[Federal Register Volume 62, Number 207 (Monday, October 27, 1997)]
[Rules and Regulations]
[Pages 55696-55703]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 97-28467]



[[Page 55695]]

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Part IV





Department of Transportation





_______________________________________________________________________



Federal Aviation Administration



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49 CFR Part 187



Fees for Providing Production Certification-Related Services Outside 
the United States; Final Rule

  Federal Register / Vol. 62, No. 207 / Monday, October 27, 1997 / 
Rules and Regulations  

[[Page 55696]]



DEPARTMENT OF TRANSPORTATION

Federal Aviation Administration

14 CFR Part 187

[Docket No. 28967; Amendment No. 187-10]
RIN 2120-AG14


Fees for Providing Production Certification-Related Services 
Outside the United States

AGENCY: Federal Aviation Administration (FAA), DOT.

ACTION: Final rule.

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

SUMMARY: This document establishes fees by voluntary agreement for 
production certification-related services pertaining to aeronautical 
products manufactured or assembled outside the United States. In 
addition, the document outlines the methodology for determining the 
fees, describes how and when the FAA will provide these services, and 
describes the method for payment of fees. This rule will allow the FAA 
to recover certain costs incurred in providing requested production 
certification-related services abroad and will help to ensure that such 
services are provided in a responsive and timely manner.

EFFECTIVE DATE: October 22, 1997.

FOR FURTHER INFORMATION CONTACT: Ramona L. Johnson, Production and 
Airworthiness Certification Division, AIR-200, Aircraft Certification 
Service, Federal Aviation Administration, 800 Independence Avenue, SW., 
Washington, DC 20591, telephone: (202) 267-7145.

SUPPLEMENTARY INFORMATION:

Availability of Final Rule

    This document may be downloaded from the FAA regulations section of 
the FedWorld electronic bulletin board (telephone: 703-321-3339) or the 
Federal Register's electronic bulletin board (telephone: 202-512-1661).
    Internet users may access the FAA's web page at http://www.faa.gov 
or the Federal Register's web page at http://www.access.gpo.gov/
su__docs to download recently published rulemaking documents.
    Any person may obtain a copy of this final rule by submitting 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. Communications must reference the amendment 
number or docket number of this final rule.
    Persons interested in being placed on the mailing list for future 
Notices of Proposed Rulemaking and Final Rules should request a copy of 
Advisory Circular (AC) No. 11-2A, Notice of Proposed Rulemaking 
Distribution System, which describes the application procedure.

Small Entity Inquiries

    The Small Business Regulatory Enforcement Fairness Act of 1996 
(SBREFA) requires the FAA to report inquiries from small entities 
concerning information on, and advice about, compliance with statutes 
and regulations within the FAA's jurisdiction, including interpretation 
and application of the law to specific sets of facts supplied by a 
small entity.
    The FAA's definitions of small entities may be accessed through the 
FAA's web page http://www/faa.gov/avr/arm/sbrefa.htm, by contacting a 
local FAA official, or by contacting the FAA's Small Entity Contact 
listed below.
    If you are a small entity and have a question, contact your local 
FAA official. If you do not know how to contact your local FAA 
official, you may contact Charlene Brown, Program Analyst Staff, Office 
of Rulemaking, ARM-27, Federal Aviation Administration, 800 
Independence Avenue, SW, Washington, DC 20591, 1-888-551-1594. Internet 
users can find additional information on SBREFA in the ``Quick Jump'' 
section of the FAA's web page at http://www.faa.gov and may send 
electronic inquiries to the following Internet address: 9-AWA-
[email protected].

Background

Statement of Problem

    Under Title 49 U.S.C. 44701, the FAA is responsible for the 
regulation and promotion of safety of flight. Title 49 U.S.C. 44704(b) 
authorizes the FAA Administrator to issue production certificates. 
Section 44704(b) provides, in part, that:

    The Administrator shall issue a production certificate 
authorizing the production of a duplicate of any aircraft, aircraft 
engine, propeller, or appliance for which a type certificate has 
been issued when the Administrator finds the duplicate will conform 
to the certificate. On receiving an application, the Administrator 
shall inspect, and may require testing * * *.

    The production certification-related services that the FAA provides 
to fulfill its statutory responsibilities may be generally described as 
follows:
    1. Processing applications for the following: production under a 
type certificate only, production under an approved production 
inspection system, production under a production certificate or 
extension of a production certificate, production under a technical 
standard order authorization, and production under a parts manufacturer 
approval. The processing of applications includes a review of data, 
response to the applicant, and evaluation of the applicant's further 
responses as necessary.
    2. Certificate management of the manufacturing facility quality 
assurance system.
    3. Witnessing tests and performing conformity inspections of 
articles.
    4. Managing designees.
    5. Investigating incidents, accidents, allegations and other 
unusual circumstances.
    These FAA services are provided to Production Approval Holders 
(PAH). A person who holds a parts manufacturer approval (PMA), a 
Technical Standard Order (TSO) authorization, or a production 
certificate (PC), or who holds a type certificate (TC) and produces 
under that TC, is referred to as a PAH. The regulatory services 
provided to a PAH include: initial PAH qualification, ongoing PAH and 
supplier surveillance, designee management, conformity inspections; as 
well as initial PAH qualification and ongoing surveillance for 
production certificate extensions outside the United States. The 
specialists who perform these functions on behalf of the FAA are 
Aviation Safety Inspectors, Aviation Safety Engineers, and Flight Test 
Pilots.
    Currently, the FAA performs production certification-related 
services both domestically and internationally. It does not issue 
production approvals outside of the United States. However, in some 
situations, the FAA allows a PAH to use suppliers outside the United 
States if parts or sub-assemblies can be 100 percent inspected by the 
PAH upon their receipt in the United States or if parts or sub-
assemblies are produced under a PAH's supplier control system that has 
been approved by the PAH and accepted by the FAA. Under certain 
circumstances, production outside the United States of complex parts, 
sub-assemblies, or products is approved by the FAA on a case-by-case 
basis.
    PAHs who choose to perform manufacturing outside the United States 
receive significant and special benefits. These benefits often depend 
on whether the PAH can obtain FAA oversight at the manufacturing site 
when the PAH needs the service. Since it is FAA's responsibility to 
prescribe and enforce standards in the interest of safety for the 
design, materials, workmanship, construction, and performance of civil

[[Page 55697]]

aeronautical products, the FAA's oversight of manufacturing facilities 
located outside the United States helps ensure safety and 
marketability.

