Our objectives for this rule are to:

• Ensure that borrowers receive meaningful and timely disclosure of the EIR and related information on loans;

• Promote consistency in the method used to determine the EIR; and

• Make the regulations easy to understand and use by borrowers, lenders, and other users.

As discussed in the preamble to the proposed rule ( See 68 FR 5587, February 4, 2003), section 4.13(a) of the Farm Credit Act of 1971, as amended (Act), 1 requires the FCA to enact regulations requiring “qualified lenders”  2 to provide borrowers, not later than the time of loan closing, with meaningful and timely disclosure of:

• The current rate of interest on the loan;

• The amount and frequency of interest rate adjustments and the factors that the lender may take into account in adjusting rates for adjustable or variable rate loans;

• The effect of any loan origination charges or purchases of stock or participation certificates on the rate of interest on the loan;

• A statement indicating that stock purchased is at risk; and

• A statement indicating the various types of loan options available to borrowers.

The requirements of section 4.13 of the Act are applicable to all loans made by “qualified lenders” not subject to the Truth in Lending Act (TILA). 3 Under section 4.13(a) of the Act, qualified lenders must give borrowers notice of any change in the interest rate applicable to a borrower's loan within a “reasonable time” after the change. In addition, section 4.13(b) of the Act requires qualified lenders that offer more than one rate of interest to borrowers, at the request of a borrower, to: (1) Provide a review of the loan to determine if the proper rate has been established; (2) explain to the borrower, in writing, the basis for the interest rate charged; and (3) explain to the borrower, in writing, how the credit status of the borrower may be improved to receive a lower interest rate on the loan.

Current FCA regulations (initially adopted in 1988) implement the disclosure requirements of the Act, but contain limited guidance on several key issues. In recent years, new stock purchase requirements, new loan programs, and varied methodologies for calculation of effective interest rates has meant that compliance with current EIR disclosure regulations has become more challenging and led to inconsistent disclosure among qualified lenders. This final rule rewrites our existing regulations to provide more guidance in a user-friendly format.

The final rule is the second component of our current rulemaking on borrower rights. This final rule amends part 617, Borrower Rights, which was rearranged by the Distressed Loan Restructuring rule adopted by the FCA Board on February 10, 2004, and published in the Federal Register on March 9, 2004 ( See 69 FR 10901). Consequently, part 617 will contain all regulations on borrower rights after both rules become effective.

We received comments on the proposed rule from the Farm Credit Council (Council), two Farm Credit banks, and 10 Farm Credit System associations. In general, commenters expressed support for FCA's efforts to clarify its EIR rules. However, a number of the comments raised general and specific objections to various parts of the proposed rule. FCA's responses to these comments are discussed in our section-by-section analysis below.

In addition to comments on specific proposals, the Council urged FCA, in light of the dramatic change in the nature and extent of System stock purchase requirements since the 1980s, to “evaluate the benefit (if any) members receive from these disclosures in the context of the costs incurred by the associations in making the disclosures and their value to the customers (given the minimal purchase requirements).” Regardless of FCA's view of the benefit of EIR disclosures, Congress mandated (in section 4.13 of the Act) that qualified lenders make these disclosures. Therefore, FCA has sought, in this rule, to make the required statutory disclosures as meaningful as possible to borrowers without adding unnecessary regulatory burden to qualified lenders.

After carefully considering the comments, we are adopting the final rule as proposed with only one substantive and several technical changes. Specifically, we are deleting proposed § 617.7115(b) and § 617.7130(a)(5), which would have required qualified lenders to separately disclose to borrowers all fees not included in “loan origination charges” that borrowers are required to pay to obtain a loan. Also, we are eliminating the proposed definitions of “loan” and “qualified lender” and other changes to the existing parts 611, 612, 614, and 617 from this rule because they have been implemented by the Distressed Loan Restructuring rule.

One association suggested FCA add a definition for “covered loan,” which would establish a maximum dollar amount for loans subject to EIR disclosure regulations. However, section 4.13 of the Act requires lenders to make disclosures to borrowers for “all loans” not subject to TILA. We received no other comments on the definitions. As a result, we eliminate the proposed definitions of “loan” and “qualified lender” from this rule because they have been implemented by the Distressed Loan Restructuring rule and adopt other definitions as proposed.

One Farm Credit bank and six of its affiliated associations objected to proposed § 617.7100(b), which provides what a lender must do when there is more than one borrower obligated on a loan. As explained below, we adopt proposed § 617.7100 as final without change.

Current § 614.4367(d) allows the lender to satisfy the disclosure requirements by providing the disclosure to any one of the primary obligors on the loan. The final rule will give borrowers the opportunity to designate, in writing, the person they wish to receive the disclosures. If the borrowers do not designate a particular recipient, the lender must provide the disclosures to at least one borrower primarily liable for repayment of the loan. The objecting commenters asserted:

(1) There is no basis in the Act authorizing this designation;

(2) The regulation would create an unnecessary burden on System lenders, including requiring lenders to prepare and maintain documentation of the borrowers' designation choice; and

(3) In a default situation, a lender may be unable to locate or contact the designee and, therefore, the regulation could be raised as a legal impediment to a System lender's collection or foreclosure actions.

First, while a strict reading of the Act would require that each borrower receive disclosure, we believe that where there is one loan, allowing disclosure to one borrower complies with the Act and is less burdensome to lenders. We also believe that the proposed rule—giving borrowers an opportunity to designate an EIR disclosure recipient—is consistent with Congress's intent in creating “borrower rights” in the Act. Second, we do not believe that the new regulation will be unduly burdensome because all it requires is that qualified lenders honor the borrowers' written designation request, if one is made. Many System associations already allow borrowers to designate an EIR disclosure recipient without reported incident or undue burden. Third, § 617.7100 applies only to EIR disclosures that are primarily made at or before loan closing.

This rule would not apply to any other notices required by the Act or otherwise and therefore has no plausible relationship to a loan default situation. When a qualified lender determines that a loan is, or has become, distressed, provisions in subpart E of part 617 regarding distressed loan restructuring apply. Under § 617.7410(d), the lender must notify all primary obligors. If the obligors identify one party to receive notices, the qualified lender should send the original notice to that person and send copies to the other obligors.

Section 617.7105 revises the criteria that establish the circumstances in which EIR disclosure is necessary. Paragraph (b) of this section provides that a qualified lender must provide a new EIR disclosure to existing borrowers on or before the date the borrower:

(1) Executes a new promissory note or other comparable evidence of indebtedness;

(2) Purchases additional stock or participation certificates as a condition of obtaining new funds from the qualified lender; or

(3) Pays an additional loan origination charge to the qualified lender as a condition of obtaining new funds.

The Council commended this clarification and stated that the new rule will benefit System institutions. One association requested that FCA state in the rule or preamble that no new EIR disclosure is required for a “loan servicing action.” However, “loan servicing action” is not defined in the Act or our regulations, and required disclosure is not based on whether an action is described as a “loan servicing action.” Instead, § 617.7105 requires that if any loan action does not result in a new note, purchase of new stock, or new loan origination charges as a condition of obtaining new funds, no new disclosure is required. If it does, new disclosure is required. We believe that proposed § 617.7105 provides clarity to qualified lenders and adopt it as final.

Section 617.7110 provides that the cost of borrower stock or participation certificates must be included in the EIR calculation only at the time the stock or participation certificates is purchased in connection with a loan transaction, whether purchased with cash, included in a promissory note, or otherwise paid. For subsequent loans to existing borrowers, only the cost of new stock or participation certificates, if any, purchased in connection with the transaction must be included in the EIR calculation. We received no comments on this proposed provision and adopt it as final.

Many commenters commended FCA for clarifying in proposed § 617.7115(a) exactly what “loan origination charges” must be included in the EIR calculation, indicating that the new rule should reduce regulatory burden and result in greater accuracy in reflecting the true cost of credit to the borrower.

We received negative comments from a Farm Credit bank and a number of associations on proposed § 617.7115(b), which provides that all other payments that a borrower is required to make to obtain a loan, but not included as a loan origination charge in the EIR calculation, must be disclosed separately at the time of loan closing. Objections to the proposal included:

(1) Requiring a separate list of all fees not included as loan origination charges in the EIR calculation goes far beyond FCA's authority;

(2) The new rule would mirror TILA and Regulation Z  4 requirements, which are not applicable to agricultural loans;

(3) Developing a new automated form to include these items would be costly to implement;

(4) A lender may have no knowledge of certain amounts a borrower pays directly to third parties for items such as taxes or insurance.

Upon consideration of the comments, we are deleting the proposed requirements of §§ 617.7115(b) and 617.7130(a)(5).

Section 4.13(a)(3) of the Act requires qualified lenders to disclose the effect of “loan origination charges” on the effective rate of interest. Proposed § 617.7115(a) identified what “loan origination charges” must be disclosed for purposes of implementing section 4.13(a)(3). The Act does not specifically require disclosure of any other fees or costs not constituting “loan origination charges.” Additionally, as we discussed in the preamble to the proposed rule, Congress specifically exempted agricultural loans from TILA coverage and its more extensive disclosure requirements. For these reasons, we are eliminating proposed paragraph (b) of this section in order to avoid adding unnecessary regulatory burden to qualified lenders.

However, while we are not imposing this additional disclosure as a requirement, we continue to believe, as one association commenter stated, “disclosure of such fees at or prior to loan closing is sound lending practice.” This is particularly true for inexperienced borrowers, such as beginning farmers. Therefore, we encourage additional voluntary disclosure by qualified lenders in loan transactions.

Proposed § 617.7120 was intended to provide reasonable assurance that qualified lenders provide user-friendly, meaningful disclosures to borrowers. We received no comments on proposed § 617.7120 and adopt it as final.

One association objected to the requirement of § 617.7125(a) that the EIR be calculated using a discounted cash flow methodology. That association asserted:

(1) This is an inappropriate TILA-style requirement;

(2) This will impose an increased burden since there are a variety of payment schedules employed to accommodate borrowers' agricultural needs and non-FCS lenders do not have such a requirement.

As we discussed in the preamble to the proposed rule, while the proposal is conceptually similar to the formula prescribed in Regulation Z for determination of the annual percentage rate (APR) on loans subject to TILA, a discounted cash flow is also the standard accepted methodology used in the financial services industry as the best measurement of the cost of credit over time and to develop loan amortization schedules. As we also noted in the proposed rule preamble, although the discounted cash flow method involves somewhat complex mathematical computations, the FCA does not believe a requirement to use this method would cause undue burden to lenders. A survey of System lender disclosures we conducted in the spring of 2002 indicated that a substantial majority (more than 80 percent) of FCS lenders have already incorporated discounted cash flows in their EIR calculations. In addition, a variety of computer-based tools for calculating effective interest rates are readily available in the market place at a reasonable cost.

Additionally, another association requested that we add a provision establishing a tolerance level—similar to the Regulation Z provision—for the accuracy of the EIR disclosure. Regulation Z provides that an annual percentage rate is considered accurate (and the lender is not in violation of Regulation Z) if the rate disclosed is within a tolerance level. We considered, but rejected, that approach because, unlike Regulation Z, our rules provide for flexibility in calculating the EIR. FCA believes that the complexity of agricultural lending requires a more flexible disclosure approach than provided for under Regulation Z. Therefore, instead of a fixed formula mandated by FCA, we provide in § 617.7125(c) that lenders must establish policies and procedures for disclosing the effect of the cost of borrower stock (or participation certificates) and loan origination charges on the interest rate of a loan. Qualified lenders will also be required to establish policies and procedures for determining the major assumptions used in calculating the EIR, such as for calculating the EIR for adjustable rate loans, revolving or open-end lines of credit, or other loans where key terms may vary or may not be fixed. The rule places responsibility on a qualified lender to use due diligence in calculating the EIR. Redisclosure would only be necessary if a lender made a material error in the original calculation.

A third association opposed the requirement that the cost of the required stock purchase be included as a “borrowing expense” with no assumption of retirement at loan payoff allowed in the calculation of the EIR, stating that the risk of loss of stock is extremely minimal and to “make the assumption that stock will not be recovered is to raise unfounded concern on the part of the borrower that such loss is anticipated.” While the commenter may be factually correct in asserting that the borrower's risk of loss of stock is minimal, we believe the Act requires this result.

Congress provided in section 4.13(a)(3) of the Act that the purchase of borrower stock must be disclosed as a cost of the credit in determining the effective rate of interest on a loan. In other parts of the Act, Congress further provided that borrower stock is an “at-risk” equity investment. Assumption of stock retirement in the EIR calculation is contrary to the at-risk feature of borrower stock. While purchase of stock is a prerequisite for obtaining a loan, section 4.3A of the Act  5 precludes automatic retirement of borrower stock upon loan payoff. Therefore, a qualified lender cannot explicitly or implicitly guarantee or assume stock retirement.

