[Federal Register Volume 62, Number 140 (Tuesday, July 22, 1997)]
[Proposed Rules]
[Pages 39207-39209]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 97-19151]


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DEPARTMENT OF TRANSPORTATION

National Highway Traffic Safety Administration

49 CFR Part 525


Denial of Petition for Rulemaking; Corporate Average Fuel Economy 
(CAFE) Standards

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    This document sets forth the reasons for the denial of a petition 
for rulemaking submitted by the Coalition of Small Volume Automobile 
Manufacturers, Inc. (COSVAM) regarding eligibility for exemptions from 
corporate average fuel economy (CAFE) standards under 49 CFR Part 525. 
COSVAM requested that the agency initiate rulemaking to amend Part 
525.5 to add a definition that would define the number of ``Passenger 
automobiles manufactured by a manufacturer'' to:
    (1) Include every passenger vehicle manufactured by
    (A) The manufacturer; and
    (B) Any person that controls, is controlled by, or is under common 
control with the manufacturer, unless such person neither manufactures 
in nor imports into the Customs territory of the United States;
    (2) Not include an automobile manufactured by any person described 
in (1)(A) or (B) above, that is exported from the US not later than 30 
days after end of the model year in which the automobile is 
manufactured.
    The petition is denied on the basis that it is unlikely that the 
agency would adopt this definition. NHTSA concludes that the proposed 
definition is contrary

[[Page 39208]]

to the language and intent of the governing statute.
    Section 32902(d) of Title 49, United States Code (49 U.S.C. 
32902(d)), provides that low volume manufacturers of passenger 
automobiles may be eligible for an exemption from the general average 
fuel economy standards for passenger automobiles. Subsection (d)(1) of 
Section 32902(d) limits eligibility for low volume exemptions to those 
manufacturers who ``manufacture'' (whether in the United States or not) 
fewer than 10,000 passenger automobiles in the model year for which an 
exemption is sought. This section also declares that applications for 
these exemptions may only be submitted by manufacturers who produced 
fewer than 10,000 passenger automobiles in the second model year 
preceding the model year for which the exemption is sought.
    A final rule, implementing the exemption provisions, became 
effective July 28, 1977 (42 FR 38374). It added a new part 525 to NHTSA 
regulations that established the timing, content, and format 
requirements of petitions for exemption as well as the procedures that 
the agency follows in acting on such petitions. Section 525.5 of Part 
525 restates the statutory criteria for the availability and 
application of exemptions by providing that an application may only be 
made by a manufacturer who manufactures fewer than 10,000 cars in the 
second model year preceding the model year for which an application is 
made and that no exemption shall apply in any model year in which the 
manufacturer produces more that 10,000 vehicles.
    Section 32901(a)(4) defines ``automobiles manufactured by a 
manufacturer'' to include ``every automobile manufactured by a person 
that controls, is controlled by, or is under common control with the 
manufacturer * * * .'' Under this definition, two or more companies 
producing automobiles are considered to be a single manufacturer if one 
company is controlled by, or controls, another manufacturer of motor 
vehicles.
    In 1978, NHTSA issued an interpretation of Part 525 known as the 
``Chase interpretation.'' This interpretation, addressed to Howard E. 
Chase, an attorney representing Officino Alfieri Maserati, S.p.A 
(Maserati), concluded that cars produced by a ``parent'' manufacturer 
that are neither produced or imported into the United States are not 
counted for the purposes of determining eligibility for an exemption. 
It thereby allowed Maserati, whose world-wide production of automobiles 
was much less than 10,000 vehicles, to be eligible for exemption from 
CAFE requirements even though Maserati was controlled by Nuova 
Innocenti S.p.A. (Innocenti), whose annual production of passenger 
automobiles exceeded 10,000 vehicles. Because Innocenti did not import 
any vehicles into the United States, Maserati was granted an exemption 
from the general CAFE requirements. This interpretation allowed an 
importer or a number of importing manufacturers to apply for an 
exemption if the worldwide production of those firms within a control 
relationship that import into the United States did not exceed 10,000 
passenger vehicles.
    In a September 1990 notice concerning an application for exemption 
submitted by Ferrari, which was then under the control of Fiat (55 FR 
38822, Sept. 21, 1990), NHTSA re-examined the position it had taken in 
the Chase interpretation. In that notice, the agency found that the 
Chase interpretation was based on the definition of ``manufacture'' 
contained in the general definitions now found in Section 32901. This 
definition states that ``manufacture'' means ``to produce or assemble 
in the customs territory of the United States or to import.'' NHTSA 
then concluded that the Chase interpretation wrongly applied this 
limited definition of manufacture when the exemption provisions 
themselves, now found in Section 32901(d), restrict the availability of 
exemptions to manufacturers that ``manufactured (whether in the United 
States or not) fewer than 10,000 passenger automobiles * * * '' The 
notice also explained that importers who are controlled by larger 
``parent'' manufacturers have, by virtue of the relationship with the 
parent, access to technological and material resources that can provide 
them with the ability to manufacture more fuel efficient vehicles. The 
fact that the parent may choose not to import and market in the United 
States does not have any bearing on the availability of these 
resources. In a notice dated July 10, 1991 (56 FR 31459), the agency 
indicated that it was adopting the revised interpretation set forth in 
the September 1990 notice and abandoning the Chase interpretation.
    COSVAM's January 8, 1997 petition sought to broaden the exemption 
for small volume automobile manufacturers. The amendments proposed by 
COSVAM would allow importing manufacturers within a control 
relationship with another major manufacturer to be eligible to apply 
for an exemption from the CAFE requirements even though the combined 
worldwide annual production of all related manufacturers within the 
control relationship exceeds 10,000 passenger automobiles, provided no 
other manufacturer in the control relationship produces or imports more 
than 10,000 passenger automobiles in the United States. The 
petitioner's proposed amendment would modify 49 CFR Part 525.5 by 
adding a new section, 525.5(b), reading as follows:
    (b) For purpose of determining whether a manufacturer manufactured 
* * *  10,000 or more passenger automobiles, ``automobiles manufactured 
by a manufacturer'':
    (1) Includes every automobile manufactured * * * by
    (A) The manufacturer; and
    (B) Any person that controls, is controlled by, or is under common 
control with the manufacturer, unless such person neither manufactures 
in nor imports into the Customs territory of the United States.
The petitioner also stated that the petition process for an exemption, 
as outlined in Part 525.6 and 525.7, is cumbersome and an unnecessary 
burden on small volume manufacturers.
    Notwithstanding COSVAM's view, Chapter 329 sets clear limits on 
eligibility for exemption from CAFE standards. These limits preclude 
the agency from granting the relief COSVAM requests. Section 
32901(a)(4) defines ``automobiles manufactured by a manufacturer'' to 
include ``every automobile manufactured by a person that controls, is 
controlled by, or is under common control with the manufacturer * * 
*''. Section 32902(d)(1) limits eligibility for low volume exemptions 
to those manufacturers who ``manufacture'' (whether in the United 
States or not) fewer than 10,000 passenger automobiles in the model 
year for which an exemption is sought regardless of where those 
automobiles are produced.
    Congress had a clear purpose when it indicated in Section 32902(d) 
that ``manufacture'' meant worldwide production. Examination of both 
the text and the legislative history of the exemption provisions 
indicates that Congress sought to provide relief to low volume 
manufacturers because of their limited flexibility and resources to 
improve fuel economy. In so doing, Congress intended that such relief 
be made available to manufacturers who, based on their worldwide annual 
production, may not be able to adapt to the CAFE standards applicable 
to large manufacturers. Congress did not intend that any inquiry into 
the size and resources of a company seeking exemption be governed by an 
examination of how many cars it brings

[[Page 39209]]

into the U.S., either directly or by a subsidiary it controls.
    The effect of the rulemaking suggested by COSVAM would be to allow 
a small volume manufacturer to be eligible for an exemption if the 
worldwide production of all manufacturers within the control 
relationship that import into the U.S. does not exceed 10,000 vehicles 
per year, even though non-importing manufacturers may produce many more 
than 10,000 vehicles per year. As noted above, NHTSA considers that 
adoption of this language to be contrary to the commands of Chapter 329 
and beyond the agency's authority. COSVAM argues however, that the 
agency would be within its authority as a proposed change to the 
existing scheme under an inherent power to fashion relief from the 
operation of a statutory scheme where the impact of such relief is de 
minimis, as recognized in the case of Alabama Power versus Costle, 636 
F.2d 323 (D.C. Cir. 1979). The agency does not agree that it has such 
an implied power. Congress has expressly addressed the issue of 
exemptions under the CAFE statutes and issued precise criteria under 
which such exemptions may be granted. This express directive negates 
any implied right the agency might otherwise have had to fashion its 
own scheme.
    COSVAM further argues that this petition should be granted because 
of this agency's commitment to regulatory reform. However, regulatory 
reform does not grant the agency authority to do what the statute does 
not permit. While COSVAM also suggested that the procedures for 
applying for an exemption be simplified, it offered no suggestions on 
how to make the petition process less cumbersome for a low volume 
automobile manufacturer. The agency has already reviewed Parts 525.6 
and 525.7 as part of its regulatory reform effort and concluded that 
all of the information requested is necessary for the agency to fulfill 
its responsibility in establishing the maximum feasible fuel economy 
standard for manufacturers seeking an exemption. NHTSA also notes that 
provisions have been incorporated into Part 525 to allow for an 
exemption to be sought for as many as three model years. This was 
intended to provide some relief for the small volume manufacturer by 
reducing the frequency of petitions.
    The agency has consistently concluded, since reconsideration of the 
Chase interpretation, that for CAFE purposes ``vehicles manufactured by 
a manufacturer'' includes all vehicles manufactured, worldwide, by any 
entity that controls, is controlled by, or is under common control with 
the manufacturer. In the agency's view this interpretation is 
consistent with the express language and the purpose of Chapter 329. 
For the reasons stated above, the petition is denied.

    Issued on: July 16, 1997.
L. Robert Shelton,
Associate Administrator for Safety Performance Standards.
[FR Doc. 97-19151 Filed 7-21-97; 8:45 am]
BILLING CODE 4910-59-P