The Office of Personnel Management (OPM) is defining San Joaquin County, California, as a new nonappropriated fund (NAF) Federal Wage System (FWS) wage area. San Joaquin County is currently defined as an area of application to the Sacramento, CA, NAF FWS wage area. The Army and Air Force Exchange Service (AAFES) built a new distribution facility, which has about 450 NAF FWS employees. Under section 5343(a) of title 5, United States Code, NAF FWS wage area boundaries may not extend beyond the immediate locality where NAF employees work. OPM may establish an NAF wage area under § 532.219 of title 5, Code of Federal Regulations, when there is a minimum of 26 NAF wage employees in a survey area and there is sufficient private employment within the survey area to provide adequate data for establishing an NAF wage schedule.

San Joaquin County meets the regulatory criteria to be a separate NAF wage area. Under § 532.219, there must be a minimum of 1,800 private enterprise employees in establishments within the scope of an NAF survey for a separate wage area to be established. San Joaquin County has more than 139,000 private enterprise employees in surveyable establishments.

The Sacramento NAF wage area continues to meet the criteria under 5 CFR 532.219 to remain a separate NAF FWS wage area. No other counties in the Sacramento NAF FWS wage area are affected by the removal of San Joaquin County from the Sacramento wage area. The Federal Prevailing Rate Advisory Committee, the national labor-management committee responsible for advising OPM on matters concerning the pay of FWS employees, recommended this change by consensus. The first local wage survey for the new San Joaquin wage area will begin in February 2002. NAF FWS employees in San Joaquin County will be placed on the new San Joaquin wage schedule on the first day of the first applicable pay period beginning on or after April 13, 2002, the effective date of the new wage schedule.

Pursuant to section 553(b)(3)(B) of title 5, United States Code, I find that good cause exists for waiving the general notice of proposed rulemaking. The notice is being waived because it is necessary to define San Joaquin County, CA, to an NAF wage area as soon as possible to set pay for NAF FWS employees in San Joaquin County on the basis of local prevailing rates.

I certify that this regulation will not have a significant economic impact on a substantial number of small entities because it will affect only Federal agencies and employees.

This rule has been determined to be not-significant for the purpose of Executive Order 12866 and, therefore, has not been reviewed by the Office of Management and Budget (OMB).

Pursuant to the Paperwork Reduction Act of 1995 (44 U.S.C. chapter 35), the collections of information in this rule have been approved by the Office of Management and Budget (OMB) under control number 0563-0053 through January 31, 2002.

Title II of the Unfunded Mandates Reform Act of 1995 (UMRA) establishes requirements for Federal agencies to assess the effects of their regulatory actions on State, local, and tribal governments and the private sector. This rule contains no Federal mandates (under the regulatory provisions of title II of the UMRA) for State, local, and tribal governments or the private sector. Therefore, this rule is not subject to the requirements of sections 202 and 205 of the UMRA.

The policies contained in this rule do not have any substantial direct effect on 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. Nor does this rule impose substantial direct compliance costs on state and local governments. Therefore, consultation with the states is not required.

This regulation will not have a significant economic impact on a substantial number of small entities. Additionally, the regulation does not require any greater action on the part of small entities than is required on the part of large entities. The amount of work required of the insurance companies will not increase because the information used to determine eligibility must already be collected under the present policy. No additional work is required as a result of this action on the part of either the insured or the insurance companies. Therefore, this action is determined to be exempt from the provisions of the Regulatory Flexibility Act (5 U.S.C. 605), and no Regulatory Flexibility Analysis was prepared.

This program is listed in the Catalog of Federal Domestic Assistance under No. 10.450.

This program is not subject to the provisions of Executive Order 12372 which requires intergovernmental consultation with State and local officials. See the Notice related to 7 CFR part 3015, subpart V, published at 48 FR 29115, June 24, 1983.

This rule has been reviewed in accordance with Executive Order 12988 on civil justice reform. The provisions of this rule will not have a retroactive effect. The provisions of this rule will preempt State and local laws to the extent such State and local laws are inconsistent herewith. The administrative appeal provisions published at 7 CFR part 11 must be exhausted before any action for judicial review of any determination made by FCIC may be brought.

This action is not expected to have a significant economic impact on the quality of the human environment, health, and safety. Therefore, neither an Environmental Assessment nor an Environmental Impact Statement is needed.

On Monday, June 19, 2000, FCIC published a notice of proposed rulemaking in the Federal Register at 65 FR 37919-37922 to add 7 CFR 457.165 Millet crop insurance provisions effective for the 2002 and succeeding crop years.

Following publication of the proposed rule on June 19, 2000, the public was afforded 30 days to submit written comments and opinions. A total of 21 comments were received from two reinsured companies and a trade association. The comments received and FCIC's responses are as follows:

Comment. Two reinsured companies and a trade association questioned why the contract change date contained in section 3 of these provisions was changed from December 31 to November 30.

Response. The contract change date was changed from December 31 to November 30 in section 3 to maintain the same time period between the contract change date and the cancellation date to be consistent with other annual crop insurance policies.

Comment. Two reinsured companies and a trade association questioned why section 11 (Written Agreement) of the previous pilot provisions was removed from the proposed rule.

Response. Section 11 was removed from the millet crop provisions because it is contained in the Basic Provisions and, therefore, is already part of the policy.

Comment. Two reinsured companies and a trade association questioned why the unit of measure, “hundredweight” was replaced by the unit of measure, “bushel” as defined in section 1 of these provisions.

Response. The appropriate unit of measure was changed from “hundredweight” to “bushel” for the following reasons: (1) There is no single standard of measure for millet; it is not contained in the United States Grain Standards or any other standards; (2) FCIC has determined that for quality purposes on a bushels basis, the test weight for millet is 50 lbs. per bushel and a test weight under 50 lbs. per bushel is eligible for quality adjustment; and (3) A bushel unit of measurement is consistent with other crops, i.e. , grain sorghum.

Comment. Two reinsured companies and a trade association recommend the word “limited” be removed from section 12 (Prevented Planting) of the Millet crop provisions.

Response. FCIC agrees with commenters. The proposed rule stated that if the producer had limited or additional levels of coverage and paid additional premium, the producer could increase prevented planting coverage pursuant to the actuarial documents. FCIC has removed the incorrect reference to the word “limited” from section 12 of these provisions.

Comment. Two reinsured companies and a trade association questioned whether millet planted as a nurse crop is insurable.

Response. The proposed rule allowed millet grown as a nurse crop unless harvested as grain to be insured by written agreement or pursuant to Special Provisions. However, FCIC has revised section 5(c) to state that millet planted as a nurse crop is not insurable. This change was made because millet must be swathed and windrowed prior to combining or threshing and practice cannot be done when millet is planted as a nurse crop.

Comment. Two reinsured companies and a trade association questioned the end insurance period provisions in proposed section 7. The proposal allowed 25 days after swathing millet until the end of insurance period calendar date in North Dakota and South Dakota and only 15 days after swathing millet until the end of the insurance period calendar date in all other states.

Response. The variance of days provides adequate time for swathed millet to dry prior to completing harvest. The time variances are based on geographical locations, therefore, no changes have been made in response to this comment.

Comment. Two reinsured companies and a trade association recommend adding language to the peril of fire provision contained in section 8 of these provisions to read, “Fire, but only of natural origin and not artificial or man-made”.

Response. FCIC agrees with commenters but will not incorporate the suggested language in these crop provisions. FCIC is revising the Common Crop Insurance Policy Basic Provisions due to changes required by the Agricultural Protection Act of 2000. Language indicating that all causes of loss must be due to an act of natural origin will be included in this revision instead.

In addition to the changes described above, FCIC has revised section 7(b) to add language, “unless otherwise specified in the Special Provisions.” This change allows for the flexibility for different ending dates of the insurance period when millet is expanded into other states as a result of changes in agronomic and geographic growing conditions.

This rule has been determined to be not significant for the purposes of Executive Order 12866 and, therefore, has not been reviewed by the Office of Management and Budget (OMB).

This program is subject to the provisions of Executive Order 12372, Intergovernmental Review of Federal Programs, which requires intergovernmental consultation with State and local officials.

This rule has been reviewed under Executive Order 12988, Civil Justice Reform. RUS has determined that this rule meets the applicable standards provided in section 3 of the Executive Order. In addition, all State and local laws and regulations that are in conflict with this rule will be preempted; no retroactive effect will be given to this rule; and, in accordance with section 212(e) of the Department of Agriculture Reorganization Act of 1994 (7 U.S.C. 6912(e)) administrative appeal procedures, if any are required, must be exhausted before an action against the Department or its agencies may be initiated.

The Administrator of RUS has determined that this rule will not have a significant economic adverse impact on a substantial number of small entities, as defined in the Regulatory Flexibility Act (5 U.S.C. 601). The RUS DLT loan and grant program provides recipients with grants and loans at interest rates and on terms that are more favorable than those generally available from the private sector. Recipients, as a result of obtaining federal financing, receive economic benefits that exceed any direct cost associated with complying with the RUS regulations and requirements.

The Administrator of RUS has determined that this rule will not significantly affect the quality of the human environment as defined by the National Environmental Policy Act of 1969 (42 U.S.C. 4321 et seq. ). Therefore, this action does not require an environmental impact statement or assessment.

The program described by this rule is listed in the Catalog of Federal Domestic Assistance programs under No. 10.855 Distance Learning and Telemedicine Loans and Grants. This catalog is available on a subscription basis from the Superintendent of Documents, the United States Government Printing Office, Washington, DC 20402-9325, telephone number (202) 512-1800.

The reporting and recordkeeping requirements contained in this rule have been approved by the Office of Management and Budget (OMB) under OMB Control Number 0572-0096, pursuant to the Paperwork Reduction Act of 1995 (44 U.S.C chapter 35).

This rule contains no Federal mandates (under the regulatory provisions of title II of the Unfunded Mandates Reform Act) for State, local, and tribal governments or the private sector. Thus, this rule is not subject to the requirements of sections 202 and 205 of the Unfunded Mandates Reform Act.

RUS is amending 7 CFR 1703, subparts D, E, F and G of its regulations for the Distance Learning and Telemedicine (DLT) Loan and Grant Program. The current regulations implement the provision of the Federal Agriculture Improvement and Reform Act of 1996 (1996 Act) (7 U.S.C. 950aaa et seq. ) to encourage and improve telemedicine services and distance learning services in rural areas.

Subpart D is being amended to clarify eligibility for various types of financial assistance. Section 1703.103 is revised to clarify eligibility criterion for applicants in conformance with paragraphs (c)(1) and (2) of section 2333 of the 1996 Act (7 U.S.C. 950aaa-a(1) and (2). Sections 1703.131(h) and 1703.141(h) are revised to clarify that transmission facilities may be financed only with a loan and in connection with a distance learning or telemedicine project. Funding of transmission facilities is further clarified under section 1703.101. Additionally the word “eligible” was removed from the first sentence of the consortium definition and the definition of “eligible organization” was deleted under the definition section. Eligibility criteria are set forth in § 1703.103.

This rule also amends the method of calculation for the minimum matching contribution of a grant in subpart E. This rule also readjusts the award of points for the leveraging of resources scoring criterion.

Subpart E clarifies the circumstances under which the grant program will fund telecommunications facilities.

This rule makes an additional modification to subpart E regarding required financial information. This will streamline the application process for applicants.

SBA is adding a provision to its size standards regulations requiring that at least once every five years it will assess the impact of inflation on its monetary-based size standards. These are size standards based on receipts, net income, or other monetary measures. Although the provision does not mandate that SBA adjust size standards for inflation, it does provide assurances to the public that SBA is monitoring inflation and is making a decision whether or not to adjust size standards within a reasonable period of time since its last inflation adjustment. If SBA decides not to make an inflation adjustment after a review, it will continue to monitor inflation on an annual basis until such time an adjustment is made. Afterwards, SBA will review inflation on a periodic basis, but at least once within five years.

As described in § 121.102(a), SBA examines a number of economic characteristics in developing size standards. Inflation is one of many considerations in this process. SBA does not believe it is appropriate to automatically adjust size standards for inflation since other factors influence the setting of size standards. For example, changes in industry characteristics or in SBA's policies may render an inflation adjustment unnecessary or inappropriate. Under this provision, if a significant amount of inflation occurs in the economy within a five-year period, SBA will consider an inflation adjustment on a more frequent basis. SBA invites the public to comment on this policy and to suggest alternative procedures.

SBA is adjusting the monetary-based size standards for the effect of inflation in order to restore eligibility to firms that may have lost small business status due solely to the effect of inflation. While these adjustments are not done on a fixed schedule, prior adjustments occurred in 1994 (59 FR 16513, dated April 7, 1994), 1984 (49 FR 5024, dated February 9, 1984), and 1975 (40 FR 32824, as corrected by 40 FR 36310, dated August 5, 1975). The current adjustment is being made at this time because inflation has increased by 15.8% since 1994, which is sufficient to warrant an increase, and because SBA believes that adjustments should be made more frequently than once every ten years, as was the case with the last inflationary adjustment.

Small business size standards are based on the six-digit industry codes of the North American Industry Classification System (NAICS). In addition, SBA has several programs that have their own size standards ( e.g., Surety Bond Guaranteed Assistance, Sale of Government Property, etc.). The size standards that SBA is changing are those that are receipts based and those based upon other monetary measures. Employee-based, production-based, and those established by legislation are unaffected by inflation, and thus, not part of this rulemaking. Those standards that have been changed since the last inflation adjustment in 1994 will be increased accordingly. However, some receipt-based standards that were recently increased will not be adjusted as the inflation effect has already been factored into the new size standard. Full details of this adjustment are contained in the table, at the end of the preamble, which lists the affected industries according to NAICS.

The methodology for adjusting the size standards for inflation was as follows:

1. Selection of an appropriate inflation indicator. We used the chain-type price index for gross domestic product (GDP) as published by the U.S. Department of Commerce, Bureau of Economic Analysis (BEA), which is a broad measure of inflation for the economy as a whole, and is available on a quarterly basis. In the past, SBA used the implicit price deflator for GDP. Since that time the BEA has produced an improved price index, the chain-type price index for GDP, that more accurately reflects inflation. This type of index relies on annual price weights rather than on the fixed price weight that the implicit price deflator relied upon. For more information, see J. Steven Landefeld and Robert P. Parker's article “BEA's Chain Indexes, Time Series, and Measures of Long-Term Economic Growth” in the May 1997 issue of Survey of Current Business . This article may also be found at http://www.bea.doc.gov/bea/an/0597od/maintext.htm , or it may be obtained by calling the Government Printing Office at (202) 512-1800.

2. Selection of a base period. We selected the fourth quarter of 1993 as the base period since this was the ending period of the last inflation adjustment in 1994. The chain-type price index for GDP stood at 94.79 at that time.

3. Selection of an end period. We selected the third quarter of 2001 as the ending period for this inflation adjustment since it is the latest available quarterly data published by BEA. The chain-type price index for GDP Deflator stood at 109.8 at that time.

4. Calculation of inflation. Based on these price indices, inflation increased 15.8% between the base and ending periods [((109.8/94.79) −1.00) × 100=15.8%].

5. Application of the inflation adjustment to the monetary-based size standards. We multiplied the current size standard by 1.158 and rounded to the closest $0.5M.

6. Which size standards and size eligibility criteria are not being changed?

Certain size standards and size eligibility criteria are not being changed in this rule. SBA's reasons are set forth in the chart below.

The size standard for banks is expressed in terms of assets and is being set at $150 million. This adjustment represents more than a 15.8% increase. The current size standard of $100 million in assets was established in 1984 and was not adjusted in the 1994 inflation adjustment. The 1994 adjustment increased only the receipt based size standards. Monetary standards, other than receipts based, and program size standards were not adjusted at that time. This rule adjusts all monetary standards.

The Health Care Group's size standards were increased in December 2000; the Freight Forwarders size standards were increased in September 2000; and the Help Supply Services size standards were increased in July 2000. These changes, however, were not due to inflation but were based on the structure of these industries using data from 1992. Unlike other industries described in the table above, these industries were adjusted for inflation in 1994. A further increase is being adopted for inflation at this time in order to make these size standards current.

The Construction and Refuse Collection size standards were increased in June 2000 to account for inflation through the end of 1999. Since that time, an additional 4.3% inflation has occurred [the chain-type price index for GDP was 105.28 at the fourth quarter of 1999 ((109.8/105.28)−1.00) × 100=1.043, or 4.3%]. To adjust all size standards to the same common period with respect to inflation, the Construction and Refuse Collection size standards are being adjusted by 4.3%. The Dredging size standard of $17 million, however, is not being adjusted since that size standard was based on an analysis of specific industry cost data and other industry considerations.

The size standard for sales of government property, currently at $2 million, is increasing to $6.0 million. This especially large increase is being made due to an earlier oversight, in that this size standard was not raised from $2 million for inflation in 1984 or 1994. Therefore it is being increased to $6.0 million to bring it up to the present-day equivalent of $2 million and the most common size standard for the non-manufacturing industries.

The size standards associated with the NAICS Codes are primarily used in connection with SBA's financial assistance programs and federal procurement programs. SBA and other federal agencies oversee small business programs that are not covered by the NAICS Codes or use NAICS size standards as an alternative to the program size standard. Therefore, SBA will also make inflation adjustments to those programs that have any monetary- based size standards, except for the SBIC program as discussed above.

In general, SBA publishes a rule for public comment before issuing a final rule, in accordance with the Administrative Procedure Act and SBA regulations. 5 U.S.C. 553 and 13 CFR 101.108. The Administrative Procedure Act provides an exception to this standard rulemaking process, however, where an agency finds good cause to adopt a rule without prior public participation. 5 U.S.C. 553(b)(3)(B). The good cause requirement is satisfied when prior public participation is impracticable, unnecessary, or contrary to the public interest. Under such circumstances, an agency may publish an interim final rule without soliciting public comment.

In enacting the good cause exception to standard rulemaking procedures, Congress recognized that emergency situations may arise where an agency must issue a rule without public participation. On September 16, 2001, the President declared a national emergency as a result of the events of September 11, 2001. The events of that day have impacted U.S. businesses both in the declared disaster areas and across the nation. Most of the affected businesses qualify as small under existing SBA size standards and are eligible for SBA and other Federal assistance. However, some of the affected businesses had previously lost their small size status solely as a result of the inflation that has occurred since SBA last revised the size standards in 1994. A proposed inflationary adjustment to the size regulations to restore eligibility to those businesses was already under development at SBA when the tragic events of September 11, 2001, occurred. SBA now believes that any delay in the adoption of those inflationary adjustments could cause serious harm to those businesses.

Accordingly, SBA finds that good cause exists to publish this rule as an interim final rule in light of the urgent need to make disaster loans and other SBA assistance available to businesses that should be considered small, but that do not qualify under SBA's existing size standards. Advance solicitation of comments for this rulemaking would be impracticable and contrary to the public interest, as it would delay the delivery of critical assistance to these businesses by a minimum of three to six months. Any such delay would be extremely prejudicial to the affected businesses. It is likely that some would be forced to cease operations before a rule could be promulgated under standard notice and comment rulemaking procedures.

Furthermore, SBA has a statutory obligation to act in the public interest in determining eligibility for Federal assistance under the Small Business Act. 15 USC 633(d). Pursuant to that authority, SBA has determined that it is in the public interest to give immediate effect to SBA's current determination of small size status and that it would be impracticable to delay such implementation. SBA also notes the failure to adopt this rule immediately would work to the detriment of many small businesses.

Although this rule is being published as an interim final rule, comments are hereby solicited from interested members of the public. These comments must be received on or before February 22, 2002. SBA may then consider these comments in making any necessary revisions to these regulations.

Pursuant to Public Law 107-117 (Department of Defense and Emergency Supplemental Appropriations for Recovery from and Response to Terrorist Attacks on the United States Act), SBA has the authority to apply the size standards in this rule for purposes of eligibility for economic injury disaster loans to small businesses located in the disaster areas declared as a result of the terrorist attacks of September 11, 2001. Accordingly, for that purpose only, SBA is applying these size standards as if they were in effect on September 11, 2001.

The Office of Management and Budget (OMB) reviewed this rule as a “significant regulatory action” under section 3(f) under Executive Order 12866.

For purposes of Executive Order 12988, SBA has determined that this rule is drafted, to the extent practicable, in accordance with the standards set forth in section 3 of that Order.

This regulation 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 responsibility among the various levels of government. Therefore, under Executive Order 13132, SBA determines that this rule does not have sufficient federalism implications to warrant the preparation of a Federalism Assessment.

This rule does not impose any new information collection requirements from SBA which require the approval by OMB under the Paperwork Reduction Act of 1980, 44 U.S.C. 3501-3520.

Under the Regulatory Flexibility Act (RFA), this rule may have a significant impact on a substantial number of small entities. Immediately below, SBA sets forth an initial regulatory flexibility analysis (IRFA) of this rule addressing the reasons and objectives of the rule; SBA's description and estimate of the number of small entities to which the rule will apply; the projected reporting, record keeping, and other compliance requirements of the rule; the relevant Federal rules which may duplicate, overlap or conflict with the rule; and alternatives considered by SBA.

As discussed in the supplemental information, the purpose of this rule is to restore the small business eligibility of businesses who have grown above the size standard due to inflation rather than to an expansion of business activity. A review of the latest available inflation indices show inflation that has increased a sufficient amount to warrant an increase to the current receipt-based size standards.

The revision to the receipt-based size standards for inflation more appropriately defines the size of businesses in these industries that SBA believes should be eligible for Federal small business assistance programs. Section 3(a) of the Small Business Act (15 U.S.C. 632(a)) gives SBA the authority to establish and change size standards.

SBA estimates that there will be approximately 8,600 newly designated small business, distributed as follows by NAICS Sectors and Subsectors:

The percentage increase in the number of small businesses that will result from this rule, compared to the existing base of small businesses, is estimated to be about two-tenths of one percent. The special tabulation of the 1997 Economic Census for SBA reports 5,082,970 total firms in the U.S. economy as defined by this census. We estimate that 98.4% of all businesses in the U.S. are currently defined as small under the existing size standards. Under the rule, this will increase to 98.6%. The percentage increase of annual sales in the U.S. economy attributed to these new small businesses is likely to be approximately seven-tenths of one percent. This will be applied to a base of 28.6%. Thus under this proposal the percent of sales attributed to firms defined as small businesses in the U.S. is likely to increase to 29.3%.

Description of Potential Benefits of the Rule: The most significant benefit to businesses obtaining small business status as a result of this rule is their eligibility for Federal small business assistance programs. These include SBA's financial assistance programs and Federal procurement preference programs for small businesses, 8(a) firms, small disadvantaged businesses, and small businesses located in Historically Underutilized Business Zones (HUBZone).

SBA estimates that approximately $46.2 million of additional Federal contracts will be awarded to firms becoming newly designated small businesses. As stated above, the percentage increase of annual sales attributed to these new small businesses is likely to be approximately seven-tenths of one percent. SBA applied this factor to the Fiscal Year 1999 total small business prime contractor initial awards which totaled $6.6 billion [$6.6B x .007 (.7 of 1%) = $46.2M].

We view the additional amount of contract activity as the potential amount of transfer from non-small to newly designated small firms. This does not represent the creation of new contracting activity by the Federal government, merely a possible reallocation or transfer to different sized firms.

Under the SBA's 7(a) Guaranteed Loan Program and Certified Development Company (504) Program, SBA estimates that approximately $17 million in new Federal loan guarantees could be made to these newly defined small businesses. This represents 0.19% of the $9 billion in loans that were guaranteed by the SBA under these two financial programs to firms in industries with monetary-based size standards.

Considering that the average size of firms gaining small business status will be $6 million, demand for assistance will likely be less than the overall participation rate for SBA loans among firms of all sizes. In any given year less than 1% of all small businesses receive SBA financing. Since larger firms are less likely to seek SBA financial assistance, we believe that no more than one-half of 1% of the 8,610 newly designated small businesses would seek SBA assistance. SBA estimates that approximately 45 out of the 8,610 firms would seek SBA financing. SBA financial assistance recipients of this size on average obtain assistance worth $375,000, so the impact in terms of new loans generated is estimated to be $17 million per year.

This rule does not impose any new information collection requirements from SBA which require approval by OMB under the Paperwork Reduction Act of 1980, 44 U.S.C. 3501-3520. A new size standard does not impose any additional reporting, record keeping or compliance requirements on small entities. Increasing size standards expands access to SBA programs that assist small businesses, but does not impose a regulatory burden as they neither regulate nor control business behavior.

This rule overlaps other Federal rules that use SBA's size standards to define a small business. Under § 632(a)(2)(C) of the Small Business Act, unless specifically authorized by statute, Federal agencies must use SBA's size standards to define a small business. In 1995, SBA published in the Federal Register a list of statutory and regulatory size standards that identified the application of SBA's size standards as well as other size standards used by Federal agencies (60 FR 57988-57991, dated November 24, 1995). SBA is not aware of any Federal rule that would duplicate or conflict with establishing size standards.

SBA cannot estimate the impact of a size standard change on each and every Federal program that uses its size standards. In cases where an SBA's size standard is not appropriate, the Small Business Act and SBA's regulations allow Federal agencies to develop different size standards with the approval of the SBA Administrator (13 CFR 121.902). For purposes of a regulatory flexibility analysis, agencies must consult with SBA's Office of Advocacy when developing different size standards for their programs.

SBA considered two alternatives to this rule. First, to wait until inflation has increased a greater amount before proposing an adjustment to receipt-based size standards. Previous inflation adjustments ranged between 48 percent to 100 percent. SBA believes that more frequent adjustments are necessary since smaller amounts of inflation can change the small business eligibility of a large number of businesses.

Second, SBA considered a policy of automatically adjusting size standards for inflation on a fixed schedule. SBA believes inflation must be closely monitored to assess the impact of inflation on size standards. Automatic adjustments may lead to inappropriate changes to size standards and prevent the Agency from taking into consideration other factors that bear on the review of size standards, such as changes in industry structure or Administration policies. Furthermore, an automatic adjustment could require SBA to make insignificant changes ( i.e. , 1 percent) or to wait a longer period of time than necessary to adjust size standards if inflation rapidly increases.

Subparagraph (b) of Rule 31-1  1 under the Act is being rescinded. At the time this subparagraph was adopted, an exemption from section 31(c) of the Act was necessary to ensure that OTC transactions in OTC securities that were subject to unlisted trading privileges on a national securities exchange (“OTC-UTP Transactions”) were not subject to dual charges under both sections 31(c) and (d) of the Act. With passage of the Fee Relief Act, former sections 31(c) and (d) of the Act were combined into a new Section 31(c). 2 Therefore, there is no longer a need for the exemption created by subparagraph (b) of Rule 31-1. The Commission also is making technical conforming changes to Rule 31-1 to renumber the subparagraphs and to reflect the exception in the Fee Relief Act for options on securities indexes (other than narrow-based security indexes).

Section 553(b) of the Administrative Procedure Act  3 generally requires an agency to publish notice of a proposed rule making in the Federal Register . This requirement does not apply, however, if the agency “for good cause finds (and incorporates the finding and a brief statement of reasons therefor in the rules issued) that notice and public procedure thereon are impracticable, unnecessary, or contrary to the public interest.”  4 The Commission finds good cause to forego notice and comment procedures for the rule amendments being adopted today.

The President signed the Fee Relief Act on January 16, 2002. If the Commission does not rescind paragraph (b) of Rule 31-1 effective as of January 16, 2002, the intent of Congress in passing the Fee Relief Act could be frustrated. In addition, persons subject to section 31 of the Act may be confused as to whether OTC-UTP Transactions remain subject to fees under section 31. 5

Specifically, as noted above, paragraph (b) of existing Rule 31-1 exempts OTC-UTP Transactions from the fee provisions of section 31(c) of the Act. 6 The purpose of the rule was to clarify that such transactions were not subject to dual charges under both former sections 31(c) and (d). OTC-UTP Transactions, however, remained subject to the fee provisions of former section 31(d) of the Act. The Fee Relief Act combined former sections 31(c) and (d) of the Act into a new section 31(c) (which encompasses all transactions formerly covered by former sections 31(c) and (d)). If paragraph (b) of existing Rule 31-1 were to remain in effect, affected persons might conclude that OTC-UTP Transactions are now exempt from section 31 fees altogether. Neither Congress, in enacting the Fee Relief Act, nor the Commission, in promulgating Rule 31-1, intended to exempt such transactions from the fee provisions of section 31. Rescinding paragraph (b) of Rule 31-1 effective immediately would preserve the intent of Congress in enacting the Fee Relief Act and avoid any confusion by persons affected by the legislation.

The Administrative Procedure Act also generally requires that an agency publish an adopted rule in the Federal Register 30 days before it becomes effective. 7 However, an agency may forego the 30-day requirement if it finds good cause for doing so. 8 For the same reasons as it is waiving the notice and comment period, the Commission finds good cause to waive the 30-day pre-effective requirement.

Section 23(a)(2) of the Exchange Act  9 requires the Commission, in adopting rules under the Exchange Act, to consider the competitive effects of such rules, if any, and to balance any impact with the regulatory benefits gained in terms of furthering the purposes of the Exchange Act. As noted above, in amending Rule 31-1 the Commission is merely conforming the rule to recently enacted legislation. Moreover, adoption of the amendment to Rule 31-1 will not impose any burden on competition not necessary or appropriate in furtherance of the purposes of the Exchange Act.

The Regulatory Flexibility Act  10 is not applicable to the revisions to Rule 31-1. The Regulatory Flexibility Act's flexibility analysis requirements are limited to rulemaking for which the Commission would be required by the Administrative Procedure Act to publish general notice of proposed rulemaking. 11

The Paperwork Reduction Act does not apply because the proposed amendments do not impose record keeping or information collection requirements, or other collections of information that require the approval of the Office of Management and Budget under 44 U.S.C. 3501, et. seq .

The amendments to Rule 31-1 under the Exchange Act are being adopted pursuant to 15 U.S.C. 78a et seq., particularly sections 23(a) and 31 of the Exchange Act.

By the Commission.

On May 18, 2000, President Clinton signed into law the Trade and Development Act of 2000 (“the Act”), Public Law 106-200, 114 Stat. 251. Title V of the Act concerns imports of certain wool articles and sets forth provisions intended to provide tariff relief to U.S. manufacturers of specific wool products. Within Title V, section 505 permits eligible U.S. manufacturers to claim a limited refund of duties paid on imports of select wool articles.

On December 26, 2000, Customs published in the Federal Register (65 FR 81344), as T.D. 01-01, the final rule adding the eligibility, documentation and procedural requirements for obtaining a wool duty refund to § 10.184 of the Customs Regulations (19 CFR 10.184).

On April 23, 2001, Customs published in the Federal Register (66 FR 20392), as T.D.01-33, an interim rule amending § 10.184 regarding the description of the wool products that are eligible to provide the basis for a wool duty refund and the tariff provisions that eligible wool products must be entered under to substantiate a refund.

Section 10.184(g) of the Customs Regulations sets forth the procedures for filing a wool duty refund claim. Paragraph (g)(1) provides, in pertinent part, that all refund claims, whether original or amended in the absence of a Customs notice of insufficiency or defect, must be received by Customs no later than December 31st of the year following the calendar claim year for which a wool duty refund is being sought. Therefore, pursuant to the existing regulations, all original claims and certain amended claims for calendar year 2000 must be received by Customs no later than December 31st, 2001.

