employ immigrant aliens permanently in the United States. Such employers are required to demonstrate that they have attempted to recruit U.S. workers through advertising, through the Federal-State Employment Service System, and by other specified means. The purpose is to assure that there is an adequate test of the availability of U.S. workers to perform the work, and to ensure that aliens are not employed under conditions that would adversely affect the wages and working conditions of similarly employed U.S. workers.

On October 1, 1996, because of the increasing workloads, ETA issued General Administrative Letter No. 1-97, Measures for Increasing Efficiency in the Permanent Labor Certification Process (GAL 1-97). The GAL instituted a number of measures to increase efficiency which were achievable under current regulations. One of the measures to increase efficiency was to encourage employers to file requests for a reduction in recruitment (RIR) under § 656.21(i) of the permanent labor certification regulations. Requests for RIR processing are given expedited processing at ETA's regional offices. The RIR provision allows certifying officers to reduce partially or completely the employer's recruitment efforts through the SESA's, for example, by decreasing or eliminating the number of days which the job order and/or ad must be run. The notice requirement at § 656.20(g) can be reduced partially, but it cannot be eliminated, since it is based on a statutory requirement. See Immigration Act of 1990, Pub. L. 101-649, sec. 122 (b) (Nov. 29 1990).

The RIR provision may be utilized by certifying officers when the labor market has been adequately tested within 6 months prior to the filing of the application and there is no expectation that full or partial compliance with the prescribed recruitment measures will produce qualified and willing applicants.

The emphasis on the use of RIR has worked well and has contributed significantly to ETA being able to manage its increasing case load with limited staff resources. Backlogs in both the regional offices and SESA's would undoubtedly be substantially larger if the use of RIR had not been encouraged by GAL 1-97.

ETA has concluded that backlogs in SESA's could be substantially reduced if employers are allowed to have applications that were not originally filed as RIR cases and which meet the appropriate criteria removed from the SESA's processing queues and processed as RIR cases. Furthermore, reducing or eliminating the backlogs would facilitate the implementation of a new permanent employment certification system that ETA has been developing.

This regulatory change does not change any of the substantive requirements for getting an RIR application certified nor does it materially diminish any of the protections afforded U.S. workers. It merely permits employers to request that applications filed under the basic labor certification process be converted to RIR processing without losing their original filing date. As explained in the Proposed Rule, the filing date is important to employers because, according to INS regulations, “[t]he priority date of any petition for classification under section 203(b) of the Act which is accompanied by an individual labor certification from the Department of Labor shall be the date the request for certification was accepted for processing by any office within the employment service system.” See 8 CFR 204.5(d). Currently, employers with cases in the queue which could qualify for RIR processing are reluctant to make such requests since, under current regulations, that would result in a loss of their original filing date which, in turn, would result in a loss of the alien's visa priority date. This is a serious disincentive for many employers where the alien beneficiary comes from a country where the visa numbers are backlogged. Therefore, the Department is taking this action to permit qualified applications to be converted to RIR processing with no loss of filing date.

To obtain public input to assist in the development of final regulations, the Department published a proposed rule in the Federal Register on July 26, 2000, and invited public comment. In the development of this final rule the Department has carefully considered the comments received in response to the proposed rule.

The proposed rule elicited 12 comments, including one from the American Immigration Lawyers Association (AILA), one from the American Council on International Personnel, Inc. (ACIP), one from the Federation for American Immigration Reform (FAIR), one from a SESA, and eight from members of the general public. AILA and ACIP generally supported the Department's proposal and submitted comments that are primarily procedural in nature. FAIR opposes implementation of the proposal unless such implementation were to be coupled with what FAIR describes as adequate worker protections. The SESA supports the Department's efforts to reduce case backlogs in SESA processing queues but does not believe that the proposal will have any significant effect towards that end. Of the eight members of the general public submitting comments, two took a neutral position on the proposal but recommended further clarification concerning precisely when an application becomes ineligible for conversion, and the other six were generally supportive of the proposal but requested that it be broadened to allow an even larger number of applications to qualify. These comments are discussed in further detail below.

Eight commenters addressed issues concerning the timing of an employer's request for an RIR conversion and when an application becomes ineligible for such a conversion. Of these eight commenters, some simply requested clarification of the Department's position while several others recommended specific outcomes. The proposed rule stated that:

ACIP recommended that the rule should be modified to permit conversion at any time prior to the time that results of recruitment must be submitted to the SESA and provided specific regulatory text as part of its comments that it asserts would achieve that result. Several commenters questioned whether the RIR conversion procedures will be available to employers that initially filed RIR applications that were subsequently remanded back to the State agency for lack of adequate advertising in order to engage in the recruitment efforts required under the basic labor certification process. Others questioned whether applications that have been forwarded to the Regional office prior to recruitment to resolve issues such as a challenge to the SESA prevailing wage determination are eligible for RIR conversion. Two members of the general public requested clarification as to whether the proposed amendment's language limiting RIR conversion eligibility to those applications for which “recruitment has not yet been conducted pursuant to paragraphs (f) and/or (g) of [§ 656.21]” refers to both the paragraph in section (f) concerning SESA requests for employers to make corrections to applications prior to the commencement of recruitment activities, and the paragraph in section (g) concerning print advertisements. One member of the general public suggested that applications should be eligible for RIR conversion provided that they are submitted with adequate evidence of advertising prior to any “significant correspondence” having been sent by the SESA to the employer. Another requested that, at the very least, the regulation should say that RIR conversion is only permitted where recruitment has not yet been requested by the SESA, so that a failure to place a timely advertisement would not be rewarded for some cases with permission to process the case as an RIR and considered grounds for inactivating other cases because the employer didn't ask for an RIR conversion. Lastly, two other members of the general public stated their belief that RIR conversions should be permitted even if recruitment under the basic process has been completed.

The Department has carefully considered the various options suggested by commenters and has determined that the best result would be to adopt a bright-line test for a cutoff date for RIR eligibility. The Department believes that the use of such a standard will clear up the confusion that has been expressed by commenters. Towards that end, this Final Rule provides that an employer may request an RIR conversion up until the point that the SESA has placed the job order pursuant to § 656.21(f)(1). The date of the job order's placement shall be determinative in evaluating whether an RIR conversion request may be granted by the certifying officer.

As noted in the Proposed Rule, since the RIR procedures were designed to expedite processing by permitting employers to substitute recruiting conducted prior to filing the application for the recruiting required by § 656.21, it would be incongruous to entertain an RIR request from an employer who had already commenced the mandated recruiting. The Department simply cannot ignore any potential availability of U.S. applicants and believes such applications should be approved or denied based upon those recruitment efforts.

In response to commenters who questioned whether RIR is still permitted where corrections are needed, the Department believes that applications may still be converted to RIR processing if changes are needed and the SESA so notifies the employer. Consistent with GAL 1-97, the SESA should resolve any items that need to be corrected prior to transmitting the application to the certifying officer. GAL 1-97 further provides that where there are deficiencies that would have affected the recruitment, the SESA should advise the employer that it is unlikely that the certifying officer will approve the RIR and suggest that the employer continue to pursue its application under the basic labor certification process. However, the SESA should not use the fact that corrections are necessary as a means to thwart an employer's legitimate efforts to convert an application to the RIR process.

Questions were also raised with respect to applications that have been forwarded to the regional office prior to recruitment and whether they may also be eligible for RIR conversion. As far as the Department can determine there is a relatively small number of cases that are now in regional office queues for which no recruiting has yet to occur. If the certifying officer remands such applications back to State agencies for further processing, the final rule permits RIR conversion requests provided that the application was initially filed prior to August 3, 2001. The Department, however, rejects AILA's suggestion that the regulation be revised to allow RIR to be requested in these cases by filing conversion requests directly with the regional certifying officer. Section 656.21(i)(1) provides that the employer shall file its written request for RIR processing at the appropriate Job Service office. The Proposed Rule did not contemplate changing the basic structure of the RIR processing procedures which require that the employer request for RIR processing be submitted to the SESA having jurisdiction over the area of intended employment. We believe that orderly processing dictates that all such requests be filed with the SESA, whether the request is submitted with the application initially, or when submitted to the SESA under the RIR conversion procedures set forth in this final rule. Lastly, the Department does not believe that there are a large enough number of pre-recruitment cases in regional office queues for the amendment to have much of a beneficial effect on State agency backlogs. There appears to be such a small number of applications that could conceivably benefit from the suggested amendment that the Department does not believe such changes to the regulations governing RIR processing are warranted.

A member of the general public asserted that once the RIR conversion procedures have been implemented there will be employers requesting State agencies to hold up advertising on an application until the employer has had adequate time to conduct the recruitment activities and/or to gather evidence that will support a future RIR conversion request. We are mindful of this possibility. We are also concerned about the administrative complexities of keeping track of such cases. On the other hand, it is our objective to use RIR processing to the maximum extent possible. Therefore, the Department intends to explore this issue with the regional certifying officers and SESA's responsible for administering the labor certification program.

Eight commenters stressed a need for very clear guidelines that will specify the procedures to be followed with respect to RIR conversion requests by employers, SESA's, and regional offices. AILA suggested two potential procedures; one for situations in which amendments to the application are necessary, and one for applications for which no amendments are required. ACIP suggested similar procedures that differ only to the extent that they presuppose the need for a new part A of Form ETA 750. FAIR offered its view that employers who convert applications to RIR status should not be allowed to make any changes in the job duties or requirements and suggested that to do so would present yet another opportunity to “game the system.” Four members of the general public requested that the Department process converted RIR applications expeditiously since the priority dates of such cases are much older than RIR applications currently being processed.

The Department agrees with the majority of commenters that ETA must offer clear guidelines to SESA's and regional offices on how RIR conversion requests are to be processed. The Department does not, however, accept ACIP's blanket assumption that a new part A of Form ETA 750 will be required in all situations where applications are converted to RIR processing as a result of this regulatory change. We also reject FAIR's suggestion that no amendments to such applications be permitted. Many of these applications, especially those in high-volume SESA's, have been in the queue for extended periods of time. Therefore, it is to be expected that there may be a need to make changes to the job opportunity and/or increase the rate of pay offered due to an increased prevailing wage rate applicable to the occupation and area or, in many cases, an increase in the employer's own pay scale. With respect to changes in the content of labor certification applications, the Department did not intend in offering the proposed amendment to change the long standing procedures for handling such requests. If the duties and requirements of the job offer are changed to such an extent that it becomes a new job opportunity, the application would need to be refiled with the State agency as a new application. However, minor changes such as an increased wage offer or slightly different job duties are permitted as long as it remains essentially the same job opportunity.

While the Department agrees with the general thrust of AILA's suggestions regarding the procedures to be followed, we do not believe it is prudent to put such explicit guidance in the regulations. Rather, this preamble will serve to clarify the Department's intent. When a written request for conversion is received by the SESA, the request letter and supporting documentation will be added to the case file and the application will be removed from the regular labor certification application queue and placed in the RIR queue. If operating experience indicates that further guidance is needed ETA will issue to the SESA's and regional offices a policy directive outlining in further detail the procedures to be followed in adjudicating such requests.

In dealing with applications that do not require amendments, ETA envisions that the procedures will operate consistent with the preamble to the proposed rule which stated:

With respect to applications for which amendments are required, such as an increase in the rate of pay offered or a change of address, ETA has concluded that amendments can be handled in the same fashion as they are currently handled by employers making the amendments directly on the form and initialing the changes. To the extent employers currently make their amendments by letter or by submitting a new application form, those procedures will continue to be followed.

In response to comments suggesting that converted RIR applications be processed expeditiously since the priority dates are older than RIR applications currently being processed, GAL 1-97 provides that RIR applications are to be given expedited processing unless they contain deficiencies. However, converted RIR applications will not be processed any differently than applications that were initially filed under the RIR provisions of the regulations. Such applications will continue to be processed by regional offices along with other RIR requests in the order in which they are received.

Finally, ACIP recommended that the final rule include a requirement that the agency notify the petitioner within a reasonable period of time after filing for conversion on whether the labor certification application has, in fact, been converted to RIR processing. The Department does not believe it is appropriate that any special rules be implemented regarding notification with respect to RIR conversion determinations. Furthermore, generally all requests for conversion to RIR processing will be granted. Only where the occupation listed in the application is on Schedule B , or the request is not timely, would the employer request for conversion to RIR processing be denied. The Department agrees that notification of action on a particular application should be provided in the normal course of business but we reject the suggestion to place a time limit in the regulation. Processing cases under the RIR procedures is virtually always accomplished in considerably less time than processing cases under the non-RIR basic process.

AILA suggested that the cutoff date for RIR conversion eligibility should be revised to occur on the date a final or interim final rule is published. In the Proposed Rule, the Department stated that the proposed regulation would allow employers to request that a permanent labor certification application be processed as an RIR request only if the initial application was filed on or before July 26, 2000, the date of publication. As stated in the proposed rule, ETA's operating experience indicates that without such a limitation, employers may be motivated to file large numbers of cases, many of which may be inadequately prepared, simply to obtain a filing date and then convert such cases to RIR processing. This outcome would undermine the primary purposes of the proposed regulatory revision to reduce backlogs of existing cases in State agency processing queues and to facilitate the orderly transition to a new streamlined labor certification system.

In its comments, AILA said that, while it understood the Department's desire to avoid an onslaught of filings in anticipation of the regulation, it felt that the problem could as readily be avoided by using the publication date of the final or interim final regulation. AILA further asserted that the later date would provide no lead time to file applications under old procedures to take advantage of new procedures, but would enable the Department to consider as many cases as possible in this new, efficiency-improving, procedure.

The Department agrees with AILA's comments. While we continue to believe that the regulation must contain some time limitation with respect to which applications are eligible for conversion to RIR processing, we agree that adopting the date of publication of this final rule as the cutoff date, as opposed to the date the proposed rule was published, will better serve the interests of the regulated community by expanding the pool of eligible applications without materially diminishing significant protections afforded U.S. workers. Moreover, as noted by AILA, adopting as the cutoff the date of publication of this final rule will just as readily prevent the filing of large numbers of inadequately prepared applications. Accordingly, this final rule provides that the option to request that a permanent labor certification application be converted to RIR processing applies only to applications that were initially filed on or before August 3, 2001.

One commenter, FAIR, strongly asserted that the Department did not have the authority to rely on “efficiency in processing” as a permissible basis to impose what it calls “sweeping changes to the permanent alien labor certification program implicit in the proposed regulation.” FAIR states that the changes conflict with the plain meaning of 8 U.S.C. 1182(a)(5)(A), the statutory provisions that form the basis for the permanent labor certification program. Further, FAIR avers that past cutbacks in federal funding for administration of the alien labor certification program are not a rational basis for the proposed regulation and that pending labor certification applications are already at acceptable levels and continue to decline. FAIR also contended that reports of an increased incidence of suspect applications support a limitation of RIR and RIR conversion to routine, fully-compliant, applications, and that applications filed under the provisions of § 245(i)  1 of the INA are inherently suspect and should not benefit from relaxed scrutiny under RIR processing. FAIR generally opposes the conversion of alien labor certification applications to RIR status unless adequate worker protections are included. Toward that end, FAIR suggests that, should the Department decide that the RIR conversion proposal must go forward despite its opposition, it should include seven specific U.S. worker protections that it recommended in its comments on the proposed amendment.

The Department views the majority of FAIR's comments and suggestions as general objections to the operation of the RIR provisions contained in the regulations governing the permanent labor certification program. Neither the proposed rule nor this final rule are or were designed to alter the general procedures applicable to the adjudication of RIR applications. At this time, the Department is not entertaining comments that apply to RIR processing generally as such comments are not within the scope of this rulemaking.

