A proposal to amend 14 CFR part 39 to include an AD for the specified model helicopters was published in the Federal Register on May 19, 2003 (68 FR 27006). That action proposed reducing the life limit of the drive shaft from 16,000 hours TIS to 14,000 hours TIS and revising the component history card or an equivalent record to reflect the reduced life limit.

MDHI has issued Service Bulletin SB600N-033, dated December 13, 2001, which specifies reducing the life limit of the drive shaft at the next scheduled maintenance or within 1 year, whichever occurs first.

Interested persons have been afforded an opportunity to participate in the making of this amendment. No comments were received on the proposal or the FAA's determination of the cost to the public. The FAA has determined that air safety and the public interest require the adoption of the rule as proposed.

On July 10, 2002, the FAA issued a new version of 14 CFR part 39 (67 FR 47997, July 22, 2002), which governs the FAA's AD system. The regulation now includes material that relates to altered products, special flight permits, and alternative methods of compliance. However, for clarity and consistency in this final rule, we have retained the language of the NPRM regarding that material.

The FAA estimates that this AD will affect 46 helicopters of U.S. registry, and it will take approximately .5 work hour per helicopter to update the records at an average labor rate of $65 per work hour. Based on these figures, we estimate the total cost impact of the AD on U.S. operators to be $1,495.

The regulations adopted herein will not have a substantial direct effect on the States, on the relationship between the national Government and the States, or on the distribution of power and responsibilities among the various levels of government. Therefore, it is determined that this final rule does not have federalism implications under Executive Order 13132.

For the reasons discussed above, I certify that this action (1) is not a “significant regulatory action” under Executive Order 12866; (2) is not a “significant rule” under DOT Regulatory Policies and Procedures (44 FR 11034, February 26, 1979); and (3) will not have a significant economic impact, positive or negative, on a substantial number of small entities under the criteria of the Regulatory Flexibility Act. A final evaluation has been prepared for this action and it is contained in the Rules Docket. A copy of it may be obtained from the Rules Docket at the FAA, Office of the Regional Counsel, Southwest Region, 2601 Meacham Blvd., Room 663, Fort Worth, Texas.

The FAA proposed to amend 14 CFR Part 39 with a proposed AD. The proposed AD applies to RRD (formerly Rolls-Royce plc) Dart 528-7E, 529-7H, -7E, -8E, -8H, -8X, -8Y, -8Z, 529D-7E, -7H, -8E, -8H, -8X, -8Y, -8Z, 531, 532-2L, -7, -7N, -7P, -7L, -7R, 535-2, -7R, 542 -4, -4K, -10, -10J, -10K, 552-2, 552-7, and -7R turboprop engines. We published the proposed AD in the Federal Register on May 5, 2003 (68 FR 23620). That action proposed to require removal of any Sermetel coating (Omat 7/46) from certain HP turbine discs and IP turbine discs, and inspection of discs after coating removal.

We provided the public the opportunity to participate in the development of this AD. We received no comments on the proposal or on the determination of the cost to the public.

We have carefully reviewed the available data and determined that air safety and the public interest require adopting the AD as proposed.

On July 10, 2002, the FAA published a new version of 14 CFR part 39 (67 FR 47997, July 22, 2002), which governs the FAA's AD system. That regulation now includes material that relates to altered products, special flight permits, and alternative methods of compliance. The material previously was included in each individual AD. Since the material is included in 14 CFR part 39, we will not include it in future AD actions.

We have determined that this AD will not have federalism implications under Executive Order 13132. This AD will not have a substantial direct effect on the States, on the relationship between the national government and the States, or on the distribution of power and responsibilities among the various levels of government.

For the reasons discussed above, I certify that this AD:

(1) Is not a “significant regulatory action” under Executive Order 12866;

(2) Is not a “significant rule” under DOT Regulatory Policies and Procedures (44 FR 11034, February 26, 1979); and

(3) Will not have a significant economic impact, positive or negative, on a substantial number of small entities under the criteria of the Regulatory Flexibility Act.

We prepared a summary of the costs to comply with this AD and placed it in the AD Docket. You may get a copy of this summary by sending a request to us at the address listed under ADDRESSES. Include “AD Docket No. 2003-NE-10-AD” in your request.

Effective for calendar years after 2003, the tier II tax rate will be determined in accord with a formula that relies on the average account benefits ratio. See section 3241 of the Internal Revenue Code as amended by section 204 of Public Law 107-90. The Board has decided to set forth how it will compute the account benefits ratio so that all parties, rail labor, rail management and the public, will be aware of how we intend to compute the account benefits ratio. Part 206 of the Board's regulations deals with the manner by which the account benefits ratio will be computed. Section 206.1 contains definitions of the terms that are used to compute the account benefits ratio. In making these calculations, the Board based its definitions on the language of the statute and the purpose of computing the account benefits ratio.

The term “total benefits and administrative expenses paid” is computed on a cash basis, since the use of the word “paid” demonstrates that the computation should be made on a cash basis. In addition, “total benefits paid” is computed on the basis of net benefits paid, i.e., the gross benefits paid in a particular fiscal year minus any benefit overpayments actually recovered in that fiscal year. The purpose of computing the account benefits ratio is to ensure that there are adequate funds to pay benefits due under the Railroad Retirement Act. Using net benefits paid more accurately reflects the amount of benefits paid in a given year.

The term “assets” is defined in the regulation as the total of the market value of all cash and investments held in the Railroad Retirement Account and the National Railroad Retirement Investment Trust (and for years before 2002, the Social Security Equivalent Benefit Account). Excluded from “assets” is the amount of accounts receivable. While a receivable may be viewed as an asset under certain circumstances, the language of the Railroad Retirement and Survivors' Improvement Act of 2001 leads the Board to conclude that Congress did not contemplate inclusion of accounts receivable in the computation of the account benefits ratio. By providing that the computation is to be made based on the fair market value of the assets in the Investment Trust and the accounts, Congress signaled that the computation should be made based on the amount of cash and the value of investments in the Investment Trust and the accounts. Moreover, disregarding accounts receivable in computing the account benefits ratio is consistent with the cash basis being used to determine total benefits and administrative expenses paid in a given fiscal year.

The term “administrative expenses paid” is also defined in the regulation. All Railroad Retirement Board administrative expenses are currently paid from a single administrative account. The only amounts recorded in the Railroad Retirement Account are “cash transfers” to that administrative account. The amount used for calculating the administrative expenses paid will be the amount of those cash transfers from the Railroad Retirement Account in each fiscal year. Also included in total administrative expenses will be those amounts transferred from the Railroad Retirement Account to the Limitation on the Office of Inspector General. The expenses of the Inspector General are appropriate railroad retirement program expenses that must be considered in determining total administrative expenses. Finally, the administrative expenses of the National Railroad Retirement Investment Trust will also be included in this term.

This rule does not impose additional information collection and record keeping requirements. Consequently, it need not be reviewed by the Office of Management and Budget under the authority of the Paperwork Reduction Act of 1995.

Prior to publication of the proposed rule, the Board submitted this rule to the Office of Management and Budget (OMB) for review pursuant to Executive Order 12866. 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 effects, distributive impacts, and equity). A regulatory impact analysis (RIA) must be prepared for rules that constitute significant regulatory action, including rules that have an economic effect of $100 million or more annually. The proposed rule was not a major rule in terms of the aggregate costs involved. The costs associated with the addition of a new part to the Board's regulations are administrative in nature, and include the costs associated with drafting and publishing the regulation as a proposed and then a final rule. We have determined that this final rule is not a major rule with economically significant effects because it would not result in increases in total expenditures of $100 million or more per year.

OBM determined that the final rule did not need to be reviewed again under Executive Order 12866. Part 206 explains how the Railroad Retirement Board will compute the account benefits ratio in accordance with sections 108 and 204 of the Railroad Retirement and Survivors' Improvement Act of 2001. The purpose of the regulation is to provide a written explanation so that all parties, rail labor, rail management, and the public, will be aware of how the Board intends to compute the account benefits ratio. Thus, the final rule will benefit the agency's constituents, who will be aware of how the account benefits ratio is computed.

Both the Regulatory Flexibility Act and the Unfunded Mandates Act of 1995 define “agency” by referencing the definition of “agency” contained in 5 U.S.C. 551(1). Section 551(1)(E) excludes from the term “agency” an agency that is composed of representatives of the parties or of representatives of organizations of the parties to the disputes determined by them. The Railroad Retirement Board falls within this exclusion (45 U.S.C. 231f(a)) and is therefore exempt from the Regulatory Flexibility Act and the Unfunded Mandates Act.

Executive Order 13132 establishes certain requirements that an agency must meet when it promulgates a rule that imposes substantial direct compliance costs on State and local governments, preempts State law, or otherwise has Federalism implications. We have reviewed this final rule under the threshold criteria of Executive Order 13132 and have determined that it would not have a substantial direct effect on the rights, roles, and responsibilities of States or local governments.

This rule was published as a proposed rule on December 18, 2002 (67 FR 77447). The proposed rule invited the public and interested parties to comment on the proposed rule. No comments were received.

What Programs Do These Regulations Affect?

These regulations affect disability determinations and decisions we make for you under title II and title XVI of the Social Security Act (the Act). In addition, to the extent that Medicare and Medicaid eligibility are based on entitlement to benefits under title II and eligibility for benefits under title XVI, these regulations also affect the Medicare and Medicaid programs.

Under title II of the Act, we provide for the payment of disability benefits if you are disabled and belong to one of the following three groups:

• Workers insured under the Act,

• Children of insured workers, and

• Widows, widowers, and surviving divorced spouses (see 20 CFR 404.336) of insured workers.

Under title XVI of the Act, we provide for Supplemental Security Income (SSI) payments on the basis of disability if you have limited income and resources.

Under both the title II and title XVI programs, disability means the inability to “* * * engage in any substantial gainful activity by reason of any medically determinable physical or mental impairment which can be expected to result in death or which has lasted or can be expected to last for a continuous period of not less than 12 months.” (Sections 223(d)(1)(A) and 1614(a)(3)(A) of the Act.) This definition applies if you file a claim under title II or if you file a claim as an adult under title XVI. (There is a different definition of disability for children filing under title XVI. See section 1614(a)(3)(C) of the Act.)

In addition, we only consider you to be disabled if your physical or mental impairment(s) is so severe that you are not only unable to do your previous work, but you cannot, considering your age, education, and work experience, engage in any other kind of substantial gainful work that exists in the national economy. This is true regardless of whether this kind of work exists in the immediate area in which you live, or whether a specific job vacancy exists for you, or whether you would be hired if you applied for work. (See sections 223(d)(2)(A) and 1614(a)(3)(B) of the Act.)

We will not consider you under a disability unless you furnish medical and other evidence that we need to show that you are disabled. (See section 223(d)(5)(A) and, by reference to section 223(d)(5), section 1614(a)(3)(H) of the Act.) However, when we decide whether you are disabled (or whether you continue to be disabled), we will develop a complete medical history of at least the preceding twelve months for any case in which we decide that you are not disabled. (See sections 223(d)(5)(B) and 1614(a)(3)(H) of the Act.)

Section 205(a) of the Act and, by reference to section 205(a), section 1631(d)(1) provide that:

To decide whether you are disabled under this statutory definition, we use a five-step sequential evaluation process, which we describe in our regulations at §§ 404.1520 and 416.920. We follow the five steps in order and stop as soon as we can make a determination or decision. The steps are:

1. Are you working and is the work you are doing substantial gainful activity? If you are working and the work you are doing is substantial gainful activity, we find that you are not disabled regardless of your medical condition or your age, education, and work experience. If you are not, we go on to step 2 of the sequence.

2. Do you have any impairment or combination of impairments which significantly limits your physical or mental ability to do basic work activities? If you do not, we find that you are not disabled. If you do, we go on to step 3 of the sequence.

3. Do you have an impairment(s) that meets or equals the severity of an impairment listed in appendix 1 of subpart P of part 404 of our regulations? If you do, and the impairment(s) meets the duration requirement, we find you disabled. If you do not, we go on to step 4 of the sequence.

4. Considering your RFC and the physical and mental demands of the work you have done in the past, does your impairment(s) prevent you from doing your past relevant work? If not, we find that you are not disabled. If so, we go on to step 5 of the sequence.

5. Considering your RFC and your age, education, and past work experience, does your impairment(s) prevent you from doing any other work? If it does, and your impairment(s) meets the duration requirement, we find that you are disabled. If it does not, we find that you are not disabled.

We use different sequential evaluation processes if we are deciding whether your disability continues. (See §§ 404.1594 and 416.994 of our regulations.) However, these different processes also include steps that consider your RFC and past relevant work, and your ability to adjust to other work considering your RFC, age, education, and work experience.

We are changing several sections in subpart P of part 404 and subpart I of part 416 to clarify our longstanding rules about how we make determinations and decisions for initial applications at steps 4 and 5 of the sequential evaluation process. The changes will also apply to steps 7 and 8 of the sequential evaluation processes for determining continuing disability in § 404.1594(f), and steps 6 and 7 in § 416.994(b)(5). However, for clarity we will refer in this preamble only to the steps of the sequential evaluation process for initial applications.

Several of the revisions clarify our longstanding interpretation of our rules that we assess your RFC once, after we have found that you have a severe impairment(s) that does not meet or equal a listing; i.e., after step 3 but before we consider step 4. We use this RFC assessment first to determine, at step 4, whether you are able to do any of your past relevant work. If we determine that you cannot perform your past relevant work, or you have no past relevant work, we use the same RFC assessment at step 5 to determine whether you are able to make an adjustment to other work, given your RFC, age, education, and work experience.

Under the Act and §§ 404.1512 and 416.912 of our regulations, you generally have the burden of proving your disability. You must furnish medical and other evidence we can use to reach conclusions about your impairment(s) and its effect on your ability to work on a sustained basis. Our responsibility is to make every reasonable effort to develop your complete medical history. That includes arranging for consultative examinations, if necessary, and making every reasonable effort to get medical reports from your own medical sources. We are responsible for helping you produce evidence that shows whether you are disabled.

Our administrative process was designed to be nonadversarial. (See §§ 404.900(b) and 416.1400(b) of our regulations; Richardson v. Perales, 402 U.S. 389, 403 (1971); Sims v. Apfel, 120 S. Ct. 2080, 2083-85, 2086 (2000).) In addressing burdens of proof, it is critical to keep in mind that we are using a term in our nonadversarial administrative process that describes a process normally used in adversarial litigation. “Burdens of proof” operate differently in the disability determination process than in a traditional lawsuit.

In the administrative process, the burden of proof generally encompasses both a burden of production of evidence and a burden of persuasion about what the evidence shows. (Director, OWCP v. Greenwich Collieries, 512 U.S. 267, 273 (1994) (citing Powers v. Russell, 30 Mass. 69, 76 (1833).) You shoulder the dual burdens of production and persuasion through step 4 of the sequential evaluation process. (See Bowen v. Yuckert, 482 U.S. 137, 146 n.5 (1987).)

Although you generally bear the burden of proving disability throughout the sequential evaluation process, there is a limited shift in the burden of proof to us “only if the sequential evaluation process proceeds to the fifth step * * *.” Bowen v. Yuckert, id. When the process proceeds to the fifth step, this means that you have demonstrated the existence of a severe impairment(s) resulting in an RFC that prevents the performance of past relevant work. When we decide that you are not disabled at step 5, this means that we have determined that there is other work you can do. To make this finding, we must provide evidence that demonstrates that jobs exist in significant numbers in the national economy that you can do, given your RFC, age, education, and work experience. In legal terms, this is a burden of production of evidence.

This burden shifts to us because, once you establish that you are unable to do any past relevant work, it would be unreasonable to require you to produce vocational evidence showing that there are no jobs in the national economy that you can perform, given your RFC. However, as stated by the Supreme Court, “It is not unreasonable to require the claimant, who is in a better position to provide information about his own medical condition, to do so.” Bowen v. Yuckert, id. Thus, the only burden shift that occurs at step 5 is that we are required to prove that there is other work that you can do, given your RFC, age, education, and work experience. That shift does not place on us the burden of proving RFC.

When the burden of production of evidence shifts to us at step 5, our role is to obtain evidence to assist in impartially determining whether there is a significant number of jobs in the national economy you can do. Thus, we have a burden of proof even though our primary interest in the outcome of the claim is that it be decided correctly. As required by the Act, the ultimate burden of persuasion to prove disability, however, remains with you.

The second sentence of §§ 404.1501(g) and 416.901(j) is very long, and it includes a number of clauses. We are clarifying this sentence by numbering and listing the clauses and by revising some language. This includes clarifying, in new paragraphs (g)(2) and (j)(2), that assessment of RFC is our responsibility (“our residual functional capacity assessment”) and that we use this assessment at steps 4 and 5 of the sequential evaluation process.

We are revising the second sentence, deleting the third sentence in §§ 404.1505(a) and 416.905(a), redesignating the fourth sentence as the last sentence in § 404.1505(a) and adding four new sentences after the second sentence. The revisions in the second sentence clarify our longstanding policy that, when we consider your “previous work,” we consider only work that was “past relevant work.” Past relevant work is work that you performed within the past 15 years, that was substantial gainful activity, and that lasted long enough for you to learn how to do it. (See Social Security Ruling (SSR) 82-62, “Titles II and XVI: A Disability Claimant's Capacity To Do Past Relevant Work, In General,” Social Security Rulings, Cumulative Edition, 1982, p. 158.)

The previous third sentence explained that we consider your RFC, age, education, and work experience when we determine whether you can do other work; i.e., at step 5 of the sequential evaluation process. We are replacing this sentence (and the fourth sentence in § 404.1505(a)) with four new sentences that provide more detail about this policy, including cross-references to our rules on the sequential evaluation process and RFC. They also clarify that we assess RFC once, and that we use this assessment at both step 4 and step 5 of the sequential evaluation process.

We are making several revisions in these sections to clarify both your responsibility and our responsibility. We are changing the heading of these sections from “Evidence of your impairment” to “Evidence” because, as we discuss below, we are adding a provision that is not about evidence of your impairment; i.e., a provision that is about our responsibility, at step 5 of the sequential evaluation process, to provide evidence of the existence of jobs.

We are making two changes in paragraph (c) to make it clearer. These are not substantive changes. First, we are adding a new second sentence to paragraph (c) to clarify, consistent with the remainder of the paragraph, that we may ask for non-medical information about functioning or about other non-medical issues in addition to medical information. Second, we are making a slight modification to the previous second sentence (now the third sentence) to make it clearer.

We also are adding a new paragraph (g), “Other work” explaining our burden at step 5. It explains that, in order to determine that you can make an adjustment to other work, we must provide evidence of the existence of work in the national economy that you can do, given your RFC and vocational factors. The new paragraph includes cross-references to regulations that explain how we evaluate your ability to do other work (§§ 404.1560 through 404.1569a and 416.960 through 416.969a, as appropriate).

The new paragraph also clarifies, by including the phrase “make an adjustment to other work,” our longstanding interpretation of the statutory requirement that we consider your age, education, and work experience as well as your impairment(s) when we determine the ability to do other work at step 5.

Our use of the phrase “make an adjustment to other work” is not new. We used the phrase when we originally published proposed rules on the medical/vocational guidelines in appendix 2, subpart P of regulations part 404 (the grid rules) in 1978:

We are revising the language in paragraph (a) of these sections to make it clearer. We are dividing it into five separate paragraphs ((a)(1) through (a)(5)) with headings. We also are modifying the previous language to explain more clearly what the five steps of the sequential evaluation process are, and to reflect the provisions of new paragraph (e), which we discuss below.

We are adding a new paragraph (e) to this section to explain that, after we decide that you are not working and have a severe impairment(s) that does not meet or equal any listing, we will assess your RFC. We then use this RFC assessment at step 4 to determine whether you are able to do any past relevant work and, if we make a determination at step 5, we use the same RFC assessment in determining whether you can do any other work.