Customs has learned that proposed legislation is currently pending before Congress which would significantly alter the scope of section 505 in regard to the amount of payment manufacturers would be eligible to receive, as well as the documents that a manufacturer would need to file to be entitled to a refund. For this reason, Customs has opted to extend the deadline to file calendar year 2000 claims until December 31, 2002, in an effort to spare manufacturers seeking refunds from the filing of unnecessary documentation.

If legislation is soon passed by Congress that amends section 505 to institute new procedures for filing a claim, Customs will publish another document in the Federal Register that amends § 10.184 to reflect the terms of the legislation, unless the legislation is self-effectuating. If legislation is not passed in the near future, Customs will inform potential claimants how to expedite the refund process under current law. In any event, the document published today should relieve manufacturers of concern that they must file claims by December 31st, 2001, to receive refunds for duties that they paid in the year 2000.

Section 10.184(g)(2) directs claimants to submit wool refund claims to Customs at the Residual Liquidation and Protest Branch located at 6 World Trade Center, New York, NY. Due to the events of September 11, 2001, that address no longer functions as a Customs office. This document amends § 10.184(g)(2) to reflect the fact that wool duty refund documentation should be submitted to the U.S. Customs Service, Office of Field Operations, Wool Duty Refund Unit, 1300 Pennsylvania Avenue, NW., 5th Floor, Washington, DC 20229.

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

Because these regulations confer a benefit to the public by extending the deadline to file a wool duty refund claim for calendar year 2000 and redesignate the location to which such claims should be sent, Customs has determined, pursuant to the provisions of 5 U.S.C. 553(b)(B), that prior public notice and comment procedures on this regulation are unnecessary and contrary to the public interest. These regulatory amendments inform the public of changes to the procedures for filing a wool duty refund claim. For this reason, pursuant to the provisions of 5 U.S.C. 553(d)(3), Customs finds that there is good cause for dispensing with a delayed effective date.

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

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

The collection of information involved in this interim rule has already been approved by the Office of Management and Budget (OMB) in accordance with the requirements of the Paperwork Reduction Act of 1995 (44 U.S.C. 3507) and assigned OMB control number 1515-0227. This rule does not substantively change the existing approved information collection.

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

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

The purpose of this final rule is to establish criteria and procedures by which OTC conditions may become eligible for consideration in the OTC drug monograph system. Currently, a sponsor wishing to introduce into the United States an OTC drug condition marketed solely in a foreign country must prepare and submit a new drug application (NDA). Likewise, companies with OTC drugs initially marketed in the United States after the 1972 initiation of the OTC drug review must have an NDA. This final rule provides procedures for these NDA drugs to become eligible for inclusion in the OTC drug monograph system by first submitting a time and extent application (TEA) to show marketing “to a material extent” and “for a material time.” Once determined eligible, safety and effectiveness data would be submitted and evaluated. This two-step process allows sponsors to demonstrate that eligibility criteria are met before having to expend resources to prepare safety and effectiveness data.

The OTC drug monograph system was established to evaluate the safety and effectiveness of all OTC drug products marketed in the United States before May 11, 1972, that were not covered by NDAs and all OTC drug products covered by “safety” NDAs that were marketed in the United States before enactment of the 1962 drug amendments to the Federal Food, Drug, and Cosmetic Act (the act). In 1972, FDA began its OTC drug review to evaluate OTC drugs by categories or classes (e.g., antacids, skin protectants), rather than on a product-by-product basis, and to develop “conditions” under which classes of OTC drugs are generally recognized as safe and effective (GRAS/E) and not misbranded.

FDA publishes these conditions in the Federal Register in the form of OTC drug monographs, which consist primarily of active ingredients, labeling, and other general requirements. Final monographs for OTC drugs that are GRAS/E and not misbranded are codified in part 330 (21 CFR part 330). Manufacturers desiring to market an OTC drug covered by an OTC drug monograph need not seek FDA clearance before marketing. In a future issue of the Federal Register , the agency will be publishing a final call for data for OTC drug products marketed in the United States before May 11, 1972, to be reviewed as part of the original OTC drug review.

In the Federal Register of October 3, 1996 (61 FR 51625), FDA published an advance notice of proposed rulemaking (ANPRM) stating that it was considering proposing to amend its regulations to include criteria under which certain additional OTC drug conditions may become eligible for inclusion in the OTC drug monograph system. Interested persons were invited to submit written comments by January 2, 1997. The agency received 16 comments, which it discussed in section III of a proposed rule that was published in the Federal Register of December 20, 1999 (64 FR 71062 at 71067) (the proposed rule).

Under the proposal, eligibility for consideration in the OTC drug monograph system would be determined by showing a condition's use “to a material extent” and “for a material time” in compliance with the existing statutory requirements of the act. A number of ingredients have been marketed in OTC drug products under NDAs approved after May 11, 1972. The agency provided criteria and procedures in this proposal for ingredients such as these to be considered for OTC drug monograph status.

For OTC drug products without any U.S. marketing experience, this proposal represented a change in the agency's previous interpretation of “use” requirements in section 201(p) of the act (21 U.S.C. 321(p)). Previously, the agency interpreted the use provision to mean use in the United States only. The agency proposed this change in policy to expand “use” to include foreign marketing experience because it believed that under certain circumstances use outside the United States may appropriately be considered to satisfy the use requirements in section 201(p) of the act.

In the ANPRM, the agency used the term “condition” to refer to OTC drug active ingredients, indications, dosage forms, dosage strengths, routes of administration, and active ingredient combinations. In the proposed rule, the agency has used the term “condition” to refer to an active ingredient or botanical drug substance (or a combination of active ingredients or botanical drug substances), dosage form, dosage strength, or route of administration, marketed for a specific OTC use. The agency has included the reference to botanical drug substance to recognize that the information needed for consideration of a botanical substance for inclusion in the OTC drug monograph system may differ from the information needed to evaluate other types of active ingredients for this purpose.

The existing OTC drug regulations in part 330 do not define eligibility requirements for consideration in the OTC drug monograph system or what constitutes marketing to a material extent or for a material time. The proposed rule and this final rule set forth criteria and procedures for considering additional “conditions” (as discussed in section I of the proposed rule, 64 FR 71062) in the OTC drug monograph system. The definition of “conditions” appears in § 330.14(a) of the final rule.

The proposed rule established procedures for a sponsor with a condition it considered eligible for consideration to provide the agency certain information to establish eligibility. The proposed rule presented these procedures in table 1 format as part of a TEA as follows: (1) Basic chemical information about the ingredient (additional information needed for a botanical ingredient), (2) a list of all countries in which the condition has been marketed, (3) how the condition has been marketed in each country ( e.g., OTC general sales direct-to-consumer, sold only in a pharmacy), (4) the number of dosage units sold, (5) marketing exposure (e.g., race, gender, ethnicity), (6) the use pattern in each country, (7) each country's system for identifying adverse drug experiences (ADEs), including method of collection, (8) how long the condition has been marketed in each country, (9) all labeling used during the marketing period in any country, and the time period each labeling was used, (10) all countries where the condition is marketed only as a prescription drug and the reasons why, and (11) all countries where the condition has been withdrawn from marketing or OTC marketing has been denied.

If FDA determined the condition eligible for consideration in the OTC drug monograph system, it would publish a notice of eligibility in the Federal Register and place the TEA on public display. The sponsor and other interested parties would then submit data to support safety and effectiveness. If the agency tentatively determined the condition GRAS/E, it would propose to amend the applicable OTC drug monograph or propose a new monograph. There is a comment period for interested persons to comment on the agency's proposal, during which interim marketing would not be permitted. The agency would then publish a final rule, at which time marketing could begin.

Interested persons were invited to submit comments by March 22, 2000. The agency received comments from four industry trade associations, one health coverage association, three suppliers of OTC drug ingredients, and three manufacturers of OTC drug products.

1. One comment contended that there is no legal basis for the agency's proposal. The comment disagreed with FDA's position that for a drug to qualify for inclusion in the OTC drug review and not be a new drug under section 201(p)(2) of the act the drug must have been used to a material extent or for a material time under its conditions of use in the United States only (64 FR 71062). The comment added that there is no basis in the act to support FDA's interpretation that foreign data cannot be used to satisfy the material time or material extent requirements of the act. The comment noted FDA's willingness in recent years to accept and rely upon foreign data as the basis for approving NDAs for prescription and OTC drugs, food additives, and premarket applications for medical devices.

The agency explained in the proposal (64 FR 71062) that it had previously interpreted the “use” requirements in section 201(p) of the act to mean use in the United States only, and that the proposal represented a change in the agency's interpretation. The agency proposed this change in policy to expand “use” to include foreign marketing experience because it believed certain circumstances of use outside the United States may appropriately be considered to satisfy the use requirements in section 201(p) of the act. The agency considers this approach consistent with its use of foreign data as the basis for approving NDAs for prescription and OTC drugs, food additives, and premarket applications for medical devices. The agency continues to believe that there is an appropriate legal basis for the additional criteria and procedures in this final rule, as described in the proposal.

2. One comment contended that the proposed procedures would effectively terminate the OTC drug monograph process as conceived and implemented to date, noting that the process has included flexibility to consider new conditions and allowed interim marketing for nonmonograph products. The comment added that the agency's procedural regulations for the OTC drug review were designed to be flexible and to establish a standard procedure first for the review of pre-1972 drugs and later to determine the status of post-1972 and foreign marketed drugs. The comment considered the new procedures inflexible and unworkable.

The agency disagrees that the new procedures are inflexible and unworkable and would effectively terminate the OTC drug monograph process as conceived and implemented to date. The agency also disagrees that the procedural regulations for the OTC drug review were designed for review of post-1972 and foreign marketed drugs. The proposal (37 FR 85, January 5, 1972) and the final rule (37 FR 9464, May 11, 1972) that established the OTC drug review only discussed OTC drugs “now marketed.” Estimates of the number of OTC drug products on the market (37 FR 85) only covered the United States. Thus, the original OTC drug review procedures were not developed to address post-1972 and foreign marketed drugs. Accordingly, the agency proposed (64 FR 71062 at 71067) and is modifying the existing procedures in § 330.10 to make them consistent with the new scope of the review. Interim marketing is discussed in comment 21 of section III. D of this document.

3. A number of comments contended that the proposed procedures and data requirements are too complex and protracted, unduly burdensome (more burdensome than the NDA process), unrealistic, prohibitive, and unwieldy to be of practical value to industry. The comments stated that the TEA is too onerous and broad in scope because it requires exhaustive information rather than adequate information to demonstrate marketing history. The comments argued that it is excessive to require exhaustive data from every country in the world for a threshold eligibility consideration. Another comment added that the requirement for a worldwide data search would be a disincentive to companies with good data from a few countries but without the resources to do a worldwide search. One comment added that the safety and effectiveness consideration should be based upon the quality of the data, not upon arbitrarily selected material times, material extents, or listing of countries, and that the scope of certain requirements is quite narrow and restrictive ( e.g., show that pharmacy-only sale does not indicate safety concerns). Several comments requested that the procedures be more flexible and less complicated so as to encourage quality products to enter the review process rather than deter them from entry. Other comments suggested that the agency rescind the proposed rule. Two comments recommended that the agency use the same eligibility criteria for foreign ingredients as used for domestic ingredients in the original OTC drug review.

The agency does not consider the TEA too onerous or broad in scope. The TEA is designed to provide FDA basic information about a condition for which it may have little or no information. The TEA is also designed to provide sufficient information to allow for a one-time assessment of a condition's eligibility for consideration in an OTC drug monograph. The agency agrees with the comments that it is not necessary to require exhaustive data from every country in the world for a threshold eligibility consideration and has modified some of the TEA requirements (see comment 12 of section III.B of this document). The agency agrees that the safety and effectiveness consideration should be based upon the quality of the data. The agency does not believe that the procedures will deter quality products from entering the review process because products with quality data should be able to readily meet the requirements of the process. Excluding prescription-to-OTC switches that the panels could consider, the primary criterion for eligibility in the original OTC drug review was that the ingredient had to be in the U.S. OTC market before May 11, 1972. It would not be practical to use that date for foreign conditions because many conditions that entered the market after that date would be excluded. In addition, none of the foreign conditions have been marketed in the United States and the United States has no experience with these conditions. The agency has developed eligibility criteria, as discussed in the preamble of the proposed rule (64 FR 71062 to 71064), that it considers necessary to provide sufficient information for a condition to be considered for inclusion in the OTC drug monograph system. The agency finds no basis to rescind the proposed rule, and the agency is publishing a final rule so that additional conditions may now begin to be considered.

4. One comment contended that the proposed procedures would establish a nontariff trade barrier in violation of the General Agreement on Tariffs and Trade (GATT). The comment stated that the proposal differentiates between a cosmetic-drug sold in the United States prior to 1972, which is eligible for inclusion in the OTC drug review without any further information, and a cosmetic-drug sold outside the United States prior to 1972, which would be eligible only after submitting a comprehensive TEA. The comment added that the proposal also discriminates against foreign products by prohibiting marketing until publication of a final monograph, while U.S. products may generally be marketed after publication of a tentative final monograph (TFM).

The issue of a trade barrier in violation of GATT was also raised in the comments on the ANPRM and was discussed in comment 11 of section III.B of the proposed rule (64 FR 71062 at 71072). The agency does not believe that any provisions of this final rule would violate GATT (which is now one of the multilateral agreements annexed to the agreement establishing the World Trade Organization). Among other reasons, foreign-manufactured products marketed in the United States prior to 1972 are treated the same as domestic manufactured products marketed in the United States prior to 1972. Similarly, both foreign and domestic manufactured products marketed in the United States after 1972 under NDAs would be eligible for consideration in the OTC drug review after submission of the same TEAs demonstrating that the same material time and extent criteria have been met. Foreign manufactured products previously marketed only in foreign countries would also be eligible for consideration in the OTC drug review after submission of TEAs that show these same material time and extent criteria have been met. Under this rule, drugs produced in the United States and those produced abroad would be treated the same way, and both would be required to comply with U.S. labeling and manufacturing requirements as a condition of marketing in the United States.

Interim marketing is discussed in comment 21 of section III.D of this document. Under § 330.14(h), products previously marketed only in foreign countries that are included in a tentative final monograph may also, if appropriate, be marketed in the United States before completion of the final monograph.

The provisions of this final rule serve to promote and protect human health and safety and do not create trade barriers.

5. One comment noted that under the proposal a condition is not eligible for OTC drug monograph status if marketing in the United States is limited to prescription drug use only and requested the agency to expand the criteria for monograph status to include drugs marketed by prescription in the United States. The comment contended that FDA may determine drugs to be eligible as GRAS/E for an OTC drug monograph on the basis of various types of evidence, including “significant human experience during marketing.” The comment contended that if adequate adverse event information is available for foreign OTC drugs that remain prescription drugs in the United States, FDA should allow consideration of these active ingredients for possible inclusion in an OTC drug monograph. The comment added that certain prescription conditions were considered for and added to the OTC drug monographs during the original OTC drug review (drugs marketed prior to 1972). Another comment considered the proposal narrow and restrictive because a drug sold OTC in some foreign countries would be ineligible for monograph status if it is marketed by prescription in the United States.

The agency agrees with the comments and believes there was an inconsistency with the criteria proposed in § 330.14(b). Under the proposed criteria, a condition marketed OTC in one or more foreign countries that is limited to prescription use in other foreign countries would be considered for eligibility in the OTC drug monograph system. However, a condition marketed OTC in one or more foreign countries that is limited to prescription drug use in the United States would not be considered for eligibility. The agency has decided to address this inconsistency by removing the criterion in proposed § 330.14(b)(2) to allow conditions marketed OTC in foreign countries that are limited to prescription drug use in the United States to be considered for eligibility in the OTC drug monograph system. If such a condition is found to be eligible, the sponsor must then provide the necessary information, which would include the U.S. prescription marketing experience, as part of the safety and effectiveness submission to establish that the condition is appropriate for OTC status in the United States and that it can be marketed as GRAS/E under the OTC drug monograph system. The agency believes that it can adequately address in its monograph review the issues associated with a product's prescription use in the United States, and the appropriateness of switching the product to OTC use.

6. One comment contended that there is no need for FDA to make a material time/extent determination wholly separate from its consideration of safety and effectiveness.

The agency discussed this subject in comment 13 of section III.C of the proposed rule (64 FR 71062 at 71073) and provided three reasons for the two-step review approach. The comment did not provide any reasoning to support rejecting this approach, and the agency concludes that separate evaluations of material time/extent and safety/effectiveness are the most efficient way to evaluate these additional conditions for inclusion in an OTC drug monograph.

7. One comment contended that the TEA filing reflects a misunderstanding that sponsors must show both material time and material extent. The comment stated that a product is legally required to satisfy the requirement of “to a material extent” or “for a material time,” which was intended to satisfy the requirement that a drug be used for sufficient time or have wide enough distribution for discovery of any adverse experiences.

The agency discussed this subject in comment 8 of section III.A of the proposed rule (64 FR 71062 at 71069 to 71070). The agency explained there why a condition that is considered “not a new drug” must satisfy both the material extent and the material time criteria in section 201(p)(2) of the act. The comment did not provide any information to change the agency's position.

8. One comment agreed with most of the proposed time and extent criteria, but contended that specific data on the number of dosage units sold in each country (number of units sold by package sizes, number of doses per package based on labeled directions for use) is difficult to compile, unnecessarily detailed for evaluating time and extent of marketing, and unlikely to be maintained by industry with the degree of specificity proposed in the rule. The comment concluded that specific marketing information related to dosage units should be required only to the extent it is reasonably capable of being compiled. A second comment stated that there should be no numerical floor for the number of units that must have been marketed. Another comment stated that the number of dosage units sold should be replaced by the total quantity of product sold, with an extrapolation to the number of consumer units based on average package size.

The agency has reconsidered how information should be provided on the number of dosage units sold. The agency's primary concern is determining consumer exposure to the condition. The agency has determined that the number of units sold by package sizes ( e.g., 24 tablets, 120 milliliters (mL)) and the number of doses per package based on the labeled directions for use may not be necessary to determine a condition's extent of marketing and is removing these requirements from proposed § 330.14(c)(2)(ii). Instead, the agency is only requiring a list of the various package sizes for each dosage form in which the condition is marketed OTC along with an estimate of the minimum number of potential consumer exposures to the condition using one of the following calculations: (1) Divide the total number of dosage units sold by the number of dosage units in the largest package size marketed, or (2) divide the total weight of the active ingredient sold by the total weight of the active ingredient in the largest package size marketed. Information on package size should be readily available from marketers of the product, if other than the sponsor, or other marketing sources (e.g., wholesalers) and will allow the sponsor to estimate the minimum number of potential consumer exposures to the condition. In addition, to ensure that consumer exposure is adequate for any one dosage form, the agency is changing the proposed criterion in § 330.14(c)(2)(ii) to state “The total number of dosage units sold for each dosage form of the condition.” One comment's request for replacing “ the number of dosage units sold” with “total quantity of product sold” is discussed in comment 11 of section III.B of this document. The agency agrees that there should be no numerical floor for the number of dosage units that must be marketed and is not including such criteria in this final rule.

9. One comment requested the agency to reconsider its requirement for information regarding geographical and cultural differences (e.g., race, gender, ethnicity) between the countries where the product has been marketed and the U.S. population. The comment contended that this information is difficult to obtain, subjective in nature, and subject to inconsistent evaluation. The comment maintained that specific marketing information related to geographic and cultural distinctions should be required only to the extent it is reasonably capable of being compiled. The comment requested that FDA require this information only in those situations where it is aware of specific cultural and/or geographical differences that would be relevant to the review process. Another comment stated that it should be possible to refer to large geographical areas (e.g., the population of the European Union) to support sufficient variability in terms of culture and gender to show adequate population exposure.

The agency discussed the need for marketing exposure data in comment 11 of section III.B of the proposed rule (64 FR 71062 at 71071 to 71072). Because of the potential breadth of this requirement, the agency is modifying the criteria in proposed § 330.14(c)(2)(iii) to require, as a means of determining marketing exposure, information on the population demographics (percentages of various racial/ethnic groups) for each country where the condition has been marketed and the source(s) from which this information has been compiled. Examples of sources for this information include the following Internet sites: http://www.cia.gov/cia/publications/factbook/index.html, and http://www.state.gov/www/background /index.html. The national statistical office for the individual country also may provide relevant information. The agency believes this information will not be difficult to obtain or subjective in nature, and that it can be evaluated consistently. Although sponsors may use the categories and definitions in the Office of Management and Budget's Federal Register notice, entitled “Revisions to the Standards for the Classification of Federal Data on Race and Ethnicity,” when describing the population demographics of each country, the agency is removing the reference to this document from § 330.14(c)(2)(iii) because other countries may not use all of these categories and definitions.

10. One comment requested that use pattern information (e.g., how often and how long the ingredient is to be used according to its labeling) (proposed § 330.14(c)(2)(iv)) be included as part of the safety evaluation rather than as part of the time and extent information. The comment stated that such information involves an evaluation of historical labeling and appears to be related to safety; thus, it is more appropriate in the safety submission rather than in the TEA.

The agency discussed the need for providing use pattern information as part of the TEA in comment 7 of section III.A of the proposed rule (64 FR 71062 at 71069). The agency stated that this information was needed at that stage of the condition's review to determine if a product's use is different in other countries than it would be in the United States. However, the agency is modifying the criterion in proposed § 330.14(c)(2)(iv) to require use pattern information only when the use pattern varies between countries or when it has changed over time in one or more countries. The agency agrees that use pattern information is also related to the condition's safety, and also may consider it in the safety evaluation.

11. Two suppliers of active ingredients expressed concern about being able to provide accurate information on how their ingredients are marketed in final form, the number of final product units sold, and the labeling or adverse event reports relevant to finished products. One supplier stated that it could provide information about the countries in which the active ingredients are sold and the quantities sold for OTC use, but that customers would be unlikely to provide their sales data. The comments asked FDA to accept sales and related information from active ingredient manufacturers as evidence of material time and material extent.

The agency has reconsidered the information requirements for a TEA. In addition to the revised requirements discussed in response to other comments, sponsors of TEAs who are manufacturers or suppliers of OTC active ingredients may provide dosage unit information as total weight of active ingredient sold (cumulative total for the specific condition being considered) for each country in which the condition is marketed. This revision to § 330.14(c)(2)(ii) provides active ingredient manufacturers a mechanism to provide pertinent sales data. The agency has also reduced the amount of labeling information that must be provided (see comment 14 of section III.B of this document). The agency discussed the availability of ADE information in the proposal (64 FR 71062 at 71070 to 71071) and the comment did not provide any basis to support changing this requirement.

12. One comment agreed with the importance of the objectives of the data requested in proposed § 330.14(c)(2), i.e., that detailed information from a number of countries addresses some of the ethnic, cultural, and racial variances that may exist among users in foreign markets and the relevance of this information to potential use of the product in the United States. However, the comment considered it burdensome to provide this information from all countries if the product is marketed in a large number of foreign countries. The comment suggested an alternate TEA requirement for products that have 5 years or more of continuous marketing in 50 or more countries and marketing for 20 years or more in one of the “Tier 1” countries for purposes of the export provisions of section 802(b)(1)(A) of the act (21 U.S.C. 382). These countries include Australia, Canada, Israel, Japan, New Zealand, Switzerland, South Africa, and the European Union (EU) or a country in the European Economic Area (the countries in the EU and the European Free Trade Association).

The comments suggested that sponsors meeting the threshold criteria would be permitted to select, after consultation with FDA, six countries that represent both significant markets for the product and cultural diversity. The sponsor would then complete the TEA with information applicable to the six countries or, with FDA's agreement, obtain information by contacting public health officials and otherwise soliciting information on the type of marketing, patterns and conditions of use, and adverse drug experiences from product users in each selected country. The comment concluded that this approach should provide the necessary information for FDA to make its evaluation and provide sponsors the opportunity to consult with the agency to develop reasonable means to collect the information needed to assure FDA of the suitability of foreign-marketed conditions. Another comment stated that the information requested in proposed § 330.14(c)(1), (c)(2)(ii), (c)(2)(iv), and (c)(3) is very difficult, if not impossible, for a manufacturer of the raw material to provide because only the manufacturers of finished products would be able to provide this information. The comment recommended that for classes of OTC drugs for which there are only qualitative instructions for use, such as for sunscreen and antidandruff products, the basic information required would be based on the number of kilograms of the active ingredient sold per year and per country for this intended drug use. In addition, the regulatory status of the ingredient in those countries that have specific legislation controlling the usage of the ingredient, and the maximum amount of the substance allowed to be marketed, would be provided. The comment recommended revisions to § 330.14(c)(1), (c)(2)(ii), (c)(2)(iv), and (c)(3) and the following new § 330.14(c)(2)(vi) to allow certain products to comply with proposed § 330.14(c)(2)(ii):

For sunscreen and antidandruff OTC drugs in which there are no quantitative dosage instructions for the use of the products in the final monographs, list all countries that the drug is approved for use, what maximum concentrations are allowed, any restrictions on usage that are enforced, the number of kilograms sold per country (per year and cumulative), what known adverse effects have been reported and list the other drugs in the same OTC category that it has been combined with. This data to be supplied in tabulated form.

The comment further suggested that these modifications be limited to OTC sunscreen drugs that are permitted for use in annex VII of the EU Cosmetics Directive and the OTC antidandruff drugs that are regulated as preservation materials in annex VI, or are for restricted use as indicated in annex III of the EU Cosmetics Directive for this purpose. The comment concluded that this approach should assure FDA that the active ingredients in these two classes have had a pedigree of peer review and/or a history of long usage in the EU. Another comment strongly supported annex VII of the EU Cosmetics Directive to demonstrate the safety and effectiveness of four sunscreen agents marketed in Europe.

Another comment contended that it should not be necessary to submit a TEA for an ingredient that has been sold in the United States [under an NDA] for a material time and extent, e.g., including ibuprofen in the internal analgesic monograph. The comment added that under the proposal the only information exempted is labeling from every country.

The agency agrees with the first comment that it may not be necessary to provide detailed information from each country in which a condition is marketed if the condition has extensive marketing in a large number of foreign countries. The agency is providing an alternate TEA requirement if a condition has been marketed OTC in five or more countries with a minimum of 5 continuous years of marketing in at least one country. Sponsors who have this extensive marketing experience for a condition should select at least five of these countries from which to submit information in accord with § 330.14(c)(2)(i) through (c)(2)(iv). Countries that are selected must include the country with a minimum of 5 continuous years of OTC marketing, countries that have the longest duration of marketing, and countries having the most support for extent of marketing, i.e., a large volume of sales with cultural diversity among users of the product. If the condition meets these criteria in countries listed in section 802(b)(l)(A) of the act, some of these countries should be included among the five selected. Sponsors should provide information from more than five countries if they believe that it is needed to support eligibility. Sponsors should explain the basis for the countries selected in the TEA. This alternate TEA requirement appears in § 330.14(c)(4) of this final rule.

Even though sunscreen and antidandruff products are regulated differently by the EU, both are considered OTC drugs in the United States and are so regulated as part of the OTC drug monograph system. The agency recognizes that it may be difficult for manufacturers of the raw material to obtain some of the information on finished products. Therefore, the agency is not requiring raw material manufacturers to provide the number of dosage units sold in each country (see comment 11 of section III.B of this document). The total weight of active ingredient sold per country (cumulative) for the intended use of the condition will be adequate, and the agency has revised proposed § 330.14(c)(2)(ii) accordingly in this final rule. The other required information in the comment's proposed § 330.14(c)(2)(vi) is already included in other parts of the regulation. Therefore, the agency sees no need to adopt new § 330.14(c)(2)(vi).

The agency concludes that it is still necessary to submit a TEA for an ingredient already marketed OTC in the United States under an NDA because the agency needs to evaluate if the condition has been marketed to a material extent and for a material time whether the OTC marketing was in the United States or elsewhere. In the proposal (64 FR 71062 at 71081), the agency stated that information on marketing exposure (proposed § 330.14(c)(2)(iii)) and the length of time the condition has been marketed in each country accompanied by all labeling used during the marketing period (proposed § 330.14(c)(3)) need not be provided for OTC drugs that have been marketed for more than 5 years in the United States under an NDA. In this final rule, the agency is removing the requirements to submit certain information if the condition has more than 5 years marketing in the United States under an NDA including: (1) How the condition has been marketed (§ 330.14(c)(2)(i)), (2) a description of each country's system for identifying ADEs (§ 330.14(c)(2)(v)), and (3) all countries where the condition is marketed only as a prescription drug (§ 330.14(c)(5)). The agency is not requiring this information because the information needed to satisfy these requirements is obtainable from the NDA.

13. One comment urged that there not be a rigid and inflexible 5-year marketing requirement to determine material time prior to considering monograph status for an OTC drug active ingredient.

The agency discussed this subject in comment 6 of section III.A of the proposed rule (64 FR 71062 at 71069). The agency noted there that in response to the ANPRM a number of comments agreed with the proposed 5-year minimum requirement to satisfy marketing for a material time. The agency considers a minimum of 5 years of OTC marketing experience a necessary duration of time to detect infrequent but serious ADEs that are occurring and, thus, provide an appropriate margin of safety. The comment did not provide any information to change the agency's position. However, the agency is modifying the eligibility criteria in proposed § 330.14(b)(3) (new § 330.14(b)(2)) by deleting the word “countries” to clarify that the minimum requirement is 5 continuous years of marketing in the same country. Although the agency recognizes that some conditions may be able to demonstrate marketing to a material extent from marketing in only one country, some conditions may not be able to do so. Therefore, the agency is adding the following sentence to the criteria in new section § 330.14(b)(2): “Depending on the condition's extent of marketing in only one country with 5 continuous years of marketing, marketing in more than one country may be necessary.”

14. Two comments contended that marketing history (proposed § 330.14(c)(3)) will be difficult to obtain and requested the agency to limit information to a review of time and extent of marketing. One comment requested that specific marketing information related to historical product labeling be required only to the extent it is reasonably capable of being compiled.

The agency has reassessed the historical labeling requirements in proposed § 330.14(c)(3) and determined that the requirements can be modified. Because additional warning and direction information is most likely added over time rather than removed, the agency believes that a condition's current labeling will provide the appropriate, needed information. Therefore, the agency is revising proposed § 330.14(c)(3) to require that sponsors submit a statement of how long the condition has been marketed in each country and how long the current product labeling has been in use. In addition to providing a copy of the current product labeling, the sponsor should state whether that labeling has or has not been authorized, accepted, or approved by a regulatory body in each country where the condition is marketed.

15. Two comments stated that timeframes should be established for publication of proposed and final rules. Based on considerable delays in the rulemaking process, the comments believed that the delay between publication of a proposed and final rule will not be minimal. Two comments urged the agency to institute specific timeframes for review of TEAs (one comment recommended 90 days) and safety and effectiveness submissions. The comments stated that the OTC drug review was implemented in 1972, and has yet to be completed and that some foreign ingredient petitions have languished before the agency for years. One comment expressed concern that submissions would continue to languish without specific review timeframes. The comment cited the agency's rationale in the proposed rule for not including review timeframes. The comment argued that it is the applicant's responsibility to ensure that submissions are prepared adequately and that it is unlikely that the agency will be overrun with applications upon implementation of the final rule. The comment stated that review timeframes would be in keeping with the goal of the Food and Drug Administration Modernization Act (FDAMA) to improve the efficiency of application review and that the agency has a public health obligation to ensure that applications are reviewed in a timely manner. The comments concluded that it is critical that timeframes be established if the agency does not permit interim marketing.