The Department also does not believe the proposed amendment in any way conflicts with the statutory provisions governing the permanent labor certification program. The RIR provisions have been in the Department's regulations in one form or another since 1977, and in their present form since 1981. The proposed amendment is simply a housekeeping rule to permit otherwise eligible applications to be processed as RIR applications even though they do not meet the current procedural requirement that the recruitment must have been conducted prior to filing the application. Every application for which RIR conversion will occur as a result of this rule could always have been withdrawn by the employer and re-filed as an RIR application. This rule merely permits such employers to convert their cases to RIR processing without the need to withdraw the existing application filed under the basic process. In so doing, the proposed amendment would permit an employer to convert to RIR processing while at the same time allowing them to retain their original filing date. After converting an application to RIR processing as a result of this final rule, the employer will still have to meet all of the long-standing regulatory criteria applicable to RIR requests and ETA policy directives issued thereunder, such as GAL 1-97.

With respect to FAIR's comments that pending alien labor certification applications are already at acceptable levels and continue to decline, the Department simply cannot agree. The number of labor certification applications in State agency processing queues still remains unacceptably high and the time it takes to process them remains unacceptably long. Any backlog of applications, regardless of the level, stands to hinder the smooth transition to the new, more streamlined, permanent labor certification program. Further, as we work to transition to the new system, SESA's simply must clear up their existing backlog of applications in their entirety for, under the new system, SESA's will no longer be funded for processing such applications.

FAIR also contends that applications initially filed under Section 245(i) of the INA are inherently suspect and should not benefit from relaxed scrutiny under the RIR provisions of the regulations. The Department believes that no specific application, nor any specific occupation, is inherently deserving of favorable treatment on requests to grant an RIR. Similarly, no application or occupation is inherently ineligible, with the exception of those occupations listed on Schedule B , which are specifically precluded from consideration under RIR processing procedures by § 656.21(i) of the regulations governing the permanent labor certification program. Moreover, there simply is no readily identifiable means to determine those applications that have been filed on behalf of beneficiaries who will seek at some future date to exercise their grand-fathered benefits under section 245(i) of the INA. Just because an application may have been filed on or before January 14, 1998, the original cutoff date for eligibility under section 245(i), is by no means determinative in evaluating whether a particular alien beneficiary actually intends to exercise their rights under that section. Further, GAL 1-97 makes clear that to be eligible for RIR processing, the application cannot contain deficiencies such as unduly restrictive job requirements.

One additional comment concerning the general justification for the regulatory change was submitted by the SESA, in which they observed that reducing the backlog is not simply a matter of allowing RIR processing. They are of the belief that many of the applications in the queue require additional handling to resolve issues prior to beginning recruitment or being forwarded to the regional office for certification. The Department is aware that this regulatory change is not a panacea and that some level of backlogged applications will continue to exist. The Department agrees that a number of applications in State agency processing queues contain deficiencies and are thus inappropriate for an RIR conversion.

Some commenters addressed other issues that arise under the permanent labor certification program in general without any direct bearing on the proposed amendment, and as such, fall outside the scope of this rulemaking. ACIP firmly stated that the final promulgation of this regulation should in no way disrupt or delay processing of traditionally filed labor certification applications that are not converted to RIR processing. The SESA recommended that to reduce ongoing and future backlogs and speed up the application process, the Department should propose an amendment to the list of Schedule A occupations to include others for which there exists a short supply of U.S. workers. Specifically, they suggested that electrical and electronic engineers, software engineers, computer programmers, systems analysts, and foreign specialty cooks, be added to the Schedule A list of occupations.

In response to ACIP's concerns regarding the impact of the proposed amendment on processing times for labor certification applications filed under the basic process, administrative decisions as to how resources are allocated are outside the scope of this rulemaking. However, ETA anticipates that State agencies and regional offices will continue to process both RIR and non-RIR cases simultaneously. Backlogs have been declining for both classes of cases. The SESA's suggestion to put additional occupations on the Schedule A list is also outside the scope of this rulemaking. As noted above, the proposed amendment is simply a housekeeping rule to permit otherwise eligible applications to be processed as RIR applications even though they do not meet the current procedural requirement that the recruitment must have been conducted prior to filing the application.

The Department has determined that this Final Rule is not an “economically significant regulatory action” within the meaning of Executive Order 12866, in that it will not have an economic 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.

While it is not economically significant, the Office of Management and Budget reviewed the final rule because of the novel legal and policy issues raised by this rulemaking.

This final rule only affects those employers seeking immigrant workers for permanent employment in the United States. The Department of Labor has notified the Chief Counsel for Advocacy, Small Business Administration, and made the certification pursuant to the Regulatory Flexibility Act at 5 U.S.C. 605(b), that the rule will not have a significant economic impact on a substantial number of small entities.

This rule will not result in the expenditure by State, local and tribal governments, in the aggregate, or by the private sector, of $100 million or more in any 1 year, and it will not significantly or uniquely affect small governments. Therefore, no actions are deemed necessary under the provisions of the Unfunded Mandates Reform Act of 1995.

This final rule is not a major rule as defined by section 804 of the Small Business Regulatory Enforcement Act of 1996. It will not result in an annual effect on the economy of $100 million or more; a major increase in costs or prices; or significant adverse effects on competition, employment, investment, productivity, innovation, or on the ability of United States-based companies to compete with foreign-based companies in domestic and export markets.

This final rule will not have a substantial direct effects 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. Therefore, in accordance with Executive Order 13132, it is determined that this rule does not have sufficient federalism implications to warrant the preparation of a summary impact statement.

This final rule does not affect family well-being.

The rule does not modify the existing collection of information requirements in 20 CFR 656.21.

(i) * * *

(6) Notwithstanding the provisions of paragraph (i)(1)(i) of this section, an employer may file a request with the SESA to have any application filed on or before August 3, 2001, processed as a reduction in recruitment request under this paragraph (i), provided that recruitment efforts have not been commenced pursuant to paragraph 656.21(f)(1) of this section.

On January 2, 2001, the IRS and Treasury published in the Federal Register (REG-107566-00, 66 FR 66; (2001-3 I.R.B. 346)) a notice of proposed rulemaking (the Proposed Regulations) under section 355(e) of the Internal Revenue Code of 1986. Section 355(e) provides that the stock of a controlled corporation will not be qualified property under section 355(c)(2) or 361(c)(2) if the stock is distributed as “part of a plan (or series of related transactions) pursuant to which 1 or more persons acquire directly or indirectly stock representing a 50-percent or greater interest in the distributing corporation or any controlled corporation.”

The Proposed Regulations provide guidance concerning the interpretation of the phrase “plan (or series of related transactions).” The Proposed Regulations generally provide that whether a distribution and an acquisition are part of a plan is determined based on all the facts and circumstances. They also set forth six safe harbors, the satisfaction of which would confirm that a distribution and an acquisition are not part of a plan.

A public hearing regarding the Proposed Regulations was held on May 15, 2001. In addition, written comments were received. A number of commentators have indicated that the lack of guidance under section 355(e) is hindering the ability to undertake acquisitions and divestitures. These commentators have requested that the IRS and Treasury provide immediate guidance pending the finalization of those regulations. In response to these requests, the IRS and Treasury are promulgating the Proposed Regulations as temporary regulations in this Treasury Decision. The temporary regulations are identical to the Proposed Regulations, except that the temporary regulations reserve section 1.355-7(e)(6) (suspending the running of any time period prescribed in the Proposed Regulations during which there is a substantial diminution of risk of loss under the principles of section 355(d)(6)(B)) and Example 7 of the Proposed Regulations (interpreting the term “similar acquisition” in the context of a situation involving multiple acquisitions).

The IRS and Treasury continue to study all of the comments received regarding the Proposed Regulations. The IRS and Treasury will continue to devote significant resources to analyzing the comments and, in the near future, expect to issue additional guidance regarding the interpretation of the phrase “plan (or series of related transactions).”

It has been determined that these temporary regulations are not a significant regulatory action as defined in Executive Order 12866. Therefore, a regulatory assessment is not required. It has also been determined that section 553(b) of the Administrative Procedure Act (5 U.S.C. chapter 5) does not apply to these temporary regulations, and, because the temporary regulations do not impose a collection of information on small entities, the Regulatory Flexibility Act (5 U.S.C. chapter 6) does not apply. Pursuant to section 7805(f) of the Internal Revenue Code, these temporary regulations will be submitted to the Chief Counsel for Advocacy of the Small Business Administration for comment on its impact on small business.

The principal author of these temporary regulations is Brendan P. O'Hara, Office of the Associate Chief Counsel (Corporate). However, other personnel from the Department of the Treasury and the IRS participated in their development.

(a) In general. Except as provided in section 355(e) and in this section, section 355(e) applies to any distribution—

(1) To which section 355 (or so much of section 356 as relates to section 355) applies; and

(2) That is part of a plan (or series of related transactions) (referred to elsewhere in this section as “plan”) pursuant to which 1 or more persons acquire directly or indirectly stock representing a 50-percent or greater interest in the distributing corporation (Distributing) or any controlled corporation (Controlled).

(b) Plan. (1) Whether a distribution and an acquisition are part of a plan is determined based on all the facts and circumstances. In general, in the case of an acquisition after a distribution, the distribution and the acquisition are considered part of a plan if Distributing, Controlled, or any of their respective controlling shareholders intended, on the date of the distribution, that the acquisition or a similar acquisition occur in connection with the distribution. In general, in the case of an acquisition before a distribution, the acquisition and the distribution are considered part of a plan if Distributing, Controlled, or any of their respective controlling shareholders intended, on the date of the acquisition, that a distribution occur in connection with the acquisition.

(2) For purposes of paragraph (b)(1) of this section, the actual acquisition and the intended acquisition may be similar even though the identity of the person acquiring stock of Distributing or Controlled (acquirer), the timing of the acquisition or the terms of the actual acquisition are different from the intended acquisition. For example, in the case of a public offering or auction, the actual acquisition and the intended acquisition may be similar even though there are changes in the terms of the stock, the class of stock being offered, the size of the offering, the timing of the offering, the price of the stock, or the participants in the public offering or auction.

(c) Multiple acquisitions. All acquisitions of stock of Distributing or Controlled that are considered to be part of a plan with a distribution pursuant to paragraph (b) of this section will be aggregated for purposes of the 50-percent test of paragraph (a)(2) of this section.

(d) Facts and circumstances. (1) The facts and circumstances to be considered in demonstrating whether a distribution and an acquisition are part of a plan include, but are not limited to, the facts and circumstances specified in paragraphs (d)(2) and (3) of this section. The weight to be given each of the facts and circumstances depends on the particular case. Therefore, whether a distribution and an acquisition are part of a plan does not depend on the relative number of facts and circumstances present under paragraph (d)(2) of this section as compared to paragraph (d)(3) of this section.

(2) Among the facts and circumstances tending to show that a distribution and an acquisition are part of a plan are the following:

(i) In the case of an acquisition (other than involving a public offering or auction) after a distribution, Distributing or Controlled and the acquirer (or any of their respective controlling shareholders) discussed the acquisition or a similar acquisition by the acquirer before the distribution. The weight to be accorded the discussions depends on the nature, extent and timing of the discussions. The existence of an agreement, understanding, arrangement or substantial negotiations at the time of the distribution is given substantial weight.

(ii) In the case of an acquisition (other than involving a public offering or auction) after a distribution, Distributing or Controlled and a potential acquirer (or any of their respective controlling shareholders) discussed an acquisition before the distribution and a similar acquisition by a different person occurred after the distribution. The weight to be accorded the discussions depends on the nature, extent and timing of the discussions and the similarity of the acquisition actually occurring to the acquisition discussed before the distribution.

(iii) In the case of an acquisition involving a public offering or auction after a distribution, Distributing or Controlled (or any of their respective controlling shareholders) discussed the acquisition with an investment banker or other outside adviser before the distribution. The weight to be accorded the discussions depends on the nature, extent and timing of the discussions.

(iv) In the case of an acquisition before a distribution, Distributing or Controlled and the acquirer (or any of their respective controlling shareholders) discussed a distribution before the acquisition. The weight to be accorded the discussions depends on the nature, extent and timing of the discussions.

(v) In the case of an acquisition before a distribution, Distributing or Controlled and a potential acquirer (or any of their respective controlling shareholders) discussed a distribution before the acquisition and a similar acquisition by a different person occurred before the distribution. The weight to be accorded the discussions depends on the nature, extent and timing of the discussions and the similarity of the acquisition actually occurring to the potential acquisition that was discussed.

(vi) In the case of an acquisition involving a public offering or auction before a distribution, Distributing or Controlled (or any of their respective controlling shareholders) discussed a distribution with an investment banker or other outside adviser before the acquisition. The weight to be accorded the discussions depends on the nature, extent and timing of the discussions.

(vii) In the case of an acquisition either before or after a distribution, the distribution was motivated by a business purpose to facilitate the acquisition or a similar acquisition of Distributing or Controlled.

(viii) In the case of an acquisition either before or after a distribution, the acquisition and the distribution occurred within 6 months of each other or there was an agreement, understanding, arrangement, or substantial negotiations regarding the second transaction within 6 months after the first transaction. Also, in the case of an acquisition occurring after a distribution, there was an agreement, understanding, arrangement, or substantial negotiations regarding a similar acquisition at the time of the distribution or within 6 months thereafter.

(ix) In the case of an acquisition either before or after a distribution, the debt allocation between Distributing and Controlled made an acquisition of Distributing or Controlled likely in order to service the debt.

(3) Among the facts and circumstances tending to show that a distribution and an acquisition are not part of a plan are the following:

(i) In the case of an acquisition (other than involving a public offering or auction) after a distribution, neither Distributing nor Controlled and the acquirer or any potential acquirer (nor any of their respective controlling shareholders) discussed the acquisition or a similar acquisition before the distribution.

(ii) In the case of an acquisition involving a public offering or auction after a distribution, neither Distributing nor Controlled (nor any of their respective controlling shareholders) discussed the acquisition with an investment banker or other outside adviser before the distribution.

(iii) In the case of an acquisition after a distribution, there was an identifiable, unexpected change in market or business conditions occurring after the distribution that resulted in the acquisition that was otherwise unexpected at the time of the distribution.

(iv) In the case of an acquisition (other than involving a public offering or auction) before a distribution, neither Distributing nor Controlled and the acquirer (nor any of their respective controlling shareholders) discussed a distribution before the acquisition. This paragraph (d)(3)(iv) does not apply if the acquisition occurred after the date of the public announcement of the planned distribution.

(v) In the case of an acquisition before a distribution, there was an identifiable, unexpected change in market or business conditions occurring after the acquisition that resulted in a distribution that was otherwise unexpected.

(vi) In the case of an acquisition either before or after a distribution, the distribution was motivated in whole or substantial part by a corporate business purpose (within the meaning of § 1.355-2(b)) other than a business purpose to facilitate the acquisition or a similar acquisition of Distributing or Controlled. The presence of a business purpose to facilitate the acquisition or a similar acquisition of Distributing or Controlled is relevant in determining the extent to which the distribution was motivated by a corporate business purpose (within the meaning of § 1.355-2(b)) other than a business purpose to facilitate the acquisition or a similar acquisition of Distributing or Controlled.

(vii) In the case of an acquisition either before or after a distribution, the distribution would have occurred at approximately the same time and in similar form regardless of the acquisition or a similar acquisition (including a previously proposed similar acquisition that did not occur).

(e) Operating rules. The operating rules contained in this paragraph (e) apply for all purposes of this section.