Because we are adding a new paragraph (e), we are redesignating previous paragraphs (e) and (f) as paragraphs (f) and (g). We are also revising these paragraphs to make changes consistent with the changes we are making to other rules already described. For example, they now refer to “our residual functional capacity assessment,” to “past relevant work” (instead of “work you have done in the past” or “past work experience”), and to making “an adjustment to other work.” Likewise, new paragraph (g) (previous paragraph (f)) clarifies that, at step 5, we consider “the same residual functional capacity assessment” we used at step 4. In new paragraph (f) (previous paragraph (e)), we are changing the phrase, “[i]f we cannot make a decision based on your current work activity or on medical facts alone,” to “[i]f we cannot make a determination or decision at the first three steps of the sequential evaluation process,” in order to make it clear that this language has always referred to determinations or decisions at steps 1, 2 and 3 of the sequential evaluation process. We are also making a comparable conforming change to §§ 404.1560(a) and 416.960(a). In the final rules we are adding new cross-references that were not in the proposed rules. These references are in §§ 404.1520(a)(4)(iv) and 416.920(a)(4)(iv) (referencing new §§ 404.1560(b) and 416.960(b)), and in §§ 404.1520(a)(4)(v) and 416.920(a)(4)(v) and §§ 404.1520(g) and 416.920(g) (referencing new §§ 404.1560(c) and 416.960(c)).

We are also revising the language that was in previous paragraph (f)(2) (new paragraph (g)(2)) to reflect that we are adding a second special medical-vocational profile under which we may find you disabled without referring to our grid rules. When we discuss changes we are making to §§ 404.1562 and 416.962 later in this document, we explain the second profile and our reasons for including it in the regulations. We are also modifying the language that was in previous paragraph (f)(2) (new paragraph (g)(2)) to delete the partial description of the first special medical-vocational profile because it was duplicative of information already contained in §§ 404.1562 and 416.962.

Finally, we are making a number of minor editorial changes to language that was in previous paragraphs (e) and (f) (new paragraphs (f) and (g)).

To make paragraph (a) easier to understand, we are revising the paragraph by breaking it into five numbered paragraphs ((a)(1) through (a)(5)) with headings. We also are reorganizing and clarifying some of the text.

In new paragraph (a)(3), “Evidence we use to assess your residual functional capacity,” we are including a reference to §§ 404.1512(c) or 416.912(c) (as appropriate), which explains your burden to provide evidence of the existence and severity of your impairment(s) and how it affects your functioning, and our responsibility to develop a complete medical history and to arrange for a consultative examination(s) if necessary.

In new paragraph (a)(5), “How we will use our residual functional capacity assessment,” we are explaining that we first use our RFC assessment to decide if you can do past relevant work and to explain that, if you cannot do past relevant work, or do not have any past relevant work, we use the same assessment to decide, at step 5, if you can make an adjustment to other work.

In addition, we are making other changes in paragraph (a) to clarify our rules. In new paragraph (a)(1), “Residual functional capacity assessment,” we are adding a sentence to explain that RFC is the most you can do despite your limitations. This incorporates into our regulations a clarification that we currently provide in SSR 96-8p, “Titles II and XVI: Assessing Residual Functional Capacity in Initial Claims,” 61 FR 34474 (July 2, 1996). We are also making a minor change to the language that appeared in proposed paragraph (a)(2) to incorporate another clarification provided in that SSR. The new paragraph explains that, when we assess RFC, we will consider all medically determinable impairments of which we are aware, including impairments that are not “severe.”

New paragraph (a)(3) clarifies the fifth, sixth, and seventh sentences of previous paragraph (a), which discusses the evidence we consider when assessing RFC. Our intent is to clarify three points about how we consider evidence of pain and other symptoms in our RFC assessments. First, we make clear that the phrase “observations by your treating and examining physicians or psychologists”, that had appeared in previous paragraph (a), includes “statements about what you can still do,” as discussed in §§ 404.1513 and 416.913. Second, we clarify that we consider descriptions and observations of your impairment-related limitations from both medical and non-medical sources. Third, by removing the phrase “that are important in the diagnosis and treatment of your medical condition” from the fifth sentence of previous paragraph (a), we make clear that we consider all limitations that result from your medically determinable impairments, not just those that are important in the diagnosis and treatment of a medical condition. We also are deleting the entire eighth sentence of previous paragraph (a), which could have been misinterpreted to mean that we may or may not consider evidence that we already have. Because that is not our intent, and because these final rules make clear that we consider all relevant medical and nonmedical evidence in the case record, we believe this sentence is unnecessary.

We are revising the last sentence of previous paragraph (a) (now the last sentence of new (a)(5)(ii)) to remove the language that discusses our rules on RFC assessment in deciding whether your disability continues or ends. Those rules are already discussed in §§ 404.1594 and 416.994, and the new language simply directs you to those sections.

We made a minor editorial change to proposed §§ 404.1545(a)(5)(ii) and 416.945(a)(5)(ii) to clarify that we consider if you can make an adjustment to “any” other work. This change retains language from §§ 404.1561 and 416.961, being deleted by these rules. In § 416.945(a)(5)(ii), we also made a minor change to the next to the last sentence of the proposed rule by adding the word “assessment” to conform it to the language in proposed (and new) § 404.1545(a)(5)(ii).

We are making a number of other editorial changes to the previous rule. These changes are intended only to clarify the previous language and to reorganize the provisions into a more logical order.

We are revising the heading of these sections, which were previously titled “Responsibility for assessing and determining residual functional capacity.” to “Responsibility for assessing your residual functional capacity.” The two words “and determining” are superfluous. Our assessment is our determination about RFC.

Because of agency reorganizations, we are changing the title in the existing regulations in paragraph (b) of these sections, “Director of the Office of Disability Hearings” and in the proposed regulations in paragraph (b) of these section, “Associate Commissioner for Disability” to “Associate Commissioner for Disability Determinations” because this individual or his or her delegate is now responsible for assessing residual functional capacity in the disability hearing process.

The other changes we are making in this section are editorial. To make the section easier to understand, we are breaking up the previous single paragraph into three separate paragraphs that address the responsibilities of:

• State agency medical and psychological consultants (new paragraph (a)),

• State agency disability hearing officers (new paragraph (b)), and

• Administrative law judges and Appeals Council administrative appeals judges (new paragraph (c)).

We are making minor editorial changes to the wording in proposed paragraph (c) to make it clearer.

We are changing the previous heading, putting it into active voice, to make the meaning clearer.

We are also making changes in paragraphs (a) “General,” (b) “Past relevant work,” and (c) “Other work,” consistent with the changes we are making in other sections, already noted above.

For clarity, we are revising paragraph (b) by dividing it into three paragraphs with headings, designated (b)(1) through (b)(3). We are adding a new sentence in new paragraph (b)(1), “Definition of past relevant work,” defining “past relevant work” as work you have done within the past 15 years, that was substantial gainful activity, and that lasted long enough for you to learn how to do it. This definition is based on our longstanding interpretation in SSR 82-62, already noted above. We also are adding a cross-reference to § 404.1565(a) or 416.965(a), as appropriate, because these paragraphs explain how we determine the 15-year period.

In paragraph (b)(2), “Determining whether you can do your past relevant work,” we are adding new language to explain how we obtain information that we need to determine, at step 4 of the sequential evaluation process, whether your impairment(s) prevents you from doing your past relevant work. The new language indicates that we ask you for information about work you have done in the past, and that we may ask other people who know about your past work. This is consistent with the provisions in §§ 404.1565(b) and 416.965(b), and we are including a cross-reference to each of those sections, as appropriate, in new paragraph(b)(2).

We also are explaining in new paragraph(b)(2) that we may use the services of VEs or VSs, or other resources such as the “Dictionary of Occupational Titles,” to obtain evidence that we need to help us determine whether you can do your past relevant work. This is a longstanding policy interpretation set out in SSR 82-61, “Titles II and XVI: Past Relevant Work—The Particular Job or the Occupation As Generally Performed,” Social Security Rulings, Cumulative Edition, 1982, p. 185.

In response to a public comment, we are making changes to the language that appeared in proposed paragraph (b)(2) to clarify the role of a VE at step 4 and to clarify that, if we obtain additional evidence at step 4, that evidence is used to help our adjudicators decide if an individual can do his or her past relevant work.

We are editing the second sentence of previous paragraph (b), making it into two sentences for clarity, and redesignating it as new paragraph (b)(3), “If you can do your past relevant work.” Based on a public comment we received in response to the notice of proposed rulemaking, we are also revising proposed paragraph (b)(3) to clarify that, in determining whether you have the RFC to do your past relevant work, we do not consider whether the past relevant work exists in significant numbers in the national economy. In response to this comment, we are also making related clarifying changes to proposed paragraphs (b)(3) and (c) and to §§ 404.1569a and 416.969a.

We are modifying previous paragraph (c) to make clear that, if we decide at step 5 that you are not disabled, we are responsible for providing evidence of other work you can do (consistent with new §§ 404.1512(g) and 416.912(g)). The modified paragraph also makes clear that we are not responsible for providing additional evidence of RFC or for making another RFC assessment at step 5. This is because we use the same RFC assessment at step 5 that we made before we considered whether you have the RFC to do past relevant work at step 4, a point in our process at which you have the burdens of production and persuasion.

We are also making minor changes to the language that appeared in proposed paragraph (c) to conform it with the new language in §§ 404.1520 and 416.920 which explains that at step 5 we consider whether you are able to “adjust to” any other work.

We are removing these sections because their provisions are incorporated into other new and existing rules. We are making additional revisions to the language that appeared in proposed rules in §§ 404.1520(g) and 416.920(g), 404.1545(a)(5)(ii) and 416.945(a)(5)(ii), and 404.1560(c)(1) and 416.960(c)(1) to better reflect the provisions of deleted §§ 404.1561 and 416.961.

We are revising and updating the headings of these sections in order to reflect changes we are making to their content.

Previously, §§ 404.1562 and 416.962 described one special medical-vocational profile. Under that profile, if you have only a marginal education and work experience of 35 years or more during which you did arduous unskilled labor, and you are not working and are no longer able to do this kind of work because of a severe impairment, we will find that you are disabled. We consider this special medical-vocational profile at step 5 of the sequential evaluation process, before we consider the grid rules. We do this because we have decided that, if you match this profile, you do not have the ability to adjust to other work (i.e., you are disabled)—regardless of your age. If you meet this profile, and are age 60 or over, we would usually find you disabled using our grid rules. However, if you are under age 60, you might not qualify without this special rule.

Although we have changed the language somewhat over the years, this medical-vocational profile has been in our regulations since 1960 (when it was at § 404.1502(c)). However, the language in previous §§ 404.1562 and 416.962 needed to be updated to be consistent with our current rules and policies. For example, the last sentence of the paragraph before the example spoke about the ability to do other work “on a full-time or reasonably regular part-time basis.” However, in SSR 96-8p, we explain that at step 5 we consider only full-time work when we consider other work you are able to do. (See 61 FR 34474, 34475 (July 2, 1996).) Other provisions in the medical-vocational profile have been made obsolete or been superseded by more recent regulations, such as our rules on doing substantial gainful activity at step 1 of the sequential evaluation process, and our rules on transferability of skills in §§ 404.1568(d)(4) and 416.968(d)(4).

We therefore are deleting the second and third sentences of the previous sections and revising the example. These changes only make the rule more consistent with our current policies and will not affect anyone whom we would have found disabled under the previous rule. We are also changing the occupation title that appeared in the proposed example to paragraph (a) from “miner” to “miner's helper” because there are some highly skilled mining occupations that would not meet the qualifications for this medical-vocational profile.

We are designating all the language discussing this first medical-vocational profile as paragraph (a) of revised §§ 404.1562 and 416.962 in order to distinguish it from the second medical-vocational profile in new paragraph (b), discussed below. We also are making a conforming change to the third sentence of section 203.00(b) in appendix 2 to subpart P of part 404, to reflect these changes.

We are adding to §§ 404.1562 and 416.962 a second special medical-vocational profile that we have been using since 1975, but that has not been in our regulations. We are designating the language discussing the second medical-vocational profile as paragraph (b). Under this profile, we will find you disabled if you:

• Are of “advanced age” (i.e., are at least 55 years old);

• Have a “limited” education or less (i.e., generally, an 11th grade education or less—see §§ 404.1564(b)(3) and 916.964(b)(3));

• Have no past relevant work (i.e., either no work experience or no work experience that satisfies our definition of “past relevant work”); and

• Have a “severe,” medically determinable impairment(s).

If you have these characteristics, we would usually find you disabled using our grid rules. However, if you have solely “nonexertional” limitations (see § 200.00(e) of appendix 2 to subpart p of part 404), you might not qualify without this special profile.

The original instruction for this profile dates back to a policy decision of July 7, 1975. In 1982, we incorporated this profile into SSR 82-63, “Titles II and XVI: Medical-Vocational Profiles Showing an Inability To Make an Adjustment to Other Work” (see Social Security Rulings, Cumulative Edition, 1982, page 205). Therefore, the new rule incorporates our longstanding policy interpretation into our regulations.

We also are clarifying in paragraph (b) and other related rules that, if you meet the second medical-vocational profile, we do not have to assess RFC. This is because, once we have determined that you have a “severe” impairment(s) and that you meet the other criteria in the profile, we will find you disabled, and we will not need an RFC assessment. We recognize that, in most cases, our normal sequential evaluation process would require us to do an RFC assessment before we determine that you have no past relevant work. However, because you must only have a “severe” impairment(s) under this profile, and your advanced age, limited education, and lack of past relevant work should be readily apparent from the case record, an RFC assessment is unnecessary.

We are making only editorial changes to the second sentence of paragraph (a).

We are deleting the seventh sentence of paragraph (a), “General,” and adding three new sentences in its place. These changes are consistent with other changes discussed above.

We are making a minor change to proposed §§ 404.1569a and 416.969a at the end of the third new sentence to refer to, “any other work which exists in the national economy.” We believe that this revision, which retains more of the language from these sections prior to these amendments, helps clarify that “other work”, as distinguished from a claimant's previous work, must exist in significant numbers in the national economy.

We are revising the first sentence of § 404.1594(f)(7) and § 416.994(b)(5)(vi), which contain essentially the same language, in order to update the cross-references. This is necessary due to the changes we are making to §§ 404.1560 and 416.960 and the removal of §§ 404.1561 and 416.961.

As already noted, we are revising the third sentence of section 203.00(b) to conform to the changes in new §§ 404.1562(a) and 416.962(a).

Public Comments: We published these regulatory provisions in the Federal Register as a Notice of Proposed Rulemaking (NPRM) on June 11, 2002 (67 FR 39904). We provided the public a 60-day comment period. The comment period closed on August 12, 2002. We heard from eight commenters in response to this notice. The commenters included attorneys, an organization whose members include attorneys and others who represent the interest of disabled persons, a State agency that makes disability determinations on our behalf, and individuals who did not identify a particular affiliation. A summary of the comments we received and our responses to the comments are set out below.

Because some of the comments were detailed and lengthy, we have condensed, summarized, or paraphrased them. We have, however, tried to summarize the commenters” views accurately and to respond to all of the significant issues raised by the commenters that are within the scope of these rules.

Comment: One commenter expressed concerns about whether the proposed revisions would apply to all cases or if they would only apply to cases filed after the effective date of the revisions. This commenter stated that it would be preferable to apply the new rules only to cases filed after the effective date of the revisions.

Response: These new rules, as stated in DATES, above, will be effective 30 days after the date published in the Federal Register. As is our usual practice when we amend our regulations, the new rules will apply to all administrative determinations and decisions made on or after that effective date, regardless of the date on which an application was filed.

Comment: This same commenter stated that although the burden is on the claimant to produce evidence to show disability, the 5th Circuit Court of Appeals has ruled that the Commissioner has the burden of ensuring that evidentiary gaps are filled and the record is complete. The commenter stated that, if an administrative law judge (ALJ) is not satisfied with the development of the record, he or she should “reset the case” to complete the record if possible, rather than issue an unfavorable decision.

Response: We believe that our existing regulations (§§ 404.1512(d) and 416.912(d)) and the new rules at §§ 404.1545(a)(3) and 416.945(a)(3) address the commenter's concerns, and clearly explain our responsibility to develop the record and to assist claimants in obtaining evidence. Before making a determination that an individual is not disabled, our adjudicators, including ALJs, will develop the individual's complete medical history.

Comment: One commenter stated that the proposed rules should clarify at § 404.1560 that past relevant work must exist in the national economy in order to be considered as past relevant work for the purpose of denying benefits under the sequential evaluation process. He stated that finding an individual can perform past work that no longer exists is not in conformity with the Social Security Act's requirement that, to be considered gainful employment, work must exist in the national economy.

Response: We do not agree with the commenter's interpretation of the Social Security Act. Sections 223(d)(2)(A) and 1614(a)(3)(B) of the Act provide that:

Comment: One commenter stated that the proposed rules would not be a clarification of our rules, but a change. He stated that the proposed rules would force claimants to prove at step 4 that they cannot do other work (their past job, as performed in the national economy) against testimony from a trained VE. He stated that it is not fair that the claimant would have the burden of proof at step 4, yet have no ability to rebut testimony from a trained expert, and that VE testimony and all opinion evidence regarding other work should be limited to step 5 where the Commissioner has the burden of proof.

Response: We do not agree that these new rules represent a change in policy. Our longstanding policy is that evaluation of ability to do past relevant work at step 4 involves two aspects. We will find that a claimant is not disabled at this step if he or she retains the physical and mental capacity to perform either the functional demands and job duties of a particular past relevant job (i.e., the job as the individual actually performed it) or the functional demands and job duties of the occupation as generally required by employers throughout the national economy. (See SSR 82-61: “Titles II and XVI: Past Relevant Work—The Particular Job or the Occupation as Generally Performed.”) Thus, evaluation of capacity to do past relevant work as generally performed in the national economy is not, as the commenter suggests, an assessment of ability to do “other work” (i.e., step 5 of sequential evaluation). In addition, allowing for expert testimony on the issue of how work is generally performed in the national economy is not unfair. VE testimony can be examined and rebutted at any step of sequential evaluation.

Comment: One commenter, who generally supported the proposed rules, recommended that the new rules clarify that adjudicators may obtain VE testimony about past relevant work, but that such testimony is not required. The commenter also suggested that we clarify that the VE's role at step 4 should be limited to explaining how the claimant's past relevant work is normally performed in the national economy. The commenter stated that the VE should not determine whether the claimant's description of past relevant work is credible or whether the claimant can perform past relevant work, either as it is normally performed in the national economy or as he or she actually previously performed it. According to the commenter, it is the administrative law judge's, not the VE's, duty to determine whether a claimant can continue to perform past work. The commenter also suggested that we include a cross-reference to §§ 404.1560(c) and 416.960(c) in several sections of the regulations that address the concept of “other work.”

Response: We agree with the suggestion about adding cross-references and have added them to new § 404.1520(a)(4)(iv) and (v) and § 416.920(a)(4)(iv) and (v). We also agree that VE testimony is not a requirement at step 4, but that VE testimony may be obtained at step 4 to provide evidence to help us determine whether or not an individual can do his or her past relevant work. We do not agree that the VE is or should be limited to testifying about how an individual's past relevant work is normally performed in the national economy. Although we agree that the ultimate responsibility for making the necessary findings at step 4 rests with our adjudicators, we believe that it is appropriate for our adjudicators to consider evidence from a VE, VS, or other vocational resource (along with the other evidence in the case record) on a broad range of step 4 issues to help them decide if an individual can do his or her past relevant work. A VE or VS may offer relevant evidence within his or her expertise or knowledge concerning the physical and mental demands of a claimant's past relevant work, as he or she actually performed it or as it is generally performed. Such testimony may be helpful in supplementing or evaluating the accuracy of the claimant's description of his past work. In addition, a VE or VS may offer expert opinion testimony in response to a hypothetical question about whether a person with the physical and mental limitations (as determined by our adjudicator) imposed by the claimant's medical impairments can meet the demands of the claimant's previous work, either as the claimant actually performed it in the past or as that work is generally performed. In response to this comment about the role of the VE at step 4, we are making additional revisions to §§ 404.1560(b)(2) and 416.960(b)(2) to clarify our policy in this regard.

Comment: One commenter stated that a VE should not play any role at all in the disability process.

Response: The commenter did not explain why she stated that VEs should play no role in the disability claims adjudication process. We do not agree, and we made no changes in our longstanding policy based on this comment.

Several of the comments we received were outside the scope of the proposed rules. Two commenters asked us to provide additional clarification about aspects of step 5 of sequential evaluation that are not within the scope of these rules. Another commenter asked about claimants being able to record hearings before an ALJ. One commenter provided observations relating to her own claim for benefits. Because these comments were outside the scope of these rules, we are not addressing them.

We have consulted with the Office of Management and Budget (OMB) and determined that these rules do meet the criteria for a significant regulatory action under Executive Order 12866, as amended by Executive Order 13258. Thus, they were subject to OMB review.