The Need for Rulemaking

    Globalization of the aircraft manufacturing industry increases the 
challenges to the FAA in carrying out its statutory mandate to ensure 
that safety and airworthiness standards for civil aircraft are being 
met during manufacture.
    Limited resources make it difficult for the FAA to oversee these 
diverse and complex international ventures by PAHs when and where the 
services are needed. Congress recognized the impact of FAA's resource 
limitations in the Federal Aviation Administration Authorization Act of 
1994, PL 103-305 (108 State. 1569). As stated in Conference, H.R. Rep. 
No. 103-677 on H.R. 2739:

    Safety regulatory efforts to keep pace with the trend of 
globalization can be hampered by resource constraints * * * the 
Aircraft Certification Service should be able to offset expenditures 
made in support of aircraft or airline safety regulatory programs of 
both U.S. and foreign owned companies outside the United States.

    In addition, under Title V of the Independent Offices of 
Appropriations Act of 1952 (IOAA), 31 U.S.C. 9701, Congress authorized 
agencies such as the FAA to establish a fair and equitable system for 
recovering the cost for any service, such as the issuance of a 
certificate, that provides a special benefit to an individual beyond 
those that accrue to the general public. Title 31 U.S.C. 9701(a) 
provides, in part, as follows:

    It is the sense of the Congress that each service or thing of 
value provided by an agency (except a mixed-ownership Government 
corporation) to a person (except a person on official business of 
the United States Government) is to be self-sustaining to the extent 
possible.
    Title 31 U.S.C. 9701(b) further provides:
    The head of each Federal agency (except a mixed-ownership 
Government corporation) may prescribe regulations establishing the 
charge for a service or thing of value provided by the agency. 
Regulations prescribed by the heads of executive agencies shall be 
as uniform as practicable. Each charge shall be--
    (1) fair; and
    (2) based on--
    (A) the costs to the Government;
    (B) the value of the service or thing to the recipient;
    (C) public policy or interest served; and
    (D) other relevant facts.

The Rule

    This rule allows PAHs to enter into a voluntary agreement with the 
FAA for the provision of production certification-related services 
outside the United States on mutually agreed terms and conditions. This 
will be available to PAHs who elect to use organizations or facilities 
outside the United States to manufacture, assemble, or test 
aeronautical products after September 30, 1997.
    An agreement for services between the PAHs and the FAA for 
production certification-related services for products manufactured, 
assembled, or tested outside the United States will allow the FAA to 
provide services upon request in a more responsive and timely manner 
than otherwise is available. By charging for its services outside the 
United States when needed by the PAHs, the FAA will be able to support 
the PAH's more complex manufacturing activities and provide acceptance 
of parts, sub-assemblies, and products that would otherwise need to be 
disassembled when received in the United States. Under this rule, when 
production certification-related services are requested and provided 
outside the United States, no duplication of FAA work or reinspection 
of parts in the United States is anticipated, except as otherwise 
required of domestic manufactured parts during the PAH receiving 
inspection process.
    The rule simply makes oversight resources available in a more 
timely and effective fashion, permitting PAHs to pay for FAA oversight 
services.

Guidelines for Cost Recovery

    The FAA developed this rule consistent with the IOAA and with the 
Office of Management and Budget's (OMB) Circular A-25, entitled ``User 
Charges.''
    Fees under this rule may be assessed to PAHs who agree to pay for 
certain special benefits conferred by FAA's production certification-
related services outside the United States. These special benefits will 
include, but are not limited to: (1) services rendered at the time and 
location requested by an applicant; (2) services for the issuance of a 
required production approval at the time and location requested by the 
applicant; and (3) services to assist an applicant or certificate 
holder in complying with its regulatory obligations at the time and 
location requested by the applicant.
    The FAA has determined that all services associated with the 
issuance, amendment, or inspection of a production certificate or 
approval as detailed in this rule will be subject to cost recovery. All 
direct and indirect costs incurred by the FAA in providing the special 
benefits outside of the United States as detailed by this rule will be 
recovered. Each fee will not exceed the FAA's cost of providing the 
service to the recipient. Calculation of agency costs will be performed 
as accurately as is reasonable and practical, and will be based on the 
specific expenses identified to the smallest practical unit.
    To determine the smallest practical unit for the various FAA 
services covered, a letter of application will be made by the PAH to 
the FAA requesting FAA production certification-related services 
outside the United States. The application procedure will apply to any 
PAH; i.e., holders or applicants for production under a type 
certificate only, under an approved production inspection system, under 
a production certificate or extension of a production certificate, 
under a technical standard order authorization, or under a parts 
manufacturer approval. Based on the details provided in the 
application, the FAA will estimate the cost and terms of providing the 
requested services to the PAH outside the United States and detail 
those costs to the applicant. If the applicant desires the services, 
the applicant will then request the provision of those services from 
the FAA. A written agreement between the applicant and the FAA will 
then be entered into if the PAH and the FAA can mutually agree to all 
terms.

Methodology for Fee Determination and Collection

Fee Determination

    The FAA will recover the full cost associated with providing 
production certification-related services by agreement outside of the 
United States. Costs to be recovered include personnel compensation and 
benefits (PC&B), travel and transportation costs, and other agency 
costs.
    PC&B: For the purpose of these computations, average PC&B rates for 
participating Aircraft Certification Service employees will be charged 
per each agreed activity. PC&B charges will reflect the actual hours 
spent participating in the activity as well as preparatory time, travel 
time, and the time spent on follow-up activities.
    Travel and transportation costs: These charges will include all 
costs pertaining to domestic, local, and international transport of 
persons and equipment. These costs may include fares, vehicle rental 
fees, mileage payment, and any expenses related to transportation such 
as baggage transfer, insurance for equipment during transport, and 
communications. FAA personnel will adhere to all U.S. Government travel 
regulations.

