[Federal Register Volume 60, Number 118 (Tuesday, June 20, 1995)]
[Rules and Regulations]
[Pages 32099-32102]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 95-15058]



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 Rules and Regulations
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  Federal Register / Vol. 60, No. 118 / Tuesday, June 20, 1995 / Rules 
and Regulations  

[[Page 32099]]

DEPARTMENT OF JUSTICE

Drug Enforcement Administration

21 CFR Part 1301

[DEA No. 113F]


Registration of Manufacturers and Importers of Controlled 
Substances

AGENCY: Drug Enforcement Administration (DEA), Justice.

ACTION: Final rule.

-----------------------------------------------------------------------

SUMMARY: This final is issued by the Drug Enforcement Administration to 
eliminate the requirement of an administrative hearing on objections, 
raised by third-party manufacturers, to the registration of certain 
bulk manufacturers of controlled substances. This action amends the 
current regulation and removes the third-party manufacturer hearing 
provision when requested by another applicant or registrant. Other 
applicants and registrants may still submit written comments and 
objections for consideration by DEA and may participate in hearings on 
bulk manufacturer applications requested by the applicant. This final 
rule amends the regulation concerning withdrawal of applications to be 
consistent with this action.

EFFECTIVE DATE: July 20, 1995.

FOR FURTHER INFORMATION CONTACT:
Julie C. Gallagher, Associate Chief Counsel, Diversion/Regulatory 
Section, Office of Chief Counsel, Drug Enforcement Administration, 
Washington, DC 20537, telephone (202) 307-8010.

SUPPLEMENTARY INFORMATION: On October 7, 1993, DEA published a notice 
of proposed rulemaking (NPRM) in the Federal Register (58 FR 52246) to 
amend its regulations to eliminate the third-party manufacturer hearing 
requirement for objections to the registration of certain bulk 
manufacturers and importers of controlled substances. The DEA proposed 
to amend two sections of its regulations, specifically 21 CFR 
1301.43(a) and 1311.42(a), wherein DEA is required to hold an 
administrative hearing on an application for registration to 
manufacture or import a bulk Schedule I or II controlled substance when 
requested to do so by any current bulk manufacturer of the substance(s) 
or by any other applicant for a similar registration. The NPRM proposed 
to modify section 1301.43(a) and provide for a hearing only when DEA 
``determines that a hearing is necessary to receive factual evidence 
and/or expert testimony with respect to issues raised by the 
application or objections thereto.''

