Background

The correcting amendment that is the subject of this correction revised the Macadamia Nut Crop Insurance Provisions to specify the correct crop year to which it was applicable. It was published September 27, 2010 (75 FR 59057).

As published, the Background of the correcting amendment contained an error which may prove to be misleading and which needs to be clarified. The sentence in the background stated “The 2011 contract change date for the Macadamia Nut Crop Insurance Provisions is August 31, 2010, which is prior to April 30, 2011.” This sentence should have stated “The 2011 contract change date for the Macadamia Nut Crop Insurance Provisions is August 31, 2009, which is prior to April 30, 2010.”

In FR Doc. 2010-23884, on page 59057 in the issue of September 27, 2010, make the following correction, in the SUPPLEMENTARY INFORMATION section. On page 59057 in the second column, correct the third sentence of the second paragraph in the Background section under “Need for Correction” to read: “The 2011 contract change date for the Macadamia Nut Crop Insurance Provisions is August 31, 2009, which is prior to April 30, 2010.”

This document provides a correcting amendment to Marketing Order 920 (7 CFR part 920). Specifically, this rule removes language from § 920.21—“Term of Office” that refers to the selection of three committee members and alternates to represent the districts with the highest shipping volumes.

The Kiwifruit Administrative Committee (committee) is comprised of eleven grower members and eleven alternates, as well as one public member and alternate. Prior to the recent order amendment, the regulated production area was divided into eight grower districts. One grower member and one alternate were selected to represent each of the eight districts on the committee. Three members and alternates were selected to provide additional representation for the three districts with the highest shipping volume.

A final rule was published on June 29, 2010 (75 FR 37288) that amended section 920.12 of the order to provide for only three grower districts, with all eleven grower member and alternate seats allocated among the districts based on production history. A conforming change was necessary in section 920.21, to delete references to additional members and alternates for the districts with the highest shipping volume as this was no longer relevant under the modified district makeup. Although this conforming change was approved, along with the district changes to section 920.12, AMS inadvertently kept the language in 920.21 that was no longer relevant. This correcting amendment removes that language.

For the reasons set forth in the preamble, 7 CFR part 920 is amended as follows:

This rule is issued under Marketing Order No. 927, as amended (7 CFR part 927), regulating the handling of pears grown in Oregon and Washington, hereinafter referred to as the “order.” The order is effective under the Agricultural Marketing Agreement Act of 1937, as amended (7 U.S.C. 601-674), hereinafter referred to as the “Act.”

The Department of Agriculture (USDA) is issuing this rule in conformance with Executive Order 12866.

This rule has been reviewed under Executive Order 12988, Civil Justice Reform. This rule is not intended to have retroactive effect.

The Act provides that administrative proceedings must be exhausted before parties may file suit in court. Under section 608c(15)(A) of the Act, any handler subject to an order may file with USDA a petition stating that the order, any provision of the order, or any obligation imposed in connection with the order is not in accordance with law and request a modification of the order or to be exempted therefrom. A handler is afforded the opportunity for a hearing on the petition. After the hearing, USDA would rule on the petition. The Act provides that the district court of the United States in any district in which the handler is an inhabitant, or has his or her principal place of business, has jurisdiction to review USDA's ruling on the petition, provided an action is filed not later than 20 days after the date of the entry of the ruling.

For each customer, this rule exempts consumer-direct sales of up to 220 pounds of fresh pears per transaction, for home use only and made directly at orchards, packing facilities, roadside stands, or farmers' markets without regard to the marketing order's assessment, reporting, handling, and inspection requirements. This action is intended to provide regulatory flexibility to small pear handlers, while facilitating the sale of fresh, local pears directly to consumers.

Section 927.65(a) provides the authority to exempt from regulation pears for consumption by charitable institutions and distribution by relief agencies. Section 927.65(b) provides the authority whereby certain quantities of pears or types of pear shipments may be exempted from any or all provisions of the order.

On April 22, 2010, the Committee unanimously recommended adding an exemption to the order for the sale of small quantities of home-use only pears directly to consumers. Other exemptions under the order include § 927.120 which provides for the regulation free distribution of pears for charitable or by-product use, and § 927.121, which provides an exemption for mail order sales of gift packages that are shipped directly to consumers. In order to facilitate the direct sale of local, fresh pears to consumers while relaxing the regulatory burden on small handlers, the Committee believes that specified quantities of pears sold at orchards, packing facilities, roadside stands, and farmers' markets should also be exempt from regulation.

Some grower handlers have traditionally sold a portion of their pear harvest directly to consumers from their orchards, or from roadside fruit stands and farmers markets. Under the order, such sales are considered “handling” and thus fall under the various regulations of the order including the assessment, reporting, handling, and inspection requirements. When growers sell produce directly to consumers, they become handlers and are frequently referred to as “grower handlers.” A few packing houses, those that are generally involved only in the handling aspect of the fresh pear industry, may also sell small quantities of pears directly to consumers. The Committee recommended that sales be limited to a maximum of 220 pounds of pears per customer per sale. This weight limitation is equivalent to five standard pear boxes weighing 44 pounds each and was chosen based on industry recommendations.

By removing the requirement that these small consumer-direct sales be monitored, assessed, and regulated through the implementation of reporting requirements, quality regulations, and mandatory inspection, the Committee believes that this rule will facilitate the sale of pears within the local market, and reduce overall compliance expenses.

The Committee emphasized that the volume represented by such pear sales is insignificant and will not adversely affect the domestic and international marketing of commercial quantities of fresh pears. Furthermore, the Committee stressed that the majority of the funds assessed under the order are earmarked for large-scale promotional efforts that do not have a direct relationship or benefit to the consumer-direct sales made directly at orchards, packing sheds, roadside stands, and farmers' markets. By recommending and implementing this regulatory relaxation, the Committee also believes that it is taking an important step in helping the small businesses within the Northwest pear industry to remain viable while also facilitating the current consumer interest in buying local, fresh produce.

Pursuant to requirements set forth in the Regulatory Flexibility Act (RFA) (5 U.S.C. 601-612), the Agricultural Marketing Service (AMS) has considered the economic impact of this action on small entities. Accordingly, AMS has prepared this initial regulatory flexibility analysis.

The purpose of the RFA is to fit regulatory actions to the scale of business subject to such actions in order that small businesses will not be unduly or disproportionately burdened. Marketing orders issued pursuant to the Act, and rules issued thereunder, are unique in that they are brought about through group action of essentially small entities acting on their own behalf.

There are approximately 1,537 growers of fresh pears in the regulated production area and approximately 38 handlers subject to regulation under the order. Small agricultural growers are defined by the Small Business Administration (SBA) (13 CFR 121.201) as those having annual receipts of less than $750,000, and small agricultural service firms are defined as those whose annual receipts are less than $7,000,000.

According to the Noncitrus Fruits and Nuts 2010 Preliminary Summary issued in January 2010 by the National Agricultural Statistics Service, the average 2009 fresh pear price of $456 per ton places the farm-gate value of fresh pears grown in Oregon and Washington at $202,053,810. Based on the number of fresh pear growers in the Oregon and Washington, the average gross revenue for each can be estimated at approximately $131,460. Furthermore, based on Committee records, the Committee has estimated that 56 percent of Northwest pear handlers currently ship less than $7,000,000 worth of fresh pears on an annual basis. From this information, it is concluded that the majority of growers and handlers of Oregon and Washington pears may be classified as small entities.

This rule exempts from regulation fresh pears that are sold directly to consumers—in quantities of 220 pounds or less per customer and transaction—at orchards, packing houses, roadside stands, and farmers' markets. This change should provide small pear handlers with increased marketing flexibility while facilitating the sale of pears in local markets.

Section § 927.65(b) of the order authorizes the establishment of regulations that exempt specified quantities of pears, or types of pear shipments from the order.

This rule is expected to have a beneficial impact on the Northwest pear industry, especially on small grower handlers and handlers. The Committee's goal is that this exemption will reduce overall costs to the pear industry, relax the burden on small businesses, and facilitate the distribution of fruit at the local level. The Committee believes that this action will be especially beneficial to small independent businesses because such agricultural operations tend to utilize roadside stands and farmers' markets more than do large, vertically integrated entities. The Committee has stated that the majority of pear handlers are small businesses under the SBA definition. Although this rule was recommended by the Committee with the goal of helping small pear grower handlers and handlers, it does not prevent large businesses from realizing the same benefits.

In discussing alternatives to this recommendation, the Committee contemplated maintaining the status quo. The Committee's stated goal in recommending this exemption is to reduce the regulatory burden on small entities to help them remain viable while enhancing the vibrancy of the local produce market. The Committee quickly reached the conclusion that this course of action is the only feasible option.

This rule will not impose any additional reporting or recordkeeping requirements on either small or large pear handlers. As with all Federal marketing order programs, reports and forms are periodically reviewed to reduce information requirements and duplication by industry and public sector agencies. In addition, USDA has not identified any relevant Federal rules that duplicate, overlap or conflict with this rule.

AMS is committed to complying with the E-government Act, to promote the use of the Internet and other information technologies to provide increased opportunities for citizen access to Government information and services, and for other purposes.

The Committee's meeting was widely publicized throughout the Oregon-Washington pear industry and all interested persons were invited to participate in Committee deliberations. Like all Committee meetings, the April 22, 2010, meeting was a public meeting and all entities, both large and small, were able to express views on this issue. Interested persons are invited to submit comments on this interim rule, including the regulatory and informational impacts of this action on small businesses.

A small business guide on complying with fruit, vegetable, and specialty crop marketing agreements and orders may be viewed at: http://www.ams.usda.gov/MarketingOrdersSmallBusinessGuide. Any questions about the compliance guide should be sent to Antoinette Carter at the previously mentioned address in the FOR FURTHER INFORMATION CONTACT section.

This rule invites comments on the addition of an exemption under the Oregon-Washington pear order for specified small quantities of fresh pear sales directly to consumers. Any comments received will be considered prior to finalization of this rule.

After consideration of all relevant material presented, including the Committee's recommendation, and other information, it is found that this interim rule, as hereinafter set forth, will tend to effectuate the declared policy of the Act.

Pursuant to 5 U.S.C. 553, it is also found and determined upon good cause that it is impracticable, unnecessary, and contrary to the public interest to give preliminary notice prior to putting this rule into effect and that good cause exists for not postponing the effective date of this rule until 30 days after publication in the Federal Register because: (1) Any changes resulting from this rule should be effective as soon as practicable because the Oregon-Washington pear shipping season began in August; (2) the Committee discussed and unanimously recommended this change at a public meeting and all interested parties had an opportunity to provide input; (3) this action is a relaxation of the handling regulations that is intended to benefit pear handlers while facilitating the sale of fresh, local pears directly to consumers; (4) the industry is aware of this action and wants to take advantage of the relaxation during this shipping season; and (5) this rule provides a 60-day comment period and any comments received will be considered prior to finalization of this rule.

For the reasons set forth in the preamble, 7 CFR part 927 is amended as follows:

This rule is issued under Marketing Order No. 985 (7 CFR part 985), as amended, regulating the handling of spearmint oil produced in the Far West (Washington, Idaho, Oregon, and designated parts of Nevada and Utah), hereinafter referred to as the “order.” The order is effective under the Agricultural Marketing Agreement Act of 1937, as amended (7 U.S.C. 601-674), hereinafter referred to as the “Act.”

The Department of Agriculture (USDA) is issuing this rule in conformance with Executive Order 12866.

This rule has been reviewed under Executive Order 12988, Civil Justice Reform. Under the provisions of the marketing order now in effect, salable quantities and allotment percentages may be established for classes of spearmint oil produced in the Far West. This rule increases the quantity of Native spearmint oil produced in the Far West that handlers may purchase from, or handle on behalf of, producers during the 2010-2011 marketing year, which ends on May 31, 2011.

The Act provides that administrative proceedings must be exhausted before parties may file suit in court. Under section 608c(15)(A) of the Act, any handler subject to an order may file with USDA a petition stating that the order, any provision of the order, or any obligation imposed in connection with the order is not in accordance with law and request a modification of the order or to be exempted therefrom. A handler is afforded the opportunity for a hearing on the petition. After the hearing USDA would rule on the petition. The Act provides that the district court of the United States in any district in which the handler is an inhabitant, or has his or her principal place of business, has jurisdiction to review USDA's ruling on the petition, provided an action is filed not later than 20 days after the date of the entry of the ruling.

The original salable quantity and allotment percentages for Scotch and Native spearmint oil for the 2010-2011 marketing year were recommended by the Committee at its October 14, 2009, meeting. The Committee recommended salable quantities of 566,962 pounds and 980,265 pounds, and allotment percentages of 28 percent and 43 percent, respectively, for Scotch and Native spearmint oil. A proposed rule was published in the Federal Register on March 22, 2010 (75 FR 13445). Comments on the proposed rule were solicited from interested persons until April 6, 2010. No comments were received. Subsequently, a final rule establishing the salable quantities and allotment percentages for Scotch and Native spearmint oil for the 2010-2011 marketing year was published in the Federal Register on May 18, 2010 (75 FR 27631).

This rule revises the quantity of Native spearmint oil that handlers may purchase from, or handle on behalf of, producers during the 2010-2011 marketing year, which ends on May 31, 2011. Pursuant to authority contained in §§ 985.50, 985.51, and 985.52 of the order, the full eight member Committee met on November 19, 2010, to consider pertinent market information on the current supply, demand, and price of spearmint oil. In a vote with seven members in favor and one member opposed, the Committee recommended that the 2010-2011 Native spearmint oil allotment percentage be increased by 7 percent, from 43 percent to 50 percent. The Committee member that voted against the increase did so without further explanation.

Thus, taking into consideration the following discussion on adjustments to the Native spearmint oil salable quantities, this rule increases the 2010-2011 marketing year salable quantities and allotment percentages for Native spearmint oil to 1,118,639 pounds and 50 percent.

The salable quantity is the total quantity of each class of oil that handlers may purchase from, or handle for, producers during the marketing year. The total salable quantity is divided by the total industry allotment base to determine an allotment percentage. Each producer is allotted a share of the salable quantity by applying the allotment percentage to the producer's individual allotment base for the applicable class of spearmint oil.

The total industry allotment base for Native spearmint oil for the 2010-2011 marketing year was estimated by the Committee at the October 14, 2009, meeting at 2,279,687 pounds. This number was later revised at the beginning of the 2010-2011 marketing year to 2,279,439 pounds to reflect a 2009-2010 marketing year reduction of 248 pounds. Section 985.53(e) of the order requires that producers make a bona fide effort to produce all of their respective allotment base each year. Failure to do so results in a reduction in the producer's allotment base equivalent to such unproduced portion. The 248 pound reduction in allotment base reflects the total base surrendered by all producers due to the non-production of those producers' total annual allotments during the 2009-2010 marketing year.

When the revised total allotment base of 2,279,439 pounds is applied to the originally established allotment percentage of 43 percent, the initially established 2010-2011 marketing year salable quantity of 980,265 pounds is effectively modified to 980,220 pounds.

By increasing the salable quantity and allotment percentage, this rule makes an additional amount of Native spearmint oil available by releasing oil from the reserve pool. As of May 31, 2010, the Committee estimated the reserve pool to be 506,725 pounds.