(1) Reasonable certainty evidence of business purpose to facilitate an acquisition. (i) In the case of an acquisition after a distribution, if, at the time of the distribution, it was reasonably certain that before a date that is 6 months after the distribution an acquisition would occur, an agreement, understanding, or arrangement would exist, or substantial negotiations would occur regarding an acquisition of Distributing or Controlled, the reasonable certainty is evidence of a business purpose to facilitate an acquisition of Distributing or Controlled.

(ii) In the case of an acquisition before a distribution, if the acquisition occurred after the date of the public announcement of the planned distribution, or if, at the time of the acquisition, it was reasonably certain that before a date that is 6 months after the acquisition the distribution would occur, an agreement, understanding, or arrangement would exist, or substantial negotiations would occur regarding the distribution, the public announcement or reasonable certainty is evidence of a business purpose to facilitate an acquisition of Distributing or Controlled.

(2) Internal discussions evidence of business purpose. The fact that internal discussions regarding an acquisition occurred may be indicative of the business purpose that motivated the distribution.

(3) Hostile takeover defense. If Distributing distributes Controlled stock intending, in whole or substantial part, to decrease the likelihood of the acquisition of Distributing or Controlled by separating it from another corporation that is likely to be acquired, Distributing will be treated as having a business purpose to facilitate the acquisition of the corporation that was likely to be acquired.

(4) Effect of distribution on trading in stock. The fact that the distribution made all or a part of the stock of Controlled available for trading or made Distributing or Controlled's stock trade more actively is not taken into account in determining whether the distribution and an acquisition of Distributing or Controlled stock were part of a plan.

(5) Consequences of section 355(e) disregarded for certain purposes. For purposes of determining the intentions of the relevant parties under this section, the consequences of the application of section 355(e), and the existence of any contractual indemnity by Controlled for tax resulting from the application of section 355(e) caused by an acquisition of Controlled, are disregarded.

(6) Substantial diminution of risk. [Reserved]

(f) Safe harbors —(1) Safe Harbor I. (i) A distribution and an acquisition occurring after the distribution will not be considered part of a plan if—

(A) The acquisition occurred more than 6 months after the distribution and there was no agreement, understanding, arrangement, or substantial negotiations concerning the acquisition before a date that is 6 months after the distribution; and

(B) The distribution was motivated in whole or substantial part by a corporate business purpose (within the meaning of § 1.355-2(b)) other than a business purpose to facilitate an acquisition of Distributing or Controlled.

(ii) For purposes of paragraph (f)(1)(i)(B) of this section, the presence of a business purpose to facilitate an acquisition of Distributing or Controlled is relevant in determining the extent to which the distribution was motivated by a corporate business purpose (within the meaning of § 1.355-2(b)) other than a business purpose to facilitate an acquisition of Distributing or Controlled.

(2) Safe Harbor II. A distribution and an acquisition occurring after the distribution will not be considered part of a plan if—

(i) The acquisition occurred more than 6 months after the distribution and there was no agreement, understanding, arrangement, or substantial negotiations concerning the acquisition before a date that is 6 months after the distribution; and

(ii) The distribution was motivated in whole or substantial part by a corporate business purpose (within the meaning of § 1.355-2(b)) to facilitate an acquisition or acquisitions of no more than 33 percent of the stock of Distributing or Controlled, and no more than 20 percent of the stock of the corporation (whose stock was acquired in the acquisition or acquisitions that motivated the distribution) was either acquired or the subject of an agreement, understanding, arrangement, or substantial negotiations before a date that is 6 months after the distribution.

(3) Safe Harbor III. If an acquisition occurs more than 2 years after a distribution and there was no agreement, understanding, arrangement, or substantial negotiations concerning the acquisition at the time of the distribution or within 6 months thereafter, the acquisition and the distribution are not part of a plan.

(4) Safe Harbor IV. If an acquisition occurs more than 2 years before a distribution, and there was no agreement, understanding, arrangement, or substantial negotiations concerning the distribution at the time of the acquisition or within 6 months thereafter, the acquisition and the distribution are not part of a plan.

(5) Safe Harbor V —(i) In general. An acquisition of Distributing or Controlled stock that is listed on an established market is not part of a plan if the acquisition is pursuant to a transfer between shareholders of Distributing or Controlled, neither of whom is a 5-percent shareholder. For purposes of the preceding sentence, the term 5-percent shareholder is defined in paragraph (k)(5) of this section, except that the corporation can rely on Schedules 13D and 13G (or any similar schedules) filed with the Securities and Exchange Commission to identify its 5-percent shareholders.

(ii) Special rules. (A) This paragraph (f)(5) does not apply to public offerings or redemptions.

(B) This paragraph (f)(5) does not apply to a transfer of stock by or to a person who, pursuant to a formal or informal understanding with other persons (the coordinating group), has joined in coordinated transfers of stock if, at any time during the period the understanding exists, the coordinating group owns, in the aggregate, 5 percent or more of the stock of the corporation whose stock is transferred (determined by vote or value) immediately before or after each transfer or at the time of the distribution. A principal element in determining if such an understanding exists is whether the investment decision of each person is based on the investment decision of 1 or more other existing or prospective shareholders.

(C) This paragraph (f)(5) does not apply to a transfer of stock by or to a person if the corporation the stock of which is being transferred knows, or has reason to know, that the person (or a coordinating group, treating it as a single person) intends to become a 5-percent shareholder at any time during the 4-year period beginning 2 years before the distribution.

(6) Safe Harbor VI. If stock of Distributing or Controlled is acquired by an employee or director of Distributing, Controlled, or a person related to Distributing or Controlled under section 355(d)(7)(A), in connection with the performance of services as an employee or director for the corporation or a person related to it under section 355(d)(7)(A) (and that is not excessive by reference to the services performed) in a transaction to which section 83 applies, the acquisition is not an acquisition that is part of a plan as described in paragraph (b)(1) of this section.

(g) Stock acquired by exercise of options, warrants, convertible obligations, and other similar interests —(1) Treatment of options —(i) General rule. For purposes of this section, if stock of Distributing or Controlled is acquired pursuant to an option, the option will be treated as an agreement to acquire the stock on the date the option is written unless Distributing establishes that on the later of the date of the stock distribution or the writing of the option, the option was not more likely than not to be exercised. The determination of whether an option was more likely than not to be exercised is based on all the facts and circumstances, taking control premiums and minority and blockage discounts into account in determining the fair market value of stock underlying an option.

(ii) Agreement, understanding, arrangement, or substantial negotiations to write an option. If there is an agreement, understanding, or arrangement to write an option, the option will be treated as written on the date of the agreement, understanding, or arrangement. If an agreement, understanding, or arrangement to write an option is reached, or an option is written, more than 6 months but not more than 2 years after the distribution, and there were substantial negotiations regarding the writing of the option or the acquisition of the stock underlying the option before the end of the 6-month period beginning on the date of the distribution, the option will be treated as written within 6 months after the distribution.

(2) Instruments treated as options. For purposes of this paragraph (g), except to the extent provided in paragraph (g)(3) of this section, call options, warrants, convertible obligations, the conversion feature of convertible stock, put options, redemption agreements (including rights to cause the redemption of stock), any other instruments that provide for the right or possibility to issue, redeem, or transfer stock (including an option on an option), or any other similar interests are treated as options.

(3) Instruments generally not treated as options. For purposes of this paragraph (g), the following are not treated as options unless (in the case of paragraphs (g)(3)(i), (iii), and (iv) of this section) written, transferred (directly or indirectly), or listed with a principal purpose of avoiding the application of section 355(e) or this section.

(i) Escrow, pledge, or other security agreements. An option that is part of a security arrangement in a typical lending transaction (including a purchase money loan), if the arrangement is subject to customary commercial conditions. For this purpose, a security arrangement includes, for example, an agreement for holding stock in escrow or under a pledge or other security agreement, or an option to acquire stock contingent upon a default under a loan.

(ii) Compensatory options. An option to acquire stock in Distributing or Controlled with customary terms and conditions provided to an employee or director of Distributing, Controlled, or a person related to Distributing or Controlled under section 355(d)(7)(A), in connection with the performance of services as an employee or director for the corporation or a person related to it under section 355(d)(7)(A) (and that is not excessive by reference to the services performed) and that immediately after the distribution and within 6 months thereafter—

(A) Is nontransferable within the meaning of § 1.83-3(d); and

(B) Does not have a readily ascertainable fair market value as defined in § 1.83-7(b).

(iii) Options exercisable only upon death, disability, mental incompetency, or separation from service. Any option entered into between shareholders of a corporation (or a shareholder and the corporation) that is exercisable only upon the death, disability, or mental incompetency of the shareholder, or, in the case of stock acquired in connection with the performance of services for the corporation or a person related to it under section 355(d)(7)(A) (and that is not excessive by reference to the services performed), the shareholder's separation from service.

(iv) Rights of first refusal. A bona fide right of first refusal regarding the corporation's stock with customary terms, entered into between shareholders of a corporation (or between the corporation and a shareholder).

(v) Other enumerated instruments. Any other instrument the Commissioner may designate in revenue procedures, notices, or other guidance published in the Internal Revenue Bulletin. See § 601.601(d)(2) of this chapter.

(h) Multiple controlled corporations. Only the stock or securities of a controlled corporation in which 1 or more persons acquire directly or indirectly stock representing a 50-percent or greater interest as part of a plan involving the distribution of that corporation will be treated as not qualified property under section 355(e)(1) if—

(1) The stock or securities of more than 1 controlled corporation are distributed in distributions to which section 355 (or so much of section 356 as relates to section 355) applies; and

(2) One or more persons do not acquire, directly or indirectly, stock representing a 50-percent or greater interest in Distributing pursuant to a plan involving any of those distributions.

(i) [Reserved]

(j) Valuation. Except as provided in paragraph (g)(1)(i) of this section, for purposes of section 355(e) and this section, all shares of stock within a single class are considered to have the same value. Thus, control premiums and minority and blockage discounts within a single class are not taken into account.

(k) Definitions —(1) Agreement, understanding, arrangement, or substantial negotiations. Whether an agreement, understanding, or arrangement exists depends on the facts and circumstances. The parties do not necessarily have to have entered into a binding contract or have reached agreement on all terms to have an agreement, understanding, or arrangement. However, an agreement, understanding, or arrangement clearly exists if enforceable rights to acquire stock exist. In public offerings or auctions by Distributing or Controlled of Distributing or Controlled's stock, an agreement, understanding, arrangement, or substantial negotiations can exist even if the acquirer has not been specifically identified. The existence of such an agreement, understanding, arrangement, or substantial negotiations will be based on discussions with an investment banker or other outside adviser.

(2) Controlled corporation. For purposes of this section, a controlled corporation is a corporation the stock of which is distributed in a distribution to which section 355 (or so much of section 356 as relates to section 355) applies.

(3) Controlling shareholder. (i) A controlling shareholder of a corporation the stock of which is not listed on an established market is any person who, directly or indirectly, or together with related persons (as described in sections 267(b) and 707(b)), possesses voting power in Distributing or Controlled representing a meaningful voice in the governance of the corporation.

(ii) A controlling shareholder of a corporation the stock of which is listed on an established market is a 5-percent shareholder who actively participates in the management or operation of the corporation.

(iii) For purposes of this section, a person is a controlling shareholder if that person meets the definition of controlling shareholder in this paragraph (k)(3) immediately before or immediately after the acquisition being tested.

(iv) If a distribution precedes an acquisition, Controlled's controlling shareholders immediately after the distribution are considered Controlled's controlling shareholders at the time of the distribution.

(4) Established market. An established market is—

(i) A national securities exchange registered under section 6 of the Securities Exchange Act of 1934 (15 U.S.C. 78f);

(ii) An interdealer quotation system sponsored by a national securities association registered under section 15A of the Securities Act of 1934 (15 U.S.C. 78o-3); or

(iii) Any additional market that the Commissioner may designate in revenue procedures, notices, or other guidance published in the Internal Revenue Bulletin (see § 601.601(d)(2) of this chapter).

(5) Five-percent shareholder. A person will be considered a 5-percent shareholder of a corporation the stock of which is listed on an established market if the person owns, directly or indirectly, or together with related persons (as described in sections 267(b) and 707(b)) 5 percent or more of any class of stock of the corporation whose stock is transferred. A person is a 5-percent shareholder if the person meets the requirements of the preceding sentence immediately before or after each transfer. All options are treated as exercised for the purpose of determining whether the shareholder is a 5-percent shareholder.

(l) [Reserved]

(m) Examples. The following examples illustrate paragraphs (a) through (k) of this section. Throughout these examples, assume that Distributing (D) owns all of the stock of Controlled (C). Assume further that D distributes the stock of C in a distribution to which section 355 applies and to which section 355(d) does not apply. Unless otherwise stated, assume the corporations do not have controlling shareholders. No inference should be drawn from any example concerning whether any requirements of section 355 other than those of section 355(e) are satisfied. The examples are as follows:

(n) Effective date. This section applies to distributions occurring August 3, 2001.

Section 923(i) of the Gun Control Act of 1968 (GCA), as amended (18 U.S.C. Chapter 44), requires licensed importers and licensed manufacturers to identify, by means of a serial number, each firearm imported or manufactured. The serial number must be engraved, cast, or stamped on the receiver or frame of the weapon in such manner as the Secretary of the Treasury prescribes by regulation. With respect to certain firearms subject to the National Firearms Act (e.g., machine guns), 26 U.S.C. 5842 requires each manufacturer and importer and anyone making a firearm to identify each firearm by a serial number. The serial number may not be readily removed, obliterated, or altered. Section 5842 also requires the firearm to be identified by the name of the manufacturer, importer, or maker, and such other identification as the Secretary may prescribe by regulation.

Regulations that implement section 923(i) are set forth in 27 CFR 178.92. In general, this section requires each licensed manufacturer or licensed importer of firearms to legibly identify each firearm by engraving, casting, stamping (impressing), or otherwise conspicuously placing on the frame or receiver an individual serial number. The serial number must be placed in a manner not susceptible of being readily obliterated, altered, or removed.

Section 178.92 also requires licensed importers and licensed manufacturers to conspicuously place the following identification markings on the frame, receiver, or barrel of each firearm imported or manufactured in a manner not susceptible of being readily obliterated, altered, or removed:

1. The model, if such designation has been made;

2. The caliber or gauge;

3. The name (or recognized abbreviation of same) of the manufacturer and also, when applicable, of the importer;

4. In the case of a domestically made firearm, the city and State (or recognized abbreviation thereof) where the licensed manufacturer maintains its place of business; and

5. In the case of an imported firearm, the name of the country in which manufactured and the city and State (or recognized abbreviation thereof) where the importer maintains its place of business.

The same marking requirements appear in regulations issued under the National Firearms Act at 27 CFR 179.102.

In the case of any semiautomatic assault weapon manufactured after September 13, 1994, the regulations also require that the frame or receiver be marked “RESTRICTED LAW ENFORCEMENT/GOVERNMENT USE ONLY” or, in the case of weapons manufactured for export, “FOR EXPORT ONLY” (27 CFR 178.92(a)(2)).

The GCA requires Federal firearms licensees (FFLs) to maintain records of their acquisitions and dispositions of firearms, including complete and accurate descriptions of the firearms. One of the principal objectives of the GCA is to facilitate the tracing of firearms used in crime “to provide support to Federal, State, and local law enforcement officials in their fight against crime and violence * * *.” Gun Control Act of 1968, § 101, 82 Stat. 1213. To accomplish this objective, section 178.92 requires that each manufacturer or importer utilize an individual serial number for each firearm manufactured or imported and prohibits the duplication of any serial number placed by the manufacturer or importer on any other firearm. Furthermore, section 922(k) of the GCA makes it unlawful for any person to transport, ship, possess, or receive, in interstate or foreign commerce, any firearm that has had the importer's or manufacturer's serial number removed, obliterated, or altered.

