On October 1, 2010, after consultation with the Department of Homeland Security, OPM published (at 75 FR 60645) proposed regulations and requested comments concerning section 535 of the Department of Homeland Security Appropriations Act, 2008 (the Act), Division E of the Consolidated Appropriations Act, 2008, Public Law 110-161 (approved December 26, 2007), 112 Stat. 1844, at 2075, which enacted new human resource management provisions applicable to specified Customs and Border Protection employees. Section 535 of the Act provides that individuals defined as “customs and border protection officers” will be prospectively added as a new group with special human resource management provisions essentially similar to those applicable to other special retirement groups including law enforcement officers, nuclear materials couriers, and firefighters. The principal elements of those structures include: (1) A maximum entry age (to maintain a young and vigorous workforce and to permit a career to be completed by mandatory retirement age); (2) early optional retirement eligibility; (3) enhanced annuity provisions (to make a shorter career economically feasible); (4) mandatory retirement (generally at age 57, but with agency authority to extend to age 60), and (5) higher employer and employee retirement contribution rates. The effective date of section 535 is July 6, 2008.

In addition to the provisions that will be continuing and that apply to individuals employed as customs and border protection officers, section 535 of the Act also includes unique provisions applicable to individuals who are customs and border protection officers on its effective date. These incumbents will not be subject to mandatory retirement, but are eligible for partial annuity computation credit for future service as a customs and border protection officer.

The same definition is applicable to both FERS and CSRS:

The provision for extending coverage to “any successor position” is also novel. Primary coverage is based upon the GS-1895 series as of September 1, 2007, and it is possible that position classification standards and/or the manner in which positions are described may be changed in the future. The logical interpretation is that this is intended to provide authority for coverage should positions with the same elements currently classified in the GS-1895 series be assigned to another series at some time in the future so long as they would have been covered under the GS-1895 series as it existed on September 1, 2007.

Secondary coverage is not limited to positions in the GS-1895 series. However, section 535 of the Act permits secondary coverage using language equivalent to that applicable to other special retirement groups ( i.e., law enforcement officers, firefighters, etc.). Thus, as in the law enforcement officer retirement regulations, secondary coverage will generally be limited to continuous employment in supervisory and/or administrative positions that could not be performed by individuals without prior experience in a customs and border protection officer primary position.

As with other special retirement groups, the final authority on position coverage for retirement purposes is OPM, although coverage determinations are delegated to the Department of Homeland Security. Statutorily, OPM is also the final authority on position classification, the other aspect of retirement coverage eligibility.

Section 535 of the Act has provisions concerning mandatory retirement and annuity computation that are applicable to individuals who, depending upon the provision, were first appointed as a customs and border protection officer prior to the effective date, or are customs and border protection officers on the effective date.

Mandatory retirement: Sections 831.1608(c) and 842.1006(d) of the rule address the provisions of section 535(e)(2)(A) of the Act, which provide that mandatory retirement “shall not apply to an individual first appointed as a customs and border protection officer before the effective date” of July 6, 2008. Unlike another provision of section 535 (i.e., section 535(e)(2)(C)), section 535(e)(2)(A) does not specify that the individual has to be a customs and border protection officer on the effective date. Thus, an individual previously appointed as a customs and border protection officer before July 6, 2008, but not so employed on that date would not be subject to mandatory retirement upon returning to customs and border protection officer employment following that break in service.

Prior service and secondary coverage: Sections 831.1604(b) and 842.1003(c) of the rule address the provisions of section 535(e)(2)(B) of the Act, which provide special rules for treatment of pre-enactment customs and border protection officer service. These special rules are relevant to secondary customs and border protection officer coverage determinations. Section 535 of the Act is explicit that its provisions are prospective, stating in section 535(e)(2)(B)—

The meaning of clause (ii) is that if an individual is in a secondary (supervisory or administrative) position on July 6, 2008, that individual's eligibility to be a customs and border protection officer will be determined by looking back at the individual's employment history to determine whether the requirements for coverage would have been met if the provisions of 535 had been in effect during the earlier employment history.

There is one potential issue in this regard resulting from the fact that the GS-1895 series dates back only to July of 2004, and that standard is the one in effect on September 1, 2007. Thus, a cursory reading of this provision could be interpreted to mean that only if there has been three years of post-July 2004 primary service actually classified in the GS-1895 series followed by a direct transfer to a secondary position can an individual in a secondary position be found to be a customs and border protection officer on July 6, 2008. This would permit such coverage only if an individual transferred into a secondary position on or after July 1, 2007. This would mean that some customs and border protection officers in secondary supervisory and administrative customs and border protection officer positions on July 6, 2008, would not be entitled to retirement coverage under the law when the law went into effect.

Despite the lack of relevant legislative history, such a rigid interpretation would be inconsistent with the statutory scheme. There is however an alternative interpretation yielding a reasonable result, which OPM has adopted for this rule. Prior to the establishment of the GS-1895 series, it was preceded by three precursor position series; GS-1816, Immigration Inspection, GS-1890, Customs Inspection, and GS-1801, Canine Enforcement Officer. Most positions classified under those series would now be classified under the GS-1895 series.

Accordingly, for purposes of evaluating whether pre-July 2004 service is qualifying as primary service, positions classified prior to July 2004 in the GS-1816, GS-1890, or GS-1901 series should be considered as meeting the requirement of being a “position within the GS-1895 job series (determined applying the criteria in effect as of September 1, 2007).” However, merely being in one of those three series does not mean that the position was a primary position. The additional requirements relating to the type of work performed must also be satisfied.

Sections 831.1612(c) and 842.1009(c) of the rule address the unique provisions of section 535(e)(2)(C) of the Act, which provide for proportional annuity computations that are applicable only to individuals who are customs and border protection officers on July 6, 2008, based on an appointment to a customs and border protection officer prior to that date. Unlike the mandatory retirement exemption, the provisions of section 535(e)(2)(C) of the Act do not apply to a previously appointed customs and border protection officer who is not employed as a customs and border protection officer on July 6, 2008. A previously employed customs and border protection officer who returns after July 6, 2008, would not be eligible, nor would a U.S. Customs and Border Protection employee not in a customs and border protection officer position on July 6, 2008. Under the provisions of section 535(e)(2)(C), individuals do not receive credit for pre-July 6, 2008, service counted towards special retirement eligibility or computation. However, they are eligible to have post-July 5, 2008 customs and border protection officer service credited in their annuity computation at a higher rate even though they may not meet the requirements for special customs and border protection officer retirement. Service in other special retirement categories such as law enforcement officer or firefighter cannot be added to customs and border protection officer service for use in a proportional annuity computation.

Thus, a customs and border protection officer employed on July 6, 2008, and covered by CSRS would have all full months of customs and border protection officer service computed using an annual multiplier of 2.5 percent per year of such service up to 20 years. A customs and border protection officer employed on July 6, 2008, and covered by FERS would have all full months of customs and border protection officer service computed using an annual multiplier of 1.7 percent per year of such service up to 20 years.

Sections 831.1612(a) and 842.1009(a) of the rule address the provisions of section 535(e)(3) of the Act, which require that individuals who are customs and border protection officers on December 26, 2007, must be given the right to elect to be covered by or excluded from its provisions when it becomes effective on July 6, 2008. For such incumbents, section 535 provides a substantial lifetime annuity increase in return for a small increase in retirement contributions deducted from pay. Incumbents on July 6, 2008, are exempt from mandatory retirement. Although the Department of Homeland Security has already provided affected employees with the opportunity to elect to be excluded from the customs and border protection officer provisions, the proposed rule describes the terms of the election opportunity provided by the Department of Homeland Security in the event that there is any question about an employee's election opportunity in the future.

Sections 831.1612(b) and 842.1009(b) of the rule address the provisions of section 535(e)(5) of the Act, which specifies that nothing in section 535 or any amendment made by it shall be considered to afford any election or to otherwise apply with respect to anyone who as of December 25, 2007, was a law enforcement officer employed by U.S. Customs and Border Protection.

The rule makes various technical and conforming amendments to 5 CFR §§ 831.502, 841.403, 841.503, 842.208, 842.403, 842.801, and 842.901 to add references to customs and border protection officers. Section 831.502 is also being reissued in its entirety to correct typographical errors in the existing paragraph designations.

We received several comments regarding the proposed rule and they are addressed below. We have not addressed comments we received that were aimed at substantive benefit and procedural issues outside the scope of the regulations.

One commenter asked for an extension until November 3, 2010, to submit comments on the proposed rule because he had not immediately known that the proposed rule had been published. The proposed rule, with a request for comments, was published in the Federal Register and posted on Regulations.gov. This process provided adequate notice to the public of the proposed rule and of OPM's request for comments on the rule. The reasons provided by the commenter for asking for an extension are insufficient and would unnecessarily delay the publication of the final rule. The same commenter noted that the regulations make a distinction between primary and secondary positions. This commenter asked why the distinction is being made since “previous experience in a primary position is required.” This commenter also asked that the provisions of § 831.1607 be waived or phased-in over a period of time for current officers. Section 831.1607(a) provides in part that the Department of Homeland Security deduct and withhold an additional 0.5% an employee's base pay, as required under 5 U.S.C. 8334(a), when the employee is entitled to retirement coverage as a customs and border protection officer. With regard to primary and secondary positions, the regulations follow the general structure of the retirement regulations of other special groups such as law enforcement officers, firefighters, and nuclear materials couriers. All of these regulations draw a distinction between primary (or rigorous) positions and secondary positions, and the proposed rule incorporates substantially similar provisions. The distinction between primary and secondary provisions is based on the statutory distinction between front-line positions and secondary positions in all of the definitions for special groups. With regard to 5 U.S.C. 8334(a), OPM has no authority to waive or phase-in the statute.

Several commenters objected to the requirement at § 831.1604(a)(2) and § 842.1003(b)(2) of the proposed rule which provides that an employee have at least three years of experience in a primary customs and border protection officer position to continue to be covered as a customs and border protection officer upon direct transfer to a secondary supervisory or administrative position (the 3-year experience requirement). This requirement is included in the statutory definition of “customs and border protection officer” at 5 U.S.C. 8331(31) and § 8401(36). OPM has permitted as much flexibility as possible under the law in permitting prior service in occupational series that were precursor series to the GS-1895 series to count toward the 3-year experience requirement at § 831.1604(a)(2) and § 842.1003(b)(2). These special rules are provided at §§ 831.1604(b) and 842.1003(c) of the rules (see Prior service and secondary coverage above).

Another commenter indicated that the proposed rule improperly limited precursor series to the Customs and Border Protection Series (GS-1895) only to the Immigration Inspector Series (GS-1816), Customs Inspector Series (GS-1890), and Canine Enforcement Officer Series (GS-1801). This commenter also stated that given the similarity between the statutory definition of customs and border protection officer and the statutory definitions for other special groups such as law enforcement officers and firefighters, that only the duties of a position (i.e., activities relating to the arrival and departure of persons, conveyances, and merchandise at ports of entry) should be considered when the 3-year experience requirement is applied. First, the regulations do not limit precursor series to the Customs and Border Protection Series (GS-1895) to only the Immigration Inspector Series (GS-1816), Customs Inspector Series (GS-1890), and Canine Enforcement Officer Series (GS-1801). Sections 831.1604(b)(1)(i) and 842.1003(c)(1)(i) provide that in addition to the Immigration Inspector Series (GS-1816), Customs Inspector Series (GS-1890), and Canine Enforcement Officer Series (GS-1801), a precursor series to the GS-1895 series includes “any other series which the agency head determines were predecessor series to the Customs and Border Protection Series (GS-1895), and that would have been classified under the GS-1895 series had it then existed.” Second, OPM cannot adopt an approach to the 3-year experience requirement that disregards the statutory reference to the GS-1895 series in favor of an approach which considers only the duties performed by an employee. The statutory definition of customs and border protection officer clearly requires that customs and border protection officer retirement coverage in a supervisory or administrative position in the Department of Homeland Security is only permitted when an employee is transferred directly to such a position after performing duties relating to the arrival and departure of persons, conveyances, and merchandise at ports of entry in one or more positions classified within the GS-1895 job series. Thus, work experience in a position classified within the GS-1895 job series is one of the conditions that must be satisfied for an employee to continue customs and border protection officer retirement coverage in a supervisory or administrative position. As discussed above, the inclusion of the reference to the GS-1895 job series in the customs and border protection officer definition is the first time in history of special retirement coverage definitions that a specific reference to a Federal occupational series has been included in a definition. Although the regulations are flexible in that they permit service in precursor series to the Customs and Border Protection Series (GS-1895) to be used to satisfy the 3-year experience requirement, the requirement that an employee have experience in the GS-1895 job series to continue customs and border protection officer retirement coverage in a supervisory or administrative position cannot be disregarded.

Two commenters asked that the proposed rule be changed to allow service as a law enforcement officer to be used to satisfy the requirements for special coverage in a customs and border protection officer position. One commenter, noted that 5 U.S.C. 8336(c) and 8412(d) provide that “any combination” of service as a law enforcement officer, firefighter, nuclear materials courier, customs and border protection officer, etc., can be used to meet the service requirements for entitlement to an immediate retirement under those sections. This commenter stated that service as a law enforcement officer, firefighter, nuclear materials courier, customs and border protection officer, etc., is therefore interchangeable for other purposes as well. This commenter also asked whether a 38-year-old employee with 10 years of service as a customs and border protection officer could transfer to a law enforcement officer position. Law enforcement officer, firefighter, nuclear materials courier, customs and border protection officer, and other types of special service are each defined by the different duties. The duties of a law enforcement officer (investigation, apprehension, or detention of individuals suspected or convicted of offenses against the criminal laws of the United States) and the duties of a customs and border protection officer (activities relating to the arrival and departure of persons, conveyances, and merchandise at ports of entry) are entirely different. Each type of special group service is a unique career field and positions within each group are classified under a separate occupational series. Experience in one occupation is not equivalent with experience in another occupation. In fact, one policy goal of special retirement coverage is to encourage career service by an employee in the particular occupation chosen by the employee. However, it is possible for an employee to move, within certain limits, from one of the special group occupations to another without a loss of special retirement coverage. Changing careers is easier for an employee to do early in his or her career, and there should be no obstacle to a 38-year-old employee with 10 years of service as a customs and border protection officer moving to a primary law enforcement officer position. In this situation, an agency would be within its discretion to adjust the usual law enforcement officer maximum entry age (age 37) for the employee by 10 years (i.e., to age 47) because the employee already has 10 years of service creditable towards entitlement under 5 U.S.C. 8412(d) (assuming the employee is covered by FERS). If the employee remained continuously employed as a law enforcement officer, he would have 29 years of combined customs and border protection officer service and law enforcement officer service when he reached age 57, and would be subject to mandatory separation by virtue of the “any combination of such service” clause of § 8412(d). The second commenter asked that service in a “CBPO (Enforcement) (CBPOE) position, or in the predecessor Senior Immigration Inspector position” be considered as service in a primary customs and border protection officer for purposes of transferring to a secondary position because employees in these positions were law enforcement officers under subchapter III of chapter 83 and chapter 84 of title 5, United States Code, before the enactment of section 535 of the Act. As discussed above, the duties of a law enforcement officer and customs and border protection officer are not equivalent. Furthermore, section 535(e)(5) of the Act clearly provides that nothing in section 535 or any amendment made by it shall be considered to afford any election or to otherwise apply with respect to anyone who as of December 25, 2007, was a law enforcement officer employed by U.S. Customs and Border Protection. Law enforcement officer experience cannot be used to meet the 3-year customs and border protection officer experience requirement under § 831.1604 and § 842.1003(b) of the regulations.

One commenter asserted that § 831.1605 of the proposed rule is inconsistent with the existing CSRS law enforcement officer regulations at 5 CFR 831.906(e) and the court's decision in Hall v. Department of the Treasury, 264 F.3d 1050 (Fed. Cir. 2001). This commenter also asserted that § 831.1605 of the proposed rule “engraft the more restrictive FERS regulations [at 5 CFR 842.906]” onto the CSRS customs and border protection officer regulations. Section § 831.1605 of the proposed rule is not inconsistent with the court's decision in Hall. In the section of the court's decision where it discussed 5 CFR 831.906(e), it merely cited the provisions at § 831.906(e) and determined that the Treasury had waived its timeliness defense under § 831.906(e) when it decided the merits of Mr. Hall's complaint without addressing the question of timeliness. Hall, 264 F.3d at 1061. The court's decision in Hall does not require OPM to use the rule at § 831.906(e) for other special groups. The rule at § 831.1605 of the proposed rule is based on § 831.805(c) of subpart H of title 5, Code of Federal Regulations—the regulations pertaining to CSRS nuclear materials courier retirement coverage. Although § 831.1605 of the proposed rule is different from 5 CFR 831.906(e), it provides a reasonable amount of flexibility for the consideration of untimely requests. If an employee in a position not subject to the one-half percent higher withholding rate of 5 U.S.C. 8334(c) fails to seek a determination from the Department of Homeland Security within 6 months after entering the position, or after any significant change in the position, that his or her position is properly covered by the higher withholding rate, the agency head's determination that the service was not so covered at the time of the service is presumed to be correct. This presumption may be rebutted by a preponderance of the evidence that the employee was unaware of his or her status or was prevented by cause beyond his or her control from requesting that the official status be changed at the time the service was performed. Furthermore, because the presumption is a defense to an untimely request, the Department of Homeland Security may decide not to assert the presumption of correctness as a defense. In other words, the Department of Homeland Security may waive the defense by addressing the merits of the employee's claim, as occurred in Hall.

One commenter asked that the deadline for past service credit requests at § 831.1606(c) be changed to after the date of publication of the final rule. We agree. The date at § 831.1606(c) was arrived at during the drafting of the proposed rule. At the time, the June 30, 2011 date was in the future. We have changed the date to June 30, 2012.

This rule has been reviewed by the Office of Management and Budget in accordance with Executive Order 12866.

I certify that this regulation will not have a significant economic impact on a substantial number of small entities because the regulation will only affect retirement payments to retired employees, spouses, former spouses, and insurable interest survivors.

For the reasons discussed in the preamble, OPM is amending 5 CFR parts 831, 841, and 842, as set forth below:

The Department of Homeland Security (DHS) Transportation Security Administration (TSA) published a notice of proposed rulemaking (NPRM) in the Federal Register , 75 FR 7978, February 23, 2010, proposing to exempt portions of the DHS/TSA-023 Workplace Violence Prevention Program system of records from one or more provisions of the Privacy Act because of criminal, civil, and administrative enforcement requirements. The DHS/TSA-023 Workplace Violence Prevention Program system of records notice (SORN) was published concurrently in the Federal Register , 75 FR 8096, February 23, 2010, and comments were invited on both the NPRM and SORN.