When the allotment percentage increase established by this rule is applied to each individual producer, that producer may take up to an amount equal to such allotment from their reserve for this respective class of oil. Producers that do not have excess oil in reserve on November 1, 2010, equal to or greater than that individual's respective pro rata increase in the salable quantity allotment will not be able to exercise the full marketing rights associated with such an increase. Also, pursuant to §§ 985.56 and 985.156, producers with excess oil are not able to transfer such excess oil to other producers to fill deficiencies in annual allotments after October 31 of each marketing year. As a result, the Committee has calculated that deficiencies in individual producer's oil reserves result in an industry total of 21,081 pounds of salable quantity that will not enter the market.

Therefore, the 7 percent increase in the salable percentage established by this rule would result in a total 2010-2011 marketing year salable quantity of 1,118,639 pounds of Native spearmint oil. This reflects an additional 138,419 pounds made available to the market by this rule.

The following summarizes the Committee recommendations:

(A) Estimated 2010-2011 Allotment Base—2,279,687 pounds. This is the estimate on which the original 2010-2011 Native spearmint oil salable quantity and allotment percentage was based.

(B) Revised 2010-2011 Allotment Base—2,279,439 pounds. This is 248 pounds less than the estimated allotment base of 2,279,687 pounds. This is less because some producers failed to produce all of their 2009-2010 allotment.

(C) Original 2010-2011 Allotment Percentage—43 percent. This was unanimously recommended by the Committee on October 14, 2009.

(D) Original 2010-2011 Salable Quantity—980,265 pounds. This figure is 43 percent of the estimated 2010-2011 allotment base of 2,279,687.

(E) Adjustment to the Original 2010-2011 Salable Quantity—980,220 pounds. This figure reflects the salable quantity initially available at the beginning of the 2010-2011 marketing year due to the 248 pound reduction in the industry allotment base to 2,279,439 pounds.

(F) Current Revision to the 2010-2011 Salable Quantity and Allotment Percentage:

(1) Increase in Allotment Percentage—7 percent. The Committee recommended a 7 percent increase at its November 19, 2010, meeting.

(2) 2010-2011 Allotment Percentage—50 percent. This figure is derived by adding the increase of 7 percent to the original 2010-2011 allotment percentage of 43 percent.

(3) Calculated Revised 2010-2011 Salable Quantity—1,118,639 pounds. This figure is 50 percent of the revised 2010-2011 allotment base of 2,279,439 pounds, less the 21,081 pounds that are not covered by individual producer's reserves.

(4) Computed Increase in the 2010-2010 Salable Quantity—138,419 pounds. This figure is 7 percent of the revised 2010-2011 allotment base of 2,279,439 pounds less the 21,081 pound reserve deficiency.

The 2010-2011 marketing year began on June 1, 2010, with an estimated carry-in of 343,517 pounds of salable Native spearmint oil. When the estimated carry-in is added to the revised 2010-2011 salable quantity of 1,118,639 pounds, the result is a total estimated available supply of Native spearmint oil for the 2010-2011 marketing year of 1,462,156 pounds. Of this amount, 1,112,292 pounds of oil has already been sold or committed for the 2010-2011 marketing year, which leaves 349,864 pounds available for sale.

In making this recommendation, the Committee considered all available information on price, supply, and demand. The Committee also considered reports and other information from handlers and producers in attendance at the meeting and reports given by the Committee manager from handlers and producers who were not in attendance. By increasing the 2010-2011 Native spearmint oil salable percentage by 7 percent, an estimated additional 138,419 pounds will be made available to the market. This amount combined with the 211,445 pounds currently available, will make a total of 349,864 pounds available to the market and bring the total available supply for the year to 1,462,156 pounds. The handlers are estimating that the demand for 2010-2011 year may be 1,133,333 pounds, which would leave 328,823 pounds as a carry out at the end of the year.

However, when the Committee made its original recommendation for the establishment of the Native spearmint oil salable quantity and allotment percentage for the 2010-2011 marketing year, it had anticipated that the year would end with an ample available supply. In the interim, the Native spearmint market experienced dynamic changes in the supply and demand of oil. The Committee believes that the current available supply is insufficient to satisfy current demand at reasonable price levels. Therefore, the industry may not be able to adequately meet market demand without this increase.

Based on its analysis of available information, USDA has determined that the salable quantity and allotment percentage for Native spearmint oil for the 2010-2011 marketing year should be increased to 1,118,639 pounds and 50 percent, respectively.

This rule relaxes the regulation of Native spearmint oil and will allow producers to meet market demand while improving producer returns. In conjunction with the issuance of this rule, the Committee's revised marketing policy statement for the 2010-2011 marketing year has been reviewed by USDA. The Committee's marketing policy statement, a requirement whenever the Committee recommends implementing volume regulations or recommends revisions to existing volume regulations, meets the intent of § 985.50 of the order. During its discussion of revising the 2010-2011 salable quantities and allotment percentages, the Committee considered: (1) The estimated quantity of salable oil of each class held by producers and handlers; (2) the estimated demand for each class of oil; (3) prospective production of each class of oil; (4) total of allotment bases of each class of oil for the current marketing year and the estimated total of allotment bases of each class for the ensuing marketing year; (5) the quantity of reserve oil, by class, in storage; (6) producer prices of oil, including prices for each class of oil; and (7) general market conditions for each class of oil, including whether the estimated season average price to producers is likely to exceed parity. Conformity with USDA's “Guidelines for Fruit, Vegetable, and Specialty Crop Marketing Orders” has also been reviewed and confirmed.

The increase in the Native spearmint oil salable quantity and allotment percentage allows for anticipated market needs for this class of oil. In determining anticipated market needs, consideration by the Committee was given to historical sales, and changes and trends in production and demand.

Pursuant to requirements set forth in the Regulatory Flexibility Act (RFA), the Agricultural Marketing Service (AMS) has considered the economic impact of this action on small entities. Accordingly, AMS has prepared this initial regulatory flexibility analysis.

The purpose of the RFA is to fit regulatory actions to the scale of business subject to such actions in order that small businesses will not be unduly or disproportionately burdened. Marketing orders issued pursuant to the Act, and the rules issued thereunder, are unique in that they are brought about through group action of essentially small entities acting on their own behalf.

There are 8 spearmint oil handlers subject to regulation under the order, and approximately 38 producers of Scotch spearmint oil and approximately 84 producers of Native spearmint oil in the regulated production area. Small agricultural service firms are defined by the Small Business Administration (SBA) (13 CFR 121.201) as those having annual receipts of less than $7,000,000, and small agricultural producers are defined as those having annual receipts of less than $750,000.

Based on the SBA's definition of small entities, the Committee estimates that two of the eight handlers regulated by the order could be considered small entities. Most of the handlers are large corporations involved in the international trading of essential oils and the products of essential oils. In addition, the Committee estimates that 19 of the 38 Scotch spearmint oil producers and 29 of the 84 Native spearmint oil producers could be classified as small entities under the SBA definition. Thus, a majority of handlers and producers of Far West spearmint oil may not be classified as small entities.

The Far West spearmint oil industry is characterized by producers whose farming operations generally involve more than one commodity, and whose income from farming operations is not exclusively dependent on the production of spearmint oil. A typical spearmint oil-producing operation has enough acreage for rotation such that the total acreage required to produce the crop is about one-third spearmint and two-thirds rotational crops. Thus, the typical spearmint oil producer has to have considerably more acreage than is planted to spearmint during any given season. Crop rotation is an essential cultural practice in the production of spearmint oil for weed, insect, and disease control. To remain economically viable with the added costs associated with spearmint oil production, most spearmint oil-producing farms fall into the SBA category of large businesses.

Small spearmint oil producers generally are not as extensively diversified as larger ones and as such are more at risk to market fluctuations. Such small producers generally need to market their entire annual crop and do not have the luxury of having other crops to cushion seasons with poor spearmint oil returns. Conversely, large diversified producers have the potential to endure one or more seasons of poor spearmint oil markets because income from alternate crops could support the operation for a period of time. Being reasonably assured of a stable price and market provides small producing entities with the ability to maintain proper cash flow and to meet annual expenses. Thus, the market and price stability provided by the order potentially benefit the small producer more than such provisions benefit large producers. Even though a majority of handlers and producers of spearmint oil may not be classified as small entities, the volume control feature of this order has small entity orientation.

This rule revises the quantity of Native spearmint oil that handlers may purchase from, or handle on behalf of, producers during the 2010-2011 marketing year, which ends on May 31, 2011. This rule increases the Native spearmint oil salable quantity from 980,220 pounds to 1,118,639 pounds and the allotment percentage from 43 percent to 50 percent.

The use of volume control regulation allows the industry to fully supply spearmint oil markets while avoiding the negative consequences of over-supplying these markets. Volume control is believed to have little or no effect on consumer prices of products containing spearmint oil and likely does not result in fewer retail sales of such products. Without volume control, producers would not be limited in the production and marketing of spearmint oil. Under those conditions, the spearmint oil market would likely fluctuate widely. Periods of oversupply could result in low producer prices and a large volume of oil stored and carried over to future crop years. Periods of undersupply could lead to excessive price spikes and could drive end users to source flavoring needs from other markets, potentially causing long term economic damage to the domestic spearmint oil industry. The marketing order's volume control provisions have been successfully implemented in the domestic spearmint oil industry for nearly three decades and provide benefits for producers, handlers, manufacturers, and consumers.

Based on projections available at the meeting, the Committee considered a number of alternatives to this increase. The Committee not only considered leaving the salable quantity and allotment percentage unchanged, but also considered other potential levels of increase. The Committee reached its recommendation to increase the salable quantity and allotment percentage for Native spearmint oil after careful consideration of all available information, and believes that the levels recommended will achieve the objectives sought. Without the increase, the Committee believes the industry would not be able to satisfactorily meet market demand.

This rule will not impose any additional reporting or recordkeeping requirements on either small or large spearmint oil handlers. As with all Federal marketing order programs, reports and forms are periodically reviewed to reduce information requirements and duplication by industry and public sector agencies.

AMS is committed to complying with the E-Government Act, to promote the use of the Internet and other information technologies to provide increased opportunities for citizen access to Government information and services, and for other purposes.

In addition, USDA has not identified any relevant Federal rules that duplicate, overlap or conflict with this rule.

Further, the Committee's meeting was widely publicized throughout the spearmint oil industry and all interested persons were invited to attend the meeting and participate in Committee deliberations. Like all Committee meetings, the November 19, 2010, meeting was a public meeting and all entities, both large and small, were able to express their views on this issue. Finally, interested persons are invited to submit information on the regulatory and informational impacts of this action on small businesses.

A small business guide on complying with fruit, vegetable, and specialty crop marketing agreements and orders may be viewed at: http://www.ams.usda.gov/MarketingOrdersSmallBusinessGuide. Any questions about the compliance guide should be sent to Antoinette Carter at the previously mentioned address in the FOR FURTHER INFORMATION CONTACT section.

This rule invites comments on a change to the salable quantity and allotment percentage for Native spearmint oil for the 2010-2011 marketing year. Any comments received will be considered prior to finalization of this rule.

After consideration of all relevant material presented, including the Committee's recommendation, and other information, it is found that this interim rule, as hereinafter set forth, will tend to effectuate the declared policy of the Act.

Pursuant to 5 U.S.C. 553, it is also found and determined upon good cause that it is impracticable, unnecessary, and contrary to the public interest to give preliminary notice prior to putting this rule into effect and that good cause exists for not postponing the effective date of this rule until 30 days after publication in the Federal Register because: (1) This rule increases the quantity of Native spearmint oil that may be marketed during the marketing year, which ends on May 31, 2011; (2) the current quantity of Native spearmint oil may be inadequate to meet demand for the 2010-2011 marketing year, thus making the additional oil available as soon as is practicable will be beneficial to both handlers and producers; (3) the Committee recommended these changes at a public meeting and interested parties had an opportunity to provide input; and (4) this rule provides a 60-day comment period and any comments received will be considered prior to finalization of this rule.

For the reasons set forth in the preamble, 7 CFR part 985 is amended as follows:

Prior to the enactment of the Dodd-Frank Act, Public Law 111-203, 12 U.S.C. 5301 et seq. on July 21, 2010, there was no common or adequate statutory scheme for the orderly liquidation of a financial company whose failure could adversely affect the financial stability of the United States. Instead, insured depository institutions were subject to an FDIC-administered receivership under applicable provisions of the Federal Deposit Insurance Act (“FDI Act”), insurance companies were subject to insolvency proceedings under individual State's laws, registered brokers and dealers were subject to the U.S. Bankruptcy Code and proceedings under the Securities Investor Protection Act, and other companies (including the parent holding company of one or more insured depository institutions or other financial companies) were eligible to be a debtor under the U.S. Bankruptcy Code. These disparate insolvency regimes were found to be inadequate to effectively address the actual or potential failure of a financial company that could adversely affect economic conditions or financial stability in the United States. In such a case, financial support for the company sometimes was the only viable option available for the Federal government to avoid or mitigate serious adverse effects on economic conditions and financial stability that could result from the company's failure.

With the enactment of the Dodd-Frank Act, Federal regulators have the tools to resolve a failing financial company that poses a significant risk to the financial stability of the United States. The receivership process established under Title II of the Dodd-Frank Act provides for an orderly liquidation of such a “covered financial company” in a way that addresses the concerns and interests of legitimate creditors while also protecting broader economic and taxpayer interests.

Title II of the Dodd-Frank Act provides a process for the appointment of the FDIC as receiver of a failing financial company that poses significant risk to the financial stability of the United States (a “covered financial company”). Under this process, certain designated Federal regulatory authorities must recommend to the Secretary of the Treasury (the “Secretary”) that the Secretary, after consultation with the President, make a determination that grounds exist to appoint the FDIC as receiver of the company. The Federal Reserve Board and the Securities and Exchange Commission will make the recommendation if the company or its largest subsidiary is a broker or a dealer; the Federal Reserve Board and the Director of the Federal Insurance Office will make the recommendation if the company is an insurance company; and the Federal Reserve Board and the FDIC will make the recommendation in all other cases. This procedure is similar to that which is applied to systemic risk determinations under section 13 of the FDI Act (12 U.S.C. 1813(c)(4)).

The Dodd-Frank Act requires that recommendations to the Secretary include an evaluation of whether the covered financial company is in default or in danger of default, a description of the effect that the company's default would have on the financial stability of the United States, and an evaluation of why a case under the Bankruptcy Code would not be appropriate. If the Secretary determines that the FDIC should be appointed as receiver, the Secretary must make specific findings in support, including: that the company is in default or in danger of default; that the failure of the company and its resolution under otherwise applicable Federal or State law would have serious adverse consequences on financial stability in the United States; no viable private sector alternative is available; any effect on the claims or interests of creditors, counterparties, and shareholders is appropriate; any action under the liquidation authority will avoid or mitigate such adverse effects taking into consideration the effectiveness of the action in mitigating the potential adverse effects on the financial system, cost to the general fund of the Treasury, and the potential to increase excessive risk taking; a Federal regulatory agency has ordered the company to convert all of its convertible debt instruments that are subject to regulatory order; and the company satisfies the definition of a financial company under the law.

If the Secretary makes the recommended determination and the board of directors (or similar governing body) of the company consents to the appointment, then the FDIC's appointment as receiver is effective immediately. If the company's governing body does not consent, the Dodd-Frank Act provides for immediate judicial review by the United States District Court for the District of Columbia of whether the Secretary's determinations that the covered financial company is in default or danger of default and that it meets the definition of financial company under Title II are arbitrary and capricious. 1 If the court upholds the Secretary's determination, it will issue an order authorizing the Secretary to appoint the FDIC as receiver. 2 If the court fails to act within twenty-four hours of receiving the petition, then the appointment of the receiver takes effect by operation of law.