The serial number, along with other required markings such as caliber, model, name of manufacturer, and city and State of the manufacturer or importer make any given firearm uniquely identifiable and traceable. Firearms tracing is an integral part of any investigation involving the criminal use of firearms. The systematic tracking of firearms from the manufacturer or U.S. importer to the first retail purchaser enables law enforcement agencies to identify suspects involved in criminal violations, determine if the firearm is stolen, and provide other information relevant to an investigation. Our National Tracing Center (NTC) maintains the capability to trace recovered firearms used in crimes. Over the years, the NTC has experienced a substantial increase in the number of requests received for crime gun traces by Federal, State, and local law enforcement agencies. The total number of requests for gun traces increased from 77,000 in 1995 to approximately 200,000 in 1997.

Prior to this rulemaking proceeding, there were no minimum standards concerning size and depth of impression for markings on firearms. The regulations required that the identifying information, including the serial number, be legible, conspicuous, and placed on the firearm “in a manner not susceptible of being readily obliterated, altered, or removed.” The lack of specific minimum standards has caused problems for licensees in properly recording identifying information in their required records, particularly with respect to serial numbers that are very small or are not applied to a uniform depth. Moreover, worn, hard-to-read markings often result in State and local law enforcement officers forwarding erroneous information to ATF in connection with a trace request. Serial numbers that are stamped very lightly on the frame or receiver of the firearm are more susceptible to being easily obliterated, altered, or removed. These problems often hinder our efforts to trace a particular firearm. The Johns Hopkins Center for Gun Policy and Research provided us with the following information:

To reduce the problem of incorrect record entries by licensees and to make identification markings less susceptible to being readily obliterated, altered, or removed, on June 23, 1999, we published a notice in the Federal Register proposing to amend the regulations to prescribe minimum height and depth requirements for identification markings placed on firearms (Notice No. 877, 64 FR 33450). Specifically, we proposed that licensed manufacturers and licensed importers cast, stamp (impress) or engrave serial numbers to a depth of at least .005 inch and in a print size no smaller than 3/32 inch. We also proposed that all other required markings, including the special markings for semiautomatic assault weapons, be cast, stamped (impressed) or engraved to a depth of at least .005 inch. We did not propose to require a minimum height requirement of 3/32 inch for all identification markings since such a requirement would make it difficult to fit all the information on a firearm, particularly in the case of handguns.

As stated in the notice, we believed that the minimum standards proposed would ensure that firearms are properly identified in accordance with the law. In addition, we stated that the proposed regulations, if adopted, would facilitate our ability to trace firearms used in crime. The comment period for Notice No. 877 closed on September 21, 1999.

We received 18 comments in response to Notice No. 877. Comments were submitted by a Federal agency (Department of the Treasury—U.S. Customs Service), Federal firearms licensees, the Canadian Firearms Registry, Johns Hopkins University (School of Hygiene and Pubic Health—Center for Gun Policy and Research), and two organizations (the International Association of Chiefs of Police and the Sporting Arms and Ammunition Manufacturers' Institute).

Fourteen comments addressed our proposal to require a minimum depth of .005 inch for all required identification markings placed on firearms, including serial numbers. Three commenters, all Federal firearms licensees, supported the proposed regulation. One of the commenters stated that it currently impresses the required information to a depth of .005 inch. Another commenter, a manufacturer and importer of rifles and pistols for the civilian and law enforcement markets, stated that it currently engraves serial numbers and other information on pistols to a depth of at least .005 inch.

Eleven comments expressed opposition to our proposal. Most commenters maintained that they can mark firearms to a depth of approximately .003 inch using their present equipment. However, in order to comply with the minimum .005 inch depth proposed by ATF, they would need to purchase new equipment at great expense. In its comment, the Sporting Arms and Ammunition Manufacturers' Institute (SAAMI), an organization that represents the majority of the major firearms manufacturers, explained that its member companies place required identification markings on firearms by rolling, electro/chemical etch, multiple pin impingement or laser etch. SAAMI elaborated on the industry's concerns regarding compliance with the proposed regulation as follows:

Some commenters provided ATF with cost estimates that would be incurred to comply with the proposed regulation. For example, Thompson/Center Arms Company, Inc. (TC), a licensed manufacturer of sporting firearms, states that it currently presses serial numbers and other required information on firearms to a depth of .003 inch using a 4000 pound press. The commenter contends that adoption of the proposed rule would require it to incur the following costs:

Another comment, submitted on behalf of Browning and U.S. Repeating Arms Company, stated that, in general, neither company currently meets the minimum height or depth requirements proposed in the notice. As stated in the comment—

Based on the comments received in response to Notice No. 877, we have reconsidered our proposal to require a minimum depth of .005 inch for all required markings placed on firearms, including serial numbers. The comments clearly demonstrate that adoption of such a proposal would place an undue financial hardship on the industry. We agree with SAAMI's comment that a minimum depth requirement for identification markings should be prescribed “to a standard that will meet marking objectives but will not create either safety problems or cause significant process and equipment changes for the manufacturer.” As mentioned, most commenters maintain that they can mark firearms to a depth of approximately .003 inch using their present equipment. SAAMI also acknowledged that most of its member manufacturers could meet a .003 inch depth requirement. Accordingly, this final rule prescribes a minimum depth of .003 inch for all required identification markings placed on firearms, including serial numbers. The depth of all markings, including serial numbers, will be measured from the flat surface of the metal, not the peaks or ridges. We believe that this standard is the minimum necessary to ensure that firearms are properly identified in accordance with the law while at the same time imposing a reasonable burden on the industry.

Eleven comments addressed our proposed minimum height requirement of 3/32 inch for serial numbers placed on firearms. Three commenters, all licensed manufacturers, supported the proposal noting that they currently mark serial numbers to that depth.

One commenter, the Canadian Firearms Registry (a national police service of the Royal Canadian Mounted Police), agreed with ATF's decision to establish a minimum height requirement for serial numbers. However, the commenter expressed a concern about the size proposed by ATF stating that while 3/32 inch is legible, “such small lettering may increase the number of clerical errors in serial numbers use for commercial transactions, in addition to law enforcement issues.”

Seven commenters objected to the proposed minimum 3/32 inch height requirement. Most commenters stated that they could not comply with the proposed type size using their current equipment and that compliance with ATF's proposed rule would require them to purchase new equipment at considerable expense. Some commenters provided us with cost estimates that would be incurred to comply with the proposed regulation. Several commenters requested that ATF change the minimum height for serial numbers to 1/16 inch. One commenter, a small business FFL, stated the following:

Another commenter, Colt's Manufacturing Company, Inc., explained that “[t]he dot matrix and roll mark processes currently in use at Colt's could reliably meet such [ 1/16 inch] marking requirements.” In its comment, SAAMI stated that most of its member manufacturers could meet a 1/16 height requirement for serial numbers.

Accordingly, based on the comments received in response to the notice, this final rule establishes a minimum height of 1/16 inch for serial number markings placed on firearms. We believe that this minimum size type will reduce the problem of incorrect record entries of serial numbers by licensees and will facilitate our ability to trace firearms used in crime. The height of serial numbers will be measured the same way that stamps are measured, i.e. , the distance between the latitudinal ends of the working (contact) surface of the stamp face/font. Consequently, serial number height will be measured as the distance between the latitudinal ends of the character impression bottoms (bases).

The Johns Hopkins Center for Gun Policy and Research (the Center) expressed support for ATF's efforts to establish minimum depth requirements for serial numbers placed on firearms. However, it is their opinion that compression stamping should be the only method acceptable for the application of serial numbers. While the regulations provide that engraving (etching), casting, and stamping (impressing) are acceptable methods of marking firearms, the commenter believes that the casting and etching methods fail to meet the criterion set forth in the regulations, i.e. , that the identifying information placed on firearms be “in a manner not susceptible of being readily obliterated, altered, or removed.” Similar concerns were raised by another commenter, the International Association of Chiefs of Police (IACP). The IACP contends that laser-etched serial numbers can be obliterated much easier than stamped ones and, as such, hinder law enforcement efforts to trace the origin of firearms used in crime. The GCA provides that the serial number must be engraved, cast, or stamped on the receiver or frame of a firearm. Laser etching is considered to be an engraving operation. As defined in The American Heritage Dictionary of the English Language (Houghton Mifflin Company, Boston, 1976), the word “engrave” means “[t]o carve, cut, or etch (a design or letters) into a material.” As such, to prohibit the use of casting and etching methods for marking firearms, legislative action would be necessary.

With respect to the Center's contention that casting or etching methods “fail to meet the criterion of ‘not susceptible to being readily obliterated,’ ” we would emphasize that all markings can be removed by someone who wishes to make a deliberate effort to remove the markings. Realistically, we need to be concerned about markings that could be worn away during normal use or markings that could not survive normal refinishing processes, e.g. , blueing, plating, etc. In addition, susceptibility of being readily obliterated, altered, or removed depends on a number of factors, including the method of marking, the size and depth of marking, and the material. For example, we have seen stamped markings that were so lightly placed on the metal that they could be scratched away with a pen knife. Although the markings were stamped, they could still be readily obliterated and were not in compliance with the regulations. On the other hand, some manufacturers use cast markings that can be deeply placed in the metal and would require considerable effort to remove. Also, markings placed in soft materials such as aluminum or zinc alloys, and especially plastics, are comparatively easy to remove compared to markings in steel. As such, ATF has required manufacturers and importers who use polymer plastic frames to mark serial numbers in a steel plate embedded within the plastic.

The U.S. Customs Service, a federal agency within the Department of the Treasury, also submitted a comment on ATF's proposed regulations. This agency enforces general country of origin marking requirements for foreign articles imported into the United States, pursuant to 19 U.S.C. 1304. Customs is concerned about the type size of the country of origin marking for imported firearms. While ATF's proposed regulations do not prescribe minimum print size requirements for the additional information placed on firearms, including the country of origin marking for imported firearms, Customs notes that regulations addressing country of origin marking are set forth in 19 CFR part 134. Those regulations require the marking to be “conspicuous,” which is defined as “capable of being easily seen with normal handling of the article.” Customs also advised ATF of additional regulations in 19 CFR 134.46 concerning country of origin marking. Accordingly, these final regulations make a cross reference to Customs' country of origin marking requirements in 19 CFR part 134.

We have determined that this final rule is not a significant regulatory action as defined by Executive Order 12866. Therefore, a regulatory assessment is not required.

The Regulatory Flexibility Act (RFA) generally requires an agency to conduct a regulatory flexibility analysis of any rule subject to notice and comment rulemaking requirements unless the agency certifies that the rule will not have a significant economic impact on a substantial number of small entities. Small entities include small businesses, small not-for-profit enterprises, and small governmental jurisdictions. We hereby certify that this final rule will not have a significant economic impact on a substantial number of small entities because the revenue effects of this rulemaking on small businesses flow directly from the underlying statute. Likewise, any secondary or incidental effects, and any reporting, recordkeeping, or other compliance burdens flow directly from the statute. Accordingly, a regulatory flexibility analysis is not required.

The collections of information contained in this final regulation have been reviewed and approved by the Office of Management and Budget in accordance with the requirements of the Paperwork Reduction Act (44 U.S.C. 3507(d)) under control numbers 1512-0550. An agency may not conduct or sponsor, and a person is not required to respond to a collection of information unless it displays a valid control number assigned by the Office of Management and Budget.

The collections of information in this final rule are in 27 CFR 178.92 and 179.102. This information is required to properly identify each firearm that is manufactured or imported. The collections of information are mandatory. The likely respondents are businesses.

Estimated total annual reporting and/or recordkeeping burden: 5,012 hours.

Estimated average burden hours per respondent and/or recordkeeper: 2 hours.

Estimated number of respondents and/or recordkeepers: 2,506.

Estimated annual frequency of responses: one-time requirement to change size and depth.

Estimated average annual burden hours per respondent: 1512-0129—.171 hours; 1512-0130—.12 hours; and 1512-0387—3 hours.

Comments concerning the accuracy of these burden estimates and suggestions for reducing the burden should be directed to the Chief, Document Services Branch, Room 3110, Bureau of Alcohol, Tobacco and Firearms, 650 Massachusetts Avenue, NW., Washington, DC 20226, and to the Office of Management and Budget, Attention: Desk Officer for the Department of the Treasury, Bureau of Alcohol, Tobacco and Firearms, Office of Information and Regulatory Affairs, Washington, DC 20503.

Copies of the notice of proposed rulemaking, all written comments, and this final rule will be available for public inspection during normal business hours at: ATF Public Reading Room, Room 6480, 650 Massachusetts Avenue, NW., Washington, DC.

The author of this document is James P. Ficaretta, Regulations Division, Bureau of Alcohol, Tobacco and Firearms.

On October 30, 2000, the Floyd D. Spence National Defense Authorization Act for Fiscal Year 2001 (Pub. L. 106-398, 114 Stat. 1654) was signed into law. This interim final rule implements section 712 of this Act, and is effective October 1, 2001. It extends TRICARE eligibility to persons age 65 and over. This beneficiary group previously lost TRICARE eligibility due to attaining entitlement to hospital insurance benefits under Part A of Medicare.

This regulation and the statute it implements represent the most significant expansion of benefits in the Military Health System since 1956, when Congress created CHAMPUS to supplement space available care in military treatment facilities. As an indication of this, in FY-2000, DoD spent an estimated $1.4 billion providing space available health care in military facilities to beneficiaries over age 65; in FY-2002, in addition to this anticipated level of military facility services, DoD will spend another approximately $3.9 billion as second payer to Medicare for civilian sector inpatient and outpatient services and primary payer for civilian pharmacy outpatient drugs. These new benefits for retirees and their eligible family members over age 65 result in a remarkably comprehensive health care benefit with minimal beneficiary out-of-pocket costs.

As specified further in the regulation, to be eligible for TRICARE, a person is required to be a retiree, a dependent, or survivor who is entitled to Medicare Part A, 65 years of age or older, and enrolled in Medicare Part B. Specifically the following are eligible:

• A retired uniformed service member—i.e., a former member of a uniformed service who is entitled to retired or retainer pay or equivalent pay.

• A dependent (except for parents or parents-in-law) of:

• A retired member;

• A member who died while on active duty for more than 30 days; or

• A member who died from an injury, illness, or disease incurred or aggravated while the member was on active duty for less than 31 days, was on active duty for training, was on inactive duty training, or was traveling to or from a place for the performance of such active duty, active duty for training, or inactive-duty training.

• A former spouse who has not remarried and who does not have an employer-sponsored health plan and meets the criteria established by 10 U.S.C. 1072(2).

We are also making a technical change to the regulatory eligibility provisions regarding changes that result in termination of TRICARE eligibility. Currently, the regulation states that when a beneficiary loses TRICARE eligibility due to attainment of entitlement to Medicare Part A at age 65, TRICARE eligibility is lost at 12:01 a.m. on the last day of the month preceding the month of attainment of age 65. This is incorrect. It should be 12:01 a.m. on the first day of the month in which the beneficiary becomes entitled to Medicare. Otherwise the beneficiary would have no coverage (neither TRICARE nor Medicare) for the last day of the month before becoming entitled to Medicare.