We certify that these regulations will not have a significant economic impact on a substantial number of small entities because they affect only individuals. Therefore, a regulatory flexibility analysis as provided in the Regulatory Flexibility Act, as amended, is not required.

These final rules contain amended reporting requirements at §§ 404.1560 and 416.960 of the final regulation. The public reporting burden is accounted for in the Information Collection Request for the various forms that the public uses to submit the information to SSA. Consequently, a 1-hour placeholder burden is being assigned to the specific reporting requirement(s) contained in these rules. We are seeking clearance of the burden referenced in these rules because the rules were not considered during the clearance of the form.

SSA solicited public comment in the notice of proposed rulemaking and subsequently received and incorporated suggestions from the public that have resulted in revision to these two sections of the regulation. As a result, SSA is soliciting comments in the final rule on the burden estimate; the need for the information; its practical utility; ways to enhance its quality, utility and clarity; and on ways to minimize the burden on respondents, including the use of automated collection techniques or other forms of information technology. While these rules will be effective September 25, 2003, these burdens will not be effective until cleared by OMB.

An Information Collection Request has been submitted to OMB for clearance. Comments may be mailed or faxed to the Office of Management and Budget and the Social Security Administration at the following addresses/fax numbers:

Comments can be received up to 30 days after publication of this notice. To receive a copy of the OMB clearance package, you may call the SSA Reports Clearance Officer on 410-965-0454.

In the Federal Register of May 27, 1980 (45 FR 35576), FDA published an advance notice of proposed rulemaking to establish a monograph for OTC anorectal drug products together with the recommendations of the Advisory Review Panel on OTC Hemorrhoidal Drug Products (the Hemorrhoidal Panel), which was the advisory review panel responsible for evaluating the data on the active ingredients in this class of drugs. The agency's tentative final monograph (TFM) on OTC anorectal drug products was published in the Federal Register of August 15, 1988 (53 FR 30756). Hydrocortisone as a single ingredient or in combination with pramoxine HCl was not discussed in the TFM. In response to the TFM, the agency received a submission, containing data, information, analyses, views, legal arguments, and a hearing request, to support monograph status for a combination OTC drug product containing hydrocortisone and pramoxine HCl for use as an anti-inflammatory, antipruritic, anesthetic agent (Ref. 1). The requester asked that: (1) The definition section of the proposed anorectal monograph (§ 346.3 (21 CFR 346.3)) be amended to provide for a drug that has anti-inflammatory properties, such as hydrocortisone, (2) hydrocortisone be allowed to be combined with other appropriate ingredients at OTC strengths, including a topical anesthetic such as pramoxine HCl and, (3) a combination of hydrocortisone 0.5 percent and 1 percent pramoxine HCl be generally recognized as safe and effective.

When the OTC anorectal drug products final monograph was published on August 3, 1990 (55 FR 31776 at 31779), the hearing request relating to hydrocortisone individually and in combination had not been evaluated and, therefore, was not addressed in that document. After publication of the final rule, the agency responded to the submission (Ref. 1) and stated that: (1) It does not provide sufficient evidence to demonstrate that each of the active ingredients in the combination product contributes to the claimed effects and (2) it has not been shown that the combination is generally recognized as safe and effective, whether under the TFM for OTC external analgesic drug products (48 FR 5852, February 8, 1983), the TFM or FM for OTC anorectal drug products, current regulations, or the agency's OTC combination drug product guidelines. The agency's detailed comments are on file in the Division of Dockets Management (Ref. 2).

Subsequently, the requester submitted additional information (Ref. 3). In this final rule, the agency responds to the additional information and includes the combination of hydrocortisone with pramoxine HCl as a nonmonograph (not generally recognized as safe and effective) anorectal drug product in new § 310.545(a)(26)(xi) (21 CFR 310.545(a)(26)(xi)). Any such product marketed OTC would be subject to regulatory action if initially introduced or initially delivered for introduction into interstate commerce after the effective date of this final rule.

The requester contended (Ref. 3) that the proposed combination meets, both from a scientific and legal perspective, the agency's OTC combination drug product policy in that a combination of hydrocortisone (0.25 to 1 percent) and pramoxine HCl 1 percent, is generally recognized as safe and effective for use in OTC drug products to relieve symptoms associated with idiopathic pruritus ani, such as anorectal swelling, pain, itching, and burning. The requester asked the agency to amend the OTC external analgesic drug products TFM and the anorectal drug products FM to include an external analgesic-anorectal OTC drug product containing the active ingredients hydrocortisone and pramoxine HCl. In the alternative, the requester asked for an oral hearing.

The requester's arguments and the agency's responses follow:

(Comment 1) Hydrocortisone is a proposed Category I ingredient and; therefore, FDA considers it safe and effective for OTC use. The ingredient is included in the OTC external analgesic drug products TFM (55 FR 6932 at 6951, February 27, 1990). FDA considers hydrocortisone safe and effective to relieve swelling and itching associated with various skin conditions, including anal itching (55 FR 6932 at 6933).

(Agency response) The agency agrees that hydrocortisone as a single ingredient is safe and effective for OTC use for the claims proposed in § 348.50(b) (21 CFR 348.50(b)) (55 FR 6932 at 6951). However, data are lacking to support any combination drug products containing hydrocortisone with other OTC drug active ingredients. Further, the 1990 TFM cited by the requester did not include the term “swelling” as an acceptable claim.

(Comment 2) Pramoxine HCl is a Category I ingredient, and thus FDA considers it safe and effective for OTC use. The ingredient is included in § 346.10(g) (21 CFR 346.10(g)) of the OTC anorectal drug products FM for the treatment of various anorectal conditions, including pain, burning, itching, discomfort, and/or irritation. The requester contended that OTC anorectal drug products containing pramoxine HCl in the established dosages of 0.5 to 1 percent that are indicated to relieve pruritus ani may be lawfully marketed in accordance with the OTC anorectal drug products FM.

(Agency response) Pramoxine HCl 0.5 to 1 percent is a proposed Category I ingredient as a local anesthetic in the TFM for OTC external analgesic drug products (48 FR 5852 at 5867). The requester mentioned that this concentration range could be used in OTC anorectal drug products. However, only a 1 percent concentration is included in § 346.10(g) of the OTC anorectal drug products monograph as this was the only concentration evaluated in that rulemaking. The agency lacks data to support a lower concentration for external anorectal use.

(Comment 3) The agency has the authority to switch the status of a product from prescription to OTC when the active ingredient or the combination of active ingredients is determined to be safe and effective for OTC use. The requester cited the Federal Register of August 4, 1976 (41 FR 32580) and May 11, 1972 (37 FR 9464 at 9470) as sources for that authority.

(Agency response) The agency has made the determination that the combination of hydrocortisone and pramoxine HCl is not safe and effective for OTC use. Therefore, switching the status of the product from prescription to OTC is not an option. Although the agency is not bound by the recommendations of its advisory panels, the panels that reviewed these ingredients did not recognize any combination of “amine” and “caine” type local anesthetics with hydrocortisone preparations as safe and effective. The requester has also failed to provide adequate information to support a determination that the combination is safe and effective. The agency lacks sufficient data from available sources to propose a combination of hydrocortisone and pramoxine HCl for OTC use in the applicable OTC drug rulemakings.

(Comment 4) Combination products containing hydrocortisone and pramoxine HCl should have been reconsidered by the agency when it extended the concentration range for hydrocortisone up to 1 percent. Specifically, the agency has the obligation to reconsider combination products when it determines that all of the active ingredients contained in the combination are Category I, and an interested person has requested the combination be considered under a particular OTC drug rulemaking proceeding (21 CFR § 330.10(a)(7) and (a)(12)) (21 CFR 330.10(a)(7) and (a)(12)).

(Agency response) The agency disagrees. The agency's proposal to increase the maximum concentration of hydrocortisone from 0.5 to 1 percent occurred in the rulemaking for OTC external analgesic drug products based on data on the single ingredient and not on combination products. There were no proposed hydrocortisone combinations in that rulemaking. The data on the combination of hydrocortisone 1 percent and pramoxine HCl were submitted to the rulemaking on OTC anorectal drug products and had not been reviewed by the agency at the time it published the amendment to the OTC external analgesic TFM on February 27, 1990 (55 FR 6932) extending the strength of hydrocortisone up to 1 percent. The agency published the FM on OTC anorectal drug products on August 3, 1990 (55 FR 31776 at 31777), in which it stated that hydrocortisone combinations were under review and the agency's evaluation would be reported separately in the future. Simultaneous publication of the agency's evaluation of the single ingredient hydrocortisone in the rulemaking for OTC external analgesic drug products and hydrocortisone-pramoxine HCl combinations in the rulemaking for OTC anorectal drug products would have delayed publication of the anorectal FM for several years.

(Comment 5) Prior to completing the FM for OTC external analgesic drug products, the agency should conduct a retrospective analysis of previously reviewed (or “should have been reviewed”) hydrocortisone combinations marketed before 1979.

(Agency response) The agency previously reviewed combination drug products containing hydrocortisone and pramoxine HCl submitted during the 1970s and 1980s. In a notice of proposal to withdraw approval of abbreviated new drug applications for fixed combination drug products containing hydrocortisone acetate and pramoxine HCl, the agency found no evidence that pramoxine HCl contributed an effect to the combination drug product (53 FR 25013, July 1, 1988).

(Comment 6) The agency has consistently applied its combination policy, except with respect to a hydrocortisone and pramoxine HCl combination. The agency did not require additional data in support of the effectiveness of combinations in the monographs for OTC antacid (simethicone and an antacid), cough-cold (ingredients from different pharmacological groups), laxative (bulk and stimulant laxatives), and anorectal drug products (not requiring final formulation testing of combination products and accepting the combinations as formulated).

(Agency response) The agency has consistently focused on the safety and effectiveness of each active ingredient, the rationale for concurrent therapy, the contribution each ingredient makes to the combination, and the marketing history to support Category I classification of combinations. Marketing history for the products cited by the requester provided more extensive data than were available for a combination of hydrocortisone and pramoxine HCl for anorectal use. There was an extensive marketing history for combinations of an antacid and simethicone, an antiflatulent, ingredients with different indications. The agency required additional data for a number of cough-cold combinations in the TFM for those products (53 FR 30522, August 12, 1988). The combinations in the laxative TFM (50 FR 2124 at 2152 and 2153, January 15, 1985) and anorectal FM involve ingredients with the same indication. The Advisory Review Panel for OTC Laxative Drug Products (Laxative Panel) looked at laxative combinations and determined that each active ingredient had to make a contribution toward laxation. The Laxative Panel recommended monograph status only for combinations it determined had sufficient data. FDA agreed with the Panel's recommendation, and the agency has requested additional data to support other laxative combinations. The Hemorrhoidal Panel evaluated and recommended combinations of anorectal ingredients (45 FR 35576 at 35673), but did not evaluate hydrocortisone because information on that ingredient was not submitted for its review. The Advisory Review Panel on OTC Topical Analgesic, Antirheumatic, Otic, Burn, and Sunburn Prevention and Treatment Drug Products (Topical Analgesic Panel) discussed combinations of external analgesic ingredients, including hydrocortisone and pramoxine HCl, but did not recommend this combination for monograph status (44 FR 69768 at 69790, December 4, 1979).

The agency has not always accepted a panel's recommendation that specific combinations should be allowed, without having adequate supporting data. For example, the Advisory Review Panel on OTC Antimicrobial (II) Drug Products recommended monograph status for combinations of up to three antifungal ingredients and hydrocortisone or hydrocortisone acetate 0.5 to 1 percent (47 FR 12480, March 23, 1982). The agency disagreed with that panel's recommendations because the agency found that these combinations lacked adequate evidence of effectiveness (47 FR 12480 at 12481). The rulemaking for antifungal drug products has been completed and, because adequate data were not provided to support this combination, it remains nonmonograph. No combination containing hydrocortisone has been found to be generally recognized as safe and effective for OTC use. Thus, the agency is consistent in requiring additional data to support this hydrocortisone-pramoxine HCl combination.

(Comment 7) Currently marketed prescription products containing 1 percent or less hydrocortisone and 1 percent pramoxine HCl meet the combination policy implemented by the agency. The OTC drug combination policy standards are satisfied because the active ingredients are Category I, are present in the established dosage range, and each ingredient represents a different therapeutic category. The requester also mentioned a previously submitted clinical protocol (Ref. 3) that was not initiated because this protocol was suspended following a meeting with FDA (Ref. 4).

(Agency response) The agency's requirements for OTC drug combination products in § 330.10(a)(4)(iv) also include that each active ingredient makes a contribution to the product's claimed effect(s). The agency has no data showing that the combination of hydrocortisone and pramoxine HCl has been clinically tested against each individual active ingredient and a placebo. As the agency discussed in its January 13, 1994, letter to the requester (Ref. 2), the submitted data did not include these types of studies. Further, the studies from the literature did not involve a patient population where the product is intended for OTC use, nor were they for the proposed OTC anorectal indication. Therefore, based on the available data, the agency is unable to conclude that each active ingredient makes a contribution to the product's claimed effect(s) and that this combination is generally recognized as safe and effective. After the agency received a letter indicating that the requester's client had suspended an ongoing study of the combination (Ref. 4), the agency was under the impression that there was no longer interest in having the protocol reviewed. The requester should notify the agency if there is still interest in conducting the appropriate study and having the protocol reviewed.

(Comment 8) The combination of 1 percent or less hydrocortisone and 1 percent pramoxine HCl is warranted because hydrocortisone is a therapeutic equivalent of other active antipruritic ingredients that may be combined with a local anesthetic such as pramoxine HCl. In the past, the agency has permitted active ingredient substitutions with pharmacological classes. Further, while the method of action of hydrocortisone is different than other antipruritic agents, the requester suggests that it can be properly combined with local anesthetics, because it is therapeutically equivalent, if not superior, to other approved antipruritic agents.

(Agency response) The agency's response under section II, comment 6 of this document applies here also. The requester's belief that the combination of an antipruritic/analgesic with a local anesthetic is permitted by implication is incorrect. Section 346.22 (21 CFR 346.22) provides for the combination of an “antipruritic/analgesic and a local anesthetic with an astringent.” The ingredients under proposed § 348.10 (48 FR 5852 at 5868) are classified as “analgesic/anesthetic/antipruritic.”

Listed combinations of external analgesic active ingredients under proposed § 348.50 include ingredients listed under § 348.10(a), (b), and (c) exclude hydrocortisone preparations which are listed under proposed § 348.10(d)(1) as hydrocortisone and under (d)(2) as hydrocortisone acetate. The Topical Analgesic Panel classified hydrocortisone preparations in a listing of ingredients that depress cutaneous sensory receptors (analgesics, anesthetics, and antipruritics) (44 FR 69768 at 69865, December 4, 1979). The agency subdivided the analgesic, anesthetic antipruritic ingredients into separate classes, i.e., ”caine” type local anesthetics, alcohols and ketones, antihistamines, and hydrocortisone preparations (48 FR 5852 at 5867 and 5868, February 8, 1983). The Topical Analgesic Panel did not have adequate data to consider hydrocortisone and pramoxine HCl interchangeable, and the agency has no basis to recommend their interchangeability and inclusion in any OTC drug product monograph.

(Comment 9) If the agency is unable to conclude from the information presented that the proposed combination is Category I, the agency should grant a hearing in this matter.

(Agency response) The agency has evaluated all of the evidence in support of a combination of hydrocortisone and pramoxine HCl in the administrative record for the rulemaking for OTC anorectal drug products submitted on behalf of the requester's client. The agency has discussed this information in its letter of January 13, 1994 (Ref. 2) and in this document. The agency does not find an oral hearing warranted.

FDA has examined the impacts of this final rule under Executive Order 12866, the Regulatory Flexibility Act (5 U.S.C. 601-612), and the Unfunded Mandates Reform Act of 1995 (2 U.S.C. 1501 et seq.). 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; distributive impacts, and equity). Under the Regulatory Flexibility Act, if a rule has a significant 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 of 1995 requires that agencies prepare a written statement of anticipated costs and benefits before proposing any rule that may result in an expenditure in any one year by State, local, and tribal governments, in the aggregate, or by the private sector, of $100 million (adjusted annually for inflation). The final rule that led to the development of this supplemental final rule was published in 1990, before the Unfunded Mandates Reform Act of 1995 was enacted. The agency explains in this final rule that the final rule will not result in an expenditure in any one year by State, local, and tribal governments, in the aggregate, or by the private sector, of $100 million.

The agency concludes that this final rule is consistent with the principles set out in the Executive order and in these two statutes. The final rule is not a significant regulatory action as defined by the Executive order and so is not subject to review under the Executive order. Further, since this final rule makes no mandates on government entities and will result in expenditures less than $100 million in any one year, FDA need not prepare additional analyses under the Unfunded Mandates Reform Act.

The purpose of this final rule is to establish that OTC anorectal drug products containing a combination of hydrocortisone and pramoxine HCl are not generally recognized as safe and effective. Because no such products are currently marketed OTC, the final rule will not have an economic impact on any entity (no reformulations or relabeling are necessary) and will not require any new reporting or recordkeeping activities.

The agency has no alternative course of action as the data are inadequate to support monograph status for this combination product. Therefore, no additional professional skills are needed. The Commissioner of Food and Drugs certifies that this final rule will not have a significant economic impact on a substantial number of small entities. No further analysis is required under the Regulatory Flexibility Act (5 U.S.C. 605(b)).

This final rule contains no collections of information. Therefore, clearance by the Office of Management and Budget under the Paperwork Reduction Act of 1995 is not required.

The agency has determined under 21 CFR 25.31(a) 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.

FDA has analyzed this final rule in accordance with the principles set forth in Executive Order 13132. FDA has determined that the rule does not contain policies 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. Accordingly, the agency has concluded that the rule does not contain policies that have federalism implications as defined in the Executive order and, consequently, a federalism summary impact statement is not required.

The following references are on display in the Division of Dockets Management (HFA-305), Food and Drug Administration, 5630 Fishers Lane, rm. 1061, Rockville, MD 20852, in Docket No. 1980N-0050 and may be seen by interested persons between 9 a.m. and 4 p.m., Monday through Friday.

In FR Doc. 03-15541, published on June 19, 2003 (68 FR 36744), the following correction is made:

The Department of State published a final rule (Public Notice 4274) in the Federal Register of February 14, 2003, (68 FR 7417), amending § 120.1 General authorities and eligibility, of the International Traffic in Arms Regulations.

As published, the final regulations contain errors which may prove to be misleading and need to be clarified.

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 of 1995 (44 U.S.C. 3507) under control number 1545-1794. Responses to these collections of information are required by the IRS to monitor compliance with the federal tax rules for determining stock-based compensation costs to be shared among controlled participants in qualified cost sharing arrangements.

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 respondent or recordkeeper varies from 2 hours to 7 hours, depending on individual circumstances, with an estimated average of 4 hours.

Comments concerning the accuracy of this burden estimate and suggestions for reducing this burden should be sent 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, with copies to the Internal Revenue Service, Attn: IRS Reports Clearance Officer, W:CAR:MP:T:T:SP, Washington, DC 20224.

Books or records relating to a 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.

On July 29, 2002, Treasury and the IRS published in the Federal Register (67 FR 48997) proposed amendments to the regulations (REG-106359-02) under section 482 of the Internal Revenue Code (Code). These proposed regulations provide guidance regarding treatment of stock-based compensation for purposes of qualified cost sharing arrangements (QCSAs) and the comparable profits method and clarify the coordination of the rules regarding QCSAs with the arm's length standard. Written comments responding to these proposed regulations were received, and a public hearing was held on November 20, 2002. After consideration of all the comments, the proposed regulations under section 482 of the Code are adopted as revised by this Treasury decision.

These final regulations are the first in a series of regulatory guidance under section 482 through which Treasury and the IRS intend to update, clarify and improve current regulatory guidance in the transfer pricing area. A broader regulatory project on the treatment of QCSAs and a regulatory project on the transfer pricing of services are in progress, and Treasury and the IRS intend to issue proposed regulations with respect to each project in the near term.

These final regulations set forth explicit provisions clarifying that stock-based compensation is taken into account in determining the operating expenses treated as intangible development costs of a controlled participant in a QCSA under § 1.482-7. These final regulations provide rules for measuring the cost associated with stock-based compensation; clarify that the utilization and treatment of stock-based compensation is appropriately taken into account as a comparability factor for purposes of the comparable profits method under § 1.482-5; and provide rules that coordinate the rules of § 1.482-7 regarding QCSAs with the arm's length standard as set forth in § 1.482-1.