Title II of the Dodd-Frank Act (entitled “Orderly Liquidation Authority”) also defines the policy goals of the liquidation proceedings and provides the powers and duties of the FDIC as receiver for a covered financial company. Section 204(a)  3 succinctly summarizes those policy goals as the liquidation of “failing financial companies that pose a significant risk to the financial stability of the United States in a manner that mitigates such risk and minimizes moral hazard.” The statute goes on to say that “creditors and shareholders will bear the losses of the financial company” and the FDIC is instructed to liquidate the covered financial company in a manner that maximizes the value of the company's assets, minimizes losses, mitigates risk, and minimizes moral hazard. See sections 204(a) and 210(a)(9)(E). Fundamentally, a liquidation under the Dodd-Frank Act is a liquidation of the company that imposes the losses on its creditors and shareholders. Not only is the FDIC prohibited from taking an equity interest in or becoming a shareholder of a covered financial company or any covered subsidiary, but other provisions of the Dodd-Frank Act bar any Federal government bail-out of a covered financial company. See sections 210(h)(3)(B) and 716. In this way, the statute will prevent any future taxpayer bailout by providing a liquidation process that will prevent a disorderly collapse, while ensuring that taxpayers bear none of the costs.

Similarly, management, directors, and third parties who are responsible for the company's failing financial condition will be held accountable. The FDIC must remove any management and members of the board of directors of the company who are responsible for the failing condition of the company. See section 206.

While ensuring that creditors bear the losses of the company's failure under a specific claims priority, Title II incorporates procedural and other protections for creditors to ensure that they are treated fairly. For example, creditors can file a claim with the receiver and, if dissatisfied with the decision, may file a case in U.S. district court in which no deference is given to the receiver's decision. See section 210(a)(2)-(4). Once claims are proven, the FDIC has the authority to make interim payments to the creditors, consistent with the priority for payment of their allowed claims, as it does in resolutions of insured depository institutions. This accelerated or advance dividend authority, provided in section 210(a)(7), is a valuable tool to provide payments to creditors and lessen the economic and financial impact of the closing. In addition, creditors also are guaranteed that they will receive no less than they would have received if the covered financial company had been liquidated under Chapter 7 of the Bankruptcy Code. See section 210(d)(2)(B). Shareholders of a covered financial company will not receive payment until after all other claims are fully paid. See section 210(b)(1). This helps ensure that the priority of payments will be enforced.

Parties who are familiar with the liquidation of insured depository institutions under the FDI Act or the liquidation of companies under the Bankruptcy Code will recognize many parallel provisions in Title II. Some provisions are drawn from analogous provisions of the Bankruptcy Code in order to clarify and supplement the authority that the FDIC normally exercises in a bank receivership. The provisions of Title II governing the claims process (including the availability of judicial review of claims disallowed by the receiver), the termination or repudiation of contracts, and the treatment of qualified financial contracts are modeled after the FDI Act, while provisions that empower the FDIC to avoid and recover fraudulent transfers, preferential transfers, and unauthorized transfers of property by the covered financial company are drawn from Bankruptcy Code provisions. The rules of Title II governing the setoff of mutual debt provide equivalent protections to those under the Bankruptcy Code.

The liquidation rules of Title II are designed to create parity in the treatment of creditors with the Bankruptcy Code and other normally applicable insolvency laws. This is reflected in the direct mandate in section 209 of the Dodd-Frank Act to “to seek to harmonize applicable rules and regulations promulgated under this section with the insolvency laws that would otherwise apply to a covered financial company.” One of the goals of the Rule is to begin the implementation of this mandate in certain key areas. Of particular significance is § 380.2 of the Rule, which clarifies that the authority to make additional payments to certain creditors will never be used to provide additional payments, beyond those appropriate under the defined priority of payments, to shareholders, subordinated debt holders, and bondholders. The FDIC, in this Rule, is making clear that these creditors of the covered financial company will never meet the statutory criteria for receiving such additional payments.

Fundamental to an orderly liquidation of a covered financial company is the ability to continue key operations, services, and transactions that will maximize the value of the firm's assets and avoid a disorderly collapse in the market place. Under the Dodd-Frank Act, this is accomplished, in part, through authority for the FDIC to charter a bridge financial company. The bridge financial company is a completely new entity that will not be saddled with the shareholders, debt, senior executives or bad assets and operations that led to the failure of the covered financial company. Shareholders, debt holders, and creditors will receive “haircuts” based on a clear priority of payment set out in section 210(b). As in prior bridge banks used in the resolution of large insured depository institutions, however, the bridge financial company authority will allow the FDIC to stabilize the key operations of the covered financial company by continuing valuable, systemically important operations.

Assets and operations that are necessary to maximize the value in the liquidation or prevent a disorderly collapse can be continued seamlessly through the bridge financial company. This is supported by the clear statutory provisions that contracts transferred to the bridge financial company cannot be terminated simply because they are assumed by the bridge financial company. See section 210(c)(10). As in the FDI Act, derivatives contracts that are needed to continue operations can be transferred to the bridge and cannot be terminated and netted by counterparties. This is an important tool to avoid market destabilization because, unlike the Bankruptcy Code, it can prevent the immediate and disorderly liquidation of collateral during a period of market distress. The absence of funding for continuing valuable contracts and the rights of counterparties under the Bankruptcy Code to immediately terminate those contracts resulted in a loss of billions of dollars in market value to the bankruptcy estate in the Lehman insolvency. 4

The bridge financial company arrangement will provide a timely, efficient, and effective means for preserving value in an orderly liquidation and avoiding a destabilizing and disorderly collapse. While the covered financial company's board of directors and the most senior management responsible for its failure will be replaced, as required by section 204(a)(2), operations would be continued by the covered financial company's employees under the strategic direction of the FDIC and contractors employed by the FDIC to help oversee those operations. Section 380.3 of the Rule addresses the treatment of these employees.

To achieve these goals, the FDIC is given broad authority under the Dodd-Frank Act to operate or liquidate the business, sell the assets, and resolve the liabilities of a covered financial company immediately after its appointment as receiver or as soon as conditions make this appropriate. This authority will enable the FDIC to act immediately to sell assets of the covered financial company to another entity or, if that is not possible, to an FDIC-created bridge financial company while maintaining critical functions. In receiverships of insured depository institutions, the ability to act quickly and decisively has been found to reduce losses to the deposit insurance funds while maintaining key banking services for depositors and businesses, and it is expected to be equally crucial in resolving non-bank financial firms under the Dodd-Frank Act.

A vital element in the essential continuity of key operations in the bridge financial company is the availability of funding for those operations. The Dodd-Frank Act provides that the FDIC may borrow funds from the Department of the Treasury to provide liquidity for the operations of the receivership and the bridge financial company. See sections 204(d) and 210(n). The bridge financial company also can access debtor-in-possession financing as needed. Once the new bridge financial company's operations have stabilized as the market recognizes that it has adequate funding and will continue key operations, the FDIC would move as expeditiously as possible to sell operations and assets back into the private sector.

An essential prerequisite for any effective resolution—particularly one designed to avoid a disorderly collapse—is advance planning, a well-developed resolution plan, and access to the supporting information needed to undertake such planning. This has been a critical component of the FDIC's ability to smoothly resolve failing banks. This critical issue is addressed in the Dodd-Frank Act in provisions that grant the FDIC back-up examination authority and require the largest companies to submit so-called “living wills” or resolution plans that will facilitate a rapid and orderly resolution of the company under the Bankruptcy Code. See section 165(d). Such plans are not for the purpose of supervision, which is the responsibility of the primary federal regulator and the Federal Reserve Board as designated, but for evaluation of the company's resolution plans and for the FDIC's resolution planning, readiness, and analysis of how best to be prepared for any necessary resolution. An essential part of such plans will be to describe how the resolution process can be accomplished without posing systemic risk to the public and the financial system. If the company cannot submit a credible resolution plan, the statute permits increasingly stringent requirements to be imposed that, ultimately, can lead to divestiture of assets or operations identified by the FDIC and the Federal Reserve to facilitate an orderly resolution. The FDIC will jointly adopt a rule with the Federal Reserve to implement the resolution plan requirements of the Dodd-Frank Act. The undertaking to ensure that adequate information is available and that feasible resolution plans are established is all the more critical because the largest covered financial companies operate globally and their liquidation will necessarily involve coordination among regulators around the world.

To strengthen the foundation for effective resolutions, the FDIC also will promulgate other rules and provide additional guidance in consultation with the members of the Financial Stability Oversight Council to ensure a credible liquidation process that realizes the goal of ending “too big to fail” while enhancing market discipline.

Section 209 of the Dodd-Frank Act authorizes the FDIC, in consultation with the Financial Stability Oversight Council, to prescribe such rules and regulations as the FDIC considers necessary or appropriate to implement Title II. Section 209 also provides that, to the extent possible, the FDIC shall seek to harmonize such rules and regulations with the insolvency laws that would otherwise apply to a covered financial company. On October 19, 2010 (75 FR 64173), the FDIC caused to be published in the Federal Register a Notice of Proposed Rulemaking Implementing Certain Orderly Liquidation Authority Provisions of the Dodd-Frank Wall Street Reform and Consumer Protection Act (“Proposed Rule”). The Proposed Rule addressed discrete issues within the following broad areas:

(1) The priority of payment to creditors (by defining categories of creditors who shall not receive any additional payments under section 210(b)(4) or (d)(4));

(2) the authority to continue operations by paying for services provided by employees and others (by clarifying the payment for services rendered under personal services contracts);

(3) the treatment of creditors (by clarifying the measure of damages for contingent claims); and

(4) the application of proceeds from the liquidation of subsidiaries (by reiterating the current treatment under corporate and insolvency law that remaining shareholder value is paid to the shareholders of any subsidiary).

The NPR solicited public comment on the proposed rule for a period of 30 days. The NPR also contained a general overview of the orderly liquidation process under Title II of the Dodd-Frank Act and solicited for a 90-day period any comments that would be more broadly related to the implementation of Title II. These comments will be considered in connection with additional rulemaking in the future.

During the 30-day comment period for comments specifically with regard to the Proposed Rule, the FDIC received 27 comment letters and held two meetings with various industry representatives and trade associations. The comments generally expressed support for the FDIC's efforts to promulgate rules for implementing the orderly liquidation authority of Title II. A majority of comments related to matters beyond the scope of the Proposed Rule, indicating the need for additional rulemaking in the future. Other comments, however, addressed specific facets of the Proposed Rule. Many commenters requested additional time to comment on various provisions of the Proposed Rule, and recommended that the FDIC delay issuing a final rule in order to permit additional comments and further consideration. The FDIC believes that additional comments would be helpful in refining certain aspects of the regulation and therefore is issuing the Rule at this time as an interim final rule, with request for comments. This action will provide the certainty of a final regulation, while permitting the FDIC to solicit and obtain additional comments that may serve as the basis for further clarification of certain issues and revision of the Rule, if necessary.

Comments on specific aspects of the Proposed Rule are addressed in the following discussion of the Rule.

Definitions. Section 380.1 of the Rule gives the terms “bridge financial company,” “Corporation,” “covered financial company,” “covered subsidiary,” and “insurance company” the same meanings these terms are given in the Dodd-Frank Act. No comments were received on this section of the Proposed Rule.

Treatment of Similarly Situated Creditors. Sections 210(b)(4), (d)(4), and (h)(5)(E) of the Dodd-Frank Act permits the FDIC to pay certain creditors of a receivership more than similarly situated creditors if it is necessary (1) to “maximize the value of the assets”; (2) to initiate and continue operations “essential to implementation of the receivership and any bridge financial company”; (3) to “maximize the present value return from the sale or other disposition of the assets”; or (4) to “minimize the amount of any loss” on sale or other disposition. In addition, section 210(d)(4) permits the FDIC to make additional payments to certain creditors if it is determined that such payments are necessary or appropriate to minimize losses from the orderly liquidation of the covered financial company. The appropriate comparison for any additional payments received by some, but not all, creditors similarly situated is the amount that the creditors should have received under the priority of expenses and unsecured claims defined in section 210(b) and other applicable law. In addition, the Dodd-Frank Act requires that all creditors of a class must receive no less than what they would have received in a Chapter 7 proceeding under the Bankruptcy Code.

Fundamental to an orderly liquidation of a covered financial company is the ability to continue key operations, services, and transactions that will maximize the value of the firm's assets and avoid a disorderly collapse in the marketplace. As is well illustrated by comparisons with some liquidations under the Bankruptcy Code, the inability to continue potentially valuable business operations can seriously impair the recoveries of creditors and increase the costs of the insolvency. In bank resolutions under the “least costly” requirement of the Federal Deposit Insurance Act, many institutions purchasing failed bank operations have paid a premium to acquire all deposits because of the recognized value attributable to acquiring ongoing depositor relationships. In those cases, the sale of all deposits to the acquiring institutions has maximized recoveries and minimized losses consistent with the “least costly” requirement.

The ability to maintain essential operations under the Dodd-Frank Act would be expected to similarly minimize losses and maximize recoveries in any liquidation, while avoiding a disorderly collapse. Examples of operations that may be essential to the implementation of the receivership or a bridge financial company include the payment of utility and other service contracts and contracts with companies that provide payments processing services. These and other contracts will allow the bridge company to preserve and maximize the value of the bridge financial company's assets and operations to the benefit of creditors, while preventing a disorderly and more costly collapse.

Other creditors who do not receive such “additional payments,” but who are within the same statutory priority for payment as creditors receiving “additional payments,” will receive payment under section 210(b)(1), or other priorities of payment specified by law. The fact that additional payments to a limited group of creditors are permitted under the strict standards provided by section 210(b)(4), (d)(4), and (h)(5)(E) of the Dodd-Frank Act and the Rule does not entitle other similarly situated creditors to payments in excess of those provided under their statutory priority. At a minimum, such creditors must receive no less than the creditor would have received under Chapter 7 of the Bankruptcy Code or any similar provision of state insolvency law applicable to the covered financial company. Sections 210(b)(7)(B) and (d)(2).

To clarify the application of these provisions and to ensure that certain categories of creditors cannot expect additional payments under them, § 380.2 of the Rule defines certain categories of creditors who never satisfy this requirement. Specifically, this section puts creditors of a potential covered financial company on notice that creditors of a covered financial company who hold certain unsecured senior debt with a term of more than 360 days will not be given additional payments compared to other general creditors such as general trade creditors or any general or senior liability of the covered financial company, nor will exceptions be made for favorable treatment of holders of subordinated debt, shareholders or other equity holders. The Rule focuses on long-term unsecured senior debt ( i.e., debt maturing more than 360 days after issuance) in order to distinguish bondholders from commercial lenders or other providers of financing who have made lines of credit available to the covered financial company that may be essential for its continued operation and orderly liquidation.

The treatment of long-term unsecured senior debt under the Rule is consistent with the existing treatment of such debt in bank receiverships. The FDIC has long had the authority to make additional payments to certain creditors after the closing of an insured bank under the Federal Deposit Insurance Act, 12 U.S.C. 1821(i)(3), where it will maximize recoveries and is consistent with the “least costly” resolution requirement or is necessary to prevent “serious adverse effects on economic conditions or financial stability.” 12 U.S.C. 1821(d) and 1823(c). In applying this authority, the FDIC has not made additional payments to shareholders, subordinated debt, or long-term senior debt holders of banks placed into receivership because such payments would not have helped maximize recoveries or contribute to the orderly liquidation of the failed banks. This experience supports the conclusion that the Rule appropriately clarifies that shareholders, subordinated debt, or long-term senior debt holders of future non-bank financial institutions resolved under the Dodd-Frank Act should never receive additional payments under the authority of sections 210(b)(4), (d)(4), or (h)(5)(E).