DHS/TSA received one comment on the NPRM and no comments on the SORN.

DHS/TSA received one comment from the public that supported the proposed rule. No other substantive or significant comments were received.

TSA received no comments on the SORN.

After consideration of the public comment received, the Department will implement the rulemaking as proposed.

For the reasons stated in the preamble, DHS amends Chapter I of Title 6, Code of Federal Regulations, as follows:

The Department of Homeland Security (DHS) Federal Emergency Management Agency (FEMA) published a notice of proposed rulemaking (NPRM) in the Federal Register , 76 FR 18954, April 6, 2011, proposing to exempt portions of the system of records from one or more provisions of the Privacy Act because of criminal, civil, and administrative enforcement requirements. The system of records is the DHS/FEMA—011 Training and Exercise Program Records System of Records. The DHS/FEMA—011 Training and Exercise Program Records system of records notice (SORN) was published concurrently in the Federal Register , 76 FR 19107, April 6, 2011, and comments were invited on both the NPRM and SORN.

DHS did not receive comments on the NPRM or SORN. The Department will implement the rulemaking as proposed.

For the reasons stated in the preamble, DHS amends Chapter I of Title 6, Code of Federal Regulations, as follows:

Background

The Department of Homeland Security (DHS) Office of Operations Coordination and Planning (OPS) published a notice of proposed rulemaking (NPRM) in the Federal Register , March 8, 2011, 76 FR 12745, proposing to exempt portions of the system of records from one or more provisions of the Privacy Act because of criminal, civil, and administrative enforcement requirements. The system of records is the DHS/OPS-002 National Operations Center Tracker and Senior Watch Officer Logs Records System of Records. The DHS/OPS-002 National Operations Center Tracker and Senior Watch Officer Logs Records system of records notice (SORN) was published concurrently in the Federal Register , March 8, 2011, 76 FR 12609, and comments were invited on both the NPRM and SORN.

No comments were received on the NPRM or SORN. The Department will implement the rulemaking as proposed.

For the reasons stated in the preamble, DHS amends Chapter I of Title 6, Code of Federal Regulations, as follows:

This rule is issued under Marketing Agreement and Order No. 989 (7 CFR part 989), both as amended, regulating the handling of raisins produced from grapes grown in California, 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 final 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 in equity 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.

This rule increases the desirable carryout used to compute the yearly trade demand for NS raisins regulated under the order. “Trade demand” is computed based on a formula specified in the order, and is used to determine volume regulation percentages for each crop year, if necessary. “Desirable carryout,” one component of this formula, is the amount of tonnage carried in from the prior crop year which is considered necessary to meet market needs, before raisins from the new crop year are available.

Currently, the desirable carryout for NS raisins is defined as: The total shipments of free tonnage during August and September of each of the past 5 crop years, converted to a natural condition basis, dropping the high and low figures, and dividing the remaining sum by three, or 60,000 natural condition tons, whichever is higher. This rule increases the desirable carryout to 85,000 natural condition tons, with no further calculations required. This action was unanimously recommended by the committee at a meeting held on February 23, 2011.

It should be noted that the desirable carryout for raisin varieties other than NS are not impacted by this change.

The order provides authority for volume regulation designed to promote orderly marketing conditions, stabilize prices and supplies, and improve producer returns. When volume regulation is in effect, a certain percentage of the California raisin crop may be sold by handlers to any market (free tonnage) while the remaining percentage must be held by handlers in a reserve pool (reserve) for the account of the committee.

Reserve raisins are disposed of through certain programs authorized under the order. For instance, reserve raisins may be sold by the committee to handlers for free use or to replace part of the free tonnage raisins they exported; used in diversion programs; carried over as a hedge against a short crop the following year; or disposed of in other outlets not competitive with those for free tonnage raisins, such as government purchase, distilleries, or animal feed. Funds generated from sales of reserve raisins are also used to support handler sales to export markets. Net proceeds from sales of reserve raisins are ultimately distributed to the reserve pool's equity holders, primarily producers.

Section 989.54 of the order prescribes procedures to be followed in establishing volume regulation and includes methodology used to calculate volume regulation percentages. Trade demand is based on a computed formula specified in this section, and is also part of the formula used to determine volume regulation percentages. Trade demand is equal to 90 percent of the prior year's shipments, adjusted by the carrying and desirable carryout inventories.

At one time, § 989.54(a) also specified actual tonnages for desirable carryout for each varietal type regulated. However, in 1989, these tonnages were suspended from the order, and flexibility was added so that the committee could adopt other methods for arriving at a desirable carryout in the order's rules and regulations. The current formula has allowed the committee to periodically adjust the desirable carryout to better reflect changes in marketing conditions, as they have since 1989, most recently in 2000 and 2002.

The formula for desirable carryout has been specified since 1989 in § 989.154. Initially, the formula was established so that desirable carryout was based on shipments for the first 3 months of the prior crop year—August, September, and October (the crop year runs from August 1 through July 31). The formula has been changed over the years because the committee believed that an excessive supply of raisins was available early in a new crop year, which contributed to unstable market conditions.

However, given recent worldwide shortages of NS raisins, a favorable monetary exchange rate, and the extremely low inventory carried in by the industry at the beginning of the 2010-11 crop year, the committee determined that the current trade demand formula would not provide enough raisins to meet market demands when volume regulation is implemented, especially in the early part of the crop year when supplies can be tight. Thus, the committee recommended increasing the desirable carryout component of the formula. This change also allows desirable carryout of NS raisins to more accurately reflect the amount of NS raisins that handlers actually hold in inventory at the end of a crop year, or about 100,000 tons.

At a meeting on February 23, 2011, the committee reviewed the desirable carryout level. Most committee members believe that the supply of free tonnage raisins on the market has become tight, and the carryout balance has resulted in market shortages and missed marketing opportunities in the early part of the season. The following table illustrates handler inventories for NS raisins have generally been declining in recent years, with the exception of 2009-10.

Committee staff estimated that this change to the desirable carryout level would increase the 2011-12 trade demand for NS raisins by 15,000 tons. Increasing the trade demand will increase the free tonnage percentage, making more free tonnage available to handlers for immediate use. The effect of increased free tonnage would be to decrease any reserve pool which might be established.

NS raisins are the major commercial varietal type of raisin produced in California. With the exception of the 1998-99, 2003-04, and 2010-11 crop years, volume regulation has been implemented for NS raisins every year since 1983.

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 final 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. Thus, both statutes have small entity orientation and compatibility.

There are approximately 28 handlers of California raisins who are subject to regulation under the order and approximately 3,000 raisin producers in the regulated area. The Small Business Administration (13 CFR 121.201) defines small agricultural service firms 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 upon shipment data and other information provided by the committee, it may be concluded that a majority of producers and approximately 18 handlers of California raisins may be classified as small entities.

This rule increases the desirable carryout used to compute the yearly trade demand for raisins regulated under the order. “Trade demand” is computed based on a formula specified under § 989.54(a) of the order. It is also part of another formula used to determine volume regulation percentages for each crop year, if necessary. “Desirable carryout,” one component of this formula, is the amount of tonnage from the prior crop year needed during the first part of the next crop year to meet market needs, before new crop raisins are available. Currently, the desirable carryout for Natural (sun-dried) Seedless (NS) raisins is defined as: The total shipments of free tonnage during August and September of each of the past 5 crop years, converted to a natural condition basis, dropping the high and low figures, and dividing the remaining sum by three, or 60,000 natural condition tons, whichever is higher.

This rule increases the desirable carryout to 85,000 natural condition tons, with no calculations required. This action was unanimously recommended by the committee at a meeting held on February 23, 2011.

The desirable carryout level applies uniformly to all handlers in the industry, whether small or large, and there are no known additional costs incurred by small handlers. As previously mentioned, increasing the desirable carryout will increase the trade demand and free tonnage percentage, thus making more raisins available to handlers early in the season. This action is expected to provide more raisins at the beginning of each crop year to meet early demand, thereby improving market conditions at a time period when optimum shipments are advantageous—in time for the holidays. Holiday shipments begin in August, before new-crop raisins are available, and continue through October, and have traditionally been the highest shipment period, as buyers prepare for increased holiday sales of raisins and goods containing raisins.

The committee has an appointed subcommittee, the Administrative Issues Subcommittee (subcommittee), which periodically holds public meetings to discuss changes to the order and other issues. The subcommittee met on February 1, 2011, and discussed desirable carryout, considering a number of alternative levels of desirable carryout. While there was no opposition to increasing the desirable carryout, some industry members supported making the NS desirable carryout 90,000 natural condition tons, while some suggested that 80,000 natural condition tons was a good alternative. Still others suggested that the ideal number might be closer to 100,000 natural condition tons, in keeping with the average of the last several years' actual inventory carried in at the beginning of the crop year, 106,000 natural condition tons. The 85,000 natural condition tons ultimately recommended was a compromise reached during subcommittee deliberations of the alternatives.

On February 23, 2011, the subcommittee met again and further discussed desirable carryout before recommending to the full committee that the desirable carryout be increased for NS raisins from the current formula or 60,000 natural condition tons, whichever is greater, to simply 85,000 natural condition tons. Ultimately, the full committee adopted the subcommittee's recommendation, and unanimously recommended the change to USDA.

This final rule would impose no additional reporting or recordkeeping requirements on either small or large raisin 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. 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.

In addition, the subcommittee's meetings on February 1, 2011, and February 23, 2011; and the committee's meeting on February 23, 2011, were public meetings, widely publicized throughout the raisin industry. All interested persons were invited to attend the meetings and encouraged to participate in the industry's deliberations.

A proposed rule concerning this action was published in the Federal Register on May 13, 2011 (76 FR 27921). Copies of the rule were provided to all committee members and raisin handlers. Finally, the rule was made available through the Internet by USDA and the Office of the Federal Register. A 30-day comment period ending June 13, 2011, was provided to allow interested persons to respond to the proposal. There were two comments received during the comment period, both in support of the proposed rule. Accordingly, no changes will be made to the rule as proposed.

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

After consideration of all relevant matters presented, including information and recommendation submitted by the committee and other available information, it is hereby found that this rule, as hereinafter set forth, will tend to effectuate the declared policy of the Act.

It is further found that good cause exists for not postponing the effective date of this rule until 30 days after publication in the Federal Register (5 U.S.C. 553) because handlers are aware of this change, which was unanimously recommended at at least one public meeting. In addition, this rule needs to be in effect in time for the beginning of the new crop year, which is August 1, 2011.

This rule is issued under the Watermelon Research and Promotion Plan [7 CFR part 1210]. The Plan is authorized under the Watermelon Research and Promotion Act (Act) [7 U.S.C. 4901-4916].

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

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

The Act allows producers, producer-packers, handlers, and importers to file a written petition with the Secretary of Agriculture (Secretary) if they believe that the Plan, any provision of the Plan, or any obligation imposed in connection with the Plan, is not established in accordance with the law. In any petition, the person may request a modification of the Plan or an exemption from the Plan. The petitioner will have the opportunity for a hearing on the petition. Afterwards, an Administrative Law Judge (ALJ) will issue a decision. If the petitioner disagrees with the ALJ's ruling, the petitioner has 30 days to appeal to the Judicial Officer, who will issue a ruling on behalf of the Secretary. If the petitioner disagrees with the Secretary's ruling, the petitioner may file, within 20 days, an appeal in the U.S. District Court for the district where the petitioner resides or conducts business.

In accordance with the Regulatory Flexibility Act [5 U.S.C. 601-612], AMS has examined the economic impact of this rule on the small producers, handlers, and importers that would be affected by this rule.

The Small Business Administration defines, in 13 CFR part 121, small agricultural producers as those having annual receipts of no more than $750,000 and small agricultural service firms (handlers and importers) as those having annual receipts of no more than $7 million. Under these definitions, the majority of the producers, handlers, and importers that would be affected by this rule would be considered small entities. Producers of less than 10 acres of watermelons are exempt from this program. Importers of less than 150,000 pounds of watermelons per year are also exempt.

USDA's National Agricultural Statistics Service (NASS) data for the 2010 crop year was about 310 hundredweight (cwt.) of watermelons were produced per acre. The 2010 grower price published by NASS was $12.00 per hundredweight. Thus, the value of watermelon production per acre in 2010 averaged about $3,720 (310 cwt. × $12.00). At that average price, a producer would have to farm over 202 acres to receive an annual income from watermelons of $750,000 ($750,000 divided by $3,720 per acre equals 202). Accordingly, as previously noted, a majority of the watermelon producers would be classified as small businesses.

Based on the Board's data, using an average of freight on board (f.o.b.) price of $.0164 per pound and the number of pounds handled in 2010, none of the watermelon handlers had receipts over the $7.5 million threshold. Therefore, the watermelon handlers would all be considered small businesses. A handler would have to ship over 457 million pounds of watermelons to be considered large (457,317,073 times $.0164 f.o.b. equals $7,500,000).

According to the Board, there are approximately 950 producers, 230 handlers, and 137 importers who are required to pay assessments under the program.

Based on the watermelon import assessments received for the year 2010, the United States imported watermelons worth over $260 million dollars. The largest imports of watermelon came from Mexico which accounted for 93 percent of the total in 2010. Other suppliers of imported watermelon are Guatemala at 3 percent and Honduras at 1 percent. The remaining 3 percent of imported watermelon came from Canada, Netherlands, Nicaragua, Nigeria, and Panama.

The Board's assessment records show imports for the years 2007, 2008, and 2009 at $681,565, $783,249, and $742,363 respectively. Based on this data, the three-year average annual imports for watermelon total $735,725 (2,207,177 divided by 3). This represents approximately 29 percent of the total assessments paid to the Board. Currently there are 6 importers on the Board representing 17 percent of the total members. Accordingly, two importer seats should be added to the Board. The new Board membership distribution would be 14 producers, 14 handlers, 8 importers, and 1 public member which would bring the percentage of seats for importers to 22 percent of the total seats on the Board.

Nominations and appointments to the Board are conducted pursuant to sections 1210.321 of the Plan. The Plan requires producers to be nominated by producers, handlers to be nominated by handlers, and importers to be nominated by importers. This would not change. Because some current members are in States or counties which would be moved to other districts under this rule, one producer member vacancy in the new District 2, one handler member vacancy in the new Districts 3, and one producer member vacancy in the new District 7 would result with this change. Nomination meetings will be held in the new districts to fill these vacancies.

Appointments to the Board are made by the Secretary from a slate of nominated candidates. The nominees for the two producer, one handler and two importer positions will be submitted to the Secretary for appointment to the Board.

The overall impact is favorable because the new district boundaries provide more equitable representation for the producers, handlers, and importers who pay assessments in the various districts.

The Board chose the realignment scenario that kept the States together. For instance, California is currently divided into two districts and the Board has realigned California so that all the counties in California are located in one district. The new realignment would also give Georgia and Texas their own respective districts. The other States will be divided up to reflect their watermelon production levels and grouped together for the four remaining districts.

The Board considered several alignments of the districts in an effort to provide balanced representation for each district. The Board selected the alignment described in this rule as it provides proportional representation on the Board of producers, handlers, and importers. The addition of two importers would allow for more importers representation on the Board's decision making and also potentially provide an opportunity to increase diversity on the Board.

In accordance with the Office of Management and Budget (OMB) regulation [5 CFR part 1320] which implements the Paperwork Reduction Act of 1995 [44 U.S.C. Chapter 35], the background form, which represents the information collection and recordkeeping requirements that are imposed by the Plan have been approved previously under OMB number 0505-0001.

The Plan requires that two nominees be submitted for each vacant position. With regard to information collection requirements, adding two importers to the Board means that four additional importers will be required to submit background forms to USDA in order to be considered for appointment to the Board. However, serving on the Board is optional, and the burden of submitting the background form would be offset by the benefits of serving on the Board. The estimated annual cost of providing the information by four importers would be $33 or $8.25 per importer. The additional minimal burden will be included in the existing information collection package under OMB number 0505-0001.

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

Under the Plan, the Board administers a nationally coordinated program of research, development, advertising, and promotion designed to strengthen the watermelon's position in the market place and to establish, maintain, and expand markets for watermelons. This program is financed by assessments on producers growing 10 acres or more of watermelons, handlers of watermelons, and importers of 150,000 pounds of watermelons or more per year. The Plan specifies that handlers are responsible for collecting and submitting both the producer and handler assessments to the Board, reporting their handling of watermelons, and maintaining records necessary to verify their reporting(s). Importers are responsible for payment of assessments to the Board on watermelons imported into the United States through the U.S. Customs Service and Border Protection. This action will not have any impact on the assessment rates paid by producers, handlers, and importers.

Membership on the Board consists of two producers and two handlers for each of the seven districts established by the Plan, at least one importer, and one public member. The Board currently consists of 35 members: 14 producers, 14 handlers, 6 importers, and 1 public member.

The seven current districts were established in 2006. They are:

District 1 —The Florida counties of Brevard, Broward, Charlotte, Citrus, Collier, Dade, DeSoto, Flagler, Glades, Hardee, Hendry, Hernando, Highlands, Hillsborough, Indian River, Lake, Lee, Manatee, Martin, Marion, Monroe, Okeechobee, Orange, Osceola, Palm Beach, Pasco, Pinellas, Polk, Putnam, Sarasota, Seminole, St. Johns, St. Lucie, Sumter, and Volusia.

District 2 —The Florida counties of Alachua, Baker, Bay, Bradford, Calhoun, Clay, Columbia, Dixie, Duval, Escambia, Franklin, Gadsden, Gilchrist, Gulf, Hamilton, Holmes, Jackson, Jefferson, Lafayette, Leon, Levy, Liberty, Madison, Nassau, Okaloosa, Santa Rosa, Suwannee, Taylor, Union, Wakulla, Walton, Washington, and the Georgia counties Early, Baker, Miller, Mitchell, Colquitt, Thomas, Grady, Decatur, Seminole, and the States of Alabama, Arkansas, Louisiana, Mississippi, North Carolina, Oklahoma, Tennessee, and Virginia.

District 3 —The Georgia counties not included in District two and the State of South Carolina.

District 4 —The States of North Dakota, South Dakota, Nebraska, Kansas, Minnesota, Iowa, Illinois, Missouri, Michigan, Indiana, Ohio, Kentucky, West Virginia, Maryland, New Hampshire, Maine, New Jersey, New York, Pennsylvania, Massachusetts, Rhode Island, Delaware, Vermont, Wisconsin, Connecticut, and Washington, DC.

District 5 —The States of Alaska, Hawaii, Nevada, Oregon, and Washington and all of the counties in the state of California except for those California counties included in District Seven.