Under 10 U.S.C. 1086(c), retirees, authorized dependents and survivors are entitled to TRICARE. In general, TRICARE will pay for medically necessary services and supplies required in the diagnosis and treatment of illness or injury. Benefits include specified medical services and supplies from authorized civilian sources such as hospitals, other authorized institutional providers, physicians, other authorized individual professional providers, and professional ambulance services, prescription drugs, authorized medical supplies, and rental or purchase of durable medical equipment.

Eligibility for these services now no longer expires when the beneficiary attains entitlement to Medicare Part A upon turning age 65, as long as the beneficiary enrolls in Medicare Part B. These beneficiaries are now entitled to both Medicare healthcare services and TRICARE healthcare services. Most healthcare services payable by one program are also payable under the other program. However, there are services that are payable under Medicare or TRICARE that are not payable under the other program. For example, certain chiropractic services are payable by Medicare, but are not payable under TRICARE. Conversely, TRICARE pays much of the cost for prescription drugs for Medicare entitled beneficiaries, a benefit that currently is not available under Medicare. In the case of a beneficiary who has other health insurance also, that insurance will typically pay after Medicare and before TRICARE.

Using the chiropractic services example above, Medicare has the sole responsibility for payment of healthcare services or supplies that are a benefit only under Medicare. The new law extends TRICARE eligibility but does not expand the scope of TRICARE benefits available to this group of beneficiaries beyond the scope of TRICARE benefits available to other retirees and their families. Therefore, if a healthcare service or supply is a benefit payable only by Medicare, but not TRICARE, then Medicare has sole responsibility for payment of the healthcare service or supply, as defined by Medicare, and the beneficiary has the responsibility to pay any corresponding Medicare cost-share or deductible. Likewise, if a healthcare service or supply is a benefit payable only by TRICARE, but not Medicare, then TRICARE has sole responsibility for payment of the healthcare service or supply, and the beneficiary has the responsibility to pay any corresponding TRICARE cost-shares or deductibles.

Whether a healthcare service is a benefit provided and paid for under Medicare only, TRICARE only, or both, will have an impact on the beneficiary's potential cost sharing liability. Both Medicare and TRICARE generally use the same coding systems for identifying the healthcare services or supplies provided to the beneficiary. Both Medicare and TRICARE use the Current Procedural Terminology (CPT) codes to identify the professional services provided to the beneficiary. Both also use the DSM-IV (Diagnostic and Statistical Manual of Mental Disorders, fourth edition) and ICD-9-CM (International Classification of Diseases, ninth revision, Clinical Modification) diagnosis codes and DRG (Diagnostic Related Group) payment codes for inpatient services. Whether a healthcare service or supply is a benefit payable under Medicare and TRICARE, Medicare only, or TRICARE only will normally be accomplished by comparing these various codes and determining whether payment would be made under the facts and circumstances by both Medicare and TRICARE, or only under one of the programs.

Most healthcare services are a benefit provided and paid for by both Medicare and TRICARE. However, for some healthcare services, Medicare and TRICARE have different requirements or prerequisites that must be met before the service is reimbursable under their respective programs. For example, Medicare will provide payment for skilled nursing facility (SNF) care, but currently requires as a prerequisite that a beneficiary must have been a hospital inpatient for at least three days before the SNF admission. Medicare currently requires the beneficiary to pay no cost share for the first 20 days of the stay, whereupon the cost share increases to about $100 per day thereafter. Medicare will provide payment for up to 100 days of SNF care in a benefit period. TRICARE on the other hand does not require the beneficiary to be hospitalized as an inpatient before admission to a SNF. TRICARE will pay for all medically necessary care, and does not have a 100-day limit in a benefit period. TRICARE's cost-share is also different, in that there is a $150 per individual/$300 per family deductible for healthcare services in a fiscal year, and a cost-share of the lesser of 25% of the institutional charges or a flat fee per day, up to the catastrophic cap limit of $3,000. As another example, TRICARE is required by law to require preadmission authorization before inpatient mental health services may be provided, except in the case of an emergency, and then approval for the continuation of services is required for care beyond 72 hours. If preauthorization is not obtained, it is not a medical service that is payable under both programs.

Both Medicare and TRICARE have cost-shares and deductibles associated with the healthcare services that they provide under their respective plans that the beneficiary is responsible for paying. For healthcare services that are payable only under one plan, and not both, beneficiaries will continue to be responsible for payment of their applicable Medicare or TRICARE cost-share and deductible. However, for healthcare services for which payment may be made under both Medicare and TRICARE, the beneficiary's liability is different. TRICARE will pay up to the beneficiary's legal liability the actual out-of-pocket costs incurred by the beneficiary over the sum of the amount paid for the care under Medicare and the total of all amounts paid or payable by third party payers other than Medicare (such as other health insurance).

The most common situation will be where the healthcare provided is a benefit payable under both Medicare and TRICARE. The beneficiary will normally have no out-of-pocket expense. In these instances, TRICARE payment will be equal to the remaining beneficiary liability after Medicare processes the claim. For example, if the first claim of the fiscal year for a physician's services were submitted for $50, Medicare would apply the entire amount to the Medicare deductible, and TRICARE would pay the full $50 (assuming the full amount is allowable under TRICARE), so that the beneficiary would have no out-of-pocket expense.

There are exceptions to the provision that the beneficiary will have no out-of-pocket expense. The healthcare service must not only be a benefit under both Medicare and TRICARE, but it must be payable by both Medicare and TRICARE. There are circumstances when Medicare cannot make any payment even though the service is generally a benefit under Medicare. These include services provided to a beneficiary who lives or travels overseas and instances when the beneficiary has exhausted his or her Medicare benefits (e.g., inpatient hospital care beyond 150 days in a benefit period). In these circumstances TRICARE will process the claim as a primary payer and the beneficiary will have the same cost sharing requirement as do retirees and their dependents under age 65. Beneficiary out-of-pocket expenses would be limited to $3,000 by the TRICARE catastrophic cap. It is important to note that in order for beneficiaries who live or travel overseas to retain TRICARE eligibility, the law requires that they still must be enrolled in Part B of Medicare even though Medicare will make no payment for services provided overseas.

As noted above, for some healthcare services, Medicare and TRICARE have different requirements or prerequisites that must be met before the service is reimbursable under their respective programs. These give rise to special payment approaches. In the case of skilled nursing facility care that does not qualify for Medicare reimbursement (because the patient was not a hospital inpatient prior to the skilled nursing facility admission, or for days of care beyond the 100-days Medicare limit) TRICARE will be the primary payer, and applicable TRICARE beneficiary cost sharing would be charged. Beneficiary out-of-pocket expenses would be limited to $3,000 by the TRICARE catastrophic cap. In the case of a nonemergency mental health admission for which TRICARE preadmission authorization is not obtained, TRICARE would not provide payments secondary to the Medicare payments.

There may also be some special circumstances that arise in connection with Medicare-eligible beneficiaries enrolled in a Medicare+Choice plan. TRICARE will cover the normal copayments under a Medicare+Choice plan, but special claims procedures will be applicable. Another special circumstance would arise if a Medicare+Choice enrollee obtains unauthorized out-of-system care that the Medicare+Choice plan will not cover or will only partially cover. Because Medicare already paid for the health care the beneficiary needs in the form of a capitation payment to the Medicare+Choice plan, TRICARE will not become primary payer for the services that would have been covered by the Medicare+Choice plan had the beneficiary followed applicable requirements. If TRICARE did become primary payer, the result would be double payment by the Government for the services, which is not supportable under the statute. In such a case, the TRICARE payment is limited to the amount TRICARE would have paid had the beneficiary received care within the structure and procedures of the Medicare+Choice plan. This is consistent with long-standing CHAMPUS payment rules pertaining to double coverage in the case of health maintenance organizations or other plan requirements, which we are codifying in section 199.8.

It should also be noted that under the statute, if a Medicare-eligible beneficiary also has other health insurance, the other health insurance pays after Medicare and before TRICARE. For this purpose, other health insurance includes Medicare supplemental insurance. This means that TRICARE is secondary to Medicare supplements. Some Medicare supplements are available to some beneficiaries based upon their spouse's past employment, or their employment after retirement from the uniformed services. Some Medicare supplements are available to anyone who is age 65 or older, regardless of past employment status. Since TRICARE will provide benefits that are significantly more generous than most Medicare supplements for Medicare entitled beneficiaries, in addition to requiring no premium, we expect that most beneficiaries who qualify for TRICARE will drop their Medicare supplements that are not based upon their past employment.

In the special case of persons who continue to work after age 65, and have health insurance provided pursuant to their employment, Medicare is the secondary payer to the employer-based health insurance. Because TRICARE is always last payer when a beneficiary has Medicare and/or any other health insurance, TRICARE would be the tertiary payer in this special case.

In 1992 and 1993 there were several statutory changes that extended TRICARE eligibility for certain beneficiaries who became eligible for Medicare. These beneficiaries had to be eligible for Medicare due to disability or end stage renal disease, had to be under age 65, and had to be enrolled in Part B of Medicare. Based on the congressional intent at that time, we have processed claims for these beneficiaries using the double coverage procedures applicable to all other double coverage situations. As a result, depending on the circumstances of the claim, the beneficiary could be liable for out-of-pocket expenses, even when the service is a benefit under both Medicare and TRICARE. These beneficiaries who are under age 65 and entitled to both Medicare and TRICARE will now have the same payment procedures applied to them as those used for beneficiaries who are entitled Medicare Part A because of age. This will be effective October 1, 2001.

On another matter relating to Medicare-eligible beneficiaries under age 65, section 712 of the National Defense Authorization Act for Fiscal Year 2001 made a conforming amendment to title 10 United States Code section 1086(d). That statute requires that the administering Secretaries develop a mechanism to notify persons under age 65 who would be eligible for both Medicare and TRICARE, except that they have declined to enroll in Medicare Part B. We carried out a match of our eligibility records with Medicare records in 1998, and in 1999 sent letters to about 16,000 beneficiaries identified as eligible for Medicare Part A but not enrolled in Part B. A mechanism for ongoing identification and notification of such persons is being developed.

Medicare has sole responsibility for paying for healthcare services that are a benefit payable only by Medicare. TRICARE has sole responsibility for paying for healthcare services that are a benefit payable only by TRICARE. Medicare has primary responsibility for paying for healthcare services that are a benefit payable under both programs. Both Medicare and TRICARE offer an appeal process when a claim for healthcare services or supplies is denied. TRICARE beneficiaries entitled to Medicare Part A, who are enrolled in Medicare Part B, and/or their providers will have the same appeal rights as other TRICARE beneficiaries and their providers under sections 199.10 and 199.15 of this Part for services or supplies that are payable by TRICARE, but not Medicare.

Most healthcare services and supplies are a benefit payable under both Medicare and TRICARE. In these situations, Medicare is the primary payer, and TRICARE will pay the out-of-pocket costs of the beneficiary, up to the legal liability limit of the beneficiary, after any payments by third party insurance. In order to avoid confusion on the part of beneficiaries and providers and to expedite the appeal process, services and supplies denied payment by Medicare will not be considered for coverage by TRICARE if the Medicare denial of payment is appealable under the Medicare appeal process. If, however, a Medicare appeal results in some payment by Medicare, the services and supplies covered by Medicare will be considered for coverage by TRICARE. Services and supplies denied payment by Medicare will be considered for coverage by TRICARE, if the Medicare denial of payment is not appealable under the Medicare appeal process. The appeal procedures set forth in sections 199.10 and 199.15 are applicable to initial determinations by TRICARE under the TRICARE program.

As an example, if Medicare processes a claim for a healthcare service or supply that is a Medicare program benefit, and Medicare denies the claim for a patient-specific reason, the claim will be appealed through the Medicare appeal process. The Medicare decision will be final if Medicare denies the claim for a patient-specific reason (such as lack of medical necessity for the service), and TRICARE will pay nothing on the claim. However, if Medicare pays the claim, then the claim crosses over to TRICARE. TRICARE will either pay the remaining liability, or if it is a service or supply that is not a TRICARE benefit, the claim will be denied. The beneficiary or provider will than have the same appeal rights as other beneficiaries or providers under sections 199.10 and 199.15. When Medicare processes a claim and Medicare denies the claim because it is not a covered healthcare service or supply under Medicare, the claim will cross over to TRICARE. TRICARE will either pay the claim as the primary payer (assuming no other health insurance), or the claim will be denied if the healthcare service or supply is not a TRICARE benefit. The beneficiary or provider will have the same appeal rights as other beneficiaries or providers under sections 199.10 and 199.15.

Organization program, based on specific statutory authority, follows many of the quality and utilization review requirements and procedures in effect for the Medicare quality and utilization review program, subject to adaptations appropriate for the TRICARE program. In recognition of the similarity of purpose and design between the two programs to ensure coverage of quality care as medically necessary and appropriate, and to avoid unnecessary duplication of effort, the CHAMPUS Quality and Utilization Review Peer Review Organization (PRO) program will apply special procedures to supplies and services furnished to Medicare-eligible TRICARE beneficiaries. These procedures will enable TRICARE to rely upon Medicare determinations of medical necessity and appropriateness in the processing of TRICARE claims as a second payer to Medicare. As a general rule, only in cases involving Medicare-eligible TRICARE beneficiaries where Medicare payment for services and supplies is denied for reasons other than medical necessity and appropriateness will the TRICARE claim or request for services or supplies be subject to review for quality of care and appropriate utilization under the CHAMPUS PRO program. However, there are quality and utilization review requirements under TRICARE that by law are more stringent than Medicare's requirements. For example, inpatient mental health services may not be provided to a patient 19 years of age or older in excess of 30 days in any year, absent a waiver because of medical or psychological circumstances of the patient that takes into account the appropriate level of care for the patient, the intensity of services required by the patient, and the availability of that care. Medicare imposes no similar requirement. In circumstances where TRICARE is required to perform a medical necessity review, and Medicare does not, TRICARE will continue to apply its rules for such review.

Currently, the TRICARE program features a triple option benefit: a health maintenance organization (HMO)-like option called TRICARE Prime, a preferred provider organization (PPO)- like option called TRICARE Extra, and an indemnity insurance-like option (i.e., traditional CHAMPUS) called TRICARE Standard. This is based on 10 U.S.C. 1097, which allows DoD to contract with HMOs, PPOs, and insurers for “alternate delivery of health care.”

As required by law (section 731 of the National Defense Authorization Act for Fiscal Year 1994, Pub. L. 103-160), TRICARE Prime is “modeled on health maintenance organization plans offered in the private sector and other similar Government health insurance programs.” This option must offer beneficiaries “reduced out-of-pocket costs,” but “shall be administered so that the costs incurred by the Secretary under the TRICARE program are no greater than would otherwise be incurred” without this option. TRICARE Prime was structured to comply with this “cost neutrality” requirement. In addition, under section 1097(c), “the Secretary shall, as an incentive for enrollment,” in TRICARE Prime “establish reasonable preferences for services” in military treatment facilities (MTFs).

Current DoD regulations (32 CFR 199.17) implement these statutory provisions for TRICARE Prime. Consistent with the HMO model, enrollees receive reduced copayments in exchange for their agreement generally to “lock in” to the designated provider network and follow the referral and utilization management guidance of a primary care manager. As an incentive for enrollment, the MTF priority access system is established in this order: (1) Active duty members; (2) active duty dependents enrolled in Prime; (3) retirees and their dependents enrolled in Prime; (4) active duty dependents not enrolled in Prime; and (5) retirees and their dependents not enrolled in Prime. There is generally no other rationale based on beneficiary grouping for establishing priority access among these five categories or within any of them.