While the Rule distinguishes between long-term unsecured senior debt and shorter term unsecured debt, this distinction does not mean that shorter term debt would be provided with additional payments under sections 210(b)(4), (d)(4), or 210(h)(5)(E) of the Dodd-Frank Act. As general creditors, such debt holders normally will receive the amount established and due under section 210(b)(1), or other priorities of payment specified by law. While holders of shorter term debt may receive additional payments, this will be evaluated on a case-by-case basis and will only occur when such payments meet all of the statutory requirements. Under the Rule, the Board must specifically determine that additional payments or credit amounts to such holders are necessary and meet all of the requirements under sections 210(b)(4), (d)(4), or (h)(5)(E), as applicable. The Board's authority to make this decision cannot be delegated to management or staff of the FDIC. By requiring a vote by the Board, the Rule requires a decision on the record and ensures that the governing body of the FDIC has made a specific determination that such payments are necessary to the essential operations of the receivership or bridge financial company, to maximize the value of the assets or returns from sale, or to minimize losses.

Much of the commenters' concern regarding the Proposed Rule's provision not to pay long-term debt holders any more than the amount they would have received if the company were liquidated under chapter 7 of the Bankruptcy Code appears to be based on the misapprehension that this provision makes it more likely that short-term debt holders will receive additional payments. Under the standards of the Dodd-Frank Act, and the Rule, that concern is unwarranted. Short-term debt holders (including, without limitation, holders of commercial paper and derivatives counterparties) are highly unlikely to meet the criteria set forth in the statute for permitting payment of additional amounts. In virtually all cases, creditors with shorter-term claims on the covered financial company will receive the same pro rata share of their claim that is being provided to the long-term debt holders. Accordingly, a potential credit provider to a company subject to the Dodd-Frank resolution process should have no expectation of treatment that differs depending upon whether it lends for a period of over 360 days or for a shorter term.

These provisions illustrate that `additional payments' to any creditor will be very rare. Possible examples of creditors who might receive additional payments, in addition to essential and necessary service providers noted above, could include creditors with contract claims that are tied to performance bonds or other credit support needed for the covered financial company to qualify to continue other valuable contracts. Where continuation of those valuable contracts will meet the standards specified in sections 210(b)(4), (d)(4), or (h)(5)(E), as applicable, additional payments to the other creditors may also meet those standards if essential to maintain the requisite performance bonds or credit support agreements. These examples are not binding on the FDIC as receiver and serve to illustrate the exceeding rarity of any permissible additional payments.

This provision must also be considered in concert with the express provisions of section 203(c)(3)(A)(vi). This subsection requires a report to Congress not later than 60 days after appointment of the FDIC as receiver for a covered financial company specifying “the identity of any claimant that is treated in a manner different from other similarly situated claimants,” the amount of any payments and the reason for such action. In addition, the FDIC must post this information on a Web site maintained by the FDIC. These reports must be updated “on a timely basis” and no less frequently than quarterly. This information will provide other creditors with full information about such payments in a timely fashion that will permit them to file a claim asserting any challenges to the payments.

The Dodd-Frank Act also includes the power to “claw-back” or recoup some or all of any additional payments made to creditors if the proceeds of the sale of the covered financial company's assets are insufficient to repay any monies drawn by the FDIC from Treasury during the liquidation. See section 210(o)(1)(D). The “claw-back” provision only applies if the liquidation proceeds of the covered financial company are insufficient to fully repay any monies received from Treasury in the liquidation. This requirement is subject to an exception for “payments or amounts necessary to initiate and continue operations essential to implementation of the receivership or any bridge financial company* * *” It is highly unlikely that payments to short-term lenders would be found to qualify for such an exemption. A possible example of payments not subject to the “claw-back” provisions might be payments to trade creditors, such as a payment necessary to ensure that a vendor is able to continue to provide the failed company with essential software or hardware that could not be replicated, or payments to a utility with a local monopoly.

This provision underscores the importance of a strict application of the authority provided in sections 210(b)(4), (d)(4), and (h)(5)(E) of the Dodd-Frank Act and will help ensure that if there is any shortfall in proceeds of sale of the assets the institution's creditors will be assessed before the industry as a whole. Most importantly, under no circumstances in a Dodd-Frank liquidation will taxpayers ever be exposed to loss.

The Rule expressly acknowledges the potential importance of ongoing credit relationships with lenders who have provided lines of credit that are necessary for maintaining ongoing operations. Under section 210(c)(13)(D) of the Dodd-Frank Act, the FDIC can enforce lines of credit to the covered financial company and agree to repay the lender under the credit agreement.

A major driver of the financial crisis and the panic experienced by the market in 2008 was in part due to an overreliance by many market participants on funding through short-term, secured transactions in the repurchase market using volatile, illiquid collateral, such as mortgage-backed securities. In applying its powers under the Dodd-Frank Act, the FDIC must exercise care in valuing such collateral and will review the transaction to ensure it is not under-collateralized. Under applicable law, if the creditor is under-secured due to a decline in the value of such collateral, the unsecured portion of the claim will be paid as a general creditor claim.

Section 380.2 of the Proposed Rule also clarified that any portion of a claim secured by a legally valid and enforceable security interest that exceeds the fair market value of the collateral shall be treated as an unsecured claim and paid in accordance with the order of priority established under section 210(b)(1) of the Dodd-Frank Act. The Proposed Rule noted that collateral consisting of direct or fully guaranteed obligations of the United States or any agency of the United States (“government securities”) would be valued at par. Commenters expressed concern about the process for valuation of collateral for the purpose of determining whether a creditor is wholly or partly secured. Upon consideration of these comments, the FDIC concludes that all collateral, including government securities, should be valued at fair market value. We believe that a fair market value determination will provide crucial certainty in the valuation of this collateral. In the same vein, the FDIC believes that the establishment of a clear date for determining the value of securities or other assets that constitute valid security for a proven claim will provide potential claimants greater certainty when determining what portion of a claim may be secured, or unsecured if under-collateralized. In some circumstances of great market volatility, it may be appropriate to determine the value of collateral based on fair market values existing on the day prior to the appointment of the FDIC as receiver. The FDIC is soliciting comments on this issue. The Rule establishes that the FDIC will use the fair market value of collateral as of the date that the FDIC was appointed as receiver. The provision in the Proposed Rule that the fair market value of government issued or government guaranteed securities shall be deemed to be par value has been eliminated in the Rule.

Personal Services Agreements. Section 380.3 of the Rule concerns personal services agreements, which may include, without limitation, collective bargaining agreements. Like other contracts with the covered financial company, a personal services agreement is subject to repudiation by the receiver if the agreement is determined to be burdensome and its repudiation would promote the orderly liquidation of the company. Prior to determining whether to repudiate, however, the FDIC as receiver may need to utilize the services of employees who have a personal services agreement with the covered financial company. The Rule provides that if the FDIC accepts services from employees during the receivership or any period where some or all of the operations of the covered financial company are continued by a bridge financial company, absent a contrary agreement or consent by the employee, those employees shall be paid according to the terms and conditions of their personal service agreement and such payments shall be treated as an administrative expense of the receiver. The acceptance of services from the employees by the FDIC as receiver (or by a bridge financial company) does not impair the receiver's ability subsequently to repudiate a personal services agreement. 5 The Rule will also not impair the ability of the receiver to reach an agreement with the employee that is more favorable to the FDIC than the original personal services agreement. The Rule also clarifies that a personal service agreement will not continue to apply to employees in connection with a sale or transfer of a subsidiary or the transfer of certain operations or assets of the covered financial company unless the acquiring party expressly agrees to assume the personal service agreement. Likewise, the transfer will not be predicated on such assumption. Paragraph (e) of § 380.3 clarifies that the provision for payment of employees does not apply to senior executives or directors of the covered financial company, 6 nor does it impair the ability of the receiver to recover compensation previously paid to senior executives or directors under section 210(s) of the Dodd-Frank Act. The definition of “senior executive” in this section substantially follows the definition of “executive officer” in Regulation O of the Board of Governors of the Federal Reserve System (12 CFR 215.2). This definition is commonly understood and accepted.

Contingent Obligations. Section 380.4 of the Rule addresses the treatment of contingent claims in the receivership of a covered financial company. The text of the Proposed Rule was revised in the Rule in response to comments recommending that the rule eliminate any ambiguity regarding the treatment of contingent claims. The revised text strengthens the Rule to make clear that the treatment of contingent claims under Title II parallels their treatment under the Bankruptcy Code. The text of the Proposed Rule also has been slightly modified in the Rule in order to more precisely follow the text of section 210(c)(3)(E) of the Dodd-Frank Act, which it will implement.

Under § 380.4, holders of contingent claims should expect to receive no less than the amount they would have received had the covered financial company had been a debtor in a case under chapter 7 of the U.S. Bankruptcy Code. Like the Bankruptcy Code, the Dodd-Frank Act defines the term “claim” to include a right to payment that is contingent (see 11 U.S.C. 101(5); section 201(a)(4)). Accordingly, paragraph (a) of § 380.4 affirms that that the FDIC as receiver of a covered financial company shall not disallow a claim solely because the claim is based on an obligation that was contingent as of the date of the appointment of the receiver. The Bankruptcy Code requires the estimation of any claim the liquidation of which would unduly delay the administration of the estate, such as a contingent claim ( see 11 U.S.C. 502(c)). Similarly, paragraph (a) of § 380.4 provides that to the extent that an obligation is contingent, the receiver shall estimate the value of the claim, as such value is measured based upon the likelihood that the contingent obligation would become fixed and the probable magnitude of the claim. The Bankruptcy Code does not specify when a contingent claim should be estimated, however. The FDIC is soliciting additional comments regarding whether the receiver should designate a specific time during the term of the receivership to estimate contingent claims.

Paragraph (b) of § 380.4 implements section 210(c)(3)(E) of the Dodd-Frank Act, which provides that the FDIC may prescribe by rule or regulation that actual direct compensatory damages for repudiation of a contingent guarantee, letter of credit, loan commitment, or similar credit obligation of a covered financial company shall be no less than the estimated value of the claim as of the date of the appointment of the FDIC as receiver for the company, as such value is measured based upon the likelihood that such contingent obligation would become fixed and the probable magnitude of the claim.

Insurance Company Subsidiaries. Section 380.5 of the Rule provides that where the FDIC acts as receiver for a direct or indirect subsidiary of an insurance company that is not an insured depository institution or an insurance company itself, the value realized from the liquidation or other liquidation of the subsidiary will be distributed according to the order of priorities set forth in section 210(b)(1) of the Dodd-Frank Act. In order to clarify that such value will be available to the policyholders of the parent insurance company to the extent required by the applicable State laws and regulations, the Rule expressly recognizes the requirement that the receiver remit all proceeds due to the parent insurance company in accordance with the order of priority set forth in section 210(b)(1). The only comment concerning § 380.5 of the Proposed Rule asked for confirmation that an insurance company (and its policyholders) might submit different claims according to its capacity as a shareholder, general creditor, or otherwise in relation to the order of priority. The FDIC does not believe that the rule text creates any uncertainty in this regard and so § 380.5 is unchanged in the Rule.

Liens on Insurance Company Assets. Section 380.6 of the Rule limits the ability of the FDIC to take liens on insurance company assets and assets of the insurance company's covered subsidiaries, under certain circumstances after the FDIC has been appointed receiver. Section 204 of the Dodd-Frank Act permits the FDIC to provide funding for the orderly liquidation of covered financial companies and covered subsidiaries that the FDIC determines, in its discretion, are necessary or appropriate by, among other things, making loans, acquiring debt, purchasing assets or guaranteeing them against loss, assuming or guaranteeing obligations, making payments, or entering into certain transactions. In particular, pursuant to section 204(d)(4), the FDIC is authorized to take liens “on any or all assets of the covered financial company or any covered subsidiary, including a first priority lien on all unencumbered assets of the covered financial company or any covered subsidiary to secure repayment of any transactions conducted under this subsection.”

Section 203(e) provides that, in general, if an insurance company is a covered financial company, the liquidation or rehabilitation of such insurance company shall be conducted as provided under the laws and requirements of the State. However, a subsidiary or affiliate (including a parent entity) of an insurance company, where such subsidiary or affiliate is not itself an insurance company, will be subject to orderly liquidation under Title II without regard to State law.

The Rule recognizes that the orderly liquidation of such a covered affiliate or subsidiary should not unnecessarily interfere with the liquidation or rehabilitation of the insurance company, and that the interests of the policy holders in the assets of the insurance company should be respected. Accordingly, the Rule provides that the FDIC will avoid taking a lien on some or all of the assets of a covered financial company that is an insurance company or a covered subsidiary or affiliate of an insurance company unless it makes a determination, in its sole discretion, that taking such a lien is necessary for the orderly liquidation of the company (or subsidiary or affiliate) and will not unduly impede or delay the liquidation or rehabilitation of such insurance company, or the recoveries by its policyholders. The final paragraph of § 380.6 makes clear that no restriction on taking a lien on assets of a covered financial company or any covered subsidiary or affiliate will limit or restrict the ability of the FDIC or the receiver to take a lien on in such assets in connection with the sale of such entities or any of their assets on a financed basis to secure any financing being provided in connection with such sale. Commenters expressed concerns that the language of the Proposed Rule was not sufficiently clear that the power to take a lien on a company's assets was limited to the assets of the company that received the advance of funds. The Rule clarifies the language in this respect. In all other aspects, however, the FDIC believes that the limitations set forth in the Proposed Rule are clear and appropriate and require no changes in the Rule. The determination that taking a lien is necessary for the orderly liquidation of the company (or subsidiary or affiliate) and will not unduly impede or delay the liquidation or rehabilitation of the insurance company or the recoveries by its policyholders should be committed to the discretion of the FDIC. By so providing, the FDIC's rules will best avoid the possibility of harmful delay and help ensure a speedy and orderly liquidation process.

The FDIC requests comments on any aspect of the Rule that would be helpful in refining the Rule further. In addition, the FDIC specifically requests comments on the following issues:

1. Are there additional ways to reduce moral hazard and increase market discipline and to clarify that all creditors should assume that they will receive no additional payments and their recovery will be limited to what will be paid according to the order of priorities established under section 210(b)?

2. Subsection 380.2 precludes any “additional payments” under the statute to holders of long term debt, which is defined as debt with a term in excess of 360 days. What are the positive and negative consequences that this may have for market stability? What effect might this have on long term debt and its role in funding for financial companies? Is additional flexibility needed? Are there additional ways to counteract any impression that shorter term debt is not at risk? Does using a term of 360 days adequately distinguish longer term from shorter term debt? Should a different period be used?

3. What additional guidelines would be useful in creating certainty with respect to establishment of fair market value of various types of collateral for secured claims?

4. Should the date of appointment of the receiver be used as the valuation date for all types of collateral, or only government securities or other publicly traded securities?

5. Who should receive the benefit or burden of market fluctuation between the date of appointment of the receiver and the date of payment of a claim? For example, if a claim is for $100, and the collateral is valued at $98 on the date of appointment of the receiver, and at $102 at the date of payment of the claim, should the claimant receive $98 plus an unsecured claim of $2, should they receive the full value of their secured claim of $100, or should they receive the full value of the collateral, i.e., $102?

6. Should the FDIC designate a specific time during the term of the receivership to estimate contingent claims?

All comments must be received by the FDIC not later than March 28, 2011.