One association also objected to the requirement of proposed § 617.7125(c) that qualified lenders must develop policies and procedures establishing criteria on how the cost of borrower stock and loan origination charges are assigned among multiple loans obtained simultaneously. The association asserts that the requirement will be burdensome and limits the association's flexibility. However, we believe that policies and procedures establishing criteria are necessary to ensure fairness and consistency in disclosure to borrowers and to prevent misleading information. We continue to believe that the proposed rule will allow an association to adopt policies and procedures broad enough to allow some discretion and flexibility on a case-by-case basis. For all the reasons discussed above, we adopt proposed § 617.7125 as final with one conforming change to reference § 617.7115 in paragraph (b)(3) of this section.

As discussed in the preamble to the proposed rule, the Council previously stated that existing § 614.4367(a)(3), which requires the computation of EIR to be made on a transaction-specific basis, goes beyond the requirement of § 4.13(a)(3) of the Act. The Council made the same comment about proposed § 617.7130 (which keeps the existing requirement), stating that the statutory requirement could be satisfied by using a representative example based on a generic transaction and recommended that FCA allow disclosure through the use of a standard example.

As we stated in the proposed rule preamble (and in all prior rulemakings in this area), we disagree with this approach and believe that in order for borrower disclosure to be “meaningful,” as is required by statute, the disclosure should take into account the specific loan for which the disclosure is being provided. The EIR disclosed should be derived from the interest rate and related charges applicable to the loan being made to the borrower. However, for adjustable or revolving loans where the terms and conditions are not fixed or are subject to change, a disclosure of the EIR based on the terms and conditions known at the inception of the loan, coupled with representative examples showing the effect of changes in any of the cost elements of the loan, e.g. , borrower stock, loan origination charges, or interest rate, on the EIR would be appropriate under the circumstances. We received no other comments on proposed § 617.7130 and adopt it as final with only one change to remove proposed paragraph (a)(5) of this section in conformance with the change to proposed § 617.7115.

As discussed in the proposed rule preamble, the Council recommended that where an interest rate is based on a widely publicized external index plus a spread, disclosure of a change of interest rate should not be required when the index changes but should be required only when the change in rate is caused by a change in the spread. The Council, a Farm Credit bank, and five associations also reiterated this position in their comments on proposed rule § 617.7135. However, as we discussed in the earlier preamble, we believe eliminating the notice of interest rate changes for index rate loans is not appropriate. The Act requires notice of “any change in the interest rate applicable to the borrower's loan.” 6 While the contract rate (index plus spread) may not have changed, it is clear that when the index changes, the rate of interest the borrower pays on the loan has changed. There is nothing in the legislative history of the Act to suggest that Congress intended to exempt index rate loans from the disclosure requirement. Furthermore, we believe it is important to remind borrowers that interest rate changes will affect their payment amounts.

In the preamble to the proposed rule, we indicated that any form of correspondence to borrowers could satisfy the required written notice, including a newsletter. The Council urged FCA to specifically authorize that any required disclosure may be made on a System institution's Web site or by calling a telephone information line. While sending an e-mail to an individual borrower (in compliance with any applicable e-commerce requirement, including the parties' agreement) would satisfy the notice requirement of this section, we do not believe posting information on a Web site or telephone information line would satisfy statutory requirements. The Act requires that qualified lenders provide “notice to the borrower” of a change in the borrower's interest rate. 7 However, a “widely publicized external index” does not provide notice directly to a borrower, and information available to borrowers on the Web or by telephone does not provide such notice. For these reasons, we adopt § 617.7135 as final without change.

We did not receive any comments on this section and adopt it as final.

Pursuant to section 605(b) of the Regulatory Flexibility Act (5 U.S.C. 601 et seq. ), the FCA hereby certifies that the rule will not have a significant economic impact on a substantial number of small entities. Each of the banks in the System, considered together with their affiliated associations and service corporations, has assets and annual income in excess of the amounts that would qualify them as small entities. Therefore, System institutions are not “small entities” as defined in the Regulatory Flexibility Act.

The objective of this rule is to ensure that the System provides sound and constructive credit and services  1 to YBS farmers and ranchers. 2 To accomplish this objective, the rule amends our existing regulations to provide:

1. Clear, meaningful, and results-oriented guidelines for System YBS policies and programs; and

2. Enhanced reporting and disclosure to the public on the System's performance and compliance with its statutory YBS mission (YBS mission or mission).

Through these amendments, the public will be better able to measure the System's performance in fulfilling its YBS mission.

As discussed in the preamble to the proposed rule ( see 68 FR 53915, September 15, 2003), section 4.19 of the Farm Credit Act of 1971, as amended (Act), requires each System association to prepare a program for furnishing sound and constructive credit and related services to YBS farmers and ranchers. Congress added this section to the Act in 1980 to focus the System's attention on the need to have programs for such borrowers. Our current YBS regulations restate the YBS requirements in the Act. Further interpretation of the Act's YBS requirements currently is found in agency policy guidance. 3

As stated in our proposed rule, YBS farmers and ranchers, like all those in agriculture today, face a wide range of challenges, including access to capital and credit; the impact of rising costs on profitability; urbanization and the availability of resources like land, water and labor; globalization; and competition from larger or more established farms. Although all agricultural producers face these challenges, the hurdles that YBS farmers and ranchers face are often greater. We continue to believe the System's YBS mission is important to enable small and start-up farmers and ranchers to make successful entries into agricultural production. The System's YBS mission is also critical to facilitate the transfer of agricultural operations from one generation to the next. For all these reasons, the agency remains committed to ensuring that the System fulfills its important public purpose mission to YBS farmers and ranchers.

In the proposed rule, the agency set forth minimum components that each System direct lender association must include in its YBS program and added requirements to enhance the reporting and disclosure to the public of the System's YBS programs, compliance, and performance.

The content of the proposed rule was an outgrowth of an initiative undertaken by the agency to renew the System's commitment to its YBS mission. This initiative began in 1998, with the adoption of an FCA Board policy statement that provided guiding principles for enhanced service to YBS farmers and ranchers. 4 To implement the policy statement, the agency issued a bookletter that included revised YBS definitions and YBS reporting procedures. 5 The revised reporting procedures contained in the bookletter require System institutions to submit detailed annual reports to the agency on all aspects of their YBS programs.

In furtherance of this initiative, in 1999, YBS lending programs became a “focus area” of agency examinations where, among other factors, the agency reviewed System institutions' YBS board policies and procedures; YBS credit enhancement programs and underwriting standards; YBS program coordination with Federal, state, System or other credit sources; demographic studies; marketing, advertising, and other outreach programs; and the quality of YBS reporting to System institutions' boards and FCA. Additionally, for the past 3 years, the FCA recognized the exemplary YBS programs of several System associations.

In the proposed rule, we also discussed the March 8, 2002, General Accounting Office (GAO) report on our oversight of the System's mission to serve YBS farmers and ranchers. 6 The GAO report recommended, in part, that the agency strengthen its oversight role of the System's YBS lending, promote YBS compliance, and highlight the System's efforts to provide services to YBS farmers and ranchers by:

1. Promulgating a regulation that outlines specific activities and standards that constitute an acceptable program to implement the YBS statutory requirement;

2. Ensuring that examiners follow the guidance, complete the appropriate examination procedures related to YBS, and adequately document the work performed and conclusions drawn during examinations; and

3. Publicly disclosing the results of the examinations for YBS compliance for individual System associations.

In continuance of our YBS initiative, the agency sought public input through an advance notice of proposed rulemaking (ANPRM)  7 and a public meeting held on November 13, 2002, in Kansas City, Missouri. 8 We discussed that our objectives for the ANPRM and public meeting were to seek the public's suggestions on possible YBS regulatory approaches and policy initiatives and to hear about ways to enhance the System's service to YBS farmers and ranchers. The comments, in response to the ANPRM and from the testimony at the public meeting, reflected a multitude of opinions on the issue of whether the agency should provide more guidance to the System on YBS policies and programs. The preamble to the proposed rule provided an extensive discussion of those comments together with the agency's responses. Overall, the comments were generally divided between those that opposed the issuance of revisions to the agency's YBS regulation and those that supported additional regulatory requirements.

In response to the proposed YBS rule, the agency received 52 comment letters. Commenters included the Farm Credit Council, System institutions, commercial banks, the American Bankers Association, the Independent Community Bankers of America, and other associations or trade groups involved in agriculture, such as the Sustainable Agriculture Coalition and the Farmers' Legal Action Group. Many of these commenters included by reference their previous comments in response to the ANPRM. In fact, a majority of the comments received in response to the proposed rule were identical or similar to the comments on the ANPRM and testimony at the public meeting and are addressed in our responses to the comments below. The commenters generally can be divided into two groups—those that oppose the additional requirements in the proposed rule and those that believe the proposed rule should go further in delineating YBS program, reporting, and disclosure requirements. Our responses to all these commenters are included in this section on general comments and in the section-by-section response further on in part VI of this preamble.

A few commenters supported the proposed rule, stating specifically that it supports FCA's effort to help YBS farmers and ranchers and that the reporting requirements should help improve transparency and accountability. The agency agrees that the final YBS rule, which provides results-oriented guidelines for YBS policies and programs and enhanced reporting and disclosure requirements, should ensure that the System continues to remain focused on and committed to its YBS mission.

Many commenters opposed the proposed rule, stating that:

• The requirements would create additional burdens and costs for System institutions without providing new tools for better servicing YBS farmers and ranchers or increasing the number of YBS loans;

• Additional costs resulting from a revised YBS rule would be passed on to the farmers and ranchers and is inconsistent with congressional directives to eliminate unnecessary and burdensome regulations;

• The System, which is tasked with serving all of American agriculture, recognizes the importance of and is already adequately serving the credit needs of YBS farmers and ranchers; and

• There is no evidence suggesting YBS farmers and ranchers are being denied access to credit by the System.

Many of the foregoing comments are similar or identical to comments made in response to the ANPRM and the testimony at the public meeting on YBS guidance. As we stated previously, section 4.19 of the Act requires the System to pay particular attention to the credit and related services needs of YBS farmers and ranchers. Congress inserted section 4.19 of the Act, in part, as a response to a recognition that the family farm was declining in American agriculture at an alarming rate. This final rule is not a response to a perception that the System does not value or adequately serve YBS borrowers. Rather, the rule is a means to ensure that the System remains focused on this very important group of potential borrowers so that they can continue to have a future in agriculture. Thus, the agency does not believe that a regulation to ensure the System meets its YBS statutory mandate is unnecessary.

Further, we do not believe that this YBS final rule will result in significant additional burdens or costs for the System. Many of the rule's requirements already exist in current YBS guidance and examination and reporting requirements to which the System must currently adhere. Although the 2002 GAO report focused attention on the agency's oversight role of the System's YBS mission, well before the issuance of the report, the agency had taken significant steps to direct the System to refocus on its YBS mission. Specifically, in 1998, the agency issued a policy statement and bookletter on the YBS mission and, in 1999, the agency made YBS a focus area of agency examinations. In fact, since 1980, when Congress first added section 4.19 to the Act, the agency has had regulatory and policy guidance on the System's YBS mission to supplement the Act's general YBS requirements for System banks and direct lender associations. As seen by our efforts previous to the GAO report, the final rule is not simply a response to GAO, but a means to ensure that the System continues to actively and creatively seek ways to finance and service the needs of YBS borrowers.

Finally, FCA has taken a proactive approach to its oversight role of the System's YBS mission. By issuing this final rule, we strive to ensure that the System will successfully fulfill its YBS mission and diminish the need for ensuring mission accomplishment through the use of our enforcement authorities. We note, however, that by moving much of the current YBS guidance from a policy statement and a bookletter to a rule, we are strengthening our ability to more effectively take an enforcement action against a System institution for its failure to meet its YBS responsibilities should it become necessary.

A number of commenters suggested the agency eliminate the scope of lending restrictions limiting lending to less than full-time farmers so that part-time farmers have more access to credit. This issue is currently under review as part of a separate agency rulemaking on scope and eligibility. However, even if FCA were to remove the scope of lending restrictions, a regulation on YBS would still serve to enhance the System's fulfillment of its YBS mission.

One commenter suggested that the removal of territorial restrictions would enable some System associations with a strong commitment to serving YBS farmers and ranchers to fill a need when a neighboring association fails to adequately serve its YBS market. A consideration to remove territorial restrictions is not currently listed in the agency's regulatory performance plan (available on the agency's Web site, http://www.fca.gov ). However, with this final rule, the agency can better assess the effectiveness of an association's YBS program and determine, through the examination process, whether an association is adequately serving its YBS market.

Some commenters suggested that the agency allow the use of System subsidiary entities, which, they believe, would make it easier for System associations to provide funding for higher risk YBS loans and increase lending to YBS borrowers. Efforts to create new corporate structures for System institutions have broad implications beyond service to YBS farmers and ranchers. Some System institutions have approached the agency to discuss their desire to create new entities for various purposes, including YBS-related purposes. The agency will continue to respond directly to those requests, but believes that the issue raised by the commenters goes beyond the scope of this rulemaking.