District 6 —The counties in the state of Texas, except for those counties in Texas included in District Seven.

District 7 —The counties in the state of Texas; Dallam, Sherman, Hanaford, Ochiltree, Lipscomb, Hartley, Moore, Hutchinson, Roberts, Hemphill, Oldham, Potter, Carson, Gray, Wheeler, Deaf Smith, Randall, Armstrong, Donley, Collingsworth, Parmer, Castro, Swisher, Briscoe, Hall, Childress, Bailey, Lamb, Hale, Floyd, Motley, Cottle, Cochran, Hockley, Lubbock, Crosby, Dickens, King, Yoakum, Terry, Lynn, Garza, Kent, Stonewall, the States of New Mexico, Arizona, Utah, Colorado, Idaho, Montana, and Wyoming, and the following counties in California; San Bernardino, Riverside, San Diego, and Imperial.

Pursuant to section 1210.320(c) of the Plan, the Board shall review the seven districts every five years to determine whether realignment of the districts is necessary. When making a review, the Plan specifies that the Board should consider factors such as the most recent three years of USDA production reports or Board assessment reports if USDA production reports are unavailable, shifts and trends in quantities of watermelons produced, and any other relevant factors. Any realignment should be recommended by the Board at least six months prior to the date of the call for nominations and should become effective at least 30 days prior to this date.

Pursuant to section 1210.320(e) of the Plan, the Secretary shall review importer representation every five years. According to the Plan, the Secretary shall review a three-year average of watermelon import assessments and adjust, to the extent practicable, the number of importers on the Board.

The Board appointed a subcommittee to begin reviewing the U.S. districts and to determine whether realignment was necessary based on production and assessment collections in the current districts. During the review, as prescribed by the Plan, the subcommittee reviewed USDA's Annual Crop Summary reports for 2007 through 2009, which provided figures for the top 17 watermelon producing States, and the Board's assessment collection records for 2007 through 2009. Both sets of data showed similar trends in production among the various States. However, the Board used the assessment reports because USDA's Annual Crop Summary reports were available for only 17 of the 34 States in which watermelons are produced.

The subcommittee recommended to the Board that the boundaries of all seven districts be changed in order to provide for a better distribution of production among producers and handlers in the districts.

The subcommittee also considered the assessments of watermelon imports paid to the Board. The Board's assessment records show imports for the years 2007, 2008, and 2009 at $681,565, $783,249, and $742,363 respectively. Based on this data, the three-year average annual imports for watermelon total $735,725 (2,207,177 divided by 3). The average annual percentage of assessments paid by importers represents almost 29 percent of the Board's assessment income. In contrast to the 2006 realignment, the importer's assessment collection represented 20 percent of the Board's assessment income. Because there was a 9 percent increase in the assessments on imports, the Board recommended an increase in the number of importers on the Board. USDA has evaluated information concerning importer assessments and has determined that the number of importer representatives on the Board should be increased by two members. Therefore, the number of importer Board members would increase from six to eight.

Section 1647(3)(A) of the Act authorizes the Board to have at least one or more importer representative to serve on the Board. However, there is no section in the Plan that identifies the number of importers on the Board. Section 1210.502 is currently reserved and will be used to reflect importer representation on the Board.

The realignment was approved by the Board at its November 13, 2010, meeting. Under the realignment, each district would represent, on average, 16 percent of total U.S. production. The composition of the Board would increase to a total of 37 members: 14 producers, 14 handlers, 8 importers, and 1 public member.

Therefore, this rule realigns the districts as follows:

District 1 —The Florida counties of Brevard, Broward, Charlotte, Collier, Dade, Desoto, Glades, Hardee, Hendry, Highlands, Hillsborough, Indian River, Lake, Lee, Manatee, Martin, Monroe, Okeechobee, Orange, Osceola, Palm Beach, Pasco, Pinellas, Polk, Sarasota, Seminole, St. Lucie, and Volusia.

District 2 —The Florida counties of Alachua, Baker, Bay, Bradford, Calhoun, Citrus, Clay, Columbia, Dixie, Duval, Escambia, Flagler, Franklin, Gadsden, Gilchrist, Gulf, Hamilton, Hernando, Holmes, Jackson, Jefferson, Lafayette, Leon, Levy, Liberty, Madison, Marion, Nassau, Okaloosa, Putnam, Santa Rosa, St. Johns, Sumter, Suwannee, Taylor, Union, Wakulla, Walton, and Washington, and the States of North Carolina and South Carolina.

District 3 —The State of Georgia.

District 4 —The States of Alabama, Connecticut, Delaware, Illinois, Indiana, Kentucky, Maine, Maryland, Massachusetts, Michigan, New Hampshire, New Jersey, New York, Ohio, Pennsylvania, Rhode Island, Tennessee, Virginia, Vermont, Wisconsin, West Virginia, and Washington, DC.

District 5 —The State of California.

District 6 —The State of Texas.

District 7 —The States of Alaska, Arkansas, Arizona, Colorado, Hawaii, Idaho, Iowa, Kansas, Louisiana, Minnesota, Mississippi, Missouri, Montana, Nebraska, Nevada, New Mexico, North Dakota, Oklahoma, Oregon, South Dakota, Utah, Washington, and Wyoming.

Under this realignment: (1) The Florida counties of Citrus, Flagler, Hernando, Marion, Putnam, St. Johns and Sumter are moved from District 1 to District 2; (2) Alabama, Tennessee, and Virginia are moved from District 2 to District 4; (3) Arkansas, Louisiana, Mississippi, and Oklahoma are moved from District 2 to District 7; (4) Georgia counties Early, Baker, Miller, Mitchell, Colquitt, Thomas, Grady, Decatur, and Seminole are moved from District 2 to District 3, (5) South Carolina moved from District 3 to District 2; (6) Iowa, Kansas, Minnesota, Missouri, Nebraska, North Dakota, and South Dakota are moved from District 4 to District 7; (7) Alaska, Hawaii, Nevada, Oregon, and Washington are moved from District 5 to District 7; (8) The following counties in the State of Texas: Armstrong, Bailey, Briscoe, Carson, Castro, Childress, Cochran, Collingsworth, Cottle, Crosby, Dallam, Deaf Smith, Dickens, Donley, Floyd, Garza, Gray, Hale, Hall, Hanaford, Hartley, Hemphill, Hockley, Hutchinson, Kent, King, Lamb, Lipscomb, Lubbock, Lynn, Moore, Motley, Ochiltree, Oldham, Parmer, Potter, Randall, Roberts, Sherman, Stonewall, Swisher, Terry, Wheeler, and Yoakum are moved from District 7 to District 6; (9) the following counties in California: San Bernardino, Riverside, San Diego, and Imperial are moved from District 7 to District 5.

Due to the re-alignment of districts, the following vacancies are created: one producer vacancy in District 2; one handler vacancy in District 3, one producer vacancy in District 7; and two importer vacancies. Current Board members would be affected because their States or counties would be moved to other districts. Nomination meetings will be held as soon as possible in the new districts to fill the vacancies.

A 30-day comment period was provided to allow interested persons to respond to the proposal which was published in the Federal Register on May 5, 2011 [76 FR 25619]. Copies of the rule were made available through the Internet by USDA and the Office of the Federal Register. The comment period ended June 6, 2011. Two comments were received by the deadline.

Two favorable comments were received. One commenter agreed with the Board's recommendation to realign the district boundaries. The other commenter supported the Board's recommendation to add two importers to the Board based on the 29 percent of assessments paid by importers to the Board. The number of importer members would increase from six to eight importer members on the Board.

After consideration of all relevant material presented, the Board's recommendation, and other information, it is hereby found that this rule is consistent with and will effectuate the purpose of the Act.

Pursuant to 5 U.S.C. 553, it also found that good cause exists for not postponing the effective date of this action until one day after publication in the Federal Register because the Board's term of office begins January 1, 2012, and this rule will allow the upcoming nominations and appointments to be conducted in a timely manner for the new members to be appointed to the Board so they can begin serving during the next term of office.

For the reasons set forth in the preamble, Part 1210, Chapter XI of Title 7 is amended as follows:

Executive Order 12866

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

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

Section 11 of the Act provides that nothing in the Act may be construed to preempt or supersede any other program relating to beef promotion organized and operated under the laws of the United States or any State. There are no administrative proceedings that must be exhausted prior to any judicial challenge to the provisions of this rule.

Pursuant to the requirements set forth in the Regulatory Flexibility Act (RFA)(5 U.S.C. 601-612), the Administrator of the Agricultural Marketing Service (AMS) has considered the economic effect of this action on small entities and has determined that this final rule will not have a significant economic impact on a substantial number of small entities. The purpose of RFA is to fit regulatory actions to the scale of businesses subject to such actions in order that small businesses will not be unduly burdened.

In the February 2010 publication of “Farms, Land in Farms, and Livestock Operations,” USDA's National Agricultural Statistics Service (NASS) estimates that in 2009 the number of operations in the United States with cattle totaled approximately 950,000. The majority of these operations that are subject to the Order may be classified as small entities.

The final rule imposes no new burden on the industry. It only adjusts representation on the Board to reflect changes in domestic cattle inventory and cattle and beef imports. The adjustments are required by the Order and will result in a decrease in Board membership from 106 to 103.

The Board was initially appointed August 4, 1986, pursuant to the provisions of the Act (7 U.S.C. 2901-2911) and the Order issued thereunder. Domestic representation on the Board is based on cattle inventory numbers, and importer representation is based on the conversion of the volume of imported cattle, beef, or beef products into live animal equivalencies.

Section 1260.141(b) of the Order provides that the Board shall be composed of cattle producers and importers appointed by the Secretary of Agriculture (Secretary) from nominations submitted by certified producer organizations. A producer may only be nominated to represent the unit in which that producer is a resident.

Section 1260.141(c) of the Order provides that at least every 3 years and not more than every 2 years, the Board shall review the geographic distribution of cattle inventories throughout the United States and the volume of imported cattle, beef, and beef products and, if warranted, shall reapportion units and/or modify the number of Board members from units in order to reflect the geographic distribution of cattle production volume in the United States and the volume of cattle, beef, or beef products imported into the United States.

Section 1260.141(d) of the Order authorizes the Board to recommend to USDA modifications to the number of cattle per unit necessary for representation on the Board.

Section 1260.141(e)(1) provides that each geographic unit or State that includes a total cattle inventory equal to or greater than 500,000 head of cattle shall be entitled to one representative on the Board. Section 1260.141(e)(2) provides that States that do not have total cattle inventories equal to or greater than 500,000 head shall be grouped, to the extent practicable, into geographically-contiguous units, each of which have a combined total inventory of not less than 500,000 head. Such grouped units are entitled to at least one representative on the Board. Each unit that has an additional 1 million head of cattle within a unit qualifies for additional representation on the Board as provided in § 1260.141(e)(4). As provided in § 1260.141(e)(3), importers are represented by a single unit, with the number of Board members based on a conversion of the total volume of imported cattle, beef, or beef products into live animal equivalencies.

The initial Board appointed in 1986 was composed of 113 members. Reapportionment, based on a 3-year average of cattle inventory numbers and import data, reduced the Board to 111 members in 1990 and 107 members in 1993 before the Board was increased to 111 members in 1996. The Board was decreased to 110 members in 1999, 108 members in 2001, 104 members in 2005, and increased to 106 members in 2009. This final rule will decrease the number of Board members from 106 to 103 with appointments for terms effective early in 2012.

The current Board representation by States or units was based on an average of the January 1, 2005, 2006, and 2007, inventory of cattle in the various States as reported by NASS. Current importer representation was based on a combined total average of the 2005, 2006, and 2007 live cattle imports as published by USDA's Foreign Agricultural Service and the average of the 2004, 2005, and 2006 live animal equivalents for imported beef products.

In considering reapportionment, the Board reviewed cattle inventories as well as cattle, beef, and beef product import data for the period of January 1, 2008, to January 1, 2010. The Board recommended that a 3-year average of cattle inventories and import numbers should be continued. The Board determined that an average of the January 1, 2008, 2009, and 2010, cattle inventory numbers would best reflect the number of cattle in each State or unit since publication of the last reapportionment rule published in 2008 (73 FR 60097).

The Board recommended the use of a combined total of the average of the 2008, 2009, and 2010, cattle import data and the average of the 2007, 2008, and 2009, live animal equivalents for imported beef products. The method used to calculate the total number of live animal equivalents was the same as that used in the previous reapportionment of the Board. The live animal equivalent weight was changed in 2006 from 509 pounds to 592 pounds.

The final rule decreases the number of representatives on the Board from 106 to 103. Kansas, Nebraska, Nevada, and the Southeast Region will each lose one Board seat. Montana will gain a Board seat. The importers will lose two Board seats. The Southeast Region will be expanded to include Alabama, permitting the new unit three Board members. California and Nevada will be combined to form a Southwest unit.

The States and units affected by the reapportionment plan and the current and revised member representation per unit are as follows:

On April 4, 2011, USDA published in the Federal Register (76 FR 18422) for public comment a proposed rule providing for the adjustment in Board membership. Comments were due to USDA by May 4, 2011.

USDA received five comments concerning the proposed rule for Board reapportionment. One commenter raised a number of points regarding the Board and the beef industry as a whole that are not pertinent to the proposal and therefore are not addressed. The commenter also suggested that the membership of the Board be limited to one member per State and that importers should not have members on the Board. Section 5 of the Act and section 1260.141 of the Order contain provisions that determine the structure of the Board based on cattle inventory. Therefore, USDA has not adopted this suggestion.

One commenter suggested that Checkoff collections would be a more appropriate value to use for apportioning Board seats and that Board seats could be determined by each State's total checkoff collections, less the amount returned to other States under the existing State-of-origin rules. Section 5 of the Act and Section 1260.141 of the Order contain provisions that determine the structure of the Board based on cattle inventory. Therefore, USDA has not adopted this suggestion.

One commenter offered support for the proposed rule but also suggested that USDA go further and ensure that Board representation reflect the diversity of interests of all ranchers, representing all sizes and make-ups of operations, and include representation from a multitude of organizations at both the State and national level as well as non-affiliated ranchers. Section 5 of the Act and Section 1260.141 of the Order contain provisions that determine the structure of the Board based on cattle inventory. Therefore, USDA has not adopted this suggestion. However, the Secretary of Agriculture remains committed to ensuring that the Board reflects diversity in the size of operations, experience of members, methods of production and distribution, marketing strategies, and other distinguishing factors that will bring different perspectives and ideas to the table. This communication has been distributed to all organizations that nominate members to the Board.

Two commenters stated their preference that California and Nevada not be combined, but understood that section 1260.141 of the Order provides for the action. The commenters further suggested that the Southwest Unit be dissolved when Nevada cattle numbers increase to appropriate levels. Section 1260.141 of the Order provides that at least every 3 years and not more than every 2 years, the Board shall review the geographic distribution of cattle inventories throughout the United States and the volume of imported cattle, beef, and beef products and, if warranted, shall reapportion units and/or modify the number of Board members from units in order to reflect the geographic distribution of cattle production volume in the United States and the volume of cattle, beef, or beef products imported into the United States. This comment is consistent with the provisions of the Order and will be considered in future proposals. The commenters also made a number of suggestions regarding the nomination of members within the proposed Southwest Unit. These suggestions are beyond the scope of the proposed rule and are not considered in the final rule.

It is found that good cause exists to make this rule effective less than 30 days after the date of publication in the Federal Register because this rule should be in effect as soon as possible for the Board appointments that will be effective early in the year 2012.

For reasons set forth in the preamble, 7 CFR part 1260 is amended as follows:

Section 19(i) of the Federal Reserve Act (“Act”) (12 U.S.C. 371a) generally provides that no member bank “shall, directly or indirectly, by any device whatsoever, pay any interest on any deposit which is payable on demand. * * *” Section 19(i) was added to the Act by Section 11 of the Banking Act of 1933 (48 Stat. 162, 181). Section 324 of the Banking Act of 1935 (49 Stat. 684, 714) amended Section 19(a) of the Act to authorize the Board, “for the purposes of this section, to define the terms ‘demand deposits’, ‘gross demand deposits,’ ‘deposits payable on demand’ [and] to determine what shall be deemed to be a payment of interest, and to prescribe such rules and regulations as it may deem necessary to effectuate the purposes of this section and prevent evasions thereof. * * *” The Board promulgated Regulation Q on August 29, 1933 to implement Section 19(i) of the Act. Section 627 of the Dodd-Frank Act repeals Section 19(i) of the Act in its entirety, effective July 21, 2011.

On April 14, 2011, the Board published in the Federal Register a request for comment on its proposal to repeal Regulation Q effective July 21, 2011 (76 FR 20892, Apr. 14, 2011). In its request for comment, the Board also sought comment on all aspects of the proposal, and also sought comment on four specific issues related to the proposal:

1. Does the repeal of Regulation Q have significant implications for the balance sheets and income of depository institutions? What are the anticipated effects on bank profits, on the allocation of deposit liabilities among product offerings, and on the rates offered and fees assessed on demand deposits, sweep accounts, and compensating balance arrangements?

2. Does the repeal of Regulation Q have any implications for short-term funding markets such as the overnight federal funds market and Eurodollar markets, or for institutions such as institution-only money market mutual funds that are active investors in short-term funding markets?

3. Is the repeal of Regulation Q likely to result in strong demand for interest-bearing demand deposits?

4. Does the repeal of Regulation Q have any implications for competitive burden on smaller depository institutions?

The comment period closed on May 16, 2011.

The Board received a total of 62 comments on the proposed rule. Of these, 45 comments were received from 40 banks, 1 6 comments were received from trade associations, 4 comments were received from other types of entities, and 7 comments were received from individuals. Of the comments received on the proposed rule, 6 comments were in favor of the proposed rule, 54 comments were opposed to the proposed rule, and 2 comments neither supported nor opposed the proposed rule but commented on other aspects of the proposal. A number of commenters specifically addressed one or more of the four specific questions the Board asked in the proposed rule separately from their general comments on the proposed rule.

One financial group expressed support for the proposed rule, stating that the commenter looked forward to a fair and competitive market that is no longer manipulated through regulation by lobbyists for money market funds and large banks. Another commenter, an individual, opined that the proposal “repeals an arbitrary and basically non-functioning rule” and would “allow more transparency and competition in this arena” that “will force banks to innovate and to lower costs.” This commenter asserted that the repeal would “lead to more simplicity in deposit offerings and to less rationale for current workarounds” such as NOW accounts.