The Rule establishes internal rules and procedures for the liquidation of a failed systemically important financial company. It does not involve any new collections of information pursuant to the Paperwork Reduction Act (44 U.S.C. 3501 et seq. ). Consequently, no information collection has been submitted to the Office of Management and Budget for review.

The Regulatory Flexibility Act requires an agency that is issuing a final rule to prepare and make available a regulatory flexibility analysis that describes the impact of the final rule on small entities. (5 U.S.C. 603(a)). The Regulatory Flexibility Act provides that an agency is not required to prepare and publish a regulatory flexibility analysis if the agency certifies that the final rule will not have a significant impact on a substantial number of small entities.

Pursuant to section 605(b) of the Regulatory Flexibility Act, the FDIC certifies that the Rule will not have a significant impact on a substantial number of small entities. The Rule will clarify rules and procedures for the liquidation of a failed systemically important financial company, which will provide internal guidance to FDIC personnel performing the liquidation of such a company and will address any uncertainty in the financial system as to how the orderly liquidation of such a company would operate. As such, the Rule would not impose a regulatory burden on entities of any size and does not significantly impact small entities.

The FDIC has determined that the Rule will not affect family well-being within the meaning of section 654 of the Treasury and General Government Appropriations Act, enacted as part of the Omnibus Consolidated and Emergency Supplemental Appropriations Act of 1999 (Pub. L. 105-277, 112 Stat. 2681).

The Office of Management and Budget has determined that the Rule is not a “major rule” within the meaning of the Small Business Regulatory Enforcement Fairness Act of 1996 (SBREFA) (5 U.S.C. 801 et seq. ). As required by SBREFA, the FDIC will file the appropriate reports with Congress and the General Accounting Office so that the Rule may be reviewed.

Section 722 of the Gramm-Leach-Bliley Act (Pub. L. 106-102, 113 Stat. 1338, 1471), requires the Federal banking agencies to use plain language in all proposed and final rules published after January 1, 2000. The FDIC has sought to present the Rule in a simple and straightforward manner.

For the reasons stated above, the Board of Directors of the Federal Deposit Insurance Corporation amends chapter III of title 12 of the Code of Federal Regulations by adding new part 380 as follows:

We issued a notice of proposed rulemaking (NPRM) to amend 14 CFR part 39 to include an AD that would apply to the specified products. That NPRM was published in the Federal Register on September 28, 2010 (75 FR 59658), and proposed to supersede AD 2008-19-06, Amendment 39-15673 (73 FR 54067; September 18, 2008). That NPRM proposed to correct an unsafe condition for the specified products. The MCAI states that:

We gave the public the opportunity to participate in developing this AD. We received no comments on the NPRM or on the determination of the cost to the public.

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

We have reviewed the MCAI and related service information and, in general, agree with their substance. But we might have found it necessary to use different words from those in the MCAI to ensure the AD is clear for U.S. operators and is enforceable. In making these changes, we do not intend to differ substantively from the information provided in the MCAI and related service information.

We might also have required different actions in this AD from those in the MCAI in order to follow FAA policies. Any such differences are highlighted in a Note within the AD.

We estimate that this AD will affect 66 products of U.S. registry. We also estimate that it will take about 8 work-hours per product to comply with the basic requirements of this AD. The average labor rate is $85 per work-hour. Required parts will cost about $0 per product. Where the service information lists required parts costs that are covered under warranty, we have assumed that there will be no charge for these parts. As we do not control warranty coverage for affected parties, some parties may incur costs higher than estimated here.

Based on these figures, we estimate the cost of this AD to the U.S. operators to be $44,880, or $680 per product.

Title 49 of the United States Code specifies the FAA's authority to issue rules on aviation safety. Subtitle I, section 106, describes the authority of the FAA Administrator. “Subtitle VII: Aviation Programs,” describes in more detail the scope of the Agency's authority.

We are issuing this rulemaking under the authority described in “Subtitle VII, Part A, Subpart III, Section 44701: General requirements.” Under that section, Congress charges the FAA with promoting safe flight of civil aircraft in air commerce by prescribing regulations for practices, methods, and procedures the Administrator finds necessary for safety in air commerce. This regulation is within the scope of that authority because it addresses an unsafe condition that is likely to exist or develop on products identified in this rulemaking action.

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

For the reasons discussed above, I certify this AD:

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

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

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

We prepared a regulatory evaluation of the estimated costs to comply with this AD and placed it in the AD Docket.

You may examine the AD docket on the Internet at http://www.regulations.gov; or in person at the Docket Management Facility between 9 a.m. and 5 p.m., Monday through Friday, except Federal holidays. The AD docket contains the NPRM, the regulatory evaluation, any comments received, and other information. The street address for the Docket Office (telephone (800) 647-5527) is in the ADDRESSES section. Comments will be available in the AD docket shortly after receipt.

Accordingly, under the authority delegated to me by the Administrator, the FAA amends 14 CFR part 39 as follows:

The European Aviation Safety Agency (EASA), which is the Technical Agent for the Member States of the European Community, has issued EASA Airworthiness Directive 2010-0271, dated December 22, 2010 (referred to after this as “the MCAI”), to correct an unsafe condition for the specified products. The MCAI states:

Airbus has issued A330/A340 Temporary Revisions TR149 and TR150, both Issue 1.0, both dated December 20, 2010, to the Airbus A330/A340 Airplane Flight Manual. The actions described in this service information are intended to correct the unsafe condition identified in the MCAI.

This product has been approved by the aviation authority of another country, and is approved for operation in the United States. Pursuant to our bilateral agreement with the State of Design Authority, we have been notified of the unsafe condition described in the MCAI and service information referenced above. We are issuing this AD because we evaluated all pertinent information and determined the unsafe condition exists and is likely to exist or develop on other products of the same type design.

We have reviewed the MCAI and related service information and, in general, agree with their substance. But we might have found it necessary to use different words from those in the MCAI to ensure the AD is clear for U.S. operators and is enforceable. In making these changes, we do not intend to differ substantively from the information provided in the MCAI and related service information.

We might also have required different actions in this AD from those in the MCAI in order to follow FAA policies. Any such differences are highlighted in a Note within the AD.

An unsafe condition exists that requires the immediate adoption of this AD. The FAA has found that the risk to the flying public justifies waiving notice and comment prior to adoption of this rule because of the potential for abrupt pitch command which may lead to unexpected maneuvers of the airplane and cause injuries of the crew and passengers, as well as reduced controllability of the airplane, and increased pilot workload. Therefore, we determined that notice and opportunity for public comment before issuing this AD are impracticable and that good cause exists for making this amendment effective in fewer than 30 days.

This AD is a final rule that involves requirements affecting flight safety, and we did not precede it by notice and opportunity for public comment. We invite you to send any written relevant data, views, or arguments about this AD. Send your comments to an address listed under the ADDRESSES section. Include “Docket No. FAA-2011-0029; Directorate Identifier 2010-NM-279-AD” at the beginning of your comments. We specifically invite comments on the overall regulatory, economic, environmental, and energy aspects of this AD. We will consider all comments received by the closing date and may amend this AD because of those comments.

We will post all comments we receive, without change, to http://www.regulations.gov, including any personal information you provide. We will also post a report summarizing each substantive verbal contact we receive about this AD.

Title 49 of the United States Code specifies the FAA's authority to issue rules on aviation safety. Subtitle I, section 106, describes the authority of the FAA Administrator. “Subtitle VII: Aviation Programs,” describes in more detail the scope of the Agency's authority.

We are issuing this rulemaking under the authority described in “Subtitle VII, Part A, Subpart III, Section 44701: General requirements.” Under that section, Congress charges the FAA with promoting safe flight of civil aircraft in air commerce by prescribing regulations for practices, methods, and procedures the Administrator finds necessary for safety in air commerce. This regulation is within the scope of that authority because it addresses an unsafe condition that is likely to exist or develop on products identified in this rulemaking action.

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

For the reasons discussed above, I certify this AD:

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

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

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

We prepared a regulatory evaluation of the estimated costs to comply with this AD and placed it in the AD docket.

Accordingly, under the authority delegated to me by the Administrator, the FAA amends 14 CFR part 39 as follows:

We issued a notice of proposed rulemaking (NPRM) to amend 14 CFR part 39 to include an airworthiness directive (AD) that would apply to the specified products. That NPRM published in the Federal Register on July 7, 2010 (75 FR 38950). That NPRM proposed to require inspections for scribe lines in the fuselage skin at skin lap joints and butt joints, the skin at certain external approved repairs, the skin around external features such as antennas, and the skin at decals and fairings; and related investigative and corrective actions if necessary.

We gave the public the opportunity to participate in developing this AD. The following presents the comments received on the proposal and the FAA's response to each comment.

Boeing supports the intent of the NPRM.

FedEx Express (FedEx) requested that we revise the compliance time in paragraph (g) of the NPRM to add an additional option of “at the next scheduled `C' check (30 months) from the effective date of the AD.” FedEx stated that it determined that the proposed inspection threshold and intervals would not fit within its planned scheduled maintenance checks, and the requested adjustment to the compliance time would allow FedEx to mitigate the need to schedule special visits to accomplish the inspections.

We disagree with the request to revise the compliance time. In developing an appropriate compliance time for this AD, we considered not only the safety implications, but the manufacturer's recommendations, the availability of required parts, and the practical aspect of accomplishing the modification within an interval of time that corresponds to typical scheduled maintenance for affected operators. Under the provisions of paragraph (m) of this AD, however, we might consider requests for adjustments to the compliance time if data are submitted to substantiate that such an adjustment would provide an acceptable level of safety. In addition, FedEx did not provide any technical justification for the request. We have not changed the final rule in regard to this issue.

We added a new paragraph (l) to this final rule to provide information on the federal Paperwork Reduction Act. We have reidentified subsequent paragraphs accordingly.

We reviewed the relevant data, considered the comments received, and determined that air safety and the public interest require adopting the AD with the change described previously. We also determined that these changes will not increase the economic burden on any operator or increase the scope of the AD.

We estimate that this AD affects 234 airplanes of U.S. registry. The following table provides the estimated costs for U.S. operators to comply with this AD.

Title 49 of the United States Code specifies the FAA's authority to issue rules on aviation safety. Subtitle I, section 106, describes the authority of the FAA Administrator. Subtitle VII: Aviation Programs, describes in more detail the scope of the Agency's authority.

We are issuing this rulemaking under the authority described in subtitle VII, part A, subpart III, section 44701: “General requirements.” Under that section, Congress charges the FAA with promoting safe flight of civil aircraft in air commerce by prescribing regulations for practices, methods, and procedures the Administrator finds necessary for safety in air commerce. This regulation is within the scope of that authority because it addresses an unsafe condition that is likely to exist or develop on products identified in this rulemaking action.

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

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

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

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

(3) Will not affect intrastate aviation in Alaska, and

(4) 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.

Accordingly, under the authority delegated to me by the Administrator, the FAA amends 14 CFR part 39 as follows:

We issued a notice of proposed rulemaking (NPRM) to amend 14 CFR part 39 to include an airworthiness directive (AD) that would apply to the specified products. That NPRM was published in the Federal Register on August 11, 2010 (75 FR 48623). That NPRM proposed to require repetitive inspections for cracks in the fuselage skin and backup structure at the lower VHF antenna cutout at station 1197 + 99 between stringers 39L and 39R, and corrective actions if necessary. Certain repairs proposed by that NPRM would terminate certain inspection requirements.

We gave the public the opportunity to participate in developing this AD. The following presents the comment received on the proposal and the FAA's response to the comment.

Boeing requested that we change the NPRM to explain that the internal detailed inspection may be deferred up to 6,000 flight cycles after the effective date of the AD if no fuselage skin cracks are found during the external detailed inspection. Paragraph (g) of the NPRM referred to Boeing Special Attention Service Bulletin 767-53-0207, dated December 17, 2009 (“the service bulletin”), for the proposed compliance times for the external and internal detailed inspections. The Relevant Service Information section in the NPRM preamble explained that, if no cracks were found during the external detailed inspection, the internal detailed inspection may be deferred “for an additional 6,000 flight cycles.” Boeing stated, however, that this service bulletin instead allows deferral of the internal detailed inspection for a maximum of 6,000 flight cycles after the date on the service bulletin.

We partially agree. We agree that Boeing's suggested change reflects the intent of this service bulletin. Boeing published this revision in Service Bulletin Information Notice 767-53-0207 IN 01, dated July 8, 2010, to clarify a compliance time. We have added new paragraphs (h) and (i) in this final rule to explain the exceptions to this service bulletin's compliance times and to incorporate the information in the information notice. We have re-identified subsequent paragraphs accordingly. We do not agree to correct this information in the Relevant Service Information section of the NPRM because that section is not repeated in a final rule.

We reviewed the relevant data, considered the comment received, and determined that air safety and the public interest require adopting the AD with the changes described previously. We also determined that these changes will not increase the economic burden on any operator or increase the scope of the AD.

We estimate that this AD affects 93 airplanes of U.S. registry. We estimate the following costs to comply with this AD:

Title 49 of the United States Code specifies the FAA's authority to issue rules on aviation safety. Subtitle I, section 106, describes the authority of the FAA Administrator. Subtitle VII: Aviation Programs, describes in more detail the scope of the Agency's authority.

We are issuing this rulemaking under the authority described in subtitle VII, part A, subpart III, section 44701: “General requirements.” Under that section, Congress charges the FAA with promoting safe flight of civil aircraft in air commerce by prescribing regulations for practices, methods, and procedures the Administrator finds necessary for safety in air commerce. This regulation is within the scope of that authority because it addresses an unsafe condition that is likely to exist or develop on products identified in this rulemaking action.

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

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

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

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

(3) Will not affect intrastate aviation in Alaska, and

(4) 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.

Accordingly, under the authority delegated to me by the Administrator, the FAA amends 14 CFR part 39 as follows:

The European Aviation Safety Agency (EASA), which is the Technical Agent for the Member States of the European Community, has issued AD No.: 2010-0274-E, dated December 22, 2010 (referred to after this as “the MCAI”), to correct an unsafe condition for the specified products. The MCAI states:

Aircraft Industries a.s. has issued LET Aircraft Industries Mandatory Bulletin No.: L23/053a, dated December 14, 2010; and LET Aircraft Industries Information Bulletin No.: L23/054b, dated December 20, 2010. The actions described in this service information are intended to correct the unsafe condition identified in the MCAI.

This product has been approved by the aviation authority of another country, and is approved for operation in the United States. Pursuant to our bilateral agreement with this State of Design Authority, they have notified us of the unsafe condition described in the MCAI and service information referenced above. We are issuing this AD because we evaluated all information provided by the State of Design Authority and determined the unsafe condition exists and is likely to exist or develop on other products of the same type design.

We have reviewed the MCAI and related service information and, in general, agree with their substance. But we might have found it necessary to use different words from those in the MCAI to ensure the AD is clear for U.S. operators and is enforceable. In making these changes, we do not intend to differ substantively from the information provided in the MCAI and related service information.

We might have also required different actions in this AD from those in the MCAI in order to follow FAA policies. Any such differences are described in a separate paragraph of the AD. These requirements take precedence over those copied from the MCAI.

An unsafe condition exists that requires the immediate adoption of this AD. The FAA has found that the risk to the flying public justifies waiving notice and comment prior to adoption of this rule because cracks were reported on the rear horizontal stabilizer bracket of two L 23 Super Blanik sailplanes. This condition, if not corrected, could result in no longer retaining the horizontal stabilizer in place and consequent loss of control. Therefore, we determined that notice and opportunity for public comment before issuing this AD are impracticable and that good cause exists for making this amendment effective in fewer than 30 days.