One commenter recommended that the agency require System institutions to expand their YBS programs by adding a fourth category for “socially disadvantaged” farmers and ranchers. Similarly, another commenter recommended that the System gather data about the gender and ethnicity of the borrowers they serve to ensure credit is being provided equally across such categories. Requiring the System to implement either of these recommendations is beyond the agency's authority because the Act neither includes a special mission to serve “socially disadvantaged” farmers or ranchers nor a directive to serve borrowers of a certain gender or ethnicity. We note, however, that these groups are not excluded from the System's overall mission. Section 1.1(a) of the Act requires the System to serve all eligible American farmers and ranchers. In fact, System YBS programs often include service to socially-disadvantaged, women, and minority farmers and ranchers, as these groups often comprise either young, beginning, or small farmers and ranchers. Thus, the enhanced YBS rule should also advance the System's service to these groups of potential borrowers.

Two commenters stated that the FCA needs to prohibit System institutions from engaging in below-market pricing of loans in order to avoid “cherry-picking” the best borrowers. This same comment was made in response to the ANPRM on YBS. At that time, we responded by explaining that sections 1.8(b) and 2.4(c)(2) of the Act provide that “it shall be the objective” of System lenders to set interest rates and other charges “at the lowest reasonable costs on a sound business basis” taking into consideration the lender's cost of funds, necessary reserves, and the cost of providing services to its members. Thus, the System is fulfilling its public purpose under the Act when it provides interest rates at the lowest reasonable cost on a sound business basis. In addition, through the examination process, the agency routinely reviews each System institution's loan pricing to ensure that interest rates charged to borrowers cover costs and provide additional capital to ensure the institution's ongoing safety and soundness. Moreover, in our oversight and regulatory role, we ensure that the System is providing sound, adequate, and constructive credit and related services to all eligible American farmers and ranchers.

Finally, one commenter suggested that the agency remove any suggestions or recommendations from the final rule so that it is clear what the rule requires. The agency believes that the requirements in the rule are clearly marked by the use of the word “must.” One section of the rule, namely § 614.4165(c) on direct lender association YBS programs , contains suggestions, marked by the use of the words “may” or “could.” The agency deliberately used suggestive language in this section to allow a direct lender association maximum flexibility in designing a YBS program that best fits the needs of its territory and is within its risk-bearing capacity. Thus, although all System associations must develop annual quantitative YBS targets, the rule offers suggestions only on what such targets might look like. Similarly, although direct lender associations YBS programs must include annual qualitative YBS goals and methods to ensure that such programs are offered in a safe and sound manner and within their risk-bearing capacity, the way in which associations fulfill these components of the program is left up to them. We believe that through the use of the words “must” and “may,” the final rule clearly delineates what is required from what is simply suggested as a way of meeting a particular program component requirement.

Another section of the proposed rule, namely § 614.4165(d) on advisory committees , is also not a requirement but only a suggested activity for an association's YBS program. However, because the formation of a YBS advisory committee is a type of outreach activity, we have moved this suggestion in the final rule to § 614.4165(c)(3)(iii) on outreach programs rather than retain it as a separate, suggested component. We believe this change in the rule will make it clearer that the formation of a YBS advisory committee is a suggested activity, rather than a required component, of a YBS program.

Lastly, one commenter opposed any programs that support YBS farmers and ranchers, especially if such programs are financed with taxpayer dollars. This commenter appears to be unclear about the purpose of the proposed rule and the role of the System. Section 4.19 of the Act requires the System to serve the credit and related services needs of YBS farmers and ranchers. A regulation on System YBS programs serves to support the YBS statutory requirement. Further, we note that, as a Government-sponsored enterprise (GSE), the System does not operate with taxpayer dollars and so its YBS programs are financed with private funds rather than public monies.

In the preamble to the proposed rule, the agency discussed its intention to assign a “pass” or “fail” rating to each direct lender association's overall YBS program. We further stated that this YBS compliance rating would be based on a review of the direct lender association's YBS program components during an examination of an association. We also mentioned the FCA Board's intention to publicly disclose the results of the System's YBS compliance.

Many commenters raised opposition to the implementation of any kind of YBS rating or the disclosure of compliance results to the public. These commenters stated that such disclosures would not be useful because the circumstances of each association are unique. These same commenters expressed further concerns that the agency had not clearly set forth the criteria it would use to determine a “pass” or “fail” rating, and therefore the determination of such ratings would be arbitrary. The commenters expressed concern that without clear criteria, a “pass” rating would not provide the public with any useful information, while a “fail” rating could unfairly damage an association's reputation and competitive position. These commenters questioned whether such disclosure was appropriate or even authorized by Congress, stating further that examination results are, and should remain, confidential. Finally, these commenters stated that such ratings were unnecessary because of the extensive reporting and disclosure requirements in the proposed rule.

Many other commenters expressed support for rating the YBS programs of direct lender associations. In addition, these commenters suggested that FCA not only require disclosure of each direct lender association's YBS rating, but also disclosure of agency examination results of each association's YBS program. These commenters also asserted that the agency's YBS ratings should be expanded to be more comparable to the ratings other financial institutions are subject to under the Community Reinvestment Act (CRA) and the Home Mortgage Disclosure Act of 1975 (HMDA). These commenters point out that financial institutions subject to CRA and HMDA are required to disclose to the public their performance ratings in serving low and moderate income households. The commenters note that, under CRA, a financial institution's performance is rated as “outstanding,” “satisfactory,” “needs improvement,” or “substantial noncompliance.” The commenters stated that since the System is a GSE, the agency should impose YBS ratings at least as stringent as CRA ratings. Many of these same commenters also suggested that the agency make both the YBS rating and examination results of each direct lender association available to the public on the agency's Web site, similar to the practice of the other Federal financial regulators under CRA. Finally, several of the commenters state that many of their recommendations are consistent with the issues raised in the GAO report.

Many of these comments are similar, if not identical, to comments we received and addressed in response to the ANPRM. The commenters that remain opposed to the imposition and disclosure of a YBS compliance ratings and those that desire expansions to the “pass/fail” ratings provide little or no new arguments in support of their positions. The agency continues to believe it is important to measure and provide the public with a complete and accurate picture of the System's YBS compliance and performance. Again, we believe this will be best accomplished through disclosure of some form of rating that indicates each direct lender association's compliance with the minimum components for a YBS program, along with the requirement that each System institution report on and publicly disclose its YBS mission results.

In consideration of the comments on the “pass/fail” rating, we now want to clarify that the “pass/fail” rating is a compliance rating only that will simply indicate whether direct lender association YBS programs meets the requirements of this rule. In contrast, the enhanced YBS reporting and disclosure requirements in the rule will reveal the performance results of each association's YBS program. We also point out that the “pass/fail” rating process, which has not been incorporated into the rule itself, is an internal examination function that we discuss in this preamble only to highlight the direction of FCA concerning its YBS examination efforts.

The agency is considering what type of examination procedures are necessary for evaluating each direct lender association's YBS program compliance with the provisions in this rule. Once developed, the YBS examination criteria also will be included in the agency's examination manual (available on our Web site at http://www.fca.gov ).

The agency continues to believe that some form of disclosure of direct lender associations' YBS ratings, combined with the required YBS reporting and disclosure requirements in this final rule, will provide the public with a sound understanding of each association's YBS compliance and performance and will also help the System to better fulfill its YBS mission. Furthermore, the agency continues to believe that it not only has the authority, but also the responsibility in its oversight and regulatory role, to disclose YBS compliance ratings and to ensure that the System describes its performance results to the public. The agency will continue to assess the most effective way to make the YBS ratings available to the public.

As stated in the preamble to the proposed rule, the agency believes it is inappropriate to disclose confidential examination report information. In addition, we continue to believe the additional transparency provided by the enhanced reporting and disclosure requirements in the rule will give the public a sound understanding of the System's YBS compliance and performance results and will, therefore, preclude the need for disclosing the YBS sections of agency examination reports. If the agency determines that an institution's reporting and disclosure do not provide a sound understanding of the System's YBS compliance and performance results, the agency can remedy any shortcomings through its supervisory and enforcement authorities. As to the suggestions for implementing disclosures similar to CRA and HMDA, we note that the Act does not have the same requirements for YBS ratings and disclosure as those set forth in the CRA or HMDA. However, we believe that the enhanced rating, reporting, and disclosure requirements of this rule fulfill the YBS provisions in the Act and will provide effective disclosure to the public on the System's YBS programs, as well as mission shortfalls and accomplishments.

Many commenters once again made suggestions on ways to improve the accuracy of the YBS data collected by the agency from System institutions. Some commenters suggested the agency ensure that loans to father and son operations are counted as YBS loans only when the son is actively involved in the farm operation. Under current agency guidance, if a son is co-obligated on the father's loan or has an ownership interest with his father in the farm operations, the loan can qualify as a YBS loan as long as one or more of the YBS definitions is met. We believe this criteria is appropriate for counting the loan in any of the YBS categories. Requiring a YBS borrower to be actively involved in the farming operations is inconsistent with the purpose of YBS lending. The purpose of the YBS mission is to permit YBS farmers, who often are required to earn off-farm income to maintain their farming operations, to get started in agriculture by a variety of means. Thus, we do not see where additional criteria to assess a son's actual involvement in the farming operations would substantially improve upon the accuracy of the YBS data collected by the System or improve upon the System's service to YBS farmers and ranchers.

These commenters also suggested that the agency aggregate loans to one borrower to determine whether the borrower is a “small” farmer and that we add a category for “part-time” farmers to the YBS categories. Under current agency procedures, our determination of a “small” farmer is based on gross sales of agricultural or aquatic products rather than loan volume. As discussed at length in the preamble to the proposed rule, we believe the current definitions for the YBS categories, which were revised in 1998, properly reflect the changes in agriculture over the years and provide the most accurate picture of the System's service to YBS farmers and ranchers. Thus, we see no benefit to changing our definition of “small” farmer.

Similarly, we see no benefit to adding a separate category for part-time farmers. Congress mandated the agency to collect information on “young,” “beginning,” and “small” farmers and ranchers. The commenters provided no rationale for requiring System institutions to distinguish between part-time and full-time farmers in their YBS reporting. Moreover, we believe that part-time YBS farmers, who often need off-farm income to make ends meet, are just as deserving of YBS credit and services as full-time farmers.

Other commenters reiterated their concern that the System be prevented from inflating its YBS numbers by allowing the same loan to be counted separately in each applicable YBS category. These commenters also expressed a preference for having the System count and report on the number of YBS borrowers rather than loans .

The foregoing comments are similar to comments we addressed in response to the ANPRM. We continue to disagree with the implications of these comments that the reported YBS information is inaccurate and misleading. As explained in the preamble to the proposed rule, the practice of reporting a loan in each applicable YBS category is consistent with other GSE mission-related reporting, such as the Federal National Mortgage Corporation (Fannie Mae) and the Federal Home Loan Mortgage Corporation (Freddie Mac) reports on their annual housing goals, 9 as well as with congressional intent to report on the System's service to each category of YBS farmers and ranchers. Finally, in the agency's Performance and Accountability Report for fiscal year 2002, the information on the System's YBS lending explicitly states that YBS categories are not mutually exclusive. Therefore, one cannot add across YBS categories to count total YBS lending.

As also explained in our response to the comments received on the ANPRM, in 1998, the agency made several changes to the way it collected YBS data from the System, including collecting YBS data based on the number of YBS loans rather than the number of YBS borrowers. The changes were consistent with the new YBS definitions the agency developed at that time and were made to capture more complete information on the System's extension of credit and services to YBS farmers and ranchers. In addition, we believe that the collection of loan numbers in combination with loan volume (that is, the average size of an institution's YBS loan) provides the public a base for a more useful comparison of the System's extension of credit to YBS borrowers. The agency continues to believe that the key issue in YBS data collection is consistent YBS reporting throughout the System. We believe that our current method of categorizing and counting the System's YBS loan numbers and loan volume provides the most accurate and complete picture of the System's YBS mission fulfillment.

Finally, other commenters suggested that FCA examiners verify the accuracy of the YBS data being reported by System institutions. We note that data verification, conducted on a sampling basis, is already a part of YBS examination procedures.

The remaining comments discussing the particulars of the proposed rule are addressed in the following section of this document.

The proposed definition section clarified various terms used in section 4.19 of the Act. For instance, this section clarifies that, for purposes of this subpart, the term “credit” includes all loans and interests in participations made by System banks and direct lender associations operating under titles I or II of the Act. The term “services,” as used in section 4.19(a) of the Act, includes all leases made under titles I or II authorities and all related services made by System banks and direct lender associations operating under titles I or II of the Act.

We received only one comment on this section, suggesting that we develop a meaningful definition of a small farm or ranch, one that is useful in today's market environment and based on input from all appropriate entities.

As mentioned in the preamble to our proposed rule, the agency's current definitions for “young,” “beginning,” and “small” farmers and ranchers are set forth in 1998 FCA guidance. 10 The guidance defines “small” as a farmer, rancher, or producer or harvester of aquatic products who normally generates less than $250,000 in annual gross sales of agricultural or aquatic products. We discussed the extensive research the agency undertook in arriving at this definition of “small” farmer and rancher, which included evaluating terms used by the United States Department of Agriculture (USDA) and other regulatory agencies who collect data on “small” farmers and ranchers. Thus, we continue to believe the definition for “small” farmers and ranchers currently in use by the agency is appropriate. For the foregoing reasons, we adopt proposed § 614.4165(a) as final without change.