The agency agrees that TEAs and safety and effectiveness submissions should be reviewed in a timely manner consistent with the goal of improved efficiency. The Division of OTC Drug Products will be responsible for evaluating all TEAs and overseeing the progress of safety and effectiveness reviews. As differences will invariably occur in the quantity and quality of the TEA and GRAS/E submissions received, it is not possible to set exact timeframes for completing these reviews. The Division will strive to complete TEA evaluations within 90 to 180 days of receipt and will implement procedures to ensure that agency resources are used appropriately and result in timely action on safety and effectiveness submissions. The Division will contact the sponsor within 180 days about the status of its request.

The anticipated workload for reviewing these additional conditions is difficult to predict. The agency estimated in the proposal (64 FR 71062 at 71078 to 71079) and in this final rule that the number of TEAs submitted annually would be 50, with 30 approved, and with 3 subsequent safety and effectiveness submissions for each approved TEA. The agency received only one comment on these estimates to help with its workload projections. That comment stated that it is unlikely that the agency will be overrun with applications upon implementation of the final rule. The agency notes that another comment from a foreign industry association representing the cosmetics, toiletries, perfumes, and detergent industry stated that it represented 350 member companies who produce cosmetic products for markets all over the world and that it has been waiting for this new process for a long time (Ref. 1). If a number of this association's members sponsor TEAs, the agency's workload estimates could be low. The agency predicts that as it gains experience with evaluating the foreign data, the speed of its reviews should increase. While the agency is currently unable to project the timeframe it will take to publish proposed rules, it anticipates that the time between proposed and final rules should be short, in many cases because the proposed action will be to add another ingredient to an already existing monograph for which the basic OTC labeling for the product is already established. When a new monograph and OTC drug product labeling is initially established, the agency anticipates that the timeframe between proposed and final rules may be somewhat longer.

16. One comment offered suggestions for streamlining the review process for TEAs and safety and effectiveness submissions. For TEAs, the comment suggested that the agency publish a guidance document to help ensure that the content and format of applications are submitted in a uniform matter. The comment stated that the agency could then use the refuse-to-file concept for applications that do not meet the basic requirements. For safety and effectiveness submissions, the comment fully supported voluntary use of accredited outside organizations or individuals, such as a third-party review program developed by the European Sunscreen Manufacturers Association (Ref. 2) or FDA's medical devices pilot program for third-party review of selected premarket notifications . The comment believed that the agency could implement such a program under the authority of FDAMA. Another comment also strongly supported third party review to reduce review time.

The agency may publish a guidance document to assist manufacturers to organize TEAs in a uniform manner. However, the agency did not want to delay publication of this final rule while developing that guidance document. In the meantime, sponsors should organize their TEA in the sequence in which information is listed in § 330.14(c). The agency will not use a “refuse-to-file” concept (a threshold determination) for TEAs that do not meet the basic requirements. The agency will do a substantive review of all TEAs, and any TEA that does not contain the required information will result in the condition being found not eligible for consideration.

The agency used a third party review system (advisory review panels) for the original OTC drug review and states that it may use an advisory review panel in § 330.14(g) of the new procedures. When a third-party reviews the safety and effectiveness data, the agency still needs to do its own independent evaluation of the data. Therefore, in the new procedures in § 330.14(g), the agency states that it may evaluate the data in conjunction with the advisory review panel or on its own without using an advisory review panel. Both of these procedures are intended to reduce the overall review time. Based on the number of conditions submitted for review, the agency may consider other alternatives, as necessary, to review submissions in a timely manner.

17. Two comments requested confirmation that the agency would maintain the confidentiality of ineligible TEAs. One comment recommended that this information be returned to the applicant. The comments also requested confirmation that sales data identified by the company in an eligible TEA as trade secret or confidential would remain confidential under 18 U.S.C. 1905, 5 U.S.C. 552(b), or section 301(j) of the act (21 U.S.C. 331(j)). One comment stated that it is unclear whether the agency intends to notify the applicant if it does not agree with the request for confidential treatment. The comment requested that the agency clarify that it will give notice, consistent with 5 U.S.C. 552(b), so that applicants can determine whether to withdraw the information.

The procedures related to the confidentiality of a TEA are in § 330.14(d). FDA processes a TEA as confidential until a decision is made on the eligibility of the submitted condition for consideration in the OTC drug monograph system. If the condition is not found eligible, the agency will not place the TEA on public display. Only a letter from the agency to the applicant, stating why the condition was not found acceptable, will be placed on public display in the Dockets Management Branch. However, the agency cannot return the TEA to the applicant, but must retain it as the data upon which the agency made its decision.

If the condition is found eligible, the agency will place the TEA on public display after deletion of any information deemed confidential under 18 U.S.C. 1905, 5 U.S.C. 552(b), or 21 U.S.C. 331(j). This is similar to the process used for submissions to the advisory review panels under § 330.10(a)(2) of the OTC drug review administrative procedures. Under those procedures, when the agency published a panel's report (ANPRM) in the Federal Register , it stated in the notice that all of the information that had been submitted to the panel would be put on public display 30 days after the date of publication except to the extent that the person submitting it demonstrates that it falls within the confidentiality provisions of 18 U.S.C. 1905 or 21 U.S.C. 331(j). (Section 330.10(a)(2) has been updated to also include 5 U.S.C. 552(b).) None of the information submitted to the panels was specifically designated as confidential. Requests for confidentiality were to be submitted to the agency during that 30-day period for the agency to evaluate before placing the submissions on public display. Under the new procedures in § 330.14(d), a sponsor must identify what information in the TEA it considers confidential under the above statutory provisions. The agency's general philosophy is that most, if not all of the information in a TEA should be considered public information. As discussed below, the agency has revised the information requirements to take this into account.

The agency has determined that most of the required information would not be considered confidential in making an eligibility determination. Total sales figures covering a period of years historically have not been considered confidential in the OTC drug review process. The agency has determined that yearly sales figures do not need to be provided and has revised proposed § 330.14(c)(2)(ii) accordingly in this final rule. However, if a sponsor needs to provide yearly sales figures to explain something about the marketing of a condition, it should do so but should not expect the agency to keep the information confidential.

Section 330.10(a)(2) only requires a sponsor to provide a statement of the quantities of active ingredients of the drug product. It does not require inactive ingredient information and that information should not be provided unless it appears in the product's labeling. Information about a color or fragrance in the product is not required and should not be included in the TEA. Information about inactive ingredients generally is not considered confidential, because such information would appear in the labeling of the OTC drug or drug-cosmetic product in the United States. If a specific manufacturing process is included in a TEA because that information is necessary to explain the product and that process relates to the “product” and not the “active ingredient(s),” it may be considered confidential, unless it has a bearing on the product's safety and effectiveness. Other than this limited situation, the agency does not anticipate that other information in a TEA will be considered confidential. The agency's view is that consideration for OTC drug monograph status is a public process and all information provided should be part of the public record if the condition is determined to be eligible. If the agency does not agree with a sponsor's request for confidential treatment of specific parts of a TEA, it intends to discuss the matter with the sponsor before placing the TEA on public display, just as it did with parts of the submissions made to the panels under the original OTC drug review.

18. One comment recommended that any advisory committees used to make GRAS/E determinations for foreign marketed products be comprised of experts with OTC drug experience, including experience outside of the United States. The comment stated that this is necessary to properly assess and appreciate the full implications of non-U.S. marketing and regulatory systems under which these ingredients may have been marketed.

The agency intends to use its Nonprescription Drugs Advisory Committee (NDAC) as the primary advisory committee to consider GRAS/E determinations for foreign marketed products. NDAC will be supplemented by members from other committees as applicable to the subject matter being considered. These committee members will have OTC drug experience, some of which may include experience outside of the United States, depending on the composition of the agency's advisory committees, which changes yearly. The agency intends to allow sponsors to present information to inform advisory committees that consider GRAS/E determinations for foreign marketed products about the regulatory systems under which these ingredients may have been marketed.

19. One comment recommended that sponsors be tentatively notified if the condition can not be GRAS/E and be provided an opportunity to supplement their submission or withdraw it, rather than receiving notification from the agency that the condition is not GRAS/E. The comment explained that a determination of not GRAS/E may be inconsistent with the condition's regulatory status in other countries, and the sponsor should have the opportunity to withdraw the submission prior to a final agency decision.

The agency intends to use its established OTC drug review feedback procedures to notify sponsors and other interested parties who have submitted data and information in response to a notice of eligibility if a condition has been determined not to be GRAS/E. Parties can respond to a feedback letter and supplement their submissions. The agency may request a response within a specified timeframe in order to complete its review in a timely manner. A sponsor can also withdraw its request for the agency to consider its submission (which would not stop the agency from publishing its decision in the Federal Register ), but the submission is part of a public docket and will not be returned. Parties will have another opportunity to respond when the agency publishes a notice of proposed rulemaking to include the condition in § 310.502 (21 CFR 310.502). (See § 330.14(g)(4) and (g)(5).)

20. One comment requested that the agency begin to accept TEAs pending the completion of the final rule. The comment based this request on the delay in issuing the final rule and numerous citizen petitions pending before the agency. The comment stated that such actions would be consistent with notifications for Generally Recognized as Safe (GRAS) status for food substances under the agency's proposed rule for GRAS notifications. The comment also requested that the agency equitably resolve its back log of citizen petitions by giving priority to those petitions which have been pending for more than 10 years.

The agency decided not to accept TEAs prior to completion of the final rule so that all TEAs that are submitted will be in the format required by this final rule. Likewise, the agency will be responding to the pending citizen petitions (for considering certain foreign conditions for OTC drug monographs) by telling the petitioners to submit TEAs with the required information in the proper format. A petitioner should be able to readily convert their petition to a TEA and submit it to the agency to begin the review process. TEAs will generally be reviewed in the order they are received. However, if the petitioners convert their pending citizen petitions to TEAs and submit them within 120 days of the publication date of this final rule, the agency will give these TEAs priority review.

21. A number of comments disagreed with the agency's proposed marketing policy. The comments requested that the agency allow interim marketing at different times: (1) Once the condition has been determined eligible for consideration, or (2) once the condition has been proposed in the Federal Register as GRAS/E and a United States Pharmacopeia (USP) monograph is in place. The comments stated that interim marketing has existed for U.S. marketed products under the OTC drug review, there is precedent for extension of the practice under the new criteria, and most conditions submitted for consideration will pose no greater risk than category III ingredients currently marketed or marketed over the last 25 years. The comments stated the principles of administrative law require the agency to apply practices consistently between similar products with similar circumstances. One comment concluded that, at a minimum, the agency should consider requests for interim marketing as part of the TEA and approve such marketing on a case-by-case basis. Another comment added that there is a need for access to a broader range of safe and effective OTC sunscreen ingredients and the agency should distinguish these ingredients. The comment believed interim marketing for sunscreens and other topical products should be available if the condition has been cleared for safety by an appropriate foreign governmental body such as the Scientific Committee on Cosmetics and Non-Food Products (SCCNFP) in Europe.

One comment believed that the prohibition against interim marketing would inappropriately bar the marketing of a product that is not a “new drug” and would be inconsistent with the agency's current enforcement policy regarding interim marketing of products currently under consideration in the OTC drug monograph system. Two comments claimed that a condition marketed after it has been proposed in Federal Register as GRAS/E does not constitute a “new drug” under the statutory definition. One comment maintained that a condition is legally no longer a new drug once it has been found to be GRAS/E and been determined to be marketed to a material extent and for a material time. The comments stated that there is no statutory authority for the agency to prevent the marketing of a product that is not a new drug, and that the agency has no legal basis for taking enforcement action against the marketing of such products. The comment concluded that once a proposed monograph amendment is published in the Federal Register , there is no sound policy basis for permitting the marketing of conditions with U.S. marketing history and not permitting marketing of conditions with foreign marketing history.

Other comments contended it was not necessary to only allow marketing under final OTC drug monographs. One comment contended that it is not clear whether foreign marketed OTC products would present any greater risk than domestic products at the same stage of review. The comment added that to prohibit interim marketing implies that public comment on safety and effectiveness is required to validate the agency's conclusions. The comment maintained that this position is inconsistent with the agency's expert role of safeguarding the public health. Two comments disagreed that marketing only under a final OTC drug monograph would allow for a thorough public consideration of any safety and effectiveness issues that might arise before marketing begins. One comment stated that the examples given by the agency of topically applied ingredients with prior safety concerns was not persuasive. The comment noted that the safety concerns were not so significant as to prevent OTC marketing of those ingredients under less stringent criteria than currently proposed.

One comment believed that requiring completion of a USP monograph should not be a reason to limit marketing to only under a final monograph. The comment acknowledged the importance of establishing USP monograph standards for OTC drug active ingredients, but objected to the requirement since the agency has not required USP monographs prior to the marketing of active ingredients already under consideration in the OTC drug review.

Two comments disagreed with the agency's statement that marketing only under a final OTC drug monograph would allow manufacturers to avoid expensive relabeling when changes occur between the proposal and the final rule. One comment argued that it is not FDA's place to make business decisions for industry, which might in fact conclude that the marketing potential of the product is worth the risk. The comment added that all manufacturers of OTC drug products that are not yet subject to a final monograph face the same risk. The comments concluded that it should be left up to OTC manufacturers to determine whether the revenue and product recognition lost from any proposed restrictions on interim marketing would outweigh any potential costs of relabeling.

The agency agrees that the interim marketing policy should be consistent between similar marketed products. Conditions that were reviewed by the OTC advisory review panels were allowed to be marketed during the course of the review if they had been marketed OTC in the United States when the review began. Conditions that were not marketed OTC in the United States when the review began could not be marketed until a panel's report was published in the Federal Register and the agency did not disagree with the panel's recommendations (see 21 CFR 330.13). When a new condition was submitted for consideration after a panel's report was published and before a TFM was published, the agency usually addressed the status of that condition in the TFM. The agency stated in the TFM that marketing may begin with publication of the TFM or not until public comments were received on the TFM and a notice of enforcement policy was published in the Federal Register allowing marketing to begin. A similar procedure was used if a new condition was proposed for inclusion in a monograph after the TFM was published but before a final monograph was issued. Interim marketing was usually allowed because of the period of time projected before the final rule would issue.

For those OTC drug monographs that are not final yet and where finalization is not imminent, after the agency has evaluated the comments to a proposed rule to include a new condition in a TFM as GRAS/E and the agency has not changed its position as a result of the comments, the agency will then publish a notice of enforcement policy to allow interim marketing. This enforcement notice will be similar to those used in the original OTC drug review and will allow marketing to begin pending completion of the final monograph subject to the risk that the agency may, prior to or in the final monograph, adopt a different position that could require relabeling, recall, or other regulatory action. However, interim marketing will not be allowed if USP-NF compendial monograph standards for the condition do not exist.

For those conditions proposed to be included in a final OTC drug monograph or where a monograph for the condition does not exist and a new monograph is being proposed, interim marketing will not be allowed. It will first be necessary to seek public comment on the amendment to a final monograph or whether a new monograph should be established. The agency will not issue an enforcement notice under these circumstances because it takes the same amount of time and agency resources to resolve any outstanding issues and to proceed directly to issuance of a final rule.

22. One comment expressed concern that the proposed eligibility criteria would require the submission of an NDA or TEA for even a slight variation of a monograph product. The comment cited examples that could trigger the requirement of an NDA or TEA, such as a simple combination of two well established OTC drug ingredients or immaterial changes in dosage form or concentration. The comment argued that a condition not authorized by a final monograph is not automatically a “new drug” and the agency has the discretion under 21 CFR 310.3(h), to recognize that not all new conditions make a product “new.” The comment concluded that the agency should reaffirm its authority to authorize interim marketing for both pre-1972 and post-1972 non-monograph conditions, consistent with its practice of issuing notices of enforcement policy for products that are the same as monograph products but for immaterial changes in such characteristics as dosage form or concentration.

Variations from a monograph product or a condition being considered may or may not trigger the need for a TEA or NDA. A combination of two well established OTC drug ingredients that is not included in an existing OTC drug monograph or that has not been marketed in the United States would need a TEA. If one of the ingredients is marketed under an NDA, the product is considered a new drug and the combination would need an NDA. A TEA could be submitted for a change in concentration outside that included in an existing OTC drug monograph if that concentration has foreign marketing experience that meet the eligibility criteria. Information would be needed to support the safety and benefit of a higher concentration (as occurred with hydrocortisone for external analgesic use in the original OTC drug review) or the effectiveness of a lower concentration. If a condition marketed in one foreign country at one concentration is found eligible to be reviewed, another sponsor using a different concentration in another country may wish to submit a TEA and request that both concentrations be evaluated simultaneously.

Most OTC drug monographs for oral products are not dosage form specific. Most OTC drug monographs for topical products also are not dosage form specific and may state that the product is in a dosage form such as a cream, gel, lotion, or ointment. Some OTC drug monographs for topical products are dosage form specific and state that particular ingredients must be in a specific vehicle, e.g., in a suitable water soluble or oleaginous ointment base. Even this specific requirement would allow some flexibility for minor changes in the dosage form. Depending on the OTC drug monograph involved, any interim marketing policy for additional conditions in § 330.14(h), will address the dosage form concentration, and other information of the condition being allowed interim marketing status.

23. One comment believed that the absence of adverse experience reporting systems in foreign countries for either drugs or cosmetics should not preclude a condition from being considered GRAS/E. The comment added that there is nothing in the act or FDA regulations that makes the absence of such information determinative of a condition's status.

The agency agrees that the absence of an adverse experience reporting system in a foreign country for drugs or cosmetics does not necessarily mean that a condition cannot be GRAS/E. The GRAS/E determination will be based on the overall quality of the data and information presented to substantiate safety and effectiveness.

24. One comment requested that the agency reverse the category II status of the sunscreen ingredient 3-(4-methylbenzylidene)-camphor (Eusolex 6300) and permit its marketing upon publication of the final rule. The comment based this request upon its updated citizen petition that addresses the eligibility criteria in the proposed rule and an established USP monograph for 3-(4-methylbenzylidene)-camphor. The comment asserted that the agency's decision to place Eusolex 6300 in category II and the subsequent 20 year delay in addressing the foreign marketing data in their citizen petition raise serious legal concerns under section 10 of the Administrative Procedure Act.

This comment is not directly related to this final rule. The agency discussed the status of this ingredient and its pending citizen petition in both the TMF (58 FR 28194 at 28210 to 28211, May 12, 1993) and the final monograph (64 FR 27666 at 27669 to 27670, May 21, 1999) for OTC sunscreen drug products, stating that a decision was needed on the use of foreign marketing data before this ingredient would be considered for inclusion in that monograph. With publication of this final rule, the sponsor may now submit a TEA for FDA to determine whether the condition is eligible for consideration in the OTC drug monograph system.

This final rule amending the agency's regulations to include criteria for additional conditions and procedures for classifying OTC drugs as GRAS/E and not misbranded is authorized by the act. Since passage of the act in 1938, submission of an NDA has been required before marketing a new drug (21 U.S.C. 355). Section 201(p) of the act defines a new drug as:

FDA has examined the impacts of this final rule under Executive Order 12866, the Regulatory Flexibility Act (5 U.S.C. 601-612) (as amended by subtitle D of the Small Business Regulatory Fairness Act of 1996 (Public Law 104-121)), and the Unfunded Mandates Reform Act of 1995 (Public Law 104-4). Executive Order 12866 directs agencies to assess all costs and benefits of available regulatory alternatives and, when regulation is necessary, to select regulatory approaches that maximize net benefits (including potential economic, environmental, public health and safety, and other advantages; and distributive impacts; and equity). Under the Regulatory Flexibility Act, if a rule has a significant economic impact on a substantial number of small entities, an agency must analyze regulatory options that would minimize any significant impact of the rule on small entities. Section 202(a) of the Unfunded Mandates Reform Act requires that agencies prepare a written statement and economic analysis before proposing any rule that may result in an expenditure of $100 million (adjusted annually for inflation) in any one year by State, local, and tribal governments, in the aggregate, or by the private sector.

The agency believes that this final rule is consistent with the regulatory philosophy and principles identified in the Executive order. Office of Management and Budget (OMB) has determined that this final rule is a significant regulatory action as defined by the Executive order and so is subject to review. Although the agency does not believe that this rule will have a significant economic impact on a substantial number of small entities, there is some uncertainty with respect to the estimated future impact. Thus, a regulatory flexibility analysis is presented below.

The purpose of this final rule is to establish criteria and procedures by which OTC conditions may become eligible for consideration in the OTC drug monograph system. Currently, a sponsor wishing to introduce into the United States an OTC drug condition marketed solely in a foreign country must prepare and submit an NDA. Likewise, companies with OTC drugs initially marketed in the United States after the 1972 initiation of the OTC drug review must have an NDA. This final rule provides procedures for these NDA drugs to become eligible for inclusion in the OTC drug monograph system by first submitting a TEA to show marketing “to a material extent” and “for a material time.” Once determined eligible, safety and effectiveness data would be submitted and evaluated. This two-step process allows sponsors to demonstrate that eligibility criteria are met before having to expend resources to prepare safety and effectiveness data.

The flexibility to market drug products under FDA's OTC drug monograph system provides an overall net benefit to the companies seeking to use this approach, as well as to the American public. One important benefit to sponsoring companies is the saving of NDA user fees. The Prescription Drug User Fee Act (21 U.S.C. 379h) requires a one-time application fee for each NDA submitted, and yearly product and establishment fees, as applicable, for each NDA approved. For FY 2000, these fees are $285,740 (applications with clinical data), $19,959, and $141,971, respectively. Therefore, one-time user fees of $285,740, and ongoing fees of up to $161,930 ($19,959 + $141,971) are avoided if the company can establish that the condition should be included in an OTC drug monograph.

Also, most manufacturers would experience a paperwork savings when seeking OTC drug monograph status instead of an NDA. For example, in most instances, the manufacturing controls information needed for submitting an NDA is not required for a monograph submission. Ongoing reporting requirements associated with periodic and annual reports are also avoided. Based on previous estimates of the paperwork hours needed to comply with these requirements and assuming a 33 percent reduction in paperwork activities, FDA estimates that eliminating manufacturing controls information from an application would bring a one-time savings of approximately 530 hours and an annual savings of 40 hours per submission. Applying the 1999 labor rate of $33.95 per hour for an industrial engineer (Ref. 3) (with a 40 percent adjustment for benefits), these one-time savings are approximately $17,994 (530 x $33.95/hour) per submission. Likewise, using the 1999 professional and managerial labor rate of $27.90 per hour (Ref. 3) (including a 40 percent benefit rate), the ongoing savings from the elimination of periodic and annual reports would equal approximately $1,116 (40 x $27.90/hour) per product.

Moreover, once a condition has been included in an OTC drug monograph, other companies could achieve similar benefits, as they would be permitted to enter the marketplace without submitting an NDA or an abbreviated NDA (ANDA), hereafter referred to as an application. These companies would also avoid the costs associated with achieving the inclusion of a condition in a monograph. In addition, these companies, as well as the sponsoring companies, would be permitted to market variations of a product, such as different product concentrations or dosage forms, if allowed by the monograph, saving the cost of an application or supplement when required.

Consumers would also benefit from this rule. As conditions not previously marketed in the United States obtain OTC drug monograph status, a greater selection of OTC drug products would become available. In addition, competition from these additional products may restrain prices for the entire product class.

FDA estimates that the information needed for a TEA to meet the eligibility criteria for “material time” and “material extent” would take firms approximately 480 hours to prepare. Using the 1999 professional and managerial labor rate of $27.90 per hour (Ref. 3) (including a 40 percent benefit rate), this cost amounts to approximately $13,392 (480 hours x $27.90/hour) per submission. The costs associated with requiring publication in an official compendium, where applicable, would be minimal as similar information is often prepared for publication in a foreign pharmacopeia and most companies already have such standards as part of their manufacturing quality control procedures.

Considering the potential one-time cost savings described above of $303,734 ($285,740 + $17,994) associated with prescription drug user fees and reduced reporting requirements, FDA calculates a one-time net cost savings to industry of up to $290,342 ($303,734 - $13,392) per submission. Future yearly cost savings could total $21,075 ($19,959 + $1,116) per product and $141,971 per establishment if this were the establishment's only product. Accordingly, FDA estimates that if it receives 25 to 50 TEA submissions a year, the industry would save between $7.3 million and $14.5 million in one-time costs alone. The agency notes, however, that companies would submit conditions for OTC drug monograph status only where it would be profitable for them to do so.

Since 1991, the agency has approved six requests for the inclusion of post-1972 U.S. OTC drug conditions in a monograph. Four of these requests consisted of a previously unapproved concentration, dosage form, dual claim, and product combination without OTC marketing experience. Similar conditions are not allowed under the final rule without a minimum of 5 continuous years of adequate OTC marketing experience. These manufacturers would need to either market their product under an application for 5 years in the United States or have 5 years of sufficient marketing experience abroad to qualify for inclusion in a monograph. Accordingly, this rule could result in lost sales dollars for those few future applicants who, in the absence of this rule, might have successfully petitioned FDA to have a product with less than 5 years marketing experience included in a monograph. Likewise, other manufacturers would have to wait until either the agency includes the condition in a final monograph publication, or the agency evaluates the comments to a proposed rule to include a new condition in a TFM GRAS/E and then publishes a notice of enforcement policy allowing interim marketing, before they could market the product or a product variation without an application. Due to the limited number of requests approved to date, it is unlikely that many manufacturers will be significantly affected by these requirements.

Although the agency believes that this rule is unlikely to have a significant economic impact on a substantial number of small entities, FDA is uncertain about the extent of the future impact. Therefore, the following regulatory flexibility analysis has been prepared.

As stated elsewhere in this preamble, the final rule makes it easier to market certain OTC drug products in the United States by amending current FDA regulations to include additional criteria and procedures by which OTC conditions may become eligible for consideration in the OTC drug monograph system. The additional criteria and procedures specify how OTC drugs initially marketed in the United States after the OTC drug review began in 1972 and OTC drugs without any U.S. marketing experience can meet the monograph eligibility requirements. Once eligibility has been determined for a particular condition, safety and effectiveness data are evaluated.

Census data provide aggregate industry statistics on the number of manufacturers of pharmaceutical preparations, but do not distinguish between manufacturers of prescription and OTC drug products. According to the Small Business Administration (SBA), manufacturers of pharmaceutical preparations with 750 or fewer employees are considered small entities. The U.S. Census does not disclose data on the number of drug manufacturing firms by employment size, but between 92 and 96 percent of drug manufacturing establishments, or approximately 650 establishments, are small under this definition (Ref. 4). Although the number of firms that are small would be less than the number of establishments, FDA still concludes that the majority of pharmaceutical preparation manufacturing firms are small entities.

In addition, the agency finds that at least 400 firms manufacture U.S.-marketed OTC drug products. Using the SBA size designation, 31 percent of these firms are large, 46 percent are small, and size data are not available for the remaining 23 percent. Therefore, approximately 184 to 276 of the affected manufacturing firms may be considered small. The agency cannot project how many of these OTC drug manufacturers would submit a TEA for consideration of an additional condition in the OTC drug monograph system.

To demonstrate eligibility for consideration in the OTC drug monograph system, sponsors must submit data in a TEA showing that the condition has been marketed “for a material time” and “to a material extent.” All companies who choose to be considered in the OTC drug monograph system must submit these data. FDA expects that all sponsoring companies employ or have ready access to individuals who possess the skills necessary for this data preparation.

The agency is not aware of any relevant Federal rules that may duplicate, overlap, or conflict with the final rule.

As described above, some manufacturers could be adversely affected by the 5-year material extent and material time requirements, causing a loss in future sales dollars. The agency cannot quantify this impact. However, based on the limited number of post-1972 conditions approved to date that would not have met the 5-year material extent and material time requirements, FDA believes that few manufacturers will be significantly affected.

In developing the requirements of this rule, the agency considered two alternatives. Initially, FDA contemplated a one-step evaluation process, where sponsors would submit safety and effectiveness data concurrently with their TEA. However, the agency decided that this process would be less efficient because it would require sponsoring companies to expend resources to prepare safety and effectiveness data before the agency determines whether eligibility criteria have been met.

The agency also considered allowing manufacturers of post-1972 U.S. OTC drugs to market prior to inclusion in a final OTC drug monograph, as long as the agency had tentatively determined that the condition is GRAS/E. However, to allow for thorough public consideration of any safety and effectiveness issues that might arise before broad marketing of the condition begins under the OTC drug monograph system, the agency proposed that interim marketing should not be allowed under the OTC drug monograph system either for post-1972 U.S. conditions or for conditions with no previous U.S. marketing experience. Under this final rule, the agency has determined for those OTC drug monographs that are not final yet and where finalization is not imminent, after the agency has evaluated the comments to a proposed rule to include a new condition in a TFM as GRAS/E and the agency has not changed its position as a result of the comments, that it will then publish a notice of enforcement policy to allow interim marketing. This enforcement notice will be similar to those used in the original OTC drug review and will allow marketing to begin pending completion of the final monograph subject to the risk that the agency may, prior to or in the final monograph, adopt a different position that could require relabeling, recall, or other regulatory action. Interim marketing under these circumstances will also be dependent upon completion of official USP-NF monograph standards, as discussed above. For those conditions proposed to be included in a final OTC drug monograph or where a monograph for the condition does not exist and a new monograph is being proposed, interim marketing will not be allowed. Under these circumstances, the agency expects that it would take the same amount of time to include the condition in a final monograph as it would to publish an enforcement notice.

In response to public comment, the agency simplified the TEA criteria and decided to publish an enforcement notice to permit interim marketing when the finalization of the OTC drug monograph is not imminent, after the agency has evaluated the comments to a proposed rule to include a new condition in a TFM and the agency has not changed its position as a result of the comments. Several comments stated that the TEA is unduly burdensome because the required information is both unnecessarily detailed and difficult to compile. The final rule modifies how information should be provided on the number of dosage units sold, clarifies the criteria for determining marketing exposure, and revises the historical labeling requirements. These changes will further define the information that is necessary for the agency to determine whether the condition has been marketed to a material extent and for a material time. The agency still estimates that it will take 480 hours to prepare a TEA.

A number of comments disagreed with the proposed interim marketing policy. The comments asserted that interim marketing should be allowed, and that it should be left up to individual OTC manufacturers to determine whether the revenue and product recognition lost from the proposed restrictions on interim marketing would outweigh any potential costs of relabeling resulting from the final monograph. Therefore, for those OTC drug monographs that are not final yet and where finalization is not imminent, after the agency has evaluated the comments to a proposed rule to include a new condition in a TFM as GRAS/E, and the agency has not changed its position as a result of the comments, the agency will publish a notice of enforcement policy to allow interim marketing. This notice will allow marketing to begin pending completion of the final monograph subject to the risk that the agency may, prior to or in the final monograph, adopt a different position that could require relabeling, recall, or other regulatory action. Thus, in these cases, manufacturers can assess revenues and projected costs versus potential costs if relabeling, recall, or other regulatory action results from the final monograph. For those conditions proposed to be included in a final OTC drug monograph or where a monograph for the condition does not exist and a new monograph is being proposed, interim marketing still will not be allowed. However, under these circumstances, the agency expects that it would take the same amount of time to include the condition in a final monograph as it would to publish an enforcement notice. Therefore, OTC manufacturers should be able to begin marketing their product under a final rule in the same amount of time that they would have had to wait for the agency to issue an enforcement notice.