Beneficiaries who do not enroll in TRICARE Prime automatically receive TRICARE Standard coverage, and for practical purposes may be considered to be “enrolled” in TRICARE Standard. This option may be preferable for those who prefer freedom of choice of providers. They are not subject to HMO-type management requirements or network lock-in, but they pay standard copayments. They remain eligible for MTF care, but without priority access. Those who wish to use the TRICARE civilian provider network may do so on a visit-by-visit basis under TRICARE Extra. They are not locked in to anything, but obtain some reduced copayments and have the benefit of the TRICARE quality assurance program applicable to network providers.

For several reasons, Medicare-eligible beneficiaries will not fit into the current structure of the triple option benefit when they attain TRICARE eligibility on October 1, 2001. First, they already have zero copayments for most services from civilian providers under their basic TRICARE coverage (i.e., TRICARE Standard), under which Medicare is primary payer and TRICARE pays the Medicare deductible and copayment amounts. Second, Medicare-eligible beneficiaries cannot be “locked in” to a DoD-operated HMO-like program while standard Medicare is the primary payer for civilian sector care. Medicare law (sections 1814(c) and 1835(d) of the Social Security Act) prohibits Medicare payments “to any Federal provider of services” or for any service for which any provider “is obligated by * * * a contract with” a Federal agency “to render at public expense.” It is well understood that this means that Medicare will not generally reimburse MTFs. But, in addition, TRICARE Prime's regulation of civilian network operations would, in the case of Medicare-eligible beneficiaries, risk a conflict between the policy of DoD's law that Medicare pay primary to TRICARE and that of Medicare law that Medicare not pay for services covered by another Federal program. Nonpayment by Medicare would conflict with the intended first payer/second payer relationship and also result in a violation of the “cost neutrality” requirement for TRICARE Prime. TRICARE Prime is based on the HMO model and there is no way to operate an HMO with two entities administering separate programs.

The only way to offer an HMO involving two financial entities is for them to jointly sponsor the HMO. This was, of course, the rationale for the Medicare Subvention Program that was authorized as a joint demonstration program of DoD and the Department of Health and Human Services under a provision of the Budget Reconciliation Act of 1997. Under the demonstration, DoD operates “TRICARE Senior Prime.” This program must meet HHS quality standards and requirements, and Medicare pays for care provided to eligible Medicare beneficiaries. The National Defense Authorization Act for Fiscal Year 2001, section 712, extended the demonstration program for 1 year (through December 31, 2001) and directed the agencies to explore the feasibility of continuing the program. Consistent with that direction, DoD and HHS held discussions on the possibility of extending the program, with the changes that would be necessary to permit this to occur. It has been determined that continuation of the program is not feasible.

Although a Medicare Subvention-type program will not be continued, the Department wants to provide beneficiaries an alternative option for using TRICARE providers without the need to lock in to an HMO-like program. In order to achieve this, the Department has taken steps to establish an MTF enrollment program for primary care, called TRICARE Plus. TRICARE Plus is not addressed in 32 CFR Part 199, because it only affects the operation of military medical treatment facilities, whose operations are not governed by the regulation. We are describing the program here to help the public understand this aspect of TRICARE.

TRICARE Plus builds on another popular demonstration project, the MacDill-65 Demonstration. That program, which has operated at MacDill Air Force Base in Tampa, Florida since 1998, provided opportunity for about 2,000 Medicare-eligible military beneficiaries to enroll to obtain primary care services at the military treatment facility, without being “locked in” to an HMO type program. The MacDill demonstration essentially tests the impact of management of available primary care services for Medicare-eligible beneficiaries through a process of “empanelling” them with primary care providers at the MTF. For a limited number of enrollees, the MacDill model guarantees primary care access. For care that cannot be provided in the MTF, beneficiaries use their Medicare benefit.

Under TRICARE Plus, beneficiaries eligible for care in MTFs who are not enrolled in TRICARE Prime will be given the opportunity to enroll with an MTF primary care provider, but only to the extent primary care capacity is available. There is no lock-in and no enrollment fee. This will be a way to facilitate primary care appointments when needed. The number of persons accommodated at an MTF will be subject to capacity limitations, so as to assure that their primary care needs will be met. For care from civilian providers, TRICARE Standard or TRICARE Extra rules will apply provided the TRICARE Plus beneficiary is eligible for TRICARE Standard or TRICARE Extra. (Beneficiaries eligible for care in an MTF and entitled to Medicare are not required by law to be enrolled in Medicare Part B in order to receive MTF care. Those beneficiaries entitled to Medicare, however, are encouraged to enroll in Part B when enrolling in TRICARE Plus. Otherwise, care received from civilian providers when not available from the MTF will be the sole financial responsibility of the patient in that the patient is not eligible for TRICARE without enrollment in Medicare Part B.). For services payable by Medicare, Medicare rules will apply, with TRICARE as second payer. For non-MTF care from a network provider for non-Medicare covered services, the reduced cost shares under TRICARE Extra will apply. For non-MTF care from a non-network provider for non-Medicare covered services, the cost shares under TRICARE Standard will apply. This enrollment program is similar to the MacDill demonstration, and is a good potential option for all beneficiaries who have other primary health insurance (Medicare or private insurance). It allows them to take advantage of both of their health programs as well as enroll themselves (without lock-in) with military primary care providers, to the extent they are available.

For retirees and their dependents who have been enrolled in Prime with an MTF primary care manager and are soon to reach age 65, TRICARE Plus will bring several advantages. First, they will likely be able to continue that relationship with their primary care provider, if they wish, subject to availablity. For most care provided in the civilian network, they will have no copayments (as compared to the $12 per visit fee applicable to most visits when they were in Prime). In addition, there will be no enrollment fee. For civilian network care not covered by Medicare, the TRICARE cost share will be 20% rather than the 25% that would be applicable for non-network care. Further, there is no lock-in; for most care they are free to use virtually any civilian provider, with the entire cost paid by Medicare and TRICARE.

For TRICARE Prime enrollees approaching age 65 who have a civilian primary care manager, we expect that in most cases they will be able to continue their primary care relationship. The provider will receive primary payments from Medicare and secondary payments from TRICARE for most services, and the managed care rules of TRICARE Prime will no longer apply.

Thus, on the whole, the transition from TRICARE Prime under 65 to Medicare plus TRICARE at 65 will represent an improved health care benefit. The inclusion of “TRICARE Plus,” the new MTF primary care enrollment program offers an additional opportunity for beneficiaries to establish or continue an ongoing relationship with a military health care provider.

If demand for primary care assignment under TRICARE Plus greatly exceeds capacity in MTFs, one option would be to extend the availability of primary care assignment by relying on the civilian provider network established to support TRICARE Prime. The Department does not intend to implement this option unless (1) it can be accomplished within funding constraints, and (2) it is necessary to meet demand for primary care assignment. Incorporation of these requirements into future TRICARE procurements is likely to be more cost-effective than modifying existing contracts.

This interim final rule will not impose additional information collection requirements on the public under the Paperwork Reduction Act of 1995 (44 U.S.C. 3501-3511).

This rule is being issued as an interim final rule, with comment period, as an exception to our standard practice of soliciting public comments prior to issuance. The Assistant Secretary of Defense (Health Affairs) has determined that following the standard practice in this case would be impracticable, unnecessary, and contrary to public interest. This determination is based on the fact that this change directly implements a statutory entitlement enacted by Congress expressly for this purpose, with a statutory effective date of October 1, 2001. All public comments are invited and will be carefully considered. We anticipate the issuance of a final rule within six months of the end of the comment period.

Executive Order 12866 requires certain regulatory assessments for any significant regulatory action, defined as one which would result in an annual effect on the economy of $100 million or more, or have other substantial impacts. The Regulatory Flexibility Act (RFA) requires that each Federal agency prepare, and make available for public comment, a regulatory flexibility analysis when the agency issues a regulation which would have a significant impact on a substantial number of small entities. This interim final rule is an economically significant regulatory action under Executive Order 12866, as it implements a statutory program that will add over $3 billion for DoD in annual healthcare benefit costs. This cost estimate is based on historical TRICARE costs and an assessment of potential users times average benefit costs per person, and excludes pharmacy benefits that were addressed in implementation of the TRICARE Senior Pharmacy benefit earlier this year. (Approximately 1.5 million persons are potential beneficiaries of this program, and expected benefits per person are about $2,000 per year.) The benefits of the interim final rule include an increased level of health care for Medicare-eligible beneficiaries of the Department of Defense military health system. It has been determined to be major under the Congressional Review Act. However, this rule does not require a regulatory flexibility analysis, as it would have no significant economic impact on a substantial number of small entities. The new benefit is estimated to cost about $3.1 billion per year, beginning in FY 2002. This includes health care costs administrative costs, mostly claims processing, of about $250 million per year.

Electronic comments are encouraged and can be sent directly to EPA at A-and-R-Docket@epa.gov . Electronic comments must be submitted as an ASCII file avoiding the use of special characters and any form of encryption. Comments will also be accepted on disks in WordPerfect 8.0 or ASCII file format. All comments in electronic form must be identified by Docket No. A-96-56 for the NO X SIP Call and Docket No. A-97-43 for the Section 126 Rule. Electronic comments may be filed online at many Federal Depository Libraries.

In a final action published October 27, 1998, EPA promulgated, “Finding of Significant Contribution and Rulemaking for Certain States in the Ozone Transport Assessment Group Region for Purposes of Reducing Regional Transport of Ozone,” 63 FR 57356 (the NO X SIP Call). This rulemaking was the culmination of a multi-year study—begun by a cooperative group of States, industry, and citizen groups called the Ozone Transport Assessment Group (OTAG)—of the causes and extent of ozone-smog transport in the eastern half of the United States. In the NO X SIP Call, EPA determined that NO X emissions from 22 States and the District of Columbia contributed significantly to ozone nonattainment problems downwind, under Clean Air Act (CAA) section 110(a)(2)(D). Accordingly, EPA promulgated a requirement that each of the 23 jurisdictions submit a SIP revision containing controls that would yield specified levels of NO X emissions reductions, and thereby eliminate that jurisdiction's significant contribution.

Under the rulemaking, the appropriate level of NO X reductions is the amount of NO X emissions that could be eliminated through use of highly cost-effective controls. In the NO X SIP Call, EPA did not require States specifically to impose controls on any particular sources, but rather EPA determined the amount of emissions reductions that would correspond to the implementation of highly cost-effective controls, and required States to submit SIP revisions that provide for that amount of reduction. Although EPA determined the amount of required reduction by examining several categories of sources, EPA based most of its required emissions reductions on the availability of highly cost-effective controls for large EGUs.

In studying EGU NO X emissions and associated issues, EPA relied heavily on a computerized simulation of the electric utility industry termed the Integrated Planning Model (IPM). 1 The IPM used by EPA covers 48 contiguous U.S. States and incorporates information over a multi-year period as to expected demand for electricity, the physical characteristics of electricity generators, transmission grids, characteristics of the fuels used, amounts of NO X and other pollutant emissions, types of emissions controls, and the various costs involved. Based on these inputs, the IPM provides reasonable projections, over a multi-year period, of, among other things, the amount of electricity generation that will be needed in various areas, which sources will generate how much electricity, to which region that electricity will be transmitted, what amounts of heat input will be needed, the amount of pollution that will be emitted, what pollution controls will be required on which sources, what costs will be incurred, and how much new generation capacity will be built in various regions.

For the NO X SIP Call, EPA conducted the IPM simulations for the years 2001 to 2020, inclusive. Further, EPA programmed the model to provide detailed data outputs for the years 2001, 2003, 2007, 2010, and 2015. Of particular relevance for present purposes, IPM provided projections for heat input for 2001 and 2010, as well as projected NO X emissions for 2007.

EPA determined the amount of reductions attributable to EGUs as highly cost effective in the following manner: For each of the 23 jurisdictions, EPA determined the amount of actual heat input used by all large EGUs in the jurisdiction during the 1995 and 1996 ozone seasons. EPA selected the higher of the 1995 or 1996 amounts as the baseline heat input. EPA then applied a growth factor to this baseline amount, to grow it from the 1996 level (which, for some States, included the 1995 amount) to a 2007 base level. EPA determined the growth factor by determining the average annual growth rate in heat input projected by IPM between the years 2001 and 2010 inclusive.

EPA then applied to the 2007 projected heat input, the control level that EPA determined to be highly cost effective. This calculation yielded an amount of NO X emissions, which may be referred to as the 2007 EGU Budget. EPA subtracted this amount from the amount of NO X emissions IPM had projected for 2007 without assuming NO X controls. The remainder constituted a portion of the amount of NO X emissions reductions—the portion attributable to EGUs—that each jurisdiction was required to achieve.

When it promulgated the NO X SIP Call rule, EPA decided to reopen public comment on the source-specific data used to establish each State's 2007 EGU Budget (63 FR at 57427). EPA further extended this comment period by notice dated December 24, 1998 (63 FR 71220). EPA indicated that it would entertain requests to correct the 2007 EGU Budgets to take into account errors or updates in some of the underlying emissions inventory and certain other specified data (63 FR at 57427).

Following its review of the comments received, EPA published a rulemaking providing Technical Amendments to, among other things, the 2007 EGU Budgets. “Final Rule; Technical Amendment to the Finding of Significant Contribution and Rulemaking for Certain States for Purposes of Reducing Regional Transport of Ozone,” (64 FR 26298; May 14, 1999). In response to additional comments received, EPA published a second rulemaking, making additional Technical Amendments to the 2007 EGU Budgets. “Final Rule; Technical Amendment to the Finding of Significant Contribution and Rulemaking for Certain States for Purposes of Reducing Regional Transport of Ozone,” (65 FR 11222; March 2, 2000). (These two rulemakings may be referred to, together, as the Technical Amendments.) In promulgating the Technical Amendments, EPA kept intact its method for determining the 2007 EGU Budgets, including the method for determining growth to 2007. EPA simply made adjustments concerning whether particular sources were large EGUs, and made the appropriate adjustments in the 1996 baseline (which included 1995 heat input values for some States) for those sources.

In a final action published January 18, 2000, EPA granted petitions from four Northeast States making findings that NO X emissions from large EGUs, among other sources, in 12 Midwest, Southeast, and Northeast States and the District of Columbia contributed significantly to ozone nonattainment in the petitioning Northeast States. “Findings of Significant contribution and Rulemaking on Section 126 Petitions for Purposes of Reducing Interstate Ozone Transport,” 65 FR 2674 (Section 126 Rule). As a remedy, EPA promulgated control requirements for the EGUs. These control requirements were based on the 2007 EGU Budgets from the NO X SIP Call (as revised by the Technical Amendments). Specifically, EPA established a 2007 EGU Budget for each affected State, and then allocated the State's 2007 EGU Budget to each of the large EGUs in the State, according to a formula.

All three sets of rulemakings—the NO X SIP Call, the Technical Amendments, and the Section 126 Rule—were challenged by various groups of States and industries in the U.S. Court of Appeals for the District of Columbia Circuit (the D.C. Circuit).

On March 3, 2000, a panel of the D.C. Circuit largely upheld the NO X SIP Call in Michigan v. EPA , 213 F.3d 663 (D.C. Cir. 2000). Although partially vacating and remanding the SIP Call on certain specific issues, the Court generally upheld the regulatory approach adopted by EPA, including finding that EPA reasonably interpreted the CAA as “providing it with the authority to determine a state's NO X significant contribution level,” as reflected in each State's budget. Id. at 687. No party to that litigation specifically raised any issue concerning the EPA's method for computing the growth component for the EGU Budget.