    On June 14, 1994, DEA published a Supplemental Notice of Proposed 
Rulemaking (SNPRM) in the Federal Register (59 FR 3055) proposing to 
eliminate altogether the third-party manufacturer hearing regulation, 
section 1301.43(a). DEA would continue to hold hearings when requested 
by the applicant pursuant to an order to show cause, section 1301.44. 
DEA would continue to solicit written comments or objections from 
current registrants and applicants concerning an application for 
registration. Current registrants and applicants would also be granted 
an opportunity to participate in any hearings conducted pursuant to 
section 1301.44.
    The SNPRM provided notice that DEA would not change the hearing 
provision relating to registration of importers, section 1311.42(a), 
because of the statutory requirements under 21 U.S.C. 958(i). Section 
958(i) states that DEA shall provide current bulk manufacturers of 
controlled substances an opportunity for a hearing prior to issuing an 
importer registration to another bulk manufacturer. With an existing 
statute in effect, DEA is not empowered to adopt regulations that 
contravene the express language of that statute.
    Five comments were received in response to the NPRM. Three comments 
were received concerning the SNPRM, although one commentor had 
previously commented on the NPRM. To the extent that comments received 
in response to the NPRM are relevant, they have been considered. Of the 
seven independent commentors, two supported removing the mandatory 
third party hearing provision while five commentors opposed the 
proposed rulemaking.
    One commentor that supported the proposed rule provided an example 
of its own experience as an applicant for a bulk manufacturer 
registration to demonstrate how ``currently registered manufacturers 
use the regulatory hearing requirement to deter others from applying or 
to delay entry of their competitors in the marketplace.'' The five 
opposing commentors advanced numerous arguments and proposed 
alternatives to the proposed rule, their primary concerns are 
summarized below.
    Three commentors believed that elimination of the third-party 
manufacturer hearing regulation would be contrary to Congress' intent 
that DEA should limit the number of bulk manufacturers in the United 
States where supply and competition are adequate. One of these 
commentors noted that the United States had been a party to several 
international agreements recognizing the need to limit licensing of 
drug manufacturers. This commentor then argued that the Narcotic 
Manufacturing Act (NMA) of 1960, which specified limitations on the 
licensing of bulk manufacturers of controlled substances, provided 
historical precedent for similar limitations within the Controlled 
Substances Act (CSA). Similarly, two commentors argued that the 
proposed rule would run contrary to the intent of Congress to limit the 
number of bulk manufacturers of controlled substances to the most 
qualified applicants, and thus, limit the possible diversion of these 
controlled substances. One commentor interpreted the mandate of 
``limiting'' registration under 21 U.S.C. 823(a) of the CSA as 
prohibiting DEA from approving additional registrations if there 
already exists uninterrupted supply and adequate competition.
    The final rule is not contrary to either the direct or implied 
intent of Congress in passing the CSA. The final rule does not alter 
the DEA's responsibility to apply the factors set forth in 21 U.S.C. 
823(a) to applications for bulk manufacturer registrations. While the 
commentors provide persuasive arguments regarding possible 
Congressional intent in the enactment of 21 U.S.C. 823(a), such 
arguments are irrelevant to the issue of whether the 
[[Page 32100]] regulations should provide for a third-party 
manufacturer hearing. The express language of the statute does not 
provide a hearing right to bulk manufacturer registrants or applicants 
regarding the registration of a bulk manufacturer, nor can such a right 
be inferred. See Comprehensive Drug Abuse Prevention and Control Act of 
1970, Committee on Interstate and Foreign Commerce, H.R. Rep. No. 91-
1444 (Part 1), 91st Cong., 2d Sess. (1970) (CSA). Moreover, even 
assuming that Congress intended to limit the number of bulk 
manufacturer registrants, the final rule does not purport to increase 
the number of such registrants. It is also worth noting that the 
regulations, 21 CFR 1301.43(b), provide that DEA is not required to 
limit the number of manufacturers even if the current registrants can 
provide an adequate supply, as long as DEA can maintain effective 
controls against diversion.
    Another commentor suggested that Congress intended that DEA 
``implement such procedural safeguards when it enacted the CSA.'' This 
comment ignores the fact that neither 21 U.S.C. 823(a) nor 21 U.S.C. 
824 provides for a third-party manufacturer hearing. Moreover, as one 
commentor noted, the procedural requirements of the APA are not 
affected by the removal of the third-party manufacturer hearing 
provision. Significantly, at the time of promulgation of the CSA, 
Congress afforded a third-party manufacturer hearing opportunity to 
current bulk manufacturers on the importer applications of other bulk 
manufacturers for Schedule I and II controlled substances. See 21 
U.S.C. 958(i). Thus, a plain reading of the statute demonstrates that 
Congress did not intend to require a third-party manufacturer hearing 
for applications to bulk manufacture Schedule I and II controlled 
substances.
    It is also not inconsistent to allow hearings on import 
registration applications but deny them for bulk manufacturers, as one 
commentor suggested. First, registrations to import Schedule I and II 
controlled substances are arguably granted under more limited 
conditions than manufacturer registrations. See 21 U.S.C. 952. Also, it 
is worth noting that the statute provides for the opportunity for a 
hearing where a current bulk manufacturer has applied for an importer 
registration. Thus, it can be inferred that Congress was concerned with 
the potential impact on domestic competition by existing bulk 
manufacturers who wanted to import controlled substances as well.
    One commentor suggested that more companies will attempt to obtain 
a DEA registration because they could avoid the scrutiny of other bulk 
manufacturers and that DEA would have to increase personnel to conduct 
additional investigations and meet the greater demand for 
registrations. This commentor argued that it would be highly 
inadvisable to ``ease the entry'' of additional bulk manufacturers and 
promote creation of a class of ``opportunistic'' bulk manufacturers who 
would seek to produce products which are temporarily profitable, and 
felt no obligation to supply for the requirements of the U.S. market. 
These comments presume that removal of the third-party manufacturer 
hearing process would ``ease the entry'' of additional bulk 
manufacturers or that the applicant would be subject to less 
``scrutiny.'' Such is not the case. DEA will continue to apply the same 
factors required by 21 U.S.C. 823(a) to evaluate applications for 
registrations of bulk manufacturers. Where DEA discovers information 
which warrants proceedings to deny a registration, either through its 
own investigation or as provided through comments of other 
manufacturers, it will issue an order to show cause seeking to deny the 
application for registration.