Treasury and the IRS received comments with respect to the proposed regulations. Most commentators objected to the proposed regulations in their entirety or suggested postponement of their finalization. Some commentators suggested modifications to be adopted in the event that the proposed regulations were finalized in some form.

After fully considering these comments, Treasury and the IRS continue to believe that the proposed regulations reflect a sound application of established principles under section 482. At the same time, Treasury and the IRS have concluded that certain suggested modifications to the administrative provisions of the proposed regulations are appropriate. These modifications are incorporated into the final regulations.

A QCSA subject to the rules of § 1.482-7 is an arrangement to develop intangibles which meets certain administrative and other requirements and in which the participants to the arrangement share intangible development costs in proportion to their shares of reasonably anticipated benefits attributable to the intangibles developed under the arrangement. In the case of a QCSA, § 1.482-7(a)(2) limits the ability of the Commissioner to make allocations, except to the extent necessary to make each controlled participant's share of the costs equal its share of reasonably anticipated benefits. An arrangement in which significant intangible development costs are not shared in proportion to reasonably anticipated benefits (or are not shared at all) would not in substance constitute an arrangement to which the rules of § 1.482-7 are applicable.

The proposed regulations address the treatment of stock-based compensation under a QCSA, and the interaction between the rules applicable to QCSAs and the arm's length standard. The proposed regulations provide that stock-based compensation related to the covered intangible development area must be taken into account in determining the costs to be shared by participants in a QCSA. The proposed regulations further provide that a QCSA produces results consistent with an arm's length result if, and only if, all costs related to the intangible development, as determined in accordance with the specific guidance in § 1.482-7(d), are shared in proportion to reasonably anticipated benefits.

Commentators objected to this rule on the basis of interpretations of the arm's length standard and on other grounds.

Commentators asserted that taking stock-based compensation into account in the QCSA context would be inconsistent with the arm's length standard unless there is evidence that parties at arm's length take stock-based compensation into account in similar circumstances. Commentators asserted that third-party evidence, such as the government's own procurement contracting practices and agreements between unrelated parties with some characteristics similar to QCSAs, would show that parties at arm's length do not take stock-based compensation into account in determining costs to be reimbursed.

Treasury and the IRS continue to believe that requiring stock-based compensation to be taken into account for purposes of QCSAs is consistent with the legislative intent underlying section 482 and with the arm's length standard (and therefore with the obligations of the United States under its income tax treaties and with the OECD transfer pricing guidelines). The legislative history of the Tax Reform Act of 1986 expressed Congress's intent to respect cost sharing arrangements as consistent with the commensurate with income standard, and therefore consistent with the arm's length standard, if and to the extent that the participants' shares of income “reasonably reflect the actual economic activity undertaken by each.” See H.R. Conf. Rep. No. 99-481, at II-638 (1986). The regulations relating to QCSAs implement that legislative intent by using costs incurred by each controlled participant with respect to the intangible development as a proxy for actual economic activity undertaken by each, and by requiring each controlled participant to share these costs in proportion to its anticipated economic benefit from intangibles developed pursuant to the arrangement. In order for the costs incurred by a participant to reasonably reflect its actual economic activity, the costs must be determined on a comprehensive basis. Therefore, in order for a QCSA to reach an arm's length result consistent with legislative intent, the QCSA must reflect all relevant costs, including such critical elements of cost as the cost of compensating employees for providing services related to the development of the intangibles pursuant to the QCSA. Treasury and the IRS do not believe that there is any basis for distinguishing between stock-based compensation and other forms of compensation in this context.

Treasury and the IRS do not agree with the comments that assert that taking stock-based compensation into account in the QCSA context would be inconsistent with the arm's length standard in the absence of evidence that parties at arm's length take stock-based compensation into account in similar circumstances. Section 1.482-1(b)(1) provides that a “controlled transaction meets the arm's length standard if the results of the transaction are consistent with the results that would have been realized if uncontrolled taxpayers had engaged in the same transaction under the same circumstances.” (Emphasis added). While the results actually realized in similar transactions under similar circumstances ordinarily provide significant evidence in determining whether a controlled transaction meets the arm's length standard, in the case of QCSAs such data may not be available. As recognized in the legislative history of the Tax Reform Act of 1986, there is little, if any, public data regarding transactions involving high-profit intangibles. H.R. Rep. No. 99-426, at 423-25 (1985). The uncontrolled transactions cited by commentators do not share enough characteristics of QCSAs involving the development of high-profit intangibles to establish that parties at arm's length would not take stock options into account in the context of an arrangement similar to a QCSA. Government contractors that are entitled to reimbursement for services on a cost-plus basis under government procurement law assume substantially less entrepreneurial risk than that assumed by service providers that participate in QCSAs, and therefore the economic relationship between the parties to such an arrangement is very different from the economic relationship between participants in a QCSA. The other agreements highlighted by commentators establish arrangements that differ significantly from QCSAs in that they provide for the payment of markups on cost or of non-cost-based service fees to service providers within the arrangement or for the payment of royalties among participants in the arrangement. Such terms, which may have the effect of mitigating the impact of using a cost base to be shared or reimbursed that is less than comprehensive, would not be permitted by the QCSA regulations. Further, the QCSA regulations would not allow the Commissioner to impose such terms in the context of a QCSA.

The regulations relating to QCSAs have as their focus reaching results consistent with what parties at arm's length generally would do if they entered into cost sharing arrangements for the development of high-profit intangibles. These final regulations reflect that at arm's length the parties to an arrangement that is based on the sharing of costs to develop intangibles in order to obtain the benefit of an independent right to exploit such intangibles would ensure through bargaining that the arrangement reflected all relevant costs, including all costs of compensating employees for providing services related to the arrangement. Parties dealing at arm's length in such an arrangement based on the sharing of costs and benefits generally would not distinguish between stock-based compensation and other forms of compensation.

For example, assume that two parties are negotiating an arrangement similar to a QCSA in order to attempt to develop patentable pharmaceutical products, and that they anticipate that they will benefit equally from their exploitation of such patents in their respective geographic markets. Assume further that one party is considering the commitment of several employees to perform research with respect to the arrangement. That party would not agree to commit employees to an arrangement that is based on the sharing of costs in order to obtain the benefit of independent exploitation rights unless the other party agrees to reimburse its share of the compensation costs of the employees. Treasury and the IRS believe that if a significant element of that compensation consists of stock-based compensation, the party committing employees to the arrangement generally would not agree to do so on terms that ignore the stock-based compensation.

An arrangement between controlled taxpayers for the development of intangible assets in which one taxpayer's share of significant costs exceeds its share of reasonably anticipated benefits from the exploitation of the developed intangibles would not in substance be a QCSA and therefore would be subject to analysis under the other section 482 regulations. For example, as in the transactions cited by commentators, a controlled taxpayer might agree at the outset of an arrangement to bear a disproportionate share of costs in an arrangement in which it receives a service fee or a contingent royalty from the exploitation of the developed intangibles. More generally, controlled taxpayers might agree at the outset of an arrangement to determine the compensation of one party based on a subset of that taxpayer's costs or on a basis that does not take that taxpayer's costs into account at all (e.g., based on an amount determined with reference to a comparable uncontrolled price or transaction). In either case, such an arrangement between controlled taxpayers would not in substance constitute an arrangement to which the rules of § 1.482-7 would apply. Indeed, the limitations contained in § 1.482-7(a)(2) could produce results inconsistent with an arm's length result if applied to such an arrangement because the Commissioner would be precluded from making allocations that could be necessary to ensure that each controlled taxpayer is compensated appropriately. Rather, such an arrangement should be analyzed under the other section 482 regulations (in particular, sections 1.482-1, 1.482-2(b), and 1.482-4) to determine whether it reaches results consistent with the arm's length standard, and any allocations by the Commissioner should be consistent with such other section 482 regulations.

Commentators offered various other reasons for not taking stock-based compensation into account in the context of QCSAs. Commentators expressed the view that stock-based compensation should not be taken into account because it does not constitute an economic cost or require a cash outlay, or, to the extent such compensation does constitute a cost, because the cost is borne by shareholders whose share value is diluted when additional shares are issued on exercise. Commentators also noted that the treatment of stock-based compensation for financial reporting purposes should not mandate that stock-based compensation be taken into account in the context of QCSAs.

In response to such views, and as discussed above, Treasury and the IRS continue to believe that requiring stock-based compensation to be taken into account for in the context of QCSAs is appropriate. The final regulations provide that stock-based compensation must be taken into account in the context of QCSAs because such a result is consistent with the arm's length standard. Treasury and the IRS agree that the disposition of financial reporting issues does not mandate a particular result under these regulations.

One commentator suggested that even if stock-based compensation generates a cost to a participant, there is precedent within the regulations relating to QCSAs for excluding certain costs, notably interest and taxes. Treasury and the IRS believe that the technical treatment under the regulations relating to QCSAs of interest, taxes and other expenses not related to the intangible development area does not warrant failing to take into account an element of employee compensation that is clearly related to the intangible development area. Treasury and the IRS believe that in order for the costs incurred by a participant to reasonably reflect its actual economic activity consistent with the legislative intent in this area, those costs must be determined on a comprehensive basis and so must take into account all relevant costs, in particular critical elements such as employee compensation. As noted above, Treasury and the IRS do not believe that there is a basis for distinguishing between stock-based compensation and other forms of compensation in this context.

One commentator also claimed that the historical administrative practice of the IRS has been not to challenge the failure to take stock-based compensation into account in other transfer pricing contexts in which the determination of cost is relevant. Treasury and the IRS believe that such perceived practices of the IRS with respect to other section 482 contexts are not relevant to determining the appropriate regulatory rule applicable to QCSAs.

As an alternate approach, one commentator suggested that rather than requiring stock-based compensation to be taken into account in the QCSA context, Treasury and the IRS should promulgate a “stock-based compensation safe harbor” applicable to QCSAs. This suggested “safe harbor” has not been adopted in the final regulations. As noted above, Treasury and the IRS believe that in order for the costs incurred by a participant to reasonably reflect its actual economic activity, those costs must be determined on a comprehensive basis and so must take into account all relevant costs, in particular critical elements such as employee compensation. The final regulations therefore require employee compensation to be taken into account, rather than provide for a safe harbor under which such compensation could be ignored.

The proposed regulations identify the stock-based compensation to be included in the cost pool based on whether the compensation is related to the intangible development area on the date the option is granted.

One commentator noted that this identification rule is inconsistent with the IRS treatment of stock-based compensation in other tax areas such as sourcing, where IRS rulings trace the compensation to the entire period over which the employee performed the services compensated by the option.

The grant-date identification rule has been retained in the final regulations. As noted in the preamble of the proposed regulations, it is desirable in the QCSA context to select a single date for identification of covered stock-based compensation. The grant of compensation generally is the single economic event most closely associated with the services being compensated.

The proposed regulations prescribe two alternative methods for determining the operating expenses attributable to stock-based compensation. The default rule under § 1.482-7(d)(2)(iii)(A) provides that the costs attributable to stock-based compensation generally are included as intangible development costs upon the exercise of the option and measured by the spread between the option strike price and the price of the underlying stock. An elective rule under § 1.482-7(d)(2)(iii)(B) provides that the costs attributable to stock options are taken into account in certain cases in accordance with the “fair value” of the option, as reported for financial accounting purposes either as a charge against income or in footnoted disclosures.

Commentators claimed that parties at arm's length would not use either of the alternatives prescribed in the proposed regulations because they would produce results that are too speculative or not sufficiently related to the employee services that are compensated. One commentator suggested that the final regulations should not limit taxpayers to the two prescribed measurement methods but rather should codify the current IRS administrative practice of permitting any reasonable method. In the commentator's view, a standard based on any reasonable method should permit the intrinsic-value method, which measures the difference between strike price and underlying stock value at date of grant, exclusive of time value. However, the commentator suggested that if Treasury and the IRS consider an element of time value indispensable, an alternative would be to require the use of the “minimum value” method, which accounts for the time value of stock options by assuming the underlying stock will grow at the risk-free interest rate.

These suggestions were not adopted. Treasury and the IRS believe that it is appropriate for regulations to prescribe guidance in this context that is consistent with the arm's length standard and that also is objective and administrable. As long as the measurement method is determined at or before grant date, either of the prescribed measurement methods can be expected to result in an appropriate allocation of costs among QCSA participants and therefore would be consistent with the arm's length standard. The results under the default measurement rule are consistent with what would occur under an arm's length agreement at or before the grant date to take stock-based compensation into account at the date of exercise when more facts are known and therefore to share the risks associated with such compensation between the date of grant and the date of exercise. The results under the elective measurement rule are consistent with what would occur under an alternative arm's length agreement at or before the grant date to determine the value of the compensation up front and take such compensation into account at that time. With respect to the specific methods proposed by commentators, Treasury and the IRS believe that “intrinsic value” ignores significant elements of the economic value of stock-based compensation and “minimum value” ignores the important variable of volatility that enters into the economic pricing models used for financial reporting purposes.

The prescribed measurement methods are objective and administrable because they rely on valuations or measurements of stock-based compensation prepared for other purposes. The prescribed measurement methods do not require or permit valuations of stock-based compensation specifically for QCSA purposes. A standard under which the validity of the taxpayer's method would have to be analyzed on a case-by-case basis would be unduly difficult to administer and potentially could lead to significant disputes.

Under the default measurement rule, the amount taken into account for QCSA purposes generally is the amount allowable as a federal income tax deduction on exercise of the stock-based compensation. This amount generally is the “spread” between the option price and the fair market value of the underlying stock at the date of exercise.

One commentator suggested that this method would be improved if the amount taken into account for QCSA purposes were limited to the portion of the spread that accrued between date of grant and full vesting, as further prorated to reflect only the time during which the employee was engaged in cost-shared activities.

This suggestion has not been adopted in the final regulations. Treasury and the IRS believe that the grant-date identification rule already limits in an appropriate way the stock-based compensation taken into account. The purpose of the default measurement rule is to measure the amount attributable to stock-based compensation that must be taken into account under the grant-date identification rule. Accordingly, the default measurement rule does not require further refinement through proration. Further, additional recordkeeping and analysis necessary to identify relevant time periods and employee activities involving the covered intangibles and to perform proration calculations are not warranted.

The proposed regulations set forth special rules for the application of the general rule of measurement in the event of modification of a stock option and expiration or termination of a QCSA. The final regulations retain these rules with technical modifications.

Under the default measurement rule in the proposed regulations, a special rule applies to statutory stock options (also referred to as incentive and employee stock purchase plan stock options). Under this special rule, the spread on statutory stock options generally is taken into account for QCSA purposes on exercise, even though section 421 denies a deduction with respect to statutory stock options unless and until there is a disqualifying disposition of the underlying stock by the employee.

One commentator suggested that the special rule for statutory stock options should be removed because it imposes an unnecessary administrative burden on taxpayers to apply different rules for different purposes. This suggestion was not adopted in the final regulations. Treasury and the IRS believe that the more important concern is consistent treatment of statutory and nonstatutory stock options for this purpose. This consistency is achieved only if the spread on both statutory and nonstatutory options is included in the cost pool on exercise.

The proposed regulations permit an elective method of measurement and timing with respect to options on publicly traded stock of companies subject to financial reporting under U.S. generally accepted accounting principles (U.S. GAAP), provided that the stock is traded on a U.S. securities market. Under the election, the amount taken into account for QCSA purposes associated with compensatory stock options is their “fair value,” generally measured by reference to economic pricing models as of the date of grant, as reflected either as a charge against income or as a footnote disclosure in the company's audited financial statements, in compliance with current U.S. GAAP.

One commentator proposed that the elective measurement method be made available to all taxpayers. The commentator further suggested that controlled participants should be permitted to use any reasonable method to measure stock-based compensation in the form of options on stock of foreign corporations as long as that method is consistent with international accounting standards or with accounting principles that are prevalent in the home country of the controlled participant. In the commentator's view, the limitations in the proposed regulations are not justified by difficulty of valuation and may be vulnerable to challenges under anti-discrimination clauses in U.S. income tax treaties.

Treasury and the IRS agree that the elective method should be more broadly available and have modified these rules in the final regulations. Specifically, the final regulations extend the availability of the elective method to options on the stock of certain companies that prepare their financial statements in accordance with accounting principles other than U.S. GAAP, while continuing to limit the availability of the elective method to options on stock that is publicly traded on a U.S. securities market. Thus, the availability of the elective method is not extended to options on stock of privately held companies or companies whose stock is traded only on foreign securities markets.

Treasury and the IRS believe that objectivity and ease of administration are important features of any method of measuring costs attributable to stock-based compensation for purposes of QCSAs. The elective method should be available only for options on stock whose value is readily determinable and for companies that are required to determine the fair value of stock options for a non-tax purpose. Treasury and the IRS recognize that foreign-based companies whose stock is traded on a U.S. securities market (directly or through the use of American Depository Receipts) are required to determine the fair value of options on their stock even though they do not necessarily prepare financial statements in accordance with U.S. GAAP. Companies satisfy that requirement by preparing financial statements in accordance with a comprehensive body of generally accepted accounting principles (GAAP) that is consistent with the U.S. GAAP requirement of determining the fair value of stock options, or by preparing reconciliations of their financial statements with U.S. GAAP in a manner that reflects the fair value of stock options.

Accordingly, the final regulations provide that in determining eligibility for the elective method, financial statements prepared in accordance with GAAP other than U.S. GAAP are considered as prepared in accordance with U.S. GAAP in two circumstances. First, financial statements are considered as prepared in accordance with U.S. GAAP where the fair value of stock options is reflected in a legally required reconciliation between the applicable GAAP and U.S. GAAP. In such a case, the fair value of stock options for purposes of the elective method of measurement will be the fair value reflected in such reconciliation. Second, financial statements are considered as prepared in accordance with U.S. GAAP where, under the applicable GAAP, the fair value of stock options is reflected as a charge against income in audited financial statements or is disclosed in footnotes to such statements. In such a case, the fair value of stock options for purposes of the elective method of measurement will be the fair value reflected in such audited financial statements.

Treasury and the IRS continue to believe that the elective method should be available only for options on stock whose value is readily determinable and for companies that are required to determine the fair value of stock options for a non-tax purpose. Accordingly, the final regulations do not extend the availability of the elective method to options on stock of privately held companies or companies whose stock is traded only on foreign securities markets.

One commentator suggested that the election to use the elective method should be made on the taxpayer's return rather than evidenced in the written cost sharing agreement. In the view of the commentator, such a procedure would be more practical from an enforcement perspective.

This suggestion was not adopted. Treasury and the IRS continue to believe that the most effective way to ensure that all participants are bound by the election is to incorporate it within the written cost sharing agreement.

The proposed regulations provide that in applying the comparable profits method, if there are material differences among the tested party and uncontrolled comparables with respect to the utilization or treatment of stock-based compensation, such material differences are an appropriate basis for comparability adjustments. One commentator expressed the view that this provision contradicts the arm's length coordination rules for QCSAs because the treatment of stock-based compensation by unrelated parties is considered relevant for purposes of the comparable profits method but not relevant for purposes of QCSAs.

No revision was made in response to this comment. Treasury and the IRS believe that the rule provided in the proposed regulations with respect to the application of the comparable profits method is appropriate because the financial data with respect to similar business activities that generally is used as a reference point for that method is subject to adjustment to ensure comparability.

The provisions of the proposed regulations applicable to QCSAs would apply to stock-based compensation granted in taxable years beginning on or after publication of final regulations. Participants in a QCSA in existence on the effective date may, on a one-time basis, amend their agreement to elect the grant-date method of measurement without the Commissioner's consent. The election with respect to existing QCSAs must be made not later than the latest due date, without regard to extensions, for an income tax return of a controlled participant for the first taxable year beginning after the effective date of final regulations.

One commentator stated that the prospective effective date does not afford taxpayers a reasonable time to amend their cost sharing agreements or restructure complex international operations. A transition period of two years after the publication of final regulations was suggested.

This suggestion was not adopted. Treasury and the IRS consider the period stated in the proposed regulations adequate for the initial planning and recordkeeping that may be occasioned by the final regulations.