On May 15, 2001, a panel of the D.C. Circuit largely upheld the Section 126 Rule in Appalachian Power v. EPA, 249 F.3d 1032 (D.C. Cir. 2001). In response to a direct challenge by parties to EPA's method for determining EGU growth rates, the Court remanded that part of the rule to EPA.

At the outset, the Court turned aside a challenge by the Midwest and Southeast States that EPA's emissions growth projections were arbitrary and capricious because they relied on IPM growth projections that were significantly lower than certain individual state projections. The Court upheld “EPA's judgment [that] the IPM offered a more comprehensive and consistent means of allocating emission allowances than sorting through the various state-specific projections.” Id. at 1053.

However, the Court went on to remand EPA's EGU growth projections. The Court objected that EPA never articulated why it adopted its methodology for projecting growth. In addition, the Court noted information provided by the petitioners challenging the rule that—

The Court stressed that “future growth projections that implicitly assume a baseline of negative growth in electricity generation over the course of a decade appear arbitrary,” and that EPA did not provide a record explanation of this disparity. 2

The Court then observed that although EPA relied on IPM projections for the 2001-2010 period, EPA had admitted that it had IPM projections for 2007, as well as for the 1996-2001 period. The Court quoted statements in EPA's Response to Comments document indicating that EPA relied on the 2001-2010 IPM growth projections to grow emissions from 1996 and thereby determine the 2007 EGU budgets, but then relied on IPM growth projections for 1996-2001 and 2001-2010 to analyze the costs of complying with those budgets. The Court concluded that EPA failed to explain why it used two sets of growth rates for different purposes. 3 For these reasons, the Court remanded “so that the agency may fulfill its obligation to engage in reasoned decisionmaking on how to set EGU growth factors and explain why results that appear arbitrary on their face are, in fact, reasonable determinations.” Id. at 1053-55.

On June 8, 2001, a third panel of the D.C. Circuit decided challenges to the Technical Amendments. Appalachian Power Company v. EPA , 251 F.3d 1026 (D.C. Cir. 2001). Although largely upholding the Technical Amendments, the Court remanded the EGU growth rates. The Court recognized that it “confronted nearly identical challenges to the EPA's use of growth factors to estimate baseline NO X emissions for 2007 in the section 126 litigation,” and remanded for the same reasons. Id. at 1034-35.

EPA is placing the information described below in the docket. This information is being placed in the NO X SIP Call rulemaking docket, A-96-46; and incorporated by reference into the Section 126 rulemaking docket, A-97-43, II-L-01.

1. 1995 through 2000 ozone season heat input values for EGUs, at the unit level, in the SIP Call Region. For units subject to the Acid Rain Program, these values were calculated based on hourly data reported to EPA for compliance with the Acid Rain Programs. For other units not subject to the Acid Rain Program, these values were based on monthly data reported to the Energy Information Administration (EIA). The 1995 and 1996 unit level data is the same data used during the SIP Call rulemaking. Most of the 1997 and 1998 data was placed in the docket as part of the Section 126 rulemaking, but data for some additional units for those years has been added. In addition, post-1998 data has been added. Docket no. A-96-56, XIV-C-01. Table 1 summarizes 1995-2000 ozone season heat input values for EGUs on a State-by-State.

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

The Lane Regional Air Pollution Authority (LRAPA) was created in 1968 to achieve and maintain clean air in Lane County, Oregon. Its member entities include Lane County and the cities of Eugene, Springfield, Cottage Grove, and Oakridge. LRAPA, through Oregon Department of Environmental Quality (ODEQ), forwarded three submittals to EPA for inclusion into the Oregon SIP on December 12, 1996, August 26, 1998, and February 23, 2001. For a summary of the rules EPA is approving, please see the table below. The submitted SIP revisions improve the clarity, effectiveness, and enforceability of LRAPA's rules by updating the rules, by creating consistency between LRAPA and ODEQ rules, and by making organizational and editorial changes. This Federal Register action will update the SIP to better match LRAPA's current local rules.

The SIP provides for the implementation, maintenance, and enforcement of the National Ambient Air Quality Standards, which are set for criteria pollutants. The six criteria pollutants are: carbon monoxide, lead, nitrogen dioxide, ozone, particulate matter, and sulfur dioxide. We will take no action to either approve or disapprove those portions of the rules relating to the control of non-criteria pollutants. EPA also will take no action on any sections that only direct the reader to another section and do not contain any rules.

The definitions used by LRAPA are consolidated under Title 12. Please see the Technical Support Document that this Federal Register action relies upon for a list of the definitions that are revised or added to Title 12. Title 12 contains some definitions related to New Source Review. Title 38 contains the New Source Review rules and definitions, and has also been revised and submitted to us for review (LRAPA effective date of May 11, 1993). We are not taking action on Title 38 at this time. Thus, we are approving the revisions to Title 12, with the caveat that the Title 38 definitions in the previously approved SIP (LRAPA effective date of February 13, 1990) remain the effective definitions for New Source Review.

Currently, there are two provisions identified as “Title 12” in the SIP. The first provision identified as Title 12 is the definitional section discussed above, while the second provision is “General Duties and Powers of Board and Director.” We are removing Title 12, General Duties and Powers of Board and Director, from the SIP. We reviewed the General Duties and Powers of Board and Director and found that the rule contains adequate investigative authority. However, rules describing agency investigative authority are not appropriate for inclusion in the SIP because of the potential conflict with EPA's independent authorities. We are also repealing Title 14, Definitions (LRAPA effective date of July 12, 1988), because it mistakenly was not removed from the SIP when Title 14 was recodified as Title 12 in 1990.

Title 15 was submitted to EPA on August 26, 1998. We reviewed Title 15, and found the rule to provide adequate enforcement authority. However, rules describing agency enforcement authority are not approved into the SIP to avoid potential conflict with EPA's independent authorities. Therefore, we will not approve this version of Title 15 into the SIP, and we are removing the 1990 version currently in the SIP.

This new title replaces LRAPA's previous SIP-approved incinerator rule (Section 33-020), which was adopted in 1973. These new rules better address modern incineration equipment and control and include emission limits and design, operation, monitoring, reporting, and testing requirements.

Title 30 applies to solid waste incinerators, crematoriums, and infectious waste incinerators, but not to municipal waste combustors. The rules affect five crematoriums and one infectious waste incinerator in the Eugene-Springfield area. Presently, there are no general refuse solid waste incinerators operating in Lane County. Previously, Section 33-020 applied to all incinerator categories, but exempting municipal waste combustors in Title 30 does not relax the requirements for any existing sources, because there are no municipal waste combustors in Lane County.

We are approving Title 30, with the exception of the provisions applying specifically to Hydrogen chloride (HCl), Dixons and Furans, and Odors (all non-criteria pollutants).

Title 32, as revised by LRAPA in 1994, was submitted to EPA for approval in 1996. Title 32 consolidates all emission standards into one title to ease the implementation of the Federal operating permit program. Revisions include updating the sulfur dioxide (SO 2 ) emission limitations, revising the Highest and Best Practicable Treatment and Control Required section, and adding Pollution Prevention guidelines, Operating and Maintenance requirements, and Typically Achievable Control Technology (TACT) requirements.

In Section 32-010, an opacity exception for incinerators is removed and replaced by the new incinerator rule discussed above (Section 30-020(6)). In Section 32-070, the 1000 ppm SO 2 limit is removed and replaced by the combination of the following more restrictive rules: (a) Section 32-065, Sulfur Content of Fuels; (b) Section 32-070, Sulfur Dioxide Emission Limits; and (c) Section 33-070(3)(C), Kraft Pulp Mills. All SO 2 emissions from stationary sources within LRAPA's jurisdiction are from fossil fuel combustion or pulp mill operation, and therefore are regulated by at least one of the three rules.

When Title 32 was revised in 1994, LRAPA removed the Airborne Particulate Matter section (32-060), dated September 14, 1982, and replaced it with Title 48, Fugitive Emissions. LRAPA also recodified Air Conveying Systems from Section 32-800 to 32-060. Since Title 48 has not been submitted to us at this time, we are keeping the previously approved Airborne Particulate Matter Section (32-060) in the SIP. Therefore, because of the recodification, there will be two sections numbered 32-060 in the SIP, Airborne Particulate Matter (1982) and Air Conveying Systems (1994).

This action approves the revisions to Title 32, with the exception of Section 32-075 (Federal Acid Rain Regulations Adopted by Reference) and Section 32-080 (Control of Ozone-Depleting Chemicals). Acid rain regulations are already federally enforceable (40 CFR part 72) and therefore, do not need to be made so through approval into the SIP. Ozone-depleting chemicals are non-criteria pollutants and inappropriate for inclusion in the SIP.

The revisions to Title 33 update industry standards, move veneer dryers from Section 32-010 to Section 33-060, Board Products Industry Rules, add particulate emission limitations for wood-fired veneer dryers, and adopt Hot Mix Asphalt Plant Rules. The SIP revision also removes the previously approved Section 33-025 (Wigwam Waste Burners) because there are no longer any wigwam waste burners operating within LRAPA's jurisdiction.

We are approving the revisions to Title 33, with the exception of the parts of Section 33-070 (Kraft Pulp Mills) concerning Total Reduced Sulfur (TRS), and all of Section 33-080 (Reduction of Animal Matter) because control of TRS and of odors from the reduction of animal matter are not appropriate for inclusion in the SIP. The sub-sections of Section 33-070 concerning TRS are as follows: 1(Definitions for Non-Condensibles, Other Sources, and Total Reduced Sulfur (TRS)), 3(A), 6(B), 7(A), 7(B), 8(C)(1)(a), and 8(C)(2)(a).

Over the past several years, we have received many versions of Title 34 that we have not acted on. In this action, we are only acting on the most recent version, which was submitted on February 23, 2001, since it supersedes the previous submissions. The name of Title 34 has been changed from “Air Contaminant Discharge Permits” (ACDPs) to “Stationary Source Rules and Permitting Procedures” to reflect the consolidation of all permitting rules, including source registration, Plant Site Emission Limits (PSELs), ACDPs, Federal Operating Permits, and Synthetic Minor Sources, into one title. The rules have been updated to identify which permitting procedures a source may be subject to, outdated mandatory registration requirements have been removed, and references have been updated. Section 34-130 adds a provision for industrial sources to continue operating under an expired permit if, due to processing delays, LRAPA fails to issue a new permit in a timely fashion.

Source categories were added to the permit fee table (Table A) to make LRAPA rules consistent with ODEQ rules. Fees were adjusted (some categories were increased, others decreased) to better represent the permit processing time for individual categories. Section 34-150(13) is added to provide for an automatic annual increase of four percent in permit fees to keep up with inflation and maintain LRAPA's level of service in permitting. Therefore, the 2000 version of Table A that we are approving into the SIP will be the baseline from which future permit fees will be calculated.

We are approving the revisions to Title 34 into the SIP, with the exception of the rules for Federal Operating Permits (Sections 34-170 to 34-200) and Plant Site Emission Limits for Sources of Hazardous Air Pollutants (34-060(6)). Federal Operating Permit (Title V) programs and rules are enforceable by EPA through the Title V approval process (60 FR 50106, September 28, 1995), which is independent of the SIP approval process. Rules for the control of Hazardous Air Pollutants are not appropriate for the SIP. We are also taking no action on Section 34-035, Requirements for Construction (or Non-Major Modification), at this time.

EPA is taking no action on certain provisions relating to the trading of emissions, specifically Section 34-060(8) “Alternative Emission Controls (Bubble).” These provisions, which provide LRAPA with the authority to approve certain emission trades, do not need to be included in the SIP. The LRAPA bubble rule is consistent with the general requirements of EPA's Final Emission Policy Statement (December 1986), but does not comply with EPA's requirements for “generic” bubble rules. As such, each bubble approved by LRAPA must be submitted to, and approved by, EPA before the applicable requirements of the SIP are changed. Because of this requirement for a case-by-case SIP revision, it is inappropriate for EPA to approve LRAPA's rule into the SIP.

We are taking no action on Title 47 at this time.

We approve the following SIP revisions and deletions submitted by LRAPA, through ODEQ, for inclusion in the Oregon SIP. This summary also lists the revisions on which EPA is taking no action. A revised Table of Contents for the LRAPA portion of the Oregon SIP appears at the end of this action.

Title 12, Definitions, effective 3-8-94.

Title 30, Incinerator Regulations, effective 3-8-94, except for Section 30-020(2), Section 30-020(8), Section 30-025(9), Section 30-030(1)(I), Section 30-030(2)(E), and Section 30-045(3).

Title 32, Emission Standards, effective 11-10-94, except for Section 32-075, Section 32-080, Section 32-095, Section 32-100, Section 32-101, Section 32-102, Section 32-103, and Section 32-104.

Title 33, Prohibited Practices and Control of Special Classes of Industry, effective 11-10-94, except for Section 33-005, Section 33-020, Section 33-055, Section 33-070(1)(Definitions for Non-Condensibles, Other Sources, and Total Reduced Sulfur (TRS)), Section 33-070(3)(A), Section 33-070(6)(B), Section 33-070(7)(A), Section 33-070(7)(B), Section 33-070(8)(C)(1)(a), Section 33-070(8)(C)(2)(a), Section 33-080, and Section 33-085.

Title 34, Stationary Source Rules and Permitting Procedures, effective 6-13-00, except for Section 34-025, Section 34-035, Section 34-060 (6), Section 34-060 (8), Section 34-080, Section 34-160, Section 34-170, Section 34-180, Section 34-190, Section 34-200, Section 34-210, Section 34-220, and Section 34-230.

The following sections of Title 30, Incinerator Regulations, effective 3-8-94: Section 30-020(2), Section 30-020(8), Section 30-025(9), Section 30-030(1)(I), Section 30-030(2)(E), and Section 30-045(3).

The following sections of Title 32, Emission Standards, effective 11-10-94: Section 32-075, Section 32-080, Section 32-095, Section 32-100, Section 32-101, Section 32-102, Section 32-103, and Section 32-104.

The following sections of Title 33, Prohibited Practices and Control of Special Classes of Industry, effective 11-10-94: Section 33-005, Section 33-020, Section 33-055, Section 33-070(1)(Definitions for Non-Condensibles, Other Sources, and Total Reduced Sulfur (TRS)), Section 33-070(3)(A), Section 33-070(6)(B), Section 33-070(7)(A), Section 33-070(7)(B), Section 33-070(8)(C)(1)(a), Section 33-070(8)(C)(2)(a), Section 33-080, and Section 33-085.

The following sections of Title 34, Stationary Source Rules and Permitting Procedures, effective 6-13-00: Section 34-025, Section 34-035, Section 34-060(6), Section 34-060(8), Section 34-080, Section 34-160, Section 34-170, Section 34-180, Section 34-190, Section 34-200, Section 34-210, Section 34-220, and Section 34-230.

Title 47, Rules for Open Outdoor Burning, effective 10-17-95.

The following sections of Title 12, General Duties and Powers of Board and Director, effective 11-8-83: Section 12-005, Section 12-010, Section 12-020, and Section 12-035.

The following section of Title 12, General Duties and Powers of Board and Director, effective 9-9-88: Section 12-025.

Title 12, Definitions, effective 2-13-90.

Title 14, Definitions, effective 7-12-88.

Title 15, Enforcement Procedure and Civil Penalties, effective 2-13-90.

The following sections of Title 32, Emission Standards, effective 9-14-82: Section 32-005, Section 32-010, Section 32-025, Section 32-030, Section 32-035, Section 32-040, Section 32-045, Section 32-055, Section 32-065, Section 32-100, Section 32-101, Section 32-102, and Section 32-103.