This AD is a final rule that involves requirements affecting flight safety, and we did not precede it by notice and opportunity for public comment. We invite you to send any written relevant data, views, or arguments about this AD. Send your comments to an address listed under the ADDRESSES section. Include “Docket No. FAA-2011-0053; Directorate Identifier 2010-CE-073-AD” at the beginning of your comments. We specifically invite comments on the overall regulatory, economic, environmental, and energy aspects of this AD. We will consider all comments received by the closing date and may amend this AD because of those comments.

We will post all comments we receive, without change, to http://www.regulations.gov, including any personal information you provide. We will also post a report summarizing each substantive verbal contact we receive about this AD.

Title 49 of the United States Code specifies the FAA's authority to issue rules on aviation safety. Subtitle I, section 106, describes the authority of the FAA Administrator. “Subtitle VII: Aviation Programs,” describes in more detail the scope of the Agency's authority.

We are issuing this rulemaking under the authority described in “Subtitle VII, Part A, Subpart III, Section 44701: General requirements.” Under that section, Congress charges the FAA with promoting safe flight of civil aircraft in air commerce by prescribing regulations for practices, methods, and procedures the Administrator finds necessary for safety in air commerce. This regulation is within the scope of that authority because it addresses an unsafe condition that is likely to exist or develop on products identified in this rulemaking action.

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

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

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

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

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

We prepared a regulatory evaluation of the estimated costs to comply with this AD and placed it in the AD docket.

Accordingly, under the authority delegated to me by the Administrator, the FAA amends 14 CFR part 39 as follows:

Background U.S.-India Bilateral Understanding: Revisions to U.S. Export and Reexport Controls Under the Export Administration Regulations

On November 8, 2010, President Obama and Prime Minister Singh of India issued a Joint Statement announcing that they had resolved to expand and strengthen the India-U.S. global strategic partnership. (U.S.-India Joint Statement, November 8, 2010). The Joint Statement covers a range of issues, activities, and programs that reflect the vision of the President and of India's Prime Minister. In the Joint Statement, the leaders reaffirmed that the U.S.-India strategic partnership is indispensable for global stability and prosperity and reaffirmed existing assurances regarding procurement and use by India of items subject to the Export Administration Regulations (EAR). In the Joint Statement, recognizing that India and the United States should play a leadership role in promoting global nonproliferation objectives and their desire to expand high technology cooperation and trade, the two leaders committed to work together to strengthen the global export control framework and further transform bilateral export control regulations and policies, and decided to take mutual steps to expand U.S.-India cooperation in civil space, defense and other high-technology sectors. These steps include removal of Indian defense and space-related entities from the Entity List, and realignment of India in U.S. export control regulations. Additionally, the Joint Statement announced that the United States “intends to support India's full membership in the four multilateral export control regimes (Nuclear Suppliers Group, Missile Technology Control Regime, Australia Group, and Wassenaar Arrangement) in a phased manner, and to consult with regime members to encourage the evolution of regime membership criteria,” while maintaining these regimes' core principles, “as the Government of India takes steps towards the full adoption of the regimes' export control requirements to reflect its prospective membership, with both processes moving forward together.”

In this rule, BIS begins implementation of those reforms by revising certain export and reexport controls for India, including the removal of nine Indian entities from the Entity List. In addition, BIS amends the EAR to remove India from Country Groups D:2, D:3, and D:4 and to add India to Country Group A:2. In this rule, BIS also makes conforming changes in the EAR as part of these initial steps to implement the export control reform program outlined in the November 8, 2010 U.S.-India bilateral understanding. These changes are in the national interest of the United States.

In this rule, BIS amends the EAR to remove the following entities from Supplement No. 4 to part 744 of the EAR, i.e., the Entity List:

• Bharat Dynamics Limited (BDL).

• All subordinates of India's Defense Research and Development Organization (DRDO) identified on the Entity List immediately prior to the effective date of this rule, namely:

• All Indian Space Research Organization (ISRO) subordinate entities identified on the Entity List immediately prior to the effective date of this rule, namely:

In this rule, BIS also removes India from Country Groups D:2, D:3, and D:4 to Supplement No. 1 to part 740 of the EAR. These Country Groups list countries with certain restrictions on end-uses for nuclear nonproliferation (D:2), chemical & biological (D:3), and missile technology (D:4) reasons under the EAR. This rule also adds India to Country Group A:2 to Supplement No. 1 to part 740 of the EAR, makes License Exception (BAG) (section 740.14(d) of the EAR) available for exports and reexports of unaccompanied baggage to India, and makes India an eligible destination for reexports under License Exception Additional Permissive Reexports (APR) (section 740.16(a) of the EAR).

Country Group D:2: India's removal from Country Group D:2 will not change licensing policy toward India for items controlled for nuclear nonproliferation (NP column 1(NP1), Supplement No. 1 to part 738 (Commerce Country Chart) of the EAR) reasons; a license will still be required for the export of NP1 items to all destinations in India. U.S.-origin items controlled unilaterally for nuclear nonproliferation reasons (NP2) do not require a license for most destinations in India. Prior to publication of this rule, paragraph (a)(2) of section 742.3 of the EAR expressly exempted India from the license requirement for Country Group D:2 countries. India's removal from Country Group D:2 through this rule, however, makes this express exemption unnecessary, and it is therefore being removed. The removal of India from Country Group D:2 also eliminates a license requirement for India under section 744.6 of the EAR for certain U.S. person activities that involve any D:2 country. India, however, remains subject to the “catch-all” controls in section 744.2 of the EAR (Restrictions on Certain Nuclear End-uses). Under section 744.2, a person may not export, reexport, or transfer (in-country) an item subject to the EAR to India without a license if, at the time of export, reexport, or transfer (in-country), the person knows that the item will be used, directly or indirectly, in activities described in paragraphs (a)(1), (a)(2), and (a)(3) of section 744.2, i.e., certain nuclear explosive activities, unsafeguarded nuclear activities, or certain safeguarded and unsafeguarded nuclear activities.

Country Group D:3: The removal of India from Country Group D:3 means that paragraph (a)(3) of section 742.2 (Proliferation of Chemical and Biological Weapons) of the EAR will not impose a license requirement for exports or reexports to India of medical products, identified in Export Control Classification Number (ECCN) 1C991.d,. Removal of India from Country Group D:3 also means that end users in India are eligible to receive certain items controlled for chemical and biological weapons reasons under special comprehensive licenses (SCLs) described in part 752 of the EAR. Items controlled for chemical and biological weapons reasons are ineligible for export or reexport under a SCL to D:3 destinations.

Furthermore, consistent with the removal of India from Country Group D:3, this rule removes licensing requirements for certain items controlled for chemical and biological weapons proliferation reasons for export or reexport to India, by removing the “X” in “CB Column 3” for “India” in Supplement No. 1 to part 738 (Commerce Country Chart) of the EAR.

Country Group D:4: Removal of India from Country Group D:4 eliminates the requirement for export, reexport, and transfers (in-country) licenses for India under paragraphs (a)(1) and (a)(3) of section 744.3 (Restrictions on Certain Rocket Systems and Unmanned Air Vehicles End-Uses). Pursuant to section 744.3(a)(2), a license will still be required for any item if, at the time of the export, reexport, or transfer (in-country), the person knows that the item will be used in India in the design, development, production, or use of rocket systems or unmanned air vehicles, regardless of range capabilities, for the delivery of chemical, biological, or nuclear weapons. The removal of India from Country Group D:4 also eliminates a license requirement for India under section 744.6 of the EAR for certain U.S. person activities that involve a D:4 country.

Removal of India from Country Groups D:2, D:3, and D:4 and the Availability of License Exceptions: Removal of India from Country Groups D:2, D:3, and D:4 expands the License Exceptions available for exports and reexports to India. This rule makes available exports and reexports to India of unaccompanied baggage under License Exception Baggage (BAG) section 740.14(d) of the EAR. Such removal also makes India an eligible destination for reexports under License Exception Additional Permissive Reexports (APR) set forth in section 740.16(a) of the EAR.

Country Group A:2: This rule also adds India to Country Group A:2, grouping India, as an adherent to the Missile Technology Control Regime (MTCR), with countries that are members of that regime. Under section 742.5 of the EAR, a license is still required for export and reexport of items controlled for missile technology (MT) reasons to all destinations except Canada.

As noted in the discussion of Country Group D:2 above, this rule removes a now unnecessary reference to India from section 742.3(a)(2) of the EAR. This rule also makes a conforming change in section 742.5(d) (Missile Technology Control Regime) of the EAR regarding India acknowledging that India is being included in Country Group A:2 as an MTCR adherent.

Since August 21, 2001, the Export Administration Act of 1979, as amended (Act) has been in lapse and the President, through Executive Order 13222 of August 17, 2001 (3 CFR, 2001 Comp., p. 783 (2002)), as extended most recently by the Notice of August 12, 2010 (75 FR 50681 (August 16, 2010)), has continued the EAR in effect under the International Emergency Economic Powers Act. BIS continues to carry out the provisions of the Act, as appropriate and to the extent permitted by law, pursuant to Executive Order 13222.

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

2. Notwithstanding any other provision of law, no person is required to respond to or 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 regulation involves collections previously approved by the OMB under control numbers 0694-0088, “Multi-Purpose Application,” which carries a burden hour estimate of 58 minutes to prepare and submit form BIS-748. Miscellaneous and recordkeeping activities account for 12 minutes per submission. Total burden hours associated with the Paperwork Reduction Act and Office and Management and Budget control number 0694-0088 are not expected to increase as a result of this rule.

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

4. Pursuant to 5 U.S.C. 553(a)(1), the provisions of the Administrative Procedure Act requiring notice of proposed rulemaking, the opportunity for public participation, and a delay in effective date, are inapplicable because this regulation involves a military or foreign affairs function of the United States. ( See 5 U.S.C. 53(a)(1)). This final rule implements aspects of the understanding between the United States and India reflected in the November 8, 2010 U.S.-India Joint Statement and is not discretionary. No other law requires that a notice of proposed rulemaking and an opportunity for public comment be given for this rule. Because a notice of proposed rulemaking and an opportunity for public comment are not required to be given for this rule by 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. Accordingly, no Regulatory Flexibility analysis is required and none has been prepared. Notwithstanding these considerations, BIS welcomes public comments and will review them on a continuing basis.

Accordingly, parts 738, 740, 742 and 744 of the EAR (15 CFR parts 730-774) are amended as follows:

We are adopting amendments to Item 1111  1 of Regulation AB  2 (a subpart of Regulation S-K). We also are adopting Rule 193  3 under the Securities Act of 1933  4 (the “Securities Act”).

On October 13, 2010, we proposed new requirements in order to implement Section 945 and a portion of Section 932 of the Dodd-Frank Act. 5 As discussed in the Proposing Release, Section 945 of the Act amends Section 7 of the Securities Act to require the Commission to issue rules relating to the registration statement required to be filed by an issuer of ABS. Pursuant to new Section 7(d), the Commission must issue rules to require that an issuer of an ABS perform a review of the assets underlying the ABS, and disclose the nature of such review. Section 945 of the Act reflects the testimony provided to Congress that due diligence practices in ABS offerings had eroded significantly. 6 We also proposed new requirements relating to the disclosure of third-party findings and conclusions in ABS transactions in order to implement Section 15E(s)(4)(A) of the Exchange Act, as added by Section 932 of the Act. We received over 50 comment letters on the Proposing Release. 7

As discussed below, after consideration of the comments received on the proposed amendments, we are adopting the proposed amendments to implement Section 7(d) of the Securities Act. We have revised the final rules from the proposal to establish a new minimum standard for the required review. We are postponing consideration of rules to implement Section 15E(s)(4)(A) of the Exchange Act, which requires issuers or underwriters of any asset-backed security to make publicly available the findings and conclusions of any third-party due diligence report the issuer or underwriter obtains, until a later date when we adopt rules to implement the rest of Section 15(E)(s)(4), which we anticipate proposing this year. We are persuaded by the suggestion by several commentators that new Exchange Act Section 15E(s)(4) should be read as a whole, and that we should postpone implementation of 15E(s)(4)(A) until the Commission implements the rest of Section 15E. 8

We proposed new Rule 193 under the Securities Act to require issuers of ABS to perform a review of the assets underlying registered ABS offerings. 9 This rule would implement Securities Act Section 7(d)(1), 10 as added by Section 945 of the Act. As proposed, Rule 193 would require an issuer to perform a review of the assets underlying an ABS in a transaction that the issuer registers under the Securities Act.

With respect to the applicability of the proposed rule, some commentators agreed that the rule should apply only to registered offerings of ABS. 11 Some commentators recommended the review requirement be extended to also apply to unregistered offerings and predicted that unless the rule applies to unregistered offerings, abusive practices are likely to migrate into the market for unregistered offerings. 12 One such commentator supported the approach in the Proposing Release's request for comment conditioning the Commission's safe harbors from registration on a requirement that the underlying transaction agreements include a representation that the issuer performed an asset review that complies with Rule 193. 13 Three commentators expressed concern with such a requirement. 14 One commentator sought clarification that the issuer may rely on a review performed by an affiliated originator. 15

Consistent with the proposal, final Rule 193 requires that the asset review be conducted by the issuer of the ABS. 16 The issuer, for purposes of this rule, is the depositor or sponsor of the securitization. A sponsor typically initiates a securitization transaction by selling or pledging to a specially created issuing entity a group of financial assets that the sponsor either has originated itself or has purchased in the secondary market. In some instances, the transfer of assets is a two-step process: The financial assets are transferred by the sponsor first to an intermediate entity, the depositor or the issuer, and then the depositor transfers the assets to the issuing entity for the particular asset-backed transaction. The issuing entity is typically a statutory trust. 17 In cases where the originator and sponsor may be different, including in transactions involving a so-called “aggregator,” our final rule, consistent with the proposal, provides that the review may be performed by the sponsor, but a review performed by an unaffiliated originator will not satisfy Rule 193. An unaffiliated originator may have different interests in the securitization, especially if the securitization involves many originators where each originator may have contributed a very small part of the assets in the entire pool, and may have differing approaches to the review. 18

As discussed in the Proposing Release, Section 7(d)(1) relates to an asset-backed security, as defined in new Section 3(a)(77) of the Exchange Act. 19 This new statutory definition (“Exchange Act-ABS”) is broader than the definition of “asset-backed security” in Regulation AB  20 and includes securities typically offered and sold in private transactions. Although the Exchange Act-ABS term is used in Section 7(d)(1), we have concluded that the review requirements mandated by Section 7(d)(1) are limited to registered offerings of ABS because Section 7(d)(1) requires the Commission to issue rules “relating to the registration statement.” Therefore, the rule we adopt today that requires an ABS issuer to perform a review of the assets applies to issuers of ABS in registered offerings and not issuers of ABS in unregistered offerings.

As noted above, in the Proposing Release we asked whether, even though Section 7(d)(1) does not extend to unregistered offerings, we should condition reliance on the Securities Act safe harbors from registration on a requirement that the underlying transaction agreement for the ABS contain a representation that the issuer performed a review that complies with Rule 193, or, alternatively, that the issuer perform a Rule 193 review. Given the mixed comments on this question and our outstanding proposals from April 2010 related to offerings under the safe harbors from registration, 21 we are not adopting at this time a separate requirement to condition the Commission's safe harbors for an exemption from registration on a requirement that the issuer conduct a review of the assets. As we noted in the 2010 ABS Proposing Release, we have concerns about investor protection in the exempt ABS markets. 22 While we continue to have these concerns, at this point we believe a comprehensive approach to the Commission's safe harbors for an exemption from registration would better serve investors and provide more certainty to issuers than an incremental approach. In the future, we may determine that discrete amendments to the safe harbors addressing ABS matters are appropriate.