[[Page 55698]]

    Fees will be charged for lodging, meals, and incidental expenses in 
accordance with U.S. Government per diem rates, rules, and regulations. 
Incidental expenses include fees, tips, and other authorized expenses.
    Other agency costs: Also included in these computations will be 
other direct costs; for example, all printing and reproduction 
services, supplies and materials purchased for the activity, conference 
room rental, and other activity-related expenses. An additional 
percentage charge, as established by the FAA in accordance with OMB 
Circular A-25, will be added to the total cost of this activity to 
compensate for agency overhead.
    The Aircraft Certification Service of the FAA maintains a data 
system to which employees submit periodic records identifying the 
number of work hours used to provide service to customers. Travel 
vouchers are also submitted and audited. This data will be maintained 
for each applicant and project. The Aircraft Certification Service 
tracks work hour records quarterly to determine the costs associated 
with providing its services. This information will be used in assessing 
and adjusting fees. In this manner, the FAA will be able to assure 
applicants that they are paying only for expenses incurred in 
connection with services provided to that specific applicant.

Fee Collection

    All charges will be estimated and agreed upon between the FAA and 
the applicant before the FAA provides services under the agreement.
    Payment of estimated fees will be made to the FAA in advance for 
all production certification-related activities scheduled during the 
upcoming 12-month calendar period unless a shorter period is mutually 
agreeable between the PAH and the FAA. The amounts set forth in the 
cost estimate will be adjusted to recover the FAA's full costs. If 
costs are expected to exceed the estimate by more than 10 percent, 
notification will be made to the applicant as soon as possible. No 
services will be provided until the FAA receives the full estimated 
payment for the agreed to period. As activities are completed, the full 
costs of the activities will be charged against the advance account. 
Any remaining funds will either be returned or applied to future 
activities as requested by the applicant.
    Payment for services rendered by the FAA will be in the form of a 
check, money order, draft, or wire transfer, and will be payable in 
U.S. currency to the FAA and drawn on a U.S. bank. Bank processing 
fees, when charged to the United States Government, will also be added 
to the fees charged to the applicants.
    In any case where an applicant has failed to pay the agreed 
estimated fee for FAA services, the FAA may suspend or deny any 
application for service and may suspend or revoke any production-
related approval granted.
    In accordance with the agreement that will be signed by the FAA and 
the applicant (Appendix C(d)(3)), this arrangement may be terminated at 
any time by either party by providing 60 days written notice to the 
other party. Any such termination will allow the FAA an additional 120 
days to close out its activities.
    The FAA plans to issue an Advisory Circular further detailing the 
requirements of the application as well as providing other pertinent 
guidance and information.

Correction to Notice

    In Notice No. 97-11, (62 FR 38008), the authority citation is 
revised to delete 49 U.S.C. 106(m) to properly reflect FAA's authority 
to enter into agreements. That authority is 49 U.S.C. 106(l)(6). This 
has been corrected in this rule.
    In another correction, in Appendix C to part 187(c), Definitions, 
``Production approval holder'' was listed as ``U.S. production approval 
holder''. This was an error and is revised. Also this has been 
corrected in the rule.
    Finally, although used throughout the NPRM in discussing items to 
be inspected, the word ``part'' was inadvertently omitted from the 
definition of ``Manufacturing facility'' found in Appendix C (c). This 
has been corrected in the rule.

Discussion of Comments

    The FAA considered a total of 242 comments on the proposed rule, of 
which 232 were identical or nearly identical. Of the total number of 
comments, 38 were received before the comment period closed on August 
14, 1997, and 204 were received after the comment period closed. 
Comments were received from: the International Association of 
Machinists and Aerospace Workers (IAM) (one from the IAM President as 
well as 227 additional comments from its lodges and members), the 
Aerospace Industries Association of America (AIA) (two comments), the 
General Aviation Manufacturers Association (GAMA) and AIA (a joint 
comment), the NORDAM Group (submitted twice), the Timken Company, the 
Parker Hannifin Corporation, the Bureau Veritas of France, individuals 
(seven), and from a law firm. For the purposes of responding to the 
comments, the FAA has grouped together, for discussion, comments with 
essentially identical analyses. All comments received were carefully 
considered prior to the issuance of the final rule.
    Several of the comments addressed multiple issues and some of the 
issues were addressed by many commenters. As a result, the FAA 
responses to the comments are organized, not by individual comment, but 
by the following general issues: employment issues, safety and quality 
issues, cost issues, and miscellaneous issues.

Employment Issues

    IAM's President's comments, the local lodges' comments, and the 
members' comments opposed the proposal for similar reasons. They state 
that the proposal would facilitate the ability of PAHs to substitute 
products manufactured by facilities and suppliers located outside the 
United States for products manufactured in the United States. The 
result would be a loss of high pay, high skill production jobs in the 
United States.
    The FAA disagrees with the analyses of these comments. The rule is 
designed to allow the FAA to provide special production certification-
related services to PAHs and suppliers outside the United States when 
and where these services are needed and paid for by the PAH. The rule 
is not designed to, as claimed by the commenters, ``expedite the 
manufacture of aerospace parts off shore.'' Nor do the commenters 
provide any data that this rule will specifically have the effects 
claimed.
    For over 15 years, the FAA has performed production certification-
related services both domestically and internationally for PAHs that 
have used facilities and suppliers located outside of the United 
States. The use of these facilities and suppliers has increased over 
time for several reasons; one reason is that customers outside the 
United States have purchased U.S. aerospace products on the condition 
that a share of the product be manufactured in their countries. These 
conditions are known as ``offset'' agreements. This rule takes no 
position on the use of offsets. However, the FAA is required by law to 
provide production certification-related services outside the United 
States to ensure that the product conforms to FAA's safety 
requirements. As seen in more detail in the International Trade Impact 
section of this Preamble and in the Final Regulatory Evaluation of the 
rule, the FAA recognizes that the indirect effect of this rule may 
increase

[[Page 55699]]

the use of facilities and suppliers outside the United States. This 
increase may not be at the expense of production that would otherwise 
occur in the United States. As explained in the International statement 
and regulatory evaluation, it is anticipated that this rule may 
indirectly result in an overall increase in the production of U.S. 
aircraft due to expanded access to export markets.
    The language of the final rule has been clarified in Appendix C, 
paragraph (d)(1) to reflect the voluntary nature of the agreement.