A trade association commented that the repeal could result in a more stable source of capital for banks and provide financial professionals with another competitive investment alternative. This commenter also opined that taxes on interest paid would increase revenues for the U.S. Treasury, and asserted that “there inherently will be new economic dynamics that must be considered when negotiating fees and rates.” This commenter further asserted that this would “force financial professionals and corporate treasurers to consider how to effectively rebalance their deposit portfolios in light of the new products and rates structures,” and that they would have “another option in terms of liquidity.” This commenter expected demand for interest-bearing demand deposits to increase after the repeal.

One bank commented in support of the proposal because “price controls should not be the subject of government regulation.” This commenter suggested that the repeal would enable the bank to compete for corporate demand deposits without having to sweep them into other off-balance-sheet investments. Another bank commented favorably on the repeal, arguing that Regulation Q “has been pretty much hollowed out and therefore rendered irrelevant through the years.”

Most of the comments received opposed the repeal of Regulation Q. Several commenters indicated that they believe that the repeal would have “devastating” effects on smaller and community banks. Commenters also indicated that they expect many detrimental effects for institutions from the repeal, including increased cost of funding, the addition of increased interest rate risk to institution balance sheets, increased expenses, decreased net interest margins, decreased earnings, decreased profits, and the “potential to place many banks in a liability sensitive position.” Commenters also expected detrimental effects for institutions' customers, including decreased credit availability, increased costs of credit, and increased fees and costs of services. A number of commenters argued that the repeal comes at a time when the banking industry in general, and the community banking industry in particular, is already stressed and facing challenges to continued viability and profitability, as well as increased regulatory burden, particularly with new interchange fee regulations. Some commenters contended that there is currently little demand for loans, and that without loan demand the increased cost of funds represented by paying interest on demand deposits would result in decreased income. One commenter argued that the payment of interest on balances maintained in accounts at Federal Reserve Banks is not sufficient to offset the cost of paying interest on demand deposits.

A number of commenters asserted that the interest-free demand deposit base is the primary franchise builder for community banks and the largest source of fixed-rate funding. One commenter argued that such deposits “are the lifeblood of community banks” who lend this money back into the local market at competitive rates to promote local lending for housing, consumer lending and small business lending. Commenters argued that smaller institutions, as they lose their demand deposit base, would have to access other short-term funding sources, which would increase costs in those markets. Commenters also argued that the repeal would increase the concentration of financial assets in the banking sector as funds move out of investments such as money market mutual funds into interest-bearing demand deposits, making nonbank money markets less liquid, less robust, less efficient, and more expensive. One commenter further argued that the outflow of funds from money market mutual funds into interest-bearing demand deposits would damage the commercial paper market, since money market mutual funds are major purchasers of commercial paper. Another commenter argued that the repeal would harm the market for municipal bonds, because community banks would be no longer able to buy fixed-rate bank-qualified municipal bonds.

Several commenters stated that they expect larger and “too big to fail” banks, which they believe already have a competitive advantage, to draw commercial demand depositors away from smaller and community banks with expensive marketing programs and offers of higher interest rates with which smaller institutions cannot compete. Some commenters asserted that these customers, once drawn away to larger banks, will suffer decreases in service levels compared to what they received from smaller banks because the business model of smaller banks focuses on relationships and service levels. One commenter asserted that the repeal of Regulation Q would not enable smaller and community banks to compete with larger institutions because, according to the commenter, community banks mostly compete with one another and not with larger institutions. Other commenters asserted that troubled banks would be likely to try to “buy” demand deposits by offering unsustainably high interest rates, placing the banking system at risk for more bank failures and increasing costs to the FDIC's bank insurance fund. One commenter argued that large banks that are funded with off-balance-sheet sources in order to avoid FDIC insurance premiums would see the repeal as a way to “buy” domestic deposits, “robbing” local communities of needed capital.

Some commenters asserted that the movement of funds from non-interest- bearing demand deposits into interest-bearing demand deposits would take such deposits outside of the unlimited FDIC insurance coverage currently available for non-interest-bearing transaction accounts. One commenter argued that the unlimited insurance for such accounts created moral hazard by reducing depositor incentives to monitor institutions and by encouraging institutions to engage in riskier behavior secure in the knowledge that their demand depositors will not move. This commenter argued that the repeal of Regulation Q will increase these risks because depositors could move freely from interest-bearing to non-interest-bearing demand deposits in times of stress, thereby creating effective unlimited insurance on all demand deposits.

Several commenters argued that the effects of the repeal may be less visible in a low interest rate environment but would be more pronounced as interest rates begin to rise. Some commenters argued that the repeal would threaten the viability of many institutions in a rising rate environment. Another commenter argued that the effect would be magnified by the combination of rising interest rates and the expiration of the FDIC's program of unlimited insurance for non-interest-bearing transaction accounts in 2012.

Some comments opposed to the repeal asserted that the provision that became Section 627 of the Dodd-Frank Act was inserted into the bill late in the process, and was not debated or heard in the House or Senate Committees. A few commenters questioned the stated rationale for interest on demand deposits as benefitting small businesses. These commenters asserted that a typical small business maintains on average about $10,000 in a demand deposit, which even at a two percent interest rate would still earn the small business only $200 in one year. One of these commenters asserted that banks would have to increase fees to make up for the increased cost associated with paying interest on demand deposits, eroding the $200-per-year figure to approximately $100 per year. This commenter argued that $100 or $200 per year was not sufficient to permit such businesses to grow or create jobs.

Several commenters argued that the Board should not repeal Regulation Q, or should delay the effective date of the repeal until studies of the impact of the repeal, including safety and soundness effects, could be conducted and considered. Some commenters suggested that the Board advocate before the Congress for a repeal of Section 627 of the Dodd-Frank Act (the provision that repeals the statutory prohibition against payment of interest on demand deposits), and some contended that the Board simply should retain or reinstate Regulation Q. One commenter, noting that the Board would no longer have statutory authority to retain Regulation Q after July 21, 2011, asserted that the Board nevertheless has the authority to issue a policy statement prohibiting the payment of interest on demand deposits until the banking agencies studied the safety and soundness implications of the repeal and determined that it was safe and sound to permit payment of such interest. Another commenter argued that the repeal of Regulation Q would create systemic risk and that the Board should use its systemic risk authority under the Dodd-Frank Act to prevent the repeal from taking effect. Another commenter suggested a two-stage process, repealing the regulation in the first phase, and then starting a second phase of twelve to eighteen months within which the existing interpretations of Regulation Q would remain in effect to give the FDIC the opportunity to consider whether to adopt some or all of them.

A few commenters argued that, instead of repealing Regulation Q, the Board should amend Regulation D to provide for a non-reservable interest-bearing “money market deposit account” that would allow up to twenty-four preauthorized or automatic transfers per month. Commenters also asserted that funds moving into interest-bearing demand deposits from non-reservable deposits such as time deposits, or from other non-deposit sources would be subject to a reserve requirement of up to ten percent, which they stated would reduce the availability of such funds for lending or other investment.

A financial group commented that the “playing field will be leveled between big banks and community banks” and that the proposed rule would “provide an opportunity to pursue large balance commercial clients that in the past would not consider a smaller institution.” This group commented that the cost of funds “will be considerably less than consumer core deposits,” and that “in spite of the cannibalization of some current deposits” the net effect would be beneficial. This commenter also asserted that “we will no longer have to pay vendors for sweeps” and that customers would be able to choose between receiving earnings credits and direct payments of interest. This commenter further asserted that there would be no impact on that institution's fees but that the repeal would enable smaller institutions to compete with larger institutions for “large balance clients” because previously “large balance clients” always had sufficient earnings credits to offset fees and the large institutions holding those balances were able to use in-house sweeps programs. Smaller institutions, according to this commenter, were not able to price competitively for such programs because of the vendor costs for sweeps programs, “the ‘Too Big To Fail’ concept” and the fact that earnings credits are not valuable beyond what can be used to pay for fees.

A trade association commented that the anticipated effects of the repeal on bank profits, allocation of deposit liabilities, and rates offered is closely tied to the bank's local market and interest rate environment. Specifically, this association commented that in small markets with little competition for deposits, banks may elect neither to pay interest nor to offer earnings credits following the repeal. This commenter asserted that many banks in markets with high competition for deposits believed that the cost difference between paying direct interest or offering an interest substitute would not be significant in a low interest rate environment. This commenter asserted that, in a high interest rate environment, banks will be under increased pressure to offer interest which would result in higher costs of funds and decreased net interest margins. This commenter also asserted that “the banking industry's best defense against interest rates spiraling to exceptionally high and unsustainable levels are more account options, including interest, earnings credits, premiums, bonuses, and hybrid accounts.” This commenter further asserted that the effect of the repeal on correspondent banks should be negligible.

A financial group commented that “[a]ny changes would be limited” and would have no long-term effects on such markets. This group commented that off-balance-sheet sweeps would be moved back on balance sheet and that “deposits for the first time will actually have market competition which will be good for the company, good for the bank, consumers, and overall good for the market.” This commenter also asserted that “[t]he only complainers will be those that monopolize the business today due to regulation, but they will adjust [by] either paying more or [downsizing].”

A bank commented that the demand for short-term funding markets will likely increase, which will increase cost of accessing those markets which will increase bank borrowing costs and have a negative impact on profitability.

A financial group commented that the repeal of Regulation Q is likely to result in strong demand for interest-bearing demand deposits and that “this is very good for the bank and the business clients” and that they expect to see “significant growth in this product category in number of accounts and balances.”

Many of the comments described above discussed the implications of the repeal of Regulation Q for competitive burden on smaller depository institutions. A financial group commented that the repeal of Regulation Q would not have any implications “to any significant degree” for competitive burden on smaller depository institutions and that the repeal “provides the best opportunity we have seen in decades to pursue business clients.” This commenter asserted that only the smaller institutions that would be negatively affected by the repeal “are those very small institutions in non-competitive markets which have benefitted having no large banks compete for funds.” A bank contended that the repeal of Regulation Q will add to the profitability challenges of smaller institutions that have a better track record of serving the communities in which they operate than larger institutions do.

A trade association commented that the repeal would increase competition for typically high-balance business accounts and that costs of funds would increase as such accounts become more difficult to attract and more expensive to retain. This commenter asserted that troubled financial institutions needing liquidity or deposits will aggressively market exceptionally high interest rates which may place community banks at a disadvantage. This commenter also asserted that the repeal would improve parity between FDIC-insured institutions and credit unions in a high interest rate environment because credit unions “pay interest on business checking and are moving aggressively into the small business-banking niche.” The commenter further asserted that the repeal “may assist banks of all sizes and charter types to attract funds previously placed outside of the traditional banking system” and that this “reintermediation of corporate money will be more noticeable when interest rates increase.”

Many of the comments opposed to the repeal of Regulation Q suggested implicitly or explicitly that the Board should not repeal Regulation Q or should delay the repeal of Regulation Q. As stated in the Board's Notice of Proposed Rulemaking, however, the Board will no longer have the authority to retain Regulation Q after July 21, 2011. Accordingly, the Board does not have the discretion to retain the regulation, nor does the Board have the authority to postpone the effective date of the repeal beyond July 21, 2011. While the Board may use its safety and soundness authority to regulate interest paid by the smaller group of state-chartered member banks (but not all member banks, as under Regulation Q), the implementation of Section 627 of the Dodd-Frank Act does not appear to present issues of systemic risk or safety and soundness. In particular, the ability to pay interest on demand deposits should enhance clarity in the market for transaction accounts and potentially eliminate many of the complicated procedures implemented by depository institutions to pay implicit interest on demand deposits. Interest-bearing demand deposits could attract funds from other areas of the financial system and increase the funding possibilities of the banking sector. Additionally, the repeal of Regulation Q will become effective during a period of exceptionally low interest rates. In such an environment, all short-term money market rates are near zero, suggesting that even for those institutions that chose to pay interest on demand deposits, the rate paid will likely also be close to zero. Near-zero money market rates will likely continue for an extended period, so depository institutions and their customers should be able to adjust in a gradual and orderly manner to the new environment.

Similarly, it would be contrary to the purpose of Regulation D to define “savings deposit” to include an account from which up to 24 convenient transfers or withdrawals per month are permitted, as some commenters requested. The Board is required by Section 19(b) of the Act to impose reserve requirements on transaction accounts. Section 19(b)(1)(C) of the Act defines “transaction account” as a deposit or account on which the depositor is permitted “to make withdrawals by negotiable or transferrable instrument, payment orders of withdrawal, telephone transfers, or other similar items for the purpose of making payments or transfers to third persons or others.”  2 Section 19 was intended to distinguish transaction accounts, which are reservable, from savings deposits, which are not reservable. Allowing 24 convenient transfers per month would allow such transfers every business day of the month, and allow a savings deposit to function in a manner indistinguishable from a transaction account.

In accordance with Section 3(a) of the Regulatory Flexibility Act, 5 U.S.C. 601 et seq . (RFA), the Board is conducting this final regulatory flexibility analysis incorporating comments received during the public comment period. An initial regulatory flexibility analysis was included in the Board's notice of proposed rulemaking in accordance with Section 3(a) of the RFA. In its notice of proposed rulemaking, the Board requested comments on all aspects of the proposal, and specifically requested comment on whether the repeal of Regulation Q pursuant to Section 627 of the Dodd-Frank Act would have any implications for competitive burden on smaller depository institutions.

1. Statement of the need for and the objectives of the final rule. The Board is repealing Regulation Q, which implements the statutory prohibition set forth in Section 19(i) of the Act, effective July 21, 2011. The repeal implements Section 627 of the Dodd-Frank Act, which repeals Section 19(i) of the Act effective July 21, 2011. Accordingly, the repeal of Regulation Q effective July 21, 2011, is mandatory.

2. Summary of significant issues raised by public comments in response to the Board's IRFA, the Board's assessment of such issues, and a statement of any changes made as a result of such comments. As noted in the SUPPLEMENTARY INFORMATION , a majority of commenters asserted that the final rule would have numerous deleterious effects on small member banks. As also noted in the Supplementary Information, however, the legal authority pursuant to which the Board promulgated Regulation Q will cease to exist on July 21, 2011. Accordingly, the Board does not have the discretion to retain the regulation beyond July 21, 2011, nor does the Board have the authority to postpone the effective date of the repeal beyond that date. As further noted in the SUPPLEMENTARY INFORMATION , the Board does not believe that the final rule presents issues of systemic risk or safety and soundness sufficient to warrant action by the Board on those bases. Accordingly, the Board made no changes in the final rule as a result of the analysis of the public comments.

3. Description of and estimate of small entities affected by the final rule. The final rule will affect all national banks and all state-chartered member banks. Those institutions may choose after July 21, 2011 to pay interest on demand deposits that they hold for their customers. A financial institution is generally considered “small” if it has assets of $175 million or less. 3 There are currently approximately 2,956 member banks (national banks and state-chartered member banks) that have assets of $175 million or less. These institutions are not required to offer demand deposits to their customers or to pay interest on those deposits. The Board expects the final rule to have a positive impact on all such entities because it eliminates an obsolete regulatory provision and because it provides member banks with the option of offering interest-bearing demand deposits following the repeal of Regulation Q.

4. Projected reporting, recordkeeping, and other compliance requirements. The Board believes that the final rule will not have any impact on reporting, recordkeeping, and other compliance requirements for member banks.

5. Steps taken to minimize the economic impact on small entities; significant alternatives. No significant alternatives to the final rule were suggested that could be accomplished without Congressional action. Although some commenters suggested that the Board issue a policy statement delaying the implementation of the statutory repeal, the Board does not believe that it has the authority to extend the statutory effective date through a policy statement that would contravert the clear Congressional intent to repeal the prohibition against the payment of interest on demand deposits effective July 21, 2011.

In accordance with the Paperwork Reduction Act (PRA) of 1995 (44 U.S.C. 3506; 5 CFR 1320 Appendix A.1), the Board reviewed the final rule under the authority delegated to the Board by the Office of Management and Budget (OMB). No collections of information pursuant to the PRA are contained in the final rule; however, there will be clarifications to the instructions of several regulatory reporting requirements. The Board estimates that the clarifications would have a negligible effect on the burden estimates for the existing regulatory reporting information collections.

The Administrative Procedure Act (“APA”) generally requires federal agencies to publish a final rule at least 30 days before the effective date thereof. 5 U.S.C. 553. The APA also provides exceptions under which an agency may publish a final rule with an effective date that is less than 30 days from the date of publication of the final rule. Specifically, the APA provides a substantive rule may be published on a date that is less than 30 days before its effective date where the rule “grants or recognizes an exemption or relieves a restriction,” or where the agency finds good cause that is published in the final rule. 5 U.S.C. 553(d)(2)-(3).

The repeal of Regulation Q implements the repeal of Section 19(i) of the Federal Reserve Act, effective July 21, 2011, pursuant to Section 627 of the Dodd-Frank Act. The repeal relieves a restriction by repealing the prohibition against payment of interest on demand deposits by member banks. As such, the final rule is exempt under Section 553(d)(2) of the APA from the requirement of publication not less than 30 days before the effective date. The Board also finds good cause under Section 553(d)(3) of the APA for publication of the final rule on a date that is less than 30 days before the effective date. Publication of the final rule in this time frame will not impose a burden on anyone, since all persons subject to Regulation Q have been on notice since passage of the Dodd-Frank Act nearly a year ago that Regulation Q would be repealed effective July 21, 2011. In addition, the Board's request for comment published in the Federal Register on April 14 provided additional notice, over three months prior to the effective date, that the rule would be repealed. The Board does not have the legal authority to extend the effective date beyond July 21, 2011, because the law pursuant to which the Board promulgated the rule will cease to exist on that date. Accordingly, the Board finds good cause for not delaying the effective date of the final rule.

For the reasons set forth in the preamble, under the authority of section 627 of Public Law 111-203, 124 Stat. 1376 (July 21, 2010), the Board is amending 12 CFR parts 204, 217, and 230 to read as follows:

Authority for This Rulemaking

The FAA's authority to issue rules regarding aviation safety is found in Title 49 of the United States Code. 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, the FAA is charged 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, including minimum safety standards for aircraft engines. This final rule is within the scope of that authority because it updates existing regulations for rotor overspeed for aircraft turbine engines.

Part 33 of Title 14, Code of Federal Regulations, prescribes airworthiness standards for original and amended type certificates for aircraft engines. The European Aviation Safety Agency (EASA) Certification Specification—Engines (CS-E) prescribes corresponding airworthiness standards to certify aircraft engines in Europe. While part 33 and the CS-E are similar, they differ in several respects. These differences may result in added costs, delays, and time required for certification. This rule will harmonize applicable U.S. and EASA standards and clarify existing overspeed requirements for aircraft turbine engine rotor parts.