With respect to the special transition rule permitting taxpayers to elect the grant-date method of measurement by amendment of an existing written cost sharing agreement no later than the latest due date of an income tax return of a controlled participant, one commentator suggested that the due date should not disregard filing extensions. The commentator maintained that fairness dictates affording taxpayers this extra time for the analysis needed to make this significant decision.

In response to this comment, the final regulations provide that the due date for amendments to existing cost sharing agreements is determined with regard to filing extensions.

Some commentators urged Treasury and the IRS to postpone finalization of the proposed regulations until the OECD completes its ongoing consideration of the treatment of stock options for transfer pricing purposes and an international consensus begins to form so that the potential for international disputes and resulting negative effects on U.S. business can be minimized. Similarly, a commentator suggested that the effects of applying the principles of the proposed regulations to other areas of transfer pricing should be thoroughly studied and harmonized before finalizing the regulations to avoid creating traps for the unwary or other unforeseen consequences.

These suggestions were not implemented. Treasury and the IRS do not believe that international discussion of issues compels the suspension of the regulatory process. Also, Treasury and the IRS believe that it is important to provide timely guidance on issues such as those addressed by the proposed and final regulations.

Finally, the preamble to the proposed regulations states that the proposed regulations clarify that stock-based compensation must be taken into account in the QCSA context. Several commentators interpreted this language as in effect requiring the new rules to be applied retroactively. These commentators urged that the final regulations contain further assurances of prospective intent and explicitly recognize that these regulations represent a fundamental change to the traditional approach to section 482.

No revisions were made in light of these comments. As noted earlier, Treasury and the IRS believe that requiring stock-based compensation to be taken into account in the QCSA context is consistent with the arm's length standard and long-standing policies underlying section 482. The final regulations, like the proposed regulations, clearly specify that the specific rules provided therein are prospective in application. Moreover, as stated in the proposed regulations, while taxpayers may rely on the proposed regulations until the effective date of the final regulations, no inference is intended with respect to the treatment of stock-based compensation granted in taxable years beginning before the effective date of these final regulations.

One commentator expressed the view that the compliance burden imposed by the proposed regulations on each taxpayer will significantly exceed the two to seven hours estimated under the Paperwork Reduction Act. The commentator also asserted that the estimated number of taxpayers affected by the rules was too low.

The burden estimates as stated in the final regulations reflect no change. Treasury and the IRS reviewed the estimates made in the proposed regulations and concluded that they are reasonable.

Similarly, with respect to the Regulatory Flexibility Act, the commentator challenged the statement in the preamble of the proposed regulations that the new regulatory requirements will not have a significant economic impact on a substantial number of small entities. Upon review of available information, Treasury and the IRS found no basis for a change in the statement or in the operative finding that the economic impact of the collections of information in the proposed regulations is not significant with respect to small entities.

Section 1.482-7(j)(2)(i)(F) of the proposed regulations requires that controlled participants maintain specific documentation to establish the amount attributable to stock-based compensation that is taken into account in determining the costs to be shared, including the method of measurement and timing used with respect to that amount. No comments were received on this particular provision, and it is retained in the final regulations.

Treasury and the IRS intend that this provision will require controlled participants that use the elective method of measurement to maintain documentation establishing compliance with the requirements of § 1.482-7(d)(2)(iii)(B). For example, documentation should establish that applicable financial statements reflecting the value of stock options with respect to which the elective method is used, as well as applicable accounting principles under which such financial statements are prepared, are in conformity with the fair-value and reconciliation requirements adopted in the final regulations with respect to GAAP other than U.S. GAAP.

Several other provisions of the proposed regulations similarly were not commented upon and have been adopted without modification in the final regulations. These provisions include § 1.482-7(d)(2)(iii)(A)(2), relating to deductions of foreign controlled participants; the last sentence of § 1.482-7(d)(2)(ii), relating to repricing and other modifications of stock options; and § 1.482-7(d)(2)(iii)(C), providing consistency rules for measurement and timing of stock-based compensation.

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. It has also been determined that section 553(b) of the Administrative Procedure Act (5 U.S.C. chapter 5) does not apply to these regulations. It is hereby certified that the collection of information in these regulations will not have a significant economic impact on a substantial number of small entities. This certification is based upon the fact that few small entities are expected to enter into QCSAs involving stock-based compensation, and that for those who do, the burdens imposed under § 1.482-7(d)(2)(iii)(B) and (j)(2)(i)(F) will be minimal. Therefore, a Regulatory Flexibility Analysis under the Regulatory Flexibility Act (5 U.S.C. chapter 6) is not required. Pursuant to section 7805(f), the proposed regulations preceding these regulations were submitted to the Chief Counsel for Advocacy of the Small Business Administration for comment on its impact on small business.

The principal author of these regulations is Douglas Giblen of the Office of Associate Chief Counsel (International). However, other personnel from Treasury and the IRS participated in their development.

We did not publish a notice of proposed rulemaking (NPRM) for this regulation. Under 5 U.S.C. 553(b)(B), the Coast Guard finds that good cause exists for not publishing an NPRM. This rule is being promulgated without an NPRM because drawspan openings at this bridge are infrequent, the proposal has been thoroughly coordinated with the waterway users and it would be impracticable, unnecessary and contrary to the public interest to delay the proposed project start date.

Under 5 U.S.C. 553(d)(3), the Coast Guard finds that good cause exists for making this rule effective less than 30 days after publication in the Federal Register because the event has been thoroughly coordinated with waterway users, no objections were received and there is no justification to deny the request or delay the proposed project.

The City of San Francisco requested a temporary change to the operation of the Third Street Bridge, mile 0.4 Islais Creek, in San Francisco, California. The bridge provides 4.4 feet minimum vertical clearance above mean high water in the closed-to-navigation position. Navigation on the waterway consists primarily of recreational watercraft. Presently, the draw is required to open on signal if at least one hour advance notice is given. The bridge was last opened for recreational waterway traffic on July 1, 2001. The City requested the drawbridge be allowed to remain closed to navigation from 12:01 a.m., September 3, 2003 until 12:01 a.m., September 2, 2004. During this time the City would perform seismic upgrades and rehabilitation work on the bridge. This temporary drawbridge operation amendment has been coordinated with the waterway users. No objections to the proposed temporary rule were raised.

This rule is not a “significant regulatory action” under section 3(f) of Executive Order 12866, Regulatory Planning and Review, and does not require an assessment of potential costs and benefits under section 6(a)(3) of that Order. The Office of Management and Budget has not reviewed it under that Order. It is not “significant” under the regulatory policies and procedures of the Department of Homeland Security (DHS). The Coast Guard expects the economic impact of this temporary rule to be so minimal that a full Regulatory Evaluation under paragraph 10(e) of the regulatory policies and procedures of DOT is unnecessary. This is because drawspan openings at this bridge are infrequent and waterway traffic is not likely to be delayed.

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

The Coast Guard certifies under 5 U.S.C. 605(b) that this rule will not have a significant economic impact on a substantial number of small entities as none were identified that will be affected by the temporary rule.

Under section 213(a) of the Small Business Regulatory Enforcement Fairness Act of 1996 (Public Law 104-121), we offered to assist small entities in understanding the rule so that they could better evaluate its effects on them and participate in the rulemaking process. No small entities were identified that will be affected by the temporary rule.

This rule calls for no new collection of information under the Paperwork Reduction Act of 1995 (44 U.S.C. 3501-3520).

A rule has implications for federalism under Executive Order 13132, Federalism, if it has a substantial direct effect on State or local governments and would either preempt State law or impose a substantial direct cost of compliance on them. We have analyzed this rule under that Order and have determined that it does not have implications for federalism.

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

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

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

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

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

We have analyzed this rule under Executive Order 13211, Actions Concerning Regulations That Significantly Affect Energy Supply, Distribution, or Use. We have determined that it is not a “significant energy action” under that order because it is not a “significant regulatory action” under Executive Order 12866 and is not likely to have a significant adverse effect on the supply, distribution, or use of energy. It has not been designated by the Administrator of the Office of Information and Regulatory Affairs as a significant energy action. Therefore, it does not require a Statement of Energy Effects under Executive Order 13211.

We have analyzed this rule under Commandant Instruction M16475.lD, which guides the Coast Guard in complying with the National Environmental Policy Act of 1969 (NEPA)(42 U.S.C. 4321-4370f), and have concluded no factors in this case would limit the use of a categorical exclusion under section 2.B.2 of the Instruction. Therefore, this rule is categorically excluded, under figure 2-1, paragraph (32)(e), of the Instruction, from further environmental documentation. A Categorical Exclusion Determination is available in the docket where indicated under ADDRESSES.

Throughout this document, “we,” “us” and “our” refer to EPA.

Table 1 lists the rules we are approving with the dates that they were adopted by the local air agencies and submitted to EPA by the California Air Resources Board (CARB).

On August 6, 2002, EPA found these rule submittals met the completeness criteria in 40 CFR part 51, appendix V. These criteria must be met before formal EPA review can begin.

We approved versions of SCAQMD rules 481 and 1141.2 into the SIP on February 12, 2002 (see 67 FR 6410). Between these SIP incorporations and today, CARB has made no intervening submittals of these SCAQMD rules. SCAQMD rule 1178 has not been approved into the SIP.

SCAQMD rule 481 is a rule specifying the conditions for using spray painting or spray coating equipment as well as exemptions from these conditions. These exemptions can be divided between volumetric cut-offs and specified coating operations that are too difficult or unwieldy to be performed within a spray booth enclosure. SCAQMD's January 11, 2002, amendments to rule 481 included these significant changes to the version within the SIP.

SCAQMD rule 1141.2 prohibits manufacturing of surface-active agents such as detergents, wetting agents and emulsifiers unless certain emission requirements and work practices are met. SCAQMD's January 11, 2002, amendments to rule 1141.2 included these significant changes to the November 17, 2000, version within the SIP.

SCAQMD rule 1178 applies additional controls to reduce VOC emissions at petroleum facilities. VOCs are emitted during the filling, storage, and emptying of large tanks at these petroleum facilities. Rule 1178 applies to facilities emitting more than 20 tons/year of VOCs that have storage tanks larger than 19,815 gallons storing organic liquids with a true vapor pressure greater than or equal to 0.1 psi. The rule establishes vapor pressure containment and control requirements for organic liquid storage tanks. Tanks and systems of tanks must have a vapor recovery system that recovers at least 95% of ROC vapors by weight or combusts excess vapors. Also, rule 1178 sets specific requirements for vapor loss control devices, external floating roofs, and internal floating roofs. Rule 1178 includes the following provisions:

Rule 1178 augments SCAQMD Rule 463—Organic Liquid Storage. While some of rule 1178's requirements are duplicative, many requirements are additive and more stringent. For example, rule 1178 requires emission control systems for fixed roof tanks storing liquid with a TVP of 0.1 psia, domes for external floating roof tanks storing a liquid with a TVP greater than or equal to 3 psia, and increased gasketing and rim-seal requirements for external floating roof tanks storing a liquid with a TVP less than 3 psia. Also, monitoring requirements are more stringent for external floating roof and fixed roof tanks.

The TSD for the subject rule has more information about these rules.

Generally, SIP rules must be enforceable (see section 110(a) of the Act), must require Reasonably Available Control Technology (RACT) for major sources in nonattainment areas (see section 182(a)(2)(A)), and must not relax existing requirements (see sections 110(l) and 193). The SCAQMD regulates an ozone nonattainment area (see 40 CFR part 81), so these rules must fulfill RACT.

Guidance and policy documents that we used to help evaluate specific enforceability and RACT requirements consistently include the following:

1. Portions of the proposed post-1987 ozone and carbon monoxide policy that concern RACT, 52 FR 45044, November 24, 1987.

2. “Issues Relating to VOC Regulation Cutpoints, Deficiencies, and Deviations,” EPA, May 25, 1988 (the Bluebook).

3. “Guidance Document for Correcting Common VOC & Other Rule Deficiencies,” EPA Region 9, August 21, 2001 (the Little Bluebook).

4. “Control of Volatile Organic Emissions from Petroleum Liquid Storage in External Floating Roof Tanks,” EPA-450/2-78-047, USEPA, December 1978; and,

5. “Control of Volatile Organic Emissions from Storage of Petroleum Liquids in Fixed-Roof Tanks,” EPA-450/2-77-036, USEPA, December 1977.

We believe these rules are consistent with the relevant policy and guidance regarding enforceability, RACT, and SIP relaxations. Rule 481's requirements remain unchanged compared to the SIP version of the rule. The amendments to the rule strengthen and update test method and record keeping portions of the rule. The exemption for high gloss topcoats will result in an insignificant amount of particulate matter being released while remaining consistent with the VOC limits in SCAQMD rule 1106.1—Pleasure Craft Coating Operations. Rule 1141.2's emission limits and work practices remain unchanged compared to the SIP version of the rule. The test method and recordkeeping sections of the rule have been strengthened and made more specific. Finally, Rule 1178's requirements are enforceable and the rule contains adequate monitoring and maintenance provisions for monitoring compliance of regulated facilities.

The subject TSD for each rule has more information on our evaluation.

We have no recommendations for the next time the local agency modifies the rules.

As authorized in section 110(k)(3) of the Act, EPA is fully approving the submitted rules because we believe they fulfill all relevant requirements. We do not think anyone will object to this approval, so we are finalizing it without proposing it in advance. However, in the Proposed Rules section of this Federal Register, we are simultaneously proposing approval of the same submitted rules. If we receive adverse comments by September 25, 2003, we will publish a timely withdrawal in the Federal Register to notify the public that the direct final approval will not take effect and we will address the comments in a subsequent final action based on the proposal. If we do not receive timely adverse comments, the direct final approval will be effective without further notice on October 27, 2003. This action will incorporate these rules into the federally enforceable SIP.

Please note that if EPA receives adverse comment on an amendment, paragraph, or section of this rule and if that provision may be severed from the remainder of the rule, EPA may adopt as final those provisions of the rule that are not the subject of an adverse comment.

VOCs help produce ground-level ozone and smog, which harm human health and the environment. Section 110(a) of the CAA requires states to submit regulations that control VOC emissions. Table 2 lists some of the national milestones leading to the submittal of these local agency VOC rules.

Throughout this document, “we,” “us” and “our” refer to EPA.

The Sacramento Metropolitan Air Quality Management District (SMAQMD) adopted Rule 307, Clean Air Act Fees, on September 26, 2002. This rule was submitted by the California Air Resources Board (CARB) on December 12, 2002, for incorporation into the California State Implementation Plan (SIP). On February 7, 2003, this rule submittal was found to meet the completeness criteria in 40 CFR part 51, appendix V, which must be met before formal EPA review. There are no previous versions of Rule 307 in the SIP, and no previous versions of this rule have been submitted.

SMAQMD Rule 307 requires major stationary sources of volatile organic compounds (VOCs) and nitrogen oxides (NOX) in the Sacramento Metropolitan ozone nonattainment area to pay a fee to the SMAQMD if the area fails to attain the one-hour national ambient air quality standard for ozone by its federally established attainment year. The fee must be paid beginning in the second year after the attainment year, and in each calendar year thereafter, until the area is redesignated to attainment of the 1-hour ozone standard. EPA's technical support document (TSD) has more information about this rule.

Under sections 182(d)(3), (e), and 185 of the Clean Air Act as amended in 1990 (CAA or the Act), States are required to adopt an excess emissions fee regulation for ozone nonattainment areas classified as severe or extreme. In California, the Sacramento Metropolitan nonattainment area is classified as severe. The fee regulation specified by the Act requires major stationary sources of VOCs in the nonattainment area to pay a fee to the State if the area fails to attain the standard by the attainment date set forth in the Act. Emissions of VOCs play a role in producing ground-level ozone and smog, which harm human health and the environment. Section 182(f) of the Act requires States to apply the same requirements to major stationary sources of NOX as are applied to major stationary sources of VOCs. SMAQMD Rule 307 applies to major sources of both NOX and VOCs.

As authorized in section 110(k)(3) of the Act, EPA is fully approving SMAQMD Rule 307 because we believe it fulfills all relevant requirements. We believe the submitted rule is consistent with the requirements of the Act and relevant policy and guidance regarding SIP revisions. The TSD has more information on our evaluation.

We do not think anyone will object to this approval, so we are finalizing it without proposing it in advance. However, in the Proposed Rules section of this Federal Register, we are simultaneously proposing approval of the same submitted rule. If we receive adverse comments by September 25, 2003, we will publish a timely withdrawal in the Federal Register to notify the public that the direct final approval will not take effect and we will address the comments in a subsequent final action based on the proposal. If we do not receive timely adverse comments, the direct final approval will be effective without further notice on October 27, 2003. This will incorporate SMAQMD Rule 307 into the federally enforceable SIP.

Under Executive Order 12866 (58 FR 51735, October 4, 1993), this action is not a “significant regulatory action” and therefore is not subject to review by the Office of Management and Budget. For this reason, this action is also not subject to Executive Order 13211, “Actions Concerning Regulations That Significantly Affect Energy Supply, Distribution, or Use” (66 FR 28355, May 22, 2001). This action merely approves State law as meeting Federal requirements and imposes no additional requirements beyond those imposed by State law. Accordingly, the Administrator certifies that this rule will not have a significant economic impact on a substantial number of small entities under the Regulatory Flexibility Act (5 U.S.C. 601 et seq.). Because this rule approves pre-existing requirements under State law and does not impose any additional enforceable duty beyond that required by State law, it does not contain any unfunded mandate or significantly or uniquely affect small governments, as described in the Unfunded Mandates Reform Act of 1995 (Public Law 104-4).

This rule also does not have tribal implications because it will not have a substantial direct effect on one or more Indian tribes, on the relationship between the Federal Government and Indian tribes, or on the distribution of power and responsibilities between the Federal Government and Indian tribes, as specified by Executive Order 13175 (65 FR 67249, November 9, 2000). This action also does not have Federalism implications because it does 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 (64 FR 43255, August 10, 1999). This action merely approves a State rule implementing a Federal standard, and does not alter the relationship or the distribution of power and responsibilities established in the Clean Air Act. This rule also is not subject to Executive Order 13045, “Protection of Children from Environmental Health Risks and Safety Risks” (62 FR 19885, April 23, 1997), because it is not economically significant.

In reviewing SIP submissions, EPA's role is to approve State choices, provided that they meet the criteria of the Clean Air Act. In this context, in the absence of a prior existing requirement for the State to use voluntary consensus standards (VCS), EPA has no authority to disapprove a SIP submission for failure to use VCS. It would thus be inconsistent with applicable law for EPA, when it reviews a SIP submission, to use VCS in place of a SIP submission that otherwise satisfies the provisions of the Clean Air Act. Thus, the requirements of section 12(d) of the National Technology Transfer and Advancement Act of 1995 (15 U.S.C. 272 note) do not apply. This rule does not impose an information collection burden under the provisions of the Paperwork Reduction Act of 1995 (44 U.S.C. 3501 et seq.).

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

Under section 307(b)(1) of the Clean Air Act, petitions for judicial review of this action must be filed in the United States Court of Appeals for the appropriate circuit by October 27, 2003. 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)).

Throughout this document, “we,” “us” and “our” refer to EPA.

Table 1 lists the rule we are approving with the date that it was amended by the local air agency and submitted by the California Air Resources Board (CARB).

On February 8, 2001, this rule submittal was found to meet the completeness criteria in 40 CFR part 51 appendix V, which must be met before formal EPA review.

We approved a version of Rule 61.2 into the SIP on June 30, 1993 (58 FR 34906).

The purpose is to make the following revisions:

• 61.2(b)(2): Decreased is the threshold of 5,000,000 gallons per year or less to 500,000 gallons per year or less for bulk plants existing before March 1, 1984 for exemption from the requirement to use a vapor recovery unit or vapor disposal unit. The exemption only applies to vapors emitted during transfer of organic liquids, not subject to this rule, into a mobile transport tank that previously transported volatile organic compounds (VOCs).

• 61.2(b)(6): Added is a threshold of 21,000 gallons per year or less for the exemption of U.S. military ships from the requirements for no fugitive liquid leaks, for vapor concentration not exceeding 500 parts per million by volume (ppmv) measured as propane or 1,375 ppmv measured as methane, and for the liquid to enter less than six inches from the bottom of a mobile transport truck.

• 61.2(d): Revised and specified in detail are test procedures on mobile transport tanks and vapor emission control systems. Added are tests for vapor fugitive emissions. The TSD has more information about this rule.

Generally, SIP rules must be enforceable (see section 110(a) of the CAA), must require Reasonably Available Control Technology (RACT) for major sources in nonattainment areas (see section 182(a)(2)(A)), and must not relax existing requirements (see sections 110(l) and 193). The SDCAPCD regulates a severe ozone nonattainment area and must fulfill RACT. See 40 CFR part 81. Guidance and policy documents that we used to define specific enforceability and RACT requirements include the following:

• Requirements for Preparation, Adoption, and Submittal of Implementation Plans, U.S. EPA, 40 CFR part 51.

• Portions of the proposed post-1987 ozone and carbon monoxide policy that concern RACT, 52 FR 45044 (November 24, 1987).

• Issues Relating to VOC Regulation Cutpoints, Deficiencies, and Deviations, EPA (May 25, 1988) (the Bluebook).

• Guidance Document for Correcting Common VOC & Other Rule Deficiencies, EPA Region 9 (August 21, 2001) (the Little Bluebook).

The rule is improved, enforceable, on balance more stringent than the SIP Rule and does not relax the SIP. The requirements section of the rule fulfills RACT. The rule should be given full approval.

The TSD describes an additional rule revision that does not affect EPA's current action but is recommended for the next time the local agency modifies the rule.

As authorized in section 110(k)(3) of the CAA, EPA is fully approving the submitted rules because we believe they fulfill all relevant requirements. We do not think anyone will object to this approval, so we are finalizing it without proposing it in advance. However, in the Proposed Rules section of this Federal Register, we are simultaneously proposing approval of the same submitted rules. If we receive adverse comments by September 25, 2003, we will publish a timely withdrawal in the Federal Register to notify the public that the direct final approval will not take effect and we will address the comments in a subsequent final action based on the proposal. If we do not receive timely adverse comments, the direct final approval will be effective without further notice on October 27, 2003. This will incorporate these rules into the federally enforceable SIP.

Under Executive Order 12866 (58 FR 51735, October 4, 1993), this action is not a “significant regulatory action” and therefore is not subject to review by the Office of Management and Budget. For this reason, this action is also not subject to Executive Order 13211, “Actions Concerning Regulations That Significantly Affect Energy Supply, Distribution, or Use” (66 FR 28355, May 22, 2001). This action merely approves state law as meeting Federal requirements and imposes no additional requirements beyond those imposed by state law. Accordingly, the Administrator certifies that this rule will not have a significant economic impact on a substantial number of small entities under the Regulatory Flexibility Act (5 U.S.C. 601 et seq.). Because this rule approves pre-existing requirements under state law and does not impose any additional enforceable duty beyond that required by state law, it does not contain any unfunded mandate or significantly or uniquely affect small governments, as described in the Unfunded Mandates Reform Act of 1995 (Public Law 104-4).

This rule also does not have tribal implications because it will not have a substantial direct effect on one or more Indian tribes, on the relationship between the Federal Government and Indian tribes, or on the distribution of power and responsibilities between the Federal government and Indian tribes, as specified by Executive Order 13175 (65 FR 67249, November 9, 2000). This action also does not have Federalism implications because it does 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 (64 FR 43255, August 10, 1999). This action merely approves a state rule implementing a Federal standard, and does not alter the relationship or the distribution of power and responsibilities established in the Clean Air Act. This rule also is not subject to Executive Order 13045 “Protection of Children from Environmental Health Risks and Safety Risks” (62 FR 19885, April 23, 1997), because it is not economically significant.

In reviewing SIP submissions, EPA's role is to approve state choices, provided that they meet the criteria of the Clean Air Act. In this context, in the absence of a prior existing requirement for the State to use voluntary consensus standards (VCS), EPA has no authority to disapprove a SIP submission for failure to use VCS. It would thus be inconsistent with applicable law for EPA, when it reviews a SIP submission, to use VCS in place of a SIP submission that otherwise satisfies the provisions of the Clean Air Act. Thus, the requirements of section 12(d) of the National Technology Transfer and Advancement Act of 1995 (15 U.S.C. 272 note) do not apply. This rule does not impose an information collection burden under the provisions of the Paperwork Reduction Act of 1995 (44 U.S.C. 3501 et seq.).

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

Under section 307(b)(1) of the Clean Air Act, petitions for judicial review of this action must be filed in the United States Court of Appeals for the appropriate circuit by October 27, 2003. 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).)

Throughout this document, “we,” “us” and “our” refer to EPA.

Table 1 lists the rules we are approving with the date that they were revised by the local air agencies and submitted by the California Air Resources Board (CARB).

On May 13, 2003, these submittals were found to meet the completeness criteria in 40 CFR Part 51 Appendix V, which must be met before formal EPA review.

We gave a full approval to a version of BAAQMD Rule 8-4 on December 23, 1997 (62 FR 66998). We gave a limited approval/limited disapproval to a version of BAAQMD Rule 8-16 on April 16, 2003 (68 FR 18546). There is no version of SJVUAPCD Rule 4408 in the SIP.

The purpose of the revisions to BAAQMD Rule 8-4 are to make the following changes:

• 8-4-110: Deleted is the exemption for water-base coatings and high-solids coatings that do not come in contact with a flame.

• 8-4-112: Deleted is the exemption for organic diluents that react in any operation such that no more than 20% volatilizes.

• 8-4-115: Added is an exemption for film cleaners using 1,1,1-trichloroethane exclusively.

• 8-4-116: Added are exemptions for specific operations that include (i) Surface preparation of electrical and electronic components, precision optics, or numismatic dies; (ii) stripping of cured inks, coatings, and adhesives or cleaning of resin, coating, ink, and adhesive mixing, molding, and application equipment; and (iii) surface preparation related to R&D operations, performance testing, and testing for quality control or quality assurance.

• 8-4-214: Added to the list of VOC not considered part of the coating are non-precursors methane, carbon monoxide, carbon dioxide, carbonic acid, metallic carbides or carbonates, ammonium carbonate, acetone, methyl acetate, parachlorobenzotrifluoride, and cyclic, completely-methylated siloxanes. Deleted from the list of VOC not considered part of the coating are various chlorinated and fluorinated hydrocarbons.

• 8-4-301: Deleted is the requirement that operations involving flame or heat to cure in the presence of oxygen do not emit more than 2.5 tons per year of VOC. This requirement would become 5 tons per year of VOC under section 8-4-302.1.

• 8-4-302.2: Added is the alternative requirement to sections 8-4-302.1 or 8-4-302.3 that emissions from surface coating or solvent use be controlled with an approved emission control system to an abatement efficiency of 85%.

• 8-4-302.3: Added is the alternative requirement to sections 8-4-302.1 or 8-4-302.2 that surface coatings contain no more than 420 grams per liter of VOC.

• 8-4-312: Added is the requirement with certain exceptions for cleanup of spray equipment that the solvent contain no more than 50 grams per liter of VOC.

• 8-4-313: Added is the requirement for surface preparation that the solvent contain no more than 50 grams per liter of VOC.

The purpose of the revisions to BAAQMD Rule 8-16 are to make the following changes and to correct deficiencies cited in the limited approval/limited disapproval action of April 16, 2003 (68 FR 18546):

• 8-16-121: Deleted is the limited exemption for one single cold cleaner per facility with less than 20 gallons per year solvent loss.

• 8-16-122: Deleted is the limited exemption for permitted cold cleaners.

• 8-16-123: Added are exemptions from section 8-16-303.5 for cleaning aerospace components; electrical and electronic components; precision optics; medical devices; resin, coating, ink, and adhesive application equipment; research and development equipment; performance testing equipment; and quality control equipment.

• 8-16-124: Added is an exemption from recordkeeping requirements for aqueous cleaning operations using solvent with less than 50 grams/liter VOC.

• 8-16-303.5: Added is a requirement for all repair and maintenance cleaning operations to use low VOC solvents with less than 50 grams/liter VOC, such as aqueous-based solvents or methyl siloxane-based solvents.

• 8-16-503: Added are recordkeeping requirements for approved emission control devices.

• 8-16-501: Revised to monthly from annually is the solvent use recordkeeping frequency (to correct a deficiency cited by EPA).

• 8-16-111, 8-16-602.2, and 8-16-602.3: Corrected are certain erroneous section references (to correct deficiencies cited by EPA).

The purpose of the new SJVUAPCD Rule 4408 is to reduce emissions of volatile organic compounds (VOCs) from a glycol dehydration system used on natural gas streams.

The TSDs have more information about these rules.

Generally, SIP rules must be enforceable (see section 110(a) of the CAA) and must not relax existing requirements (see sections 110(l) and 193). SIP rules must require Reasonably Available Control Technology (RACT) for major sources in ozone nonattainment areas (see section 182(a)(2)(A)).

The BAAQMD regulates a CAA subpart 1 ozone nonattainment area and the rules must fulfill the requirements of RACT. The SJVUAPCD regulates a severe ozone nonattainment area. See 40 CFR 81.305. The District identified the control of VOC emissions from natural gas dehydration systems in Rule 4408 as a Reasonably Available Control Measure (RACM) for implementation in 2003. See 2002 and 2005 Rate of Progress Plan, SJVUAPCD. Therefore, Rule 4408 must fulfill RACM/RACT requirements.

The following guidance documents were used for reference:

• Requirements for Preparation, Adoption, and Submittal of Implementation Plans, U.S. EPA, 40 CFR part 51.

• Portions of the proposed post-1987 ozone and carbon monoxide policy that concern RACT, 52 FR 45044 (November 24, 1987).

• Issues Relating to VOC Regulation Cutpoints, Deficiencies, and Deviations, EPA (May 25, 1988) (the Bluebook).

• Guidance Document for Correcting Common VOC & Other Rule Deficiencies, EPA Region IX (August 21, 2001) (the Little Bluebook).

• Determination of RACT and BARCT for Organic Solvent Cleaning and Degreasing Operations, California Air Resources Board (July 7, 1991).

• Control of VOE from Solvent Metal Cleaning, EPA-450-2-77-022 (November 1977).

We believe all of the rules are consistent with the relevant policy and guidance regarding enforceability, SIP relaxations, and fulfilling RACT. All of the deficiencies identified in our previous limited approval/limited disapproval action on BAAQMD Rule 8-16 have been adequately addressed as follows:

• 8-16-501: The solvent use recordkeeping frequency is increased to monthly from annually.

• 8-16-111, 8-16-602.2, and 8-16-602.3: Corrected are certain erroneous section references.

As authorized in section 110(k)(3) of the CAA, EPA is fully approving the submitted rules because we believe they fulfill all relevant requirements. We do not think anyone will object to this, so we are finalizing the approval without proposing it in advance. However, in the Proposed Rules section of this Federal Register, we are simultaneously proposing approval of the same submitted rules. If we receive adverse comments by September 25, 2003, we will publish a timely withdrawal in the Federal Register to notify the public that the direct final approval will not take effect and we will address the comments in a subsequent final action based on the proposal. If we do not receive timely adverse comments, the direct final approval will be effective without further notice on October 27, 2003. This will incorporate these rules into the federally-enforceable SIP. It will also permanently terminate all sanctions and FIP implications associated with our final action on BAAQMD Rule 8-16 on April 16, 2003 (68 FR 18546).

Please note that if EPA receives adverse comment on an amendment, paragraph, or section of this direct final rule and if that provision may be severed from the remainder of the rule, EPA may adopt as final those provisions of the rule that are not the subject of an adverse comment.

VOCs help produce ground-level ozone, smog, and particulate matter which harm human health and the environment. EPA has established National Ambient Air Quality Standards (NAAQS) for ozone. Section 110(a) of the CAA requires states to submit regulations in order to achieve and maintain the NAAQS. Table 2 lists some of the national milestones leading to the submittal of local agency VOC rules.

Under Executive Order 12866 (58 FR 51735, October 4, 1993), this action is not a “significant regulatory action” and therefore is not subject to review by the Office of Management and Budget. For this reason, this action is also not subject to Executive Order 13211, “Actions Concerning Regulations That Significantly Affect Energy Supply, Distribution, or Use” (66 FR 28355, May 22, 2001). This action merely approves state law as meeting federal requirements and imposes no additional requirements beyond those imposed by state law. Accordingly, the Administrator certifies that this rule will not have a significant economic impact on a substantial number of small entities under the Regulatory Flexibility Act (5 U.S.C. 601 et seq.). Because this rule approves pre-existing requirements under state law and does not impose any additional enforceable duty beyond that required by state law, it does not contain any unfunded mandate or significantly or uniquely affect small governments, as described in the Unfunded Mandates Reform Act of 1995 (Public Law 104-4).

This rule also does not have tribal implications because it will not have a substantial direct effect on one or more Indian tribes, on the relationship between the Federal Government and Indian tribes, or on the distribution of power and responsibilities between the Federal Government and Indian tribes, as specified by Executive Order 13175 (65 FR 67249, November 9, 2000). This action also does not have Federalism implications because it does 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 (64 FR 43255, August 10, 1999). This action merely approves a state rule implementing a Federal standard, and does not alter the relationship or the distribution of power and responsibilities established in the CAA. This rule also is not subject to Executive Order 13045, “Protection of Children from Environmental Health Risks and Safety Risks” (62 FR 19885, April 23, 1997), because it is not economically significant.

In reviewing SIP submissions, EPA's role is to approve state choices, provided that they meet the criteria of the CAA. In this context, in the absence of a prior existing requirement for the State to use voluntary consensus standards (VCS), EPA has no authority to disapprove a SIP submission for failure to use VCS. It would thus be inconsistent with applicable law for EPA, when it reviews a SIP submission, to use VCS in place of a SIP submission that otherwise satisfies the provisions of the CAA. Thus, the requirements of section 12(d) of the National Technology Transfer and Advancement Act of 1995 (15 U.S.C. 272 note) do not apply. This rule does not impose an information collection burden under the provisions of the Paperwork Reduction Act of 1995 (44 U.S.C. 3501 et seq.).

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

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 October 27, 2003. 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).)

1. The Regional Office has established an official public rulemaking file for this action under NC-112L-2003-1 that is available for inspection at the Regional Office. The official public file consists of the documents specifically referenced in this action, any public comments received, and other information related to this action. Although a part of the official docket, the public rulemaking file does not include Confidential Business Information (CBI) or other information whose disclosure is restricted by statute. The official public rulemaking file is the collection of materials that is available for public viewing at the Air Toxics Assessment and Implementation Section, Air Toxics and Monitoring Branch, Air, Pesticides and Toxics Management Division, Region 4, U.S. Environmental Protection Agency, 61 Forsyth Street, SW., Atlanta, Georgia 30303-8960. EPA requests that if at all possible, you contact the contact listed in the For Further Information Contact section to schedule your inspection. The Regional Office's official hours of business are Monday through Friday, 9 to 3:30 excluding Federal Holidays.

2. Copies of the State submittal and supporting documents are also available for public inspection during normal business hours, by appointment at the North Carolina Department of Environmental and Natural Resources, Division of Air Quality, 1641 Mail Service Center, Raleigh, North Carolina 27699-1641.

3. Electronic Access. You may access this Federal Register document electronically through the Regulation.gov Web site located at http://www.regulations.gov where you can find, review, and submit comments on Federal rules that have been published in the Federal Register, the Government's legal newspaper, and are open for comment.

For public commenters, it is important to note that EPA's policy is that public comments, whether submitted electronically or in paper, will be made available for public viewing at the EPA Regional Office, as EPA receives them and without change, unless the comment contains copyrighted material, CBI, or other information whose disclosure is restricted by statute. When EPA identifies a comment containing copyrighted material, EPA will provide a reference to that material in the version of the comment that is placed in the official public rulemaking file. The entire printed comment, including the copyrighted material, will be available at the Regional Office for public inspection.

You may submit comments electronically, by mail, or through hand delivery/courier. To ensure proper receipt by EPA, identify the appropriate rulemaking identification number by including the text “Public comment on proposed rulemaking NC-112L-2003-1” in the subject line on the first page of your comment. Please ensure that your comments are submitted within the specified comment period. Comments received after the close of the comment period will be marked “late.” EPA is not required to consider these late comments.

1. Electronically. If you submit an electronic comment as prescribed below, EPA recommends that you include your name, mailing address, and an e-mail address or other contact information in the body of your comment. Also include this contact information on the outside of any disk or CD ROM you submit, and in any cover letter accompanying the disk or CD ROM. This ensures that you can be identified as the submitter of the comment and allows EPA to contact you in case EPA cannot read your comment due to technical difficulties or needs further information on the substance of your comment. EPA's policy is that EPA will not edit your comment, and any identifying or contact information provided in the body of a comment will be included as part of the comment that is placed in the official public docket. If EPA cannot read your comment due to technical difficulties and cannot contact you for clarification, EPA may not be able to consider your comment.

i. E-mail. Comments may be sent by electronic mail (e-mail) to page.lee@epa.gov. Please include the text “Public comment on proposed rulemaking NC-112L-2003-1” in the subject line. EPA's e-mail system is not an “anonymous access” system. If you send an e-mail comment directly without going through Regulation.gov, EPA's e-mail system automatically captures your e-mail address. E-mail addresses that are automatically captured by EPA's e-mail system are included as part of the comment that is placed in the official public docket.

ii. Regulation.gov. Your use of Regulation.gov is an alternative method of submitting electronic comments to EPA. Go directly to Regulations.gov at http://www.regulations.gov, then select Environmental Protection Agency at the top of the page and use the go button. The list of current EPA actions available for comment will be listed. Please follow the online instructions for submitting comments. The system is an “anonymous access” system, which means EPA will not know your identity, e-mail address, or other contact information unless you provide it in the body of your comment.

iii. Disk or CD ROM. You may submit comments on a disk or CD ROM that you mail to the mailing address identified in Section 2, directly below. These electronic submissions will be accepted in WordPerfect, Word or ASCII file format. Avoid the use of special characters and any form of encryption.

2. By Mail. Send your comments to: Lee Page, Air Toxics Assessment and Implementation Section, Air Toxics and Monitoring Branch, Air, Pesticides and Toxics Management Division, Region 4, U.S. Environmental Protection Agency, 61 Forsyth Street, SW, Atlanta, Georgia 30303-8960. Please include the text “Public comment on proposed rulemaking NC-112L-2003-1” in the subject line on the first page of your comment.

3. By Hand Delivery or Courier. Deliver your comments to: Lee Page; Air Toxics Assessment and Implementation Section; Air Toxics and Monitoring Branch; Air, Pesticides and Toxics Management Division 12th floor; U.S. Environmental Protection Agency Region 4; 61 Forsyth Street, SW., Atlanta, Georgia 30303-8960. Such deliveries are only accepted during the Regional Office's normal hours of operation. The Regional Office's official hours of business are Monday through Friday, 9 to 3:30 excluding Federal Holidays.

Do not submit information that you consider to be CBI electronically to EPA. You may claim information that you submit to EPA as CBI by marking any part or all of that information as CBI (if you submit CBI on disk or CD ROM, mark the outside of the disk or CD ROM as CBI and then identify electronically within the disk or CD ROM the specific information that is CBI). Information so marked will not be disclosed except in accordance with procedures set forth in 40 CFR part 2.

In addition to one complete version of the comment that includes any information claimed as CBI, a copy of the comment that does not contain the information claimed as CBI must be submitted for inclusion in the official public regional rulemaking file. If you submit the copy that does not contain CBI on disk or CD ROM, mark the outside of the disk or CD ROM clearly that it does not contain CBI. Information not marked as CBI will be included in the public file and available for public inspection without prior notice. If you have any questions about CBI or the procedures for claiming CBI, please consult the person identified in the FOR FURTHER INFORMATION CONTACT section.

You may find the following suggestions helpful for preparing your comments:

1. Explain your views as clearly as possible.

2. Describe any assumptions that you used.

3. Provide any technical information and/or data you used that support your views.

4. If you estimate potential burden or costs, explain how you arrived at your estimate.

5. Provide specific examples to illustrate your concerns.

6. Offer alternatives.

7. Make sure to submit your comments by the comment period deadline identified.

8. To ensure proper receipt by EPA, identify the appropriate regional file/rulemaking identification number in the subject line on the first page of your response. It would also be helpful if you provided the name, date, and Federal Register citation related to your comments.