Proposed Rule 193 provided that an issuer would be required to conduct a review of the assets and disclose the findings and conclusions of the review. Proposed Rule 193 did not specify the level or type of review an issuer would be required to perform, or require that a review be designed in any particular manner. However, the Proposing Release included detailed requests for comment on whether we should set a minimum review standard, including possible standards that could be included in a final rule. In particular, the Proposing Release sought comment on a possible review standard that would require issuers to perform a review that, at a minimum, must be designed to provide reasonable assurance that the disclosure in the prospectus regarding the pool assets is accurate in all material respects. We also sought comment on whether the rule should mandate that the review should not only be designed, but also effected, to provide reasonable assurance that the prospectus disclosure was accurate in all material respects.

Comments on the proposed review requirement, including the absence of a minimum review standard, were varied. Some commentators responded that the review requirement, as proposed, did not address the problems that Section 945 of the Act sought to address and suggested that the Commission set a minimum level of review. 23 One commentator recommended that ABS issuers be required to conduct reviews that are both “designed and effected” with sufficient scale and scope to discover assets that violate applicable law or standards as set forth in the prospectus. 24 This commentator explained that this would go beyond providing “reasonable assurance that the disclosure in the prospectus is accurate in all material respects.” One commentator cautioned that the rule, as proposed, would create a perverse incentive to decrease due diligence reviews even further in order to decrease the likelihood that they reveal problems that would have to be disclosed to investors. 25

Some commentators suggested possible alternative review standards that encompass other aspects of the assets, instead of disclosure. Some commentators urged the Commission to require a review that assesses the actual quality of the underwriting of the assets  26 and exclude the type of review of assets that amounts to a mere comparison or “comforting” of data that relates to the prospectus disclosure. These commentators stated that in light of the existing liability framework under the federal securities laws, it is not necessary for the Commission to require that issuers conduct or disclose any particular review that merely verifies the accuracy of the disclosure in the prospectus. 27 Some commentators believed that the type of review that should be disclosed under Rule 193 is a review that relates to the underwriting of the assets  28 or quality of the underlying assets ( e.g., credit quality). 29

Background

The final regulations and removal of temporary regulations that are the subjects of this document are under sections 1, 170A, 861, 871, 876, 881, 884, 901, 931, 932, 933, 934, 935, 937, 957, 1402, 6012, 6038, and 6046 of the Internal Revenue Code.

As published, final regulations (TD 9391) contain an error that may prove to be misleading and is in need of clarification.

Accordingly, 26 CFR part 1 is corrected by making the following correcting amendment:

On July 24, 2009, VA published a proposal in the Federal Register (74 FR 36640), to amend its adjudication, medical, and vocational rehabilitation and employment regulations by incorporating relevant provisions from the Veterans Benefits Act of 2003, Public Law 108-183. More specifically, based on Section 102 of the Act, codified at 38 United States Code (U.S.C.) 1821, VA proposed to amend VA regulations regarding herbicide exposure of certain veterans who served in or near the Korean demilitarized zone and regulations regarding spina bifida in such veterans' children. Additionally, VA proposed to amend medical regulations by correcting the Health Administration Center's hand-delivery address. We provided a 60-day comment period and interested persons were invited to submit comments on or before September 22, 2009. We received five written comments from the public based on the proposed rule. Two of the responses were comments from Vietnam Veterans of America (VVA) and National Veterans Legal Services Program (NVLSP). The remaining three comments were from the general public.

One commenter supported promulgation of the proposed regulation. The commenter asserted approval when stating, “If passed will be a great help towards helping Korea DMZ Vets with their exposure.” The commenter later stated: “This in fact would promote fairness and be beneficial to Vets that served along the DMZ. However, it appears that the new proposed presumption Agent Orange exposure rule, [sic] will not benefit Korea DMZ Veterans that served outside of the 1968/1969 timeframe.”

NVLSP also asserted approval of the rule by stating that it “eliminates the need for the claimant to prove a fact that would be difficult to prove on his or her own* * *such a presumption makes the VA claims adjudication process more efficient by making it easier for VA to decide these claims;” however, NVLSP also expressed the view that the presumption of exposure set forth in the proposed rule applies to too narrow a period. NVLSP asserted that the period should conform to the statutory window of September 1, 1967 through August 31, 1971, stated in the Veterans Benefits Act of 2003 and that the proposed rule fails to provide for residual exposure to herbicides for periods long after herbicide spraying had ceased.

Similarly, VVA expressed that VA is “taking a step in the right direction” by putting “certain veterans who served in Korea along the Demilitarized Zone (DMZ) on par with veterans who served in Vietnam and were also exposed to herbicides.” VVA contended that, based on past and current scientific evidence regarding the long-term effects of herbicides, it is clear that herbicides “can continue to be toxic and hazardous” long after they are applied, and that veterans who served in Korea along the DMZ after July 1969 and have a condition consistent with exposure to herbicides “are being left out in the cold.” VVA stated the view that VA's proposal to limit the period covered by the rule is not supported by scientific and medical evidence.

Based upon these comments, VA has determined that revisions to the proposed rule, which defined the presumed exposure period as the period from April 1, 1968 to July 31, 1969, are necessary in order to adequately reflect the statutory provisions in section 102 of the Veterans Benefits Act of 2003, codified at 38 U.S.C. 1821. Section 1821(c) states, “[A] veteran of covered service in Korea is any individual, without regard to the characterization of that individual's service, who—(1) Served in the active military, naval, or air service in or near the Korean demilitarized zone [DMZ], as determined by the Secretary in consultation with the Secretary of Defense, during the period beginning on September 1, 1967, and ending on August 31, 1971; and (2) is determined by the Secretary, in consultation with the Secretary of Defense, to have been exposed to an herbicide agent during such service in or near the Korean demilitarized zone.” We believe it is reasonable and consistent with the intent of Congress to concede exposure for veterans who served in or near the Korean DMZ after herbicide application ceased, because of the potential for exposure to residuals of herbicides applied in that area. See 149 Cong. Rec. H11705-01 (2003) (noting that in order to account for residual exposure “it is appropriate to extend the qualifying service period beyond 1969 to account for residual exposure”), see also 149 Cong. Rec. S15133-01 (2003). Therefore, we are changing the presumption ending date of July 31, 1969, to August 31, 1971.

However, we make no change based on NVLSP's comment that the beginning presumption date should be September 1, 1967. Neither the statute nor the legislative history suggests that herbicides were used prior to 1968. See 149 Cong. Rec. H11705-01 (2003) (noting that the Secretary of Defense identified that herbicides were used between 1968 and 1969), see also 149 Cong. Rec. S15133-01 (2003). Furthermore, the statute expressly requires that VA, in consultation with the Department of Defense (DoD), determine whether exposure occurred between September 1, 1967 and August 31, 1971, and thus clearly permits a finding as to whether such exposure could have occurred within that period based on DoD information as to dates of herbicide application. As noted in the proposed rule, DoD has advised that herbicides were applied near the Korean DMZ from April 1968 to July 1969. Therefore, we are revising 38 CFR 3.307(a)(6)(iv) and 3.814(c)(2) to presume herbicide exposure for veterans who served in or near the Korean DMZ between April 1, 1968, the earliest date of potential exposure indicated by DoD, and August 31, 1971, the date identified by Congress. If VA receives evidence that herbicides were used in or near the DMZ from an earlier date, VA may rely on that information in individual cases and may revise the presumption as necessary.

While revising § 3.307(a)(6)(iv) and § 3.814(c)(2), we noted that although the first sentence of § 3.814(c)(2) included the phrase “in consultation with the Department of Defense”, neither the second sentence nor § 3.307(a)(6)(iv) contained such language. In order to clarify that VA relies on DoD records to determine whether a unit “operated in or near the Korean DMZ in an area in which herbicides are known to have been applied”, we have added to the second sentence of § 3.814(c)(2) and to § 3.307(a)(6)(iv) the qualifier “as determined by the Department of Defense” after “in a unit that”. Additionally, although § 3.307(a)(6)(iv) noted that exposure within the cited time frame would be presumed “unless there is affirmative evidence to establish that the veteran was not exposed to any such agent during that service,” § 3.814(c)(2) did not. Under 38 U.S.C. 1821(c), a person shall be considered to have “covered service in Korea” for purposes of providing benefits for spina bifida in such a person's child if VA determines that they were exposed to herbicides in or near the Korean DMZ between certain dates. Where affirmative evidence shows that a person was not exposed to herbicides during such service, the statutory standard would not be met. Therefore, we are adding the phrase “unless there is affirmative evidence to establish that the veteran was not exposed to any such agent during that service” to § 3.814(c)(2) to clarify that the presumption of exposure may be rebutted.

Another commenter suggested that physical testing be added to the criterion for granting service connection, in order to minimize costs to U.S. taxpayers based on the presumption of herbicide exposure. The commenter stated, “[I]f [a] veteran served in Vietnam or Korea during the specified time periods, and laboratory testing for indicators of exposure such as abnormally high levels of dioxins, then service connection can be granted on a presumptive basis.” This comment appears to express concern that a presumption of herbicide exposure based solely on time and location of service may be overly broad. Due to the lapse in time since exposure and the limitations of testing methods, it is not feasible to rely on testing of individual veterans to determine herbicide exposure. As explained above, this rule would presume exposure for veterans who served at the times and places where there was a significant risk of harmful exposure. We believe this approach reasonably balances the concerns identified by the commenter with the purposes of the governing statute and the interests of veterans, their families, and VA. Therefore, we make no change based on this comment.

The final commenter supported the rulemaking, but suggested “strengthening the evidentiary basis for the presumption of exposure by establishing, in consultation with DoD, a means to determine which veterans assigned to a qualifying unit were indeed active with the unit at the qualifying time and place of presumed exposure.” The new language in § 3.307(a)(6)(iv) states that a presumption of herbicide exposure shall be presumed “unless there is affirmative evidence to establish that the veteran was not exposed to any such agent during that service.” Affirmative evidence to establish that the veteran was not exposed to such agent would include the situations mentioned in the comment where a veteran was on leave or otherwise absent from their unit during the period, as defined in this rule, when exposure would be conceded to have occurred. In practice, VA considers all the evidence of record, and any such determination would be made during the claim adjudication process; therefore, we make no change based on this comment.

Based on the rationale set forth in the proposed rule and this document, we are adopting the provisions of the proposed rule as a final rule with the changes discussed above.

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

This document contains no provisions constituting a new collection of information under the Paperwork Reduction Act (44 U.S.C. 3501-3521). The information collection requirements for children of veterans with covered service in Korea are approved by the Office of Management and Budget (OMB) and have been assigned OMB control number 2900-0572. The information collection requirements for veterans with covered service in Korea are approved by OMB and have been assigned OMB control number 2900-0001.

Executive Order 12866 directs agencies to assess all costs and benefits of available regulatory alternatives and, when regulation is necessary, to select regulatory approaches that maximize net benefits (including potential economic, environmental, public health and safety, and other advantages; distributive impacts; and equity). The Executive Order classifies a “significant regulatory action,” requiring review by the Office of Management and Budget (OMB) unless OMB waives such review, as any regulatory action that is likely to result in a rule that may: (1) Have an annual effect on the economy of $100 million or more or adversely affect in a material way the economy, a sector of the economy, productivity, competition, jobs, the environment, public health or safety, or State, local, or Tribal governments or communities; (2) create a serious inconsistency or otherwise interfere with an action taken or planned by another agency; (3) materially alter the budgetary impact of entitlements, grants, user fees, or loan programs or the rights and obligations of recipients thereof; or (4) raise novel legal or policy issues arising out of legal mandates, the President's priorities, or the principles set forth in the Executive Order.

The economic, interagency, budgetary, legal, and policy implications of this final rule have been examined and it has been determined to be a significant regulatory action under the Executive Order because it is likely to result in a rule that may raise novel legal or policy issues arising out of legal mandates, the President's priorities, or the principles set forth in the Executive Order. Therefore, the rule was submitted to OMB for review.

The Unfunded Mandates Reform Act of 1995 requires, at 2 U.S.C. 1532, that agencies prepare an assessment of anticipated costs and benefits before issuing any rule that may result in the expenditure by State, local, and Tribal governments, in the aggregate, or by the private sector, of $100 million or more (adjusted annually for inflation) in any year. This final rule would have no such effect on State, local, and Tribal governments, or on the private sector.

The Catalog of Federal Domestic Assistance program numbers and titles for this final rule are 64.008, Veterans Domiciliary Care; 64.009, Veterans Medical Care Benefits; 64.010, Veterans Nursing Home Care; 64.011, Veterans Dental Care; 64.012, Veterans Prescription Service; 64.013, Veterans Prosthetic Appliances; 64.014, Veterans State Domiciliary Care; 64.015, Veterans State Nursing Home Care; 64.016, Veterans State Hospital Care; 64.019, Veterans Rehabilitation—Alcohol and Drug Dependence; 64.022, Veterans Home Based Primary Care; 64.026, Veterans State Adult Day Health Care; 64.100, Automobiles and Adaptive Equipment for Certain Disabled Veterans and Members of the Armed Forces; 64.101, Burial Expenses Allowance for Veterans; 64.106, Specially Adapted Housing for Disabled Veterans; 64.109, Veterans Compensation for Service-Connected Disability; 64.110, Veterans Dependency and Indemnity Compensation for Service-Connected Death; 64.115, Veterans Information and Assistance; 64.118, Veterans Housing—Direct Loans for Certain Disabled Veterans; 64.127, Monthly Allowance for Children of Vietnam Veterans Born with Spina Bifida; and 64.128, Vocational Training and Rehabilitation for Vietnam Veterans' Children with Spina Bifida or Other Covered Birth Defects.

The Secretary of Veterans Affairs, or designee, approved this document and authorized the undersigned to sign and submit the document to the Office of the Federal Register for publication electronically as an official document of the Department of Veterans Affairs. John R. Gingrich, Chief of Staff, approved this document on September 30, 2010, for publication.

For the reasons set out in the preamble, 38 CFR chapter 1 is amended as follows:

Prior to the Final Rule, Title 49 Code of Federal Regulations Section 179.13 of the HMR limited rail tank cars transporting hazardous materials to a maximum capacity of 34,500 gallons (130,597 L) and, with certain exceptions, a GRL of 263,000 pounds (119,295 kg).

As noted in the preamble to the Final Rule, PHMSA has granted several special permits allowing tank cars subject to the 263,000 pound GRL limit of § 179.13 to weigh up to 286,000 pounds (129,727 kg) GRL subject to certain conditions. The Final Rule amended § 179.13 to allow, upon approval by FRA's Associate Administrator for Railroad Safety, rail tank cars that are not transporting materials poisonous by inhalation (PIH) materials to exceed the 263,000 GRL limit and weigh up to 286,000 pounds GRL without a special permit. Revised § 179.13(a) further provides that FRA may impose conditions on these approvals and the tank cars “must be operated only under controlled interchange conditions agreed to by participating railroads.” In adopting this amendment, PHMSA noted that FRA has already established safety-based guidelines for applications for authority to transport rail tank cars that exceed 263,000 pounds and rationalized that providing for FRA approval of these tank cars will simplify and expedite the regulatory process while at the same time maintain safety.