Safety Issues

    IAM also states that the rule will increase the use of repair 
stations outside the United States. In conjunction with their 
contention that the FAA will not be able to monitor overseas facilities 
as effectively as it monitors facilities in the United States, IAM 
suggests the possibility of an increase in the use of ``bogus'' or 
unapproved parts into the aviation system. As a result, IAM contends 
that this rule will adversely effect air transportation safety.
    The FAA disagrees with this comment. In order to maintain the level 
of safety required, the regulations specific to the manufacture of 
commercial products (aircraft, aircraft engines, or propellers) and 
parts thereof are contained in Title 14, Code of Federal Regulations 
(14 CFR) part 21 (part 21), Certification Procedures for Products and 
Parts. Products and parts manufactured anywhere in the world for use by 
U.S. manufacturers under part 21 must conform to an FAA-approved type 
design and be manufactured in accordance with an approved production 
certificate or parts manufacturing approval (PMA). The type design 
consists of drawings and specifications that define the configuration 
and design features of the product. An approved production certificate 
or PMA contains a manufacturer's quality/inspection control system that 
describes the methods, tests, and inspections necessary to ensure that 
each product or part produced conforms with the type design and is in a 
condition for safe operation.
    This rule does not change the basic FAA approach to meeting its 
statutory responsibility. The FAA will continue to inspect parts 
manufactured in the United States and the FAA will continue, as 
resources allow, to inspect parts manufactured outside the United 
States by PAHs. If resources are insufficient, the FAA will continue to 
require that the parts be fully inspectable in the United States, or be 
inspected by appropriate civil aviation authorities (CAA). The rule 
adds the option of having the FAA perform safety assessments at non-
U.S. facilities to confirm compliance with FAA regulations if the PAH 
desires to provide the financial resources and the FAA can accommodate 
the PAH's request. This rule will continue the FAA's past and current 
efforts to ensure both the safety of and the manufacture of aerospace 
products wherever those products are manufactured.
    Also, the comments regarding the use of foreign repair stations, as 
well as repairs on products, are outside the scope of this rulemaking. 
The regulations for maintenance and repair are covered under 14 CFR 
part 43, Maintenance, Preventive Maintenance, Rebuilding, and 
Alteration, and part 187, Fees, Appendix A.
    However, one possible byproduct of this rule is that it could 
result in a greater FAA presence outside the United States which could 
deter, rather than encourage, the manufacturer(s) of ``bogus parts.'' 
Arguably, this could increase safety for not only U.S. aviation users, 
but all aviation users.
    Parker Hannifin Corporation suggests that the FAA adopt the ISO 
9000 quality system as the ``worlds'' quality system, thereby, 
eliminating the burden for the additional oversight needed to monitor 
these suppliers. The commenter asserts that safety would not be 
jeopardized, and the FAA could work with the ``foreign aviation 
authorities'' to monitor the suppliers.
    The FAA disagrees with this comment. United States law requires the 
FAA to prescribe minimum performance standards for manufacturers. The 
ISO 9000 series of quality standards do not provide the same level of 
safety as the regulations promulgated by the FAA. Additionally, ISO 
9000 is an industry developed quality standard subject to change in an 
unpredictable fashion outside the authority of the FAA. The FAA could 
not meet its statutory obligation through this standard and the 
commenter provided no data in support of its view that FAA's adoption 
of ISO 9000 in lieu of this and other existing rules could provide an 
equivalent level of safety.
    The AIA and an individual commenter suggest that the FAA recognize 
that other CAAs could provide oversight and audits on behalf of the 
FAA. Then, ``the requirement for the FAA to perform PAH certification 
services could be waived and this would be more cost effective. This 
solution should be allowed as mutually agreed to by the FAA and the 
PAH.'' Also, Bureau Veritas of France (a private consulting firm) 
states that it wants to contract for inspection services with the FAA.
    The FAA agrees in part with this comment. Where possible, the FAA 
has entered into bilateral airworthiness agreements with other CAAs to 
perform, as appropriate, inspection services. However, it is not 
currently possible to cover through bilateral agreements every needed 
service at every desired location. Also, as to the suggestion that a 
private company could provide these services, the FAA believes at this 
time the agency is best suited to perform these services for PAHs under 
U.S. law.
    This rule allows for a voluntary agreement between the FAA and the 
PAH to cover production that cannot be inspected in the United States 
or through bilaterals by CAAs. This is an alternate method for the PAH 
to obtain the production certification-related services they need to 
comply with the regulations. Also, it should be noted most CAAs 
currently charge a fee for their services when inspecting on behalf of 
the FAA.
    One individual commenter states that once the PAH has demonstrated 
a satisfactory quality assurance system and the systemic and periodic 
oversight in accordance with that system, the FAA could rely upon the 
PAH's evaluation (audit).
    The FAA agrees in part with this comment. Once PAHs and suppliers 
have established and maintained an effective quality assurance system, 
surveillance could be reduced. However, the FAA is mandated by law to 
perform certain functions, including evaluations (auditing) and random 
inspections, to assure that PAHs remain in compliance with regulations. 
The rule allows for the FAA and the PAH to consider this type of 
situation in agreeing what inspection services outside the United 
States are needed to meet the goals of the PAH and the requirements of 
the FAA.
    The AIA and GAMA state that this rule should only apply to 
``priority parts.''
    The FAA agrees with this comment. The FAA expects to continue to 
focus its resources on conducting surveillances at PAH and ``priority 
part'' supplier facilities, unless safety concerns (e.g., supplier 
control problems) mandate otherwise. However, the FAA will consider 
each situation on a case-by-case basis as each PAH requests services.
    Various commenters express concerns over ``a potential degradation 
in part quality and air safety brought about