Under the Unfunded Mandates Reform Act, FDA is not required to prepare a statement of costs and benefits for this final rule because this final rule is not expected to result in any 1-year expenditure that would exceed $100 million adjusted for inflation.

This analysis shows that the agency has considered the burden to small entities. Thus, this economic analysis, together with other relevant sections of this document, serves as the agency's final regulatory flexibility analysis, as required under the Regulatory Flexibility Act.

The agency has determined under 21 CFR 25.30(h) that this action is of a type that does not individually or cumulatively have a significant effect on the human environment. Therefore, neither an environmental assessment nor an environmental impact statement is required.

This final rule contains collections of information which are subject to review by OMB under the Paperwork Reduction Act of 1995 (44 U.S.C. 3501-3520). “Collection of information” includes any request or requirement that persons obtain, maintain, retain, or report information to the agency, or disclose information to a third party or to the public (44 U.S.C. 3502(3) and 5 CFR 1320.3(c)). The title, description, and respondent description of the information collection are shown below with an estimate of the annual reporting burden. Included in the estimate is the time for reviewing instructions, gathering and maintaining the data needed, and completing and reviewing the collection of information.

In the proposal, FDA invited comments on: (1) Whether the proposed collection of information is necessary for proper performance of FDA's functions, including whether the information will have practical utility; (2) the accuracy of FDA's estimate of the burden of the proposed collection of information, including the validity of the methodology and assumptions used; (3) ways to enhance the quality, utility, and clarity of the information to be collected; and (4) ways to minimize the burden of the collection of information on respondents, including the use of automated collection techniques, when appropriate, and other forms of information technology. The agency did not receive any specific comments on these items.

Title : Additional Criteria and Procedures for Classifying Over-the-Counter Drugs as Generally Recognized as Safe and Effective and Not Misbranded.

Description : FDA is finalizing additional criteria and procedures by which OTC conditions may become eligible for consideration in the OTC drug monograph system. The criteria and procedures address how OTC drugs initially marketed in the United States after the OTC drug review began in 1972 and OTC drugs without any U.S. marketing experience could meet the statutory definition of marketing “to a material extent” and “for a material time” and become eligible. If found eligible, the condition will be evaluated for general recognition of safety and effectiveness in accord with FDA's OTC drug monograph regulations.

FDA received no comments on the Paperwork Reduction Act section of the proposed rule. However, OMB has requested, in its review of FDA's request for approval of the proposed information collection resulting from this rulemaking, that FDA look into the possibility of applying electronic collection techniques to this collection. There is no requirement in this rulemaking that sponsors submit TEAs electronically. However, the Center for Drug Evaluation and Research has issued the following guidances to facilitate the electronic submission of marketing applications: “Guidance for Industry: Providing Regulatory Submissions in Electronic Format—General Considerations” and “Guidance for Industry: Providing Regulatory Submissions in Electronic Format—NDA's.” These guidances were issued in January 1999 and are available at http://www.fda.gov/cder/guidance/index.htm. Also available at this Internet site is a document entitled “Example of an Electronic New Drug Application Submission.” These guidances provide recommendations for submitting electronic submissions in the appropriate format. Sponsors should refer to the formatting recommendations in these guidances if they wish to submit a TEA electronically.

Concerning the electronic submission of information to the Dockets Management Branch, over the last several months the Dockets Management Branch has been accepting comments electronically on specific dockets as part of a pilot program. An Internet address and an e-mail address have been set up to accept these comments. Parties may submit comments to the Dockets Management Branch through the Internet or e-mail at: http://www.fda.gov/ohrms/dockets/default.htm. Parties should then select “submit electronic comments” and follow the directions. Over the next several years, FDA expects to be able to accept electronic submissions of TEAs and safety and effectiveness data, which would eliminate the need for multiple paper copies.

Current § 330.10(a)(2) sets forth the requirements for the submission of data and information that FDA reviews to evaluate a drug for general recognition of safety and effectiveness. FDA receives approximately three safety and effectiveness submissions each year, and FDA estimates that it takes approximately 798 hours to prepare each submission.

FDA anticipates that the number of safety and effectiveness submissions would increase to 93 annually as a result of this rulemaking. (Although FDA estimates that the number of TEAs submitted annually would be 50, the agency anticipates that 30 TEAs would be approved, and that this would result in approximately 3 safety and effectiveness submissions for each approved TEA.) The time required to prepare each safety and effectiveness submission would also increase as a result of two amendments to current § 330.10(a)(2) under this final rule.

One amendment revises items IV.A.3, IV.B.3, IV.C.3, V.A.3, V.B.3, and V.C.3 of the “OTC Drug Review Information” format and content requirements to add the words “Identify common or frequently reported side effects” after “documented case reports.” This revision clarifies current requirements for submitting documented case reports and only requires sponsors to ensure that side-effects information is identified in each submission. FDA estimates that it will take sponsors approximately 1 hour to comply with this requirement.

A second amendment to current § 330.10(a)(2) requires sponsors to submit an official USP-NF drug monograph for the active ingredient(s) or botanical drug substance(s), or a proposed standard for inclusion in an article to be recognized in an official USP-NF drug monograph for the active ingredient(s) or botanical drug substance(s). (This requirement is also stated in § 330.14(f)(1).) FDA believes that the burden associated with this requirement will also be minimal because similar information may already have been prepared for previous publication in a foreign pharmacopeia, or companies will already have these standards as part of their quality control procedures for manufacturing the product. FDA estimates that the time required to photocopy this material will be approximately 1 hour.

Thus, the time required for preparing each safety and effectiveness submission will increase by a total of 2 hours as a result of the amendments to § 330.10(a)(2), increasing the approximate hours for each submission from 798 to 800 hours.

Under § 330.14(c), sponsors must submit a TEA when requesting that a condition subject to the regulation be considered for inclusion in the OTC drug monograph system. Based on the data provided and explained in the “Analysis of Impacts” in section V above, FDA estimates that approximately 50 TEAs will be submitted to FDA annually by approximately 25 sponsors, and the time required for preparing and submitting each TEA will be approximately 480 hours.

Under § 330.14(f)(2), sponsors are required to include in each safety and effectiveness submission all serious ADEs from each country where the condition has been or is currently marketed as a prescription or OTC drug product. Sponsors will be required to provide individual ADE reports along with a detailed summary of all serious ADEs and expected or frequently reported side effects for the condition. FDA believes that the burden associated with this requirement will be minimal because individual ADE reports are already required as part of the “documented case reports” in the “OTC Drug Review Information” under § 330.10(a)(2). FDA estimates that the time required for preparing and submitting a detailed summary of all serious ADEs and expected or frequently reported side effects will be approximately 2 hours.

Due to the anticipated number of foreign conditions likely to seek immediate consideration in the OTC drug monograph system, the annual reporting burden estimated in table 1 below is the annual reporting for the first 3 years following publication of the final rule. FDA anticipates a reduced burden after this time period.

Description of Respondents : Persons and businesses, including small businesses and manufacturers.

The information collection provisions of the final rule have been submitted to OMB for review. Prior to the effective date of the final rule, FDA will publish a document in the Federal Register announcing OMB's decision to approve, modify, or disapprove the information collection provisions in the final rule. An agency may not conduct or sponsor, and a person is not required to respond to, a collection of information unless it displays a currently valid OMB control number.

The following references are on display in the Dockets Management Branch (address above) and may be seen by interested persons between 9 a.m. and 4 p.m., Monday through Friday.

1. The authority citation for 21 CFR part 330 continues to read as follows:

a. In paragraph (a)(2) by adding the words “or until the Commissioner places the panel's recommendations on public display at the office of the Dockets Management Branch” at the end of the second sentence;

b. In paragraph (a)(2) by adding the words “Identify expected or frequently reported side effects.” after the words “Documented case reports.” in items IV.A.3, IV.B.3, IV.C.3, V.A.3, V.B.3, and V.C.3 in the outline of “OTC Drug Review Information”; and

c. In paragraph (a)(2) by adding item VII at the end of the outline of “OTC Drug Review Information”;

d. In paragraph (a)(5) introductory text by removing the word “shall” and adding in its place the word “may”;

e. In paragraphs (a)(5)(ii) and (a)(5)(iii) by removing the word “all” from the first sentence;

f. In paragraphs (a)(6)(i) and (a)(9) by removing the word “is” and adding in its place the words “or a specific or specific OTC drugs are”;

g. In paragraph (a)(6)(iv) by removing the word “quintuplicate” and by adding in its place “triplicate” in the forth full sentence, by removing the words “during regular working hours” and by adding in their place “between the hours of 9 a.m. and 4 p.m.” in the sixth full sentence, and by adding two sentences at the end.

h. In paragraph (a)(7)(i) by revising the first and second sentences;

i. In paragraph (a)(7)(ii) by removing the first and second sentences and by adding three sentences in their places;

j. In paragraph (a)(10)(i) and (a)(10)(iii) by adding in the first sentence a comma and the phrase “in response to any other notice published in the Federal Register ,” after the phrase “paragraph (a)(2) of this section”; and

k. In paragraph (a)(12)(i) in the fourth sentence by removing the number “60” and by adding in its place the number “90” and by removing the word “quadruplicate” and by adding in its place the word “triplicate” to read as follows:

(a) * * *

(2) * * *

The collections of information contained in these final regulations have been reviewed and approved by the Office of Management and Budget in accordance with the Paperwork Reduction Act (44 U.S.C. 3507) under control number 1545-1623. Responses to these collections of information are required to obtain the benefit of the rebuttable presumption that a transaction is reasonable or at fair market value.

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

The estimated annual burden per recordkeeper varies from 3 hours to 308 hours, depending on individual circumstances, with an estimated weighted average of 6 hours, 3 minutes.

Comments concerning the accuracy of this burden estimate and suggestions for reducing this burden should be sent to the Internal Revenue Service, Attn: IRS Reports Clearance Officer, W:CAR:MP:FP:S Washington, DC 20224, and to the Office of Management and Budget, Attn: Desk Officer for the Department of the Treasury, Office of Information and Regulatory Affairs, Washington, DC 20503.

Books or records relating to this collection of information must be retained as long as their contents may become material in the administration of any internal revenue law. Generally, tax returns and tax return information are confidential, as required by 26 U.S.C. 6103.

Section 4958 was added to the Internal Revenue Code (Code) by the Taxpayer Bill of Rights 2, Public Law 104-168 (110 Stat. 1452), enacted July 30, 1996. The section 4958 excise taxes generally apply to excess benefit transactions occurring on or after September 14, 1995. Any disqualified person who benefits from an excess benefit transaction with an applicable tax-exempt organization is liable for a tax of 25 percent of the excess benefit. The person is also liable for a tax of 200 percent of the excess benefit if the excess benefit is not corrected by a certain date. A disqualified person is generally defined as a person in a position to exercise substantial influence over the affairs of the applicable tax-exempt organization. An applicable tax-exempt organization is an organization described in Code section 501(c)(3) or (4) and exempt from tax under section 501(a). Additionally, organization managers who participate in an excess benefit transaction knowingly, willfully, and without reasonable cause, are liable for a tax of 10 percent of the excess benefit. The tax for which all participating organization managers are liable cannot exceed $10,000 for any one excess benefit transaction.

On August 4, 1998, a notice of proposed rulemaking (REG-246256-96) clarifying certain definitions and rules contained in section 4958 was published in the Federal Register (63 FR 41486). The IRS received numerous written comments responding to this notice. A public hearing was held on March 16 and 17, 1999. Those proposed regulations were revised in response to written and oral comments, and replaced by temporary regulations (TD 8920, 66 FR 2144) and a cross-referencing notice of proposed rulemaking (REG-246256-96, 66 FR 2173) on January 10, 2001. A few written comments were received in response to the notice of proposed rulemaking of January 10, 2001. A public hearing was held July 31, 2001. After consideration of all comments received, the January 2001 cross-referencing proposed regulations under section 4958 are revised and published in final form, and the temporary regulations removed. The major areas of the comments and revisions are discussed below.

Organization managers who participate in an excess benefit transaction knowingly, willfully, and without reasonable cause, are liable for a tax equal to 10 percent of the excess benefit. The temporary regulations provide that an organization manager's participation in an excess benefit transaction will ordinarily not be considered knowing to the extent that, after full disclosure of the factual situation to an appropriate professional, the organization manager relies on a reasoned written opinion of that professional with respect to elements of the transaction within the professional's expertise. For this purpose, appropriate professionals are legal counsel (including in-house counsel), certified public accountants or accounting firms with expertise regarding the relevant tax law matters, and independent valuation experts who meet specified requirements. Oral comments at the public hearing objected to this safe harbor, suggesting instances of the unreliability of appraisers and accountants. The final regulations retain this safe harbor. The IRS and the Treasury Department believe that an organization manager who has sought and relied upon an appropriate professional opinion has not “fail[ed] to make reasonable attempts to ascertain whether the transaction is an excess benefit transaction”, which is a required element of knowing for this purpose.

The temporary regulations provide an additional safe harbor: that an organization manager's participation in a transaction will ordinarily not be considered knowing if the manager relies on the fact that the requirements giving rise to the rebuttable presumption of reasonableness are satisfied with respect to the transaction. Several comments were received requesting that the safe harbor be modified, either to apply if the organization manager “reasonably believes” that the requirements for the presumption are satisfied, or to eliminate the reliance requirement. In response to these comments, the final regulations no longer require that the organization manager rely on the fact that the requirements of the rebuttable presumption of reasonableness are satisfied. The final regulations state that the organization manager's participation in a transaction will ordinarily not be considered knowing if the appropriate authorized body has met the requirements of the rebuttable presumption with respect to the transaction. The IRS and the Treasury Department note that the relief given by this provision is only a safe harbor, so that failure to satisfy its requirements does not necessarily mean that the organization manager acted knowingly.

The temporary regulations provide that any governmental entity that is exempt from (or not subject to) taxation without regard to section 501(a) is not an applicable tax-exempt organization for purposes of section 4958. A comment was received requesting that the final regulations clarify whether section 115 entities are excepted from the definition of applicable tax-exempt organization. Because section 115 exempts certain income, and not the entity itself, the reference in the temporary regulations to any governmental entity “exempt from tax” without regard to section 501(a) is unclear. The final regulations provide that for purposes of section 4958, a governmental unit or an affiliate of a governmental unit is not an applicable tax-exempt organization if it is: (1) Exempt from (or not subject to) taxation without regard to section 501(a); or (2) relieved from filing an annual return pursuant to the authority of Treasury Regulations under section 6033.

Regulations under section 6033 grant the Commissioner authority to relieve organizations from filing an annual return required by that section in cases where the returns are not necessary for the efficient administration of the internal revenue laws. Under this authority, Rev. Proc. 95-48 (1995-2 C.B. 418) relieves “governmental units” and certain “affiliates of governmental units” from the annual filing requirement. A governmental unit as defined in this revenue procedure already falls within the exception provided in the section 4958 temporary regulations for “any governmental entity that is exempt from (or not subject to) taxation without regard to section 501(a)”. An affiliate of a governmental unit that is relieved from filing an annual return by Rev. Proc. 95-48 (and thus also excepted from the definition of an applicable tax-exempt organization under these section 4958 final regulations) includes any organization described in section 501(c) that has a ruling or determination from the IRS that: (1) Its income, derived from activities constituting the basis for its exemption under section 501(c), is excluded from gross income under section 115; (2) it is entitled to receive deductible charitable contributions under section 170(c)(1) on the basis that the contributions are “for the use of” governmental units; or (3) it is a wholly owned instrumentality of a State for employment tax purposes. An organization described in section 501(c) that does not have such a ruling or determination may also qualify as an affiliate of a governmental unit for purposes of the revenue procedure if: (1) It is either “operated, supervised, or controlled by” governmental units within the meaning of regulations under section 509; (2) it possesses at least two affiliation factors listed in Rev. Proc. 95-48; and (3) its filing of Form 990, “Return of Organization Exempt From Income Tax”, is not otherwise necessary to the efficient administration of the internal revenue laws.

A comment was also received requesting that the final regulations exclude from the definition of applicable tax-exempt organization collectively bargained apprenticeship funds subject to the rules of the Labor Management Relations Act of 1947 (61 Stat. 157) and the Employee Retirement Income Security Act of 1974 (88 Stat. 854) (ERISA). The commenter stated that, like governmental entities, these funds seek recognition under Code section 501(c)(3) on a strictly voluntary basis, and are also eligible for tax exemption under Code section 501(c)(5). The commenter also stated that applying section 4958 to these funds would provide an unnecessary layer of regulation, because these plans already are subject to ERISA.

The final regulations do not except collectively bargained apprenticeship funds from the definition of applicable tax-exempt organization. However, in response to this comment, the final regulations provide a special exception under section 4958 for transactions that are covered by a final individual prohibited transaction exemption issued by the Department of Labor. The final regulations provide that section 4958 does not apply to any payment made pursuant to, and in accordance with, a final individual prohibited transaction exemption issued by the Department of Labor under ERISA with respect to a transaction involving a plan that is an applicable tax-exempt organization. Before granting an individual prohibited transaction exemption under ERISA, the Department of Labor must determine that the particular transaction is in the interests of the plan and its participants, and is protective of the rights of participants in the plan. The IRS and the Treasury Department believe that the similarity between the ERISA standard (“in the interests of” and “protective of the rights of” participants) and the fair market value standard of section 4958 warrants this special exception.

The preamble of the temporary regulations noted that the IRS and the Treasury Department considered adopting a special rule with respect to so-called donor-advised funds maintained by applicable tax-exempt organizations, and requested comments regarding potential issues raised by applying the fair market value standard of section 4958 to distributions from a donor-advised fund to (or for the use of) the donor or advisor. Several comments were received on this issue. Most of the comments objected to treating a donor or advisor to this type of fund as a disqualified person based solely on influence over a donor-advised fund. Others stated that the existing factors contained in the temporary regulations were adequate to find disqualified person status in appropriate circumstances. One commenter requested that if section 4958 were to apply to transactions involving donor-advised funds, the fair market standard should apply, and requested additional definitions and exclusions if the final regulations contained specific rules for these types of funds.

In response to these comments, the final regulations do not adopt a special rule regarding any donor or advisor to a donor-advised fund. Thus, the general rules of § 53.4958-3 will apply to determine if a donor or advisor is a disqualified person.

Some additional comments were received on other specific rules of the disqualified person definition contained in the temporary regulations. The final regulations do not change the rules or descriptions contained in the definition. However, several of the comments are discussed below to explain why the IRS and the Treasury Department concluded that changes were not necessary or desirable. Other comments suggested changes to the examples. In response to those comments, several examples in this section of the final regulations were revised from the temporary regulations, as discussed below.

The temporary regulations state that an organization described in section 501(c)(4) is deemed not to have substantial influence with respect to another applicable tax-exempt organization described in section 501(c)(4). A section 501(c)(4) organization can, however, have substantial influence with respect to an organization described in section 501(c)(3). A commenter requested that section 501(c)(4) organizations be excluded from disqualified person status with respect to all applicable tax-exempt organizations.

The IRS and the Treasury Department decline to expand the exclusion for section 501(c)(4) organizations. A section 501(c)(4) organization can engage in certain activities (such as political campaign activities) that a section 501(c)(3) organization cannot. Accordingly, the IRS and the Treasury Department are concerned about transactions in which a section 501(c)(3) organization may provide an excess benefit to a section 501(c)(4) organization to avoid limitations of section 501(c)(3).

Oral comments at the public hearing objected to including, as one of the factors tending to show no substantial influence, the fact that the person's sole relationship to an applicable tax-exempt organization is as a contractor (such as an attorney, accountant, or investment manager or advisor) providing professional advice to the organization. The commenter suggested that these providers of professional advice have a great deal of influence over applicable tax-exempt organizations, but choose not to exercise that influence. The IRS and the Treasury Department believe that the description of this factor in the temporary regulations includes sufficient safeguards to protect the organization. Accordingly, the final regulations retain this factor. Additionally, being in this category of persons is merely a factor tending to show no substantial influence. In appropriate circumstances, the IRS could still conclude that a person ostensibly described in this category was a disqualified person based on all relevant facts and circumstances.

Another comment objected to the standard of one of the factors tending to show substantial influence: that a person's compensation is primarily based on revenues derived from activities of the organization that the person controls. The commenter suggested that this factor be modified to provide that revenues controlled by the person also represent a substantial part of the organization's total revenues. The IRS and the Treasury Department do not believe that a change is necessary. The factor at issue is only one of many factors that may be considered, and will be considered in conjunction with all relevant facts and circumstances.

Another comment requested further revision to two factors tending to show substantial influence. The first factor states that the person has or shares authority to control or determine a substantial portion of the organization's capital expenditures, operating budget, or compensation for employees. The second factor states that the person manages a discrete segment or activity of the organization that represents a substantial portion of the activities, assets, income, or expense of the organization, as compared to the organization as a whole. The commenter suggested that the first factor is sufficient, and requested that the second factor be deleted. Alternatively, the commenter requested that the final regulations define the term substantial, and recommended a safe harbor percentage of 15 percent.

The IRS and the Treasury Department did not revise these two factors tending to show substantial influence. The IRS and the Treasury Department do not believe that these two factors are redundant, as they address budget and management authority, respectively, and these two functions may reside in different persons. In addition, as with any of the listed factors, these two factors are considered along with all other relevant facts and circumstances.

In response to a comment regarding the examples of this section, the final regulations revise an example that concludes that a hospital management company is a disqualified person with respect to the applicable tax-exempt organization. The comment stated that the example could create confusion because its language does not match neatly with the factors tending to show substantial influence listed in the temporary regulations. The commenter also pointed out that, under the facts of the example, the functions of the management company seemed close to those of a president, chief executive officer, or chief operating officer, one of the categories of persons who are deemed to have substantial influence. The example is revised in the final regulations to illustrate that the management company is a disqualified person per se, because it has ultimate responsibility for supervising the management of the hospital, consistent with the regulatory description of the functions of a president, chief executive officer, or chief operating officer. By concluding that the management company is a disqualified person, this example also addresses a comment requesting that final regulations clarify whether only individuals could be persons having substantial influence.

One comment analyzed examples in the temporary regulations defining an indirect excess benefit transaction. The commenter questioned one example in which the benefits provided to a disqualified person by an applicable tax-exempt organization and an entity controlled by the organization are evaluated in the aggregate, and the excess over reasonable compensation for the services performed by the disqualified person for both entities is treated as an excess benefit. The commenter recommended that the example be deleted or revised so that the reasonableness of compensation provided by each entity is evaluated separately.

The rules governing an indirect excess benefit transaction are intended to prevent an applicable tax-exempt organization from avoiding section 4958 by using a controlled entity to provide excess benefits to a disqualified person. Thus, for purposes of section 4958, economic benefits provided by a controlled entity will be treated as provided by the applicable tax-exempt organization. Likewise, the IRS and the Treasury Department believe that any services performed by the disqualified person for a controlled entity should be taken into account in determining the reasonableness of compensation paid by the applicable tax-exempt organization. Accordingly, this example is not changed in the final regulations. However, the IRS and the Treasury Department agree with the commenter that the payment of compensation by an applicable tax-exempt organization to a disqualified person for services provided to a controlled entity, other than a wholly-owned subsidiary, may raise private benefit issues if the other investors in the entity do not make a proportional contribution. Accordingly, another example in this section is modified to clarify that the controlled entity for which the disqualified person performs services is a wholly-owned subsidiary of the applicable tax-exempt organization.

The temporary regulations provide that section 4958 does not apply to any fixed payment made to a person pursuant to an initial contract, regardless of whether the payment would otherwise constitute an excess benefit transaction. For this purpose, an initial contract is defined as a binding written contract between an applicable tax-exempt organization and a person who was not a disqualified person immediately prior to entering into the contract. A fixed payment means an amount of cash or other property specified in the contract, or determined by a fixed formula specified in the contract, which is paid or transferred in exchange for the provision of specified services or property. A fixed formula may incorporate an amount that depends upon future specified events or contingencies (e.g., revenues generated by activities of the organization), provided that no person exercises discretion when calculating the amount of a payment or deciding whether to make a payment. The temporary regulations include examples to illustrate the application of the initial contract rule.

Several comments were received on this section of the temporary regulations, including comments on specific examples. Several commentators requested a more liberal definition of initial contract. For instance, requests were received to extend the initial contract exception to cases where there is other contemporaneous written evidence of the terms of employment (but not a binding contract), or for the rule to cover cases where the parties agree to substantial terms of the person's employment, but where a final contract has not been signed before the person begins performing services for the organization. As the term binding written contract is governed by State law, in some cases that term may in fact be satisfied by an exchange of writings indicating the substantial terms of an agreement. However, the IRS and the Treasury Department decline to revise the regulatory definition of this term from that contained in the temporary regulations.

One commenter at the public hearing requested that the final regulations eliminate the initial contract exception. In this commenter's view, the Seventh Circuit in United Cancer Council, Inc. v. Commissioner of Internal Revenue, 165 F.3d 1173 (7th Cir. 1999), rev'ing and remanding 109 T.C. 326 (1997), focused on the wrong moment in time to determine insider status (analogous to disqualified person status under section 4958). The commenter suggested that a person's insider status should be determined at the time payments are made to the person. Therefore, the commenter recommended that the IRS and the Treasury Department decline to follow the reasoning of the Seventh Circuit's decision in the United Cancer Council case in the final regulations. Alternatively, the commenter requested that, if the initial contract exception is retained in the section 4958 final regulations, the IRS and the Treasury Department revise the private benefit standard under the section 501(c)(3) regulations to require that any private benefit conferred by a transaction must be insubstantial relative to the public benefit resulting from the transaction (rather than the public benefit resulting from the organization's overall activities).

Although the United Cancer Council case addressed the issue of private inurement under the standards of section 501(c)(3) in connection with revocation of the organization's tax exemption, the temporary regulations address the concerns expressed in the Seventh Circuit's opinion in United Cancer Council in the context of section 4958. The Seventh Circuit concluded that prohibited inurement under section 501(c)(3) cannot result from a contractual relationship negotiated at arm's length with a party having no prior relationship with the organization, regardless of the relative bargaining strength of the parties or resultant control over the tax-exempt organization created by the terms of the contract. The temporary regulations provide that, to the extent that an applicable tax-exempt organization and a person who is not yet a disqualified person enter into a binding written contract that specifies the amounts to be paid to the person (or specifies an objective formula for calculating those amounts), those fixed payments are not subject to scrutiny under section 4958, even if paid after the person becomes a disqualified person. However, the initial contract exception does not apply if the contract is materially modified or if the person fails to substantially perform his or her obligations under the contract. The IRS and the Treasury Department believe that the fact that the initial contract is scrutinized again when either of these situations occurs provides adequate protection to the applicable tax-exempt organization. In addition, the suggested revisions to the regulations under section 501(c)(3) are beyond the scope of this regulations project.

Several comments on specific examples in the initial contract exception section of the temporary regulations were received. One writer commented that in the example involving a hospital management company, the structure of the management fee gives the management company an incentive to provide charity care regardless of whether the hospital has the financial resources to pay for it. The intent of that example is merely to illustrate a fixed payment determined by a fixed formula specified in the contract, where the formula incorporates an amount that is dependent on future specified events, but where no person exercises discretion when calculating the amount of a payment under the contract. Therefore, the example remains unchanged in the final regulations.

Additional comments were received addressing the example in which the same hospital management company also received reimbursements for certain expenses in addition to the fixed management fee. The temporary regulations provide that any amount paid to a person under a reimbursement (or similar) arrangement where discretion is exercised with respect to the amount of expenses incurred or reimbursed is not a fixed payment for purposes of the section 4958 initial contract exception. A request was made to distinguish such reimbursement arrangements from payments determined by a fixed formula based on revenues from a particular activity, where a person has discretion over the extent of the activity. The IRS and the Treasury Department believe that reimbursement payments should generally be evaluated for reasonableness for purposes of section 4958. Consequently, the example is not modified in the final regulations, except to clarify that the management fee is a fixed payment, even though the reimbursement payments under the contract are not. However, as discussed below, the IRS and the Treasury Department also believe that reimbursement arrangements that meet the requirements of § 1.62-2(c) (expense reimbursements pursuant to an accountable plan ) do not raise the same concerns as other reimbursement payments, because of the requirements to qualify as an accountable plan. Accordingly, the final regulations disregard amounts reimbursed to employees pursuant to an accountable plan (see the discussion of this topic in this preamble under the heading “Disregarded Economic Benefits”). Because the hospital management company in the example is a contractor, and not an employee, the expense reimbursements do not fall within this exception for expense reimbursements pursuant to an accountable plan.

The temporary regulations provide that all fringe benefits excluded from income under section 132 (except for certain liability insurance premiums, payments or reimbursements) are disregarded for section 4958 purposes. To provide consistent treatment of benefits provided in cash and in kind, the final regulations also disregard expense reimbursements paid pursuant to an accountable plan that meets the requirements of § 1.62-2(c). Thus, as is the case with section 132(d) working condition fringe benefits, existing standards under section 162 and section 274 will apply to determine whether employee expense reimbursements are disregarded for section 4958 purposes, or are treated as part of the disqualified person's compensation for purposes of determining reasonableness under section 4958.

Several comments were received requesting that lodging furnished for the convenience of the employer (i.e., meeting the requirements of section 119) be disregarded for section 4958 purposes. These comments suggested that benefits excluded from gross income under section 119 should be disregarded for purposes of section 4958 because the policy rationale underlying section 119 is the same as that underlying section 132. However, there are differences between the two sections. In general, section 132 benefits are subject to nondiscrimination rules or are de minimis in amount, which is not the case with section 119 benefits. The value of housing benefits is potentially much larger than many of the section 132 benefits, and therefore a greater potential for abuse exists in the section 119 area. Accordingly, the IRS and the Treasury Department believe it is appropriate to treat section 119 benefits differently from section 132 benefits by requiring an evaluation for reasonableness.

The temporary regulations disregard economic benefits provided to a donor solely on account of a contribution deductible under section 170 if two requirements are met. First, any non-disqualified person making a contribution above a specified amount to the organization is given the option of receiving substantially the same economic benefit. Second, the disqualified person and a significant number of non-disqualified persons in fact make a contribution of at least the specified amount. Several comments were received requesting additional guidance with respect to these disregarded benefits. One commenter asked that the rule be revised to address contributions that are not deductible by the donor in the current year because of the percentage limitations under section 170(b). That commenter also requested that the final regulations provide for situations where no other donor makes a comparable contribution to the specific applicable tax-exempt organization. In that instance, the commenter requested that the benefits be considered in relation to benefits customarily provided by similar organizations for that level of contribution. Another commenter requested that any benefit provided to a donor be disregarded if the value of the benefit does not exceed the value of the donation and the donor treats the benefit as a quid pro quo that reduces the donor's charitable contribution deduction.