The FAA published a notice of proposed rulemaking (NPRM) on April 26, 2010 (75 FR 21523). The proposed changes establish a uniform certification basis for aircraft turbine engine rotor parts between the FAA and EASA. The proposal discussed requiring that rotor parts be designed with a safety margin large enough that the parts have an overspeed capability that exceeds the engine's certified operating conditions, including overspeed conditions which can occur in the event of a failure of another engine component and/or system malfunction. For failures that may result in an overspeed, the proposal limited rotor growth to that which would not lead to a hazardous condition as defined in § 33.75. The comment period for the NPRM closed on July 26, 2010.

There are minor differences between the proposal and this final rule. Sections 33.27(c) and (g) were changed in response to comments and our review of the proposal. This rule harmonizes rotor overspeed requirements found in part 33 with EASA CS-E 840, Rotor Integrity.

The FAA received comments from Rolls-Royce, General Electric Aviation, Turbomeca, Pratt and Whitney, and General Aviation Manufacturers Association (GAMA). The commenters suggested minor improvements in the following areas:

• Differences in the definition of “extremely remote” in § 33.27(c);

• Exclusions of shaft sections from overspeed tests;

• Material properties of test rotors; and

• Validation of analytical tools.

The final rule requires that rotor parts be designed with a safety margin large enough that the parts have an overspeed capability exceeding the engine's certified operating conditions, including overspeed conditions, which can occur in the event of a failure of another engine component and/or system malfunction. For failures that may result in an overspeed, the final rule limits rotor growth to that which would not lead to a hazardous condition as defined by § 33.75.

To harmonize FAA and EASA standards, the FAA will:

• Change the current FAA overspeed design margin from 115 to 120 percent of maximum permissible speed for all engine ratings except one engine inoperative (OEI) ratings of less than 2 1/2 minutes;

• Change the current FAA overspeed design margin from 100 to 105 percent for operating conditions associated with multiple failures;

• Introduce similar OEI overspeed design requirements;

• Require new similar rotor pass/fail design criteria;

• Require similar overspeed margin requirements;

• Allow the use of validated structural analysis tools to demonstrate compliance;

• Require that validated structural analysis tools be calibrated to actual overspeed tests of similar rotors; and

• Allow engine test durations of less than 5 minutes for failure conditions for which a 5-minute duration is not realistic.

Like EASA's CS-E, the final rule specifies that rotors may not burst for overspeed conditions that do not involve component or system failure. For component or engine failures that result in an overspeed, the final rule specifies that rotors may not burst and limits the amount of rotor growth.

Section 33.27(c) proposed that overspeeds resulting from combinations of failures must also be considered unless the applicant can show that the probability of occurrence is not greater than 10 −9 per flight. Rolls-Royce, General Electric, Turbomeca, Pratt and Whitney, and GAMA commented that the proposed criteria in § 33.27(c) is inconsistent with § 33.75, CS-E 510, and CS-E 840. The commenters also took issue with the FAA's criteria of probability of occurrence as not greater than 10 −9 and FAA's use of the term “per flight.” They suggested that the probability of occurrence should follow the more flexible criteria of not greater that “extremely remote,” which has been defined in the previous rulemakings as between 10 −7 to 10 −9 . Finally, the commenters indicated that the term “per engine flight hour” should be substituted for “per flight” to be consistent with § 33.75 and CS-E 840.

We agree with the revised criteria proposed by the commenters. The final rule will reflect that overspeeds resulting from combinations of failures must also be considered, unless the applicant can show that the probability of occurrence is not greater than extremely remote (probability range of 10 −7 to 10 −9 per engine flight hour).

Proposed § 33.27(f) allows exclusion of certain shaft sections, but not the whole shaft system, from the requirement when determining the terminal rotor speed due to shaft failure. Rolls-Royce commented that § 33.27(c) allows exclusion on a probability basis only of overspeeds “resulting from combinations of failures,” whereas CS-E 840(c) allows the probability exclusion for any cause if “it can be shown to be Extremely Remote under the provisions of CS-E 850.”

Rolls-Royce requested that the lead sentence of § 33.27(c) be changed to, “The highest overspeed which will result from a complete loss of load on a turbine rotor, unless it can be shown to be Extremely Remote or except as provided by paragraph (f) of this section.* * *”. The change proposed by Rolls-Royce would allow exclusion of the whole shaft system from consideration of failure, which is not the intent of the rule. Our changes to overspeed requirements due to shaft failures are consistent with those in CS-E-840 and CS-E-850(b). We did not change the rule due to this comment.

Section 33.27(a)(1) proposed that test rotors used to demonstrate compliance with this section that do not have the most adverse combination of material properties and dimensional tolerances must be tested at conditions which have been adjusted to ensure the minimum specification rotor possesses the required overspeed capability.

Rolls-Royce claimed that determining the precise “most adverse combination” is not practical. Rolls-Royce noted that Advisory Circular (AC) 33.27-1, paragraph 7.g indicates that the applicant should consider “the most adverse combination of dimensional tolerances and material properties,” which allows the use of engineering judgment and best practices in lieu of an exhaustive assessment of all possible combinations and permutations. As a result, Rolls-Royce requested that the phrase “that do not have the most adverse combination of material properties and dimensional tolerances” be omitted from § 33.27(a)(1).

We disagree. We find that our proposed wording of § 33.27(a)(1) is consistent with EASA's regulation CS-E 840(a) and that the suggested change would not meet the intent of the proposed paragraph. Our intent in § 33.27(a)(1) is to ensure that the minimum specifications rotor is capable of meeting the test requirements of the proposed rule. Industry has been complying with this requirement, as stated in EASA regulations, for several years. The change proposed by Rolls-Royce would, therefore, diverge from EASA's rule and could increase cost to manufacturers. We did not change the final rule due to this comment.

We proposed in § 33.27(g) that if analysis is used to meet the overspeed requirements, then the analytical tool must be calibrated to prior overspeed test results of a similar rotor. The tool must be calibrated for the same material, rotor geometry, stress level, and temperature range as the rotor being certified. Calibration includes the ability to accurately predict rotor dimensional growth and burst speed. The predictions must also show that the rotor being certified does not have lower burst and growth margins than rotors used to calibrate the tool.

Rolls-Royce commented that the requirements for validation of analytical tools eligible for use in showing compliance in lieu of testing are overly restrictive. Rolls-Royce said the language of § 33.27(g) appears to invalidate any potential for the applicant to propose analysis methods to the Administrator for acceptance per AC 33.27-1, paragraphs 7.b and 7.c. Rolls-Royce noted that it seems unlikely that an applicant will have a tool calibrated for the same conditions and the same rotor as that being certified; such a certification appears redundant. Rolls-Royce requested that § 33.27(g) be modified to read: “If analysis is used to meet the overspeed requirements, then the analytical tool must be calibrated to prior overspeed test results of a similar rotor.”

We agree that the language of proposed 33.27(g) appears overly restrictive. We changed the language to read the analytical tool must be “validated” instead of “calibrated” for each material. The analytical model must be validated using rotors which “surround” the rotor being certified in terms of “shape, stresses and temperature.” The final rule now reads: “If analysis is used to meet the overspeed requirements, then the analytical tool must be validated to prior overspeed test results of a similar rotor. The tool must be validated for each material. The rotor being certified must not exceed the boundaries of the rotors being used to validate the analytical tool in terms of geometric shape, operating stress, and temperature.” This changed wording is also consistent with EASA advisory material AMC E 840.

The following definitions of terms used in the final rule are provided for clarity:

Maximum permissible rotor speed. The maximum approved rotor speed, including transients, for the maximum approved rating, including One-Engine-Inoperative (OEI) ratings.

Overspeed Capability. The r.p.m. (revolutions per minute) at which the part fails or bursts.

Rotor Growth. The total increase in a rotor part's radial dimensions caused by an overspeed condition. Total growth includes both the recoverable (elastic) and the permanent (plastic) change in rotor dimensions.

The Paperwork Reduction Act of 1995 (44 U.S.C. 3507(d)) requires that the FAA consider the impact of paperwork and other information collection burdens imposed on the public. We have determined there is no new requirement for information collection associated with this final rule.

In keeping with U.S. obligations under the Convention on International Civil Aviation, it is FAA policy to comply with International Civil Aviation Organization (ICAO) Standards and Recommended Practices, to the maximum extent practicable. We determined that no ICAO Standards or Recommended Practices corresponding to these proposed regulations exist.

Proposed changes to Federal regulations must undergo several economic analyses. First, Executive Order 12866 and Executive Order 13563 direct that each Federal agency propose or adopt a regulation only upon a reasoned determination that the benefits of the intended regulation justify its costs. Second, the Regulatory Flexibility Act of 1980 (Pub. L. 96-354) requires agencies to analyze the economic impact of regulatory changes on small entities. Third, the Trade Agreements Act (Pub. L. 96-39) prohibits agencies from setting standards that create unnecessary obstacles to the foreign commerce of the United States. In developing U.S. standards, this Trade Act requires agencies to consider international standards and, where appropriate, that they be the basis of U.S. standards. Fourth, the Unfunded Mandates Reform Act of 1995 (Pub. L. 104-4) requires agencies to prepare a written assessment of the costs, benefits, and other effects of proposed or final rules that include a Federal mandate likely to result in the expenditure by State, local, or tribal governments, in the aggregate, or by private sector, of $100 million or more annually (adjusted for inflation with base year of 1995). This portion of the preamble contains the FAA's analysis of the economic impacts of this final rule.

In conducting these analyses, the FAA has determined that this rule: (1) Has benefits that justify its costs; (2) is not an economically “significant regulatory action” as defined in section 3(f) of Executive Order 12866; (3) is not “significant” as defined in DOT's Regulatory Policies and Procedures; (4) will not have a significant economic impact on a substantial number of small entities; (5) will not create unnecessary obstacles to the foreign commerce of the United States; and (6) will not impose an unfunded mandate on state, local, or tribal governments, or on the private sector by exceeding the threshold identified above.

Presently, turbine aircraft engine manufacturers must satisfy both FAA part 33 and EASA CS-E regulations to certify their products in the United States and Europe. Certification to one standard will improve certification efficiency by eliminating duplicate testing and documentation. We have not attempted to quantify the cost savings that may accrue due to this improved certification efficiency beyond noting that these are expected to be minor. We have drawn that conclusion based on the consensus among potentially affected aircraft engine manufacturers.

Industry must currently certificate to the two standards that are substantively similar, but have a few slightly different testing and documentation procedures and requirements. The rule harmonizes these procedures and requirements to the higher standard and, thereby, may increase safety. In addition, by reducing the amount of duplicative testing that would need to be either witnessed or analyzed by the FAA, the FAA is better able to prioritize its resources to other, more safety critical areas. Consequently, we determined that unquantifiable future minimal benefits from the rule may also accrue. We disagreed with a comment determining the precise “most adverse combination” of material properties and dimensional tolerances to establish the required overspeed capability. However, as noted in our response, the commenter's suggestion would result in a rule that is not consistent with the EASA regulations and the suggestion might increase costs to manufacturers. As a result, the FAA concludes that the combination of cost savings and potential increased safety benefits will make this rule cost beneficial. Further, we therefore determined that this rule is not a “significant regulatory action” as defined in section 3(f) of Executive Order 12866, and is not “significant” as defined in DOT's Regulatory Policies and Procedures.

The Regulatory Flexibility Act of 1980 (Pub. L. 96-354) (RFA) establishes “as a principle of regulatory issuance that agencies shall endeavor, consistent with the objectives of the rule and of applicable statutes, to fit regulatory and informational requirements to the scale of the businesses, organizations, and governmental jurisdictions subject to regulation. To achieve this principle, agencies are required to solicit and consider flexible regulatory proposals and to explain the rationale for their actions to assure that such proposals are given serious consideration.” The RFA covers a wide-range of small entities, including small businesses, not-for-profit organizations, and small governmental jurisdictions.

Agencies must perform a review to determine whether a rule will have a significant economic impact on a substantial number of small entities. If the agency determines that it will, the agency must prepare a regulatory flexibility analysis as described in the RFA.

However, if an agency determines that a rule is not expected to have a significant economic impact on a substantial number of small entities, section 605(b) of the RFA provides that the head of the agency may so certify and a regulatory flexibility analysis is not required. The certification must include a statement providing the factual basis for this determination, and the reasoning should be clear.

The net effect of this rule is to provide regulatory cost relief. Further, all but one U.S. aircraft turbine engine manufacturer exceeds the Small Business Administration small-entity criteria for aircraft engine manufacturers of 1,500 employees. U.S. transport category aircraft engine manufacturers include: General Electric (GE); CFM International (a joint company of GE and Snecma); Pratt & Whitney (P&W); Honeywell; Rolls-Royce Corporation (formerly Allison Engines); International Aero Engines (a privately-held consortium that includes P&W, Rolls-Royce, Japanese Aero Engines Corporation, and MTU Aero Engines); and Williams International. Williams International is the only one of these manufacturers that is categorized as a U.S. small business by the SBA criteria. As this final rule reduces costs and there is only one small entity manufacturing part 33 aircraft engines, therefore, as FAA Administrator, I certify this rule will not have a significant economic impact on a substantial number of small entities.

The Trade Agreements Act of 1979 (Pub. L. 96-39), as amended by the Uruguay Round Agreements Act (Pub. L. 103-465), prohibits Federal agencies from establishing standards or engaging in related activities that create unnecessary obstacles to the foreign commerce of the United States. Pursuant to these Acts, the establishment of standards is not considered an unnecessary obstacle to the foreign commerce of the United States, so long as the standard has a legitimate domestic objective, such as protection of safety, and does not operate in a manner that excludes imports that meet this objective. The statute also requires consideration of international standards and, where appropriate, that they be the basis for U.S. standards. We assessed the potential effect of this rule and determined that it uses European standards as the basis for regulation, and thus is consistent with the Trade Assessments Act.

Title II of the Unfunded Mandates Reform Act of 1995 (Pub. L. 104-4) requires each Federal agency to prepare a written statement assessing the effects of any Federal mandate in a proposed or final agency rule that may result in an expenditure of $100 million or more (in 1995 dollars) in any one year by State, local, and tribal governments, in the aggregate, or by the private sector; such a mandate is deemed to be a “significant regulatory action.” The FAA currently uses an inflation-adjusted value of $140.8 million in lieu of $100 million. This final rule does not contain such a mandate, therefore, the requirements of Title II of the Act do not apply.

The FAA has analyzed this final rule under the principles and criteria of Executive Order 13132, Federalism. We determined that this action 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, and therefore does not have federalism implications.

FAA Order 1050.1E defines FAA actions that are categorically excluded from preparation of an environmental assessment or environmental impact statement under the National Environmental Policy Act (NEPA) in the absence of extraordinary circumstances. We determined this rulemaking action qualifies for the categorical exclusion identified in Chapter 3, paragraph 312d, and involves no extraordinary circumstances.

The FAA has analyzed this final rule under Executive Order 13211, Actions Concerning Regulations that Significantly Affect Energy Supply, Distribution, or Use (May 18, 2001). We determined that it is not a “significant energy action” under the executive order and is not likely to have a significant adverse effect on the supply, distribution, or use of energy.

You can get an electronic copy using the Internet by—

1. Searching the Federal eRulemaking Portal ( http://www.regulations.gov );

2. Visiting the FAA's Regulations and Policies web page at http://www.faa.gov/regulations_policies/; or

3. Accessing the Government Printing Office's web page at http://www.gpoaccess.gov/fr/index.html.

You can also get a copy by sending a request to the Federal Aviation Administration, Office of Rulemaking, ARM-1, 800 Independence Avenue, SW, Washington, DC 20591, or by calling (202) 267-9680. Make sure to identify the notice, amendment, or docket number of this rulemaking.

Anyone may search the electronic form of all comments received into any of our dockets by the name of the individual submitting the comment (or signing the comment, if submitted on behalf of an association, business, labor union, etc.). You may review DOT's complete Privacy Act statement in the Federal Register published on April 11, 2000 (Volume 65, Number 70; Pages 19477-78) or you may visit http://DocketsInfo.dot.gov.

The Small Business Regulatory Enforcement Fairness Act (SBREFA) of 1996 requires the FAA to comply with small entity requests for information or advice about compliance with statutes and regulations within its jurisdiction. If you are a small entity and you have a question regarding this document, you may contact your local FAA official, or the person listed under the FOR FURTHER INFORMATION CONTACT heading at the beginning of the preamble. You can find out more about SBREFA on the Internet at http://www.faa.gov/regulations_policies/rulemaking/sbre_act/.

In consideration of the foregoing, the Federal Aviation Administration amends Chapter I of Title 14, Code of Federal Regulations 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 March 24, 2011 (76 FR 16582), and proposed to supersede AD 2007-20-05, Amendment 39-15215 (72 FR 56262, October 3, 2007).

Since we issued AD 2007-20-05, we have determined that more restrictive limitations are necessary. We have also added Model A318-121 and -122 airplanes to the applicability. The European Aviation Safety Agency (EASA), which is the Technical Agent for the Member States of the European Community, has issued EASA Airworthiness Directive 2010-0071R1, dated May 28, 2010 (referred to after this as “the MCAI”), to correct an unsafe condition for the specified products. The MCAI states:

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.

Airbus has issued A318/A319/A320/A321 Airworthiness Limitation Items, Document AI/SE-M4/95A.0252/96, Issue 11, dated September 2010. Issue 11 of Airbus A318/A319/A320/A321 Airworthiness Limitation Items, Document AI/SE-M4/95A.0252/96 does not add any additional burden on the operator. We have revised paragraphs (j) and (k), table 1, and Note 3, in this final rule to require compliance in accordance with Airbus A318/A319/A320/A321 Airworthiness Limitation Items, Document AI/SE-M4/95A.0252/96, Issue 10, dated October 2009; or Issue 11, dated September 2010.

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

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 our FAA policies. Any such differences are highlighted in a Note within the AD.

We estimate that this AD will affect about 729 products of U.S. registry.

The actions that are required by AD 2007-20-05 and retained in this AD take about 1 work-hour per product, at an average labor rate of $85 per work hour. Based on these figures, the estimated cost of the currently required actions is $85 per product.

We estimate that it will take about 1 work-hour per product to comply with the new basic requirements of this AD. The average labor rate is $85 per work-hour. Based on these figures, we estimate the cost of the AD on U.S. operators to be $61,965, or $85 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 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.

You may examine the AD docket on the Internet at http://www.regulations.gov; or in person at the Docket Operations office 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 Operations 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:

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 April 8, 2011 (76 FR 19724). That NPRM proposed to correct an unsafe condition for the specified products. The MCAI states:

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 our FAA policies. Any such differences are highlighted in a Note within the AD.

We estimate that this AD will affect 215 products of U.S. registry. We also estimate that it will take about 4 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 $3,021 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 $722,615, or $3,361 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 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.