[[Page 55700]]

through low cost labor acquired in foreign countries.''
    The FAA disagrees with this comment. In order to maintain the level 
of safety required, the FAA promulgates regulations specific to the 
manufacture of commercial products. Products and parts manufactured for 
use by U.S. manufacturers anywhere in the world must conform to the 
regulations by having an FAA-approved type design and be manufactured 
in accordance with an approved production certificate or PMA. This rule 
is not for the purpose of allowing PAHs to use low cost labor nor does 
the FAA believe that this rule could increase FAA inspection of parts 
outside the United States. In fact, it could increase the amount of 
parts manufactured overseas under direct and appropriate FAA 
inspection/surveillance resulting in enhanced safety.

Cost Issues

    Parker Hannifin Corp., AIA, and GAMA are concerned that this rule 
``initiates double taxation.'' ``We as taxpayers already pay for 
government employee compensation and administrative overhead expenses 
for services rendered'', and ``that services should be funded through 
general revenues.''
    The FAA disagrees with the comment. The FAA does not have the 
resources to provide full production certification-related services by 
agreement throughout the world. This rule affords the PAH an 
opportunity to expedite the receipt of the services where and when the 
PAH needs those services. This rule is a voluntary way for the FAA to 
provide services to the industry in a more responsive and timely manner 
using industry rather than taxpayer funds. But the FAA will continue to 
provide inspection services overseas as resources permit. In addition, 
the rule allows recipients of specific FAA services, rather than the 
general taxpayer, to pay for those specific services.
    Also, AIA and GAMA believe that only marginal (direct) costs should 
be recovered.
    The FAA disagrees with the comment. Pursuant to OMB Circular A-25, 
the FAA is directed to recover the full cost associated with providing 
production certification-related services outside the United States. 
Costs to be recovered include personnel compensation and benefits, 
travel and transportation costs, and other agency costs. Also, this 
practice is consistent with the fees charged by other Federal agencies 
for similar services.
    The AIA and GAMA further state that for many industries, budgets 
are established based on a different calendar year than that of the 
government. They contend that this difference may create a difficulty 
for the PAHs budgeting for future FAA services.
    The FAA agrees with this comment. The FAA has designed its 
procedures to accommodate differing accounting years between Government 
and industry. Applicants for these services can request and arrange for 
services on any mutually agreeable periodic basis.
    The language of the final rule has been clarified in Appendix C, 
paragraph (f), to reflect this change.
    The AIA and GAMA are concerned that ``real time'' business 
decisions would be constrained by the Federal budget process.
    The FAA agrees in part with this comment. The FAA's goal is to 
provide a flexible alternative which can quickly respond to ``real 
time'' needs. However, there are limits to FAA's ability to respond to 
every situation immediately. Nevertheless, the rule allows the FAA 
greater flexibility to respond and, thereby, improve its coordination 
with business.
    Several commenters express concern regarding how the FAA will 
manage the program under this rule.
    The FAA is developing the necessary procedures to implement the 
rule that will provide requirements for PAHs application, FAA/industry 
memorandum of agreement, and accounting and reporting systems. 
Concurrent with publication of NPRM No. 97-11, the FAA has published a 
notice of availability of Proposed Advisory Circular 187-XX. The final 
advisory circular will be issued in the near future.
    The AIA contends that a statement in the preamble is incorrect 
because some U.S. suppliers could lose business. The statement follows: 
``This proposed rule would not impose any additional costs on any 
members of society other than those requesting FAA production 
certification-related services for manufacturing outside the United 
States.
    The FAA agrees with this comment to the extent that some U.S. 
suppliers could be adversely affected, but does not agree with the 
commenter that this effect will be substantial. The rule recognizes the 
long standing U.S. industry practice of conducting manufacturing 
outside the United States and, where possible, allows for FAA 
inspection services by agreement.
    The Timken Company estimates that the proposed rule, if enacted, 
would cost his company $80,000 in the first year for no discernible 
benefit to his company.
    The FAA cannot agree or disagree with this comment, as the 
commenter did not provide supporting data.
    The AIA and GAMA state ``that cost recovery charges should not be 
assessed at suppliers based on allegations, otherwise a PAH may suffer 
considerable expense because of unfounded allegations (perhaps by a 
competitor).''
    The FAA disagrees with this comment. The FAA will not recover costs 
associated with special investigations (e.g., investigations resulting 
from accidents and incidents, suspected unapproved part). However, if 
safety concerns should arise (e.g., supplier control problems) which 
require changes to agreements, those agreements will be renegotiated or 
terminated.

Miscellaneous Issues

    The IAM questions whether FAA resources would be stretched too thin 
to be effective and responsive under this rule.
    The FAA disagrees with this comment. The FAA will increase its 
staffing levels to accommodate additional work load if voluntary 
agreements require such an increase. The final rule language has been 
clarified (Appendix C, paragraph (d)(3)) to state the FAA will provide 
services on request only when it can reasonably do so.
    The AIA and GAMA suggest that ``any foreign cost recovery scheme 
must apply only to new programs or supplier arrangements. Existing 
arrangements must be undisturbed by its implementation.''
    The FAA agrees in part with this comment. This rule does not 
require existing arrangements to be changed. However, if companies with 
existing international suppliers did not apply, they would have an 
economic advantage over new entrants in the international market place, 
thereby impeding international competitiveness. All PAHs have the 
option to voluntarily apply.
    The AIA and GAMA recommend that a policy be established to preclude 
wasteful practices by FAA, such as: multiple visits to a single 
country/area by FAA personnel, multiple visits to a supplier by various 
FAA regions; increased audits of foreign suppliers over and above 
normal FAA surveillance, etc.
    The FAA agrees with the comment. Future voluntary agreements will 
be incorporated into FAA planning to minimize inefficient practices.