This document provides notice of FRA's approval pursuant to revised § 179.13(a) for the use in hazardous materials transportation of certain tank cars which exceed 263,000 pounds GRL and that may be loaded up to 286,000 pounds GRL, provided the cars are not loaded with PIH materials. Specifically, this document provides notice of FRA's approval pursuant to § 179.13(a) of (1) existing tank cars that are approved to operate in accordance with a PHMSA special permit allowing a GRL over 263,000 pounds; (2) cars that have been built, rebuilt, or otherwise modified for operation with a maximum GRL above 263,000 pounds, but not currently approved to operate in accordance with a special permit allowing the increased GRL; and (3) newly manufactured tank cars designed to operate with a GRL above 263,000 pounds.

Subject to the conditions specified below, railroad tank cars meeting the requirements in Sections II, III and IV, below, are approved, pursuant to § 179.13(a), to be loaded to a GRL of up to 286,000 pounds. No additional approval is required.

Since 1995, the Association of American Railroads (AAR) has maintained an industry standard in the form of an interchange rule related to freight cars (including hazardous materials tank cars) that weigh over 263,000 pounds GRL and up to 286,000 pounds GRL. That standard, AAR Standard S-259 (S-259)—Rail Car, 286,000-Lb Gross Weight, became effective January 1, 1995. In accordance with S-259, the design of a freight car's body must be based on a GRL of 286,000 pounds and the standard weight-related design loads for 100-ton cars used for fatigue-design criteria must be multiplied by 1.09, with the exception of longitudinal fatigue-design loads. S-259 also established minimum equipment requirements for brakes, bearings, axles, wheels, draft systems, springs and trucks. S-259, however, does not allow for the free interchange among carriers of cars meeting its requirements. In 2002, AAR adopted a revised industry standard related to railroad freight cars weighing over 263,000 pounds  1 GRL and weighing up to 286,000 pounds. This revised industry standard, AAR Standard S-286 (adopted 2002, revised 2003, 2005, 2006), Free/Unrestricted Interchange for 286,000 Lb Gross Rail Load Cars (S-286), is applicable to rail freight cars manufactured, rebuilt or modified on or after January 1, 2003, and is the existing industry standard for designing, building, and operating rail cars at gross weights over 263,000 pounds and up to 286,000 pounds. S-286 sets forth industry-tested practices for designing, building, and operating rail cars at gross weights over 263,000 pounds and up to 286,000 pounds. S-286 provides for the free interchange among carriers of cars built to meet its requirements.

As noted in the preamble to the Final Rule, FRA's guidelines, applicable to rail tank cars exceeding 263,000 pounds GRL, are found in a document titled, “Maximizing Safety and Weight, A White Paper on 263K+ Tank Cars.” This document is available for review on FRA's Web site at http://www.fra.dot.gov/Pages/1800.shtml. In sum, FRA's guidelines address the following topics: (1) Puncture resistance, (2) controlling longitudinal loading, (3) structural-worthiness, (4) track-worthiness, (5) service equipment, (6) service reliability and maintenance management, and (7) maximizing safety and weight.

Although FRA's guidelines address more aspects of tank car design than either of the AAR standards (including the puncture resistance of tank car tanks and the reliability of service equipment on the cars), existing tank cars built to meet the AAR standards have an excellent safety record. To date, special permits issued by PHMSA, related to GRL, in excess of 263,000 pounds GRL have required that the tank cars conform to either S-286 or S-259. In granting these special permits, PHMSA, with FRA's input, determined that in each instance, operating the tank cars with increased GRLs under the terms of the special permit would provide at least an equivalent level of safety as tank cars built to the minimum requirements of the HMR, but limited to a GRL of 263,000 pounds. In fact, in evaluating several special permits related to increased GRLs, PHMSA and FRA found that the commodities shipped in the tank cars were overpackaged. 2 Similarly, the agencies found that the specifications of the tank cars covered by other special permits indicate that the tanks were constructed of materials with mechanical properties superior to the minimum requirements of the HMR.

In the preamble to the Final Rule, PHMSA identified the following special permits as those that would be affected by the rule's revisions to § 179.13 and thus subject to FRA approval as far as the GRL limitations: DOT-SP 11241, 11654, 11803, 12423, 12561, 12613, 12768, 12858, 12903, 13856, 13936, 14004, 14038, 14442, 14505, 14520, 14570, and 14619. In addition, FRA notes that there are five other special permits related to tank cars with a GRL in excess of 263,000 pounds. These include DOT-SP 14167, 14173, 14207, 14398, and 14734.

Of the 23 special permits listed above, seven authorize the transportation of PIH materials in tank cars exceeding 263,000 pounds. These include special permits 12858 (ethylene oxide), 13856 (Division 6.1 HMs), 14442 (anhydrous ammonia), 14520 (chlorine), 14167 (chlorine), 14173 (ethylene oxide), and 14570 (titanium tetrachloride). Because the Final Rule revised § 179.13(a) to provide FRA approval authority for tank cars “other than” those that contain PIH materials, as the regulation is currently written, FRA cannot provide approval to continue these cars in PIH materials transportation without the existing special permits. However, as demonstrated by the discussion in the preamble of the Final Rule identifying the special permits that would be affected by the revisions to § 179.13, FRA believes that the inconsistency in the revised regulatory text is the result of a technical drafting error. Accordingly, FRA is working with PHMSA to develop and publish a correction to the Final Rule that would provide FRA authority to approve the loading of tank cars up to 286,000 pounds GRL when transporting any regulated hazardous material, including PIH materials.

All but three of the 16 special permits identified above that do not involve the transportation of PIH materials authorize the manufacturing, sale, and/or use of particular DOT-specification tank cars with a GRL of 286,000 pounds for the transportation of particular hazardous materials identified in the permits. Special permits 11654 and 14619 authorize the transportation of certain Class 3 hazardous materials in DOT 105S tank cars with a maximum GRL of up to 270,000 pounds, while special permit 14207 authorizes the transportation of sodium hydroxide solution, a Class 8 hazardous material, in certain identified DOT 111A100W tank cars with a maximum GRL of up to 268,000 pounds.

The regulations from which grantees have been exempted in these special permits related to GRL include: § 173.26 (quantity limitations); and the GRL limit of 263,000 pounds in § 179.13. In five of these special permits (11241, 11654, 11803, 12613, and 14619), the grantees have been exempted from regulations not related to the GRL of the car, and these special permits must be maintained relative to these additional exemptions ( i.e., special permits must be maintained for relief from regulations other than from §§ 173.26 and 179.13).

Although FRA believes that tank cars, which have already been demonstrated to provide an equivalent level of safety to those specified by the HMR and existing tank cars built or retrofitted to similar standards, should be allowed to continue in HM transportation service, with the promulgation of a final rule designed to improve the crashworthiness and structural integrity of tank cars that transport highly hazardous materials such as PIH materials (HM-246; 74 FR 1770 (Jan. 13, 2009) (the “Tank Car Rule”)), FRA notes that there is a widening performance gap in crashworthiness between the most robust tank cars designed to transport certain hazardous materials and general purpose tank cars designed to transport other hazardous materials. Accordingly, subject to certain conditions, FRA is providing its approval under § 179.13(a) to continue in service certain existing tank cars at GRLs in excess of 263,000 pounds and up to 286,000 pounds. At the same time, FRA is providing its approval for certain newly manufactured railroad tank cars to be loaded at an increased GRL of up to 286,000 pounds, provided certain additional conditions are met ( e.g., conditions related to the puncture resistance and reliability of the service equipment on the cars). Approval of newly constructed railroad tank cars meeting these additional requirements will, over time, narrow the performance gap between the most robust tank cars in hazardous materials service and other tank cars in hazardous materials service while research continues to develop and implement a crashworthiness performance standard as discussed in the Tank Car Rule. See 74 FR at 1771.

Pursuant to § 179.13(a), the terms of existing special permits 11241, 11654, 11803, 12423, 12561, 12613, 12768, 12903, 13856, 13936, 14004, 14038, 14207, 14398, 14505, and 14734, related to railroad tank cars transporting hazardous materials other than PIH materials and currently approved to operate in accordance with a special permit providing for a GRL in excess of 263,000 pounds, are approved, subject to the following conditions:

1. Tank cars constructed, rebuilt, or otherwise modified to meet the requirements of S-259 shall be operated only in controlled interchange in accordance with that standard.

2. Tank cars constructed, rebuilt, or otherwise modified to meet the requirements of S-286 shall be permitted to operate in unrestricted interchange in accordance with that standard.

3. Tank car owners are responsible for determining which standard their tank cars meet. Tank car owners shall maintain records demonstrating compliance with that standard and make those records available to FRA upon request. Tank car owners shall also ensure that cars subject to this approval are appropriately marked in accordance with the HMR ( i.e., marked with the relevant tare weight) and that the records of the cars in AAR's Universal Machine Language Equipment Register (UMLER) clearly indicate the standard applicable to each car.

4. In accordance with S-286, if a tank car constructed in accordance with S-259 is rebuilt or otherwise modified to meet the requirements of S-286, that car shall be permitted to operate in unrestricted interchange. Tank car owners shall maintain records of the engineering analysis and upgrades performed that demonstrate compliance with S-286, and the tank car owner must file an R-1 with the AAR prior to the tank car being operated in unrestricted interchange. ( See Appendix R of AAR's Manual of Standards and Recommended Practices, Section C-III, Specifications for Tank Cars (Specification M-1002)).

5. The GRL limit for tank cars subject to special permits 11654 and 14619 shall remain 270,000 pounds, and the GRL limit for tank cars subject to special permit 14207 shall remain 268,000 pounds; unless the cars are modified and a subsequent request for approval is made to FRA.

The “terms” of the special permits referred to in this approval are the “packaging” safety control measures specified in paragraph 7 of each special permit. For example, special permit 11241 authorizes the operation of DOT-specification 105J300W tank cars that meet certain technical specifications outlined in paragraph 7 of the permit and have a maximum GRL of up to 286,000 pounds. Consistent with the terms of that special permit, FRA's approval, per § 179.13(a), is limited to the identified DOT-specification cars meeting the technical specifications outlined in the permit. FRA's approval, however, is not limited to the specific commodities identified in the permit; instead, FRA's approval extends to the use of the identified tank cars with a GRL of up to 286,000 pounds for the transportation of any regulated hazardous material that would otherwise be permitted to be transported in that type of specification car. Copies of the relevant special permits will be maintained by the Hazardous Materials Division of FRA's Office of Safety Assurance and Compliance. Copies of the special permits may be obtained by contacting the individuals listed in the “For Further Information Contact” section above.

Each of the special permits listed above require the special permit (or SP) number be stenciled on the sides of tank cars operating under its terms. For tank cars operating under a special permit related only to GRL and subject to this approval, that stencil must be removed or obliterated at the car's first shopping event after the date of this approval, or no later than January 25, 2012, whichever occurs first.

Existing tank cars built, rebuilt, or otherwise modified to meet the requirements of either S-259 or S-286 may be loaded to a GRL of up to 286,000 pounds subject to the following conditions:

1. Tank cars constructed, rebuilt, or otherwise modified to meet the requirements of S-259 shall be operated only in controlled interchange in accordance with that standard.

2. Tank cars constructed, rebuilt, or otherwise modified to meet the requirements of S-286 shall be permitted to operate in unrestricted interchange in accordance with that standard.

3. Tank cars shall meet the following design specifications or be retrofitted as follows:

a. Jacketed and non-jacketed tank cars constructed with ASTM 516-70 steel and having only the minimum plate thickness required by §§ 179.101-1 and 179.201-1 (no additional thickness allowance) must be retrofitted with a 7-gauge steel jacket (constructed of A-572 steel).

b. Jacketed and non-jacketed tank cars constructed with ASTM B209 (Alloy 5052 and 5652) aluminum and having only the minimum plate thickness required by §§ 179.101-1 and 179.201-1 (no additional thickness allowance) must be retrofitted with a 7-gauge steel jacket (constructed of A-572 steel).

c. Jacketed and non-jacketed 111A100W tank cars constructed with TC-128 steel or an aluminum alloy, listed in § 179.200-7 (other than Alloy 5052 or 5652 listed in b above) and having at least the minimum plate thickness required by §§ 179.101-1 and 179.201-1, do not require retrofitting.

4. Tank car owners are responsible for determining which standard their tank cars meet and whether their cars meet the requirements of Condition 3 above. Tank car owners shall maintain records demonstrating compliance with the relevant AAR standard and the requirements of Condition 3. Tank car owners shall make those records available to FRA upon request. Tank car owners shall also ensure that cars subject to this approval are appropriately marked in accordance with the HMR (i.e., marked with the relevant tare weight) and that the records of the cars in AAR's UMLER clearly indicate the standard applicable to each car.

5. In accordance with S-286, if a tank car constructed in accordance with S-259 is rebuilt or otherwise modified to meet the requirements of S-286, that car shall be permitted to operate in unrestricted interchange. Tank car owners shall maintain records of the engineering analysis and upgrades performed that demonstrate compliance with S-286 and the tank car owner must file an R-1 with the AAR prior to the tank car being operated in unrestricted interchange. ( See Appendix R of AAR's Manual of Standards and Recommended Practices, Section C-III, Specifications for Tank Cars (Specification M-1002)).

Tank cars manufactured after January 25, 2011 may be loaded to a maximum GRL of 286,000 pounds provided the tank cars meet the following criteria:

1. Tank cars must be constructed in accordance with S-286.

2. Puncture resistance:

a. Tank car tanks must be constructed of TC-128 steel (normalized).

b. A jacketed tank car must be equipped with an 11-gauge jacket constructed of A-572 steel and the shell and head of the tank must meet the minimum plate thickness required by §§ 179.101-1 and 179.201-1. Alternate thicknesses, based on material properties indicated in the notes of § 179.101-1, are not approved.

c. For a non-jacketed tank car, the shell and head of the tank must meet the minimum plate thickness of that required by §§ 179.101-1 and 179.201-1. Alternate thicknesses, based on material properties indicated in the notes of § 179.101-1, are not approved.

3. Service Equipment:

a. Top fittings protection must meet the requirements of § 10.2 of Appendix E to Specification M-1002 for general purpose tank cars.

b. A tank car must be equipped with a reclosing pressure relief device.

The minimum plate thicknesses specified in paragraph 2 above were determined in the following manner. Using finite elements analysis of side impact simulations, a relationship between the puncture velocity and shell thickness was derived. Factors affecting puncture velocity were incorporated into the analysis, including gross weight, ultimate tensile strength of the shell material, tank and jacket thickness, tank diameter, and internal pressure and indenter size (which for this comparative analysis was assumed to be 12” x 12”). The puncture velocities of representative baseline tank cars were calculated. The baseline tank cars were grouped according to the specified thickness requirements of the HMR. Additionally, the diameter of each grouping was based on a survey of tank car specifications. The specification grouping, respective diameters, thicknesses, materials of construction, and working pressures were as follows:

Through an iterative process, the thickness of a tank car with similar characteristics, with the exception of a GRL of 286,000 pounds, was increased until the puncture velocity was the same as that for the 263,000 GRL tank car. In a similar manner, the equivalent single-layer thickness was determined for tank cars not equipped with a jacket. The same analysis was not performed on the head because § 2.5 of AAR's Specification M-1002, requires the tank cars to be equipped with ½” thick head shields.

Failure of a tank car owner to comply with any condition of the above approvals will deprive the owner of the benefit of the approval and, in any such instances, FRA reserves the right to take appropriate enforcement action, which may result in FRA revoking such approval. If a party desires to manufacture or use a tank car not meeting the above criteria, FRA will consider such alternative designs upon application in accordance with § 179.13.