You may examine the AD docket on the Internet at http://www.regulations.gov; or in person at the Docket Operations office 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 Operations 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:

Discussion

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 April 8, 2011 (76 FR 19721). That NPRM proposed to correct an unsafe condition for the specified products. The MCAI states:

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 our FAA policies. Any such differences are highlighted in a Note within the AD.

We estimate that this AD will affect about 55 products of U.S. registry. We also estimate that it will take about 2 work-hours per product to comply with the basic requirements of this AD. The average labor rate is $85 per work-hour. Based on these figures, we estimate the cost of this AD to the U.S. operators to be $9,350, or $170 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 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.

You may examine the AD docket on the Internet at http://www.regulations.gov; or in person at the Docket Operations office 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 Operations 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:

On February 22, 2011, we issued AD 2011-05-14, Amendment 39-16624 (76 FR 13080, March 10, 2011). That AD required actions intended to address an unsafe condition on the products listed above.

Since we issued AD 2011-05-14, we have received a report that the service information referenced in that AD as a source of accomplishment information was found to have inadequate inspection procedures. Transport Canada Civil Aviation (TCCA), which is the aviation authority for Canada, has issued Canadian Airworthiness Directive CF-2011-01R1, dated May 20, 2011 (referred to after this as “the MCAI”), to correct an unsafe condition for the specified products. The MCAI states:

Bombardier has issued Repair Drawing 8/4-32-0160, Issue 3, dated February 15, 2011. 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 since we issued AD 2011-05-14, Bombardier has determined that the existing inspection procedure referenced in AD 2011-05-14 is insufficient for verification of proper MLG AES cam mechanism operation, and has provided a revised inspection procedure. In the case where it is necessary to deploy the MLG using the AES, the failure of the MLG AES cam mechanism on one side will lead to an unsafe asymmetrical landing configuration. An asymmetrical landing configuration could result in possible loss of control during landing. This AD mandates the use of the revised inspection procedures. 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-2011-0718; Directorate Identifier 2011-NM-117-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:

Background

On March 30, 2007, the Federal Register published proposed regulations (72 FR 15081) under section 901 of the Internal Revenue Code relating to the amount of taxes paid for purposes of the foreign tax credit. The IRS and the Treasury Department received written comments on the 2007 proposed regulations and a public hearing was held on July 30, 2007. On July 16, 2008, a notice of proposed rulemaking by cross-reference to temporary regulations and temporary regulations (TD 9416) (the “2008 temporary regulations”) were published in the Federal Register at 73 FR 40792 and 73 FR 40727, respectively. Final regulations were published in the Federal Register in July 2011, and adopted the proposed regulations with the changes discussed in the preamble to the final regulations.

Section 1.901-2(e)(5)(iv) of the final regulations provides that an amount paid to a foreign country is not a compulsory payment, and thus is not an amount of tax paid for purposes of the foreign tax credit, if such amount is attributable to a structured passive investment arrangement. An arrangement that satisfies the six conditions described in § 1.901-2(e)(5)(iv) is treated as a structured passive investment arrangement. One of the conditions is that the arrangement utilizes an entity that meets two requirements (the “SPV condition”). See § 1.901-2(e)(5)(iv)(B)( 1 ).

The first requirement of the SPV condition is that substantially all of the entity's gross income, as determined under U.S. tax principles, is attributable to passive investment income and substantially all of the entity's assets are held to produce such passive investment income. The second requirement is that there is a putative foreign tax payment (a “foreign payment”) attributable to income of the entity, as determined under the laws of the foreign country to which such foreign payment is made. The foreign payment may be paid by the entity itself or by the owner(s) of the entity. Under the 2008 temporary regulations, a foreign payment attributable to income of the entity does not include a withholding tax imposed on a distribution or payment from the entity to a U.S. party. See § 1.901-2T(e)(5)(iv)(B)( 1 )( ii ) of the 2008 temporary regulations.

The IRS and the Treasury Department have become aware that taxpayers can enter into arrangements that generate duplicative benefits involving foreign withholding taxes imposed on distributions made by an entity to a U.S. party. For example, if the parties undertake a transaction in which interests in an SPV are transferred by the U.S. party to a counterparty subject to a repurchase obligation, withholding taxes imposed on distributions from the SPV may be claimed as creditable in both jurisdictions. Accordingly, the exception for withholding taxes imposed on distributions or payments to U.S. parties was eliminated in the 2011 final regulations. These temporary regulations clarify the provisions of § 1.901-2(e)(5)(iv)(B)( 1 ) by providing in a new paragraph § 1.901-2(e)(5)(iv)(B)( 1 )( iii ) that a foreign payment attributable to income of an entity includes a withholding tax imposed on a dividend or other distribution (including distributions made by a pass-through entity or an entity that is disregarded as an entity separate from its owner for U.S. tax purposes) with respect to the equity of the entity.

It has been determined that this Treasury decision is not a significant regulatory action as defined in Executive Order 12866. Therefore, a regulatory assessment is not required. It is hereby certified that these regulations will not have a significant economic impact on a substantial number of small entities. This certification is based on the fact that these regulations will primarily affect affiliated groups of corporations that have foreign operations which tend to be larger businesses. Moreover the number of taxpayers affected and the average burden are minimal. Therefore, a Regulatory Flexibility Analysis is not required. Pursuant to section 7805(f) of the Code, the notice of proposed rulemaking preceding this regulation has been submitted to the Chief Counsel for Advocacy of the Small Business Administration for comment on its impact on small business.

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

On March 30, 2007, the Federal Register published proposed regulations (72 FR 15081) under section 901 of the Internal Revenue Code (“Code”) relating to the amount of taxes paid for purposes of the foreign tax credit (the “2007 proposed regulations”). The IRS and the Treasury Department received written comments on the 2007 proposed regulations and a public hearing was held on July 30, 2007. In response to written comments, the IRS and the Treasury Department issued Notice 2007-95 (2007-2 CB 1091 (December 3, 2007)) (see § 601.601(d)(2)(ii)( b )) providing that the proposed rule for U.S.-owned foreign groups would be severed from the portion of the 2007 proposed regulations addressing the treatment of foreign payments attributable to certain structured passive investment arrangements. On July 16, 2008, a notice of proposed rulemaking by cross-reference to temporary regulations and temporary regulations (TD 9416) (the “2008 temporary regulations”) were published in the Federal Register at 73 FR 40792 and 73 FR 40727, respectively. Corrections to those temporary regulations were published on November 14, 2008, in the Federal Register (73 FR 67387). The 2008 temporary regulations address the treatment of foreign payments attributable to structured passive investment arrangements and do not address the treatment of U.S.-owned foreign groups.

The IRS and the Treasury Department received written comments on the 2008 temporary regulations, which are discussed in this preamble. All comments are available at http://www.regulations.gov or upon request. A public hearing was not requested and none was held. This Treasury decision adopts the proposed regulation with the changes discussed in this preamble.

These final regulations retain the basic approach and structure of the 2008 temporary regulations. Thus, the final regulations provide that amounts paid to a foreign taxing authority that are attributable to a structured passive investment arrangement are not treated as an amount of tax paid for purposes of the foreign tax credit. An arrangement that satisfies six conditions, as described in this preamble, is treated as a structured passive investment arrangement.

A comment presented several proposals that collectively would have required further differentiation both among the various investors in structured passive investment arrangements based upon their business practices and relationships to other parties, as well as among the particular transactions undertaken by a special purpose vehicle involved in the arrangement. Because the IRS and the Treasury Department believe these proposals would introduce several subjective and factually-intensive elements into the regulations that would increase administrative burdens for taxpayers and the IRS, including a rule providing for only partial disallowance of foreign tax credits, the final regulations retain the approach of the 2008 temporary regulations, relying on objective, generally applicable standards to the extent possible. The IRS and the Treasury Department believe that this approach will appropriately disallow any foreign tax credits arising from artificial structures that are utilized to generate foreign tax credits and material duplicative foreign tax benefits.

A comment recommended adding a requirement that the 2008 temporary regulations' six conditions be fulfilled as part of a plan or series of related transactions. The IRS and the Treasury Department did not adopt this comment. The standard in the regulations is designed to depend upon key objective aspects of an arrangement that indicate an abusive arrangement. The IRS and the Treasury Department believe that the introduction of a plan requirement or similar rule would introduce a subjective inquiry that is difficult to apply and unnecessary to achieve the purpose of the regulations.

The first condition provided in § 1.901-2T(e)(5)(iv)(B)( 1 ) of the 2008 temporary regulations is that the arrangement utilizes an entity that meets two requirements (the “SPV condition”). The first requirement is that substantially all of the entity's gross income, as determined under U.S. tax principles, is attributable to passive investment income and substantially all of the entity's assets are held to produce such passive investment income. The term entity, as defined in § 1.901-2T(e)(5)(iv)(C)( 3 ) of the 2008 temporary regulations, includes a corporation, trust, partnership, or disregarded entity. For purposes of the first requirement, § 1.901-2T(e)(5)(iv)(C)( 5 ) of the 2008 temporary regulations defines passive investment income as income defined in section 954(c) with certain modifications. Passive investment income generally includes the income of an upper-tier entity attributable to its equity interest in a lower-tier entity, but such income may be excluded from passive investment income where it is attributable to a qualified equity interest in certain lower-tier entities that are engaged in an active trade or business and other conditions apply (the “holding company exception”). See § 1.901-2T(e)(5)(iv)(c)( 5 )( ii ).

One comment recommended that the definition of passive investment income be modified to exclude personal service contract income as described in section 954(c)(1)(H) because such income is not derived from passive assets and would not ordinarily be used in a structured passive investment arrangement. The IRS and the Treasury Department agree with the comment, and accordingly these final regulations provide that passive investment income does not include personal service contract income as described in section 954(c)(1)(H).

The IRS and the Treasury Department also received several comments regarding the holding company exception. One comment recommended that the definition of passive investment income exclude income attributable to equity interests in pass-through entities except to the extent that the income of the lower-tier entity satisfies the definition of passive investment income. The IRS and the Treasury Department did not adopt this proposal because the IRS and the Treasury Department believe that the rule in the 2008 temporary regulations is necessary to prevent taxpayers from using pass-through entities to avoid the limitations on the holding company exception, such as the holding of qualified equity interests and the sharing of investment risk. The interests in a pass-through entity can be substantially indistinguishable from interests in a corporate subsidiary, and, therefore, these final regulations treat such interests the same for purposes of the definition of passive investment income. The final regulations clarify that income attributable to equity interests in pass-through entities (including a partner's distributive share of partnership income and the income attributable to an entity disregarded for U.S. tax purposes) is treated as passive investment income unless the holding company exception applies.

The IRS and the Treasury Department have deleted the last two sentences in the 2008 temporary regulations in § 1.901-2T(e)(5)(iv)(B)( 1 )( i ). These sentences described rules set out in more detail in the definition of passive investment income. The IRS and the Treasury Department believe that these sentences did not provide additional clarity to the definition of passive investment income.

One comment recommended expanding the holding company exception to treat income attributable to certain portfolio interests as active income if the income earned by the lower-tier entity was active income. As a condition to the application of the holding company exception, the potential holding company's equity interest in the lower-tier entity must be a qualified equity interest. The holding company exception focuses on whether a joint venture arrangement conducted through a holding company structure economically replicates the interests of the joint venturers in the active business of the lower-tier entity. It is not intended to insulate portfolio investments in lower-tier entities even if they operate active businesses. Therefore, the IRS and the Treasury Department do not believe that it is appropriate to broaden the holding company exception to apply to portfolio investments notwithstanding that in certain cases the lower-tier entity may have active operations.

Another comment recommended that the holding company exception be replaced with a rule that generally attributes all activities of lower-tier entities to their owners, subject to an anti-abuse exception. Under the suggested anti-abuse rule, the attribution rule would not apply if, with a view to avoiding the SPV condition, a holding company holds assets other than stock in subsidiaries, and, based on all the facts and circumstances, the ownership of those assets is expected to achieve substantially the same effect as holding those assets in a separate entity. A similar comment was considered and not adopted during the promulgation of the 2008 temporary regulations. The IRS and the Treasury Department believe that the commentator's recommendation would be difficult to administer because it would require factually intensive and subjective determinations. Therefore, this comment was not adopted.

Additionally, comments recommended clarifying the requirement in the holding company exception that substantially all of a potential holding company's opportunity for gain and risk of loss with respect to its qualified equity interest in a lower-tier entity be shared by the U.S. party or parties (or persons that are related to a U.S. party) and a counterparty or counterparties (or persons that are related to a counterparty). According to the comments, there are common situations where it is not clear that gain and risk of loss are shared, including preferred stock and stock-based compensation. The IRS and the Treasury Department believe that existing legal principles should apply to determine if an interest holder possesses the opportunity for gain and risk of loss and that additional guidance is generally unnecessary. The IRS and the Treasury Department further believe that the sharing of gain and risk of loss is dependent on facts and circumstances and therefore the final regulations provide that the assessment of opportunity for gain and risk of loss is based on all facts and circumstances.

Finally, comments requested clarification regarding the application of the holding company exception to fact patterns involving multiple counterparties or multiple U.S. parties. In response to the comments, these final regulations clarify that in cases involving more than one U.S. party or more than one counterparty or both, the requirement that the parties must share in substantially all of the upper-tier entity's opportunity for gain and risk of loss with respect to its interest in a lower-tier entity is applied by examining whether there is sufficient risk sharing by each of the groups comprising all U.S. parties (or person related to such U.S. parties) and all counterparties (or persons related to such counterparties). The IRS and the Treasury Department believe that the risk sharing requirement, as so modified, will continue to ensure that only bona fide joint ventures are eligible for the holding company exception. If there is more than one U.S. party or more than one counterparty, the final regulations do not require that each member of the U.S. party and counterparty groups share in the underlying investment risk. Finally, the holding company exception has been modified to provide that where a U.S. party owns an interest in an entity indirectly through a chain of entities, the exception is applied beginning with the lowest-tier entity in the chain before proceeding upward and the opportunity for gain and risk of loss borne by any upper-tier entity in the chain that is a counterparty is disregarded to the extent borne indirectly by a U.S. party.

The second of the two requirements of the SPV condition in the 2008 temporary regulations is that there is a foreign payment attributable to income of the entity. See § 1.901-2T(e)(5)(iv)(B)( 1 )( ii ). The foreign payment may be paid by the entity itself or by the owner(s) of the entity. The 2007 proposed regulations and the 2008 temporary regulations both provide an exception that a foreign payment does not include a withholding tax imposed on distributions or payments made by an entity to a U.S. party. However, the IRS and the Treasury Department have become aware that taxpayers can enter into arrangements that generate duplicative benefits involving foreign withholding taxes imposed on distributions made by an entity to a U.S. party. For example, if the parties undertake a transaction in which interests in an SPV are transferred by the U.S. party to a counterparty subject to a repurchase obligation, withholding taxes imposed on distributions from the SPV may be claimed as creditable in both jurisdictions.

Accordingly, the exception for withholding taxes imposed on distributions or payments to U.S. parties is eliminated from § 1.901-2(e)(5)(iv)(B)( 1 )( ii ) of the final regulations. The IRS and the Treasury Department will promulgate additional guidance to clarify that a foreign payment attributable to income of an entity includes a withholding tax imposed on a dividend or other distribution (including distributions made by a pass-through entity or an entity that is disregarded as an entity separate from its owner for U.S. tax purposes) with respect to the equity of the entity.

The 2008 temporary regulations attribute to income of an entity foreign payments attributable to the entity's share of income of a lower-tier entity that is a branch or pass-through entity under either foreign or U.S. law. One comment recommended that the foreign payment rule be modified by eliminating the attribution of foreign payments made by a lower-tier entity that is a branch or pass-through entity under only U.S. law to the income of its owner because such attribution would not occur if the lower-tier entity were regarded as a corporation for U.S. tax purposes. The IRS and the Treasury Department agree with the comment that foreign payments by a lower-tier entity should not be attributed to the income of its owner. In cases where a lower-tier entity is liable for foreign payments under foreign law, the disallowance of foreign tax credits with respect to such taxes should turn on whether that entity, and not the owner of such entity, satisfies the SPV condition. Accordingly, the applicable sentence has been eliminated from § 1.901-2(e)(5)(iv)(B)( 1 )( ii ) of the final regulations.

Section 1.901-2(e)(5)(iv)(B)( 2 ) of the final regulations adopts without change the second condition of the 2008 temporary regulations that a U.S. party is a person who is eligible to claim a credit under section 901(a), including a credit for taxes deemed paid under section 902 or 960, for all or a portion of the foreign payment if the foreign payment were an amount of tax paid (the “U.S. party condition”). Comments recommended that the U.S. party condition be supplemented with a de minimis exception, including an exclusion for U.S. citizens and residents. The IRS and the Treasury Department do not believe that such a modification is consistent with the purposes of these regulations. Therefore, the IRS and the Treasury Department have not adopted this comment.

Another comment recommended that if a U.S. party is a member of an affiliated group of corporations that files a consolidated federal income tax return, then all members of the affiliated group should be treated as a single U.S. party for purposes of applying the final regulations. The IRS and the Treasury Department did not adopt this comment because the final regulations provide aggregation rules that address the comment.

Section 1.901-2(e)(5)(iv)(B)( 3 ) of the final regulations adopts without change the third condition of the 2008 temporary regulations (the “direct investment condition”). The direct investment condition requires that the U.S. party's share of the foreign payment or payments is (or is expected to be) substantially greater than the amount of credits, if any, that the U.S. party reasonably would expect to be eligible to claim under section 901(a) for foreign taxes attributable to income generated by the U.S. party's proportionate share of the assets owned by the SPV if the U.S. party directly owned such assets.

Comments suggested that this condition in the 2008 temporary regulations will always be satisfied because it assumes the assets would not be held through a branch operation subject to net basis taxation and excludes assets that produce income subject to gross basis withholding tax. One comment recommended that the final regulations limit the condition to cases in which the arrangement increases the foreign payments attributable to the U.S. party relative to what would have been paid in the absence of a duplicative tax benefit. In contrast, the 2008 temporary regulations compare the amount of the U.S. party's foreign payment with the amount of taxes that would be expected to be paid if the U.S. party directly owned the assets in question.

The IRS and the Treasury Department disagree with this recommendation. The introduction of a standard that compares the foreign payments arising from a structured passive investment arrangement to alternative transactions that might have been undertaken under different incentives would add administrative complexity and uncertainty in the application of these regulations. Accordingly, the IRS and the Treasury Department have retained the condition unchanged from the 2008 temporary regulations both because it describes one of the abusive aspects of these arrangements and because it ensures that the regulations cannot be avoided through the use of foreign securities that produce income subject to withholding taxes.