[[Page 55701]]

    The AIA and GAMA suggest that an appeal process be addressed as 
part of the rule when the FAA revokes an approval.
    The FAA agrees with this comment. Title 14, CFR part 13 provides 
such an appeal process.
    NORDAM Group expresses concern regarding FAA support to those PAHs 
who made a voluntary agreement to pay for ``better services'' versus 
those PAHs who did not.
    The FAA disagrees with this comment. As stated previously, this 
rule provides the option to PAHs to obtain inspection services by 
agreement when the FAA does not have resources to perform these 
services. The FAA will continue to provide services when and where 
resources permit. The FAA will treat all requests in a fair manner, 
consistent with its responsibilities.
    The language of the final rule has been clarified in Appendix C, 
paragraph (d)(1), to reflect that the agreement is an option available 
to a PAH who chooses to use suppliers located outside the U.S.
    NORDAM Group asks: ``if foreign-located sub-tier vendors 
(suppliers) are covered;'' ``if the rule will constitute a way around 
the Bilateral Aviation Safety Agreement (BASA) process;'' and ``does it 
make a difference where their PAH is located? (U.S. or foreign).''
    The FAA responds to the comments with the following: any FAA-
approved PAH who uses suppliers at any level outside the United States 
will have the option to request services under this rule. Also, this 
rule does not circumvent the BASA process. PAHs have the option to 
utilize suppliers in any other country. However, it is not assumed that 
the FAA can call upon another authority through the Bilateral 
Airworthiness Agreement (BAA) or BASA process to assist with its 
oversight responsibilities. While a BASA recognizes that a CAA has the 
capability and authority to perform reciprocal services, a CAA may not 
have sufficient staff and resources to support specific U.S. PAH 
activities. The FAA can only ask for the CAA's assistance, not 
guarantee it. If the PAH needs the FAA to perform services that a CAA 
cannot perform due to the lack of resources, time, experience, or 
authority (i.e., Aircraft Certification Service Evaluation Program 
(ACSEP)), routine evaluations and surveillance), a voluntary agreement 
may be needed. Also, as discussed in Advisory Circular, AC 21-20B, 
Supplier Surveillance Procedures, the CAA may charge the PAH or it's 
suppliers to perform services on behalf of the FAA. It does not matter 
where the PAH is located. Again, this option is available to any PAH 
who chooses to use suppliers located outside the U.S.
    The AIA and GAMA state that if the PAH chooses to use a supplier in 
a non-bilateral country then the FAA should not charge the PAHs for the 
training provided to the other country's authority.
    The FAA agrees with the comment. The training FAA may provide to 
another authority is not applicable to the cost of production 
certification-related services the FAA will provide.
    An IAM Local, Air Transport District 143, has a concern that 
employees of a foreign aircraft manufacturer are not randomly tested 
for drugs and do not follow Occupation Safety Health Administration 
(OSHA) standards similar to those in the United States.
    This comment does not address matters within the scope of this 
rule. Also, it should be noted that the FAA does not require aircraft 
manufacturing employees to be randomly tested for drugs in the United 
States.
    NORDAM Group asks ``will the foreign PAH's agreement to pay before 
the project begins, constitute a blank check and thus create an 
incentive for the FAA to maximize its revenues?'
    The voluntary agreements between the PAH and FAA include a detailed 
schedule of services. This schedule will identify the types of 
specialists needed and the number of hours projected for work on each 
project. Payment to the FAA would only include funding for work agreed 
to in the schedule of services. The FAA will not collect any funds for 
which specific activities or work projects have not been identified.
    The language of the final rule has been clarified in Appendix C, 
paragraph (e), to reflect that only actual FAA costs of providing the 
services will be charged. Also, the term ``prepaid'' has been replaced 
with ``estimated'' to better reflect the terms of the agreement.
    The AIA and the law firm of Winthrop, Stimson, Putman, and Roberts 
both request an extension to the comment period in this rulemaking. 
Both state they need additional time for distribution of the NPRM to 
members for review, analysis, and return of comments.
    The FAA did not approve this request. As noted above, the FAA has 
considered, to the extent practical, comments received prior to the 
issuance of the final rule. As over 200 comments were received and 
considered, it is clear most commenters had adequate time to submit 
comments and further delay was not in the public interest.

Meeting

    At the request of the IAM, a meeting was held with OMB on October 
20, 1997. The IAM representative stated that, while the aerospace 
industry was in a boom right now, the IAM was concerned about the 
future. The IAM foresaw a time when other countries would seek to 
expand their share of aerospace production. The IAM's concerns extend 
primarily to China, Japan, and third world countries. The IAM said that 
the NPRM states that the rulemaking facilitates manufacturing outside 
the United States, and urged that the government resist pressures to 
permit or encourage this practice.
    The IAM representative also stated that it was currently possible 
to trace the materials and components of every aircraft part to ``when 
it was born.'' The IAM representative expresses concern that this 
ability would be diminished with respect to parts manufactured outside 
the United States.

International Compatibility

    The FAA has reviewed corresponding International Civil Aviation 
Organization international standards and recommended practices and 
Joint Aviation Authorities requirements and has identified no 
comparable requirements applicable to this rule.

Paperwork Reduction Act

    Information collection requirements in this rule have been approved 
by the Office of Management and Budget (OMB) under the provisions of 
the Paperwork Reduction Act of 1995 (44 U.S.C. 3507(d)), and have been 
assigned OMB Control Number 2120-0615.

Regulatory Evaluation Summary

    Changes to Federal regulations must undergo several economic 
analyses. First, Executive Order 12866 directs that each Federal agency 
shall propose or adopt a regulation only upon a reasoned determination 
that the benefits of the intended regulation justify the costs. Second, 
the Regulatory Flexibility Act of 1980 requires agencies to analyze the 
economic effect of regulatory changes on small entities. Third, the 
Office of Management and Budget directs agencies to assess the effect 
of regulatory changes on international trade. In conducting these 
analyses, the FAA has determined that this rule: (1) will generate 
benefits that justify its costs; (2) will not have a significant impact 
on a substantial number of small entities; and (3) will not constitute 
a barrier to international trade. These analyses, available in the 
docket, are summarized below.