This section implements certain provisions of section 4.19 of the Act, which require each:

1. Direct lender association to adopt a YBS program under the polices of its funding  11 Farm Credit bank board;

2. Direct lender association to coordinate with other System institutions in its territory, and other governmental and private sources of credit in extending credit and services to YBS farmers and ranchers;

3. Direct lender association to report annually on its YBS programs and performance results to its funding bank; and

4. Farm Credit bank to report annually to the FCA summarizing the YBS program operations and achievements of its affiliated direct lender associations.

Two commenters expressed concern that requiring banks to have written policies on their affiliated associations' YBS programs is contrary to FCA's recognition that direct lender associations have gained more autonomy from their funding banks since 1980, when section 4.19 was first added to the Act. Notwithstanding the fact that System banks have taken a diminished role in overseeing the operations of their affiliated direct lender associations, the requirements in this section track the requirements of section 4.19 of the Act, which we simply are not at liberty to disregard. Therefore, we adopt § 614.4165(b) as final without change.

This section sets forth the minimum components that each direct lender association must include in its YBS program while at the same time allowing each association to design a YBS program unique to its territory. At a minimum, when developing a YBS program, each direct lender association must:

1. Develop a YBS program mission statement describing the YBS program objectives and specific means of achieving those objectives;

2. Develop annual quantitative targets for credit to YBS farmers and ranchers that are based on an understanding of reasonably reliable demographic data for the lending territory;

3. Develop annual qualitative goals that include efforts to offer services that are responsive to the needs of YBS borrowers, take full advantage of opportunities for coordinating credit and services with other providers of credit, and implement effective outreach programs to attract YBS farmers and ranchers; and

4. Establish methods to ensure that it is conducting its YBS program in a safe and sound manner and within its risk-bearing capacity.

Several commenters commended § 614.4165(c) of the proposed rule because it allows System associations to take into consideration the demographics and economy of their territories along with their risk-bearing capacities when establishing their YBS programs. Two commenters supported the minimum YBS components required by the proposed rule. However, many commenters stated that in the Act Congress left the design of each association's YBS program up to their respective funding banks. These commenters stated that Congress recognized that local conditions warrant different approaches and deferred to the wisdom and local knowledge of the System bank boards to establish policies to guide these programs.

Since 1980, when section 4.19 was first included in the Act, the relationship between the funding banks and their affiliated associations has significantly changed, with the associations operating much more independently from their funding banks. Although the rule retains the statutory directive for associations to establish their YBS programs under the policies of their funding banks, in recognition of the autonomy with which associations now operate, we have kept the bank policies to a minimum, as discussed earlier. Moreover, we agree that Congress intended YBS programs to be developed by the System lenders who have the most knowledge of their territories. We have, therefore, developed this section to allow each direct lender association maximum flexibility in creating a YBS program that takes into consideration the economy and demographics of its territory, as well as its risk-bearing capacity. In so doing, the YBS rule is consistent with congressional intent to allow each association to design a YBS program that best fits the needs of its lending territory.

One commenter stated that it is inappropriate and potentially confusing for a regulation to require a mission statement that focuses only on YBS programs rather than on the System's mission to serve all of American agriculture.

We do not agree with the commenter's concern that a mission statement focusing strictly on an association's service to YBS farmers and ranchers is inappropriate or confusing. We believe the exercise of developing a mission statement will compel each direct lender association to focus on the objectives of its YBS program and the steps it must take to accomplish such objectives. Further, developing a mission statement to give direction to an association's YBS program does not in any way hinder an association's capacity and responsibility to serve all of American agriculture.

Many commenters responded to this section of the proposed rule. One commenter suggested that this section be changed to permit System associations to consider their financial condition and risk-bearing capacity when establishing quantitative targets. In fact, § 614.4165(c)(4) requires each System association to have methods to ensure that it offers credit and related services to YBS borrowers in a safe and sound manner and within its risk-bearing capacity. Thus, quantitative targets and qualitative goals must be established with these safety and soundness factors in mind.

One commenter pointed out that the agency should understand the distinction between loan number goals and borrower number goals, as well as new-borrower goals versus new-loan goals. The agency is aware of the distinctions of establishing YBS quantitative targets by number of loans versus number of borrowers or by number of new loans versus new borrowers. However, we have left it to the decision of each direct lender association to determine how best to establish its quantitative YBS targets. This approach allows an association, for example, to establish a quantitative target based on increasing the number of new YBS borrowers if it determines that it wants to achieve a greater number of YBS borrowers versus YBS loans.

One commenter supported the requirement that an association establish quantitative targets that reasonably reflect the YBS demographics in its territory rather than basing such targets on nationwide data. However, many other commenters stated that no meaningful demographic data exists that is reflective of an association's territory and that using the data currently available will lead to distortion and faulty analysis of an institution's YBS market penetration. Another commenter stated that requiring quantitative targets to reasonably relate to demographic data is unduly burdensome. Still, another commenter asked the agency to explain further what it means when it states that the quantitative targets must be based on “reasonably reliable” demographic data that “reasonably reflect” the YBS demographics in the lending territory. This commenter believes these terms are too vague.

A reliable measurement is necessary to ensure that the System is adequately fulfilling its YBS public purpose mission. We believe that demographic data is necessary for each direct lender association to adequately assess its YBS market characteristics, and we note that none of the commenters suggested a more viable alternative for assessment. Although we recognize that not all available demographic data may be an ideal representation of the YBS market in each association's territory, we still believe such data is useful and is a reasonable representation of the YBS market in a lending territory.

Further, we do not believe it is burdensome to require that quantitative targets be based on demographic data, as there is available and easily obtainable data from the United States Department of Agriculture's National Agricultural Statistics Service Census of Agriculture (USDA Census). We have attempted to make the reliance on demographic data less burdensome and costly by not requiring each direct lender association, or an independent source, to complete a demographic study. Instead, the rule allows for the use of the available demographic data as long as an association can explain any differences between its YBS quantitative targets and the data it is relying upon to establish such targets. Finally, we note that associations are free to obtain demographic data from other available sources besides the USDA Census, such as state and county demographic data or by any other appropriate means.

We do not believe the phrase “reasonably reliable” demographic data that “reasonably reflects” the YBS demographics in a lending territory is vague or lacking in sufficient specificity. The selection of these terms employs the “reasonable person” standard “ that is, whether a reasonable person with knowledge of the relevant facts would question an association's reliance on the demographic data or the reasonableness of its quantitative targets in light of such data. This standard enables associations to draw on their sound business judgment and knowledge of their territory in establishing their quantitative targets. Hence, even when the demographic data is not an ideal representation of an association's YBS market, the reasonable person standard allows associations to establish targets in variance of such data as long as they can justify the difference. Nevertheless, we have revised § 614.4165(c)(2) in the final rule to make it clear that each direct lender association's quantitative targets must be based on an understanding of how the data relates to the YBS market in the association's lending territory, not directly based on the demographic data. Since we believe “reasonably reliable demographic data” encompasses the meaning of the phrase in the proposed rule “that reasonably reflect the YBS demographics”, the latter phrase has been removed.

One commenter suggested that the quantitative targets should reflect not only existing demographics, but also more far-reaching assessments of the needed changes in the distribution of farm assets to achieve a more balanced and diverse structure of agriculture and future borrower pools. The commenter suggested that this be accomplished by inserting at the end of the first sentence in § 614.4165(c)(2) the following: “and that progressively increase self-employment opportunities in agriculture within the lending territory.”

The System's mission is to serve the credit and related services needs of all farmers and ranchers. Although the System is not directly responsible for increasing self-employment opportunities in agriculture, its mission certainly helps to accomplish this goal by making more agricultural credit available. Thus, we believe it is unnecessary to add the suggested language to this section.

A number of commenters were dissatisfied with the rule's approach permitting each direct lender association to establish their own quantitative targets rather than defining specific targets in the rule for the associations. The comments on this issue contained a number of suggestions, including that the agency: develop specific targets on the number of guaranteed loans made to beginning farmers and ranchers; look to the targets of other GSE regulators, such as those required for Freddie Mac and Fannie Mae, to help it set specific targets for the System associations; and impose penalties when an association fails to meet the specific targets.

The agency has strived throughout this rule to avoid dictating a uniform Systemwide approach to fulfilling its YBS mission. Establishing specific YBS quantitative targets for all System associations would be inconsistent with our approach and impractical given the unique demographic and lending environments of each association's territory. The agency's examination and enforcement authorities will enable us to evaluate the reasonableness of each association's quantitative targets and to require adjustments to the targets where deemed necessary.

One commenter expressed concern that § 614.4165(c)(3)(i), which requires YBS services to be offered in coordination with others, interferes with a direct lender association's ability to make its own choices on the types of related services it wishes to offer. This requirement, to coordinate with others when offering related services, is required by section 4.19(a) of the Act. Neither the Act nor this rule dictate what type of related services must be offered. However, the requirement to coordinate with others ensures that YBS borrowers, a group that can especially benefit from related services, will receive the help they need in their farming or ranching operations. By offering such services in coordination with others, associations may find the expertise and the cost-sharing benefits necessary to provide a full array of services.

One commenter suggested we add language to § 614.4165(c)(3)(i) and (ii) that specifically includes nongovernmental organizations when describing the offering of credit and services in coordination with others. We do not believe this language change is necessary because the rule, at § 614.4165(c)(3)(ii), requires that each direct lender association take full advantage of opportunities for coordinating credit and services offered by other Farm Credit System institutions, and other governmental and private sources of credit and services . Private sources of credit would include nongovernmental organizations, as the commenter suggested.

Another commenter believed that § 614.4165(c)(3)(iii), which requires direct lender associations to implement outreach programs, is inappropriate and usurps board authority and accountability. The commenter further stated that the rule should not prescribe how board and management assess customer needs and how they communicate with the customers through their marketing efforts. The requirement in the proposed rule to implement outreach programs is similar to current FCA policy on System YBS programs. The rule does not take any responsibility out of the hands of an association's board to oversee its YBS outreach efforts nor does it tie management's hands in implementing outreach programs. The rule simply states that a minimum component of an association's YBS program must include outreach programs and suggests types of outreach activities that an association might consider. An association board and management are free to pursue appropriate outreach activities, including others than those suggested in the rule.

Finally, one commenter suggested that the final rule include goals for loan restructuring for YBS borrowers. Direct lender associations must provide borrower rights to all of their borrowers. 12 The decision to restructure a distressed loan is a fact-specific one that must be made on a case-by-case basis. Setting goals for restructuring YBS loans would be contrary to sound lending practices and could jeopardize the safe and sound operations of an association.

One commenter suggested that the final rule include special credit treatment, special interest rates, and loan participation programs for YBS borrowers. Similar to all of the minimum components for a YBS program set forth in this rule, this section simply states that YBS loans must be offered in a safe and sound manner and within an association's risk-bearing capacity. This section of the rule then suggests types of credit enhancements that an association can use to manage risk while providing more opportunities to its YBS borrowers.

In all of the minimum components, our approach remains consistent. That is, each direct lender association has the flexibility to design a YBS program within the rule's minimum requirements. We believe it would be inconsistent with our role as a safety and soundness regulator to require specific types of credit enhancements. Therefore, although we agree with the commenter that special credit treatment, special interest rates, and loan participation programs are reasonable types of credit enhancements, it is up to each direct lender association to determine if sound business practices and its risk-bearing capacity would permit it to offer such enhancements.

One commenter stated that this section's reference to risk-bearing capacity will be used by System associations as an excuse not to lend to YBS borrowers. System associations must always consider their risk-bearing capacity when extending credit and services. It is especially important to consider risk when extending credit to a potentially less financially stable group of borrowers, such as YBS borrowers. Nevertheless, associations are still expected to demonstrate that they are meeting the credit and services needs of the YBS community in their respective territories. The requirements for YBS programs set forth in this final rule should enhance System YBS programs and help ensure that the System successfully achieves its YBS mission in a safe and sound manner.

For all the foregoing reasons, we are adopting § 614.4165(c) as final with only two changes. As we explained above, we have revised § 614.4165(c)(2) in the final rule to make it clear that each direct lender association's quantitative targets must be based on an understanding of how the data relates to the YBS market in the association's lending territory, not directly based on the demographic data. Since we believe “reasonably reliable demographic data” encompasses the meaning of the phrase in the proposed rule “that reasonably reflect the YBS demographics”, the latter phrase has been removed.

Further, as explained in the following section, in the final rule we are adding the following language to the end of § 614.4165(c)(3)(iii): “as well as an advisory committee comprised of “young,” “beginning,” and “small” farmers and ranchers to provide views on how the credit and services of the direct lender association could best serve the credit and services needs of YBS farmers and ranchers.”