    Two commentors found that DEA's conclusion regarding abuse of the 
regulatory hearing requirement is not supported by the record which 
reveals that in the last 20 years, DEA has held as few as five 
evidentiary hearings on importer or bulk manufacturer applications at 
the request of a current registrant. However, one of these commentors 
acknowledged that it believed that objections raised in a prior hearing 
involving one of its subsidiaries ``lacked substantive merit.'' More 
importantly, one commentor, who supported removing the third-party 
manufacturer hearing regulation, provided two examples in which it 
believed other manufacturers had used the hearing process for anti-
competitive purposes and to delay entry into the marketplace. 
Notwithstanding the limited number of evidentiary hearings during the 
past twenty years, the final rule seeks to discourage potential future 
abuse of the hearing process.
    Four commentors argued that the submission of written comments 
would be insufficient because either the comment period would be too 
short or because of the inability to produce witnesses and conduct 
cross-examination. One of these commentors suggested that this proposal 
would make it ``impossible for any currently registered bulk 
manufacturer to provide meaningful information to the Administrator'' 
on these applications. Two of these commentors stated that 30 or even 
60 days would be insufficient to prepare meaningful comments on an 
application.
    First, regarding all subsequent manufacturer applications, DEA will 
not consider a comment period less than 60 days. Second, DEA maintains 
that 60 days is sufficient time for interested parties to submit 
adequate comments and documentation to notify DEA concerning potential 
issues that warrant DEA issuing an order to show cause. There is no 
evidence that DEA would fail to consider such evidence prior to making 
a final determination. Moreover, these individuals could still 
participate in any hearing, requested after the issuance of an order to 
show cause, thereby providing an additional opportunity to present 
evidence.
    DEA does not suggest that written comments are a replacement for 
direct testimony or cross-examination. However, DEA does argue that 
applicants should not be subjected to the rigors and delay accompanying 
an administrative hearing absent some prior good faith belief and 
evidence that such procedure is warranted. Further, this final rule 
will foreclose current registrants and applicants from using the third-
party manufacturer hearing process as a forum for discovery of non-
relevant information from its competitors, such as marketing and 
pricing data.
    Two commentors suggested that DEA consider adopting procedures to 
prevent abuse of the third-party manufacturer hearing provision such as 
utilizing motions for summary judgement or requiring written 
submissions prior to the hearing. The final rule, in effect, resolves 
both issues because (1) DEA will only issue an order to show cause 
where it has a good faith basis that the applicant's registration 
should not be granted and (2) other bulk manufacturers will be required 
to submit substantive written comments within a reasonable time, after 
an application has been submitted.
    Three commentors stated that the current hearing process enables 
third-parties to present relevant and useful information to DEA that 
might not otherwise be available because of limited agency resources or 
otherwise. DEA acknowledges the critical role that third-parties 
provide in identifying issues related to the registration of bulk 
manufacturers. DEA does not intend to discourage such participation. 
However, the final rule provides DEA with the authority necessary to 
protect the interests of applicants and current registrants 
alike. [[Page 32101]] 
    Finally, four commentors requested a hearing on the issue of the 
third-party manufacturer hearing provision pursuant to 21 U.S.C. 875. 
Unlike other rulemaking conducted pursuant to the CSA, the present 
rulemaking presents no requirement that the rule be made on the record 
after opportunity for a hearing. For example, 21 U.S.C. 811(a) requires 
the opportunity for a hearing whenever there is a proposed rescheduling 
of controlled substances. In addition, 21 U.S.C. 875 identifies general 
powers available to DEA when exercising its authority under the CSA. 
Thus, 21 U.S.C. 875 complements existing hearing provisions under the 
CSA rather than conferring independent hearing authority. In any event, 
DEA believes that the notice and comment conducted pursuant to this 
rulemaking enabled interested parties to provide meaningful comment on 
the final rule.
    The final rule removes the mandatory third-party manufacturer 
hearing requirement while retaining the hearing provision pursuant to 
an order to show cause. The proposed change as provided herein does not 
violate statutory intent but instead comports with sound principles of 
substantive and procedural due process. Eliminating the hearing 
requirement except when requested by the applicant after issuance of an 
order to show cause, supports the statutory and regulatory mandate that 
an applicant for registration as a bulk manufacturer shall have the 
burden of proof at ``any hearing'' that the requirements of 
registration are met. See 21 CFR 1301.55. The Administrative Procedures 
Act (APA) which controls these matters further provides that ``[e]xcept 
as otherwise provided by statute, the proponent of a rule or order has 
the burden of proof.'' See 5 U.S.C. 556(d).
    The final rule eliminates the problem of multiple hearings which 
not only promotes judicial economy but also avoids the anomalous result 
of DEA conducting administrative hearings which are not dispositive of 
the ultimate issue of whether an applicant should be registered. For 
example, because DEA must issue an order to show cause whenever it 
takes action to deny an application, 21 U.S.C. 824(c), under the 
current regulation a second hearing would likely be required when DEA 
decided to deny an application after a hearing held pursuant to a 
``third-party'' request. Further, this second hearing would involve 
many of the same issues raised in the prior proceeding. The primary 
objective of the final rule is to limit abuse of the regulatory hearing 
process.
    For the above-stated reasons and in the absence of express 
statutory language governing the right to an evidentiary hearing by 
bulk manufacturers concerning the application for registration of bulk 
manufacturers of controlled substances, as well as the absence of 
language in the legislative history of the CSA that would imply 
Congressional intent in this regard, 21 CFR 1301.43 shall be amended.
    The Deputy Assistant Administrator hereby certifies that the final 
rule will have no significant impact upon those entities whose 
interests must be considered under the Regulatory Flexibility Act, 5 
U.S.C. 601, et seq. The registrants and applicants who use, or are 
affected by, the hearing covered by these regulations are typically not 
small entities.
    The final rule is not a significant regulatory action pursuant to 
Executive Order (E.O.) 12866 and therefore, has not been reviewed by 
the Office of Management and Budget. This action has been analyzed in 
accordance with the principles and criteria in E.O. 12612, and it has 
been determined that the proposed rule does not have sufficient 
federalism implications to warrant the preparation of a Federalism 
Assessment.

List of Subjects in 21 CFR Part 1301

    Administrative practice and procedure, Drug traffic control and 
security measures.

    For the reasons set forth above and pursuant to the authority 
vested in the Attorney General by 21 U.S.C. 821 and 871(b), as 
delegated to the Administrator of the Drug Enforcement Administration, 
and redelegated to the Deputy Assistant Administrator, Office of 
Diversion Control by 28 CFR 0.100 and 0.104, the Deputy Assistant 
Administrator, Office of Diversion Control hereby amends part 1301 of 
Title 21, Code of Federal Regulations to read as follows:

PART 1301--[AMENDED]

    1. The authority citation for part 1301 continues to read as 
follows:

    Authority: 21 U.S.C. 821, 822, 823, 824, 871(b), 875, 877.

    2. Section 1301.37, paragraph (a) is revised to read as follows:


Sec. 1301.37  Amendments to and withdrawal of applications.

    (a) An application may be amended or withdrawn without permission 
of the Administrator at any time before the date on which the applicant 
receives an order to show cause pursuant to Sec. 1301.48. An 
application may be amended or withdrawn with permission of the 
Administrator at any time where good cause is shown by the applicant or 
where the amendment or withdrawal is in the public interest.
* * * * *
    3. Section 1301.43, paragraph (a) is revised to read as follows:


Sec. 1301.43  Application for bulk manufacture of Schedule I and II 
substances.

    (a) In the case of an application for registration or 
reregistration to manufacture in bulk a basic class of controlled 
substance listed in Schedule I or II, the Administrator shall, upon the 
filing of such application, publish in the Federal Register a notice 
naming the applicant and stating that such applicant has applied to be 
registered as a bulk manufacturer of a basic class of narcotic or 
nonnarcotic controlled substance, which class shall be identified. A 
copy of said notice shall be mailed simultaneously to each person 
registered as a bulk manufacturer of that basic class and to any other 
applicant therefor. Any such person may, within 60 days from the date 
of publication of the notice in the Federal Register, file with the 
Administrator written comments on or objections to the issuance of the 
proposed registration.
* * * * *
    4. Section 1301.44 is amended by redesignating paragraph (b) as 
paragraph (c) and adding a new paragraph (b) to read as follows:


Sec. 1301.44  Certificate of registration; denial of registration.

* * * * *
    (b) If a hearing is requested by an applicant for registration or 
reregistration to manufacture in bulk a basic class of controlled 
substance listed in Schedule I or II, notice that a hearing has been 
requested shall be published in the Federal Register and shall be 
mailed simultaneously to the applicant and to all persons to whom 
notice of the application was mailed. Any person entitled to file 
comments or objections to the issuance of the proposed registration 
pursuant to Sec. 1301.43(a) may participate in the hearing by filing a 
notice of appearance in accordance with Sec. 1301.54. Such persons 
shall have 30 days to file a notice of appearance after the date of 
publication of the notice of a request for a hearing in the Federal 
Register.
    5. Section 1301.54, paragraph (a), (b), (c) and (d) are revised to 
read as follows: [[Page 32102]] 


Sec. 1301.54  Request for hearing or appearance; waiver.

    (a) Any person entitled to a hearing pursuant to Secs. 1301.42, 
1301.44, or 1301.45 and desiring a hearing shall, within 30 days after 
the date of receipt of the order to shown cause, file with the 
Administrator a written request for a hearing in the form prescribed in 
Sec. 1316.47 of this chapter.
    (b) Any person entitled to participate in a hearing pursuant to 
Sec. 1301.44(b) and desiring to do so shall, within 30 days of the date 
of publication of notice of the request for a hearing in the Federal 
Register, file with the Administrator a written notice of intent to 
participate in such hearing in the form prescribed in Sec. 1316.48 of 
this chapter. Any person filing a request for a hearing need not also 
file a notice of appearance.
    (c) Any person entitled to a hearing or to participate in a hearing 
pursuant to Secs. 1301.42, 1301.44, or 1301.45 may, within the period 
permitted for filing a request for a hearing or a notice of appearance, 
file with the Administrator a waiver of an opportunity for a hearing or 
to participate in a hearing, together with a written statement 
regarding such person's position on the matters of fact and law 
involved in such hearing. Such statement, if admissible, shall be made 
a part of the record and shall be considered in light of the lack of 
opportunity for cross-examination in determining the weight to be 
attached to matters of fact asserted therein.
    (d) If any person entitled to a hearing or to participate in a 
hearing pursuant to Secs. 1301.42, 1301.44, or 1301.45 fails to file a 
request for a hearing or a notice of appearance, or if such person so 
files and fails to appear at the hearing, such person shall be deemed 
to have waived the opportunity for a hearing or to participate in the 
hearing, unless such person shows good cause for such failure.
* * * * *
    6. Section 1301.55, paragraph (a) is revised to read as follows:


Sec. 1301.55  Burden of proof.

    (a) At any hearing on an application to manufacture any controlled 
substance listed in Schedule I or II, the applicant shall have the 
burden of proving that the requirements for such registration pursuant 
to section 303(a) of the Act (21 U.S.C. 823(a)) are satisfied. Any 
other person participating in the hearing pursuant to Sec. 1301.44(b) 
shall have the burden of proving any propositions of fact or law 
asserted by such person in the hearing.
* * * * *
    Dated: June 14, 1995.
Gene R. Haislip,
Deputy Assistant Administrator, Office of Diversion Control, Drug 
Enforcement Administration.
[FR Doc. 95-15058 Filed 6-19-95; 8:45 am]
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