On April 15, 1998, the Environmental Protection Agency (EPA) promulgated the National Emission Standards for Hazardous Air Pollutants from the Pulp and Paper Industry (see 63 FR 18504) which was codified in 40 CFR part 63, subpart S, “National Emission Standards for Hazardous Air Pollutants from the Pulp and Paper Industry” (Pulp and Paper MACT I). Subsequently, on January 12, 2001, EPA promulgated the National Emission Standard for Hazardous Air Pollutants from the Pulp and Paper Industry (see 66 FR 3180) which has been codified in 40 CFR part 63, subpart MM, “National Emission Standards for Chemical Recovery Combustion Sources at Kraft, Soda, Sulfite and Stand-alone Semi-chemical Pulp Mills” (Pulp and Paper MACT II). The International Paper Riegelwood Mill in Riegelwood, North Carolina, is one of five pulp and paper mills operating in the State and subject to subpart S and subpart MM.

On March 4, 2003, North Carolina Department of Environment and Natural Resources (NC DENR) requested delegation of subpart S and subpart MM under § 63.94 for the International Paper Riegelwood Mill. EPA received the request on March 11, 2003. NC DENR requested to implement and enforce approved alternative title V permit terms and conditions in place of the otherwise applicable requirements of subpart S and subpart MM under the process outlined in 40 CFR 63.94. As part of its request to implement and enforce alternative terms and conditions in place of the otherwise applicable Federal section 112 standards, NC DENR also requested approval of its demonstration that NC DENR has adequate authorities and resources to implement and enforce all Clean Air Act (CAA) section 112 programs and rules. The purpose of this demonstration is to streamline the approval process for future CAA section 112(l) applications.

Under CAA section 112(l), EPA may approve state or local rules or programs to be implemented and enforced in place of certain otherwise applicable CAA section 112 Federal rules, emission standards, or requirements. The Federal regulations governing EPA's approval of state and local rules or programs under section 112(l) are located at 40 CFR part 63, subpart E (see 65 FR 55810, dated September 14, 2000). Under these regulations, a state or local air pollution control agency has the option to request EPA's approval to substitute alternative requirements and authorities that take the form of permit terms and conditions instead of source category regulations. This option is referred to as the equivalency by permit (EBP) option. To receive EPA approval using this option, the requirements of 40 CFR 63.91 and 63.94 must be met.

The EBP process comprises three steps. The first step (see 40 CFR 63.94(a) and (b)) is the “up-front approval” of the state EBP program. The second step (see 40 CFR 63.94(c) and (d)) is EPA review and approval of the state alternative section 112 requirements in the form of pre-draft permit terms and conditions. The third step (see 40 CFR 63.94(e)) is incorporation of the approved pre-draft permit terms and conditions into a specific title V permit and the title V permit issuance process itself. The final approval of the state alternative requirements that substitute for the Federal standard does not occur for purposes of the Act, section 112(l)(5), until the completion of step three.

The purpose of step one, the “up-front approval” of the EBP program, is three fold: (1) It ensures that NC DENR meets the § 63.91(b) criteria for up-front approval common to all approval options; (2) it provides a legal foundation for NC DENR to replace the otherwise applicable Federal section 112 requirements with alternative, federally enforceable requirements that will be reflected in final title V permit terms and conditions; and (3) it delineates the specific sources and Federal emission standards for which NC DENR will be accepting delegation under the EBP option.

Under §§ 63.94(b) and 63.91, NC's request for approval is required to include the identification of the sources and the source categories for which the state is seeking authority to implement and enforce alternative requirements, as well as a one time demonstration that the State has an approved title V operating permit program that permits the affected sources.

After reviewing the request for approval of NC DENR's EBP program for Subpart S and Subpart MM, EPA has determined that this request meets all the requirements necessary to qualify for approval under CAA section 112(l) and 40 CFR 63.91 and 63.94. Accordingly, EPA approves NC DENR's request to implement and enforce alternative requirements in the form of title V permit terms and conditions for International Paper Riegelwood Mill for subpart S and subpart MM. This action is contingent upon NC DENR including, in title V permits, terms and conditions that are no less stringent than the Federal standard. In addition, the requirement applicable to the sources and the “applicable requirement” for title V purposes remains the Federal section 112 requirement until EPA has approved the alternative permit terms and conditions and the final title V permit is issued.

The 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 approve the section 112(l) provisions should adverse comments be filed. This rule will be effective October 27, 2003 without further notice unless the Agency receives adverse comments by September 25, 2003.

If the EPA receives such comments, then EPA will publish a document 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. The 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 October 27, 2003 and no further action will be taken on the proposed rule. Please note that if we receive adverse comment on an amendment, paragraph, or section of this rule and if that provision may be severed from the remainder of the rule, we may adopt as final those provisions of the rule that are not the subject of an adverse comment.

Under Executive Order 12866 (58 FR 51735, October 4, 1993), this action is not a “significant regulatory action” and therefore is not subject to review by the Office of Management and Budget. For this reason, this action is also not subject to Executive Order 13211, “Actions Concerning Regulations That Significantly Affect Energy Supply, Distribution, or Use” (66 FR 28355, May 22, 2001). Also, this action 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.

This rule also does not have tribal implications because it will not have a substantial direct effect on one or more Indian tribes, on the relationship between the Federal Government and Indian tribes, or on the distribution of power and responsibilities between the Federal Government and Indian tribes, as specified by Executive Order 13175 (65 FR 67249, November 9, 2000). Thus, Executive Order 13175 does not apply to this rule

This action also does not have Federalism implications because it does 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 (64 FR 43255, August 10, 1999). This action merely approves a state program implementing a Federal program, and does not alter the relationship or the distribution of power and responsibilities established in the Clean Air Act. Thus, Executive Order 13132 does not apply to this rule.

The Regulatory Flexibility Act (RFA), as amended by the Small Business Regulatory Enforcement Fairness Act of 1996 (SBREFA), 5 U.S.C. 601 et seq., generally requires an agency to prepare a regulatory flexibility analysis of any rule subject to notice and comment rulemaking requirements under the Administrative Procedure Act or any other statute unless the agency certifies that the rule will not have a significant economic impact on a substantial number of small entities. Small entities include small businesses, small not-for-profit enterprises, and small governmental entities with jurisdiction over populations of less than 50,000. This rule will not have a significant impact on a substantial number of small entities because approvals under 40 CFR 63.94 do not create any new requirements but simply allows the state to implement and enforce permit terms in place of federal requirements that the EPA is already imposing. Therefore, because this approval does not create any new requirements, I certify that this action will not have a significant economic impact on a substantial number of small entities.

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 the 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 approval 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 allows North Carolina to implement equivalent alternative requirements to replace pre-existing requirements under Federal law, and imposes no new 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. A major rule cannot take effect until 60 days after it is published in the Federal Register. This action is not a “major rule” as defined by 5 U.S.C. 804(2).

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) directs EPA to use voluntary consensus standards in its regulatory activities unless to do so would be inconsistent with applicable law or otherwise impractical. Voluntary consensus standards are technical standards (e.g., materials specifications, test methods, sampling procedures, and business practices) that are developed or adopted by voluntary consensus standards bodies. The NTTAA directs EPA to provide Congress, through OMB, explanations when the Agency decides not to use available and applicable voluntary consensus standards. This action does not involve technical standards. Therefore, EPA did not consider the use of any voluntary consensus standards.

Under section 307(b)(1) of the Clean Air Act, petitions for judicial review of this action must be filed in the United States Court of Appeals for the appropriate circuit by October 27, 2003. 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).)

This is a summary of the Order in MB Docket No. 02-277, and MM Docket Nos. 01-235, 01-317, and 00-244, DA 03-2671, adopted August 15, 2003, and released August 15, 2003. The complete text of this Order is available for inspection and copying during normal business hours in the FCC Reference Information Center, Courtyard Level, 445 12th Street, SW., Washington, DC, and also may be purchased from the Commission's copy contractor, Qualex International, Portals II, 445 12th Street, SW., Room CY-B402, Washington, DC 20554, telephone 202-863-2893, facsimile 202-863-2898, or via e-mail at qualexint@aol.com. Alternative formats (computer diskette, large print, audio cassette, and Braille) are available to persons with disabilities by contacting Brian Millin at 202-418-7426, TTY 202-418-7365, or at bmillin@fcc.gov.

1. On July 2, 2003, the Commission released a Report and Order and Notice of Proposed Rulemaking, completing its third biennial review of its broadcast ownership rules. (See Report and Order at 68 FR 46286, August 5, 2003, and Notice of Proposed Rulemaking at 68 FR 46359, August 5, 2003.) On August 11, 2003, the Diversity and Competition Supporters (“Petitioners”) filed a motion requesting permission to exceed the page limits for petitions for reconsideration, as well as oppositions and replies thereto. See Motion to Extend Page Limits on Reconsideration (“Motion”), filed by Diversity and Competition Supporters, Aug. 11, 2003. The Commission's rules state that petitions for reconsideration and oppositions to petitions for reconsideration of Commission actions shall not exceed 25 double-spaced typewritten pages, and replies to oppositions shall not exceed 10 double-spaced typewritten pages. 47 CFR 1.429 (d), (f) and (g). Petitioners ask that we increase the limits for petitions and oppositions to 50 pages for each and the limits for replies to 20 pages. They argue that the broadcast ownership proceeding contains several interrelated proceedings, and they cannot discuss their points “coherently and thoroughly” within the page limits articulated in the rules. They add that the Commission has previously relaxed the page limitations when parties seek reconsideration of extraordinarily complex decisions.

2. We agree with Petitioners that the issues presented in this proceeding are both complex and important. The Report and Order was the culmination of the most comprehensive review of broadcast ownership regulation in the agency's history. We therefore find that the public interest would be best served by granting the Petitioners' Motion in order to assure a complete record and thorough treatment of all the issues on reconsideration. In this proceeding, petitions for reconsideration and oppositions to petitions for reconsideration will be limited to 50 pages each, and replies to opposition to petitions for reconsideration will be limited to 20 pages.

3. Accordingly, Petitioners' Motion to Extend Page Limits on Reconsideration in the above-captioned proceeding is granted.

Several of the background documents for the ALWTRP and the take reduction planning process can be downloaded from the ALWTRP web site at http://www.nero.nmfs.gov/whaletrp/. Copies of the most recent marine mammal stock assessment reports may be obtained by writing to Richard Merrick, NMFS, 166 Water Street, Woods Hole, MA 02543 or can be downloaded from the Internet at http://www.wh.whoi.edu/psb/sar2002.pdf. In addition, copies of the documents entitled “Defining Triggers for Temporary Area Closures to Protect Right Whales from Entanglements: Issues and Options” and “Identification of Seasonal Area Management Zones for North Atlantic Right Whale Conservation” are available by writing to Diane Borggaard, NMFS, Northeast Region, 1 Blackburn Drive, Gloucester, MA 01930 or can be downloaded from the Internet at http://www.nero.nmfs.gov/whaletrp/.

This final rule identifies acceptable gear that would sufficiently reduce the risk of entanglement to right whales and could be allowed under the DAM program (67 FR 1133, January 9, 2002; 67 FR 65722, October 28, 2002). This final rule completes the regulatory actions planned and described in the recent amendments to the ALWTRP, which included the SAM program (67 FR 1142, January 9, 2002; 67 FR 65722, October 28, 2002), expanded gear modifications (67 FR 1300, January 10, 2002; 67 FR 15493, April 2, 2002), as well as the DAM program. Details concerning the justification for and development of the rule were provided in the preamble to the proposed rule (68 FR 10195; March 4, 2003) and, therefore, are not repeated here.

The final gear modifications to the ALWTRP DAM program are based on the SAM anchored gillnet and lobster trap/pot gear, with allowance for a second buoy line and floating line on the bottom third of each buoy line, which are described below. These requirements are in addition to the gear modifications currently required under the ALWTRP for the Offshore Lobster Waters, Northern Nearshore Lobster Waters, Southern Nearshore Lobster Waters, Northern Inshore State Lobster Waters, Great South Channel Restricted Lobster Area (July 1 through March 31), Stellwagen Bank/Jeffreys Ledge Restricted Area (lobster trap and gillnet area descriptions), Cape Cod Bay Restricted Area (lobster trap and gillnet area descriptions; May 16 through December 31), Great South Channel Restricted Gillnet Area (July 1 through March 31), Great South Channel Sliver Restricted Area (July 1 through March 31), Mid-Atlantic Coastal Waters (gillnet area description) and Other Northeast Gillnet Waters. If the requirements and exceptions for gear modifications in a DAM zone as provided in this final rule differ from other ALWTRP requirements for any overlapping areas and times, then the more restrictive requirements will apply in the DAM zone. Time periods for critical habitat are incorporated to clarify when these are subject to the DAM program, which, as described (66 FR 50160, October 2, 2001; 67 FR 1142, January 9, 2002) and implemented by NMFS, are time periods when the requirements for critical habitat areas are no more conservative than the surrounding waters. Additionally, DAM gear modification requirements under the DAM program are applicable to ALWTRP management areas north of 40° N. latitude where a DAM zone could be triggered.

In addition to the universal gear and gear marking requirements, fishermen utilizing lobster trap gear within the portion of the Northern Nearshore Lobster Waters, Southern Nearshore Lobster Waters, Northern Inshore State Lobster Waters, Cape Cod Bay Restricted Area (May 16 through December 31), and Stellwagen Bank/Jeffreys Ledge Restricted Area that overlap with a DAM zone may be required to utilize all the following gear modifications when a DAM zone is in effect:

1. Groundlines must be made of either sinking or neutrally buoyant line. Floating groundlines are prohibited;

2. Buoy lines must be made of either sinking or neutrally buoyant line, except the bottom portion of the line, which may be a section of floating line not to exceed one-third the overall length of the buoy line;

3. A weak link with a maximum breaking strength of 600 lb (272.4 kg) must be placed at all buoys; and

4. Fishermen are allowed to use two buoy lines per trawl string.

In addition to the universal gear and gear marking requirements, fishermen utilizing lobster trap gear within the portion of the Great South Channel Restricted Lobster Area (July 1 through March 31) and Offshore Lobster Waters Area that overlap with a DAM zone may be required to utilize all the following gear modifications when a DAM zone is in effect:

1. Groundlines must be made of either sinking or neutrally buoyant line. Floating groundlines are prohibited;

2. Buoy lines must be made of either sinking or neutrally buoyant line, except the bottom portion of the line, which may be a section of floating line not to exceed one-third the overall length of the buoy line;

3. A weak link with a maximum breaking strength of 1,500 lb (680.4 kg) must be placed at all buoys; and

4. Fishermen are allowed to use two buoy lines per trawl string.

In addition to the universal gear and gear marking requirements, fishermen utilizing anchored gillnet gear within the portion of the Other Northeast Gillnet Waters, Cape Cod Bay Restricted Area (May 16 through December 31), Stellwagen Bank/Jeffreys Ledge Restricted Area, Great South Channel Restricted Gillnet Area (July 1 through March 31), Great South Channel Sliver Restricted Area (July 1 through March 31), and Mid-Atlantic Coastal Waters that overlap with a DAM zone may be required to utilize all the following gear modifications when a DAM zone is in effect:

1. Groundlines must be made of sinking or neutrally buoyant line. Floating groundlines are prohibited;

2. Buoy lines must be made of either sinking or neutrally buoyant line, except the bottom portion of the line, which may be a section of floating line not to exceed one-third the overall length of the buoy line;

3. A weak link with a maximum breaking strength of 1,100 lb (498.8 kg) must be placed at all buoys;

4. Each net panel must have a total of 5 weak links each with a maximum breaking strength of 1,100-lb (498.8-kg). Net panels are typically 50 fathoms in length, but the weak link requirements would apply to all variations in panel size. These weak links must include 3 floatline weak links. The placement of the weak links on the floatline must be as follows: one at the center of the net panel and one as close as possible to each of the bridle ends of the net panel. The remaining 2 weak links must be placed in the center of each of the up and down lines at the panel ends;

5. Fishermen are allowed to use two buoy lines per net string; and

6. All anchored gillnets, regardless of the number of net panels, must be securely anchored with the holding power of at least a 22-lb (10.0-kg) Danforth style anchor at each end of the net string.

Details concerning the justification for and clarification of the weak link requirement for Northern Inshore State Lobster Waters and Northern Nearshore Lobster Waters that Overlap with SAM Areas were provided in the preamble to the proposed rule (68 FR 10195; March 4, 2003) and, therefore, are not repeated here. NMFS includes in this final rule a provision that lobster trap gear in Northern Inshore State Lobster Waters and Northern Nearshore Lobster Waters that overlaps with a SAM area must have a weak link with a maximum breaking strength of 600-lb (272.4-kg) at all buoys.

Approximately 12 letters of comment were received during the public comment period on the proposed rule, which ended on April 3, 2003. A complete summary of the comments and NMFS' responses is provided here.

Comment 1: One commenter expressed support for the preferred alternative because they believe it will provide the guidance necessary for fishermen to modify their gear in order to minimize impacts on marine mammals.

Response: NMFS appreciates the support and reiterates that identifying gear modifications in the final rule is necessary to complete the DAM program as an element of the Reasonable and Prudent Alternative (RPA) required under the Endangered Species Act (ESA) to protect right whales and avoid jeopardy. In addition, through the implementation of the gear modifications identified for potential use in a DAM zone, NMFS acknowledges the preference for management measures that allow fishing to continue with modified gear inside designated DAM zones while also sufficiently reducing the risk of serious injury and mortality to right whales from entanglements.

Comment 2: One commenter disagreed with the conclusion made in the proposed rule for the SAM program that the gear modifications prevent serious injury or mortality to right whales.

Response: NMFS recognizes the practical difficulties associated with identifying gear modifications designed to sufficiently reduce the risk of serious injury or mortality to right whales. As indicated in the Final Environmental Assessments for the SAM interim final rule and this final rule, it is not feasible, in a typical scientific fashion, to conduct and evaluate experiments on right whale interactions with modified gear configurations. For obvious reasons, NMFS cannot conduct field tests or even laboratory experiments on right whales to collect data. However, NMFS is able to scrutinize past entanglements, analyze these events, and develop ways to modify gear in order to sufficiently reduce risk of serious injury and mortality from future entanglements.

Comment 3: One commenter disagrees that interactions between large marine mammals and fixed gear types, such as gillnets, have a major impact. Another commenter disagreed with the assessment that the arc created by floating line between traps in a trawl posed a threat to whales.

Response: While it is often difficult to identify the specific gear type involved in each entanglement, NMFS does have evidence that fixed gear types, such as gillnets, have an impact on large whales. In 2001, there were two confirmed and several unconfirmed entanglements of large whales where gillnet gear was recovered. For example, in February 2001, gillnet gear was recovered from an entangled humpback whale off the coast of North Carolina. In April 2001, gillnet gear was recovered from an entangled humpback whale found dead near Virginia Beach, VA.

Floating line between traps has also been implicated in large whale entanglements; NMFS has evidence that establishes the risk associated with this gear configuration. Underwater video footage of typical lobster gear with floating groundline between traps revealed that the floating groundline forms large loops in the water column between traps. Similar underwater video footage of neutrally buoyant line between traps indicated that it did not have the same vertical profile as floating line; rather, it was located on or near the bottom, thus reducing the risk of entangling a large whale. Additionally, in the SAM proposed rule (66 FR 59394, November 28, 2001), NMFS discussed an analysis of gear profiles in the Offshore Lobster Waters area, which estimated that an 85% reduction in floating line would result if floating line were replaced by sinking or neutrally buoyant line in SAM areas. Therefore, NMFS expects that by eliminating most floating line and requiring sinking or neutrally buoyant line in a DAM zone, a large percentage of the line within the water column would be eliminated.

Comment 4: One commenter suggested that NMFS add new mandatory provisions to all its permits or impose new mandatory regulations on fishing vessel personnel regarding marine trash and debris awareness and elimination, vessel strike avoidance, and injured/dead protected species reporting.

Response: NMFS appreciates the concerns raised by the commenter; however, these activities fall outside of the scope of this final rule under the DAM program in the ALWTRP. In addition, marine trash and debris awareness and elimination falls outside the scope for regulations promulgated under take reduction plans. Specifically, section 118 of the Marine Mammal Protection Act (MMPA), which authorizes NMFS to establish take reduction teams and develop plans for the purpose of reducing serious injury and mortality to marine mammals, is designed to address interactions between commercial fishing gear and marine mammals. Similarly, although ship strikes and the need to mitigate the risks posed by vessel traffic are important to large whale conservation and recovery, the take reduction team is established to deal solely with the interactions between marine mammals and commercial fishing. NMFS is developing a separate strategy to address ship strikes and will work with interested agencies and parties to implement that strategy. Finally, MMPA section 118 and NMFS implementing regulations have separate requirements for reporting incidental mortality and injury of marine mammals in the course of fishing operations (16 U.S.C. 1387(e) and 50 CFR 229.6) and similar requirements may be imposed under the ESA as necessary for the conservation of other protected species.