This section of the proposed rule explains that each direct lender association could, at its option, establish and maintain an advisory committee comprised of young, beginning, and small farmers and ranchers. We included this recommendation because we believe a YBS advisory committee could help each association determine the credit and services needs of YBS farmers and ranchers in its territory. Similarly, this committee could serve as the association's conduit to the YBS community and other agricultural interest groups and lending sources serving the needs of YBS farmers and ranchers.

One commenter supported the inclusion of this recommendation in the final rule and suggested we make the YBS advisory committee a requirement of each direct lender association's YBS program rather than an option. The commenter also suggested that the membership of the advisory committee be expanded to include university and nongovernmental organization representatives that work with YBS farmers and ranchers. Although we certainly encourage each direct lender association to establish an advisory committee as a way of reaching out to the YBS community in its territory, we recognize that it may not be feasible or cost-effective for every association to create and maintain such a committee. Further, given the unique demographics of each direct lender association's territory, we think it best to allow each association to determine the makeup of its advisory committee membership should it choose to create one. Therefore, we have not incorporated these suggestions into the final rule.

As we explained earlier, one commenter expressed concern that the use of suggestions and recommendations in the YBS rule left the System unclear as to what the rule actually requires. Because the formation of an advisory committee is a type of outreach activity, we have moved the suggestion of an advisory committee to § 614.4165(c)(3)(iii) of the final rule and deleted § 614.4165(d). We believe this change in the final rule will make it clearer that the formation of a YBS advisory committee is a suggested rather than required component of a YBS program.

This section implements section 4.19(a) of the Act, which requires each direct lender association's YBS program to be subject to the “review and approval” of its funding bank. One commenter noted that there is no benefit to involving the funding banks in monitoring or approving the YBS programs of its affiliated direct lender associations. We note that the “review and approval” language is statutory and reflects congressional intent to involve the System banks, to some extent, in the YBS programs of their affiliated direct lender associations. The agency has no authority to simply disregard this congressional directive. Clearly, the System banks and associations have a common goal in ensuring that the special direction from Congress with regard to YBS farmers and ranchers is accomplished. For instance, System banks may want to work with their affiliated associations in coordinating credit and service opportunities for the YBS community in its district. Thus, we see a benefit in keeping the funding banks aware of the YBS programs being conducted by their affiliated associations to further ensure the accomplishment of the System's YBS mission.

Contrary to the previous comment, another commenter commended FCA for correctly reflecting the evolved relationship between System banks and their affiliated direct lender associations by appropriately defining the bank's approval requirements of an association's YBS program. In narrowly interpreting the “review and approval” statutory language, the agency does indeed recognize the autonomy gained by direct lender associations since the addition of section 4.19 to the Act in 1980. For all the foregoing reasons, we redesignate this section as § 614.4165(d) and adopt it as final.

This section of the rule requires direct lender associations to include their YBS quantitative targets and qualitative goals in their operational and strategic business plans. One commenter supported this section while another commenter suggested that this section be deleted from the final rule. This latter commenter expressed concern that this section imposes additional administrative and reporting burdens on System institutions while providing no greater flexibility to serve YBS farmers and ranchers. We do not find the commenter's concerns convincing. This provision is intended to help associations define the steps by which they will accomplish their mission to serve YBS borrowers and build on their commitment to meeting their YBS targets and goals. We do not believe it is overly burdensome to include the YBS targets and goals, which associations must already develop, in their operational and strategic business plans. Moreover, most associations that have been adopting effective business plans under § 618.8440 of FCA regulations have already been including their YBS program projections in such plans. For all the foregoing reasons, we redesignate this section as § 614.4165(e) and adopt it as final.

The rule requires that each direct lender association include, as part of its YBS program, comprehensive and detailed internal controls. These internal controls include establishing clear lines of responsibility for YBS program implementation, YBS performance results, and YBS quarterly reporting. Regular and reliable reporting to the board of directors helps an association to assess the strengths and weaknesses of its YBS program. The quarterly reporting requirement in the final rule will provide the board of directors an opportunity to assess its association's YBS program and consider any necessary changes or adjustments to its program components. Oversight and control of an association's YBS program will help ensure that the program is managed effectively and will contribute to its overall success. We received no comments on this section. Therefore, we redesignate the section as § 614.4165(f) and adopt it as final.

The rule requires each direct lender association to include in its annual report to shareholders a description of its YBS program, including a status report on each program component, as set forth in § 614.4165(c) of the proposed rule, as well as the definitions of “young,” “beginning,” and “small” farmers and ranchers. The rule also requires that the YBS discussion provide other information necessary for a comprehensive understanding of the direct lender association's YBS program and its results. In addition, the rule requires each Farm Credit bank to include in its annual report to shareholders a summary report of just the quantitative YBS data from its affiliated direct lender associations as described in FCA's instructions for the annual YBS year-end report. The rule also requires each Farm Credit bank's annual report to include the definitions of “young,” “beginning,” and “small” farmers and ranchers, as well as any other information that may be necessary for an ample understanding of the YBS mission results of the affiliated direct lender associations in its district.

Many commenters supported the requirement to include in the annual reports of each direct lender association and System bank a discussion of YBS program and performance results. A few commenters suggested that we require each direct lender association to report YBS program activity on an individual institution basis. Other commenters suggested that the annual reports be made available to the public, either on the banks and associations Web sites and/or on FCA's Web site. The rule already requires each direct lender association to report on its YBS program activity in its annual report to shareholders and in the YBS year-end report to the FCA. We also note that many System institutions currently make their annual reports available to the public on their Web sites. The System's YBS year-end reports, listed by individual associations, are also available on the agency's Web site. However, the question of whether FCA should require annual reports to be posted on System institution Web sites is an issue for consideration beyond the scope of this rulemaking and one that will be considered if the agency should decide to revise its disclosure regulations at some future time. Finally, the public may request a copy of any System institution's annual report from either the individual institution or the FCA.

Several commenters opposed the requirement to include YBS information in System institutions' annual reports to shareholders, recommending that the annual report requirements be deleted altogether. These commenters advocated that the decision to include YBS information in an annual report should be left up to each institution's board of directors. The commenters also suggested that FCA runs the risk of reducing innovation in System YBS program development as direct lender associations focus more on meeting the agency's reporting requirements than on working with YBS customers. One commenter stated that the annual report should not become a replacement document for business plans, or measurements for examination purposes, but instead should remain a vehicle to report the operating results of the institution. The agency is not swayed by these comments to delete any of the proposed annual YBS reporting requirements.

Moreover, we continue to believe reporting to shareholders and the public on the YBS mission results will underscore the importance of the System's public purpose YBS mission and will result in greater transparency to the public on the System's accomplishment of this mission.

One commenter suggested the agency require direct lender associations to include in their annual reports a description of special credit treatments, special interest rates, and loan participation programs available to YBS borrowers. This commenter believes the proposed rule did not go far enough in encouraging the use of such credit enhancements.

The rule requires each direct lender association to include in its annual report a description of its YBS program, including a status report on each program component set forth in § 614.4165(c). Establishing qualitative goals is a required component of an association's YBS program, which includes credit enhancement programs. Thus, we believe the rule already requires associations to describe its credit enhancement program goals in its annual report.

One commenter indicated that it was unclear in the rule whether associations will be required to include in their annual reports their YBS performance with regards to related services offered to their YBS borrowers. The rule clearly requires associations to report on their related services offered under their YBS programs. Specifically, § 620.5(n)(2) of the rule requires a status report on each program component as set forth in § 614.4165(c). The offering of related services is a program component under § 614.4165(c)(3)(i) of the rule. Thus, associations must include in their annual reports to shareholders a status report of their efforts to offer related services under their YBS programs.

In contrast to the previous comments, which address the reporting and disclosure of YBS information by System institutions, the following comments address FCA's role in reporting and disclosing YBS data. Several commenters stated that if the proposed rule is made final without major revisions to its public disclosure requirements, FCA will have failed as a Federal regulator by abrogating its mission to protect the public's right to know about how the System is fulfilling its YBS mission. The commenters believe the FCA should compile the YBS information itself and release it to the public. The FCA disagrees with the commenters' statement.

Under section 4.19(b) of the Act, it is the System associations who must report on their YBS activities to the banks and, in turn, the banks must submit an annual report to FCA summarizing the YBS operations and achievements of their affiliated associations. It is clearly the responsibility of the System institutions rather than the FCA to report on their YBS operations and achievements. However, in addition to System YBS yearend reports, the agency also includes a summary of the System's YBS results in our annual performance report (these reports are available on FCA's Web site). Finally, as noted earlier, the agency is taking steps to disclose future System institutions' YBS compliance ratings to the public. The agency believes these various YBS reports are more than sufficient to give the public an ample understanding of each direct lender association's YBS program and related performance results as well as the System's overall YBS performance and achievements.

Finally, several commenters stated that FCA should disclose consolidated YBS data for each district rather than require System banks to do so in their annual reports to shareholders. The commenters assert that there is no basis in the Act for such a reporting requirement and that requiring the banks to include in their annual reports to shareholders YBS information gathered from their affiliated associations imposes an unnecessary burden in light of the fact that the associations are the shareholders of their respective funding banks.

The FCA disagrees that there is no basis in the Act for this requirement. As previously noted, section 4.19(b) of the Act requires System banks to provide FCA with a report summarizing the YBS operations and achievements of its affiliated direct lender associations. Further, sections 5.17(8) and 5.19(b)(1) of the Act give the agency broad authority to establish reporting requirements for System institutions so that all parties interested in the operations of the System, including shareholders, investors, Congress, and the public at large, can assess the System's performance and mission fulfillment as a GSE. Further, although the banks acquire their YBS information from their affiliated associations, it is still helpful for the associations to view, at a glance, how the district as a whole is performing its YBS mission. Thus, we believe the inclusion of this YBS data in the annual reports of the banks would be helpful to the associations. Moreover, we do not believe the consolidated YBS reporting requirements are burdensome for the banks. The rule requires the System banks to include in their annual reports to shareholders a summary report of just the YBS quantitative data from their affiliated direct lender associations. This quantitative data must already be submitted to the agency in each bank's annual YBS yearend report. Thus, it is not significantly more burdensome for the banks to include this same data in their annual reports to shareholders. Finally, the agency believes it is first and foremost the responsibility of each System institution, rather than the FCA, to report information regarding its YBS program results.

For all the foregoing reasons, we adopt proposed § 620.5(n) as final without change.

The rule requires the funding banks to include a report on consolidated YBS lending data of their affiliated associations in their Systemwide annual report to investors and to include the definitions of “young,” “beginning,” and “small” farmers and ranchers. Additionally, the rule requires that the report include any other information that may be necessary for ample understanding of the System's YBS mission results.

Several commenters raised concerns about the System banks not having enough time to collect and analyze the YBS data for inclusion in the report to investors. (This same concern was raised with respect to including YBS data in the System banks' and associations' annual reports to shareholders.) These commenters raised this concern because of anticipated new and shorter timeframes for publishing such reports in order to be more responsive to the marketplace. The agency believes the impact of adding the YBS data to the report to investors will be insignificant compared to all the other data the banks must include in this report.

For all the foregoing reasons, we adopt proposed § 630.20(p) as final without change.

Pursuant to section 605(b) of the Regulatory Flexibility Act (5 U.S.C. 601 et seq. ), the FCA hereby certifies that the rule will not have a significant economic impact on a substantial number of small entities. Each of the banks in the System, considered together with their affiliated associations and service corporations, has assets and annual income in excess of the amounts that would qualify them as small entities. Therefore, System institutions are not “small entities” as defined in the Regulatory Flexibility Act.

A proposal to amend part 39 of the Federal Aviation Regulations (14 CFR part 39) to include an airworthiness directive (AD) that is applicable to certain Dornier Model 328-100 series airplanes was published in the Federal Register on January 27, 2004 (69 FR 3861). That action proposed to require repetitive inspections of certain support arms of the ground spoiler assemblies for cracking, and replacement of any ground spoiler assembly having cracking with a new ground spoiler assembly. That action also proposed to require certain inspections for discrepancies of the ground spoiler assemblies and the flap of each wing; and corrective actions if necessary.

Interested persons have been afforded an opportunity to participate in the making of this amendment. No comments were submitted in response to 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.

We estimate that 53 airplanes of U.S. registry will be affected by this AD.

It will take approximately 2 work hours per airplane to accomplish the general visual, contour, and clearance inspections of the ground spoilers, at an average labor rate of $65 per work hour. Based on these figures, the cost impact of these inspections on U.S. operators is estimated to be $6,890, or $130 per airplane.

It will take approximately 4 work hours per airplane to accomplish the inspection of the support arms for the ground spoilers, at an average labor rate of $65 per work hour. Based on these figures, the cost impact of this inspection on U.S. operators is estimated to be $13,780, or $260 per airplane.