[[Page 55702]]

    As previously stated, the fee will be that amount necessary for the 
FAA to recover its full costs. The FAA has determined that an average 
hourly fee will be about $120. On that basis, the FAA calculates that 
the first year fees will total about $4.038 million (in 1997 dollars). 
Due to an anticipated increase in the number of requests for FAA 
production certification-related services outside the United States as 
the aerospace industry grows, these annual fees will increase to about 
$5.912 million (in 1997 dollars) in the fifth year, after which they 
would remain stable.
    In addition, the FAA has determined that it will take an applicant 
60 hours of legal, management, and engineering time for a PAH to 
complete the paperwork required for the first agreement. After that 
first year, it will take 20 hours of legal, management, and engineering 
time for a PAH to complete the paperwork for each succeeding agreement.
    The primary benefit from this rule will be that it will allow the 
FAA to perform its safety inspection functions in a more efficient, 
cost-effective manner. The final rule allows the FAA to be more 
responsive to PAHs; thereby reducing the time between when the PAH 
requests the service and the time when the FAA provides it. This 
enhanced responsiveness will increase the integration of new and 
innovative safety technology developed outside the United States into 
aircraft and enhance the safety of the aircraft fleet. Further, 
although the rule's purpose is to facilitate safety inspections, not to 
promote production outside the United States, it will allow the FAA to 
fulfill its safety inspection functions for PAH offset agreements 
(where a certain percentage of the aircraft must be manufactured or 
assembled in the country). As a result, it will make the PAH more 
competitive in the global aviation market. Finally, it will require 
recipients of specific services from the FAA, rather than the general 
taxpayer, to pay for these services.

Regulatory Flexibility Determination

    The Regulatory Flexibility Act of 1980 (RFA) was enacted by 
Congress to ensure that small entities are not unnecessarily and 
disproportionately burdened by Federal regulations. The RFA requires a 
Regulatory Flexibility Analysis if a rule has a significant (positive 
or negative) economic impact on a substantial number of small entities.
    The rule will primarily affect PAHs that have facilities and 
suppliers located outside the United States. Although the rule may have 
an indirect adverse effect on some small U.S. suppliers, it may also 
have an indirect positive effect on other small U.S. suppliers. As a 
result, the FAA has determined that the rule will not have a 
significant impact on a substantial number of small entities.

International Trade Impact Analysis

    The growing globalization of aircraft manufacturing has increased 
competition among manufacturers. In order for PAHs to remain 
competitive, they need to have the flexibility to compete on an equal 
footing with their competitors located throughout the world. Further, 
many overseas purchasers of a PAH product often contractually require 
that some percentage of the product be produced in their own country.
    The rule could affect international trade through: (1) the amount 
of the FAA fee; and (2) facilitating the use of facilities and 
suppliers outside the United States.
    Charging a fee for the FAA's production certification-related 
services for facilities and suppliers outside the United States could 
slightly raise the costs of using them. One commenter stated that the 
rule would cost his company $80,000 per year for no gain in benefit. 
However, the rule will provide PAHs with more timely FAA provision of 
those services, thereby reducing the time to manufacture the product. 
Two commenters stated that the fees were needed to provide these 
necessary FAA services when they are needed. After careful review and 
evaluation, the FAA has determined that the amount of the fee will have 
only a minimal affect on a PAH's decision to use a facility or supplier 
located outside of the United States, and, therefore, have only a 
minimal affect on international trade.
    With respect to the use of facilities and suppliers outside the 
United States, the rule will provide PAHs with more timely FAA 
provision of production certification-related services. This enhanced 
FAA responsiveness should reduce some of the production time lost as a 
result of these facilities and suppliers waiting for the FAA service. 
Consequently, the rule could increase the productivity of those 
facilities and suppliers and, thereby, could lower costs to the U.S. 
PAHs that use them.
    An additional consideration is that many buyers outside the United 
States require offset agreements through which an aerospace product 
seller guarantees that a percentage of the product is built in that 
country. If the U.S. manufacturer cannot guarantee that percentage, 
then a non-U.S. manufacturer who can guarantee that percentage will 
have a competitive advantage in selling its product. The rule will also 
increase the productivity of these facilities and suppliers and, 
therefore, lower costs to the U.S. PAHs that use them.
    The effects of the rule on international trade are difficult to 
predict and will also be influenced by FAA's implementation of the 
rule. For the most part, FAA intends to direct its certification 
activities, consistent with the practice of U.S. manufacturers, towards 
the use of existing, experienced aviation manufacturers as opposed to 
setting up new production facilities overseas. However, to perform its 
safety responsibilities, FAA must be able to effectively provide 
manufacturing oversight of these overseas manufacturers. To the extent 
that services are not provided because of FAA budgetary and 
administrative constraints, U.S. manufacturers and our country's 
competitive position will be harmed.
    By providing these existing services in a more timely, effective 
fashion, FAA believes that the final rule will have the net effect of 
improving our international competitiveness while minimizing any 
adverse effects on domestic suppliers.

Federalism Implications

    The regulations herein will not have substantial direct effects on 
the States, on the relationship between the national government and the 
States, or on the distribution of power and responsibilities among the 
various levels of government. Therefore, in accordance with Executive 
Order 12612, it is determined that this rule will not have sufficient 
federalism implications to warrant the preparation of a Federalism 
Assessment.

Unfunded Mandates Reform Act

    This rule does not contain any Federal intergovernmental or private 
sector mandate because all fees are entered into by voluntary 
agreement. Therefore, the requirements of Title II of the Unfunded 
Mandates Reform Act of 1995 do not apply.