The following section of Title 32, Emission Standards, effective 1-8-85: Section 32-800.

The following sections of Title 32, Emission Standards, effective 11-8-83: Section 32-104 and Section 32-990.

The following sections of Title 33, Prohibited Practices and Control of Special Classes of Industry, effective 5-15-79: Section 33-020, Section 33-025, Section 33-030, Section 33-045, Section 33-055, Section 33-060, and Section 33-065.

The following section of Title 33, Prohibited Practices and Control of Special Classes of Industry, effective 9-14-82: Section 33-070.

The following sections of Title 34, Stationary Source Rules and Permitting Procedures, effective 1-9-90: Section 34-001, Section 34-010, Section 34-015, Section 34-020, Section 34-025, Section 34-030, Section 34-035, Section 34-040, Section 34-045, Section 34-050, and Table A.

The following section of Title 34, Stationary Source Rules and Permitting Procedures, effective 2-13-90: Section 34-005.

EPA is publishing this rule without prior proposal because the Agency believes this is a noncontroversial submittal and anticipates no adverse comments. However, in the proposed rules section of this Federal Register publication, EPA is publishing a separate document that will serve as the proposal to approve the SIP revision should adverse comments be filed. This rule will be effective October 2, 2001 without further notice unless the Agency receives adverse comments by September 4, 2001.

If the EPA receives such comments, then EPA will publish a notice withdrawing the final rule and informing the public that the rule will not take effect. All public comments received will then be addressed in a subsequent final rule based on the proposed rule. There will not be a second comment period; therefore, any party interested in commenting should do so at this time. If no such comments are received, this rule will be effective on October 2, 2001, and no further action will be taken on the proposed rule.

A. Under Executive Order 12866 (58 FR 51735, October 4, 1993), this action is not a “significant regulatory action” and therefore is not subject to review by the Office of Management and Budget. For this reason, this action is also not subject to Executive Order 13211, “Actions Concerning Regulations That Significantly Affect Energy Supply, Distribution, or Use” (66 FR 28355, May 22, 2001). This action merely approves state law as meeting federal requirements and imposes no additional requirements beyond those imposed by state law. Accordingly, the Administrator certifies that this rule will not have a significant economic impact on a substantial number of small entities under the Regulatory Flexibility Act (5 U.S.C. 601 et seq. ). Because this rule approves pre-existing requirements under state law and does not impose any additional enforceable duty beyond that required by state law, it does not contain any unfunded mandate or significantly or uniquely affect small governments, as described in the Unfunded Mandates Reform Act of 1995 (Pub. L. 104-4). This rule also does not have a substantial direct effect on one or more Indian tribes, 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, as specified by Executive Order 13175 (65 FR 67249, November 9, 2000), nor will it have substantial direct effects 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, as specified in Executive Order 13132 (64 FR 43255, August 10, 1999), because it merely approves a state rule implementing a federal standard, and does not alter the relationship or the distribution of power and responsibilities established in the Clean Air Act. This rule also is not subject to Executive Order 13045 (62 FR 19885, April 23, 1997), because it is not economically significant.

In reviewing SIP submissions, EPA's role is to approve state choices, provided that they meet the criteria of the Clean Air Act. In this context, in the absence of a prior existing requirement for the State to use voluntary consensus standards (VCS), EPA has no authority to disapprove a SIP submission for failure to use VCS. It would thus be inconsistent with applicable law for EPA, when it reviews a SIP submission, to use VCS in place of a SIP submission that otherwise satisfies the provisions of the Clean Air Act. Thus, the requirements of section 12(d) of the National Technology Transfer and Advancement Act of 1995 (15 U.S.C. 272 note) do not apply. As required by section 3 of Executive Order 12988 (61 FR 4729, February 7, 1996), in issuing this rule, EPA has taken the necessary steps to eliminate drafting errors and ambiguity, minimize potential litigation, and provide a clear legal standard for affected conduct. EPA has complied with Executive Order 12630 (53 FR 8859, March 15, 1988) by examining the takings implications of the rule in accordance with the “Attorney General's Supplemental Guidelines for the Evaluation of Risk and Avoidance of Unanticipated Takings' issued under the executive order. This rule does not impose an information collection burden under the provisions of the Paperwork Reduction Act of 1995 (44 U.S.C. 3501 et seq. ).

The Congressional Review Act, 5 U.S.C. 801 et seq. , as added by the Small Business Regulatory Enforcement Fairness Act of 1996, generally provides that before a rule may take effect, the agency promulgating the rule must submit a rule report, which includes a copy of the rule, to each House of the Congress and to the Comptroller General of the United States. EPA will submit a report containing this rule and other required information to the U.S. Senate, the U.S. House of Representatives, and the Comptroller General of the United States prior to publication of the rule in the Federal Register . A major rule cannot take effect until 60 days after it is published in the Federal Register . This action is not a “major rule” as defined by 5 U.S.C. section 804(2). This rule will be effective October 2, 2001, unless EPA receives adverse written comments by September 4, 2001.

Under section 307(b)(1) of the Clean Air Act, petitions for judicial review of this action must be filed in the United States Court of Appeals for the appropriate circuit by October 2, 2001. Filing a petition for reconsideration by the Administrator of this final rule does not affect the finality of this rule for the purposes of judicial review nor does it extend the time within which a petition for judicial review may be filed, and shall not postpone the effectiveness of such rule or action. This action may not be challenged later in proceedings to enforce its requirements. (See section 307(b)(2).)

During EPA's review of a SIP revision involving Oregon's statutory authority, a problem was detected which affected the enforceability of point source permit limitations. EPA determined that, because the five-day advance notice provision required by ORS 468.126(1) (1991) bars civil penalties from being imposed for certain permit violations, ORS 468 fails to provide the adequate enforcement authority that a state must demonstrate to obtain SIP approval, as specified in section 110 of the Clean Air Act and 40 CFR 51.230. Accordingly, the requirement to provide such notice would preclude federal approval of a section 110 SIP revision.

To correct the problem the Governor of Oregon signed into law new legislation amending ORS 468.126 on September 3, 1993. This amendment added paragraph ORS 468.126(2)(e) which provides that the five-day advance notice required by ORS 468.126(1) does not apply if the notice requirement will disqualify a state program from federal approval or delegation. ODEQ has agreed that, because federal statutory requirements preclude the use of the five-day advance notice provision, no advance notice will be required for violations of SIP requirements contained in permits. Thus the advance notice provision in the LRAPA rule, section 15-018, does not apply for SIP requirements contained in permits.

Another enforcement issue concerns Oregon's audit privilege and immunity law. Nothing in this action should be construed as making any determination or expressing any position regarding Oregon's Audit Privilege Act, ORS 468.963 enacted in 1993, or its impact upon any approved provision in the SIP, including the revision at issue here. The action taken herein does not express or imply any viewpoint on the question of whether there are legal deficiencies in this or any other Clean Air Act Program resulting from the effect of Oregon's audit privilege and immunity law. A state audit privilege and immunity law can affect only state enforcement and cannot have any impact on federal enforcement authorities. EPA may at any time invoke its authority under the Clean Air Act, including, for example, sections 113, 167, 205, 211, or 213, to enforce the requirements or prohibitions of the state plan, independently of any state enforcement effort. In addition, citizen enforcement under section 304 of the Clean Air Act is likewise unaffected by a state audit privilege or immunity law.

The Anti Car Theft Act of 1992, Pub. L. 102-519, amended the law relating to the parts-marking of major component parts on designated high-theft vehicle lines and other motor vehicles. The Anti Car Theft Act amended the definition of “passenger motor vehicle” in 49 U.S.C. 33101(10) to include a “multipurpose passenger vehicle or light duty truck when that vehicle or truck is rated at not more than 6,000 pounds gross vehicle weight.” Since “passenger motor vehicle” was previously defined to include passenger cars only, the effect of the Anti Car Theft Act is that certain multipurpose passenger vehicle (MPV) and light-duty truck (LDT) lines may be determined to be high-theft vehicles subject to the Federal motor vehicle theft prevention standard (49 CFR part 541).

The purpose of the theft prevention standard is to reduce the incidence of motor vehicle theft by facilitating the tracing and recovery of parts from stolen vehicles. The standard seeks to facilitate such tracing by requiring that vehicle identification numbers (VINs), VIN derivative numbers, or other symbols be placed on major component vehicle parts. The theft prevention standard requires motor vehicle manufacturers to inscribe or affix VINs onto covered original equipment major component parts, and to inscribe or affix a symbol identifying the manufacturer and a common symbol identifying the replacement component parts for those original equipment parts, on all vehicle lines selected as high-theft.

The Anti Car Theft Act also amended 49 U.S.C. 33103 to require NHTSA to promulgate a parts-marking standard applicable to major parts installed by manufacturers of “passenger motor vehicles (other than light duty trucks) in not to exceed one-half of the lines not designated under 49 U.S.C. 33104 as high-theft lines.” Section 33103(a) further directed NHTSA to select only lines not designated under § 33104 of this title as high theft lines. NHTSA lists each of these selected lines in appendix B to part 541. Since § 33103 did not specify marking of replacement parts for below-median lines, the agency does not require marking of replacement parts for these lines. NHTSA published a final rule amending 49 CFR part 541 to include the definitions of MPV and LDT, and major component parts. See 59 FR 64164, (December 13, 1994).

49 U.S.C. 33104(a)(3) specifies that NHTSA shall select high-theft vehicle lines, with the agreement of the manufacturer, if possible. Section 33104(d) provides that once a line has been designated as likely high-theft, it remains subject to the theft prevention standard unless that line is exempted under § 33106. Section 33106 provides that a manufacturer may petition to have a high-theft line exempted from the requirements of § 33104, if the line is equipped with an antitheft device as standard equipment. The exemption is granted if NHTSA determines that the antitheft device is likely to be as effective as compliance with the theft prevention standard in reducing and deterring motor vehicle thefts.

The agency annually publishes the names of the lines which were previously listed as high-theft, and the lines which are being listed for the first time and will be subject to the theft prevention standard beginning in a given model year. It also identifies those lines that are exempted from the theft prevention standard for a given model year under § 33104. Additionally, this listing identifies those lines (except light-duty trucks) in appendix B to part 541 that have theft rates below the 1990/1991 median theft rate but are subject to the requirements of this standard under § 33103.

On May 26, 2000, the final listing of high-theft lines for the MY 2001 vehicle lines was published in the Federal Register (65 FR 34106). The final listing identified eight vehicle lines that were listed for the first time and became subject to the theft prevention standard beginning with the 2001 model year.

For MY 2002, the agency identified four new vehicle lines that are likely to be high-theft lines, in accordance with the procedures published in 49 CFR part 542. The new lines are the Honda Acura RSX, the Isuzu Axiom (MPV), the Suzuki Aerio, and the Mitsubishi Lancer. In addition to these four vehicle lines, the list of high-theft vehicle lines includes all lines previously designated as high-theft and listed for prior model years.

Subsequent to publishing the MY 2001 final rule, the agency was informed by Hyundai America Technical Center, Inc., (Hyundai) that its MY 1998 high-theft line, previously codenamed the S-II line should be identified in the Appendix A listing as a reintroduction of the Kia Sephia line. Hyundai also informed the agency that because the MY 2000 Kia Spectra is built on the same platform as its sister line, the Kia Sephia, it believed the Spectra line would likely be a high-theft vehicle and has been parts-marking the line since its introduction. The agency agrees with Hyundai's evaluation of the Kia Spectra line as a high-theft vehicle. Therefore, the MY 2000 Kia Spectra line should be subject to the parts-marking requirements of the Theft Prevention Standard and Hyundai should continue parts-marking the line. Additionally, the BMW Z8 and Toyota Prius vehicle lines were erroneously omitted from the Appendix A listing for the MY 2000 and 2001 respectively. Accordingly, Appendix A has also been amended to reflect these changes.

The list of lines that have been exempted by the agency from the parts-marking requirements of part 541 includes high-theft lines newly exempted in full beginning with MY 2002. The three vehicle lines newly exempted in full are the BMW MINI line, the Ford Mercury Grand Marquis and the General Motors Chevrolet Venture.

Additionally, since the agency granted the Ford Motor Company an exemption from the parts-marking requirements for its Mercury Grand Marquis line, it has been deleted from Appendix B.

The vehicle lines listed as being subject to the parts-marking standard have previously been designated as high-theft lines in accordance with the procedures set forth in 49 CFR part 542. Under these procedures, manufacturers evaluate new vehicle lines to conclude whether those new lines are likely to be high theft. The manufacturer submits these evaluations and conclusions to the agency, which makes an independent evaluation; and, on a preliminary basis, determines whether the new line should be subject to the parts-marking requirements. NHTSA informs the manufacturer in writing of its evaluations and determinations, together with the factual information considered by the agency in making them. The manufacturer may request the agency to reconsider the preliminary determinations. Within 60 days of the receipt of these requests, the agency makes its final determination. NHTSA informs the manufacturer by letter of these determinations and its response to the request for reconsideration. If there is no request for reconsideration, the agency's determination becomes final 45 days after sending the letter with the preliminary determination. Each of the new lines on the high-theft list has been the subject of a final determination under either 49 U.S.C. 33103 or 33104.

The vehicle lines listed as being exempt from the standard have previously been exempted in accordance with the procedures of 49 CFR part 543 and 49 U.S.C. 33106.

Similarly, the low-theft lines listed as being subject to the parts-marking standard have previously been designated in accordance with the procedures set forth in 49 U.S.C. 33103.

Therefore, NHTSA finds for good cause that notice and opportunity for comment on these listings are unnecessary. Further, public comment on the listing of selections and exemptions is not contemplated by 49 U.S.C. chapter 331.

For the same reasons, since this revised listing only informs the public of previous agency actions and does not impose additional obligations on any party, NHTSA finds for good cause that the amendment made by this notice should be effective as soon as it is published in the Federal Register .

NHTSA has analyzed this rule and determined that it is not “significant” within the meaning of the Department of Transportation's regulatory policies and procedures. The agency has also considered this notice under Executive Order 12866. As already noted, the selections in this final rule have previously been made in accordance with the provisions of 49 U.S.C. 33104, and the manufacturers of the selected lines have already been informed that those lines are subject to the requirements of 49 CFR part 541 for MY 2002. Further, this listing does not actually exempt lines from the requirements of 49 CFR part 541; it only informs the general public of all such previously granted exemptions. Since the only purpose of this final listing is to inform the public of actions for MY 2002 that the agency has already taken, a full regulatory evaluation has not been prepared.

The agency has also considered the effects of this listing under the Regulatory Flexibility Act. I hereby certify that this rule will not have a significant economic impact on a substantial number of small entities. As noted above, the effect of this final rule is simply to inform the public of those lines that are already subject to the requirements of 49 CFR part 541 for MY 2002. The agency believes that the listing of this information will not have any economic impact on small entities.

In accordance with the National Environmental Policy Act of 1969, the agency has considered the environmental impacts of this rule, and determined that it will not have any significant impact on the quality of the human environment.

This action has been analyzed in accordance with the principles and criteria contained in Executive Order 12612, and it has been determined that this final rule does not have sufficient Federalism implications to warrant the preparation of a Federalism Assessment.

This final rule does not have a retroactive effect. In accordance with § 33118 when the Theft Prevention Standard is in effect, a State or political subdivision of a State may not have a different motor vehicle theft prevention standard for a motor vehicle or major replacement part. 49 U.S.C. 33117 provides that judicial review of this rule may be obtained pursuant to 49 U.S.C. 32909. Section 32909 does not require submission of a petition for reconsideration or other administrative proceedings before parties may file suit in court.