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

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

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

A proposal to amend part 39 of the Federal Aviation Regulations (14 CFR part 39) to include an airworthiness directive (AD) that is applicable to all BAE Systems (Operations) Limited (Jetstream) Model 4101 airplanes was published in the Federal Register on November 18, 2003 (68 FR 65006). That action proposed to require repetitive inspections for damage of the horizontal and vertical stabilizer attachment fittings, and corrective action if necessary.

Interested persons have been afforded an opportunity to participate in the making of this amendment. No comments were submitted in response to 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.

The FAA estimates that 57 airplanes of U.S. registry will be affected by this AD, that it will take approximately 120 work hours per airplane to accomplish the required actions, and that the average labor rate is $65 per work hour. Based on these figures, the cost impact of the AD on U.S. operators is estimated to be $444,600, or $7,800 per airplane.

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

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

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

A proposal to amend part 39 of the Federal Aviation Regulations (14 CFR part 39) to include an airworthiness directive (AD) that is applicable to certain Dassault Model Mystere-Falcon 50 series airplanes was published in the Federal Register on January 22, 2004 (69 FR 3041). That action proposed to require one-time detailed inspections for structural discrepancies of various fuselage attachments; and corrective actions, if necessary, to restore the structure to the original design specifications.

Interested persons have been afforded an opportunity to participate in the making of this amendment. No comments were submitted in response to 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.

The FAA estimates that 21 airplanes of U.S. registry will be affected by this AD, and that it will take between 5 hours and 123 hours to accomplish each inspection, depending on the operating point(s) that are inspected. The average labor rate is $65 per work hour. Based on these figures, the cost impact of the AD on U.S. operators is estimated to be between $325 and $7,995 per airplane.

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

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

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

The Direction Générale de l'Aviation Civile (DGAC), which is the airworthiness authority for France, notified the FAA that an unsafe condition may exist on all Airbus Model A318, A319, A320, and A321 series airplanes. The DGAC advises that during a routine visual inspection of a main landing gear (MLG) sliding tube, a linear crack was found at the intersection of the cylinder and the axle. Investigation revealed that the crack was caused by non-metallic inclusions in the base metal. A specific batch of MLG sliding tubes that may have these inclusions has been identified. Such cracking, if not corrected, could result in failure of the affected MLG sliding tube, loss of one axle, and consequent reduced controllability of the airplane.

Airbus has issued All Operators Telex (AOT) 320-32A1273, dated February 5, 2004, which describes procedures for identifying the part number (P/N) and (S/N) of both MLG sliding tubes. The procedures for the P/N and S/N identification include visually inspecting (“checking”) and cleaning the part number plate, and reporting the S/N to Airbus. For airplanes on which the S/N is included in the batch of affected S/Ns listed in the AOT, the procedures include:

• Cleaning the visible part of the MLG sliding tube and visually inspecting the part for surface cracking.

• Removing any MLG sliding tube with cracking from the airplane, reporting the cracking to Airbus, and sending the affected part to Messier-Dowty.

• Repeating the inspection for cracking at intervals not exceeding 10 days, until a final fix is found.

The DGAC classified this AOT as mandatory and issued French airworthiness directive F-2004-022, dated February 18, 2004, to ensure the continued airworthiness of these airplanes in France.

These airplane models are manufactured in France and are type certificated for operation in the United States under the provisions of section 21.29 of the Federal Aviation Regulations (14 CFR 21.29) and the applicable bilateral airworthiness agreement. Pursuant to this bilateral airworthiness agreement, the DGAC has kept the FAA informed of the situation described above. The FAA has examined the findings of the DGAC, reviewed all available information, and determined that AD action is necessary for products of this type design that are certificated for operation in the United States.

Since an unsafe condition has been identified that is likely to exist or develop on other airplanes of the same type design registered in the United States, this AD is being issued to detect and correct cracking in a MLG sliding tube, which could result in failure of the sliding tube, loss of one axle, and consequent reduced controllability of the airplane. This AD requires a one-time general visual inspection to determine the P/N and S/N of both MLG sliding tubes, and related investigative and corrective actions if necessary. The related investigative actions include repetitive detailed inspections for cracking of the MLG sliding tubes. The corrective actions include replacement of a cracked part with a new or serviceable part. Installation of a replacement part that does not have a S/N as listed in Airbus AOT A320-32A1273 eliminates the need for the repetitive inspections for only that part.

The actions are required to be accomplished in accordance with the AOT described previously, except as discussed below under “Differences Among the French Airworthiness Directive, Service Information, and This AD.”

This AD also includes a reporting requirement. When the unsafe condition addressed by an AD is likely due to a manufacturer's quality control (QC) problem, a reporting requirement is instrumental in ensuring that we can gather as much information as possible regarding the extent and nature of the QC problem or breakdown, especially in cases where such data may not be available through other established means. This information is necessary to ensure that proper corrective action will be taken.

The applicability of the French airworthiness directive does not include Airbus Model A318 series airplanes, but the effectivity of the AOT does include that model. The applicability of this AD includes the Airbus Model A318 series airplanes to ensure that all airplanes that might have an affected MLG sliding tube are inspected and any necessary corrective actions taken.

Also, the applicability of the French airworthiness directive and the effectivity of the AOT include P/Ns and the list of affected S/Ns for the MLG sliding tubes. The applicability of this AD does not include any P/Ns or S/Ns. We find that listing the P/Ns and S/Ns in the applicability is not necessary because paragraph (a) of this AD requires a general visual inspection to determine the P/N and S/N of both MLG sliding tubes.

The AOT specifies to send any cracked part to Messier-Dowty. This AD does not include such a requirement.

The Airbus AOT specifies to “visually check” the serial number displayed on the MLG sliding tube. This AD requires a general visual inspection, which is defined in Note 1 of this AD. For certain airplanes, the AOT also specifies to “visually check” the MLG sliding tube for surface cracking. This AD requires a detailed visual inspection, which is defined in Note 2 of this AD.

The Airbus AOT specifies to remove any cracked MLG sliding tube from the airplane, but does not specify to replace the affected part with another part. This AD requires the replacement of any cracked part with a new or serviceable part.

We consider this AD to be interim action. The manufacturer is currently developing a non-destructive inspection technique to detect non-metallic inclusions in the base metal of the MLG sliding tube, which, along with any necessary corrective actions, will address the unsafe condition identified in this AD. Once this inspection is developed, approved, and available, we may consider additional rulemaking.

Since a situation exists that requires the immediate adoption of this regulation, it is found that notice and opportunity for prior public comment hereon are impracticable, and that good cause exists for making this amendment effective in less than 30 days.

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

Submit comments using the following format:

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

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

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

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

Commenters wishing the FAA to acknowledge receipt of their comments submitted in response to this rule must submit a self-addressed, stamped postcard on which the following statement is made: “Comments to Docket Number 2004-NM-43-AD.” The postcard will be date stamped and returned to the commenter.

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

The FAA has determined that this regulation is an emergency regulation that must be issued immediately to correct an unsafe condition in aircraft, and that it is not a “significant regulatory action” under Executive Order 12866. It has been determined further that this action involves an emergency regulation under DOT Regulatory Policies and Procedures (44 FR 11034, February 26, 1979). If it is determined that this emergency regulation otherwise would be significant under DOT Regulatory Policies and Procedures, a final regulatory evaluation will be prepared and placed in the Rules Docket. A copy of it, if filed, may be obtained from the Rules Docket at the location provided under the caption ADDRESSES .

The Export Administration Regulations (EAR) regulate exports from the United States and reexports of U.S. origin items for a variety of reasons including “National Security.” NS controls are generally imposed to implement decisions of the Wassenaar Arrangement, a multilateral export control agreement. This rule amends the EAR to conform the CCL to section 5(c)(6)(A) of the Act, which provides that unilateral NS controls— i.e., those NS controls imposed only by the United States, instead of in furtherance of international agreements, expire six months after enactment of the Act or of the control, whichever is later.

The Act provides authority to renew unilateral NS controls for successive six month periods if the Secretary of Commerce determines, under section 5(f) or (h)(6) of the Act, that there is no foreign availability of the items at issue. The Act provides alternative authority to renew a control for two six-month periods if the President is actively pursuing negotiations to end such foreign availability. No such determinations have been made and no such negotiations are being undertaken with respect to the items in the affected ECCNs.

Although the Act expired on August 20, 2001, Executive Order 13222 of August 17, 2001 (3 CFR, 2001 Comp., p. 783), as extended by the Notice of August 7, 2003 (68 FR 47833, August 11, 2003), continues the Regulations in effect under the International Emergency Economic Powers Act. The Bureau of Industry and Security (BIS) continues to carry out the provisions of the Act, as appropriate and to the extent permitted by law, pursuant to Executive Order 13222.

This rule amends the CCL to remove NS as a reason for control with respect to those items which the Wassenaar Arrangement has removed from its control lists. However, BIS has decided to continue to control the export and reexport of these items pursuant to foreign policy-based “Regional Stability” (RS) controls because these items have the potential to contribute to military capabilities in a manner that could alter regional military balances contrary to the foreign policy interests of the United States. The affected items are as follows:

• Power controlled searchlights and control units thereof, designed for military use, and equipment mounting such units; and specially designed parts and accessories thereof;

• Bayonets, and the technology for the development, production or use of bayonets; and

• Marine boilers designed to have any of the following characteristics: heat release rate (at maximum rating) equal to or in excess of 190,000 BTU per hour per cubic foot of furnace volume; or ratio of steam generated in pounds per hour (at maximum rating) to the dry weight of the boiler in pounds equal to or in excess of 0.83.

This rule also amends the language controlling one item (muzzle loading (black powder) firearms) to conform with the corresponding language on the Munitions List promulgated by the Wassenaar Arrangement. The item is controlled by the United States as a result of its inclusion on the Wassenaar Munitions List for NS reasons.

This rule also revises two references to the “International Munitions List” to read “Wassenaar Munitions List” to reflect the correct current title of that document.

This rule implements these changes by modifying four existing Export Control Classification Numbers (ECCNs) (0A018, 0A988, 0E018 and 8A018), and creating three new ECCNs (0A918, 0E918 and 8A918). It also amends the RS license requirements in section 742 of the EAR to include the three newly created ECCNs.

The RS controls imposed by this rule are new foreign policy controls. As required by the Act, a report on the imposition of these controls was delivered to Congress on March 11, 2004. This rule makes the following specific changes to the EAR.

In § 742.6(a)(2), three newly created ECCNs (0A918, 0E918, and 8A918) are added to the list of ECCNs for which Regional Stability controls apply.

In supplement No. 1 to part 774 (The Commerce Control List), this rule makes the following changes.

In ECCN 0A018, power controlled searchlights and related items, in paragraph .a, and bayonets, in paragraph .d, are moved to a newly created ECCN 0A918, which lists RS as its reason for control. Paragraphs 0A018 .b and .c are redesignated .a and .b, respectively. Paragraphs .e and .f are redesignated .c and .d, respectively. The new paragraph .c (formerly .e) covering muzzle loading firearms is rewritten to conform to the corresponding language in the Wassenaar Munitions List, Category ML1.a. A cross reference to ECCN 0A984 is added to paragraph .c to alert readers to the fact that certain shotguns are controlled by that entry. The phrase “International Munitions List” is replaced with “Wassenaar Munitions List” in the heading of ECCNs 0A018 and 8A018. Two references to the “Office of Defense Trade Controls” are revised to read “Directorate of Defense Trade Controls” to reflect the current name of that organization.

New ECCN 0A918 is created to control power controlled searchlights, related items and bayonets, as described above, to ensure consistency with the structure of the CCL described in section 738.2 of the EAR, i.e., a “0” in the third place of an ECCN signifies a national security reason for control; a “9” in the third place of an ECCN signifies control for regional stability or other foreign policy reasons.

ECCN 0A988 is modified by replacing “0A018.f.1” with “0A018.d.1” in the heading and in the “Controls” paragraph of the “Reason for Control” section to match the paragraph redesignation in ECCN 0A018 noted above.

ECCN 0E018 is modified by changing the phrase “ECCN 0A018.b through 0A018.e” in its heading to “ECCN 0A018.a through ECCN 0A018.c” to match the paragraph redesignation of 0A018 noted above.

A new ECCN 0E918 is created to control technology for the development, production or use of bayonets for RS reasons. Prior to publication of this rule, technology for the development, production, or use of bayonets was controlled for NS reasons under ECCN 0E018, which controls technology related to commodities that are controlled for NS reasons in ECCN 0A018. This new ECCN conforms the reason for control for technology related to bayonets to the reason for control for the bayonets themselves.

The marine boilers described in paragraph b.4 of ECCN 8A018 are removed from that ECCN and listed in a newly created ECCN 8A918, which lists RS as the reason for control.

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

2. Notwithstanding any other provision of law, no person is required to respond to, nor shall any person be subject to a penalty for failure to comply with a collection of information, subject to the requirements of the Paperwork Reduction Act of 1995 (44 U.S.C. 3501 et seq. ) (PRA), unless that collection of information displays a currently valid Office of Management and Budget (OMB) Control Number. This rule involves a collection of information subject to the PRA. This collection has been approved by OMB under control number 0694-0088, “Multi-Purpose Application,” which carries a burden hour estimate of 58 minutes for a manual or electronic submission. Send comments regarding these burden estimates or any other aspect of these collections of information, including suggestions for reducing the burden, to OMB Desk Officer, New Executive Office Building, Washington, DC 20503; and to the Office of Administration, Bureau of Industry and Security, Department of Commerce, 14th Street and Pennsylvania Avenue, NW., Room 6883, Washington, DC 20230.