The IRS and the Treasury Department decline to address situations where a disqualified person makes a unique contribution to an applicable tax-exempt organization. As a practical matter, an excess benefit transaction would never arise in connection with a contribution to an applicable tax-exempt organization, where the value of the contribution exceeds the value of any benefit the donor receives in return. However, in response to comments, the final regulations clarify that economic benefits made available on equal terms to a disqualified person and a significant number of other donors who make charitable contributions (within the meaning of section 170) above a specified amount may be disregarded for purposes of section 4958, even if the disqualified person cannot claim a deduction under section 170 with respect to the contribution, because the disqualified person does not itemize deductions, or is subject to the percentage limitations under section 170(b).

The temporary regulations provide that reasonableness is determined with respect to any fixed payment (as defined for purposes of the initial contract rule) at the time the parties enter into the contract. For non-fixed payments, reasonableness is determined based on all facts and circumstances, up to and including circumstances as of the date of payment. A comment requested that final regulations clarify that the timing for determining the reasonableness of a benefit is not affected by the existence of a substantial risk of forfeiture. In response to this comment, the final regulations are revised to clarify that the general timing rules apply to property subject to a substantial risk of forfeiture. Therefore, if the property subject to a substantial risk of forfeiture satisfies the definition of fixed payment, reasonableness is determined at the time the parties enter into the contract providing for the transfer of the property. If the property is not a fixed payment, then reasonableness is determined based on all facts and circumstances, up to and including circumstances as of the date of payment. An example is also added to illustrate how the regular timing rules for determining reasonableness for section 4958 purposes apply to property that is subject to a substantial risk of forfeiture.

The temporary regulations provide that an organization must provide written substantiation that is contemporaneous with the transfer of benefits at issue in order to provide clear and convincing evidence of its intent to treat benefits provided to a disqualified person as compensation for services. This requirement may be satisfied by either: (1) The organization reporting the economic benefit as compensation on an original Federal tax information return, or on an amended Federal tax information return filed prior to the commencement of an IRS examination of the applicable tax-exempt organization or the disqualified person for the taxable year in which the transaction occurred; or (2) the recipient disqualified person reporting the benefit as income on the person's original Federal tax return, or on the person's amended Federal tax return filed prior to the commencement of an IRS examination. The final regulations clarify that for an amended return filed by a disqualified person to be considered contemporaneous substantiation, the person must file an amended return prior to the earlier of the following dates: (1) Commencement of an IRS examination; or (2) the first documentation in writing by the IRS of a potential excess benefit transaction.

The temporary regulations provide that, if a benefit is not reported on a return filed with the IRS, other written contemporaneous evidence (such as an approved written employment contract executed on or before the date of the transfer) may be used to demonstrate that the appropriate decision-making body or an authorized officer approved a transfer as compensation for services in accordance with established procedures. A comment was received requesting that the reference to “established procedures” be deleted.

The final regulations retain the reference to “established procedures” because it appears in the legislative history to section 4958 (See H. REP. NO. 506, 104th Congress, 2d SESS. (1996), 53, 57). The IRS will interpret the term established procedures to refer to the organization's usual practice for approving compensation, not to require an organization to have a formal written procedure for approving compensation. For clarity, the final regulations replace the term authorized officer with “officer authorized to approve compensation’ .

The final regulations also clarify that written evidence upon which the applicable tax-exempt organization based a reasonable belief that a benefit was nontaxable can serve as written contemporaneous evidence demonstrating that a transfer was approved as compensation, even if the organization's belief later proves to be erroneous. The written evidence must have been in existence on or before the due date of the applicable Federal tax return (including extensions but not amendments). The final regulations include an example illustrating this rule.

Finally, the final regulations provide that in no event will an economic benefit that a disqualified person obtains by theft or fraud be treated as consideration for the performance of services.

Section 4958(c)(2) identifies a second type of excess benefit transaction: any transaction in which the amount of any economic benefit provided to or for the use of a disqualified person is determined in whole or in part by the revenues of one or more activities of the applicable tax-exempt organization, where the transaction results in impermissible inurement under section 501(c)(3) or (4). The statute provides, however, that this type of transaction is only an excess benefit transaction to the extent provided in regulations prescribed by the Secretary.

The August 1998 proposed regulations provided standards for determining when a revenue-sharing transaction constitutes an excess benefit transaction. Numerous comments were received on this section of the proposed regulations. Commenters offered multiple, often conflicting, suggestions and recommendations to address the many issues raised with respect to revenue-sharing transactions.

The temporary regulations reserve the section of the regulations governing revenue-sharing transactions. The temporary regulations provide that, until specific rules are issued to regulate such transactions, all transactions with disqualified persons (regardless of whether the person's compensation is computed by reference to revenues of the organization) will be evaluated under general rules defining an excess benefit transaction in § 53.4958-4T. A written comment was received supporting the decision to reserve that section of the regulations. However, a speaker at the public hearing objected to the lack of specific limits on revenue-sharing transactions in the temporary regulations. The speaker would allow only a small percentage of a disqualified person's salary to be based on an applicable tax-exempt organization's revenues.

Another comment asked whether revenue-sharing transactions that are reasonable in amount may nonetheless violate the inurement prohibition, so that they jeopardize the organization's tax-exempt status. The temporary regulations and these final regulations make clear that the general exemption standards of sections 501(c)(3) and (4) still apply. Under these standards, inurement may exist even though a disqualified person receives a reasonable amount from a revenue- sharing arrangement. However, most situations that constitute inurement will also violate the general rules of § 53.4958-4 ( e.g., exceed reasonable compensation).

The final regulations continue to reserve the separate section governing revenue-sharing transactions. The IRS and the Treasury Department will continue to monitor these types of transactions, and if appropriate, will consider issuing specific rules to regulate them. Any later regulations that may become necessary will be issued in proposed form.

The final regulations provide that the general rules of § 53.4958-4 apply to all transactions with disqualified persons, regardless of whether the amount of the benefit provided is determined, in whole or in part, by the revenues of one or more activities of the organization.

An informal question was presented with respect to the definition of authorized body contained in the temporary regulations for purposes of the rebuttable presumption of reasonableness. The IRS was asked whether approval by one authorized official of an applicable tax-exempt organization could satisfy the requirement of approval by an authorized body for purposes of establishing the presumption. Under the regulatory definition of authorized body in both the temporary regulations and these final regulations, a single individual may constitute either a committee of the governing body or a party authorized by the governing body to act on its behalf, if State law allows a single individual to act in either of these capacities.

Several comments were received with respect to the specific correction rules contained in the temporary regulations. One commenter requested that, in the case of an excess benefit involving a transfer of property by an applicable tax-exempt organization to a disqualified person, the final regulations be modified to require the return of the specific property if the organization wants the property back. The commenter suggested that such a rule would be consistent with the private foundation self-dealing regulations under section 4941, which require rescission of the transaction where possible. Rescission is appropriate under section 4941, where most transactions between a private foundation and a disqualified person are absolutely prohibited. By contrast, section 4958 is intended to ensure that transactions between an applicable tax-exempt organization and a disqualified person, which are permissible, do not result in an excess benefit to the disqualified person. Therefore, no change has been made in the final regulations on this point.

Another commenter requested additional guidance on the rules governing correction in the case of an applicable tax-exempt organization that has ceased to exist, or is no longer tax-exempt. The temporary regulations provide that, in such cases, the correction amount may not be paid to an organization that is related to the disqualified person. The commenter noted that the “related to” standard is imprecise. The commenter suggested replacing this standard with a requirement that the recipient organization in these instances either be a publicly-supported charity with respect to which the disqualified person has no authority to make or recommend grants, or an organization selected with the consent of the appropriate State official.

In response to this comment, the final regulations require that a section 501(c)(3) organization receiving the correction amount be a publicly-supported charity that has been in existence as such for a continuous period of at least 60 calendar months ending on the correction date. The time in existence requirement prevents the disqualified person from creating a new organization to receive the correction amount. The final regulations also require that the organization receiving the correction amount does not allow the disqualified person to make or recommend any grants or distributions by the organization. The final regulations replace the relatedness standard with a requirement that the disqualified person is not also a disqualified person with respect to the organization receiving the correction amount. Similar requirements, except for the publicly-supported charity requirement, apply to a section 501(c)(4) organization receiving the correction amount.

The preamble of the August 1998 proposed regulations listed four factors that the IRS will consider in determining whether to revoke an applicable tax-exempt organization's exempt status: (1) Whether the organization has been involved in repeated excess benefit transactions; (2) the size and scope of the excess benefit transaction; (3) whether, after concluding that it has been party to an excess benefit transaction, the organization has implemented safeguards to prevent future recurrences; and (4) whether there was compliance with other applicable laws. The preamble of the temporary regulations indicates that the IRS will publish guidance regarding the factors that it will consider in enforcing the requirements of sections 4958, 501(c)(3), and 501(c)(4), as it gains more experience in administering section 4958. One comment was received recommending several factors in addition to the four factors. The IRS continues to consider the suggested additions and revisions. Until it publishes a revised or expanded list of factors, the IRS will consider all relevant facts and circumstances in the administration of section 4958 cases.

The final regulations add a special rule clarifying that compliance with the specific substantiation rules of the regulations does not relieve applicable tax-exempt organizations of other rules and requirements of the Code, regulations, Revenue Rulings, and other guidance issued by the IRS (such as the substantiation rules of sections 162 and 274, or § 1.6001-1(a) and (c)).

It has been determined that this Treasury decision is not a significant regulatory action as defined in Executive Order 12866. Therefore, a regulatory assessment is not required. A final regulatory flexibility analysis has been prepared for a collection of information in this Treasury decision under 5 U.S.C. 604.

These final regulations clarifying section 4958 of the Code (Taxes on excess benefit transactions) may have an impact on small organizations if those organizations avail themselves of the rebuttable presumption of reasonableness described in the regulations (26 CFR 53.4958-6(a)(2), 53.4958-6(a)(3), 53.4958-6(c)(2), and 53.4958-6(c)(3)). The rebuttable presumption is available because the legislative history of section 4958 (H. REP. 104-506 at 56-7, March 28, 1996) stated that parties to a transaction should be entitled to rely on such a rebuttable presumption that a compensation arrangement or a property transaction between certain organizations and disqualified persons of the organizations is reasonable or at fair market value. The legislative history further instructed the Secretary of the Treasury and the IRS to issue guidance in connection with the standard for establishing reasonable compensation or fair market value that incorporates this presumption.

The objective for the rebuttable presumption is to allow organizations that satisfy the three requirements to presume that compensation arrangements and property transactions entered into with disqualified persons pursuant to satisfaction of those requirements are reasonable or at fair market value. In such cases, the section 4958 excise taxes can be imposed only if the IRS develops sufficient contrary evidence to rebut the probative value of the evidence put forth by the parties to the transaction. The legal basis for the proposed rule is Code sections 4958 and 7805.

The final rule affects organizations described in Code sections 501(c)(3) and (4) (applicable tax-exempt organizations). Some applicable tax-exempt organizations may be small organizations, defined in 5 U.S.C. 601(4) as any not-for-profit enterprise which is independently owned and operated and is not dominant in its field.

The proposed recordkeeping burden entails obtaining and relying on appropriate comparability data and documenting the basis of an organization's determination that compensation is reasonable, or a property transfer (or transfer of the right to use property) is at fair market value. These actions are necessary to meet two of the requirements specified in the legislative history for obtaining the rebuttable presumption of reasonableness. The skills necessary for these actions are of the type required for obtaining and considering comparability data, and for documenting the membership and actions of the governing board or relevant committee of the organization. Applicable tax-exempt organizations that are small entities of the class that files Form 990-EZ, “Short Form Return of Organization Exempt From Income Tax” (i.e., those with gross receipts of less than $100,000 and assets of less than $250,000), are unlikely to undertake fulfilling the requirements of the rebuttable presumption of reasonableness, and therefore will not be affected by the recordkeeping burden. All other classes of applicable tax-exempt organizations that file Form 990, “Return of Organization Exempt from Income Tax”, up to organizations with assets of $50 million, are likely to be small organizations that avail themselves of the rebuttable presumption of reasonableness. These classes range from organizations with assets of $100,000 to $50 million. The final rule contains a less burdensome safe harbor for one of the requirements (obtaining comparability data on compensation) for organizations with annual gross receipts of less than $1 million. The IRS is not aware of any other relevant Federal rules which may duplicate, overlap, or conflict with the final rule. A less burdensome alternative for small organizations would be to exempt those entities from the requirements for establishing the rebuttable presumption of reasonableness. However, it is not consistent with the statute to allow organizations to rely on this presumption without satisfying some conditions. Satisfaction of the requirements as outlined in the legislative history leads to a benefit, but failure to satisfy them does not necessarily lead to a penalty. A more burdensome alternative would be to require all applicable tax-exempt organizations under Code section 4958 to satisfy the three requirements of the rebuttable presumption of reasonableness under all circumstances.

Pursuant to section 7805(f) of the Code, this final regulation will be submitted to the Chief Counsel for Advocacy of the Small Business Administration for comment on its impact on business.

The principal author of these regulations is Phyllis D. Haney, Office of Division Counsel/Associate Chief Counsel (Tax Exempt and Government Entities). However, other personnel from the IRS and the Treasury Department participated in their development.

(c) Establishing intent to treat economic benefit as consideration for the performance of services —(1) In general. An economic benefit is not treated as consideration for the performance of services unless the organization providing the benefit clearly indicates its intent to treat the benefit as compensation when the benefit is paid. Except as provided in paragraph (c)(2) of this section, an applicable tax-exempt organization (or entity controlled by an applicable tax-exempt organization, within the meaning of paragraph (a)(2)(ii)(B) of this section) is treated as clearly indicating its intent to provide an economic benefit as compensation for services only if the organization provides written substantiation that is contemporaneous with the transfer of the economic benefit at issue. If an organization fails to provide this contemporaneous substantiation, any services provided by the disqualified person will not be treated as provided in consideration for the economic benefit for purposes of determining the reasonableness of the transaction. In no event shall an economic benefit that a disqualified person obtains by theft or fraud be treated as consideration for the performance of services.

(2) Nontaxable benefits. For purposes of section 4958(c)(1)(A) and this section, an applicable tax-exempt organization is not required to indicate its intent to provide an economic benefit as compensation for services if the economic benefit is excluded from the disqualified person's gross income for income tax purposes on the basis of the provisions of chapter 1 of Subtitle A of the Internal Revenue Code. Examples of these benefits include, but are not limited to, employer-provided health benefits and contributions to a qualified pension, profit-sharing, or stock bonus plan under section 401(a), and benefits described in sections 127 and 137. However, except for economic benefits that are disregarded for purposes of section 4958 under paragraph (a)(4) of this section, all compensatory benefits (regardless of the Federal income tax treatment) provided by an organization in exchange for the performance of services are taken into account in determining the reasonableness of a person's compensation for purposes of section 4958.

(3) Contemporaneous substantiation —(i) Reporting of benefit —(A) In general. An applicable tax-exempt organization provides contemporaneous written substantiation of its intent to provide an economic benefit as compensation if—

( 1 ) The organization reports the economic benefit as compensation on an original Federal tax information return with respect to the payment (e.g., Form W-2, “Wage and Tax Statement”, or Form 1099, “Miscellaneous Income”) or with respect to the organization (e.g., Form 990, “Return of Organization Exempt From Income Tax”), or on an amended Federal tax information return filed prior to the commencement of an Internal Revenue Service examination of the applicable tax-exempt organization or the disqualified person for the taxable year in which the transaction occurred (as determined under § 53.4958-1(e)); or

( 2 ) The recipient disqualified person reports the benefit as income on the person's original Federal tax return (e.g., Form 1040, “U.S. Individual Income Tax Return”), or on the person's amended Federal tax return filed prior to the earlier of the following dates—

( i ) Commencement of an Internal Revenue Service examination described in paragraph (c)(3)(i)(A)( 1 ) of this section; or

( ii ) The first documentation in writing by the Internal Revenue Service of a potential excess benefit transaction involving either the applicable tax-exempt organization or the disqualified person.

(B) Failure to report due to reasonable cause. If an applicable tax-exempt organization's failure to report an economic benefit as required under the Internal Revenue Code is due to reasonable cause (within the meaning of § 301.6724-1 of this chapter), then the organization will be treated as having clearly indicated its intent to provide an economic benefit as compensation for services. To show that its failure to report an economic benefit that should have been reported on an information return was due to reasonable cause, an applicable tax-exempt organization must establish that there were significant mitigating factors with respect to its failure to report (as described in § 301.6724-1(b) of this chapter), or the failure arose from events beyond the organization's control (as described in § 301.6724-1(c) of this chapter), and that the organization acted in a responsible manner both before and after the failure occurred (as described in § 301.6724-1(d) of this chapter).

(ii) Other written contemporaneous evidence. In addition, other written contemporaneous evidence may be used to demonstrate that the appropriate decision-making body or an officer authorized to approve compensation approved a transfer as compensation for services in accordance with established procedures, including but not limited to—

(A) An approved written employment contract executed on or before the date of the transfer;

(B) Documentation satisfying the requirements of § 53.4958-6(a)(3) indicating that an authorized body approved the transfer as compensation for services on or before the date of the transfer; or

(C) Written evidence that was in existence on or before the due date of the applicable Federal tax return described in paragraph (c)(3)(i)(A)( 1 ) or ( 2 ) of this section (including extensions but not amendments), of a reasonable belief by the applicable tax-exempt organization that a benefit was a nontaxable benefit as defined in paragraph (c)(2) of this section.

(4) Examples. The following examples illustrate the requirement that an organization contemporaneously substantiate its intent to provide an economic benefit as compensation for services, as defined in paragraph (c) of this section:

The Board of Veterans' Appeals (Board) is the component of the Department of Veterans Affairs (VA) in Washington, DC, that decides appeals from denials of claims for veterans' benefits.

On August 6, 2001, VA published a notice of proposed rulemaking (NPRM) which would permit the Board to obtain evidence and correct procedural defects without remanding the case to the agency of original jurisdiction. 66 FR 40942 (2001). We received seven comments: Two from individuals; three from veterans service organizations; one from a state department of veterans affairs; and one from an association of attorneys.

For the reasons described below, we are adopting the regulations largely as proposed, but with some amendments based on the comments and other concerns.

One commenter suggested extensive changes to Rule 903 (38 CFR 20.903), relating to notification of evidence secured and law to be considered by the Board and opportunity for response. While we decline to follow all of the suggestions, we have amended Rule 903 to clarify that the appellant may, within the 60-day period, submit evidence and argument relating to the evidence or law. Proposed Rule 1304(b)(2) (38 CFR 20.1304(b)) implicitly provided the right to submit evidence and argument in connection with the Board's consideration of evidence or law not previously considered by the agency of original jurisdiction.

We decline to adopt the commenter's suggestion that the Board's notice include a statement of the weight the Board intends to assign to new evidence or law, an assessment of whether the evidence or law is “determinative, significant or of minimal impact,” a statement of whether the new evidence or law will likely result in the denial of the appeal, and a list of the claimant's options. These matters are generally not determined until the Board weighs the evidence and decides the appeal. The purpose of our amendments to § 20.903 is to ensure that an appellant receives adequate notice of new evidence obtained by the Board and of law that the Board intends to consider, as well as an opportunity to respond with additional evidence or argument; the purpose is not to give an appellant advance notice of the decision the Board intends to make in an appeal. Our purpose is adequately served by providing the appellant with a copy of the evidence obtained by the Board, a copy or summary of the law to be considered, and an opportunity to submit relevant evidence or argument in response.

Another commenter suggested that, in connection with the Board's consideration of law not already considered by the agency of original jurisdiction, we should provide a copy or summary of the law, rather than a copy or “reference” to the law. We think this is a good suggestion and have incorporated it into Rule 903(c).

The same commenter suggested that, when the Board secures evidence not provided by the appellant, the Board should provide a copy of that evidence to the appellant. Because that was our intent, we have clarified Rule 903(b) to make it explicit.

Further, that commenter asserted that the record development procedures in 38 CFR 19.9 lack provisions to make this record development comply with the notice and other requirements of the Veterans Claims Assistance Act of 2000 (VCAA), Pub. L. 106-475, 114 Stat. 2096. We agree and have amended proposed § 19.9(a)(2) to clarify that any development undertaken by the Board will comply with 38 CFR 3.159(a) and (c)-(f), which implements the VCAA. Those provisions delineate the obligations of VA and the claimant with respect to obtaining evidence. Section 3.159(b) relates to notices VA must give when it receives a substantially complete or incomplete application. Because that notice is normally given in the earliest stages of claim processing, even before evidence gathering begins, § 3.159(b) was designed for implementation by regional offices. Application of those provisions to the Board would be inapt. Nevertheless, because under § 19.9(a)(2) the Board could provide the notice, we have made other amendments to § 19.9(a)(2) to provide the same protections afforded by the VCAA.

We have added a provision (38 CFR 19.9(a)(2)(ii)) to ensure two things: First, if the Board undertakes to provide the notice required by 38 U.S.C. 5103(a) and/or 38 CFR 3.159(b)(1), the appellant shall have not less than 30 days in which to respond to that notice. Second, because 38 U.S.C. 5103(b) appears to give the claimant one year to provide the evidence requested of the claimant in the notice, we have clarified that, if the appellant submits relevant evidence within one year of the notice but after the Board's decision, the evidence will be referred to the agency of original jurisdiction. If that agency makes a favorable determination based on that evidence, the effective date of the determination will be the same as if the Board had granted the appeal. This latter rule is based on Rule 1304(b)(1), which relates to evidence submitted to the Board before its decision, but not accepted in connection with the appeal.

We have modified Rule 903(c) to make explicit that, in two situations, the Board need not notify the appellant that it intends to consider a law not considered by the regional office: (1) If the Board intends to grant the benefit; or (2) if the appellant or the appellant's representative has advanced or otherwise argued consideration of the law in question. If the Board intends to grant the benefit, there is no need to delay the claim with notice. Similarly, if the appellant has raised the applicability of a law, then he or she has already been heard with respect to the law, and Rule 903(c)'s purpose has been satisfied. Accordingly, there would be no need to go through these notice procedures in either of these situations.

We have also corrected an erroneous reference in proposed § 20.903(b).

One commenter suggested an alternative approach. Under this approach, if a case requires additional evidence, a Board member would prepare a memorandum listing such evidence. Personnel from the Veterans Benefits Administration (VBA), the part of VA that operates the regional offices, would be temporarily assigned to the Board and would complete the required development. When the development was completed, the appellant would be given the choice, as under prior regulatory procedures, of having the Board decide the case or first having the regional office make another decision, based on the additional evidence.

The chief efficiency in this approach would probably be that experienced VBA personnel would be developing the evidence, rather than the Board, which has essentially no experience in such matters. On the other hand, the approach would not eliminate remands to the regional offices to decide a claim based on new evidence, since the appellant could decline to waive initial regional office consideration.

While we appreciate this thoughtful suggestion, we do not believe that it would do as much to relieve pressure on the regional offices.

One commenter suggested that the Board's rules should provide a right to a hearing when the Board is considering new evidence. While we understand the concern motivating this suggestion, we think that Rule 1304(b), which permits a hearing upon a showing of good cause, is sufficient to protect the appellant's right to due process.

First, there should be no question that these regulations provide substantial due process protections when the Board develops new evidence: We have amended 38 CFR 20.903(b) to provide that, if the Board obtains pertinent evidence not submitted by the appellant, the Board will provide the appellant a copy of the evidence and 60 days to submit additional evidence or argument in response.

Second, evidence submitted after an appeal is transferred to the Board is not a new situation. The Board has dealt with it for many years. Compare 38 CFR 20.709 (2001) (procurement of additional evidence following a hearing) with 38 CFR 19.164 (1983) (same), published in 48 FR 6961 (1983); also compare 38 CFR 20.1304(b) (evidence submitted after certification and transfer) with 38 CFR 19.174 (1983) (same), published in 48 FR 6961 (1983). While in the past, Board consideration in the first instance required the appellant to waive initial consideration by the regional office, 38 CFR 20.1304(c) (2001), a hearing would have been available—and is still available—upon a showing of good cause, id. 20.1304(b).

We think this time-tested approach will adequately serve the interests of veterans both in being heard and in receiving a prompt decision on appeal. In sum, we believe we are protecting the important due process rights of all appellants.

The veterans service organizations and the association of attorneys opposed the proposed rule. In general, their reasons for opposition fell into four categories: (1) Procedural issues relating to the rulemaking; (2) alleged legal barriers to implementation of the proposed rules; (3) alleged conflicts with the VCAA; and (4) policy issues which allegedly make adoption of the rule unwise. In addition, one commenter raised questions concerning the effective date of these rules.

We do not agree with these objections. We will address them in turn.

One commenter felt the 30-day comment period was too short and suggested that, in connection with publication of the final rule, we announce another 30-day comment period. We decline to do so.

As we explained in our NPRM, 66 FR at 40944, we chose a 30-day comment period because of the exigent nature of the backlog of claims at our regional offices. We received thoughtful comments from a number of commenters. While we are always interested in comments from the public relating to our rules, we do not see any particular interest that would be served by reopening the comment period.

Several commenters suggested that provisions of the proposed rule conflict with general legal principles or particular statutes that would prevent the rule's adoption.

Three commenters asserted that the Board does not have the authority to develop evidence because it is an appellate tribunal and hence limited to review of the record below. We have examined the applicable statutes and court decisions interpreting them. We do not agree that the nature of the Board's administrative appellate review excludes the possibility of securing and ruling on evidence or ruling on issues of law that were not decided by the agency of original jurisdiction.

As a general matter, an agency's administrative appellate body has all the power the agency has in the initial decision process—in VA's case, the process at the regional offices—and the power to receive additional or supplemental evidence. 2 Am. Jur. 2d Administrative Law §§ 372, 375 (2000). Other agencies have issued regulations authorizing their administrative appellate bodies to secure and review new evidence. See 42 CFR 404.976(b)(2) (in appeals from decisions of Social Security Administration administrative law judges, Appeals Council has authority to obtain additional evidence if needed); 29 CFR 1614.404(a) (in appeals from decisions of administrative judges, the Equal Employment Opportunity Commission may supplement the record by investigation or other procedures); see also Chrysler Corp. v. Federal Trade Comm'n, 561 F.2d 357, 362-63 (1977) (on appeal from initial decision, FTC could supplement record with evidence it obtained). Because the statutes governing the Board do not withhold the power to receive additional evidence, which is generally held by administrative appellate bodies, we believe the Board also holds that power.

Moreover, in our view, VA's statutory scheme supports the Board's development of evidence. For example, the United States Court of Appeals for Veterans Claims (CAVC) has held that 38 U.S.C. 7109, which authorizes the Board to obtain expert medical opinions from outside VA, is an enabling provision which supplements the Board's inherent authority to secure medical opinions from within VA. Winsett v. West, 11 Vet. App. 420, 426 (1998) (Board has the authority, and in many cases the duty, to obtain an expert medical opinion irrespective of section 7109), aff'd, 217 F.3d 854 (Fed. Cir. 1999) (unpublished opinion). Furthermore, the CAVC has indicated that evidentiary development by the Board is consistent with statutory authority also suggestive of a Board fact-finding role. Austin v. Brown, 6 Vet. App. 547, 551 (1994); see also Gilbert v. Derwinski, 1 Vet. App. 49, 52 (1990) (Board is an administrative tribunal which functions as a fact finder in a manner similar to that of a trial court, although, for the most part, in a non-adversarial setting).

To support its assertion that the Board's status as an appellate body prevents the Board from developing evidence, one commenter cited a number of cases, including Nolen v. Gober, 222 F.3d 1356 (Fed. Cir. 2000); Winters v. Gober, 219 F.3d 1375 (Fed. Cir. 2000); Hensley v. West, 212 F.3d 1255 (Fed. Cir. 2000); Smith v. Brown, 35 F.3d 1516 (Fed. Cir. 1994); and McCormick v. Gober, 14 Vet. App. 39 (2000). We have reviewed those cases. While some of them deal with the nature of review by the CAVC, none of them stands for the proposition—or even implies the proposition—that the Board cannot develop evidence.

With respect to the Board applying law not considered by the regional office, the CAVC has never held that the Board is barred from such consideration, only that the appellant must be given notice and the opportunity to submit evidence and argument on that point. e.g., Sutton v. Brown, 9 Vet. App. 553, 564-67 (1994). Our amendment to Rule 903 meets this standard.

Accordingly, we conclude that the Board's status as an appellate body does not bar it from developing evidence or considering law not considered by the regional office.

Several commenters asserted that various statutes, 38 U.S.C. 511, 7101, 7104, 7105, and 7105A, prohibit the Board from developing evidence. We have carefully reviewed those statutes. We find nothing in any of them prohibiting or precluding the Board from developing evidence.

One commenter referred extensively to what various statutes “contemplated.” For example, this commenter stated that 38 U.S.C. 7104(a) “does not contemplate that the Board is to cure procedural defects.” This is the text of that statute:

Nothing in the statute refers to procedural defects, much less to curing them. The commenter provided no authority for its conclusion. Because we disagree with the commenters that any statute prohibits or precludes the Board from engaging in the activities mentioned in the proposed rule, we decline to make any change based on these comments.

That same commenter asserted that VA had never before interpreted 38 U.S.C. 7104(a) to authorize the Board to obtain evidence or cure procedural defects. While that may be true, the Board has long been authorized by statute to collect evidence in connection with a hearing, 38 U.S.C. 7107(b), and in connection with a request for independent medical opinions, id. 7109. Further, the commenter ignores the fact that the substance of Rule 901(a) (38 CFR 20.901(a)), relating to Board requests for medical opinions from VA's Under Secretary for Health (formerly the Chief Medical Director), has been in the Board's published rules of practice for more than 35 years. See 38 CFR 19.144 (1965) (expert medical opinions), published in 29 FR 1464, 1468 (1964). The commenter also fails to consider the Board's ability to cure some procedural defects, e.g., clarification of the issues on appeal or whether the appellant wants a hearing before the Board, without remand, which has been in the Board's appeals regulations since 1996. See 38 CFR 19.9(a). Regardless of whether VA has previously interpreted section 7104(a) to permit the Board to obtain evidence and cure procedural defects, that interpretation is consistent with all governing statutes.

Accordingly, we do not accept the proposition that statutes in title 38, United States Code, bar the Board from obtaining evidence or curing procedural defects.

One commenter asserted that the proposed amendment to 38 CFR 20.1304, which would allow the Board to consider evidence that it obtains or that is submitted to it, without having to refer the evidence to the agency of original jurisdiction for initial consideration in the absence of the appellant's waiver, is inconsistent with the statutory language of 38 U.S.C. 7104(a), 7105(a), 7109(a), and 7109(c). This commenter offered no authority for this proposition, other than to assert that, (1) as an appellate body, the Board is limited to the record before the Secretary, and (2) the amendment represents a change.

As discussed above, we think administrative appellate bodies generally are not limited to the evidence developed below, and that the Board in particular is not so limited. With respect to the comment that these amendments represent a change in policy, we agree. However, VA has the right to amend its regulations as long as the amendments do not conflict with statutes. We have carefully reviewed the cited statutes, and find nothing in them that would prohibit or preclude the change. Accordingly, we reject this objection.

Another commenter argued that 38 U.S.C. 7101 and 7104 prevent the Board from generating determinations which have not been subject to prior agency adjudication and review. The commenter offers no other authority for this proposition. We have reviewed those provisions carefully and find in their text no support for the commenter's argument. We reject this argument.

The same commenter argued that, by considering laws not considered by the regional office, the Board would unlawfully relieve the regional office of its obligation to follow all applicable statutes and regulations. The argument appears to be this: If the Board considers a law not considered by the regional office and decides the case without remand, it will have sanctioned the regional office's failure to consider the law.

The only authority the commenter offers for this proposition is a case which reiterates the axiom that agencies must act in accordance with applicable statutes and regulations. Paralyzed Veterans of America v. West, 136 F.3d 1434, 1436 (Fed. Cir. 1998). That axiom provides no support for the proposition that an administrative tribunal has no authority to apply law not applied by an inferior tribunal. If a regional office has failed to consider an applicable law, it is important that the law be considered in connection with the claim, but whether the consideration is made by the Board in the first instance or by the regional office on remand from the Board is not important. The Board's functions include correction of errors by the regional offices. For the reasons stated in the NPRM, we have decided to have the Board make such consideration in the first instance. We therefore reject the commenter's argument.

Two commenters asserted that any evidence development by VA requires application of the VCAA and that, because the Board has no authority to implement that Act, the Board cannot develop evidence. The only argument advanced in support of this proposition is that the VCAA specifies that the Secretary provide assistance but does not mention the Board.

The VCAA requires the Secretary of Veterans Affairs to provide certain types of assistance in connection with a claim for benefits. By statute, the Board stands in place of the Secretary in connection with appeals. 38 U.S.C. 7104(a). Even if we were to associate some significance with the fact that the VCAA does not mention the Board—which, since it also does not mention agencies of original jurisdiction, we do not—the Secretary can delegate his VCAA obligations, which he is doing by publishing this regulation. Therefore, we reject this argument.

One commenter, without specifying any statutory or regulatory provisions other than “the VCAA,” asserted that an appellant is always entitled to a one-year response period because of the VCAA. We do not agree.

New Rule 903, relating to notification of evidence secured and law to be considered by the Board and opportunity for response, provides a 60-day response period. The VCAA does not prohibit or preclude such a period.

The only one-year period provided by the VCAA is mentioned in 38 U.S.C. 5103(b). Under 38 U.S.C. 5103(a), when VA receives a substantially complete application for benefits, it must notify the claimant of any information, and any medical or lay evidence, not previously provided to the Secretary that is necessary to substantiate the claim. In the case of information or evidence that VA tells the claimant he or she must provide, section 5103(b)(1) provides that, if such information or evidence is not received by VA within one year from the date of the notification, no benefit may be paid or furnished by reason of the claimant's application.

This one-year period in the VCAA is expressly applicable to information and evidence requested from a claimant in VA's notification in response to receiving a substantially complete application. The limitation in section 5103(b)(1) simply does not apply to an appellant's opportunity to respond to an opinion, evidence, or law, as set forth in new Rule 903.

We therefore reject this argument.

Several commenters raised questions as to whether this increased authority for the Board made sense from a policy perspective.

Three commenters were concerned that, to the extent these regulations curtailed the Board's remand function, the quality of regional office determinations would suffer. As one commenter stated:

We are sensitive to these concerns. However, a remand does not always connote error on the part of the regional office. For example, during the period October 2000 through March 2001, more than 27% of the Board's remands were based primarily on the need for the regional office to apply law which was not in effect at the time of the original decision. Similarly, during the period October 1998 through March 2001, between 5% and 10% of the Board's remands were based primarily on the appellant's request for a Board hearing at the regional office, which may have been submitted subsequent to the filing of the appeal. In any event, we believe that VBA's quality-review programs will solve any perceived problem with quality.

One commenter opposed the regulations in part because they would foster inefficient use of resources. Specifically, this commenter argued that Board employees possess a higher level of expertise than regional office employees, and that that higher expertise should be used where most appropriate, i.e., in reviewing regional office decisions, not in duplicating the regional offices' work.

As described in our NPRM, VA is now concerned with the very large backlog at the regional offices. At the end of August 2001, there were 367,000 original and reopened claims for service-connected disability compensation pending in VA's regional offices, double the number pending at the end of August 2000. Of the August 2001 cases, 40% (146,000 of 367,000) had been pending for more than 180 days, and 11% had been pending for more than a year (40,000 of 367,000). (The corresponding percentages in August 2000 were 28% and 8%, respectively.) We think employing the Board to help develop appealed claims will take pressure off the regional offices so that they can deal with these pending claims.

One commenter argued that, if the Board decides a case based on law not applied by the regional office, the Board will deny the appeal because of inadequately developed records. The argument is essentially that the Board will consider the new law without providing the appellant an opportunity to submit evidence or argument.

The commenter does not take into account new Rule 903(c), which provides for notice to the claimant that the Board intends to consider such law and provides 60 days for a response. This approach is consistent with the CAVC's holding in Sutton, supra, and provides the appellant with an opportunity to present evidence and argument.

In addition, we have modified all three paragraphs in Rule 903 to clarify that the appellant may submit evidence and/or argument in response to the Board's notice.

Two commenters raised questions relating to supplemental statements of the case (SSOC).

Generally, after a claimant files a notice of disagreement with a regional office decision, the regional office must prepare what the law calls a “statement of the case” (SOC). 38 U.S.C. 7105(d). An SOC includes a summary of pertinent evidence in the case, a citation to pertinent laws and regulations, a discussion of how those laws and regulations affect the decision, and a summary of the reasons for the decision. Id. 7105(d)(1)(A)-(C).

VA's regulations require the regional office to prepare an SSOC if the regional office receives additional pertinent evidence or the SOC is otherwise inadequate, such as where the regional office must apply new law in a case and the subsequent decision does not grant the benefits sought. 38 CFR 19.31. An SSOC is a document prepared by the regional office to inform the appellant of any material changes in, or additions to, the information included in the SOC or any prior SSOC.

One commenter appeared to assume that the Board would issue an SSOC if it considers new evidence or new law. It will not. The purpose of the SSOC is to provide the claimant with the reasons for the regional office decision so that the claimant can make an informed decision on whether to continue the appeal to the Board. Once a regional office transfers an appeal to the Board, this stage of the appeal is passed and there no longer is a need for an SSOC.

One commenter asserted that the Board's failure to provide an SSOC would eliminate a “substantive due process right” of the claimant. As discussed above, once an appeal has reached the Board, there is no reason to provide an SSOC, so no right is being eliminated.

We reject these arguments.

One commenter asserted that the new rules cannot apply to appeals pending on the date the rules become effective. Accordingly, it objected to our proposal that the amendments apply to appeals for which the notice of disagreement was filed on or after the effective date of these amendments and to appeals that were pending on that date. 66 FR at 40944.

As this commenter argues, retroactivity is not favored in regulations. Bowen v. Georgetown Univ. Hospital, 488 U.S. 204, 208 (1988). However, the effective date provisions in this rule do not make it retroactive.

The fact that a regulation applies to pending matters does not make it retroactive. As the Supreme Court has said, a statute has retroactive effect if it “impairs rights a party possessed when he acted, increases a party's liability for past conduct, or imposes new duties with respect to transactions already completed.” Landgraf v. USI Film Prods., 511 U.S. 244, 280 (1994). And as the Federal Circuit has said, “an effective date, unless expressly conditioned on other events, governs the application of a new rule.” Schockley v. Arcan, Inc., 248 F.3d 1349, 1358-59 (Fed. Cir. 2001) (where reissue patent was pending when new rule took effect, the new rule applies); cf. Demars v. First Service Bank for Savings, 907 F.2d 1237, 1239-40 (1st Cir. 1990) (where substantive rights are not affected and there is no manifest injustice, new regulatory provisions apply to pending cases).

Under the new regulations, according to the commenter, appellants will lose their “rights” to have regional offices secure evidence and to have the regional offices adjudicate claims under laws those offices did not previously consider. In our view, which office within VA that will attempt to obtain evidence on behalf of a claimant or which office will adjudicate the effect of a law not previously considered are procedural matters. The appellant's rights to submit evidence and argument, as well as the right to have his or her regional office denial reviewed by the Board, are unabridged by these amendments.

Accordingly, we believe that it is proper to apply these rules to all pending appeals.

We do note, however, that these rules in no way abridge the appellant's right, under Stegall v. West, 11 Vet. App. 268, 271 (1998), to have VA comply with all remand orders, whether from the CAVC or from the Board. Accordingly, with respect to cases remanded by the Board, whether before or after the effective date of these amendments, VA's regional offices will continue to execute the remand orders, as well as prepare a SSOC when appropriate.

All collections under the Paperwork Reduction Act (44 U.S.C. 3501-3520) referenced in this document have existing Office of Management and Budget approval. This document makes no changes to those collections of information other than to change which VA component collects the information. Under this rule, the Board would collect some information currently collected by VA regional offices.

The Office of Management and Budget has reviewed this document under Executive Order 12866.

The Secretary hereby certifies that this regulatory amendment will not have a significant economic impact on a substantial number of small entities as they are defined in the Regulatory Flexibility Act, 5 U.S.C. 601-612. This rule affects only individuals. Therefore, pursuant to 5 U.S.C. 605(b), this regulatory amendment is exempt from the initial and final regulatory flexibility analysis requirements of sections 603 and 604.

For the reasons stated in the preamble, 38 CFR parts 19 and 20 are amended as follows:

Hazardous air pollutants are defined in the Act as pollutants that present or may present the threat of adverse human health effects through inhalation or other type of exposure. These pollutants are commonly referred to as “air toxics” and are listed in section 112(b)(1) of the Act. National Emission Standards for Hazardous Air Pollutants (NESHAPs) control emissions of hazardous air pollutants from specific source categories and implement the requirements of section 112 of the Act. These standards, found in 40 CFR Parts 61 and 63, constitute the Federal Air Toxics Program.

Section 112(l) of the Act enables EPA to approve state and local air toxics programs or rules such that these entities can accept delegation of authority for implementation and enforcement. Typically, a state or local agency requests delegation based on federal rules adopted unchanged into state or local rules.

On June 18, 2001, IDEQ requested program approval and delegation of authority to implement and enforce certain NESHAPs as they apply to “major sources”  1 required to obtain an operating permit under Title V of the Act. A “major source” of hazardous air pollutants is defined in the Act as any stationary source—or group of stationary sources in a contiguous area and under common control—that emit, or have the potential to emit: (1) 10 tons per year or more of any hazardous air pollutant; or (2) 25 tons or more of any combination of hazardous air pollutants.

Pursuant to the authority of section 112(l) of the Act, EPA is approving IDEQ's NESHAP program and delegating authority to implement and enforce certain NESHAPs adopted unchanged into state law, as they apply to major sources. The purpose of this action is to acknowledge IDEQ's ability to implement and enforce a NESHAP program and to transfer primary responsibility from EPA to IDEQ for certain NESHAPs as they apply to Title V sources. Although EPA will look to IDEQ as the lead to implement and enforce delegated NESHAPs at Title V sources in Idaho, EPA retains authority under section 112(l)(7) of the Act to enforce any applicable emission standard or requirement for these sources, if needed. EPA also retains authority to implement and enforce these standards for non-Title V sources. With today's NESHAP program approval, IDEQ may update its delegation status in the future by way of a streamlined process. This will simplify the delegation of additional, newly promulgated, or revised standards as they apply to Title V sources, as well as non-Title V sources.

EPA may delegate authority for NESHAPs if the requesting agency is able to satisfy requirements of 40 CFR 63.91(b), including the ability to demonstrate:

(1) The state or local program is not less stringent than the corresponding federal program or rule;

(2) The state or local has adequate authority and resources to implement and enforce the program;

(3) The schedule for compliance is sufficiently expeditious;

(4) The program is otherwise in compliance with federal guidance.

Once approval is granted, the agency's air toxics program can be implemented and enforced by the requesting agency. EPA also retains enforcement authority.

If—as in this case—an agency with an approved operating permit program under Title V of the Act is requesting NESHAP delegation for major sources only, it is presumed that they already meet section 112(l) delegation requirements for major sources. This is because the authority and enforcement requirements for Part 70 program approval are equivalent to the authority and enforcement requirements for section 112(l) delegation found in 40 CFR 63.91(d). And, the approval of a Title V program already confers the responsibility to implement and enforce all requirements applicable to sources subject to the Title V program, including section 112.

In addition to meeting the delegation criteria implicit in Title V program approval, IDEQ has submitted documents to demonstrate it satisfies 40 CFR 63.91(d) approval requirements for delegation for all sources. Because IDEQ has satisfied these requirements, it will only need to reference this demonstration and reaffirm that it continues to meet these criteria if it asks for delegation of new and updated standards, or requests broader applicability of its delegation to include non-Title V sources. These changes can be made in IDEQ's delegation status by-way-of a streamlined request and approval process, described below.

On September 15, 1995, IDEQ requested delegation of authority to implement and enforce specific NESHAP regulations that IDEQ had adopted unchanged into Idaho law as they apply to major sources. On December 14, 1995, IDEQ also requested approval of its mechanism for receiving automatic delegation of future NESHAP standards, as promulgated.

On June 17, 1995, EPA proposed interim approval of IDEQ's request for delegation under section 112(l) of the Act and requested public comment on the action. EPA also proposed approval of a mechanism for IDEQ to receive delegation of future NESHAPs. ( See 61 FR 30570) No comments were received on EPA's proposed action, and on December 6, 1996, EPA promulgated final interim approval of the delegation. ( See 61 FR 64622) EPA granted interim rather than full approval because it determined that IDEQ's enforcement authorities substantially, but not fully, met the requirements of 40 CFR 70.11.

In granting Idaho interim approval of its NESHAPs program for major sources, EPA delegated authority for implementing and enforcing the following NESHAPs as they applied to Title V sources: (1) 40 CFR Part 61, subparts A, C, D, E, F, J, L through P, V, Y, BB, and FF; and (2) 40 CFR Part 63, subparts A, D, L, and M. EPA granted interim approval of a streamlined mechanism for receiving future delegation of NESHAPs which were adopted unchanged into Idaho law and as they applied to Title V sources.

On July 9, 1998, May 25, 1999, and March 15, 2001, the State of Idaho submitted to EPA materials addressing the Part 70 enforcement authority issues which had previously prevented full approval of its Title V program and NESHAP delegation, as well as all other issues that previously precluded full approval of Idaho's Title V program. These submittals requested full approval of Idaho's air operating permits program, transmitted the State's revised Title V statutes and rules, and discussed changes made to the State's operating permits program since interim approval was granted.

Based on EPA's review of the Title V program revisions submitted by the State of Idaho, EPA proposed full approval of Idaho's operating permits program on August 13, 2001. EPA determined that the State corrected the deficiencies and requested public comments on the proposed action. ( See 66 FR 42490) On October 4, 2001, EPA promulgated final approval of Idaho's Title V program. ( See 66 FR 50574)

On June 18, 2001, IDEQ requested final full delegation of authority for specific NESHAPs as they apply to Title V sources. This request was for delegation of Part 61 and 63 subparts in effect on July 1, 2000 and adopted unchanged into Idaho rules on March 30, 2001.

40 CFR 63.91 contains requirements that an Agency must meet for NESHAP delegation. If this request is for authority to implement and enforce the standards for all sources, the agency must demonstrate that it has adequate enforcement authority, legal authority, resources, and schedule for expeditious compliance. If the State already has an approved Title V program and the request is for Title V sources only, it is presumed that they have already met the requirements needed to implement and enforce NESHAPs for these sources.

Idaho's Title V approval was promulgated as an interim approval in 1997 because EPA determined that Idaho's authorities did not meet all of the requirements in 40 CFR part 70. Its request for NESHAP delegation also received interim approval because EPA determined that Idaho's enforcement authorities did not meet all of the requirements in 40 CFR 70.11, as required by 40 CFR 63.91(5)(6).

In the Federal Register notice that granted interim approval, EPA outlined several changes Idaho needed to make before it could receive final approval. The three changes that affected NESHAP delegation pertained to maximum criminal penalties, false statements and tampering, and the environmental audit statute. ( See 61 FR 62622) These issues were all adequately addressed by Idaho in their subsequent Title V program application, which was approved by EPA. ( See 66 FR 42490 and 66 FR 50574) .

IDEQ has shown by way of Title V program approval, that IDEQ has adequate statutes, rules, authority, and program capacity to: (1) meet the requirements of Part 70.11 to address violations; (2) request information from regulated sources regarding compliance status; and (3) inspect sources and records to determine compliance status. These requirements of Title V are also requirements for section 112(l) delegation. Also, as a condition of its Title V program approval, EPA has determined that IDEQ has the ability to implement and enforce all applicable requirements for sources subject to the part 70 permit program, including section 112 requirements. As a result, EPA finds that IDEQ meets the requirements for NESHAP delegation for major sources. ( See 40 CFR 63.91(d)(3))

With regard to program approval, in addition to demonstrating the enforcement authorities described above, Idaho met the following criteria for approval listed in 63.91(b):

(1) A copy of state statutes, regulations, and requirements that grant authority to implement a NESHAP program upon approval;

(2) a demonstration that the agency has the capacity to implement a NESHAP program, supported by a description of their program, a description of the implementing agency (including such things as budget and staffing);

(3) a schedule demonstrating expeditious implementation upon approval;

(4) a plan that ensures expeditious compliance by all sources subject to the delegated standards upon approval.

All of these requirements were met with IDEQ's submittal. These documents are available for public review and inspection at the address listed above.

EPA is delegating certain part 61 and 63 Subparts to IDEQ based on its ability to carry out implementation and enforcement responsibilities for Title V sources subject to these standards. The following subparts—also summarized in the part 61 and 63 tables at the end of this rule—are delegated: (1) 40 CFR part 61 Subparts A, C, D, E, F, J, L, M, N, O, P, T, V, Y, and BB in effect July 1, 2000; (2) 40 CFR part 63 Subparts A, D, F, G, H, I, L, M, N, O, Q, R, S, T, U, W, X, Y, AA, BB, CC, DD, HH, EE, GG, II, JJ, KK, LL, OO, PP, QQ, RR, TT, UU, VV, WW, YY, CCC, DDD, EEE, GGG, HHH, III, JJJ, LLL, MMM, NNN, OOO, PPP, RRR, TTT, VVV, and XXX in effect July 1, 2000.

EPA does not delegate all the 40 CFR part 61 subparts pertaining to radon or radionuclides. Typically, EPA delegates all standards adopted (and requested) by an air agency and in effect as of a certain date, regardless of whether or not there are any applicable sources within that agency's jurisdiction. As an exception, EPA is not delegating several 40 CFR part 61 subparts pertaining to radon or radionuclides which include: subparts B, Q, H, I, K, R, and W. EPA has determined that there are either no sources in Idaho (and that no new sources are likely to emerge), or if there are sources, the IDEQ does not have sufficient expertise to implement these NESHAPs.

Additionally, EPA is not delegating the regulations that implement CAA sections 112(g) and 112(j), codified at 40 CFR part 63, Subpart B, to IDEQ. EPA has determined that Subpart B need not be delegated under the section 112(l) approval process. When promulgating the regulations implementing CAA section 112(g), EPA stated its view that “the Act directly confers on the permitting authority the obligation to implement section 112(g) and to adopt a program which conforms to the requirements of this rule. Therefore, the permitting authority need not apply for approval under section 112(l) in order to use its own program to implement section 112(g)” ( See 61 FR 68397). Similarly, when promulgating the regulations implementing section 112(j), EPA stated its belief that “section 112(l) approvals do not have a great deal of overlap with the section 112(j) provision, because section 112(j) is designed to use the Title V permit process as the primary vehicle for establishing requirements” ( See 59 FR 26447). Therefore, state or local agencies implementing the requirements under sections 112(g) and 112(j) of the Act do not need approval under section 112(l).

Certain General Provisions authorities are automatically granted to IDEQ as part of its part 70 operating permits program approval. These are 40 CFR 63.6(i)(1), “Extension of Compliance with Emission Standards,” and 63.5(e) and (f), “Approval and Disapproval of Construction and Reconstruction.”  2 Additionally, for 40 CFR 63.6(i)(1), IDEQ does not need to have been delegated a particular standard or have issued a part 70 operating permit for a particular source to grant that source a compliance extension. However, IDEQ must have authority to implement and enforce the particular standard against the source in order to grant that source a compliance extension.

In a memorandum from John Seitz, Office of Air Quality Planning and Standards, dated July 10, 1998, entitled, “Delegation of 40 CFR part 63 General Provisions Authorities to State and Local Air Pollution Control Agencies,” EPA clarified which of the authorities in the General Provisions may and may not be delegated to state and local agencies under 40 CFR part 63, subpart E. Based on this memo, EPA is delegating to IDEQ the part 63, subpart A, sections that are listed below.

Delegation of these General Provisions authorities will enable IDEQ to carry out the EPA Administrator's responsibilities in these sections of subpart A. In delegating these authorities, EPA grants IDEQ the authority to make decisions which are not likely to be nationally significant or alter the stringency of the underlying standard. The intent is that these agencies will make decisions on a source-by-source basis, not on a source category-wide basis.

In delegating 40 CFR 63.9 and 63.10, “Approval of Adjustments to Time Periods for Submitting Reports,” IDEQ has the authority to approve adjustments to the timing of the reports that are due, but do not have the authority to alter the contents of the reports. For Title V sources, semiannual and annual reports are required by part 70 and nothing herein will change that requirement.

In general, EPA does not delegate any authorities that require implementation through rulemaking in the Federal Register , or where Federal overview is the only way to ensure national consistency in the application of the standards or requirements of CAA section 112. The types of authorities that EPA retains are: equivalency determinations, approval of alternative test methods, decisions where federal oversight is needed to ensure national consistency, and any decision that requires rulemaking to implement. The authorities listed in the table below (also mentioned in the footnotes of the parts 61 and 63 delegation tables at the end of this rule) are the specific General Provisions authorities that cannot be delegated to any state or local agency, which EPA therefore retains sole authority to implement. 3

Once a state or local agency has been delegated the authority to implement and enforce a NESHAP, the delegated agency (in this case, IDEQ) becomes the primary point of contact with respect to that NESHAP. As a result of today's action, Title V sources in Idaho should direct questions and compliance issues to IDEQ.

For those authorities that are NOT delegated—those noted in Table 2 or any section of 40 CFR 61 and 63 that specifically indicates that authority may not be delegated—affected Title V sources should continue to work with EPA as their primary contact and submit materials directly to EPA for Administrator decision. In these specific cases, the delegated agency should be copied on all submittals, questions, and requests.

EPA continues to have primary responsibility to implement and enforce Federal regulations that do not have current state or local agency delegations. In this action, Idaho is receiving delegation for NESHAPs as they apply to Title V sources only. Therefore, EPA is the only agency that can implement and enforce NESHAPs as they apply to Idaho's area sources (non-Title V sources).

Sources subject to delegated NESHAPs (specified in the part 61 and part 63 tables at the end of the rule) will now send required notifications and reports to IDEQ for their action, and send copies to EPA. Sources should continue to send to EPA—with a copy to IDEQ—notifications, reports, and requests required by authorities not delegated to IDEQ in this action.

This delegation to IDEQ to implement and enforce NESHAPs does not extend to sources or activities located in Indian country, as defined in 18 U.S.C. 1151. “Indian country” is defined under 18 U.S.C. 1151 as: (1) All land within the limits of any Indian reservation under the jurisdiction of the United States Government, notwithstanding the issuance of any patent, and including rights-of-way running through the reservation, (2) all dependent Indian communities within the borders of the United States, whether within the original or subsequently acquired territory thereof, and whether within or without the limits of a State, and (3) all Indian allotments, the Indian titles to which have not been extinguished, including rights-of-way running through the same. Under this definition, EPA treats as reservations trust lands validly set aside for the use of a Tribe even if the trust lands have not been formally designated as a reservation. Consistent with previous federal program approvals or delegations, EPA will continue to implement the NESHAPs in Indian country because IDEQ has not adequately demonstrated its authority over sources and activities located within the exterior boundaries of Indian reservations and other areas in Indian country.

In delegating the authority to implement and enforce these rules, EPA requires that IDEQ submit the following to EPA:

(1) IDEQ must input all minimum reportable requirements into the AIRS Facility Subsystem (AFS) of the Aerometric Information Retrieval System (AIRS) for both point and area sources. IDEQ must enter the information into the AIRS/AFS system by September 30 of each year;

(2) IDEQ must report to EPA all reportable requirements for MACTRAX semiannually (MACTRAX provides the summary data for each implemented NESHAP that EPA uses to evaluate the Air Toxics Program);

(3) IDEQ must also provide any additional compliance related information to EPA as agreed upon in the Compliance Assurance Agreement between EPA and IDEQ;

(4) IDEQ must submit to EPA copies of determinations issued pursuant to delegated General Provisions authorities, listed in Table 1 above;

(5) IDEQ must also forward to EPA copies of any notifications received pursuant to 40 CFR 63.6(h)(7)(ii) pertaining to the use of a continuous opacity monitoring system; and

(6) IDEQ must submit to EPA's Emission Measurement Center of the Emissions Monitoring and Analysis Division copies of any approved intermediate changes to test methods or monitoring. (For definitions of major, intermediate, and minor alternative test methods or monitoring methods, see the July 10, 1998, memorandum from John Seitz, referenced above). These intermediate test methods or monitoring changes should be sent via mail or facsimile to: Chief, Source Categorization Group A, U.S. EPA (MD-19), Research Triangle Park, NC 27711, Facsimile telephone number: (919) 541-1039.

IDEQ will receive delegation of future standards by the following process:

(1) IDEQ will send a letter to EPA requesting delegation for future NESHAP standards adopted by reference into Idaho regulations;

(2) EPA will send a letter of response back to IDEQ granting this delegation request (or explaining why EPA cannot grant the request);

(3) IDEQ does not need to send a response back to EPA;

(4) If EPA does not receive a negative response from IDEQ within 10 days of EPA's letter to IDEQ, then the delegation will be final 10 days after the date of the letter from EPA; and

(5) Periodically, EPA will publish a notice in the Federal Register informing the public of the updated delegation.

IDEQ should update its incorporations by reference of 40 CFR parts 61 and 63 standards and request updated delegation annually, as current standards are revised and new standards are promulgated. Preferably, IDEQ should adopt federal regulations effective as of the most recent publication date of 40 CFR parts 61 and 63, which is July first of each year.

EPA approves IDEQ's request for program approval and delegation of authority to implement and enforce specific NESHAPs as they apply to major sources required to obtain a part 70 operating permit in Idaho. Pursuant to the authority of section 112(l) of the Act, this approval is based on EPA's finding that Idaho state law, regulations, and resources meet the requirements for program approval and delegation of authority specified in 40 CFR 63.91 and applicable EPA guidance.

The purpose of this delegation is to acknowledge IDEQ's ability to implement a NESHAP program and to transfer primary implementation and enforcement responsibility from EPA to IDEQ for major sources. Although EPA will look to IDEQ as the lead for implementing delegated NESHAPs at major sources in Idaho, EPA retains authority under Section 112(l)(7) of the Act to enforce any applicable emission standard or requirement for major sources, if needed. EPA also retains authority to implement and enforce these standards for non-major sources. With program approval, IDEQ may choose to request newly promulgated or updated standards and expand its program to include non-major sources by way of a streamlined process.

Sources subject to delegated NESHAPs (specified in the part 61 and part 63 tables at the end of the rule) will now send required notifications and reports to IDEQ for their action, and send a copy to EPA. Sources should continue to send notifications, reports, requests, etc. pursuant to Authorities not delegated to Idaho to EPA for our action, and send a copy to IDEQ.

EPA is publishing this rule without prior proposal because the Agency views this as 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 grant full delegation of NESHAP standards to IDEQ for major sources should adverse comments be filed. This rule will be effective March 25, 2002 without further notice unless the Agency receives adverse comments by February 22, 2002.

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. EPA will not institute a second comment period. Parties interested in commenting should do so at this time. If no such comments are received, the public is advised that this rule will be effective on March 25, 2002 and no further action will be taken on the proposed rule.

The Office of Management and Budget (OMB) has exempted this regulatory action from review under Executive Order 12866, entitled “Regulatory Planning and Review.”

This rule is not subject to Executive Order 13045, entitled, “Protection of Children from Environmental Health Risks and Safety Risks,” because it is not an “economically significant” action under Executive Order 12866.

Federalism (64 FR 43255, August 10, 1999) revokes and replaces Executive Orders 12612 (Federalism) and 12875 (Enhancing the Intergovernmental Partnership). Executive Order 13132 requires EPA to develop an accountable process to ensure “meaningful and timely input by state and local officials in the development of regulatory policies that have federalism implications.” “Policies that have federalism implications” is defined in the Executive Order to include regulations that 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.” Under Executive Order 13132, EPA may not issue a regulation that has federalism implications, that imposes substantial direct compliance costs, and that is not required by statute, unless the Federal government provides the funds necessary to pay the direct compliance costs incurred by state and local governments, or EPA consults with state and local officials early in the process of developing the proposed regulation. EPA also may not issue a regulation that has federalism implications and that preempts state law unless the Agency consults with state and local officials early in the process of developing the proposed regulation.

This rule does not have federalism implications. 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, as specified in Executive Order 13132, because it merely approves a state program and rules implementing a Federal standard, and does not alter the relationship or the distribution of power and responsibilities established in the CAA. Thus, Executive Order 13132 does not apply to this rule.

Although Section 6 of the Executive Order does not apply to this rule, EPA did consult with representatives of state government in developing this rule, and this rule is in response to the State's delegation request.

Under Executive Order 13084, EPA may not issue a regulation that is not required by statute, that significantly or uniquely affects the communities of Indian tribal governments, and that imposes substantial direct compliance costs on those communities, unless the Federal government provides the funds necessary to pay the direct compliance costs incurred by the tribal governments. If the mandate is unfunded, EPA must provide to the Office of Management and Budget, in a separately identified section of the preamble to the rule, a description of the extent of EPA's prior consultation with representatives of affected tribal governments, a summary of the nature of their concerns, and a statement supporting the need to issue the regulation. In addition, Executive Order 13084 requires EPA to develop an effective process permitting elected and other representatives of Indian tribal governments “to provide meaningful and timely input in the development of regulatory policies on matters that significantly or uniquely affect their communities.”

This rule does not significantly or uniquely affect the communities of Indian tribal governments. This action does not involve or impose any requirements that affect Indian Tribes. Accordingly, the requirements of section 3(b) of Executive Order 13084 do not apply to this rule.

Under the Regulatory Flexibility Act (RFA), 5 U.S.C. 600 et seq. , EPA must prepare a regulatory flexibility analysis assessing the impact of any rule on small entities. 5 U.S.C. 603 and 604. Alternatively, EPA may certify 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 government entities with jurisdiction over populations of less than 50,000.

Delegation of authority to implement and enforce unchanged federal standards under section 112(l) of the CAA does not create any new requirements but simply transfers primary implementation authorities to the state (or local) agency. Therefore, because this action does not impose any new requirements, I certify that it does not have a significant impact on any small entities affected.

Under section 202 of the Unfunded Mandates Reform Act of 1995 (“Unfunded Mandates Act”), signed into law on March 22, 1995, EPA must prepare a budgetary impact statement to accompany any proposed or final rule that includes a Federal mandate that may result in estimated annual costs to state, local, or tribal governments in the aggregate, or to private sector, of $100 million or more. Under Section 205, EPA must select the most cost-effective and least burdensome alternative that achieves the objectives of the rule and is consistent with statutory requirements. Section 203 requires EPA to establish a plan for informing and advising any small governments that may be significantly or uniquely impacted by the rule.

EPA has determined that the delegation action promulgated does not include a Federal mandate that may result in estimated annual costs of $100 million or more to either state, local, or tribal governments in the aggregate, or to the private sector. This Federal action approves pre-existing requirements under state or local law, and imposes no new Federal requirements. Accordingly, no additional costs to state, local, or tribal governments, or to the private sector, result from this action.

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 . This rule is not a “major” rule as defined by 5 U.S.C. 804(2).

Under Section 307(b)(1) of the CAA, petitions for judicial review of this action must be filed in the United States Court of Appeals for the appropriate circuit by March 25, 2002. 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)).

You may be affected by this action if you are an agricultural producer, food manufacturer, or pesticide manufacturer. Potentially affected categories and entities may include, but are not limited to:

This listing is not intended to be exhaustive, but rather provides a guide for readers regarding entities likely to be affected by this action. Other types of entities not listed in the table could also be affected. The North American Industrial Classification System (NAICS) codes have been provided to assist you and others in determining whether or not this action might apply to certain entities. If you have questions regarding the applicability of this action to a particular entity, consult the person listed under FOR FURTHER INFORMATION CONTACT .

1. Electronically . You may obtain electronic copies of this document, and certain other related documents that might be available electronically, from the EPA Internet Home Page at http://www.epa.gov/. To access this document, on the Home Page select “Laws and Regulations,” “Regulations and Proposed Rules,” and then look up the entry for this document under the “ Federal Register —Environmental Documents.” You can also go directly to the Federal Register listings at http://www.epa.gov/fedrgstr/ . A frequently updated electronic version of 40 CFR part 180 is available at http://www.access.gpo.gov/nara/cfr/cfrhtml_00/Title_40/40cfr180_00.h tml, a beta site currently under development. To access the OPPTS Harmonized Guidelines referenced in this document, go directly to the guidelines at http://www.epa.gov/opptsfrs/home/guidelin.htm.

2. In person . The Agency has established an official record for this action under docket control number OPP-301209. The official record consists of the documents specifically referenced in this action, and other information related to this action, including any information claimed as Confidential Business Information (CBI). This official record includes the documents that are physically located in the docket, as well as the documents that are referenced in those documents. The public version of the official record does not include any information claimed as CBI. The public version of the official record, which includes printed, paper versions of any electronic comments submitted during an applicable comment period is available for inspection in the Public Information and Records Integrity Branch (PIRIB), Rm. 119, Crystal Mall #2, 1921 Jefferson Davis Hwy., Arlington, VA, from 8:30 a.m. to 4 p.m., Monday through Friday, excluding legal holidays. The PIRIB telephone number is (703) 305-5805.

In the Federal Register of November 15, 2001 (66 FR 57446) (FRL-6809-6), EPA issued a notice pursuant to section 408 of the Federal Food, Drug, and Cosmetic Act (FFDCA), 21 U.S.C. 346a as amended by the Food Quality Protection Act of 1996 (FQPA) (Public Law 104-170) announcing the filing of a pesticide petition (PP) for tolerance by BASF Corporation, P.O. Box 13528, Research Triangle Park, NC 27709-3528. This notice included a summary of the petition prepared by BASF Corporation, the registrant. There were no comments received in response to the notice of filing.

The petition requested that 40 CFR 180.384 be amended by establishing a tolerance for residues of the plant growth regulator mepiquat, N,N-dimethylpiperidinium chloride and N,N-dimethylpiperidinium pentaborate, in or on cottonseed at 2.0 ppm; cotton, gin byproducts at 6.0 ppm; and meat byproducts of cattle, goat, hog, horse, and sheep at 0.1 ppm.

The Agency is making the following minor changes to the tolerance action proposed in the petition:

1. The title for the tolerance (§ 180.384) will be revised to mepiquat (N,N-dimethylpiperidinium) to reflect the fact that the tolerance covers both the “chloride salt” (mepiquat chloride) and “pentaborate salt” (mepiquat pentaborate) forms of mepiquat.

2. Paragraph (a) is divided into two paragraphs with paragraph (a)(1) reflecting the “generic ” tolerance for residues of either the “chloride salt,” or “pentaborate salt,” or both (e.g., cotton); while paragraph (a)(2) reflects those tolerances established only for the “chloride salt ” form of mepiquat, i.e., mepiquat chloride. It is possible that in the future the Agency may propose combining these two paragraphs; however, mepiquat pentaborate is currently only proposed for registration on cotton. The only new commodity in this document for both mepiquat chloride and mepiquat pentaborate is cotton gin byproducts. The Mepiquat Chloride RED (March 1997) required residue data for this commodity, it has now been reviewed and the Agency has determined that a separate tolerance is required for this commodity. This resulted because of a revision to the Pesticide Assessment Guideline (Subdivision O, Residue Chemistry, 9/95) which recognized cotton gin byproducts as a raw agricultural commodity of cotton.

Section 408(b)(2)(A)(i) of the FFDCA allows EPA to establish a tolerance (the legal limit for a pesticide chemical residue in or on a food) only if EPA determines that the tolerance is “safe.” Section 408(b)(2)(A)(ii) defines “safe” to mean that “there is a reasonable certainty that no harm will result from aggregate exposure to the pesticide chemical residue, including all anticipated dietary exposures and all other exposures for which there is reliable information.” This includes exposure through drinking water and in residential settings, but does not include occupational exposure. Section 408(b)(2)(C) requires EPA to give special consideration to exposure of infants and children to the pesticide chemical residue in establishing a tolerance and to “ensure that there is a reasonable certainty that no harm will result to infants and children from aggregate exposure to the pesticide chemical residue....”

EPA performs a number of analyses to determine the risks from aggregate exposure to pesticide residues. For further discussion of the regulatory requirements of section 408 and a complete description of the risk assessment process, see the final rule on Bifenthrin Pesticide Tolerances (62 FR 62961, November 26, 1997) (FRL-5754-7).

A human health risk assessment was previously conducted for mepiquat chloride foliar use on cotton and was published in the Mepiquat Chloride RED, March 1997. In fact, tolerances have been established for mepiquat chloride in/on cottonseed at 2.0 ppm and animal commodities at 0.1 ppm. In addition, the Agency recently published a risk assessment (65 FR 1790, January 12, 2000) (FRL-6485-4) for mepiquat chloride use on grapes and raisins which included the previously registered use on cotton. The January 12, 2000, risk assessment reflects the most current risk assessment available for mepiquat and will be referred to throughout this document. A revised risk and exposure analysis for use of mepiquat pentaborate, a “pentaborate salt” of mepiquat being registered for foliar use on cotton, was not conducted because exposure to mepiquat chloride from use on cotton was evaluated in the Agency's January 12, 2000, risk assessment. The registrant was required to submit a complete battery of acute toxicity studies, product chemistry data and a dissociation study to verify that mepiquat pentaborate application would be toxicologically equivalent to mepiquat chloride application and that the impurities would remain essentially equivalent or improved (more protective of human/ecological health) over current mepiquat chloride products. The company maintains, and the Agency has verified that both compounds, the “chloride salt” version mepiquat chloride and the “pentaborate salt” version mepiquat pentaborate, disassociate in water in the same manner and result in the same exposure, both qualitatively and quantitatively. Use rates and other label restrictions, related to food residue levels and tolerance issues, will be the same as for current mepiquat chloride products. Review of the product chemistry data confirmed that no new toxicologically significant impurities would be involved. Consistent with section 408(b)(2)(D), EPA has reviewed the available scientific data and other relevant information in support of this action. EPA has sufficient data to assess the hazards of and to make a determination on aggregate exposure, consistent with section 408(b)(2), for a tolerance for residues of mepiquat on cottonseed at 2.0 ppm; cotton, gin byproducts at 6.0 ppm; and meat byproducts of cattle, goat, hog, horse, and sheep at 0.1 ppm. EPA's assessment of exposures and risks associated with establishing the tolerance follows.

The Agency has determined that mepiquat pentaborate and mepiquat chloride are not significantly different as to impurities and/or toxicologically significant moieties. The registrant has submitted a battery of acute toxicity studies for mepiquat pentaborate which demonstrate that the acute toxicity is not significantly different from that of mepiquat chloride. The registrant has also submitted a dissociation study that demonstrates that mepiquat pentaborate dissociates in water in an identical physical manner to mepiquat chloride. It is the Agency's general policy that toxicology data for one “salt” support other mineral salts and that no additional toxicological data would be required for those entities. Mepiquat chloride is already registered for use on cotton and tolerances are established in 40 CFR 180.384 for residues of mepiquat chloride in/on cottonseed. In addition, tolerances for mepiquat chloride already exist for the fat, meat, and meat byproducts of cattle, goats, hogs, horses, and sheep (each at 0.1 ppm). The acute toxicity data for technical grade mepiquat pentaborate indicate toxicity category III for acute oral toxicity, acute dermal, acute inhalation, and primary eye irritation. The primary dermal irritation for mepiquat pentaborate is category IV, and mepiquat pentaborate is not a skin sensitizer.

The Agency has determined that mepiquat pentaborate and mepiquat chloride are not significantly different as to impurities and/or toxicological significant moieties. Therefore, the toxicological endpoints published for mepiquat chloride on January 12, 2000 (65 FR 1790), pertain to this revision to 40 CFR 180.384. This revision to 40 CFR 180.384 simply adds tolerances for the pentaborate “salt” of mepiquat to the existing tolerances for the chloride “salt” version of mepiquat.

The Acute Population Adjusted Dose (aPAD) is 0.6 milligrams/kilograms/day (mg/kg/day) based on a 1-year dog feeding study with a 90-day dog feeding study supporting the 1-year dog study. The no observed adverse effect level (NOAEL) was 58.4 mg/kg/day with an Uncertainty Factor of 100 and the FQPA safety factor reduced to 1X. The Chronic Population Adjusted Dose (cPAD) is 0.6 mg/kg/day based on the 1-year dog feeding study with a supporting 90-day dog feeding study. The NOAEL was 58.4 mg/kg/day with an Uncertainty Factor of 100 and the FQPA safety factor reduced to 1X. Mepiquat chloride is classified as “not likely” to be a human carcinogen.

1. Dietary exposure from food and feed uses . Tolerances have been established (40 CFR 180.384) for the residues of mepiquat, in or on a variety of raw agricultural commodities. Tolerances are established for cottonseed and for the fat, meat, and meat byproducts of cattle, goats, hogs, horses, and sheep at 0.1 ppm. A risk assessment was conducted by EPA and published for mepiquat chloride on January 12, 2000, that discusses use on cotton as well as all other registered uses of mepiquat chloride. Dietary exposure from the use of mepiquat pentaborate on cotton will be qualitatively and quantitatively the same as for the existing use of mepiquat chloride on cotton. The Agency has a disassociation study that confirms the qualitative equivalence and the same use rates and other restrictions will ensure equivalent quantitative exposure. The company expects that the pentaborate salt formulation of mepiquat, mepiquat pentaborate, will replace a significant amount of mepiquat chloride use on cotton.

i. Acute exposure . The acute dietary food exposures (95 th percentile) occupy only 1.5% of the aPAD for the most highly exposed subgroup (children 1-6 years). This is based on a Tier 1 analysis, assuming tolerance level residues and 100% crop treated. Percent crop treated and/or anticipated residues were not used in the January 12, 2000, analysis.

ii. Chronic exposure . The chronic dietary food exposures occupy only 0.3% of the cPAD for the most highly exposed subgroup (children 1-6 years). This is based on a Tier 1 analysis, assuming tolerance level residues and 100% crop treated. Percent crop treated and/or anticipated residues were or were not used in the January 12, 2000, analysis.

iii. Cancer . Mepiquat chloride was classified as “not a likely human carcinogen.” Therefore, a cancer risk assessment was not conducted for this risk analysis; nor, was one conducted for the January 12, 2000, risk analysis that discussed the use on cotton as well as all other mepiquat uses.

2. Dietary exposure from drinking water . The Agency published a risk assessment for mepiquat chloride on January 12, 2000, that discusses use on cotton as well as all other registered uses of mepiquat chloride. In that analysis risk estimates for exposure to mepiquat chloride were below the Agency's level of concern. The Agency has reviewed a dissociation study for mepiquat pentaborate that demonstrates that mepiquat pentaborate dissociates in an identical physical manner to mepiquat chloride in water. Therefore, the analysis performed for mepiquat chloride or the “chloride salt,” also pertains to this mepiquat “pentaborate salt” use because the use rate, maximum seasonal use rate and other pertinent use factors remain the same as for mepiquat chloride or the “chloride salt.”

3. From non-dietary exposure . The term “residential exposure” is used in this document to refer to non-occupational, non-dietary exposure ( e.g., for lawn and garden pest control, indoor pest control, termiticides, and flea and tick control on pets). Mepiquat chloride and/or mepiquat pentaborate are not registered for use on any sites that would result in residential exposure.

4. Cumulative exposure to substances with a common mechanism of toxicity . Section 408(b)(2)(D)(v) requires that, when considering whether to establish, modify, or revoke a tolerance, the Agency consider “available information” concerning the cumulative effects of a particular pesticide's residues and “other substances that have a common mechanism of toxicity.”

EPA does not have, at this time, available data to determine whether mepiquat pentaborate and/or mepiquat chloride have a common mechanism of toxicity with other substances or how to include this pesticide in a cumulative risk assessment. Unlike other pesticides for which EPA has followed a cumulative risk approach based on a common mechanism of toxicity, mepiquat does not appear to produce a toxic metabolite produced by other substances. For the purposes of this tolerance action, therefore, EPA has not assumed that mepiquat has a common mechanism of toxicity with other substances. For information regarding EPA's efforts to determine which chemicals have a common mechanism of toxicity and to evaluate the cumulative effects of such chemicals, see the final rule for Bifenthrin Pesticide Tolerances (62 FR 62961, November 26, 1997).

In general . FFDCA section 408 provides that EPA shall apply an additional tenfold margin of safety for infants and children in the case of threshold effects to account for prenatal and postnatal toxicity and the completeness of the data base on toxicity and exposure unless EPA determines that a different margin of safety will be safe for infants and children. Margins of safety are incorporated into EPA risk assessments either directly through use of a margin of exposure (MOE) analysis or through using uncertainty (safety) factors in calculating a dose level that poses no appreciable risk to humans.

The Agency has determined that the FQPA safety factor for mepiquat is 1X. See the Agency's risk assessment for mepiquat chloride dated January 12, 2000, for details. The facts are that mepiquat pentaborate is another “salt” of mepiquat and that mepiquat pentaborate disassociates to mepiquat and therefore the basic toxicology data base for mepiquat chloride pertains to mepiquat pentaborate.

1. Acute risk . The Agency concludes that residues of mepiquat in food and drinking water will not exceed the Agency's level of concern (100% of the aPAD). For details see the Agency risk assessment published on January 12, 2000.

2. Chronic risk . The Agency concludes that residues of mepiquat in food and drinking water will not exceed the Agency's level of concern (100% of the cPAD). For details see the Agency's risk assessment published on January 12, 2000.

3. Short-term risk . Short-term aggregate exposure takes into account residential exposure plus chronic exposure to food and water (considered to be a background exposure level). Mepiquat chloride and mepiquat pentaborate are not registered for use on any sites that would result in residential exposure. Therefore, the aggregate risk is the sum of the risk from food and water, which do not exceed the Agency's level of concern.

4. Intermediate-term risk . Intermediate-term aggregate exposure takes into account residential exposure plus chronic exposure to food and water (considered to be a background exposure level). Mepiquat chloride and mepiquat pentaborate are not registered for use on any sites that would result in residential exposure. Therefore, the aggregate risk is the sum of the risk from food and water, which does not exceed the Agency's level of concern.

5. Aggregate cancer risk for U.S. population . Mepiquat chloride is classified as a “not likely” human carcinogen and thus not expected to pose a cancer risk to humans.

6. Determination of safety . Based on these risk assessments, EPA concludes that there is a reasonable certainty that no harm will result to the general population, and to infants and children from aggregate exposure to mepiquat residues.

Adequate enforcement methodology is available to enforce the tolerance expression. The method may be requested from: Calvin Furlow, PRRIB, IRSD (7502C), Office of Pesticide Programs, Environmental Protection Agency, 1200 Pennsylvania Ave., NW., Washington, DC 20460; telephone number: (703) 305-5229; e-mail address: furlow.calvin@epa.gov.

There are no CODEX, Canadian, or Mexican tolerances established for mepiquat on cotton. Thus, there are no international harmonization issues for these tolerances.

The Agency is requiring as conditions for registration the following:

1. Side-by-side residue field trials conducted with water as the diluent in all cotton growing areas of the United States (minimum of three).

2. Developmental neurotoxicity study for mepiquat pentaborate.

Therefore, the tolerance expression in 40 CFR 108.384(a)(1) is revised to reflect residues of mepiquat, in or on cottonseed; cotton gin by-products; and meat byproducts of cattle, goat, hog, horse, and sheep at 2.0, 6.0, and 0.1 ppm, respectively.

Under section 408(g) of the FFDCA, as amended by the FQPA, any person may file an objection to any aspect of this regulation and may also request a hearing on those objections. The EPA procedural regulations which govern the submission of objections and requests for hearings appear in 40 CFR part 178. Although the procedures in those regulations require some modification to reflect the amendments made to the FFDCA by the FQPA of 1996, EPA will continue to use those procedures, with appropriate adjustments, until the necessary modifications can be made. The new section 408(g) provides essentially the same process for persons to “object” to a regulation for an exemption from the requirement of a tolerance issued by EPA under new section 408(d), as was provided in the old FFDCA sections 408 and 409. However, the period for filing objections is now 60 days, rather than 30 days.

You must file your objection or request a hearing on this regulation in accordance with the instructions provided in this unit and in 40 CFR part 178. To ensure proper receipt by EPA, you must identify docket control number OPP-301209 in the subject line on the first page of your submission. All requests must be in writing, and must be mailed or delivered to the Hearing Clerk on or before March 25, 2002.

1. Filing the request . Your objection must specify the specific provisions in the regulation that you object to, and the grounds for the objections (40 CFR 178.25). If a hearing is requested, the objections must include a statement of the factual issues(s) on which a hearing is requested, the requestor's contentions on such issues, and a summary of any evidence relied upon by the objector (40 CFR 178.27). Information submitted in connection with an objection or hearing request may be claimed confidential by marking any part or all of that information as CBI. Information so marked will not be disclosed except in accordance with procedures set forth in 40 CFR part 2. A copy of the information that does not contain CBI must be submitted for inclusion in the public record. Information not marked confidential may be disclosed publicly by EPA without prior notice.

Mail your written request to: Office of the Hearing Clerk (1900), Environmental Protection Agency, 1200 Pennsylvania Ave., NW., Washington, DC 20460. You may also deliver your request to the Office of the Hearing Clerk in Rm. C400, Waterside Mall, 401 M St., SW., Washington, DC 20460. The Office of the Hearing Clerk is open from 8 a.m. to 4 p.m., Monday through Friday, excluding legal holidays. The telephone number for the Office of the Hearing Clerk is (202) 260-4865.

2. Tolerance fee payment . If you file an objection or request a hearing, you must also pay the fee prescribed by 40 CFR 180.33(i) or request a waiver of that fee pursuant to 40 CFR 180.33(m). You must mail the fee to: EPA Headquarters Accounting Operations Branch, Office of Pesticide Programs, P.O. Box 360277M, Pittsburgh, PA 15251. Please identify the fee submission by labeling it “Tolerance Petition Fees.”

EPA is authorized to waive any fee requirement “when in the judgement of the Administrator such a waiver or refund is equitable and not contrary to the purpose of this subsection.” For additional information regarding the waiver of these fees, you may contact James Tompkins by phone at (703) 305-5697, by e-mail at tompkins.jim@epa.gov, or by mailing a request for information to Mr. Tompkins at Registration Division (7505C), Office of Pesticide Programs, Environmental Protection Agency, 1200 Pennsylvania Ave., NW., Washington, DC 20460.

If you would like to request a waiver of the tolerance objection fees, you must mail your request for such a waiver to: James Hollins, Information Resources and Services Division (7502C), Office of Pesticide Programs, Environmental Protection Agency, 1200 Pennsylvania Ave., NW., Washington, DC 20460.

3. Copies for the Docket . In addition to filing an objection or hearing request with the Hearing Clerk as described in Unit VI.A., you should also send a copy of your request to the PIRIB for its inclusion in the official record that is described in Unit I.B.2. Mail your copies, identified by docket control number OPP-301209, to: Public Information and Records Integrity Branch, Information Resources and Services Division (7502C), Office of Pesticide Programs, Environmental Protection Agency, 1200 Pennsylvania Ave., NW., Washington, DC 20460. In person or by courier, bring a copy to the location of the PIRIB described in Unit I.B.2. You may also send an electronic copy of your request via e-mail to: opp-docket@epa.gov. Please use an ASCII file format and avoid the use of special characters and any form of encryption. Copies of electronic objections and hearing requests will also be accepted on disks in WordPerfect 6.1/8.0 or ASCII file format. Do not include any CBI in your electronic copy. You may also submit an electronic copy of your request at many Federal Depository Libraries.

A request for a hearing will be granted if the Administrator determines that the material submitted shows the following: There is a genuine and substantial issue of fact; there is a reasonable possibility that available evidence identified by the requestor would, if established resolve one or more of such issues in favor of the requestor, taking into account uncontested claims or facts to the contrary; and resolution of the factual issues(s) in the manner sought by the requestor would be adequate to justify the action requested (40 CFR 178.32).

This final rule establishes a tolerance under FFDCA section 408(d) in response to a petition submitted to the Agency. The Office of Management and Budget (OMB) has exempted these types of actions from review under Executive Order 12866, entitled Regulatory Planning and Review (58 FR 51735, October 4, 1993). Because this rule has been exempted from review under Executive Order 12866 due to its lack of significance, this rule is not subject to Executive Order 13211, Actions Concerning Regulations That Significantly Affect Energy Supply, Distribution, or Use (66 FR 28355, May 22, 2001). This final rule does not contain any information collections subject to OMB approval under the Paperwork Reduction Act (PRA), 44 U.S.C. 3501 et seq. , or impose any enforceable duty or contain any unfunded mandate as described under Title II of the Unfunded Mandates Reform Act of 1995 (UMRA) (Public Law 104-4). Nor does it require any special considerations under Executive Order 12898, entitled Federal Actions to Address Environmental Justice in Minority Populations and Low-Income Populations (59 FR 7629, February 16, 1994); or OMB review or any Agency action under Executive Order 13045, entitled Protection of Children from Environmental Health Risks and Safety Risks (62 FR 19885, April 23, 1997). This action does not involve any technical standards that would require Agency consideration of voluntary consensus standards pursuant to section 12(d) of the National Technology Transfer and Advancement Act of 1995 (NTTAA), Public Law 104-113, section 12(d) (15 U.S.C. 272 note). Since tolerances and exemptions that are established on the basis of a petition under FFDCA section 408(d), such as the tolerance in this final rule, do not require the issuance of a proposed rule, the requirements of the Regulatory Flexibility Act (RFA) (5 U.S.C. 601 et seq. ) do not apply. In addition, the Agency has determined that this action will not have a substantial direct effect on 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, entitled Federalism (64 FR 43255, August 10, 1999). Executive Order 13132 requires EPA to develop an accountable process to ensure“meaningful and timely input by State and local officials in the development of regulatory policies that have federalism implications.” “Policies that have federalism implications” is defined in the Executive Order to include regulations that 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.” This final rule directly regulates growers, food processors, food handlers and food retailers, not States. This action does not alter the relationships or distribution of power and responsibilities established by Congress in the preemption provisions of FFDCA section 408(n)(4). For these same reasons, the Agency has determined that this rule does not have any “tribal implications” as described in Executive Order 13175, entitled Consultation and Coordination with Indian Tribal Governments (65 FR 67249, November 6, 2000). Executive Order 13175, requires EPA to develop an accountable process to ensure “meaningful and timely input by tribal officials in the development of regulatory policies that have tribal implications.” “Policies that have tribal implications” is defined in the Executive Order to include regulations that have “substantial direct effects on one or more Indian tribes, on the relationship between the Federal government and the Indian tribes, or on the distribution of power and responsibilities between the Federal government and Indian tribes.” This rule will not have substantial direct effects on tribal governments, 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 in Executive Order 13175. Thus, Executive Order 13175 does not apply to this rule.

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 this final rule in the Federal Register . This final rule is not a “major rule” as defined by 5 U.S.C. 804(2).

This is a summary of the Commission's Order and Order on Reconsideration in CC Docket No. 96-45 released on December 18, 2001. The full text of this document is available for public inspection during regular business hours in the FCC Reference Center, Room CY-A257, 445 Twelfth Street, SW., Washington, DC 20554.

1. 2000 Line Counts. Consistent with the framework adopted in the Twentieth Reconsideration Order , 66 FR 26513, May 8, 2000, and the 2001 Line Counts Update Order , 65 FR 81759, December 27, 2000, the Commission concludes the cost model should use year-end 2000 line counts filed July 31, 2001, as input values for purposes of estimating average forward-looking costs and determining support for the year 2002. The Commission also concludes that line counts should be allocated to the classes of service used in the model based on the line count data filed pursuant to the 1999 Data Request. The Commission further concludes that special access line counts should be allocated on the basis of the 1999 Data Request data and trued-up to 2000 43-08 ARMIS special line counts. In addition, the Commission will adjust support amounts every quarter to reflect the lines reported by carriers, according to the methodology set forth in the Twentieth Reconsideration Order , 66 FR 26513, May 8, 2000. The Commission also stated that it plans to initiate a proceeding to study how often line counts and other input values should be updated.

2. Further, consistent with its action in the 2001 Line Counts Update Order , 65 FR 81759, December 27, 2000, and because an updated customer location and road data set remains unavailable at this time, the Commission will not update customer location and road data at this time. Although the Commission recognizes that a new source of year 2000 Census data may be useful in creating an updated customer location and road data set in the future, such information is not in a usable data set format for purposes of determining support for 2002. The Commission, therefore, defers the issue of using these data in the model until the Commission initiates a comprehensive proceeding to study revisions and changes to the model inputs and model platform. In the meantime, all new lines should be treated as if they were located at existing locations in the model.

3. Class of Service Allocations. The Commission finds that using the methodology employed in the 2001 Line Counts Update Order , 65 FR 81759, December 27, 2000, which used year-end wire center line count data filed pursuant to the 1999 Data Request , remains a reasonable method for allocating line counts to the classes of service used in the model. The Commission believes this methodology is a preferable approach because it remains a reasonably accurate process for disaggregating line counts without imposing burdensome reporting requirements on carriers. For purposes of 2002 support, the Commission therefore shall allocate line counts to the classes of service used in the model by dividing the year-end 2000 lines reported by non-rural carriers into business lines, residential lines, payphone lines, and single line business lines for each wire center in the same proportion as the lines filed pursuant to the 1999 Data Request (year-end 1998 lines).

4. The Commission also finds that estimating special line growth for purposes of calculating 2002 support can be accurately determined by dividing the 2000 ARMIS special access lines among wire centers in the same proportion as the special lines from the 1999 Data Request. The Commission finds that this methodology continues to be a reasonable approach to estimating special line growth for calculating support for 2002.

5. Matching Wire Centers. The Commission will use the same methodology employed in the 2001 Line Counts Update Order , 65 FR 81759, December 27, 2000, to match wire centers reported by carriers in their quarterly line count filings with wire centers found in the 1999 Data Request and in the model's customer location data.

6. General Support Facilities. In addition to line counts, the model uses other types of data that are updated annually under current Commission rules and procedures. Among other things, the model uses company-specific ARMIS data to calculate investment in general support facilities (GSF). GSF investment includes buildings, motor vehicles, and general purpose computers. A portion of GSF investment must be added to the model's estimate of outside plant, switching, and transport investment to adequately reflect the cost providing the supported services. The Commission finds that updating the tables used in the model with 2000 ARMIS data used to compute GSF investment will improve the model's cost estimates by taking into account the current costs of GSF investment associated with supported services.

7. Switching. The model also uses company-specific data in determining switching costs. A wire center's switch directs both interstate and intrastate traffic. Universal service support, however, is only provided for the portion of the switch used to direct intrastate traffic. Therefore, to determine the amount of a wire center's switch that is eligible for support, the model needs to determine the percentage of the switch used to direct intrastate service. The model currently uses 1998 ARMIS Dial Equipment Minutes (DEM) data to determine the overall switch usage. Then, because the ARMIS DEM data do not distinguish between local and intrastate toll usage, the model uses 1997 traffic parameter data filed with the National Exchange Carrier Association (NECA) which, in addition to identifying intrastate and interstate switch usage, identifies the local DEM to compute the portion of non-interstate local usage. Therefore, the model currently uses data sources from different years to determine the portion of the switch used to direct intrastate traffic. The Commission further concludes that it should update the tables in the model with the most recent traffic parameters available from NECA to determine the percentage of the switch allocated to supported services and the switch port requirement for interoffice transport. The Commission finds that using only NECA data for switch allocation, which are only one year behind the ARMIS data but contain all the data necessary to serve as the sole source for switch apportionment is a preferable alternative than using two different sources of data. Further, the Commission will continue to use ARMIS traffic parameter data for estimating signaling costs.

8. Model Platform. The Commission defers, until a later date, the question of whether and when to transition to the Delphi version of the forward-looking cost model. The Delphi version posted on the Commission's web site contained certain modifications, in addition to translation to the Delphi computer language. Commenters have noted that some of the cost estimates generated by this modified version of the cost model of the cost model significantly differ with the results from the previous year's Turbo-Pascal version. This may warrant further investigation of whether the total amount of universal service support can vary substantially with small changes in inputs due to technical corrections to the model. In addition, numerous commenters have recommended use of the cost model in Visual Basic computer language in lieu of the Delphi version. They contend that Visual Basic is a preferable computer language because it is: (1) More widely used than Delphi; and (2) part of the cost model already uses Visual Basic and therefore, transition here would make the cost model more uniform. In order to permit an opportunity for further consideration and analysis of these issues, the Commission will use a Turbo-Pascal version of the model, at present, to calculate support for non-rural carriers for calculating 2002 cost estimates. The Commission anticipates that a number of technical corrections will ultimately be made to the cost model. Upon further examination of proposed modifications, the Commission may revise its calculations of support for future quarters in 2002.

9. The Commission denies Sprint Corporation's (Sprint) petition for reconsideration of the 2001 Line Counts Update Order , 65 FR 81759, December 27, 2000. Specifically, after review of the arguments presented on reconsideration, the Commission concludes that Sprint has not provided any new information or arguments that requires it to alter its decision to update line counts without updating customer location data for purposes of calculating support for 2001. As the Commission explained in the 2001 Line Counts Update Order , updated line count data were available for the model's inputs, but updated customer location data were not. Consequently, the Commission concluded that, on balance, it was better to update the model with available line count data at that time than wait until a customer location data set could be obtained.

10. Relying on that same analysis and reasoning, the Commission has decided to use updated line count data in the universal service cost model for purposes of calculating support for non-rural carriers for 2002 without updating customer location data. Again, because an updated customer location and road data set remains unavailable for use at this time, the Commission finds that, on balance, it is best not to delay updating line counts. In addition, the Commission has noted that it intends to initiate, at a later date, a proceeding to study proposed revisions and changes to the model inputs and model platform.

11. It is ordered pursuant to the authority contained in sections 1-4, 201-205, 214, 218-220, 254, 303(r), 403, and 410 of the Communications Act of 1934, as amended, 47 U.S.C. 151-154, 201-205, 214, 218-220, 254, 303(r), 403, and 410, and section 1.108 of the Commission's rules, 47 CFR 0.91(f), this Order is adopted. Specifically, the Commission updates line count input values for the high-cost universal service support mechanism for non-rural carriers for purposes of calculating and targeting support amounts for the year 2002. Therefore, the Commission shall use updated line count data in the universal service cost model to estimate non-rural carriers' forward-looking economic costs of providing the services supported by the federal high-cost mechanism. In addition, non-rural support amounts will continue to be adjusted each quarter to account for line growth based on the wire center line count data reported quarterly by non-rural carriers. The Commission further updates the company-specific data used in the model to calculate investment in general support facilities and switching costs.

12. It is further ordered that, pursuant to sections 4, 201-205, 218-220, 303(r), and 405 of the Communications Act of 1934, as amended, 47 U.S.C. 154, 201-205, 218-220, 303(r), and 405 of the Communications Act of 1934, as amended, and sections 1.106 and 1.429 of the Commission's rules, 47 CFR 1.106, 1.429, that the petition for reconsideration filed January 26, 2001, by Sprint Corporation is denied.

Carex lutea (LeBlond) is a perennial member of the sedge family (Cyperaceae) known only from North Carolina. Fertile culms (stems) may reach one meter (39 inches (in)) or more in height. The yellowish green leaves are grasslike, with those of the culm mostly basal and up to 28 centimeters (cm) (11 in) long, while those of the vegetative shoots reach a length of 65 cm (26 in). Fertile culms produce two to four flowering spikes (multiple flowering structure with flowers attached to the stem), with the terminal (end) spike being male and the one to three (usually two) lateral spikes being female. Lateral spikes are subtended by leaflike bracts (a much-reduced leaf). The male spike is about 2 to 4 cm (0.8 to 1.6 in) long, 1.5 to 2.5 millimeters (mm) (0.06 to 0.12 in) wide, with a peduncle (stalk) about 1 to 6 cm (0.4 to 2.4 in) long. Female spikes are round to elliptic, about 1 to 1.5 cm (0.4 to 0.6 in) long and 1 cm (0.4 in) wide. The upper female spike is sessile (not stalked; sitting), while lower female spikes, if present, have peduncles typically 0.5 to 4.5 cm (0.2 to 1.8 in) long. When two to three female spikes are present, each is separated from the next, along the culm, by 4.5 to 18 cm (1.8 to 7.1 in). The inflated perigynia (sac that encloses the ovary) are bright yellow at flowering and about 4 to 5 mm (0.16 to 0.20 in) long; the perigynia beaks (point) are out-curved and spreading, with the lowermost in a spike strongly reflexed (turned downward). Carex lutea is most readily identified from mid-April to mid-June during flowering and fruiting. It is distinguished from other Carex species that occur in the same habitat by its bright yellow color (particularly the pistillate (female) spikes), by its height and slenderness, and especially by the out-curved beaks of the crowded perigynia, the lowermost of which are reflexed (LeBlond et al. 1994).

LeBlond et al. described Carex lutea in 1994 from specimens collected in 1992 in Pender County, North Carolina. It is the only member of the Carex section Ceratocystis found in the southeastern United States.

Carex lutea grows in sandy soils overlying coquina limestone deposits, where the soil pH is unusually high for this region, typically between 5.5 and 7.2 (Glover 1994). Soils supporting the species are very wet to periodically shallowly inundated. The species prefers the ecotone (narrow transition zone between two diverse ecological communities) between the pine savanna and adjacent wet hardwood or hardwood/conifer forest (LeBlond 1996; Schafale and Weakley 1990). Most plants occur in the partially shaded savanna/swamp where occasional to frequent fires favor an herbaceous ground layer and suppress shrub dominance. Other species with which this sedge grows include tulip poplar ( Liriodendron tulipifera ), pond cypress ( Taxodium ascendens ), red maple ( Acer rubrum var. trilobum ), wax myrtle ( Myrica cerifera var. cerifera ), colic root ( Aletris farinosa ), and several species of beakrush ( Rhynchospora spp.). At most sites, C. lutea shares its habitat with Cooley's meadowrue ( Thalictrum cooleyi ), federally listed as endangered, and with Thorne's beakrush ( Rhynchospora thornei ), a species of management concern. All known populations are in the northeast Cape Fear River watershed in Pender and Onslow Counties, North Carolina. As stated by LeBlond (1996):

These rare savannas, underlain by calcareous deposits, support unusual assemblages of plants, including several species known from less than a dozen sites worldwide (Schafale 1994). LeBlond (1996) characterizes these habitats as “a small archipelago of phytogeographic islands” that form a refuge for these rare and unique species. Despite extensive searches of the Gulf Coast in northern Florida and southern Alabama, and Atlantic Coast sites in South Carolina, Georgia, and Florida, no other populations of Carex lutea were found outside the North Carolina coastal plain. The species appears to be a very rare endemic, narrowly restricted to an area within a 3.2 kilometer (2-mile) radius of the Onslow/Pender County line in southeastern North Carolina (LeBlond 1996). It is listed as endangered by the State of North Carolina (Amoroso and Weakley 1995; M. Boyer, North Carolina Department of Agriculture, personal communication, 1998).

Federal Government actions on this species have only recently begun because the species was unknown to science before 1991 and its official description was not published until 1994. In 1995, we funded a survey to determine the status of Carex lutea throughout its known and potential range; we accepted the final report on this survey in 1997. A 1998 status report confirmed the species' precarious status (LeBlond 1998). We elevated C. lutea to candidate status (species for which we have sufficient information on status and threats to propose the taxon for listing as endangered or threatened) on October 16, 1998. On August 16, 1999, we proposed the species for listing as endangered (64 FR 44470).

Our final rule would have been due on August 16, 2000. However, we were forced to cease our work on the rule because compliance with outstanding court orders, judicially approved settlement agreements, and litigation related activities required all remaining fiscal year 2000 funds and exhausted the entire fiscal year 2001 budget that Congress appropriated for completing listings and critical habitat designations pursuant to section 4 of the Act. The Director of the Service issued a memo on November 17, 2000, directing all Regions to immediately halt listing actions not under court order or settlement agreement.

The Service and several conservation organizations have reached an agreement that will enable us to complete work on evaluations of numerous species proposed for listing under the Act. This final rule is made in accordance with a judicially approved settlement agreement, which requires us to submit for publication in the Federal Register a final listing determination for the golden sedge on or before January 26, 2002.

In conformance with our policy on peer review, published on July 1, 1994 (59 FR 34270), we provided copies of the proposed rule to five independent specialists in order to solicit comments on the scientific or commercial data and assumptions relating to the supportive biological and ecological information for Carex lutea. The purpose of such review is to ensure that the listing decision is based on the best scientific and commercial information available, as well as to ensure that reviews by appropriate experts and specialists are included into the review process of rulemakings. Although solicited, none of the five reviewers provided comments on the proposed rule.

In the August 16, 1999, proposed rule and associated notifications, we requested all interested parties to submit factual reports or information that might contribute to the development of a final rule. We contacted appropriate State agencies, county governments, Federal agencies, scientific organizations, and other interested parties and requested them to comment. We published a newspaper notice inviting public comment in the Wilmington Journal (North Carolina) on August 26, 1999.

We received one comment, from the North Carolina Department of Environment and Natural Resources, that expressed support for listing, and concurred with our conclusion in the proposed rule that designation of critical habitat would not be beneficial for golden sedge because of the plant's extreme rarity.

After a thorough review and consideration of all information available, we have determined that Carex lutea should be classified as an endangered species. We followed procedures found in section 4 of the Act and the accompanying regulations (50 CFR part 424). A species may be determined to be an endangered or threatened species due to one or more of the five factors described in section 4(a)(1) of the Act. These factors and their application to C. lutea are as follows:

A. The present or threatened destruction, modification, or curtailment of its habitat or range. Seven of the eight known populations of Carex lutea are on privately owned land and are threatened with the destruction or adverse modification of their habitat from residential, commercial, or industrial development; clay mining; drainage activities associated with silviculture and agriculture; and suppression of fire. The eighth population, on land now owned by the North Carolina Department of Transportation (NCDOT), was severely disturbed in the 1980s by clearcutting, ditching, and draining prior to NCDOT ownership. This site has been purchased by the NCDOT as a mitigation site and is currently under study for the restoration of natural communities and protection and enhancement of rare species populations. At least some of the original C. lutea plants survived the previous damage to the site, and the remaining population appears stable.

As described in the “Background” section, the habitat upon which this species depends is extremely rare. Most of the remaining populations are very small, with five of the eight occupying a combined total area of less than 58 square meters (624 square feet). Three of the sites have populations composed of fewer than 50 individuals. Although little is known about natural population fluctuations in this species, severe population declines (exceeding 83 percent) were noted between 1992 and 1996 at three of the eight remaining sites. The exact causes for these losses are unknown. One population is on a roadside, and all of one population and part of another are on power line rights-of-way, where they are exceptionally vulnerable to destruction from highway expansion or improvement or herbicide application. All the known sites have been damaged to some degree in the past by ditching and drainage, mining, logging, bulldozing, right-of-way maintenance, or road building. Because the species was only recently discovered, knowing exactly what its historic distribution and population numbers might have been is not possible. However, LeBlond (1996) states: “It is probable that drainage ditches (that lower the water table over a large area) have reduced, perhaps greatly, the amount of suitable habitat available for Carex lutea and other rare species at these sites.”

B. Overutilization for commercial, recreational, scientific, or educational purposes. There is no known commercial trade in Carex lutea at this time. However, because of its small and easily accessible populations, it is vulnerable to taking and vandalism that could result from increased publicity. Most populations are too small to support even the limited collection of plants for scientific or other purposes.

C. Disease or predation. Disease and predation are not known to be factors affecting the continued existence of the species at this time.

D. The inadequacy of existing regulatory mechanisms. Carex lutea is listed by the State of North Carolina as endangered. As such, it is afforded legal protection within the State by North Carolina General Statutes, §§ 106-202.12 to 106-202.19 (Cum. Supp. 1985), which provide for protection from intrastate trade (without a permit) and for the monitoring and management of State-listed species and prohibit the taking of plants without a permit and written permission from the landowner. However, State prohibitions against taking are difficult to enforce and do not cover adverse alterations of habitats, such as disruption of drainage patterns and water tables or exclusion of fire. Two of the sites are somewhat protected by registry agreements between the landowner and the North Carolina Natural Heritage Program. These agreements are strictly voluntary, however, and may be canceled by the landowner at any time. Although part of another population is owned by The Nature Conservancy (TNC), this population is adjacent to a quarry. Activities in the quarry may alter the hydrology of the area occupied by C. lutea and thus pose a threat to this population. Portions of the population not owned by TNC are also vulnerable to destruction by timber harvesting and fire suppression.

Section 404 of the Clean Water Act represents the primary Federal law that may provide some regulation of the species' wetland habitats. However, the Clean Water Act by itself does not provide adequate protection for the species. Although the objective of the Clean Water Act is to “restore and maintain the chemical, physical, and biological integrity of the Nation's waters” (33 U.S.C. 1251), no specific provisions exist that address the need to conserve rare species. The Army Corps of Engineers (Corps) is the Federal agency responsible for administering the section 404 program. Under section 404, the Corps may issue nationwide permits for certain activities that are considered to have minimal impacts. However, the Corps seldom withholds authorization of an activity under nationwide permits unless the existence of a listed threatened or endangered species would be jeopardized. The Corps may also authorize activities by an individual or regional general permit when the project does not qualify for authorization under a nationwide permit. These projects include those that would result in more than minimal adverse environmental effects, either individually or cumulatively, and are typically subject to more extensive review. Whatever the type of permit deemed necessary under section 404, rare species such as Carex lutea may receive no special consideration regarding conservation or protection unless they are listed under the Act.

E. Other natural or manmade factors affecting its continued existence. As mentioned in the “Background” section of this final rule, most of the remaining populations are small in numbers of individuals and in area covered by the plants. This may suggest low genetic variability within populations, making it more important to maintain as much habitat and as many remaining colonies as possible.

Little is known about the life history of this species or about its specific environmental requirements. However, its apparent restriction to wet pine savannas is a strong indication that it is adapted to the pyric (associated with burning) and hydrological conditions associated with this community type. Such habitats were historically exposed to wildfires approximately every 3 to 5 years, usually during the growing season, which maintained the open habitats favored by Carex lutea and dozens of other fire-adapted species. During winter and spring, the soils where C. lutea grows are often shallowly flooded. At other times of the year these sites are very wet to saturated. Such high water tables also serve to control woody growth in undisturbed savanna habitats. However, without regular fire, which has been intensively suppressed on the Atlantic coastal plain for half a century, and with the lowering of water tables due to ditching, the open savannas are rapidly changing to dense thickets dominated by the trees and shrubs of the adjacent uplands. As a result, the extraordinary plant diversity characteristic of the savannas is being eliminated, and species such as C. lutea are disappearing from the landscape. Even where such habitat is owned by an organization that is able to manage the land with prescribed fire, like TNC, increasingly restrictive smoke management regulations make burning very difficult.

We have carefully assessed the best scientific and commercial information available regarding the past, present, and future threats faced by this species in making this determination. Based on this evaluation, we find it appropriate to list Carex lutea as an endangered species. Endangered status is more appropriate than threatened status because of the following factors—this species occurs in only 2 counties; only 8 populations survive, all of which have already been damaged to some degree; most of the remaining populations are very small, with five of the eight occupying a combined total area of less than 58 square meters (624 square feet); three of the remaining populations are composed of fewer than 50 individuals; there are documented severe population declines (exceeding 83 percent) between 1992 and 1996 at three of the eight remaining sites; and all of the remaining populations are currently threatened by fire suppression, highway expansion, right-of-way management with herbicides, drainage ditching, or a combination thereof.

Critical habitat is defined in section 3 of the Act as: (i) The specific areas within the geographical area occupied by a species, at the time it is listed in accordance with the Act, on which are found those physical or biological features (I) essential to the conservation of the species and (II) that may require special management considerations or protection; and (ii) specific areas outside the geographic area occupied by a species at the time it is listed, upon a determination that such areas are essential for the conservation of the species. “Conservation” means the use of all methods and procedures needed to bring the species to the point at which listing under the Act is no longer necessary.

Section 4(a)(3) of the Act, as amended, and implementing regulations (50 CFR 424.12) require that, to the maximum extent prudent and determinable, the Secretary designate any critical habitat at the time the species is listed as endangered or threatened. Our regulations (50 CFR 424.12(a)(1)) state that the designation of critical habitat is not prudent when one or both of the following situations exist—(1) The species is threatened by taking or other human activity, and identification of critical habitat can be expected to increase the degree of threat to the species, or (2) such designation of critical habitat would not be beneficial to the species.

The designation of critical habitat does not, in itself, restrict State or private activities within the area or mandate any specific management or recovery actions. A critical habitat designation contributes to species conservation primarily by identifying important areas and describing the features within those areas that are essential to the species, thus alerting public and private entities to the importance of the area. Under the Act, the only regulatory impact of a critical habitat designation is through the provisions of section 7. Section 7 applies only to actions with Federal involvement (e.g., activities authorized, funded, or conducted by a Federal agency) and does not affect exclusively State or private activities.

Under the Act's section 7 provisions, a designation of critical habitat would require Federal agencies to ensure that any action they authorize, fund, or carry out is not likely to destroy or adversely modify the designated critical habitat. Activities that destroy or adversely modify critical habitat are defined as those actions that “appreciably diminish the value of critical habitat for both the survival and recovery” of the species (50 CFR 402.02). Whether or not there is a critical habitat designation, Federal agencies must ensure that their actions are not likely to jeopardize the continued existence of the listed species. Activities that jeopardize a species are defined as those actions that “reasonably would be expected, directly or indirectly, to reduce appreciably the likelihood of both the survival and recovery” of the species (50 CFR 402.02). Using these definitions, activities that are likely to destroy or adversely modify critical habitat would also be likely to jeopardize the species. Therefore, the protection provided by a critical habitat designation generally duplicates the protection provided under the section 7 jeopardy provision. Critical habitat may provide additional benefits to a species in cases where areas outside the species' currently occupied range have been designated. In these cases, Federal agencies are required to consult with us (50 CFR 402.14(a)) when these designated areas may be affected by their actions. The effects of these actions on designated areas may not have been recognized but for the critical habitat designation.

Theoretically, a designation of critical habitat provides Federal agencies with a clearer indication as to when consultation under section 7 is required, particularly in cases where the action would not result in direct mortality, injury, or harm to individuals of a listed species (e.g., an action occurring within the critical habitat area when or where golden sedge is not present). The critical habitat designation, in describing the essential features of the habitat, also helps determine which activities conducted outside the designated area are subject to section 7 consultation requirements (i.e., activities that may affect essential features of the designated area). For example, a project some distance away that depleted the groundwater in the aquifers that feed the wetland habitat of golden sedge, or otherwise affected an essential feature of the designated habitat, would be subject to the provisions of section 7 of the Act.

In the proposed rule, we found that designation of critical habitat for Carex lutea was not prudent because of the increased risks to the species associated with disclosing specific locations, and because such a designation would not be beneficial to the species. As to increased risks, we determined that because most populations of this species were small, the loss of even a few individuals to activities such as collection for scientific purposes could extirpate the species from some locations. Although taking without a permit is prohibited by the Act from locations under Federal jurisdiction, none of the known populations are located on Federal land. Therefore, we believed that publication of critical habitat descriptions and maps would increase the vulnerability of the species to collection, but would not increase its protection under the Act. In fact, the contractor we hired to conduct the rangewide status survey declined to include directions to the occupied sites in his report, stating: “Due to the extreme rarity of Carex lutea and its vulnerability to extinction, a description of site boundaries or precise directions to population micro sites cannot be provided here” (LeBlond 1996).

In determining in the proposed rule that designation of critical habitat would not benefit the golden sedge, we first noted that all but one of the remaining populations of golden sedge occur on land that is in private ownership, with the other site owned by the NCDOT. In other words, none of the populations occur on Federal land. We realized that Federal involvement with this species may occur through Federal funding for power line construction, maintenance, and improvement; highway construction, maintenance and improvement; drainage alterations; and permits for mineral exploration and mining on non-Federal lands, and that the use of such funding for projects affecting occupied habitat for this species would be subject to review under section 7(a)(2) of the Act. However, this would be true whether or not critical habitat was designated. Furthermore, the precarious status of Carex lutea is such that any adverse modification or destruction of its occupied habitat would also jeopardize its continued existence. Thus, the only potential benefit that would result from critical habitat designation would be notification to Federal, State and local government agencies and private landowners. However, during the listing process, and after a species is listed, we conduct public outreach in affected local communities and with government agencies, so that the owners and managers of all the known populations of C. lutea were made aware of the plant's location and how important it is to protect the plant and its habitat. For these reasons, we concluded that designation of currently occupied habitat as critical habitat would not result in any additional benefit to the species.

Finally, because this species occupies an extremely rare habitat type, little of which remains in an unaltered, functional state, we did not expect that reintroduction to currently unoccupied habitat would be essential for recovery efforts. Therefore, we also concluded that designation of currently unoccupied habitat as critical habitat would not result in any additional benefit to the species.

We received only one comment on our prudency determination. The North Carolina Department of Environment and Natural Resources, in its comments on the proposed rule, concurred that designation of critical habitat for this species would not be beneficial.

However, recent court decisions (e.g., Natural Resources Defense Council v. U.S. Department of the Interior 113 F. 3d 1121 (9th Cir. 1997); Conservation Council for Hawaii v. Babbitt, 2 F. Supp. 2d 1280 (D. Hawaii 1998)) have forced us to reevaluate our “not prudent” finding. The Conservation Council ruling is particularly relevant to our determination. In that case, the court held that in order to conclude that designation would increase the risk to the species, the Service must have evidence of specific threats (such as instances of collection and vandalism) that would be increased by designation of critical habitat. The court said that without species-specific evidence, the fact that there are few plants and that even a single taking could cause the species to become extinct was not sufficient justification for a “not prudent” finding based on increased threat.

We remain concerned that publication of precise maps and descriptions of critical habitat in the Federal Register and local newspapers could increase the vulnerability of this plant to incidents of collection, general vandalism, and trampling by curiosity-seekers. Due to the low numbers of individuals, the small area covered by the eight remaining populations, and the inherent transportability of plants, golden sedge is vulnerable to collection and other disturbance. However, at this time we have no specific evidence of taking, vandalism, illegal collection, or trade of this species. This may be due to its recent description as a new species to science and to the locations of the populations being known by only a few individuals. Also, it is very difficult to monitor such losses on scattered private lands. Nonetheless, in the absence of specific evidence, we cannot conclude that designation would not be prudent based on increased threat.

Without a finding that critical habitat would increase threats to a species, then designation would be prudent if it would provide any benefits to the species. As to benefits of designation, the Conservation Council court held that the mere absence of a species from nonfederal land did not mean that there were no benefits to designating that land as critical habitat, as there could be Federal activity on that land in the future. As to Federal land, the court held that if even as a general rule an action that would adversely modify critical habitat was likely to jeopardize the continued existence of the species, the Service must consider the adverse modification/jeopardy relationship for each species individually. Finally, the court ruled that designation of critical habitat on any type of land serves to educate the public and government officials that this habitat is essential to the protection of the species.

With this taxon, designation of critical habitat may provide some minor benefits to the species. Although the remaining populations of golden sedge are located exclusively on non-Federal lands, there may be Federal actions affecting these lands in the future. Furthermore, the primary regulatory effect of critical habitat designation is to require Federal agencies to consult before taking any action that could destroy or adversely modify critical habitat. While a critical habitat designation for habitat currently occupied by this species would not be likely to change the section 7 consultation outcome because an action that destroys or adversely modifies such critical habitat would also be likely to result in jeopardy to the species, there may be instances where section 7 consultation would be triggered only if critical habitat is designated. Examples could include unoccupied habitat or occupied habitat that may become unoccupied in the future. No such habitat is known at this time, but some may be found in the future. Finally, there will be educational or informational benefits from designating critical habitat.

Reevaluating our prudency determination under the standards mandated by court decisions, we must find that designation of critical habitat for the golden sedge is prudent. However, we are deferring our critical habitat determination due to budgetary constraints associated with the listing program. Our entire FY 2002 budget for listing actions has been consumed due to required compliance with outstanding court orders, settlement agreements, meeting statutory deadlines, and litigation related activities. This final rule is made in accordance with a judicially approved settlement agreement that requires us to submit for publication in the Federal Register a final listing determination for the golden sedge on or before January 26, 2002. Funds are insufficient to also allow us to propose critical habitat with this final determination. Critical habitat designations are costly, requiring mapping, economic analysis, and often public hearings and meetings that are costs above those incurred for listing the species. We will develop a proposal to designate critical habitat for this species as soon as feasible, considering our budget and workload priorities.

Conservation measures provided to species listed as endangered or threatened under the Act include recognition, recovery actions, requirements for Federal protection, and prohibitions against certain practices. Recognition through listing encourages and results in conservation actions by Federal, State, and local agencies, private organizations, and individuals. The Act provides for possible land acquisition and cooperation with the States and requires that recovery actions be carried out for all listed species. The protection required of Federal agencies and the prohibitions against certain activities involving listed plants are discussed, in part, below.

Section 7(a) of the Act, as amended, requires Federal agencies to evaluate their actions with respect to any species that is proposed or listed as endangered or threatened and with respect to its critical habitat, if any is being designated. Regulations implementing this interagency cooperation provision of the Act are codified at 50 CFR part 402. Section 7(a)(2) of the Act requires Federal agencies to ensure that activities they authorize, fund, or carry out are not likely to jeopardize the continued existence of a listed species or to destroy or adversely modify its designated critical habitat. If a Federal action may affect a listed species or its critical habitat, the responsible Federal agency must enter into formal consultation with us.

Federal activities that could impact Carex lutea and its habitat in the future include, but are not limited to, the following—power line construction, maintenance, and improvement; highway construction, maintenance, and improvement; drainage alterations; and permits for mineral exploration and mining. We will work with the involved agencies to secure protection and proper management of C. lutea while accommodating agency activities to the extent possible.

Now that the species has been added to the Federal List of Endangered and Threatened Wildlife and Plants, additional protection from taking is provided when the taking is in violation of any State law, including State trespass laws. The listing also provides protection from inappropriate commercial trade and encourages active management for Carex lutea. Specifically, the Act and its implementing regulations set forth a series of general prohibitions and exceptions that apply to all endangered plants. All prohibitions of section 9(a)(2) of the Act, implemented by 50 CFR 17.61, apply. These prohibitions, in part, make it illegal for any person subject to the jurisdiction of the United States to import or export, transport in interstate or foreign commerce in the course of a commercial activity, sell or offer for sale in interstate or foreign commerce, or remove and reduce the species to possession from areas under Federal jurisdiction. In addition, for plants listed as endangered, the Act prohibits the malicious damage or destruction on areas under Federal jurisdiction and the removal, cutting, digging up, or damaging or destroying of such plants in knowing violation of any State law or regulation, including State criminal trespass law. Certain exceptions to the prohibitions apply to our agents and to State conservation agencies.

The Act and 50 CFR 17.62 and 17.63 also provide for the issuance of permits to carry out otherwise prohibited activities involving endangered plants under certain circumstances. Such permits are available for scientific purposes and to enhance the propagation or survival of the species. We anticipate that few trade permits would ever be sought or issued, because the species is not common in cultivation or in the wild. You may request copies of the regulations on plants from and direct inquiries about prohibitions and permits to the U.S. Fish and Wildlife Service, 1875 Century Boulevard, Atlanta, Georgia (telephone 404/679-4176).

It is our policy, published on July 1, 1994 (59 FR 34272), to identify, to the maximum extent practicable, those activities that would or would not constitute a violation of section 9 of the Act at the time of listing. The intent of this policy is to increase public awareness of the effect of the listing on proposed and ongoing activities within a species' range. The eight remaining populations of Carex lutea occur on non-Federal land. We believe that, based upon the best available information, you can take the following actions without resulting in a violation of section 9 of the Act, only if these activities are carried out in accordance with existing regulations and permit requirements:

(1) Activities authorized, funded, or carried out by Federal agencies ( e.g., wetland modification; power line construction, maintenance, and improvement; highway construction, maintenance, and improvement; and permits for mineral exploration and mining) when such activity is conducted in accordance with any biological opinion issued by us under section 7 of the Act;

(2) Normal agricultural and silvicultural practices, including pesticide and herbicide use, that are carried out in accordance with any existing regulations, permit and label requirements, and best management practices; and

(3) Normal landscape activities around personal residences.

We believe that the following might potentially result in a violation of section 9; however, possible violations are not limited to these actions alone:

(1) Removal, cutting, digging up, damaging, or destroying endangered plants on non-Federal land if conducted in knowing violation of State law or regulation or in violation of State criminal trespass law. North Carolina prohibits the intrastate trade and take of C. lutea without a State permit and written permission from the landowner; and

(2) Interstate or foreign commerce and import/export without previously obtaining an appropriate permit.

We have determined that an environmental assessment, as defined under the authority of the National Environmental Policy Act of 1969, need not be prepared in connection with regulations adopted pursuant to section 4(a) of the Endangered Species Act, as amended. We published a notice outlining our reasons for this determination in the Federal Register on October 25, 1983 (48 FR 49244).

This rule does not contain any new collections of information other than those already approved under the Paperwork Reduction Act, 44 U.S.C. 3501 et seq. , and assigned Office of Management and Budget control number 1018-0094. An agency may not conduct or sponsor, and a person is not required to respond to a collection of information, unless it displays a currently valid control number. For additional information concerning permit and associated requirements for endangered species, see 50 CFR 17.62.

The primary author of this document is Mr. Allen Ratzlaff (see ADDRESSES section).

On November 20, 2001 (66 FR 58097) NMFS published proposed specifications for the summer flounder, scup, and black sea bass fisheries for the 2002 fishing year. The final specifications were published on December 26, 2001 (66 FR 66348). Both the proposed and final specifications addressed reduction of the threshold black sea bass catch level that triggers the minimum mesh-size requirement from 1,000 lb (453.6 kg) to 500 lb (226.8 kg) for Quarter 1 (Jan. through March), and to 100 lb (45.3 kg) for Quarters 2 through 4 (April through December). However, in both the proposed and final rules, the regulation at § 648.14(a)(92) was incorrectly written. It inadvertently referenced the recreational possession limit of 25 black sea bass at § 648.145(a), rather than the minimum mesh threshold catch level of 500 lb (226.8 kg) or 100 lb (45.3 kg) described at § 648.144(a). Section 648.14(a)(2) should have referenced the threshold black sea bass catch level approved by the Mid-Atlantic Fishery Management Council at § 648.144(a), rather than the recreational possession limit at § 648.145(a). This document corrects this error.

On page 66357, in § 648.14(a)(92), sixth line down, remove “§ 648.145(a)” and add, in its place, “648.144(a)(1)(i) (i.e., 500 lb (226.8 kg) from January 1 through March 31, or 100 lb (45.4 kg) from April 1 through December 31), unless the vessel meets the gear restrictions of § 648.144(a).”

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

The A season allowance of the pollock TAC in Statistical Area 630 is 1,122 metric tons (mt) as established by an emergency rule implementing 2002 harvest specifications and associated management measures for the groundfish fisheries off Alaska (67 FR 956, January 8, 2002).

In accordance with § 679.20(d)(1)(i), the Administrator, Alaska Region, NMFS (Regional Administrator), has determined that the A season allowance of the pollock TAC in Statistical Area 630 will soon be reached. Therefore, the Regional Administrator is establishing a directed fishing allowance of 522 mt, and is setting aside the remaining 600 mt as bycatch to support other anticipated groundfish fisheries. In accordance with § 679.20(d)(1)(iii), the Regional Administrator finds that this directed fishing allowance will soon be reached. Consequently, NMFS is prohibiting directed fishing for pollock in Statistical Area 630. Maximum retainable bycatch amounts may be found in the regulations at § 679.20(e) and (f).

This action responds to the best available information recently obtained from the fishery. The Assistant Administrator for Fisheries, NOAA, finds that the need to immediately implement this action to prevent exceeding the amount of the 2002 A season pollock TAC specified for Statistical Area 630 of the GOA constitutes good cause to waive the requirement to provide prior notice and opportunity for public comment pursuant to the authority set forth at 5 U.S.C. 553(b)(3)(B) and 50 CFR 679.20(b)(3)(iii)(A), as such procedures would be unnecessary and contrary to the public interest. Similarly, the need to implement these measures in a timely fashion to prevent exceeding the 2002 A season pollock TAC specified for Statistical Area 630 of the GOA constitutes good cause to find that the effective date of this action cannot be delayed for 30 days. Accordingly, under 5 U.S.C. 553(d), a delay in the effective date is hereby waived.

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