Comment 5: One commenter requested that NMFS immediately establish regulations to require all fish and shellfish traps and all gillnets in U.S. waters north of central Florida to use sinking or neutrally buoyant line for ground and buoy lines and a single buoy to mark gear.

Response: The DAM program, under which this final rule is promulgated, only applies to anchored gillnet and lobster trap gear in waters north of 40° N. latitude. Therefore, the gear modifications identified in this final rule would only be required in these waters and for these gear types in the event that a gear modification option is selected for implementation inside a DAM zone. However, NMFS and the ALWTRT have been discussing the need for bringing other fisheries under the auspices of the ALWTRP. Representatives from new trap/pot fisheries, such as hagfish, red crab, and black sea bass, have been added to the ALWTRT for the purpose of discussing, developing, and applying risk reduction measures to these fisheries. NMFS and the ALWTRT will continue to investigate the need to add representatives from other fisheries to the Team as warranted.

Comment 6: Several commenters encouraged NMFS to replace the DAM and SAM program with universal gear modifications to protect all large whales from entanglement.

Response: NMFS and the ALWTRT have identified “universal” or expanded gear modifications as a long term objective with the potential for replacing DAM and SAM. However, as indicated in the Biological Opinion that identified DAM, SAM, and expanded gear modifications, these three programs act as multiple management components for one RPA to avoid jeopardy to right whales. Therefore, in order to remove DAM and SAM and still avoid jeopardy, NMFS must replace these programs with management measures of at least equal or more conservation benefit to right whales. NMFS hopes that the implementation of DAM gear modification options through this final rule will help alleviate some of the hardship experienced by the fishing community that might otherwise be caused by requiring or requesting the complete removal of lobster trap/pot and anchored gillnet gear from a DAM zone while still protecting right whales.

Comment 7: One commenter proposed that NMFS explore the feasibility of year-round breakaway gear, with in-season modifications, such as the anchoring requirement, when concentrations of large mammals are observed.

Response: NMFS and the ALWTRT have been developing and discussing alternative management measures, including year-round, “universal” or expanded gear modifications. However, under the current RPA, DAM, SAM, and additional gear modifications have been identified as multiple management components necessary to avoid jeopardy. In the meantime, NMFS will continue to work with the ALWTRT, fishermen, scientists and fishing gear manufacturers to develop and test gear modifications. NMFS will continue to discuss the need for additional gear modifications requirements under the ALWTRP with the ALWTRT.

Comment 8: Several commenters oppose the proposal to require the use of a single endline, also referred to as a buoy line. One commenter suggests allowing the use of two endlines on gillnets with Danforth-style anchors at each end to ensure the proper operation of weak links on the gear. In addition, this commenter and others felt that NMFS has failed to analyze the increased potential for gear conflicts and financial loss to fixed gear fishermen by prohibiting the use of two endlines. One commenter suggested that NMFS consider allowing fishermen to replace the second endline with a very weak buoy line for the purpose of marking the location of the gear during the 15-day DAM restricted period. Several commenters felt that this provision would lead to increased lobster gear loss because it is common for lobstermen to lose one buoy line. Finally, several commenters felt that prohibiting the use of two buoy lines may encourage fishermen to split their trawls into smaller units (i.e., to avoid increased gear conflict and gear loss), which could result in an increase in vertical lines in the water column, thereby defeating the purpose of requiring a single buoy line (i.e., to reduce the number of lines in the water). Additionally, commenters noted that two buoy lines should be allowed to minimize the risk to human safety that would result if fishermen could not haul from either end of a net string or trap trawl in adverse weather conditions.

Response: Since publication of the proposed rule, NMFS has become aware that requiring gear modifications with one buoy line in a DAM area may not necessarily result in a 50-percent reduction of vertical lines in the water column as fishermen may fish shorter trawls, which may result in the same or a greater number of buoy lines. Allowing SAM gear modifications with a second endline and one third polypropylene on the bottom third of the buoy line reduces both the potential for interaction through a significant reduction in floating line and the potential for serious injury or mortality through the incorporation of additional weak links at reduced breaking strengths. In addition, having two endlines reduces the probability of gear conflicts and lost gear. Thus, this final rule implements a DAM gear modifications option that allows fishermen to retain a second endline, which addresses both gear conflict and financial burden concerns expressed by the commenter.

Comment 9: One commenter suggested that NMFS reconsider the proposed prohibition of floating line because sinking and/or neutrally buoyant line is not compatible with all bottom types and all conditions.

Response: NMFS has reconsidered the prohibition on floating line in the proposed rule with respect to endlines only. In this final rule, endlines will be required to be composed entirely of either sinking and/or neutrally buoyant line except for the bottom third of the line, which may be made of floating line. Floating groundlines will be prohibited and must, therefore, be composed entirely of sinking or neutrally buoyant line. See also response to Comment 13.

Comment 10: Several commenters suggested that NMFS consider the current management measures in the Cape Cod Bay Critical Habitat Area for guidance with respect to regulating buoy lines. These regulations allow lobstermen to fish with two buoy lines on a trawl and allows for a section of floating line on the buoy line.

Response: The final rule implements a lobster gear modification option for DAM that is similar to those currently required in Cape Cod Bay from January 1 through May 15.

Comment 11: One commenter felt that it was premature for NMFS to suggest that the SAM gear modifications (e.g., the use of 600-lb (272.4-kg) and 1,100-lb (498.8-kg) weak links) have been demonstrated to prevent serious injury or mortality to right whales.

Response: See response to Comment 2.

Comment 12: Two commenters suggested that NMFS should adopt a more regional approach to developing gear modifications, which would take into account unique bathymetric features, especially those found along the coast of Maine. In addition, one of these commenters expressed opposition to the proposal for eliminating one buoy line, the prohibition on floating line on the bottom 1/3 of the endline, and the prohibition on floating groundline.

Response: NMFS is working with the ALWTRT, including the Maine Department of Marine Resources, to understand the unique bathymetric features throughout the Gulf of Maine and fishing operations in these areas. NMFS considers numerous factors when developing regulations to reduce interactions between large whales and commercial fisheries. For example, weak link requirements under the ALWTRP vary by fishery and management area. See also responses to Comments 9 and 13.

Comment 13: One commenter expressed opposition to the proposed requirement that buoy lines be comprised of entirely sinking or neutrally buoyant line because recent research from flume-tank testing of scale models suggests that this gear requirement has little or no conservation value.

Response: Based on this recent research, NMFS has reconsidered the prohibition on floating line identified in the proposed rule with respect to endlines only. The flume-tank testing results support underwater video footage taken by NMFS and discussed in the Environmental Assessment/Regulatory Impact Review (EA/RIR), which demonstrates that allowing one-third polypropylene line on the bottom third of the buoy line does not necessarily produce a loop in the water column, due to current and tidal action on the surface system, and, therefore, would not increase risk to right whales. NMFS does believe that there is conservation value in requiring two-thirds of the buoy line to be sinking and/or neutrally buoyant line, similar to the buoy line gear modification requirement in Cape Cod Bay Critical Habitat. Thus, endlines will be required to be composed entirely of either sinking and/or neutrally buoyant line except for the bottom third of the line, which may be made of floating line.

Comment 14: One commenter expressed support for the proposed requirement that groundlines be comprised entirely of sinking or neutrally buoyant line, but suggested that NMFS allow a phase-in period for fishermen to change their gear.

Response: This final rule will be effective 30-days after date of publication in the Federal Register. If a DAM zone is triggered after this time and NMFS requires gear modifications in the DAM zone, fishermen will be required to change their groundlines over to sinking or neutrally buoyant line in order to continue fishing inside the DAM zone during the restricted period if their groundlines are not currently configured in this manner. NMFS understands that some fishermen are already using sinking or neutrally buoyant line in their groundline.

Comment 15: One commenter asked NMFS to consider allowing floating endlines because the free end of the rope would be at the surface and would allow the fishermen to access the line more easily than sinking or neutrally buoyant line.

Response: The final rule will allow fishermen to use floating line on the bottom third of the endline. Under the regulations implementing the ALWTRP, gillnet and lobster trap fishermen are prohibited from having any portion of the buoy line that is directly connected to the gear at the ocean bottom from floating at the surface at any time. If more than one buoy is attached to a single buoy line or if a high flyer and a buoy are used together on a single buoy line, floating line may be used between these objects.

Comment 16: One commenter felt that the 30-day comment period was too short and should be extended for an additional 30 days.

Response: NMFS considers the 30-day comment period on the DAM gear modifications proposed rule appropriate in light of the need to complete the DAM program as it was intended when initially promulgated in 2002. Because the DAM gear modifications proposed rule is an amendment to the already established DAM program, NMFS considers a 30-day comment period sufficient.

Comment 17: One commenter felt that NMFS did not consider enough options in the proposed rule and recommends additional options, such as the gear modifications accepted in Cape Cod Bay during the high use period or the prohibitions in place in the Great South Channel.

Response: An alternative with gear modifications similar to those currently implemented in Cape Cod Bay was analyzed as an option in the proposed rule. That alternative would allow fishermen to retain a second endline, and allow each endline to be comprised entirely of sinking or neutrally buoyant line except for the bottom third, which may be floating line. Based in part on comments received, NMFS is now adopting this option and it will be implemented through this final rule.

Comment 18: One commenter felt that NMFS has failed to implement DAM properly and that, in the instances when DAM zones have been declared, the request for voluntary action alone is insufficient.

Response: In its implementation of the DAM program, NMFS has acted in accordance with the DAM rule and internal protocols designed by NMFS to respond to DAM triggers.

Comment 19: One commenter felt that it is unrealistic to require fishermen to modify gear within 48 hours of implementing a DAM zone.

Response: NMFS appreciates the time and effort involved in hauling fishing gear and modifying it in an area designated for DAM. NMFS also understands that some fishermen are already using sinking or neutrally buoyant line in their groundline. However, if a DAM action is triggered and NMFS implements gear modifications in the DAM zone, fishermen will be required to comply with the specified gear modifications or remove their gear from the area. In order to provide fishermen with enough time to respond to restrictions in a DAM zone, NMFS will issue a notice at the time the action is filed with the Office of the Federal Register, which is usually 3 to 5 days prior to the regulation being published in the Federal Register. Once the decision has been made to modify gear inside a DAM zone, NMFS will notify the commercial fisheries affected as quickly and comprehensively as possible. In addition, NMFS will issue an alert via email to all ALWTRT members and post the alert on the website at www.nero.nmfs.gov/whaletrp/. NMFS hopes that members of the ALWTRT who receive an alert will circulate the information to other interested parties to help ensure that the fishermen who may have to comply with the gear restrictions in a DAM zone have time to respond. Fishermen, industry representatives, environmental groups, and all others interested in receiving alerts and notices over the Internet should provide their email address to the Northeast Regional Office (see ADDRESSES). NMFS will also mail letters providing notice to those who request it by contacting the Northeast Regional Office (See ADDRESSES).

Comment 20: One commenter suggested that NMFS exempt small-scale fishing operations in state waters from the DAM program. Another commenter expressed opposition to any DAMs or SAMs in state waters.

Response: The MMPA applies to state waters and there have been aggregations of right whales, which the DAM and SAM rules are designed to address, in state waters. NMFS is currently investigating the feasibility and practicality of revising the exempted waters of the ALWTRP to possibly include other inland areas where the presence of large whales is rare or non-existent.

In the March 4, 2003 proposed rule (68 FR 10195), NMFS identified as its preferred alternative gear modifications for anchored gillnet and lobster trap/pot gear that could be allowed within a DAM zone. In the preamble to the proposed rule, NMFS sought comment from the public on the proposed regulations and the alternatives analyzed. Based on comments received during the public comment period, and as explained below, NMFS has concluded that its original preferred alternative may not afford the level of protection to right whales as one of the other alternatives discussed in the EA/RIR. Therefore, NMFS has determined that the alternative identifying SAM gear modifications with the allowance for a second endline and floating line on the bottom third of each endline should be implemented as gear that could be allowed within a DAM zone.

Comments received from the public requested that NMFS identify gear modifications similar to those currently required by the ALWTRP in Cape Cod Bay Critical Habitat during the high use time period for right whales (January 1 - May 15). The Cape Cod Bay Critical Habitat gear requirements allow two buoy lines with floating line on the bottom third of each endline. These gear modifications were analyzed in the Draft and Final EA/RIR. Based on this analysis, NMFS believes that this gear sufficiently reduces the risk of entanglement to right whales. This gear is currently allowed in a critical habitat area during the time period when high concentrations of whales occur in the area. Additionally, information received through the comment period supports underwater video footage taken by NMFS and discussed in the EA/RIR, which demonstrates that, due to current and tidal action on the surface system, allowing one-third polypropylene line on the bottom third of the buoy line does not typically produce a loop in the water column, which could increase risk to right whales. Since publication of the proposed rule, NMFS has determined that requiring gear modifications with one buoy line in a DAM area may not necessarily result in a 50-percent reduction in vertical line in the water column as fishermen may fish shorter trawls, which may result in the same or a greater number of buoy lines. Allowing SAM gear modifications with a second endline and one third polypropylene line on the bottom third of the buoy line in DAM zones reduces both the potential for interaction through a significant reduction in floating line (in the groundline) and the potential for serious injury or mortality through the incorporation of additional weak links at reduced breaking strengths. Thus, DAM gear modifications, including replacing floating line with neutrally buoyant and/or sinking line in the groundline, installing additional weak links, and reducing breaking strengths for weak links, sufficiently reduces the risk of serious injury or mortality to right whales in DAM zones.

This final rule has been determined to be not significant for the purposes of Executive Order 12866.

This final rule would identify gear modifications that reduce the risk of entanglement to right whales sufficiently to be an option under the DAM program. The objective of this final rule, issued pursuant to section 118 of the MMPA, is to reduce the level of serious injury and mortality of right whales in East Coast lobster trap and finfish gillnet fisheries. Additionally, this final rule enables NMFS to exercise the full range of management options that the agency intended to be available under the DAM program.

NMFS prepared a Final Regulatory Flexibility Analysis (FRFA) for this final rule. A copy of the FRFA is available from NMFS (see ADDRESSES). Four alternatives, including a status quo or no action alternative, the preferred alternative (PA), and two other alternatives were evaluated using a retrospective analysis based on 2000 right whale sightings data and 2000 Vessel Trip Report (VTR) data. Under all alternatives, from June 20th to July 6th, 45 vessels (29 lobster vessels and 16 sink gillnet vessels) were affected by a DAM zone. A summary of the analysis follows:

1. NMFS considered a “no action” or status quo alternative that would result in no changes to the current measures under the ALWTRP. The no action alternative would result in NMFS only having the options of requiring the removal of all lobster trap and anchored gillnet gear from a DAM zone or issuing an alert requesting the voluntary removal of all gear. NMFS rejected this alternative as NMFS would not be able to exercise the full range of management options that the agency intended to be available under the DAM program.

2. NMFS considered an alternative (NPA 1) that would allow SAM gear modifications to be used under the DAM program. SAM gear modifications include, among other requirements, the use of neutrally buoyant or sinking line on all ground lines and buoy lines and restricts fishermen to one endline (buoy line) per trawl or string. Due to comments received, NMFS understands that requiring gear modifications with one buoy line in a DAM area may result in fishermen splitting trawls or strings into shorter trawls or strings (to avoid increased gear conflict and gear loss), which may result in the same or a greater number of buoy lines, thus increasing the risk to whales. Furthermore, comments received and a study conducted after publication of the proposed rule supports underwater video footage taken by NMFS and discussed in the EA/RIR. This information indicates that, due to current and tidal action on the surface system, allowing one- third polypropylene line on the bottom third of the buoy line does not typically produce a loop in the water column, and, therefore, does not increase risk to right whales.

3. The option selected in this final rule will implement SAM gear modifications with two endlines (buoy lines) and floating line on the bottom third of each endline. These are similar gear modifications required under the ALWTRP in Cape Cod Bay Critical Habitat during the high use time period for right whales (January 1 - May 15). NMFS believes that this gear, which is currently required in a critical habitat area during the time period when whales occur in the area, sufficiently reduces the risk of entanglement to right whales.

4. NMFS considered and rejected an alternative (NPA 2) that would implement SAM gear modifications with two endlines (buoy lines) and require that the buoy lines be composed entirely of sinking or neutrally buoyant line. NMFS rejected this alternative because information received during the comment period supports preliminary investigations by NMFS, which demonstrates that due to current and tidal action on the surface system, allowing some floating line on the buoy line does not typically produce a loop in the water column and, therefore, would not increase risk to right whales.

NMFS has taken steps to minimize the economic impact on small entities through this final rule by establishing the option of utilizing gear modifications rather than completely closing DAM areas.

NMFS received two public comments relating to the economic impacts of this final rule. These comments were considered by NMFS before it approved this final rule and are summarized by NMFS in the “Comments and Responses” section of the preamble to this final rule, as comment/response number eight. Changes to the rule were made, in part, as a result of these and other public comments.

The small entities affected by this final rule are anchored gillnet and lobster trap fishermen fishing north of 40° N. latitude. Since DAM is used to respond to unusual and unexpected sightings of right whales, it is difficult for NMFS to predict exactly where DAM zones may be implemented in the future. Therefore, providing an accurate estimate of the number of small entities that will be affected is problematic. In the northeast, there are potentially 7,147 vessels fishing lobster gear and 312 vessels fishing sink gillnet gear (Bisack 2000). However, NMFS does not expect that number of vessels to be affected by any one DAM zone because of the limited size and duration of a DAM zone. Data from aerial surveys in 2000 were used to retrospectively evaluate the use of the recommended DAM triggers. Based on the analysis of this data, six DAM zones would have been triggered in 2000. Four of the six hypothetical DAM zones would have been subsumed under the SAM program and the other DAM zone would have occurred in Canadian waters, which are outside of U.S. jurisdiction. Therefore, the impacts were assessed with respect to one hypothetical DAM zone from June 20 to July 6, 2000. For example, based on 2000 right whale sightings data and 2000 VTR data from June 20th to July 6th, the final rule would have affected 45 lobster and sink gillnet vessels (29 lobster vessels and 16 sink gillnet vessels), which represents 0.4 percent of the vessels (0.004=29/7,147 lobster vessels) associated with the lobster fleet and 5.1 percent of the vessels (0.051=16/312 sink gillnet vessels) associated with the sink gillnet fleet in the northeast.

This final rule contains no reporting, recordkeeping, or other compliance requirements. NMFS determined that this action is consistent to the maximum extent practicable with the approved coastal management program of the U.S. Atlantic coastal states. This determination was submitted for review by the responsible state agencies under section 307 of the Coastal Zone Management Act. No state disagreed with our conclusion that this final rule is consistent with the enforceable policies of the approved coastal management program for that state.

This final rule contains policies with federalism implications as that term is defined in Executive Order 13132. Accordingly, the Assistant Secretary for Legislative and Intergovernmental Affairs provided notice of the proposed action to the appropriate official(s) of affected state, local, and/or tribal governments. No comments on the federalism implications of the proposed action were received in response to this notification. However, two commenters did respond on the federalism implications during the comment period for the proposed rule. The comment is characterized and responded to by NMFS in the “Comments and Responses” section of the preamble to this final rule, as comment/response number twenty. No changes to the rule were made as a result of the comment received.

This final rule would also clarify that vessels in Northern Inshore State and Northern Nearshore Lobster Waters must install and use a 600 lb (272.4 kg) weak link at each buoy when fishing in SAM West during the time it overlaps the Northern Inshore State and Northern Nearshore Lobster Waters. The impacts of this requirement on small entities fall within the scope of the regulatory flexibility analyses performed in conjunction with the original SAM proposed and interim final rules. Among other requirements, the regulations implementing the ALWTRP currently require lobster trap fishermen in Northern Nearshore Lobster Waters to attach a weak link at the buoy with a breaking strength of 600-lb (272.4-kg) or less, and also includes this same weak link requirement as an option from the Lobster Take Reduction Technology List for Northern Inshore State Lobster Waters. Therefore, pursuant to the Regulatory Flexibility Act, 5 U.S.C. 605(a) and (c), no further analysis is required. Copies of the SAM EA/RIR are available upon request (see ADDRESSES).