Section 1.901-2(e)(5)(iv)(B)( 4 ) of the final regulations adopts with minor changes the fourth condition of the 2008 temporary regulations (the “foreign tax benefit condition”). The foreign tax benefit condition requires that the arrangement is reasonably expected to result in a tax benefit to a counterparty (or a related person) under the laws of a foreign country. If the foreign tax benefit available to the counterparty is a credit, then such credit must correspond to 10 percent or more of the U.S. party's share (for U.S. tax purposes) of the foreign payment. Other types of foreign tax benefits, such as exemptions, deductions, exclusions or losses, must correspond to 10 percent or more of the foreign base with respect to which the U.S. party's share (for U.S. tax purposes) of the foreign payment is imposed.

The IRS and the Treasury Department received several comments with respect to the foreign tax benefit condition. The comments asserted that the rule in the 2008 temporary regulations requiring at least 10 percent correspondence between the foreign tax benefit and the U.S. party's share of the foreign payment (“the 10 percent correspondence requirement”) is vague and more difficult to apply than a similar rule in the 2007 proposed regulations. Under the 2007 proposed regulations, any foreign tax benefit satisfied the condition, but the counterparty condition, described below, included minimum ownership requirements. One comment favored the clarity of the 2007 proposed rule. In addition, the comments questioned whether certain types of foreign tax benefits, such as exemptions or reduced tax rates on certain types of income, should be treated as foreign tax benefits for these purposes. Finally, comments sought clarification regarding how the percentage of correspondence is determined in cases involving more than two persons owning an interest in an SPV.

The 10 percent correspondence requirement is intended to limit any potential disallowance of foreign tax credits to cases in which there is a material duplication of the tax benefits. Accordingly, the final regulations retain this requirement. In addition, the final regulations do not exclude any particular tax benefit from the foreign tax benefit condition because duplication of tax benefits can assume a wide variety of forms. The IRS and the Treasury Department also believe that whether foreign tax benefits duplicate or correspond to the U.S. party's share of the foreign tax benefits will generally be clear and no further elaboration of the rules is required.

Another comment noted that the foreign tax benefit condition may be difficult to apply in cases where the foreign tax benefit is claimed by a party related to the counterparty. The IRS and the Treasury Department concluded that it was necessary to include related parties because of the variety of duplication techniques otherwise available to taxpayers, including the use of benefits arising to members of a related group of entities, and accordingly the comment was not adopted.

Comments sought clarification that in arrangements involving two or more unrelated counterparties, the 10 percent correspondence requirement cannot be satisfied by aggregating the value of duplicative tax benefits received by the unrelated counterparties. The comments assert that the inclusion of benefits received by parties related to a counterparty in the foreign tax benefit condition in the 2008 temporary regulations suggested, by negative implication, that any benefits claimed by unrelated counterparties should not be aggregated. The IRS and the Treasury Department did not adopt this comment. The 10 percent correspondence requirement is intended to ensure that the disallowance of credits applies only where the duplication of tax benefits in the arrangement is material relative to the value of the otherwise creditable foreign payment, irrespective of whether the arrangement involves multiple U.S. parties, multiple counterparties, or both. Thus, in the final regulations the 10 percent correspondence requirement compares the aggregate amount of foreign tax benefits available to all counterparties and persons related to such counterparties to the aggregate amount of the U.S. parties' share of the foreign payment or the foreign base, as the case may be.

Comments also objected to the language in the foreign tax benefit condition providing that the arrangement is “reasonably expected” to result in a foreign tax benefit. According to the comments, a U.S. party may be unable to assess whether a counterparty is reasonably expected to receive a foreign tax benefit and it would be inappropriate to disallow a foreign tax credit where a U.S. party cannot make such an assessment. The IRS and the Treasury Department believe the reasonableness standard in the 2008 temporary regulations affords sufficient protection against unknowable or unexpected outcomes in the majority of cases. Further, the IRS and the Treasury Department are concerned that an actual knowledge requirement would be difficult to administer. Accordingly, the IRS and the Treasury Department have not adopted this comment.

The fifth condition provided in § 1.901-2T(e)(5)(iv)(B)( 5 ) of the 2008 temporary regulations is that the arrangement include a person that, under the tax laws of a foreign country in which the person is subject to tax on the basis of place of management, place of incorporation or similar criterion or otherwise subject to a net basis tax, directly or indirectly owns or acquires equity interests in, or assets of, the SPV (the “counterparty condition”). The 2008 temporary regulations provide that a counterparty does not include the SPV or a person with respect to which the same domestic corporation, U.S. citizen or resident alien individual directly or indirectly owns more than 80 percent of the total value of the stock (or equity interests) of each of the U.S. party and such person. Also, a counterparty does not include a person with respect to which the U.S. party directly or indirectly owns more than 80 percent of the total value of the stock (or equity interests), but only if the U.S. party is a domestic corporation, a U.S. citizen or a resident alien individual.

The IRS and the Treasury Department received several comments with respect to the counterparty condition. Comments noted that in certain tiered structures the rule could treat as a counterparty an upper-tier entity in which a U.S. investor and a foreign investor each hold interests, and that to the extent that the foreign tax benefits resulting from such structures are not duplicative, the counterparty condition is overly broad. For example, if a U.S. investor and foreign investor each own 50 percent of an upper-tier entity which in turn owns an SPV, the comments argue that the exempt treatment of distributions from the SPV to its upper-tier owner is not problematic so long as each of the investors in the upper-tier entity ultimately receives only those tax benefits associated with its 50 percent interest in the upper-tier entity. Comments suggested revising the counterparty condition to exclude such intermediary entities.

The IRS and the Treasury Department agree that foreign tax benefits claimed by a jointly-held upper-tier entity are not problematic so long as none of the indirect U.S. or foreign owners of the SPV claims duplicative tax benefits attributable to the arrangement. However, the IRS and the Treasury Department are concerned that revising the counterparty condition to exclude jointly-held entities could create opportunities for avoidance of the regulations. Accordingly, in lieu of revising the counterparty condition, the final regulations revise the foreign tax benefit condition to provide that certain tax benefits claimed by upper-tier entities do not correspond to the U.S. party's share of the foreign payment. Specifically, where a U.S. party indirectly owns a non-hybrid equity interest in an SPV, a foreign tax benefit available to a foreign entity in the chain of ownership which begins with the SPV and ends with the first-tier entity in such chain does not correspond to the U.S. party's share of the foreign payment attributable to the SPV to the extent that such benefit relates to earnings of the SPV that are distributed with respect to non-hybrid equity interests in the SPV that are owned indirectly by the U.S. party for purposes of both U.S. and foreign tax law. See § 1.901-2(e)(5)(iv)(B)( 4 ). This revision is intended to ensure that the foreign tax benefit condition is not satisfied in cases where the U.S. and foreign investors claim only those tax benefits that are consistent with their respective investments in the arrangement and their interests are treated as equity and owned by the same persons in both jurisdictions.

One comment also recommended that dual citizens or U.S. residents, who are generally subject to U.S. tax on their worldwide income, should not be treated as counterparties because any reduction in foreign tax liability will result in a corresponding increase in U.S. tax. The IRS and the Treasury Department agree with this comment and have modified the final regulations to reflect this change.

One comment also recommended that individuals who are family members of a U.S. party not be treated as counterparties. The IRS and the Treasury Department disagree with the comment. The exception from the counterparty condition for certain U.S.-controlled foreign counterparties is based on the premise that the foreign tax benefit available to such a counterparty confers only a timing benefit that will reverse when the counterparty repatriates its earnings to the United States. Because such timing benefits are not the focus of these regulations, the 2007 proposed regulations and 2008 temporary regulations excluded certain foreign persons owned by the U.S. party or by certain United States persons who also own the U.S. party. In contrast, where an individual is related to a U.S. party but is not a United States person for U.S. tax purposes, the reduction in foreign tax liability obtained by such individual does not result in a corresponding increase in U.S. tax. Accordingly, the final regulations do not include an exclusion for such individuals.

One comment recommended that individuals receiving stock in connection with the performance of services should not be treated as counterparties. The tax policy concerns of the IRS and the Treasury Department regarding structured transactions addressed by these regulations exist regardless of the means by which a person acquires its interest in an SPV. The presence of a duplicative tax benefit is no less problematic because its recipient acquired its interest in an SPV in return for services instead of capital. Accordingly, this recommendation was not adopted.

One comment recommended that in cases where one U.S. party owns more than 80 percent of a counterparty but another U.S. party does not, the regulations should treat a foreign payment as noncompulsory only to the extent of the unrelated U.S. party's share of the foreign payment. This comment was not adopted. These regulations are intended to disallow foreign tax credits claimed in connection with structured passive investment arrangements. The tax policy concerns of the IRS and the Treasury Department regarding such abusive transactions remain the same regardless of whether the arrangement satisfies the six conditions of the regulations with respect to one U.S. party or multiple U.S. parties.

One comment recommended that the final regulations adopt the de minimis rule set forth in the 2007 proposed regulations that requires a counterparty to own a certain percentage of the equity or assets of the SPV. In contrast, as explained in the preamble to the 2008 temporary regulations, the 2008 temporary regulations focus on whether there is a duplicative foreign tax benefit. The IRS and the Treasury Department continue to believe that focusing on a threshold amount of duplicative tax benefits is more consistent with the concerns underlying the regulations. Accordingly, this comment is not adopted.

Another comment recommended that the percentage of U.S. ownership required to exclude a person from being treated as a counterparty be reduced from the 2008 temporary regulations' threshold of more than 80 percent. The comment recommended that the threshold be reduced to either 80 percent or more, or 75 percent or more. The IRS and the Treasury Department do not believe that the proposal is consistent with the policy concerns addressed by these final regulations. Accordingly, this comment is not adopted.

The IRS and the Treasury Department also received several comments with respect to the sixth condition of the 2008 temporary regulations (the “inconsistent treatment condition”). The inconsistent treatment condition requires that the United States and an applicable foreign country treat the arrangement inconsistently under their respective tax systems and that the U.S. treatment results in either materially less income or a materially greater amount of foreign tax credits than would be available if the foreign law controlled the U.S. tax treatment. This condition is intended to limit the disallowance of credits to those arrangements that exploit inconsistencies in U.S. and foreign law to secure a foreign tax credit benefit.

A comment recommended that the final regulations adopt an additional requirement that the foreign tax benefit obtained by the counterparty be materially less if the U.S. tax treatment controlled for foreign tax purposes as well. The recommendation is intended to require that both the U.S. party's share of the foreign payments and the foreign tax benefit arise from the inconsistent treatment. The IRS and the Treasury Department believe that the foreign tax benefit condition of the 2008 temporary regulations is sufficient to ensure that the foreign tax benefit corresponds to or duplicates the U.S. party's share of the foreign payments or the foreign base and that such duplication is sufficiently indicative of inconsistency. Therefore, the IRS and the Treasury Department believe that any additional requirement under the inconsistent treatment condition is unnecessary, and the comment was not adopted.

These final regulations clarify the application of the inconsistent treatment condition in cases where multiple U.S. parties exist. Where an arrangement involves multiple U.S. parties, the inconsistent treatment condition is satisfied only if the amount of income attributable to the SPV that is recognized for U.S. tax purposes by the SPV and all the U.S. parties (and persons related to the U.S. party or parties) is materially less than the amount of income that would be recognized if the foreign tax treatment controlled for U.S. tax purposes or if the amount of foreign tax credits claimed by all U.S. parties is materially greater than it would be if the foreign tax treatment controlled for U.S. tax purposes.

These final regulations provide two new examples to illustrate changes that were adopted in the final regulations. Example 8 illustrates the application of the holding company exception when there is more than one U.S. party or more than one counterparty. Example 12 illustrates the application of the revised foreign tax benefit condition to a tiered holding company structure. Modifications to examples in the 2008 temporary regulations were also made to reflect comments received and other changes to the regulations.

These final regulations adopt with minor changes amendments made by the 2008 temporary regulations to § 1.901-1(a) and (b) to reflect statutory changes made by the Foreign Investors Tax Act of 1966 (Pub. L. 89-809 (80 Stat. 1539), section 106(b)), the Tax Reform Act of 1976 (Pub. L. 94-455 (90 Stat. 1520), section 1901(a)(114)), and the American Jobs Creation Act of 2004 (Pub. L. 108-357 (118 Stat. 1418-20), section 405(b)).

These final regulations generally apply to payments that, if such payments were an amount of tax paid, would be considered paid or accrued on or after July 17, 2011.

The IRS and the Treasury Department will continue to closely scrutinize other arrangements that are not covered by the regulations but produce inappropriate foreign tax credit results. Such arrangements may include arrangements that are similar to arrangements described in the final regulations, but that do not meet all of the conditions included in the final regulations. The IRS will continue to challenge the claimed U.S. tax results in appropriate cases, including under judicial doctrines. The IRS and the Treasury Department may also issue additional regulations in the future to address such other arrangements.

It has been determined that this Treasury decision is not a significant regulatory action as defined in Executive Order 12866. Therefore, a regulatory assessment is not required. It is hereby certified that these regulations will not have a significant economic impact on a substantial number of small entities. This certification is based on the fact that these regulations will primarily affect affiliated groups of corporations that have foreign operations which tend to be larger businesses. Moreover the number of taxpayers affected and the average burden are minimal. Therefore, a Regulatory Flexibility Analysis is not required. Pursuant to section 7805(f) of the Code, the notice of proposed rulemaking preceding this regulation was submitted to the Chief Counsel for Advocacy of the Small Business Administration for comment on its impact on small business.

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

Accordingly, 26 CFR part 1 is amended as follows:

Regulatory Information

The Coast Guard is issuing this temporary final rule without prior notice and opportunity to comment pursuant to authority under section 4(a) of the Administrative Procedure Act (APA) (5 U.S.C. 553(b)). This provision authorizes an agency to issue a rule without prior notice and opportunity to comment when the agency for good cause finds that those procedures are “impracticable, unnecessary, or contrary to the public interest.” Under 5 U.S.C. 553(b)(B), the Coast Guard finds that good cause exists for not publishing a notice of proposed rulemaking (NPRM) with respect to this rule because any delay encountered in this regulation's effective date by publishing a NPRM would be contrary to public interest since immediate action is needed to provide for the safety of life and property on navigable waters from the hazardous nature of swimming events such as large numbers of swimmers in congested waterways. We spoke with each event sponsor and each indicated they were unable and unwilling to move their event date to a later time. Sponsors stated they are unwilling to reschedule these events because they are held in conjunction with other activities and already scheduled on the most suitable dates where swim event's that are dependent on tide and current conditions predicted for the day will be conducive to the safety of the swim participants. Rescheduling would not be a viable option because most event locations, have fully booked marine event summer schedules making rescheduling unrealistic. These swimming events are all reoccurring annual marine events. The Coast Guard intends to make these safety zones permanent regulations and has submitted a NPRM for submission to the Federal Register requesting public comments. Additionally, the Coast Guard has ordered safety zones or special local regulations for all of these areas for past events and has not received public comments or concerns regarding the impact to waterway traffic from those events. Delaying the effective date by first publishing a NPRM would be contrary to the rule's objectives of ensuring safety of life on the navigable waters during these scheduled events as immediate action is needed to protect persons and vessels from the hazardous nature of swimming events.

The legal basis for the temporary rule is 33 U.S.C. 1226, 1231; 46 U.S.C. Chapter 701, 3306, 3703; 50 U.S.C. 191, 195; Pub. L. 107-295, 116 Stat. 2064; and Department of Homeland Security Delegation No. 0170.1, which collectively authorize the Coast Guard to define safety zones.

Marine events are frequently held on the navigable waters within the COTP Boston Zone. Based on the potential hazards of swimming events, the COTP Sector Boston has determined that swimming events proximate to watercrafts pose significant risk to public safety and property. The combination of increased numbers of recreation vessels, congested waterways, and large numbers of swimmers in the water has the potential to result in serious injuries or fatalities. In order to protect the safety of all waterway users including event participants and spectators, this temporary rule establishes temporary safety zones for the time and location of each event.

This rule prevents vessels from entering into, transiting through, mooring or anchoring within areas specifically designated as regulated areas during the periods of enforcement unless authorized by the COTP, or the designated representative.

This temporary rule creates safety zones for eight swimming events in the COTP Boston Zone. These events are listed below in the text of the regulation.

Because large numbers of spectator vessels are expected to congregate around the location of these events, the regulated areas are needed to protect both spectators and participants from the safety hazards created by swimming events including marine casualties and the risk of boat collisions with swimmers in the water that may cause death or serious bodily harm. During the enforcement period of the regulated areas, persons and vessels are prohibited from entering into, transiting through, anchoring or mooring within the zone unless specifically authorized by the COTP or the designated representatives. The Coast Guard may be assisted by other federal, state and local agencies in the enforcement of these regulated areas.

The Coast Guard determined that these regulated areas will not have a significant impact on vessel traffic due to their temporary nature and limited size and the fact that vessels are allowed to transit the navigable waters outside of the regulated areas. Additionally, The Coast Guard has ordered safety zones or special local regulations for past events and has not received public comments or concerns regarding the impact to waterway traffic.

Advanced public notifications will also be made to the local maritime community by the Local Notice to Mariners as well as Broadcast Notice to Mariners.

We developed this rule after considering numerous statutes and executive orders related to rulemaking. Below we summarize our analyses based on 13 of these statutes or executive orders.

This rule is not a significant regulatory action under section 3(f) of Executive Order 12866, Regulatory Planning and Review, as supplemented by Executive Order 13563, and does not require an assessment of potential costs and benefits under section 6(a)(3) of that Order. The Office of Management and Budget has not reviewed it under that Order.

The Coast Guard determined that this rule is not a significant regulatory action for the following reasons: The regulated areas will be of limited duration, they cover only a small portion of the navigable waterways, and the events are designed to avoid, to the extent possible, deep draft, fishing, and recreational boating traffic routes. In addition, vessels requiring entry into the area of the regulated areas may be authorized to do so by the Captain of the Port.

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

The Coast Guard certifies under 5 U.S.C. 605(b) that this rule will not have a significant economic impact on a substantial number of small entities. This rule will affect the following entities, some of which may be small entities: The owners or operators of vessels intending to transit or anchor in the designated regulated area during the enforcement periods stated for each event in the List of Subjects.

The temporary safety zones will not have a significant economic impact on a substantial number of small entities for the following reasons: The regulated areas will be of limited size and of short duration, and vessels that can safely do so may navigate in all other portions of the waterways except for the areas designated as regulated areas. Additionally, before the effective period, the Coast Guard will issue notice of the time and location of each regulated area through a Local Notice to Mariners and Broadcast Notice to Mariners.