3. This rule does not contain policies with Federalism implications as that term is defined in Executive Order 13132.

4. The provisions of the Administrative Procedure Act (5 U.S.C. 553) requiring notice of proposed rulemaking, the opportunity for public participation, and a delay in effective date, are inapplicable because this regulation involves a military and foreign affairs function of the United States (5 U.S.C. 553(a)(1)). Further, no other law requires that a notice of proposed rulemaking and an opportunity for public comment be given for this final rule. Because a notice of proposed rulemaking and an opportunity for public comment are not required to be given for this rule under 5 U.S.C. 553 or by any other law, the analytical requirements of the Regulatory Flexibility Act (5 U.S.C. 601 et seq. ) are not applicable. Therefore, this regulation is issued in final form. Although there is no formal comment period, public comments on this regulation are welcome on a continuing basis. Comments should be submitted to William H. Arvin, Regulatory Policy Division, Bureau of Export Administration, U.S. Department of Commerce, Room 2705, 14th Street and Pennsylvania Avenue, NW., Washington, DC 20230.

This document amends FDA's regulations to reflect the correction of typographical and nonsubstantive errors in 21 CFR 101.69(o)(1) and 177.1520(b).

Publication of this document constitutes final action on these changes under the Administrative Procedure Act (5 U.S.C. 553). Notice and public procedure are unnecessary because FDA is merely correcting nonsubstantive errors.

Section 845 of the National Defense Authorization Act for Fiscal Year 1994, Public Law 103-160, 107 Stat. 1721, as amended, authorizes the Secretary of a Military Department, the Director of Defense Advanced Research Projects Agency and any other official designated by the Secretary of Defense, to enter into transactions other than contracts, grants or cooperative agreements in certain situations for prototype projects that are directly relevant to weapons or weapon systems proposed to be acquired or developed by the Department of Defense. Such transactions are commonly referred to as “other transaction” agreements for prototype projects. To the extent that a particular statute or regulation is limited in its applicability to the use of a procurement contract, it would generally not apply to “other transactions” for prototype projects.

Use of OT authority is authorized by law in the absence of the significant participation of a nontraditional Defense contractor, when at least one-third of the costs of the prototype project are to be provided by non-Federal parties to the agreement. The authority granted by section 822 of the National Defense Authorization Act for Fiscal Year 2002 provides for the authority to continue such prototype projects into production without competition in certain circumstances. The circumstances are identified in this rule. Additionally, a rule will be issued to the Defense Federal Acquisition Regulation Supplement that exempts such production contracts from further competition, notwithstanding the requirements of section 2304 of title 10, United States Code.

In implementing the law, the Department clarifies that the number of production units and target prices proposed for production must be evaluated during the competition for the prototype project. This is consistent with the law's competition requirement and is the basis for being exempted from the need for further competition for the stated production quantity.

A proposed rule was published in the Federal Register for public comment on May 20, 2003 (68 FR 27497). No comments were received.

It has been determined that this rule is not a significant rule as defined under section 3(f)(1) through 3(f)(4) of Executive Order 12866.

It has been certified that this rule does not contain a Federal mandate that may result in the expenditure by State, local and tribal governments, in aggregate, or by the private sector, of $100 million or more in any one year.

It has been certified that this rule is not subject to the Regulatory Flexibility Act (5 U.S.C. 601 et seq. ) because it would not, if promulgated, have a significant economic impact on a substantial number of small entities. The rule does not require additional recordkeeping or other significant expense by project participants.

It has been certified that this rule does not impose any reporting or record keeping requirements under the Paperwork Reduction Act of 1995.

It has been certified that this rule does not have federalism implications, as set forth in Executive Order 13132.

Project Manager. The government manager for the prototype project.

Throughout this document “we,” “us,” and “our” means EPA. This supplementary information section is organized as listed in the following Table of Contents:

The BPA area was classified as a moderate 1-hour ozone nonattainment area and, therefore, was required to attain the 1-hour ozone standard of 0.12 ppm by November 15, 1996. On April 16, 1999, EPA proposed to reclassify the BPA area to a serious ozone nonattainment area, or, in the alternative to extend BPA's attainment date if the State submitted a SIP consistent with the criteria of the Transport Policy. 64 FR 18864. As part of the proposed alternative reclassification of the area to serious, the EPA proposed to find that the BPA area did not attain the 1-hour ozone NAAQS by November 15, 1996, as required by the CAA. The proposed finding was based on 1994-1996 air quality data that showed the area's air quality violated the standard and the area did not qualify for an attainment date extension under the provisions of section 181(a)(5). 1 EPA also proposed that the appropriate reclassification of the area would be from moderate to serious.

Although the area was not eligible for an attainment date extension under CAA section 181(a)(5), the April 16, 1999, proposal included a notice of the BPA area's eligibility for an attainment date extension, pursuant to the Transport Policy, which was published in a March 25, 1999, Federal Register notice (64 FR 14441). This policy addressed circumstances where pollution from upwind areas interferes with the ability of a downwind area to attain the 1-hour ozone standard by its attainment date. EPA proposed to finalize its action on the determination of nonattainment and reclassification of the BPA area only after the area had received an opportunity to qualify for an attainment date extension under the Transport Policy.

The State of Texas submitted a request for an extension of the attainment date for the BPA area, a transport demonstration, an attainment demonstration SIP and MVEB, an MCR enforceable commitment, and RACM analysis. We proposed on December 27, 2000, to approve the transport demonstration and to extend the attainment date without reclassifying the area, to approve the attainment demonstration SIP and MVEB, to approve the MCR commitment, and to find that BPA was implementing all RACM. (65 FR 81786)

On May 15, 2001, EPA issued a final rule (66 FR 26914) in which EPA approved the transport demonstration and extended the attainment date for the BPA area to November 15, 2007, while retaining the area's classification as “moderate.” The rule also approved the attainment demonstration for the BPA area and MVEB, approved the State's enforceable commitment to perform a mid-course review and submit a SIP revision by May 1, 2004, found that the area was implementing all RACM, and took one other non-related action. The attainment demonstration SIP is addressed in the State of Texas submittals dated November 12, 1999, and April 25, 2000. Thus, the area would have had until no later than November 15, 2007, the attainment date for the upwind Houston-Galveston (HG) nonattainment area, to attain the 1-hour ozone standard. The final rule contains EPA's responses to the comments. (We also took one final action not relevant to today's action and the Court's remand: the finding that BPA met the Reasonably Available Control Technology (RACT) requirements for major sources of Volatile Organic Compounds (VOC) emissions.)

A petition for review of the May 15, 2001, rulemaking was filed in the U.S. Court of Appeals for the Fifth Circuit. On December 11, 2002, the Court issued a decision in Sierra Club v. EPA , 314 F.3d 735 (5th Cir. 2002), reversing the portion of EPA's approval that extended BPA's attainment date to 2007 under the Transport Policy without reclassifying the area. 2 The Court also remanded to EPA the final actions related to the reversal: our approval of the attainment demonstration SIP and MVEB, the MCR commitment, and our finding that the area was implementing all RACM. The Court affirmed the portion of EPA's final action that requires implementation only of control measures that contribute to attainment as expeditiously as practicable and considers implementation costs in rejecting control measures, but remanded EPA's specific determination regarding RACM in the BPA area so that any conclusions about the control measures may be adequately explained.

EPA published a Supplemental Proposed rule dated June 19, 2003 (68 FR 36756). In response to the Court's reversal, EPA proposed to withdraw its final action that extended the attainment date to November 15, 2007, and approved the transport demonstration. We also proposed to issue a finding that BPA failed to attain the 1-hour ozone national ambient air quality standard (NAAQS or standard) by November 15, 1996, the attainment date for moderate nonattainment areas set forth in the Act, and to reclassify BPA as a serious 1-hour ozone nonattainment area. EPA also proposed that should we take final action on the reclassification to serious, we would also take one of two alternative options for identifying the appropriate attainment date for the area. Under Option 1, EPA proposed further to find that the area failed to attain the 1-hour ozone standard by November 15, 1999, the attainment date for serious nonattainment areas. If EPA took final action on that finding, the area would be reclassified as a severe 1-hour ozone nonattainment area, with an attainment date of no later than November 15, 2005. Alternatively, under Option 2, if the area were reclassified as a serious 1-hour ozone nonattainment area, EPA proposed that it would retain that classification, but that it would have an attainment date of no later than November 15, 2005. Under either alternative, we proposed that the State of Texas submit the required SIP revision on or before one year after the effective date of a final action on this notice. We further proposed to adjust the dates by which the area must meet the rate-of-progress (ROP) requirements and adjust contingency measure requirements as they relate to the ROP requirements.

In response to the Court's remand, we also proposed to withdraw our final approval of BPA's 2007 attainment demonstration SIP, the MVEB, the mid-course review commitment (MCR), and our finding that BPA implemented all RACM. We also proposed the schedule for Texas to submit a revised SIP, a new MVEB, and a re-analysis of RACM meeting the Court's order.

Since the CAA's inception in 1970, EPA has set NAAQS for six common air pollutants: carbon monoxide, lead, nitrogen dioxide, ozone, particulate matter, and sulfur dioxide. The CAA requires that these standards be set at levels that protect public health and welfare with an adequate margin of safety. These standards present state and local governments with the air quality levels they must meet to achieve clean air. Also, these standards allow the American people to assess whether or not the air quality in their communities is healthful.

The NAAQS for ozone is expressed in two forms called the 1-hour and 8-hour  3 standards. Table 1 summarizes the 1-hour ozone standards.

This is a summary of the Commission's Report and Order (R&O) in WC Docket No. 03-228, FCC 04-54, adopted March 11, 2004 and released March 17, 2004. The complete text of this R&O is available for inspection and copying during normal business hours in the FCC Reference Information Center, Portals II, 445 12th Street, SW., Room CY-A257, Washington, DC 20554. This document may also be purchased from the Commission's duplicating 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 qualexint@aol.com . It is also available on the Commission's Web site at http://www.fcc.gov .

1. Background. Sections 271 and 272 of the Communications Act, as amended, establish a comprehensive framework governing BOC provision of “interLATA service.” Pursuant to section 271, neither a BOC nor a BOC affiliate may provide in-region, interLATA service prior to receiving section 271(d) authorization from the Commission. Section 272 requires BOCs, once authorized to provide in-region, interLATA services in a state under section 271, to provide those services through a separate affiliate until the section 272 separate affiliate requirement sunsets for that particular state. In addition, section 272 imposes structural and transactional requirements on section 272 separate affiliates, including the requirement to “operate independently” from the BOC.

2. Section 272(b)(1) directs that the separate affiliate required pursuant to section 272(a) “shall operate independently from the [BOC].” In 1996, the Commission adopted rules to implement the “operate independently” requirement that prohibit a BOC and its section 272 affiliate from (1) jointly owning switching and transmission facilities or the land and buildings on which such facilities are located; and (2) providing OI&M services associated with each other's facilities. The Commission's rules prohibit a section 272 affiliate from performing OI&M functions associated with the BOC's facilities. Likewise, they bar a BOC or any BOC affiliate, other than the section 272 affiliate itself, from performing OI&M functions associated with the facilities that its section 272 affiliate owns or leases from a provider other than the BOC with which it is affiliated. On November 3, 2003, the Commission adopted the Notice of Proposed Rulemaking (68 FR 65665, November 21, 2003) in this proceeding to seek comment on whether it should modify or eliminate the rules adopted to implement section 272(b)(1)'s “operate independently” requirement, including the OI&M sharing prohibition.

3. “Operate Independently .” In this Order, the Commission rejects arguments that it must retain both the OI&M sharing prohibition and the joint facilities ownership restriction in order to give meaning to section 272(b)(1)'s “operate independently” language. The Commission reaffirms the conclusion of the previous Commission that section 272(b)(1) is ambiguous. An agency is free to modify its interpretation of an ambiguous statutory provision when other reasonable interpretations may exist, provided that it acknowledges its change of course and provides a rational basis for its shift in policy. In fact, a reexamination of rules is particularly appropriate where, as here, the Commission has gained more experience over time and new ways of achieving regulatory goals have developed. In the instant situation, the Commission has chosen to reexamine the rules adopted to implement section 272(b)(1) in light of its eight years of experience in implementing the 1996 Act (including applicable cost allocation and nondiscrimination rules), its additional experience with monitoring section 272 affiliates, and, more generally, the growth of competition in all telecommunications markets. Thus, the Commission concludes that it should eliminate the OI&M sharing prohibition but retain the joint facilities ownership restriction under section 272(b)(1), consistent with its obligation to implement the statutory directive that the section 272 affiliate and the BOC “operate independently.”

4. Operating, Installation, and Maintenance Services. The Commission finds that the OI&M prohibition is an overbroad means of preventing anti-competitive conduct and poses significant costs that outweigh any potential benefits. Because the prohibition on OI&M sharing is not directly compelled by section 272(b)(1), the Commission eliminates sections 53.203(a)(2) through (a)(3) of its rules. The Commission concludes that the remaining section 272 requirements, together with its other non-structural safeguards, will continue to serve as effective protections against anticompetitive conduct by BOCs following elimination of the OI&M sharing prohibition. In the context of OI&M functions, the Commission concludes that the existing non-structural safeguards are well-tailored and sufficient to provide effective and efficient protections against cost misallocation and discrimination by BOCs. Based on the record in this proceeding, the Commission does not expect that eliminating the OI&M sharing prohibition will materially increase BOCs' abilities or incentives to misallocate costs or discriminate against unaffiliated rivals in price or performance. Nor will eliminating the prohibition diminish the ability of the Commission to monitor and enforce compliance with the Act in light of non-structural safeguards. Following elimination of the OI&M sharing prohibition, the Commission will be able to effectively monitor the performance of BOC provision of OI&M functions through application of (1) the other section 272 requirements and (2) the Commission's affiliate transactions and cost allocation rules.

5. Costs of the OI&M Sharing Prohibition. The Commission finds that there is sufficient evidence in the record to show that the OI&M sharing prohibition has increased the section 272 affiliates' operating costs, and that the elimination of the OI&M sharing prohibition will likely result in substantial cost savings to the affiliates and enable the affiliates to compete more effectively in the interexchange market. It recognizes that, at the time the OI&M sharing prohibition was adopted, the Commission acknowledged that structural separation may sacrifice economies of scale and scope. The Commission, nonetheless, concluded that the benefits of the OI&M sharing prohibition outweighed these costs. It now finds, however, that, when the historical and projected costs of the OI&M sharing prohibition against protections afforded by our structural and non-structural safeguards are considered, the costs of the rule exceed the likely benefits of maintaining the rule. Moreover, the Commission finds that the likely savings to the section 272 affiliates by elimination of the rule, in conjunction with the BOCs' adherence to our structural and non-structural rules, including the cost allocation rules, supports a finding for the elimination of the OI&M sharing prohibition at this time. The Commission further finds that the evidence supports BOCs' claims that the OI&M sharing prohibition imposes inefficiencies that prevent BOCs from competing more effectively in the interexchange market.

6. Joint Facilities Ownership. The joint facilities ownership restriction was adopted concurrently with the OI&M sharing prohibition to implement the “operate independently” requirement of section 272(b)(1). The joint facilities ownership restriction, codified in section 53.203(a)(1) of the Commission's rules, provides that “[a] section 272 affiliate and the BOC of which it is an affiliate shall not jointly own transmission and switching facilities or the land and buildings where those facilities are located.” In adopting this restriction, the Commission believed that joint ownership of facilities could facilitate cost misallocation and discrimination. Based on the record presented in this proceeding, the Commission continues to believe that, unlike the OI&M sharing prohibition, the costs of maintaining separate ownership of facilities does not outweigh the benefits the rule provides against cost misallocation and discrimination. In making this determination, the Commission is mindful that the record support for eliminating the joint facilities ownership restriction is much more limited and inconclusive than the record that has been presented on the OI&M sharing prohibition. Therefore, the Commission retains the joint facilities ownership restriction to ensure that BOCs and their affiliates continue to operate independently.

7. The Regulatory Flexibility Act of 1980, as amended (RFA), requires that an initial regulatory flexibility analysis be prepared for notice-and-comment rulemaking proceedings, unless the agency certifies that “the rule will not, if promulgated, have a significant economic impact on a substantial number of small entities.” The RFA generally defines the term “small entity” as having the same meaning as the terms “small business,” “small organization,” and “small governmental jurisdiction.” In addition, the term “small business” has the same meaning as the term “small business concern” under the Small Business Act. A “small business concern” is one which: (1) is independently owned and operated; (2) is not dominant in its field of operation; and (3) satisfies any additional criteria established by the Small Business Administration (SBA).

8. In the Notice, the Commission sought comment generally on whether we should modify or eliminate the rules adopted to implement the “operate independently” requirement of section 272(b)(1) of the Act. Specifically, it sought comment on whether the OI&M sharing prohibition is an overbroad means of preventing cost misallocation or discrimination by BOCs against unaffiliated rivals. The Commission also sought comment on whether the prohibition against joint ownership by BOCs and their section 272 affiliates of switching and transmission facilities, or the land and buildings on which such facilities are located, should be modified or eliminated.

9. The Order eliminates the OI&M sharing prohibition, under sections 53.203(a)(2) through (a)(3) of the Commission's rules, because the Commission finds that it is an overbroad means of preventing cost misallocation or discrimination by BOCs against unaffiliated rivals. Further, the Order retains the prohibition against joint ownership by BOCs and their section 272 affiliates of switching and transmission facilities, or the land and buildings on which such facilities are located, under section 53.203(a)(1) of the Commission's rules.

10. The rules adopted in this Order apply only to BOCs and their section 272 affiliates. Neither the Commission nor the SBA has developed a small business size standard specifically applicable to providers of incumbent local exchange service and interexchange services. The closest applicable size standard under the SBA rules is for Wired Telecommunications Carriers. This provides that such a carrier is small entity if it employs no more than 1,500 employees. None of the four BOCs that would be affected by amendment of these rules meets this standard. The Commission next turns to whether any of the section 272 affiliates may be deemed a small entity. Under SBA regulation 121.103(a)(4), “SBA counts the * * * employees of the concern whose size is at issue and those of all its domestic and foreign affiliates * * * in determining the concern's size.” In that regard, it is noted that, although section 272 affiliates operate independently from their affiliated BOCs, many are 50 percent or more owned by their respective BOCs, and thus would not qualify as small entities under the applicable SBA regulation. Moreover, even if the section 272 affiliates were not “affiliates” of BOCs, as defined by SBA, as many are, the Commission estimates that fewer than fifteen section 272 affiliates would fall below the size threshold of 1,500 employees. Particularly in light of the fact that Commission data indicate that a total of 261 companies have reported that their primary telecommunications service activity is the provision of interexchange services, the fifteen section 272 affiliates that may be small entities do not constitute a “substantial number.” Because the rule amendments directly affect only BOCs and section 272 affiliates, based on the foregoing, we conclude that a substantial number of small entities will not be affected by the rules.

11. Therefore, the Commission certifies that the requirements of the Order will not have a significant economic impact on a substantial number of small entities. The Commission will send a copy of the Order, including a copy of this Final Regulatory Flexibility Certification, in a report to Congress pursuant to the Congressional Review Act. In addition, the Order and this final certification will be sent to the Chief Counsel for Advocacy of the SBA, and will be published in the Federal Register .

12. This Report and Order does not contain information collection(s) subject to the Paperwork Reduction Act of 1995 (PRA), Pub. L. 104-13.

13. Pursuant to sections 2, 4(i)-(j), 272, and 303(r) of the Communications Act of 1934, as amended, 47 U.S.C. 152, 154(i)-(j), 272, 303(r), the Report and Order is adopted .

14. Pursuant to sections 1.103(a) and 1.427(b) of the Commission's rules, 47 CFR 1.103(a), 1.427(b), that this Report and Order and Memorandum Opinion and Order shall be effective upon publication of the Report and Order in the Federal Register .

15. The Commission's Consumer and Governmental Affairs Bureau, Reference Information Center, shall send a copy of this Order, including the Final Regulatory Flexibility Certification, to the Chief Counsel for Advocacy of the Small Business Administration.

This is a synopsis of the Commission's Report and Order, MM Docket No. 01-54, adopted March 9, 2004, and released March 19, 2004. The full text of this document is available for public inspection and copying during regular business hours in the FCC Reference Information Center, Portals II, 445 12th Street, SW., Room CY-A257, Washington, DC. This document may also be purchased from the Commission's duplicating contractor, Qualex International, Portals II, 445 12th Street, SW., CY-B402, Washington, DC 20554, telephone 202-863-2893, facsimile 202-863-2898, or via e-mail qualexint@aol.com.

This is a synopsis of the Commission's Memorandum Opinion and Order, adopted March 12, 2004, and released March 15, 2004. The full text of this decision is available for inspection and copying during normal business hours in the FCC Reference Information Center at Portals II, CY-A257, 445 12th Street, SW., Washington, DC. The complete text of this decision may also 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 qualexint@aol.com.

This is a synopsis of the Commission's Report and Order, MB Docket No. 03-192, adopted March 10, 2004, and released March 12, 2004. The full text of this Commission decision is available for inspection and copying during normal business hours in the FCC Reference Center (Room 239), 445 12th Street, SW., Washington, DC. This document may also be purchased from the Commission's duplicating 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 qualexint@aol.com.

This is a synopsis of the Commission's Report and Order, MB Docket No. 03-35, adopted March 10, 2004, and released March 12, 2004. The full text of this Commission decision is available for inspection and copying during regular business hours at the FCC's Reference Information Center, Portals II, 445 Twelfth Street, SW., Room CY-A257, Washington, DC 20554. The complete text of this decision may also be purchased from the Commission's duplicating 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 qualexint@aol.com.

This is a synopsis of the Commission's Memorandum Opinion and Order in MM Docket No. 01-33, adopted March 10, 2004, and released March 12, 2004. The full text of this decision is available for inspection and copying during normal business hours in the FCC's Reference Information Center at Portals II, CY-A257, 445 12th Street, SW., Washington, DC. The complete text of this decision may also be purchased from the Commission's copy contractor, Qualex International, Portals ll, 445 12th Street, SW., Room CY-B402, Washington, DC 20554, telephone 202-863-2893, facsimile 202-863-2898, or via e-mail qualexint@aol.com. The document is not subject to the Congressional Review Act.

The final regulations that are the subject of these corrections amended the Commission's rules to include a long-term schedule for the migration of Private Land Mobile Radio (PLMR) systems, using frequencies in the 150-174 MHz and 421-512 MHz bands, to narrowband technology.

As published, the final regulations contain errors which need to be clarified. Therefore, in the FR Doc 03-18054 published in the Federal Register on July 17, 2003, (68 FR 42296) make the following corrections.

The fisheries for coastal migratory pelagic (CMP) resources are regulated under the FMP. The FMP was prepared jointly by the Gulf of Mexico and South Atlantic Fishery Management Councils and was approved by NMFS and implemented by regulations at 50 CFR part 622.

In accordance with the FMP's framework procedure, the Council recommended, and NMFS published a proposed rule (68 FR 59151, October 14, 2003), to establish biomass-based stock status criteria for Gulf migratory groups of king and Spanish mackerel and for a Gulf migratory group of cobia (to be designated via subsequent plan amendment). The most recent scientific evidence indicates that the cobia stock is comprised of separate migratory groups in the Gulf of Mexico and Atlantic. However, the FMP identifies only a single cobia stock. The establishment of separate migratory groups of cobia will require that the FMP be amended. Therefore, implementation of the stock status criteria for a Gulf migratory group of cobia would be deferred pending the development of an amendment to the FMP.

Section 303 of the Magnuson-Stevens Act requires that the regional fishery management councils: (1) assess the condition of managed stocks, (2) specify within their fishery management plans objective and measurable criteria for identifying when the stocks are overfished and when overfishing is occurring (referred to by NMFS as stock status determination criteria), and (3) amend their fishery management plans to include measures to rebuild overfished stocks and maintain them at healthy levels capable of producing MSY. NMFS' national standard guidelines (NSGs) direct the councils to meet these statutory requirements by incorporating into each FMP estimates of certain biomass-based parameters for each stock, including a designation of the stock biomass that will produce MSY (B MSY ).

On November 17, 1999, NMFS notified the Council that it had partially approved the Council's Generic Sustainable Fisheries Act Amendment. In that notification, NMFS approved the designation and definition of an MFMT for CMP fish stocks managed under the jurisdiction of the Council, but disapproved the proposed designations of MSY, OY, and MSST because they were not biomass-based, as recommended by the NSGs. Since that time, NMFS has worked cooperatively with the Council to develop acceptable stock status criteria for the Gulf migratory groups of those CMP stocks.

Accordingly, this final rule establishes biomass-based reference points, as identified in the table below, for MSY, OY, and MSST, and amends the existing designations of MFMT for Gulf migratory group king mackerel, Gulf migratory group Spanish mackerel, and a (to be designated) Gulf migratory group of cobia.

While these population parameters are part of the FMP, they will not appear in codified text. The parameters establish the bounds within which the Council and NMFS will operate in managing the stock. The parameters themselves are not of general applicability and legal effect in that they do not bind the general public, but rather guide the Council and NMFS in establishing more specific measures, which are codified in the Code of Federal Regulations and do bind the general public.

On October 14, 2003, NMFS published the proposed rule on which this final rule is based; comments on the proposed rule were requested through November 13, 2003 (68 FR 59151). No comments were received.