Conclusion

    For the reasons discussed above, in the preamble, and based on the 
findings in the Regulatory Flexibility Determination and the 
International Trade Impact Analysis, the FAA has determined that this 
regulation is a ``significant regulatory action'' under Executive Order 
12866, Regulatory Planning and Review, issued October 4, 1993. However, 
the FAA certifies that this rule will not have a significant economic 
impact, positive or negative, on a substantial number of small entities

[[Page 55703]]

under the criteria of the Regulatory Flexibility Act. This rule is 
considered significant under DOT Regulatory Policies and Procedures (44 
FR 11034, February 26, 1979) and Order DOT 2100.5, Policies and 
Procedures for Simplification, Analysis, and Review of Regulations, of 
May 22, 1980. Also, this rule is considered significant and has been 
reviewed by OMB. Further, the requirements of Title II of the Unfunded 
Mandates Reform Act of 1995 will not apply to this rule. A regulatory 
evaluation of the rule, including a Regulatory Flexibility 
Determination and International Trade Impact Analysis, has been placed 
in the docket. A copy may be obtained by contacting the person 
identified under FOR FURTHER INFORMATION CONTACT.

List of Subjects in 14 CFR Part 187

    Administrative practice and procedures, Air transportation.

The Amendment

    In consideration of the foregoing, the Federal Aviation 
Administration amends part 187 of Title 14, Code of Federal Regulations 
(14 CFR part 187) as follows:

PART 187--FEES

    1. The authority citation for part 187 is revised to read as 
follows:

    Authority: 31 U.S.C. 9701; 49 U.S.C. 106(g), 49 U.S.C. 
106(l)(6), 40104-40105, 40109, 40113-40114, 44702.

    2. Sections 187.15(a) and (b) are revised to read as follows:


Sec. 187.15  Payment of fees.

    (a) The fees of this part are payable to the Federal Aviation 
Administration by check, money order, wire transfer, or draft, payable 
in U.S. currency and drawn on a U.S. bank prior to the provision of any 
service under this part.
    (b) Applicants for the FAA services provided under this part shall 
pay any bank processing charges on fees collected under this part, when 
such charges are assessed on U.S. Government.
* * * * *
    3. Section 187.17 is added to read as follows:


Sec. 187.17  Failure by applicant to pay prescribed fees.

    If an applicant fails to pay fees agreed to under Appendix C of 
this part, the FAA may suspend or deny any application for service and 
may suspend or revoke any production certification-related approval 
granted.
    4. Appendix C is added to read as follows:

Appendix C to Part 187--Fees for Production Certification-Related 
Services Performed Outside the United States

    (a) Purpose. This appendix describes the methodology for the 
calculation of fees for production certification-related services 
outside the United States that are performed by the FAA.
    (b) Applicability. This appendix applies to production approval 
holders who elect to use manufacturing facilities or supplier 
facilities located outside the United States to manufacture or 
assemble aeronautical products after September 30, 1997.
    (c) Definitions. For the purpose of this appendix, the following 
definitions apply:
    Manufacturing facility means a place where production of a 
complete aircraft, aircraft engine, propeller, part, component, or 
appliance is performed.
    Production certification-related service means a service 
associated with initial production approval holder qualification; 
ongoing production approval holder and supplier surveillance; 
designee management; initial production approval holder 
qualification and ongoing surveillance for production certificate 
extensions outside the United States; conformity inspections; and 
witnessing of tests.
    Supplier facility means a place where production of a part, 
component, or subassembly is performed for a production approval 
holder.
    Production approval holder means a person who holds an FAA 
approval for production under type certificate only, an FAA approval 
for production under an approved production inspection system, a 
production certificate, a technical standard order authorization, or 
a parts manufacturer approval.
    (d) Procedural requirements.
    (1) Applicants may apply for FAA production certification-
related services provided outside the United States by a letter of 
application to the FAA detailing when and where the particular 
services are required.
    (2) The FAA will notify the applicant in writing of the 
estimated cost and schedule to provide the services.
    (3) The applicant will review the estimated costs and schedule 
of services. If the applicant agrees with the estimated costs and 
schedule of services, the applicant will propose to the FAA that the 
services be provided. If the FAA agrees and can provide the services 
requested, a written agreement will be executed between the 
applicant and the FAA.
    (4) The applicant must provide advance payment for each 12-month 
period of agreed FAA service unless a shorter period is agreed to 
between the Production Approval Holder and FAA.
    (e) Fee determination.
    (1) Fees for FAA production certification-related services will 
consist of: personnel compensation and benefit (PC&B) for each 
participating FAA employee, actual travel and transportation 
expenses incurred in providing the service, other agency costs and 
an overhead percentage.
    (2) Fees will be determined on a case-by-case basis according to 
the following general formula:
W1H1+ W2H2 etc., + T + O
Where:

W1H1=hourly PC&B rate for employee 1, times 
estimated hours
W2H2=hourly PC&B rate for employee 2, etc., 
times estimated hours
    T=estimated travel and transportation expenses
O=other agency costs related to each activity including overhead.

    (3) In no event will the applicant be charged more than the 
actual FAA costs of providing production certification-related 
services.
    (4) If the actual FAA costs vary from the estimated fees by more 
than 10 percent, written notice by the FAA will be given to the 
applicant as soon as possible.
    (5) If FAA costs exceed the estimated fees, the applicant will 
be required to pay the difference prior to receiving further 
services. If the estimated fees exceed the FAA costs, the applicant 
may elect to apply the balance to future agreements or to receive a 
refund.
    (f) Fees will be reviewed by the FAA periodically and adjusted 
either upward or downward in order to reflect the current costs of 
performing production certification-related services outside the 
United States.
    (1) Notice of any change to the elements of the fee formula in 
this Appendix will be published in the Federal Register.
    (2) Notice of any change to the methodology in this Appendix and 
other changes for the fees will be published in the Federal 
Register.

    Issued in Washington, DC, on October 22, 1997.
Jane F. Garvey,
Administrator.
[FR Doc. 97-28467 Filed 10-23-97; 10:36am]
BILLING CODE 4910-13-P