Under section 213(a) of the Small Business Regulatory Enforcement Fairness Act of 1996 (Pub. L. 104-121), we offer to assist small entities in understanding the rule so that they can better evaluate its effects on them and participate in the rulemaking process.

Small businesses may send comments on the actions of Federal employees who enforce, or otherwise determine compliance with, Federal regulations to the Small Business and Agriculture Regulatory Enforcement Ombudsman and the Regional Small Business Regulatory Fairness Boards. The Ombudsman evaluates these actions annually and rates each agency's responsiveness to small business. If you wish to comment on actions by employees of the Coast Guard, call 1-888-REG-FAIR (1-888-734-3247). The Coast Guard will not retaliate against small entities that question or complain about this rule or any policy or action of the Coast Guard.

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

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

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

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

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

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

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

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

The National Technology Transfer and Advancement Act (NTTAA) (15 U.S.C. 272 note) directs agencies to use voluntary consensus standards in their regulatory activities unless the agency provides Congress, through the Office of Management and Budget, with an explanation of why using these standards would be inconsistent with applicable law or otherwise impractical. Voluntary consensus standards are technical standards (e.g., specifications of materials, performance, design, or operation; test methods; sampling procedures; and related management systems practices) that are developed or adopted by voluntary consensus standards bodies.

This rule does not use technical standards. Therefore, we did not consider the use of voluntary consensus standards.

We have analyzed this rule under Department of Homeland Security Management Directive 023-01 and Commandant Instruction M16475.lD, which guide the Coast Guard in complying with the National Environmental Policy Act of 1969 (NEPA) (42 U.S.C. 4321-4370f), and have concluded this action is one of a category of actions which do not individually or cumulatively have a significant effect on the human environment. This rule is categorically excluded, under figure 2-1, paragraph (34)(g), of the Instruction. This rule involves the establishment of temporary safety zones. An environmental analysis checklist and a categorical exclusion determination are available in the docket where indicated under ADDRESSES .

For the reasons discussed in the preamble, the Coast Guard amends 33 CFR part 165 as follows:

I. Background Information

Section 112 of the Clean Air Act (CAA) establishes a two-stage regulatory process to address emissions of hazardous air pollutants (HAP) from stationary sources. In the first stage, after the EPA has identified categories of sources emitting one or more of the HAP listed in section 112(b) of the CAA, section 112(d) calls for the Administrator to promulgate national emission standards for hazardous air pollutants for those sources. The EPA is then required to review these technology-based standards, and to revise them “as necessary (taking into account developments in practices, processes, and control technologies)” no less frequently than every 8 years, under CAA section 112(d)(6). The second stage in standard-setting focuses on reducing any remaining “residual” risk according to CAA section 112(f).

On January 16, 2009, then Administrator Stephen Johnson signed a final rule amending the National Emission Standards for Hazardous Air Pollutants From Petroleum Refineries, and the signed rule was made publicly available on the EPA's website. The signed rule included several different actions. First, it promulgated maximum achievable control technology (MACT) standards under CAA sections 112(d)(2) and (3) for heat exchange systems, which the EPA had not addressed in the original Refinery MACT 1 rule (40 CFR part 63, subpart CC). Second, pursuant to CAA section 112(f)(2), the rule addressed residual risk for all Refinery MACT 1 sources, including heat exchange systems. Third, it addressed the technology review pursuant to CAA section 112(d)(6) for all sources addressed in the original Refinery MACT 1 rule. Finally, the rule updated the table in the Refinery MACT 1 standards (Table 6) that cross-references the General Provisions in 40 CFR part 63, subpart A, and made a few additional clarifications to dates and cross-references in the Refinery MACT 1 standards.

The signed rule was submitted to the Office of the Federal Register for publication. Rahm Emanuel, Assistant to the President and Chief of Staff, issued a memorandum on January 20, 2009, directing Agencies to withdraw from the Office of the Federal Register “all proposed or final regulations that have not been published in the Federal Register so that they can be reviewed and approved by a department or agency head.” Although there was an exception for “regulations subject to statutory or judicial deadlines,” the Agency chose not to apply the exception in this case. One portion of the final rule, the CAA section 112(d)(6) review, was performed pursuant to the terms of a Consent Decree, which, as modified, required that by January 16, 2009, the EPA “shall sign and promptly forward to the Federal Register for publication either final revisions to the standards for petroleum refineries in 40 CFR part 63, subpart CC pursuant to 42 U.S.C. 7412(d)(6) or a final determination that no revisions are necessary.” Then Administrator Stephen Johnson signed the rule on January 16, 2009, and promptly forwarded it to the Office of the Federal Register, thus, fulfilling this obligation. 1

Upon further review, the EPA determined that the residual risk and technology reviews may not accurately characterize the risk posed by this source category. Shortly after the rule was signed, the EPA responded to a Request for Correction under the EPA's Information Quality Guidelines from the city of Houston. 2 In that response, we recognized that we were currently taking action (and planned to take additional action) to gather better emissions information from the refining industry. Additionally, we noted that, during the comment period on the proposed rule, similar issues were raised concerning the representativeness of the emissions data and whether they provided an accurate basis for characterizing the risks posed.

After consideration of the public comments on the proposal to withdraw portions of the final rule, we are providing final notice of the Agency's decision to partially withdraw the final rule. As stated in the preamble to the proposed withdrawal, the EPA will provide the public with an opportunity to comment on any new proposed rule that may be issued addressing the residual risk and technology review requirements of the CAA for this source category.

The EPA received a total of six comment letters concerning the proposed partial withdrawal. Comment letters were received from industry trade associations, local environmental organizations, environmental groups, and members of the public. Summaries of the comments and our complete responses are included in the following section.

Comment: Four commenters supported the EPA's proposed partial withdrawal of the Refinery MACT 1 standards signed on January 16, 2009, and supported further analysis leading to a revised set of proposed standards. Several of these commenters asserted that the withdrawal is necessary because the EPA failed to adequately address their comments on the standards that were proposed on September 4, 2007 (72 FR 50716), and November 10, 2008 (73 FR 66694). Some of the comments submitted on those previous proposals and reiterated by the commenters included: (1) Objections to the EPA's interpretation of the CAA requirement that the standards provide an “ample margin of safety”; (2) assertions that the maximum individual lifetime cancer risk allowed by the CAA is 1 in 1 million; (3) objections to the length of time allowed for compliance with standards for storage vessels with floating roofs; (4) identification of multiple deficiencies in the risk assessment methodology, including use of actual emissions rather than allowable emissions and the estimation of emissions at census block centroids rather than property lines; and (5) assertions that the emissions data used in the risk assessment were underestimated and unrepresentative. The commenters requested that the EPA collect more accurate emissions data and re-analyze the residual risk for Refinery MACT 1 using a methodology without the identified deficiencies.

Response: We appreciate the four commenters' support for the withdrawal of the residual risk and technology review portions of the revisions to the Refinery MACT 1 standards. In this notice, the EPA is not making any decisions regarding the scope of residual risk and technology review standards under the CAA or on the specific data that would form the basis for a particular decision. Substantive comments on those issues should be raised in the context of future proposed rules addressing the CAA residual risk and technology review for one or more specific source categories.

Comment: Two commenters objected to the proposed withdrawal of the residual risk and technology review portions of the Refinery MACT 1 standards that were signed on January 16, 2009. These commenters noted that the EPA spent several years collecting data and considering stakeholder comments, finally reaching the conclusion that the Refinery MACT 1 standards provide an ample margin of safety based on data that the EPA judged to be representative of the source category. The commenters asserted that the docket for the Refinery MACT 1 rulemaking (Docket ID EPA-HQ-OAR-2003-0146) does not include any specific support for the EPA's decision to reject that previous conclusion. According to the commenters, the only support for withdrawing the rule and redoing the analyses is provided in public comments submitted for the proposed rules, and the EPA considered those comments prior to finalizing the rule signed on January 16, 2009. The commenters requested that the EPA present any additional data received or analyses performed since January 16, 2009, to support withdrawal of the standards, and clearly explain any differences in assumptions or methodologies used in the analyses.

One commenter asserted that residual risk and technology review for Refinery MACT 1 has been a time- and resource-consuming process, and due to the EPA's other obligations under the CAA, it is not in the best interest of the public for the EPA to repeat the entire process without good cause. The commenter detailed a number of analyses in the docket showing that the EPA believed its emissions estimates and risk assessment methodologies were appropriate for the rulemaking. The commenter also noted that, if the EPA always postponed regulatory action because data may become available in the future, no regulatory actions would ever be completed. According to the commenter, refiners continue to make improvements in emissions reductions, and the heat exchange system standards will reduce emissions from cooling towers, so further data collection would only serve to support the conclusion that the current standards provide an ample margin of safety.

Two commenters addressed the EPA's responsibilities under the Data Quality Act (DQA) related to the Request for Correction filed by Mayor White of Houston (RFC 02003). The commenters stated that the EPA fulfilled its DQA obligations through its response to Mayor White on April 7, 2009 (Docket Item No. EPA-HQ-OAR-2003-0146-0210), which describes the steps that the EPA plans to take to improve annual emissions estimates. Since the EPA has addressed the DQA concerns raised by Mayor White, the commenters asserted that it is not necessary for the Agency to take action on the proposed withdrawal of the Refinery MACT 1 standards to further address those concerns.

Response: As the commenters noted, we did reach the conclusions presented in the rule that was signed on January 16, 2009, through analysis of the data we had at the time. The commenters are correct that, as of the time of the proposed withdrawal, we had not yet received any specific, additional data to support changing the conclusions reached in the final rule. However, our proposal was not based on the receipt of such information. Our decision to withdraw the residual risk and technology review portions of the January 16, 2009, rule does not mean that we have made a decision to change our conclusions regarding what requirements are necessary and appropriate for the Refinery MACT 1 standards. Instead, as we noted when we proposed the withdrawal, we believe it is necessary to develop a more robust analysis based on the improved information we are in the process of gathering and developing.

With respect to duplicating the “time- and resource-consuming process” associated with the risk and technology review, we note that the EPA is now initiating the risk and technology review for the Refinery MACT 2 standards (40 CFR part 63, subpart UUU) and plans to conduct the Refinery MACT 1 and 2 reviews at the same time. Thus, our data collection efforts for purposes of the Refinery MACT 2 risk and technology review will also provide a significant portion of the information we will need for purposes of our new residual risk and technology review of the Refinery MACT 1 standards. Moreover, we believe that by more closely aligning our risk and technology review for Refinery MACT 1 and 2 sources, we will be able to develop a significantly improved analysis of the risks associated with petroleum refineries, and, therefore, can better determine the most effective way to address any residual risk posed by emissions from petroleum refineries. We see significant benefits in combining these efforts, both in terms of a more transparent risk evaluation of these co-located sources for the neighboring public and in terms of more consolidated standards for the regulated community. The EPA has already taken action to gather better emissions information from the refining industry, and to follow through on the commitments made in the response letter to Mayor White of Houston (Docket Item No. EPA-HQ-OAR-2003-0146-0210). For these reasons, we have concluded that the benefits of a consolidated risk and technology review outweigh the incremental analytical effort required to perform a new risk assessment for Refinery MACT 1 sources after collecting this more robust data.

One commenter suggested that the additional data may lead to the conclusion that the existing standards provide an ample margin of safety. We agree that is a possible outcome; however, any conclusions regarding the residual risk review for the Refinery MACT 1 standards will need to await our consideration of the more robust data we are now gathering. Those data will provide greater certainty for the final conclusions, and help to ensure the final standards are technically and legally defensible.

Finally, the EPA agrees that it has responded to the DQA request from Mayor White of Houston through the April 7, 2009, letter identified by the two commenters (Docket Item No. EPA-HQ-OAR-2003-0146-0210). In that letter, we outlined several initiatives that were either ongoing or planned for the near future in order to improve the quality of data we have concerning emissions from petroleum refineries, and we are continuing to move forward with all of those initiatives. We plan to use this improved information as we move forward to address emissions from petroleum refineries, including performing the residual risk and technology review for Refinery MACT 1 and 2 sources.

Comment: Two commenters noted that, if the EPA proceeds with the proposed partial withdrawal of Refinery MACT 1 standards, the Agency should make clear that the withdrawal completes the action related to the September 4, 2007, proposal. In other words, the commenters stated that the date for determining compliance with any new standards would be the proposal date of those new standards rather than September 4, 2007.

Response: We agree with the commenters. The appropriate dates for determining compliance with future standards would be the dates those standards are proposed and finalized.

Under the CAA, the Administrator is withdrawing a final action that was signed by the Administrator and made publicly available on the the EPA website, but that never took effect through publication in the Federal Register . This action:

• Is a “significant regulatory action” subject to review by the Office of Management and Budget under Executive Order 12866 (58 FR 51735, October 4, 1993);

• Does not impose an information collection burden under the provisions of the Paperwork Reduction Act (44 U.S.C. 3501, et seq. );

• Is certified as not having a significant economic impact on a substantial number of small entities under the Regulatory Flexibility Act (5 U.S.C. 601, et seq. );

• Does not contain any unfunded mandate or significantly or uniquely affect small governments, as described in the Unfunded Mandates Reform Act of 1995 (Pub. L. 104-4);

• Does not have Federalism implications as specified in Executive Order 13132 (64 FR 43255, August 10, 1999);

• Is not an economically significant regulatory action based on health or safety risks subject to Executive Order 13045 (62 FR 19885, April 23, 1997);

• Is not a significant regulatory action subject to Executive Order 13211 (66 FR 28355, May 22, 2001);

• Is not subject to requirements of section 12(d) of the National Technology Transfer and Advancement Act of 1995 (15 U.S.C. 272 note) because application of those requirements would be inconsistent with the CAA;

• Does not provide the EPA with the discretionary authority to address, as appropriate, disproportionate human health or environmental effects, using practicable and legally permissible methods, under Executive Order 12898 (59 FR 7629, February 16, 1994); and

• This notice does not have tribal implications as specified by Executive Order 13175 (65 FR 67249, November 9, 2000), because it will not impose substantial direct costs on tribal governments or preempt tribal law.

The detailed unit-by-unit data, calculations, and allowance allocation determinations are set forth in a technical support document in an Excel spreadsheet format titled “Unit Level Allocations Under the Transport Rule FIP” and available on EPA's Web site at http://www.epa.gov/airtransport/actions.html.

EPA is not requesting responses to the data made available through this NODA, which makes available data on allowance allocations finalized in the Transport Rule. Providing an allocation to an existing unit does not constitute a determination that the unit is a covered unit, and not providing an existing-unit allocation to a unit does not constitute a determination that the unit is not a covered unit. See §§ 97.411(a)(1), 97.511(a)(1), 97.611(a)(1), and 97.711(a)(1) of the Transport Rule.

Under the Transport Rule FIPs, EPA must record allowance allocations by certain deadlines. In particular, allowance allocations addressed by this NODA for existing units for 2012 must be recorded, within 90 days of the publication of the Transport Rule in the Federal Register , in the compliance accounts of existing units. See §§ 97.421(a), 97.521(a), 97.621(a), and 97.721(a) of the Transport Rule.

For 2013 and beyond, the Administrator must record, by certain specified deadlines, allowance allocations for existing units. See §§ 97.421(b) through (f), 97.521(b) through (f), 97.621(b) through (f), and 97.721(b) through (f) of the Transport Rule.

Under certain circumstances, the allowance allocations addressed in this NODA to existing units are subject to termination or correction, and the provisions establishing these allocations may be replaced by a SIP revision. See §§ 97.411(a)(2), 97.511(a)(2), 97.611(a)(2), and 97.711(a)(2) (concerning termination of allocations of non-operating units) and 97.411(c), 97.511(c), 97.611(c), and 97.711(c) (concerning incorrect allocations) of the Transport Rule and §§ 52.38(a)(3) through (5) and (b)(3) through (5) and 52.39(d) through (i) of the Transport Rule (concerning SIP revisions).

List of Subjects in 40 CFR Part 300

Environmental protection, Air pollution control, Chemicals, Hazardous Waste, Hazardous substances, Intergovernmental relations, Penalties, Reporting and recordkeeping requirements, Superfund, Water pollution control, Water Supply.

On December 17, 2010, the Department of the Treasury published a proposed rule (75 FR 78953) to update the Department of the Treasury Acquisition Regulation (DTAR) 2002 Edition, first published on June 14, 2002, and available at: http://www.access.gpo.gov/nara/cfr/. The DTAR will be maintained separately and combined with Department of the Treasury Acquisition Procedures (DTAP) for expediency of use by Treasury staff. The DTAR and combined DTAR/DTAP will be posted at: http://www.treasury.gov/about/organizational-structure/offices/Mgt/Pages/ProcurementPolicy-Regulations.aspx.

The December 17, 2010 proposed rule invited public comments on several changes to the DTAR. Among other changes, the proposed changes included revised definitions and scope of the DTAR. In addition, the proposal included new sections that address Treasury's Mentor-Protégé program, new provisions concerning contractor publicity, and new provisions on types of contracts (specifying that Bureaus must appoint a Task and Delivery Ombudsman). Finally, several editorial and grammatical changes were made in order to make the DTAR easier to read. See the December 17, 2010, proposed rule for further information.

The comment period closed on February 15, 2011. No comments were received and the Department adopts the proposed rule without change.

This rule is not a significant regulatory action under Executive Order 12866, Regulatory Planning and Review, dated September 30, 1993.

The Regulatory Flexibility Act, 5 U.S.C. 601, et seq., applies to this rule. It is hereby certified that the changes included in this rule will not have a significant economic impact on a substantial number of small entities within the meaning of the Regulatory Flexibility Act.

The revisions are not considered substantive; revisions only update and reorganize existing coverage. Further, the revisions to the Mentor-Protégé program, although having some economic impact on participating small entities, are not expected to affect a substantial number of small entities. The program is designed for mentoring firms to provide developmental assistance to protégés in the areas of management, personnel, organization, technical capability, financial strength, and training/certifications. As a result, the approximately 44 participating small entities may experience short-term gains including an increase in the areas of revenue, number of contract awards, personnel, technical capabilities, and business relationships. Long-term, program participation should provide increased access to prime or subcontractor opportunities at the Treasury. Subsequently, this program serves to improve the Department of the Treasury's small business goal attainment.

The information collections contained in this proposed rule have been previously approved by the Office of Management and Budget under the Paperwork Reduction Act (44 U.S.C. 3501, et seq. ) and assigned OMB control numbers 1505-0081; 1505-0080; and 1505-0107. Under the Paperwork Reduction Act, an agency may not conduct or sponsor and a person is not required to respond to a collection of information unless it displays a valid OMB control number.

Accordingly, the Department of the Treasury revises 48 CFR Chapter 10 to read as follows: