The Commodity Credit Corporation published in the Federal Register of February 16, 2000, (65 FR 7942) a final rule promulgating regulations for crop and market loss programs. As correctly set out in the preamble for that rule, amendments were to be made by that rule to 7 CFR parts 1421 and 1427 to implement provisions of new legislation that changed the payment limitations for certain commodity activities and that allowed farmers who had already marketed a commodity, but had not received a marketing loan gain or loan deficiency payments for that commodity, to receive such payments. Normally, such payment is available only if the crop has not yet been marketed.

That is, the preamble to the rule stated that, subject to certain conditions, the new regulations adopted in that rule would allow a producer who was otherwise eligible to receive a gain or payment to receive a marketing loan gain or loan deficiency payment even though the producer marketed the commodity. The preamble stated that this would only apply for commodities marketed on or before the date of publication of the and to otherwise eligible producers on commodities for which no such gain or payment had been paid.

Those changes were to be incorporated into the regulations at 7 CFR 1421.1 and 1427.1. However, the February 16, 2000 rule inadvertently left out the conditions referred to in the preamble and used language that suggested that these new payments would be available only if the request for such relief was made prior to the date of publication of the rule a condition that would have been impossible to meet.

This correction provides regulatory language that reflects the intent of the February 16, 2000, rule, as expressed in the Preamble to that rule.

Under the Federal Home Loan Bank Act (Bank Act), the Finance Board is responsible for the supervision and regulation of the 12 Federal Home Loan Banks (Banks), which provide advances and other financial services to their member institutions. See 12 U.S.C. 1422a(a) (1994). Institutions, including those not meeting the Qualified Thrift Lender (QTL) test, 1 may become members of a Bank if they meet certain membership eligibility and minimum stock purchase criteria set forth in the Bank Act and the Finance Board's implementing Membership Regulation See id. sections 1424, 1426, 1430(e)(3) (1994); 12 CFR part 925. 2 Members may obtain advances from a Bank subject to certain statutory and regulatory requirements. See 12 U.S.C. 1430(a) (1994). Prior to recent amendments to the Bank Act, discussed further below, access to advances by non-QTL members was restricted in various ways. See id. section 1430(e).

The recently enacted Modernization Act  3 amended certain membership eligibility provisions, and repealed certain stock purchase and non-QTL advances provisions, in the Bank Act. See Pub. L. 106-102, sections 602, 603, 604(c), (d)(1), 605, 608 (1999). Accordingly, the Finance Board is amending its regulations to conform them to the Modernization Act amendments. The Finance Board also is taking this opportunity to make certain technical revisions to the Membership Regulation that are not related to the Modernization Act, in order to clarify the treatment of de novo members that fail to meet the 10 percent residential mortgage loans requirement within the required one-year time frame.

Section 5(f) of the Home Owners' Loan Act (HOLA) formerly provided that “[e]ach Federal savings association, upon receiving its charter, shall become automatically a member” of its district Bank. See 12 U.S.C. 1424(f) (1994). Consistent with section 5(f), section 925.4(a) of the Finance Board's Membership Regulation provides that any institution required by law to become a member of a Bank automatically shall become a member of the Bank of the district in which its principal place of business is located upon the purchase of stock in that Bank pursuant to § 925.20(b)(1). See 12 CFR 925.4(a). The Modernization Act amended section 5(f) of the HOLA to provide that “[a]fter the end of the 6-month period beginning on [Nov. 12, 1999], a Federal savings association may become a member of the [Bank] System, and shall qualify for such membership in the manner provided in the [Bank Act] * * * with respect to other members.” See Modernization Act, section 603. Staff of the Office of Thrift Supervision (OTS), the agency that charters federal savings associations and administers the HOLA, has interpreted this amended language to mean that, as of November 12, 1999, a federal savings association is eligible to become a member, but no longer automatically becomes a member, of the Bank System, and federal savings associations that were members of the Bank System prior to November 12, 1999 may not withdraw from the Bank System and redeem their Bank capital stock until the 6-month period has expired (May 12, 2000). As the HOLA is administered by the OTS and not the Finance Board, the Finance Board defers to the OTS for interpretations of the HOLA.

In deference to and consistent with the OTS interpretation of the HOLA, the Finance Board is removing section 925.4(a) of the Finance Board's Membership Regulation, which provides for automatic Bank membership for federal savings associations. No change is required to the provision of section 925.26(a) of the Finance Board's Membership Regulation stating that any member “that is eligible under applicable law” to withdraw from Bank membership may do so after providing the Finance Board and its Bank at least six months written notice of the member's intention to withdraw from membership. See 12 CFR 925.26(a). The language “that is eligible under applicable law” requires that a federal savings association meet the amended HOLA requirement that it may not withdraw from Bank membership until after May 12, 2000. The interim final rule amends section 925.26 to provide that Federal savings association members may submit notices of intention to withdraw from Bank membership prior to May 13, 2000.

Section 4(a)(2(A) of the Bank Act formerly provided that an insured depository institution may become a member of a Bank only if it has at least 10 percent of its total assets in residential mortgage loans (10 percent requirement). See 12 U.S.C. 1424(a)(2)(A) (1994). Section 4(a)(2) also provided that an insured depository institution commencing business operations after January 1, 1989 ( de novo institution), may become a member of a Bank if at least 10 percent of its total assets are in residential mortgage loans, within one year after the commencement of its operations. See id. section 1424(a)(2). Section 4(a)(2) is implemented by sections 925.6(b), 925.10 and 925.14(a)(3) of the Finance Board's Membership Regulation. See 12 CFR 925.6(b), 925.10, 925.14(a)(3).

The Modernization Act amended section 4(a)(2) of the Bank Act to exempt from the 10 percent requirement any applicants, including de novo institutions, that qualify as “community financial institutions.” See Modernization Act, section 605 ( to be codified at 12 U.S.C. 1424(a)(2)(A)(4)). The Modernization Act defines a “community financial institution” to mean, generally, an institution whose deposits are insured under the Federal Deposit Insurance Act (FDIA) and that has less than $500 million in average total assets, based on an average of total assets over the three preceding years. See id. section 602 ( to be codified at 12 U.S.C. 1422(13)). Accordingly, the Finance Board is amending sections 925.6(b), 925.10 and 925.14(a)(3) of its Membership Regulation to include an exemption from the 10 percent requirement for community financial institutions, and is adding a definition of “community financial institution” in new section 925.1(ff). A definition of “community financial institution,” which predates the Modernization Act, in section 925.1(n)(1)(iii), also is being removed. The Finance Board requests comments on what source of data should be used in calculating the average of total assets over the three preceding years.

As discussed above, section 4(a)(2) of the Bank Act formerly provided that an insured depository institution commencing business operations after January 1, 1989, may become a member of a Bank if at least 10 percent of its total assets are in residential mortgage loans, within one year after the commencement of its operations. See id. section 1424(a)(2) (1994). The Modernization Act amended this provision to provide an exemption for de novo community financial institutions. See Modernization Act, section 605. Thus, a de novo institution's membership is conditioned on the timely satisfaction of the 10 percent requirement. If an institution fails to satisfy this condition within the one-year period, it would not have met one of the statutory criteria for membership and the conditional approval (as well as the institution's membership) would be deemed null and void by operation of law. Thus, although the Membership Regulation is silent as to the consequences of a de novo institution's failure to meet the 10 percent requirement, compliance is required by statute no later than one year after commencing operations.

Notwithstanding the statutory conditional approval language, there has been some confusion at a number of Banks as to how they should deal with de novo members that would fail to satisfy the 10 percent requirement within the one-year time frame. To provide regulatory clarity, the Finance Board is amending section 925.14(a)(3) of the Membership Regulation to reinforce the conditional nature of the de novo membership application approval, as required by the statute. This regulatory amendment is consistent with the conditional approval requirements applicable to the home financing policy eligibility requirement in section 925.14(a)(4) of the Membership Regulation. See id. section 925.14(a)(4). The provisions of section 925.29(a)(1) of the Membership Regulation dealing with orderly liquidation of advances and redemption of stock in the event an institution ceases to be a member also are amended to include references to sections 925.14(a)(3) and (a)(4).

Former section 6(h) of the Bank Act provided:

The Modernization Act repealed section 6(h) of the Bank Act and replaced it with new section 6(g), which provides that:

The Finance Board is amending section 925.30 of its Membership Regulation to reflect the above-described statutory changes in the waiting period for readmission to membership.

The Finance Board has not received any requests from former members seeking readmission under section 6(g)(2) and, thus, has not determined what factors it would consider in such a proceeding. The Finance Board does anticipate that any requests for readmission would be submitted pursuant to the Finance Board's Procedures in 12 CFR part 907.

Section 604(c) of the Modernization Act repealed section 10(e) of the Bank Act, which had imposed a number of restrictions on members that did not meet the QTL test. 4 Section 10(e) limited the purposes for which a non-QTL member could obtain an advance, limited Bank System-wide advances to non-QTL members to 30 percent of total Bank System advances outstanding, and gave QTL members a priority over non-QTL members in obtaining advances. See 12 U.S.C. 1430(e) (1), (2) (1994). Section 10(e) also limited the dollar amount of advances that a non-QTL member could obtain by progressively reducing its ability to leverage its investment in the capital stock of the Bank. In practice, a non-QTL member with a QTL ratio of 50 percent could obtain only half the amount of advances that a QTL member with the same amount of Bank capital stock could borrow. If the member's QTL ratio decreased further, its ability to borrow against its capital stock would be reduced further. See id. section 1430(e).

Separately, section 10(e)(3) of the Bank Act established a statutory presumption that each member has at least 30 percent of its assets in home mortgage loans, which presumption was used in determining the minimum amount of Bank capital stock that a member must purchase pursuant to section 6(b) of the Bank Act. See id. section 1430(e)(3). Section 6(b) requires all members to subscribe to a minimum amount of Bank capital stock, which must equal at least one percent of the member's aggregate unpaid loan principal (home mortgage loans, home purchase contracts and similar obligations). As a practical matter, this provision would have applied only to non-QTL members, as QTL members (which have at least 65 percent of their assets in housing-related investments) likely would have had more than 30 percent of their assets in home mortgage loans.

Section 10(e) was added to the Bank Act in 1987 by the Competitive Equality Banking Act of 1987, Public Law 100-86, section 105, 101 Stat. 552 (Aug. 10, 1987) (CEBA), which also established the QTL test. Congress established the QTL test principally as a means of encouraging unitary savings and loan holding companies to ensure that their subsidiary savings associations maintained at least 60 percent of their assets in housing-related investments. If the savings association failed the QTL test, the business activities of the holding company would be sharply curtailed. Similarly, section 10(e) reduced the ability of the non-QTL savings association to obtain advances from its Bank; i.e., an association with a QTL ratio of 59 percent could obtain only 59 percent of the amount of advances that it could obtain were it to meet the QTL test.

The Financial Institutions Reform, Recovery, and Enforcement Act of 1989, Public Law 101-73, section 714(b), 103 Stat. 418 (Aug. 9, 1989) (FIRREA), amended section 10(e) by revising the sanctions imposed on non-QTL members, which were, with only minor exceptions, the same as those described earlier that the Modernization Act repealed. Congress described its amendments to section 10(e), referring to both the housing finance purposes restriction and the reduced leverage on Bank capital stock, as “special eligibility requirements for advances to members that are not qualified thrift lenders.” See FIRREA Conference Report, No. 101-222, at 428 (August 4, 1989). Congress did not describe any of FIRREA's QTL amendments to section 10(e) as amendments to the capital structure of the Banks. Indeed, Congress chose to locate the QTL provisions in section 10(e), which relates solely to Bank advances, rather than in section 6, which establishes the capital structure for the Banks.

Section 604(c) of the Modernization Act repealed section 10(e) in its entirety. There is little legislative history for the amendment. The Managers' Statement accompanying the bill as reported by the Conference Committee refers specifically to each of the QTL provisions in section 10(e) and states simply that each such provision is “eliminated” or “removed.” Because section 604(c) of the Modernization Act does not provide a separate effective date for the QTL repeal, the amendments are to take effect upon enactment, unless they are preserved by some other provision of the Modernization Act.

The only provision in the Modernization Act that could even arguably be read to preserve the QTL provisions of section 10(e) would be the transition provision for the amendments to section 6 of the Bank Act, relating to the capital structure of the Banks. See Modernization Act, section 608 ( to be codified at 12 U.S.C. 1426(a)(6)). That section provides that:

Although certain provisions of section 10(e) bear some relation to the capital stock of a Bank, such as the reduced leverage and the 30 percent presumption of home mortgage loans, they do not appear to have been intended by Congress to function as capital provisions per se, nor do they appear to be so closely linked to the capital provisions in section 6 of the Bank Act that they must necessarily be preserved by the transition provisions in the Modernization Act.

As originally enacted in CEBA, section 10(e) was simply a limitation on the amount of advances that a non-QTL member could obtain; it included no reference to Bank capital. Though FIRREA reduced the borrowing leverage on Bank capital stock for non-QTL members and established the 30 percent presumption of home mortgage loans, the Congress did not refer to either provision as an amendment to the capital structure of the Bank System. Instead, Congress expressly described both of those provisions as “special eligibility requirements for advances to” non-QTL members. That characterization suggests an intent that section 10(e) continue to function primarily as a limitation on the ability of a non-QTL member to obtain advances, albeit using the provisions relating to capital as one of the means of implementing that limitation.

The repeal of section 10(e) is one of several provisions of the Modernization Act that were intended to equalize access to the Bank System for all members. The explanation by the Conferees' Managers Statement that the QTL provisions are “removed” and “eliminated” by the Modernization Act suggests strongly that the Congress intended that those amendments would take effect upon enactment. To read the Modernization Act otherwise would require an inference that Congress intended the QTL provisions to remain in effect for another 3 to 5 years, which is at odds with the language used in the Managers' Statement. Moreover, the history of the legislation, in which the amendments to section 6 (including the transition provision) were adopted at an earlier time than the repeal of section 10(e), would counsel against applying the transition provision so broadly as to preserve the QTL limitations. 5 Given that history, the Finance Board believes that the transition provision in section 608 of the Modernization Act should not be read as applying to the QTL provisions in section 10(e) of the Bank Act, and that the QTL provisions are not preserved beyond the date of enactment.

Accordingly, the Finance Board is removing sections 925.20(a)(2), 950.13 and 950.15(a)(2) of its regulations, which contain the additional capital stock purchase requirements and limitations on advances applicable to non-QTL members. Section 925.20(a)(1) is revised to set forth the new minimum stock purchase requirement for all members as the greater of:

(i) $500;

(ii) 1 percent of the member's aggregate unpaid loan principal; or

(iii) 5 percent of the member's aggregate amount of outstanding advances.

The Finance Board is aware that the repeal of the QTL limitations could result in excess capital stock positions for as much as 40 percent of the members of the Banks and that this will necessitate serious, thoughtful and active management of capital and business operations by the Banks during the transition period until final capital regulations and Bank capital plans are in place, as required by the Modernization Act. See Modernization Act, section 608. This will also require the Finance Board to monitor the Banks closely during this period. Any safety and soundness concerns raised during this transitional period as a result of the repeal of the QTL limitations will be addressed by the Finance Board through the supervisory process.

Because no notice of proposed rulemaking is required for this interim final rule, the provisions of the Regulatory Flexibility Act, 5 U.S.C. 601 et seq. , do not apply.

The Finance Board for good cause finds that the notice and public comment procedure required by the Administrative Procedure Act is impracticable, unnecessary or contrary to the public interest in this instance, because the changes made by this interim final rule implement recently enacted statutory amendments that rendered obsolete certain provisions of the Finance Board's regulations. See 5 U.S.C. 553(b)(3)(B).

For the reasons stated in IV. above, the Finance Board is adopting this interim final rule on an expedited basis to conform provisions of its regulations to the recently enacted statutory amendments to the Bank Act. Due to the expedited nature of this rulemaking, the Finance Board has not completed its analysis of the information collection requirements contained in the interim final rule. The amendments in the interim final rule may result in a reduction in the information collection burden for institutions that qualify as community financial institutions, and an increase in the number of respondents that apply for Bank membership. The Finance Board intends to submit to the Office of Management and Budget the information collection requirements contained in this interim final rule in accordance with the requirements of section 3507(d) of the Paperwork Reduction Act of 1995, 44 U.S.C. 3507(d).

A proposal to amend part 39 of the Federal Aviation Regulations (14 CFR part 39) to include an airworthiness directive (AD) that is applicable to certain Boeing Model 737 series airplanes was published in the Federal Register on October 29, 1998 (63 FR 57953). That action proposed to require a one-time inspection of the main landing gear (MLG) axle flange to detect cracking, and follow-on corrective actions. For certain airplanes, that action proposed to require replacement of the original brake mounting gasket with a more durable aluminum-nickel-bronze gasket, and installation of new shear studs, if necessary. For certain airplanes, that action proposed to require modification of the mounting flange holes of the brake torque tube.

Interested persons have been afforded an opportunity to participate in the making of this amendment. Due consideration has been given to the comments received.

One commenter supports the proposed rule.

Several commenters request that the FAA extend the compliance time (i.e., within 200 days or 1,500 flight cycles after the effective date of this AD, whichever occurs later) for accomplishing the requirements of the proposed AD.

One commenter states that the proposed AD should be carried out within 250 days or 2,500 aircraft cycles, whichever occurs later. The commenter supports this request by stating that its standard practice is to clean and visually inspect all landing gear axle flanges each time the brake assemblies and wheel assemblies are removed from the axle. The commenter further states that it has never experienced loss of a MLG wheel with BFGoodrich brake assemblies, and that BFGoodrich is not aware of the loss of a wheel on aircraft equipped with BFGoodrich brake assemblies.

Another commenter, the airplane manufacturer, states that the inspection of axle flanges that have been repaired with nickel sulfamate or bushings would require removal of the repair. The commenter notes that this will have a significant impact on the cost and time required to perform the proposed inspection. Therefore, consideration should be given to increasing the compliance time or modifying the inspection requirements.

One commenter states that the inspection schedule specified in paragraphs (b) and (c) of the proposed AD should be increased to at least 1 year or 4,000 cycles, whichever is later. The commenter states that the currently proposed inspection schedule for most of the operators will fall during a line maintenance check. The commenter points out that the inspection and repair specified in Boeing All Operators Telex (AOT) M-7272-96-1442, dated March 29, 1996 [which is referenced in the proposed AD the appropriate source for accomplishing the proposed inspection in paragraphs (b)(1) and (c)(1) and the proposed repair in paragraphs (b)(2) and (c)(2)], involves repairs that should be accomplished at a heavy check or overhaul facility.

One commenter states that the inspection should be accomplished during a heavy maintenance visit where equipment and trained personnel are more readily available.

The FAA concurs with the commenters' requests. The FAA concurs that the magnetic particle inspection, high frequency eddy current (HFEC) inspection, modification, and repair, if necessary, required by this AD should be accomplished at an overhaul facility. The FAA has determined that an extension of the compliance time to within 1 year or 4,500 flight cycles after the effective date of this AD, whichever occurs later, will not compromise safety provided that an interim detailed visual inspection to detect fretting and corrosion of the axle flange bolt holes is accomplished within 200 days or 1,500 flight cycles after the effective date of this AD, whichever occurs later. The FAA has added a new paragraph (d) to the final rule to include such an option. The FAA also has added a note to the final rule to clarify the definition of the detailed visual inspection.

One commenter states that, if the FAA mandates modifications to the ten or eleven bolt configuration, it requests that the compliance time for paragraph (c) of the proposed AD be extended to 5 years. (This comment is discussed in more detail below under the heading “Requests to Exclude Actions on the Basis of Configuration”).

The FAA does not concur with the commenter's request. Although the two stud/ten bolt configuration provides better clamp-up between the brake assembly and the MLG axle flange, the FAA has determined that improved clamp-up by itself does not justify a 5-year compliance time.

One commenter requests that operators utilizing ten or eleven bolt configurations regardless of gasket material not be subject to the requirements of the proposed AD. One commenter states that, according to Boeing AOT M-7272-96-1442, dated March 29, 1996, previous failures are primarily due to poor maintenance of finish, improper plating repairs, and installation of incorrect wheel bearings, rather than design deficiencies. The commenter suggests that no evidence exists which shows that a ten or eleven bolt brake mounting configuration with phenolic gaskets is unsafe or susceptible to cracking, and subsequent axle failure.

The FAA does not concur with the commenter's request. Although the two stud/ten bolt configuration provides better clamp-up between the brake assembly and the MLG axle flange, the FAA has determined that an improved clamp-up by itself will not prevent fretting. Furthermore, Boeing AOT M-7272-96-1442 lists deterioration of the phenolic gasket as another of the basic causes of reported axle fractures. Brake heat and vibration can lead to deterioration of the phenolic gasket. The FAA finds that an increase in clamp-up with the two stud/ten bolt configuration will help decrease the magnitude of vibration, but will not alleviate the gasket deterioration brake heat caused by the gasket. The FAA has determined that the aluminum-nickel-bronze (Al-Ni-Br) gasket used in conjunction with brake mounting hardware, which includes two studs and ten bolts, will ensure proper clamp-up and resistance to brake heat and vibration.

Another commenter requests that operators with a one stud/eleven bolt brake mounting configuration be required to add one stud and one nickel bronze gasket to comply with the intent of the proposed rule. No justification was provided.

The FAA does not concur with the commenter's request. The FAA has determined that the existing shear studs used with the phenolic gasket will not properly mate with the aluminum-nickel-bronze gasket. Therefore, two new studs will be required. Furthermore, prior to installing the gasket, magnetic particle or HFEC inspections are required to evaluate the existing integrity of the axle flange and bolt holes.

One commenter requests that the FAA give credit for airplanes on which MLG assemblies with an Al-Ni-Br gasket have been installed in accordance with Boeing Service Bulletin 737-32-1253, and that have been inspected/reworked/overhauled in accordance with Boeing AOT M-7272-96-1442 and/or original equipment manufacturer/FAA-approved operator designed rework procedures.

The FAA concurs with the commenter's request provided that the inspection has been accomplished concurrent with or after installation of the Al-Ni-Br gasket. The FAA has determined that accomplishment of the magnetic particle or HFEC inspections in accordance with Boeing AOT M-7272-96-1442, dated March 29, 1996, concurrent with or after installation of an aluminum-nickel-bronze gasket and shear studs, is considered acceptable for compliance with the requirements of paragraphs (a)(1) and (c)(1) of this final rule. Therefore, the FAA has added a new note after paragraph (a) of this AD to provide credit for accomplishing the required inspection concurrently with or after accomplishment of the subject installation.

Two commenters request that the inspection required by paragraph (a)(1) of the proposed AD be deleted. One of these commenters requests that the inspection required by paragraph (b)(1) also be deleted. One commenter states that the inspection should not be required because a new aluminum-nickel-bronze gasket has been installed in accordance with Boeing Service Bulletin 737-32-1253, dated November 7, 1991, and the torque tube mounting holes on the mounting flange have been modified in accordance with AlliedSignal Service Bulletin 2601042-32-003, dated March 15, 1997. If operators installed this new gasket along with the modification on the axle flange and brake flange, the commenter contends that they have already accomplished the initial inspection in accordance with Boeing Service Bulletin 737-32-1253. One commenter states that there have been no reported axle failures on airplanes that have incorporated Boeing Service Bulletin 737-32-1253. The commenter further states that the inspection of these airplanes will impose an unreasonable financial burden on the operators.

Another commenter states that paragraph (c) of the proposed AD contains no requirement for repetitive inspections after incorporation of Boeing Service Bulletin 737-32-1253. Therefore, the commenter requests that no further action be required, if the magnetic particle inspection and modification specified in that service bulletin were already accomplished during the previous landing gear overhaul or at a maintenance opportunity.

Another commenter requests that, if an MLG has been inspected, overhauled, and modified in accordance with Boeing Service Bulletins 737-32-1253, dated November 7, 1991, and 737-32-1235, dated April 12, 1990, affected airplanes should not be subject to the requirements of the proposed AD. The commenter also states that In Service Report (ISR) #95-03-3210-20, dated February 16, 1995, states that incorporation of these service bulletins is the recommended action according to Boeing.

The FAA does not concur with the commenters' requests. The FAA has determined that, for airplanes on which the installation of the brake mounting hardware in accordance with Boeing Service Bulletin 737-32-1253, dated November 7, 1991, and Boeing Service Bulletin 737-32-1235, dated April 12, 1990, has been accomplished, the magnetic particle or HFEC inspection required by this AD must be accomplished because these service bulletins do not contain inspection procedures. These service bulletins only describe procedures for installing the improved brake mounting hardware and an additional shear stud. The FAA points out that there is a possibility that some of the aluminum-nickel-bronze gaskets could have been installed on axle flanges that already had cracks or fretting damage. A magnetic particle or HFEC inspection of this area will ensure detection of cracks in the axle flange and brake attach bolt holes.

One commenter further requests that airplanes on which the shear stud replacement in accordance with Boeing Service Bulletin 737-32-1253 has been incorporated not be required to install new studs, as required in paragraph (a)(4) of the proposed AD. The commenter believes this to be unnecessary since Service Bulletin 737-32-1253 already requires replacement of the shear studs.

The FAA concurs with the commenter's request. The FAA finds that accomplishment of the gasket replacement in accordance with the subject service bulletin includes replacing the shear studs. The FAA notes that paragraph (a) of the AD applies to certain airplanes “on which the original gaskets have been replaced with aluminum-nickel-bronze gaskets in accordance with Boeing Service Bulletin 737-32-1253, dated November 7, 1991.” The FAA finds it unnecessary for those airplanes to accomplish the replacement of the shear studs a second time. Therefore, the FAA has deleted paragraph (a)(4) of the proposed AD from the final rule.

Two commenters request that repair of cracks, prior to further flight, as required by paragraphs (a)(1), (b)(1), and (c)(1) of the proposed AD, apply only to those axle flange cracks found progressing inward from the brake attach holes towards the MLG axle. The commenters suggest that operations should be allowed to continue on airplanes with axle flanges that have cracks on up to four bolt holes, as long as they progress towards the outer edge of the flange. One of the commenters states that this type of cracking is sufficiently covered under the current Boeing Overhaul Manual 32-11-11. One commenter further states that if repair is deemed necessary, then the FAA should develop and include an approved repair scheme in the final rule.

The FAA partially concurs with the commenter's request. The FAA does not concur that operations should be allowed to continue on airplanes with axle flanges that have any crack. While outwardly progressing cracks should not affect axle integrity, if such cracks are completely ignored, they could change direction and begin progressing inwards towards the MLG axle. Therefore, the FAA has determined that any subject axle flange that is found to be cracked must be repaired prior to further flight in accordance with a method approved by the FAA.

However, the FAA does concur that accomplishment of the repair in accordance with Boeing Overhaul Manual 32-11-11 is considered acceptable for compliance with the repair requirements of paragraphs (a)(1), (b)(1), and (c)(1) of the AD. Therefore, the FAA has revised the final rule to include as new note to clarify this point. In addition, operators may request approval of an alternative method of compliance if data are provided to substantiate that such a method would provide an acceptable level of safety.

Two commenters request that the term “brake assemblies” in paragraphs (b)(4) and (c)(3) of the proposed AD be changed. One commenter suggests “brake mounting hardware,” and the other commenter suggests “axle flange assemblies” as alternative terms.

One commenter further suggests that the term “torque tube” be changed to “brake torque tube” in paragraphs (a)(3) and (b)(3) of the proposed AD; delete “on the mounting flange” from paragraph (a)(3) of the proposed AD; and change “brake modification” to “brake mounting hardware modification” in the Cost Impact section of the proposed AD.

The FAA concurs with the commenters' requests. The FAA has revised paragraphs (b)(4) and (c)(3) of the final rule to read “brake mounting hardware.” The FAA also has revised the term “torque tube” to “brake torque tube” in the Summary, Supplementary Information, and Cost Impact sections of the AD; and deleted the phrase “of the mounting flange” from paragraph (b)(3) of this AD to be consistent with the changes noted previously.

The FAA inadvertently omitted information from paragraphs (b)(1) and (c)(1) of the proposed rule for HFEC inspections of axle flanges that have not been repaired previously and coated with a nickel sulfamate finish. As stated in paragraph (a)(1) of the proposed rule, an HFEC inspection may only be accomplished if the axle flange has not been repaired previously and coated with a nickel sulfamate finish. However, the FAA inadvertently omitted this clarification in paragraphs (b)(1) and (c)(1) of the proposed AD, which applies to airplanes equipped with certain AlliedSignal brake assemblies on which the original gaskets have not been replaced and on all other affected airplanes, respectively. The clarification regarding HFEC inspections applies to all repaired axle flanges, independent of gasket replacement and independent of whether the airplanes are equipped with certain AlligedSignal brake assemblies. Therefore, the FAA has revised paragraphs (b)(1) and (c)(1) of the final rule to include the clarification that an HFEC inspection is not appropriate for repaired axle flanges.

As published, the NPRM contains a typographical error in paragraph (a)(1). It references Boeing All Operators Telex (AOT) “M-7272-76-1442,” dated “Mach 29, 1996,” as the appropriate source of service information for accomplishment of the magnetic particle or HFEC inspection. However, as indicated throughout the rest of the proposed AD, the correct reference is “Boeing All Operators Telex (AOT) “M-7272-96-1442, dated March 29, 1996.”

After careful review of the available data, including the comments noted above, the FAA has determined that air safety and the public interest require the adoption of the rule with the changes previously described. The FAA has determined that these changes will neither increase the economic burden on any operator nor increase the scope of the AD.

There are approximately 2,015 airplanes of the affected design in the worldwide fleet. The FAA estimates that 893 airplanes of U.S. registry will be affected by this AD.

The FAA estimates that it will take approximately 4 work hours per airplane to accomplish the required inspection, and that the average labor rate is $60 per work hour. Based on these figures, the cost impact of the inspection required by this AD on U.S. operators is estimated to be $214,320, or $240 per airplane.

It will take approximately 32 work hours per airplane at an average labor rate of $60 per work hour should an operator be required to accomplish the required brake mounting hardware modification. Required parts will cost approximately $2,052 per airplane. Based on these figures, the cost impact of the brake mounting hardware modification required by this AD on U.S. operators is estimated to be $3,972 per airplane.

Additionally, the FAA estimates that it will take approximately 5 work hours per airplane to accomplish the required brake torque tube modification, and that the average labor rate is $60 per work hour. The FAA estimates that this action will be required to be accomplished on approximately 400 U.S.-registered airplanes. Based on these figures, the cost impact of this modification required by this AD on U.S. operators is estimated to be $120,000, or $300 per airplane.

The cost impact figures discussed above are based on assumptions that no operator has yet accomplished any of the requirements of this AD action, and that no operator would accomplish those actions in the future if this AD were not adopted.

The regulations adopted 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 final rule does not have sufficient federalism implications to warrant the preparation of a Federalism Assessment.

For the reasons discussed above, I certify that this action (1) is not a “significant regulatory action” under Executive Order 12866; (2) is not a “significant rule” under DOT Regulatory Policies and Procedures (44 FR 11034, February 26, 1979); and (3) will not have a significant economic impact, positive or negative, on a substantial number of small entities under the criteria of the Regulatory Flexibility Act. A final evaluation has been prepared for this action and it is contained in the Rules Docket. A copy of it may be obtained from the Rules Docket at the location provided under the caption ADDRESSES .

On September 2, 1999, the FAA issued Emergency Priority Letter AD 99-19-23 and on September 22, 1999, issued the final rule; request for comments for AD 99-19-23, Amendment 39-11343 (64 FR 53623, October 4, 1999), to require within 10 hours time-in-service (TIS), and thereafter, at intervals not to exceed 10 hours TIS, inspecting a specified engine coupling tube for cracks and replacing any cracked engine coupling tube with an airworthy engine coupling tube. That action was prompted by the discovery, during routine maintenance inspections, of three cracked engine coupling tubes caused by structural resonance. That condition, if not corrected, could result in coupling failure, loss of engine drive, and a subsequent forced landing.

Since the issuance of that AD, the manufacturer has issued Eurocopter Service Bulletin No. 05-001, dated September 23, 1999, which introduces a new alternative check procedure. The Direction Generale de L'Aviation Civile (DGAC), which is the airworthiness authority for France, classified this service bulletin as mandatory and issued AD 1999-349-002(A) R2, dated November 3, 1999, to ensure the continued airworthiness of these helicopters in France. The manufacturer has also issued Eurocopter Service Bulletin No. 63-001, dated November 10, 1999, which recommends installing a reinforced coupling tube and disassembling the engine mount fitting assembly. The manufacturer then issued Eurocopter Service Bulletin No. 01-002, dated December 23, 1999, which declares that coupling tubes, P/N C631A1002101, and certain engine support fitting components are unfit for flight after March 31, 2000. The DGAC classified this service bulletin as mandatory and issued AD 2000-058- 003(A), dated February 9, 2000, to ensure the continued airworthiness of these helicopters in France.

This helicopter model is manufactured in France and is type certificated for operation in the United States under the provision of section 21.29 of the Federal Aviation Regulations (14 CFR 21.29) and the applicable bilateral airworthiness agreement. Pursuant to this bilateral airworthiness agreement, the DGAC has kept the FAA informed of the situation described above. The FAA has examined the findings of the DGAC, reviewed all available information, and determined that AD action is necessary for products of this type design that are certificated for operations in the United States.

Since an unsafe condition has been identified that is likely to exist or develop on other Eurocopter France Model EC 120B helicopters of the same type design, this AD supersedes AD 99-19-23 to require periodic visual and dye-penetrant inspections on each coupling tube, replacement of any cracked coupling tube, and replacement of the coupling tube and certain engine mount fitting components on or before March 31, 2000. The actions must be accomplished in accordance with the service bulletins described previously. The short compliance time involved is required because the previously described critical unsafe condition can adversely affect the structural integrity of the helicopter. Therefore, the actions stated previously must be accomplished at the specified time intervals, and this AD must be issued immediately.

Since a situation exists that requires the immediate adoption of this regulation, it is found that notice and opportunity for prior public comment hereon are impracticable, and that good cause exists for making this amendment effective in less than 30 days.

The FAA estimates that 12 helicopters will be affected by this proposed AD, that it will take approximately 1 work hour to visually inspect each coupling tube and 6.5 work hours to dye-penetrant inspect each coupling tube. Replacing each coupling tube and installing the engine mount fitting components will take approximately 12 work hours per helicopter. The average labor rate is $60. The manufacturer states that they will provide the components necessary for replacing the coupling tubes free of charge. Based on these figures and the manufacturer's representation that it will provide the repair parts free of charge, the total cost impact of the AD on U.S. operators is estimated to be $19,400, assuming 2 visual inspections, 2 dye-penetrant inspections, 1 coupling tube replacement, and 1 installation of the engine support fitting components on each helicopter.

Although this action is in the form of a final rule that involves requirements affecting flight safety and, thus, was not preceded by notice and an opportunity for public comment, comments are invited on this rule. Interested persons are invited to comment on this rule by submitting such written data, views, or arguments as they may desire. Communications should identify the Rules Docket number and be submitted in triplicate to the address specified under the caption ADDRESSES . All communications received on or before the closing date for comments will be considered, and this rule may be amended in light of the comments received. Factual information that supports the commenter's ideas and suggestions is extremely helpful in evaluating the effectiveness of the AD action and determining whether additional rulemaking action would be needed.

Comments are specifically invited on the overall regulatory, economic, environmental, and energy aspects of the rule that might suggest a need to modify the rule. All comments submitted will be available, both before and after the closing date for comments, in the Rules Docket for examination by interested persons. A report that summarizes each FAA-public contact concerned with the substance of this AD will be filed in the Rules Docket.

Commenters wishing the FAA to acknowledge receipt of their comments submitted in response to this rule must submit a self-addressed, stamped postcard on which the following statement is made: “Comments to Docket No. 99-SW-85-09AD.” The postcard will be date stamped and returned to the commenter.

The regulations adopted herein will not have a substantial direct effect on the States, on the relationship between the national Government and the States, or on the distribution of power and responsibilities among the various levels of government. Therefore, it is determined that this final rule does not have federalism implications under Executive Order 13132.

The FAA has determined that this regulation is an emergency regulation that must be issued immediately to correct an unsafe condition in aircraft, and that it is not a “significant regulatory action” under Executive Order 12866. It has been determined further that this action involves an emergency regulation under DOT Regulatory Policies and Procedures (44 FR 11034, February 26, 1979). If it is determined that this emergency regulation otherwise would be significant under DOT Regulatory Policies and Procedures, a final regulatory evaluation will be prepared and placed in the Rules Docket. A copy of it, if filed, may be obtained from the Rules Docket at the location provided under the caption ADDRESSES.

This amendment adopts a new AD applicable to Sikorsky Model S-61 helicopters with pylon, part number, (P/N) S6120-76265-001 or S6120-76266-507, installed. The AD requires inspecting and repairing or, if necessary, replacing certain web fittings and the fitting faying surfaces. The AD also requires making an entry on the log card or equivalent record.

This amendment is prompted by the discovery of extensive cracking in the area of the web fitting. The actions specified in this AD are intended to prevent structural failure of certain web fittings due to stress corrosion and subsequent structural failure of the tailboom. This condition, if not corrected, could result in loss of control of the helicopter.

The FAA has reviewed Sikorsky Aircraft Corporation Alert Service Bulletin No. 61B20-33, dated September 3, 1999 (ASB), which describes procedures for inspecting and repairing or, if necessary, replacing certain web fittings having a crack or corrosion.

Since an unsafe condition has been identified that is likely to exist or develop on other Sikorsky Model S61 helicopters of the same type design, this AD is being issued to prevent structural failure of certain web fittings due to a crack or corrosion. This AD requires inspecting and repairing or replacing the web fittings as necessary. The actions are required to be accomplished in accordance with the ASB described previously. The short compliance time involved is required because the previously described critical unsafe condition can adversely affect the structural integrity of the helicopter. Therefore, inspecting for a crack or corrosion in the web fittings and repairing or replacing, if necessary, an unairworthy web fitting with an airworthy web fitting is required prior to further flight and this AD must be issued immediately.

Since a situation exists that requires the immediate adoption of this regulation, it is found that notice and opportunity for prior public comment hereon are impracticable, and that good cause exists for making this amendment effective in less than 30 days.

The FAA estimates that 125 helicopters will be affected by this AD, that it will take approximately 115 work hours to accomplish the inspection and replacement of parts, and that the average labor rate is $60 per work hour. Required parts will cost approximately $75,000 per helicopter. Based on these figures, the total cost impact of the AD on U.S. operators is estimated to be $10,237,500 if the parts have to be replaced on the entire fleet.

Although this action is in the form of a final rule that involves requirements affecting flight safety and, thus, was not preceded by notice and an opportunity for public comment, comments are invited on this rule. Interested persons are invited to comment on this rule by submitting such written data, views, or arguments as they may desire. Communications should identify the Rules Docket number and be submitted in triplicate to the address specified under the caption ADDRESSES . All communications received on or before the closing date for comments will be considered, and this rule may be amended in light of the comments received. Factual information that supports the commenter's ideas and suggestions is extremely helpful in evaluating the effectiveness of the AD action and determining whether additional rulemaking action would be needed.

Comments are specifically invited on the overall regulatory, economic, environmental, and energy aspects of the rule that might suggest a need to modify the rule. All comments submitted will be available, both before and after the closing date for comments, in the Rules Docket for examination by interested persons. A report that summarizes each FAA-public contact concerned with the substance of this AD will be filed in the Rules Docket.

Commenters wishing the FAA to acknowledge receipt of their comments submitted in response to this rule must submit a self-addressed, stamped postcard on which the following statement is made: “Comments to Docket No. 99-SW-61-AD.” The postcard will be date stamped and returned to the commenter.

The regulations adopted 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, it is determined that this final rule does not have federalism implications under Executive Order 13132.

The FAA has determined that this regulation is an emergency regulation that must be issued immediately to correct an unsafe condition in aircraft, and that it is not a “significant regulatory action” under Executive Order 12866. It has been determined further that this action involves an emergency regulation under DOT Regulatory Policies and Procedures (44 FR 11034, February 26, 1979). If it is determined that this emergency regulation otherwise would be significant under DOT Regulatory Policies and Procedures, a final regulatory evaluation will be prepared and placed in the Rules Docket. A copy of it, if filed, may be obtained from the Rules Docket at the location provided under the caption ADDRESSES .

Although the Export Administration Act (EAA) expired on August 20, 1994, the President invoked the International Emergency Economic Powers Act and continued in effect the EAR, and to the extent permitted by law, the provisions of the EAA, as amended, in Executive Order 12924 of August 19, 1994, as extended by the President's notices of August 15, 1995 (60 FR 42767), August 14, 1996 (61 FR 42527), August 13, 1997 (62 FR 43629), August 13, 1998 (63 FR 44121), and August 13, 1999 (64 FR 44101).

1. This final rule has been determined to be not significant for purposes of E.O. 12866.

2. Notwithstanding any other provision of law, no person is required to, nor shall any person be subject to a penalty for failure to comply with a collection of information, subject to the Paperwork Reduction Act (PRA), unless that collection of information displays a currently valid OMB Control Number. This rule involves a collection of information subject to the Paperwork Reduction Act of 1995 (44 U.S.C. 3501 et seq. ). This collection has been approved by the Office of Management and Budget under control number 0694-0088.

3. This rule does not contain policies with Federalism implications sufficient to warrant preparation of a Federalism assessment under Executive Order 13132.

4. The provisions of the Administrative Procedure Act (5 U.S.C. 553) requiring notice of proposed rulemaking, the opportunity for public participation, and a delay in effective date, are inapplicable because this regulation involves a military and foreign affairs function of the United States (5 U.S.C. 553(a)(1)). Further, no other law requires that a notice of proposed rulemaking and an opportunity for public comment be given for this rule. Accordingly, it is issued in final form.

NP applies to digital computers with a CTP greater than 6,500 Mtops, unless a License Exception is available. See § 742.3(b) of the EAR for information on applicable licensing review policies.

XP applies to digital computers with a CTP greater than 6,500 Mtops, unless a License Exception is available. XP controls vary according to destination and end-user and end-use. See § 742.12 of the EAR for additional information.

License Requirement Notes: See § 743.1 of the EAR for reporting requirements for exports under License Exceptions.

Section 641 of the Tariff Act of 1930, as amended (19 U.S.C. 1641), provides that a person must hold a valid customs broker's license and permit in order to transact customs business on behalf of others, sets forth standards for the issuance of broker's licenses and permits, provides for disciplinary action against brokers in the form of suspension or revocation of such licenses and permits or assessment of monetary penalties, and provides for the assessment of monetary penalties against other persons for conducting customs business without the required broker's license. Section 641 also authorizes the Secretary of the Treasury to prescribe rules and regulations relating to the customs business of brokers as may be necessary to protect importers and the revenue of the United States and to carry out the provisions of section 641.

The regulations issued under the authority of section 641 are set forth in Part 111 of the Customs Regulations (19 CFR part 111). Part 111 includes detailed rules regarding the licensing of, and granting of permits to, persons desiring to transact customs business as customs brokers, including the qualifications required of applicants and the procedures for applying for licenses and permits. Part 111 also prescribes recordkeeping and other duties and responsibilities of brokers, sets forth in detail the grounds and procedures for the revocation or suspension of broker licenses and permits and for the assessment of monetary penalties, and sets forth fee payment requirements applicable to brokers under section 641 and 19 U.S.C. 58c(a)(7).

On December 8, 1993, amendments to certain Customs and navigation laws became effective as the result of enactment of the North American Free Trade Agreement Implementation Act (“the Act”), Public Law 103-182, 107 Stat. 2057. Title VI of the Act set forth Customs Modernization provisions that included, in section 648, certain amendments to section 641 of the Tariff Act of 1930. The substantive amendments to section 641 were as follows:

1. In the definition of “customs business” in section 641(a)(2), a second sentence was added that provides that customs business “also includes the preparation of documents or forms in any format and the electronic transmission of documents, invoices, bills, or parts thereof, intended to be filed with the Customs Service in furtherance of (the customs business activities listed in the first sentence), whether or not signed or filed by the preparer, or activities relating to such preparation, but does not include the mere electronic transmission of data received for transmission to Customs.”

2. Section 641(c)(1) was amended by adding a provision for the issuance of a national permit for the conduct of such customs business as the Secretary of the Treasury prescribes by regulation.

3. A new subsection (c)(4) was added to provide that when electronic filing (including remote location filing) of entry information with Customs at any location is implemented by the Secretary of the Treasury pursuant to the provisions of the National Customs Automation Program (“the NCAP,” which was established by section 631 of the Act and is codified at 19 U.S.C. 1411-1414), a licensed broker may appoint another licensed broker who holds a permit in a Customs district to act on its behalf as its subagent in that district if such activity relates to the filing of information that is permitted to be filed electronically. New subsection (c)(4) also provides that the broker who appoints a subagent remains liable for all obligations arising under bond and for all duties, taxes and fees, and for any other liabilities imposed by law, and cannot delegate such liability to the subagent.

4. Section 641(d)(2)(B), which sets forth the procedures for the suspension or revocation of a broker's license or permit, was amended to increase to 30 days the period within which a hearing is to be held after written notice of a hearing is provided to the broker.

5. Finally, section 641(f) was amended to provide: That the Secretary of the Treasury may not prohibit customs brokers from limiting their liability to other persons in the conduct of customs business; that for purposes of any provision of the Tariff Act of 1930 pertaining to recordkeeping, all data required to be retained by a customs broker may be kept on microfilm, optical disc, magnetic tapes, disks or drums, video files or any other electrically generated medium; and that, pursuant to such regulations as the Secretary of the Treasury shall prescribe, the conversion of data to such storage medium may be accomplished at any time subsequent to the relevant customs transaction and the data may be retained in a centralized basis according to such broker's business system.

On September 27, 1995, Customs published the following documents in the Federal Register as a result of changes in the Customs Headquarters and field organizational structure:

1. T.D. 95-77 (60 FR 50008) amended the Customs Regulations on an interim basis. The amendments included extensive changes to §§ 101.1, 101.3 and 101.4 (19 CFR 101.1, 101.3 and 101.4) to reflect the changes to the basic Customs field organization, involving the elimination of regions and districts for most purposes so that ports of entry would constitute the foundation of the Customs field structure and would be empowered with most of the functions and authority that had been held in the district and regional offices and also involving the designation of some ports as service ports having a full range of cargo processing functions, including inspection, entry, collection, and verification. T.D. 95-77 also included amendments to parts 4, 19, 24, 103, 111, 112, 113, 118, 122, 127, 141, 142, 146 and 174 of the Customs Regulations (19 CFR parts 4, 19, 24, 103, 111, 112, 113, 118, 122, 127, 141, 142, 146 and 174) to reflect these organizational changes. The background portion of T.D. 95-77 pointed out that districts and regions would still exist as geographical descriptions for limited purposes such as for broker permits and certain cartage and lighterage purposes, and T.D. 95-77 therefore set forth certain additional regulatory changes in order to reflect this fact; these changes included the addition of definitions for “district,” “district director” and “region” in § 111.1 (19 CFR 111.1) to enable the current statutory broker licensing and permitting schemes to operate. (The background portion of T.D. 95-77 also noted that the Customs reorganization included the creation of twenty Customs Management Centers and five Strategic Trade Centers for which no regulatory changes were being made because these new organizational entities will not have direct contact with the public.)

2. T.D. 95-78 (60 FR 50020) also amended the Customs Regulations on an interim basis and involved nomenclature changes. The T.D. 95-78 changes were set forth in a table format in numerical order by section affected and in most cases involved the replacement of outdated references with new references to reflect the new Customs Headquarters and field organizational structure. The majority of these changes involved replacing “district” with “port” and replacing “district director” with “port director,” or some variation thereof. The T.D. 95-78 changes involved almost every part within Chapter I of the Customs Regulations (19 CFR Chapter I) and included a large number of changes to part 111.

3. A general notice (60 FR 49971) informed the public of the geographic areas covered for purposes of Customs broker permits and for certain cartage and lighterage purposes where the word “district” appears in the Customs Regulations. The notice was a consequence of the publication of T.D. 95-77 and T.D. 95-78 and, in particular, of the T.D. 95-77 regulatory changes made in order to retain the concept of a “district” for certain Customs broker and cartage and lighterage purposes. The information contained in that notice is republished in a general notice also appearing in this issue of the Federal Register .

Based on a review of the changes to section 641 made by section 648 of the Act, Customs determined that the part 111 regulatory texts should be amended as follows: (1) To reflect the change to the section 641(a)(2) definition of “customs business;” (2) to provide for the issuance of national permits as authorized under amended section 641(c)(1); (3) to reflect the 30-day period within which a suspension or revocation hearing is to be held under amended section 641(d)(2)(B); (4) to implement the amended section 641(f) proscription against prohibiting a broker from limiting its liability to other persons; and (5) to reflect the amended section 641(f) recordkeeping provisions. With regard to the appointment of subagents as authorized under amended section 641(c)(4), Customs determined that it would be premature to amend part 111 at this time; rather, Customs concluded that it would be preferable to address this issue at such time as related NCAP test procedures have been concluded, appropriate programming enhancements have become operational, and appropriate regulatory proposals have been formulated.

Customs also performed a general review of Part 111 to determine whether other regulatory changes should be made. Based on that review, Customs identified a number of other areas where significant improvement could be made to the existing regulatory texts. These improvements included: (1) The elimination of obsolete or otherwise unnecessary provisions; (2) the addition of new provisions where the regulations appeared to be incomplete or were otherwise in need of clarification; (3) further textual changes arising out of the reorganization of Customs that were not fully addressed in the district/port terminology changes made by T.D. 95-77 and T.D. 95-78, including some changes to those previously-published changes and particularly in order to clarify certain procedural aspects of the regulations (for example, where to file permit applications and broker status reports and where to pay permit user fees); and (4) a large number of nonsubstantive, editorial changes to improve the precision and clarity of the regulations, ranging from the reorganization or complete redrafting of existing texts to minor word changes within a particular regulatory provision.

Based on the above considerations, on April 27, 1999, Customs published in the Federal Register (64 FR 22726) a notice of proposed rulemaking setting forth a complete revision of part 111. The notice of proposed rulemaking included a detailed section-by-section discussion of the proposed amendments (other than those of a minor wording or other editorial nature) and provided a 60-day period for the submission of public comments on the proposed changes. On June 29, 1999, a notice was published in the Federal Register (64 FR 34748) to extend the public comment period to July 28, 1999.

A total of 20 commenters responded to the solicitation of comments in the April 27, 1999, notice of proposed rulemaking. A discussion of those comments follows.

Comment:

The following two comments addressed the proposed definition of “customs business”:

1. The first comment stated that the definition of “customs business” should specify which activities constitute the “preparation and activities related to the preparation of documents”.

2. The second comment asserted that the language in § 111.1 expands the definition in a manner not authorized by statute, by inserting the phrase “in furtherance of any other customs business activity ” (emphasis added) in place of the statutory language “in furtherance of such activities ” (emphasis added) in the second sentence of the definition.

Customs response : 1. In determining how to define “customs business” in part 111, Customs concluded that the range of activities which potentially could be categorized as “customs business” was too broad for individual activities to be listed in the regulatory text. Questions on which activities constitute “customs business” will be answered through the prospective ruling and internal advice procedures and through the issuance of informed compliance publications. Consequently, the new definition of “customs business” in part 111 does not include specific exemplars or otherwise go beyond the general approach of the definition in 19 U.S.C. 1641.

2. Customs disagrees with the second comment. The language used in the second sentence of the regulatory text was intended to ensure that those “other” activities refer to the customs business activities listed in the first sentence in the definition, and not to the document preparation and transmission activities mentioned in that second sentence. Given that what is defined is “customs business,” this textual clarification simply avoids the appearance of a tautology or circularity. No expansion of the statutory definition was intended or will result from the proposed regulatory text.

Comment : A commenter suggested that the interchangeable use of the terms “customs broker” and “broker” throughout the regulations is confusing.

Customs response : Both terms are defined for purposes of part 111, and it is clear from those definitions that both have the same meaning. Accordingly, Customs does not believe that any change to the regulatory texts should be made in response to this comment.

Comment : A commenter recommended that the term “port director” be used consistently throughout the regulations, instead of being used interchangeably with the term “director of the port”. This commenter also asked that the terms “port director” and “port” be defined in part 111.

Customs response : As regards the first point, the term “director of the port” is used as a substitute for “port director” purely for reasons of sentence structure, and Customs believes it is clear that the two terms have the same meaning. On the second point, Customs believes that the suggestion is unnecessary, because “port” is already defined for general Customs Regulations purposes in 19 CFR part 101, and the meaning of “port director” can be logically inferred when it appears in conjunction with the word “port'.

Comment : A commenter questioned the need for district permits, now that districts and regions have been eliminated for other Customs purposes and Customs has the ability to monitor a broker's activities through automation.

Customs response : Until such time as Congress repeals the permit system required by 19 U.S.C. 1641(c), brokers must have, as appropriate, either a national permit or a district permit, or both, to transact customs business for others.

Comment : A commenter stated that § 111.2(a)(2)(i) is contrary to law because it precludes persons other than the importer, his or her authorized regular employees or officers, or a customs broker from transacting customs business on behalf of the importer. The commenter asserted that this regulation conflicts with section 484(a)(1) of the Tariff Act of 1930, as amended (19 U.S.C. 1484(a)(1)).

Customs response : Customs disagrees. Section 484(a)(1) authorizes one of the parties qualifying as “importer of record,” either in person or by an agent authorized by the party in writing, to make entry. An “importer of record” can be the owner or purchaser of imported merchandise, or a licensed customs broker appropriately designated by the owner, purchaser, or consignee of the merchandise. (19 U.S.C. 1484(a)(2)(B)). The statute governing brokers further restricts who may make entry. Section 641(b)(1) of the Tariff Act of 1930, as amended (19 U.S.C. 1641(b)(1)) states that “no person may conduct customs business (other than solely on behalf of that person) unless that person holds a valid customs broker's license * * *” The filing of entry documentation qualifies as “customs business” (19 U.S.C. 1641(a)(2)). It follows that the only “agents” eligible to make entry on behalf of the owner or purchaser of imported merchandise are either persons from within the owner or purchaser's own organization, such as an employee or officer, or alternatively, a licensed customs broker.

Comment : A commenter recommended amendment of § 111.2(a)(2)(i) to allow corporations under common ownership or control to be considered a single entity. This would enable companies with subsidiaries and incorporated divisions to centralize their personnel with customs knowledge under one unit and to have that unit provide comprehensive customs services to all subsidiaries and divisions.

Customs response : Parent corporations and their subsidiaries and incorporated divisions are precluded by their separate legal status from providing customs business assistance to each other, unless they have a broker's license and the necessary district permits and powers of attorney. Customs cannot agree to amend § 111.2(a)(2)(i) as suggested, because to do so would have the effect of denying the reality of the separate legal status of these entities. Affected parties should keep in mind, however, that a licensed entity with a national permit may be able to offer comprehensive customs business assistance to related subsidiaries, divisions, and parents, without having to obtain multiple district permits, by taking advantage of the employee implant and post-entry representation exceptions to the district permit rule.

Comment : One commenter questioned the requirement in § 111.2(a)(2)(ii)(A)( 1 ) that employees of brokers who are authorized to sign customs business documents be U.S. residents. This commenter pointed out the inconsistency of imposing a residency requirement on employees of brokers but not on licensed and permitted brokers, who, if they are individuals, may also be signing customs documents.

Customs response : Customs agrees that the restriction lacks logic. Accordingly, the regulatory text in question has been modified in this final rule by removing the residency requirement for employees with signature authority.

Comment : A commenter asked whether § 111.2(a)(2)(iv), which allows carriers without a broker license to make in-bond transportation entries for others, applies to agents of carriers and to all types of in-bond transportation entries.

Customs response : Yes. Agents of carriers may make in-bond transportation entries for all types of in-bond transportation entries.

Comment : A commenter suggested that § 111.2(a)(2)(v) would be an appropriate vehicle for amending the Customs Regulations to clarify that a broker must obtain a power of attorney to file a commercial informal entry for a client. Section 111.2(a)(2)(v) authorizes an unlicensed person to enter a noncommercial shipment for another.

Customs response : Customs believes that the suggested change is not necessary, because § 141.46 of the Customs Regulations already requires a broker to obtain a valid power of attorney before transacting customs business for a client. The fact that an entry is “commercial informal” does not remove the activity from designation as “customs business.”

Comment : A commenter suggested insertion of the word “rule” after “General” in the heading to § 111.2(b)(1), to make it clear that this is the “general rule” to which § 111.2(b)(2) refers.

Customs response : It is the opinion of Customs that the proposed layout and terminology are sufficiently clear in this regard and that the suggested change is therefore unnecessary.

Comment : Several commenters submitted observations on the proposed § 111.2(b)(2)(i) provision regarding an employee working in a client's facility (the “employee implant” rule). This new provision is an exception to the general rule that a broker must have a district permit to conduct customs business for another in that district. It allows a broker to place an employee in the facility of a client for whom the broker is filing entries at one or more other locations covered by a district permit issued to the broker, even though the broker has no district permit in the broker district in which the facility is located. The points made by these commenters were as follows:

1. One commenter objected to the requirement that the broker must be filing entries for the client elsewhere; instead, this commenter suggested that brokers should be allowed to place implants if they are conducting “customs business” for the client elsewhere. The commenter argued that the adoption of this change would eliminate the exclusivity of this particular district permit exception, which currently would only benefit customs brokers who file entries.

2. Another commenter stated that a broker with an implanted employee should not be subject to penalties if errors are discovered in documentation filed by the client in the broker district in which the client's facility is located. The stated rationale for this comment is the fact that broker implants are precluded by the regulatory text from filing the client's entries or other documents with Customs in the broker district servicing that location.

3. A commenter stated that proposed § 111.2(b)(2)(i) should specify the activities that an implanted employee may perform at the client's facility.

4. Another commenter expressed concern that the implant exception to the district permit diminishes the importance of both the permit system and the requirement for responsible supervision and control.

Customs response : 1. Customs agrees with the suggestion of the commenter, and the regulatory text has been modified in this final rule by inserting the words “conducting customs business” in place of “filing entries.” It is noted that proposed § 111.2(b)(2)(i) has been redesignated as § 111.2(b)(2)(i)(A) in this final rule.

2. Customs disagrees with the general principle stated by this commenter that brokers should not be held liable in the described circumstances. The broker employee, by virtue of working with the client, may be involved in customs business activities relating to the preparation of the documents which the client files. The law imposes sanctions on brokers who perform customs business activities improperly. Customs will examine each situation on a case-by-case basis to determine if sanctions are warranted.

3. It was the intent of Customs that the broker implant would confine his customs business activities to those matters that can be accomplished on-site. Since the range of activities which could potentially fall under the definition of “customs business” is so broad, it would more appropriate to specify qualifying activities on a case-by-case basis through the binding rulings process.

4. Customs agrees that the proposed regulation is inconsistent with the statutory requirement that a broker have a national permit or a district permit, or both, to conduct customs business for another: Under the proposed text, a broker could use employee implants to conduct customs business in a broker district without coverage of either a local district permit or a national permit. (The concept of a “regional waiver”, authorized by 19 U.S.C. 1641(c)(2) and reflected in proposed § 111.19(d)(2), would not apply, because a client facility may be located outside of the borders of the “broker region” in which the broker has a district permit.) To ensure consistency with the statutory standard, and in consideration of the fact that an employee implant situation represents an exception to the statutory district permit rule, the regulatory text has been modified in this final rule to require that brokers obtain a national permit before using employee implants (see also the discussion below regarding the reorganization of proposed § 111.2(b)(2)). Finally, in response to the concern expressed by this commenter regarding the potential lack of responsible supervision and control in the implant environment, Customs will continue to expect that any work performed by an employee of a broker will be reviewed by an individually licensed permit qualifier of the broker (see 19 U.S.C. 1641(c)(1)(B) and § 111.19(b)(4) as set forth below), regardless of where the work is performed.

Comment : A commenter objected to the decision reflected in § 111.2(b)(2)(ii) to restrict the district permit waiver to the filing of manual, but not electronic, drawback claims in the designated drawback office located in a district in which the broker does not have a district permit.

Customs response : Customs has reconsidered this matter and agrees with the commenter that brokers should be allowed to file both manual and electronic drawback claims in the drawback office designated by Customs for their broker district, without having to obtain an additional district permit if the designated drawback office is physically located in a broker district in which the broker is not permitted. The first sentence of the regulatory text as proposed has been modified in this final rule to reflect this point. However, the requirement in the second sentence of the proposed text, that a broker must have a national permit to file electronic drawback claims at designated drawback offices covering geographical areas in which the broker does not have a district permit, remains but is set forth in this final rule as § 111.2(b)(2)(i)(B) and with some wording changes to clarify its intended filing context (that is, part 143 electronic filing in a not-designated-drawback office). See also the discussion below regarding the reorganization of proposed § 111.2(b)(2).

Comment : A commenter stated that it would be consistent with the Customs policy of “nationalizing” drawback to allow brokers to file notices of intent to export in districts in which they are not permitted.

Customs response : Customs disagrees. The filing of a notice of intent to export is a customs business activity. As already emphasized in this document, brokers are required to have a permit to transact customs business for others.

Comment : A commenter recommended that § 111.2(b)(2)(ii) be amended to allow brokers to file electronic and manual drawback entries, and to represent their drawback clients before Customs, at all locations without having to have district or national permits until the drawback component of the National Customs Automation Program (“NCAP”) becomes operational.

Customs response : Customs cannot adopt this recommendation, because it runs counter to a broker's statutory obligation to conduct customs business under cover of a permit.

Comment : Customs received a relatively large number of comments on the representation after entry acceptance provision of § 111.2(b)(2)(iv). Before proceeding to a discussion of those comments, it is necessary to clarify that this district permit exception provision was intended to apply to representations made after entry summary acceptance, and the regulatory text in this final rule has been modified to reflect that intent and redesignated as § 111.2(b)(2)(i)(D) (see also the discussion below regarding the reorganization of proposed § 111.2(b)(2)).

The points made by the various commenters on the provision regarding representation after entry acceptance were as follows:

1. One commenter requested clarification of the meaning of the term “representations before Customs.”

2. The same commenter also asked how “representing a client before Customs” differs from the “performing of customs business.” This commenter also expressed confusion over the “different permit requirement(s)” for the performing of customs business and the making of post-entry summary representations.

3. One commenter claimed that the standard set forth in proposed § 111.2(b)(2)(iv), under which a broker must have a national permit in order to represent an importer on post-entry matters in situations where the broker did not file the entry and entry summary and does not have a district permit in the broker district in which the representations are made, is in conflict with a broker's right under § 111.5 to represent a client before government agencies.

4. Two commenters supported the concept of post-entry representation by another broker who had no connection to the filing of the entry, but they questioned the connection between post-entry representation and national permits. These commenters stated that the purpose behind national permits is to allow the implementation of remote location filing and of the other components under NCAP.

5. Another commenter in support of choice in post-entry representation stated that Customs should require brokers to formally establish their authority to represent an importer on any given matter.

6. One commenter objected to the proposed § 111.2(b)(2)(iv) post-entry representation provision, stating that brokers who file an entry for a client should not be in the position of being replaced.

7. A commenter requested that proposed § 111.2(b)(2)(iv) be eliminated, for the reason that a broker should be allowed to represent an importer in a district for which the broker does not have a permit irrespective of whether the broker has been issued a national permit. This commenter stated that many importers will want their “primary broker” to handle post-entry work, even in situations when an outport broker selected by the primary broker filed the entries.

8. Another commenter suggested that since the issuance of national permits will likely be tied to the implementation of the ACE system, the requirement for a national permit for post-entry representations when the broker does not have a district permit should be put on hold or abolished entirely.

9. A commenter stated that proposed § 111.2(b)(2)(iv) should allow the “actual importer” to select a broker to make post-entry representations when another broker served as the importer of record on the entry.

Customs response : 1. Customs intends the term “representations before Customs” to encompass any post-entry-summary activity that arises out of the entry or that concerns the merchandise covered by the entry, for example, responding to requests for information or preparing and filing protests or meeting with Customs officials to explain the client's position.

2. “Representing a client before Customs” and the “performing of customs business” are related in that an importer hires a broker to represent its interests before Customs on matters concerning the transaction of customs business. Thus, the “representations” made by the broker to Customs will involve issues falling within the definition of “customs business.” As regards the second point regarding permit requirements, the general rule is that a broker must have a district permit to conduct customs business in the broker district in which the transaction occurs. Usually this general rule would apply to brokers who perform post-entry-summary customs business activities for clients. However, brokers may conduct post-entry-summary work for clients under a national permit when the provisions of proposed § 111.2(b)(2)(iv) apply, that is, the entry was filed by the owner or purchaser or by another broker, and the owner or purchaser has elected to hire a second broker to handle its post-entry-summary matters.

3. Customs disagrees. Section 111.5 contemplates that the broker making the representations has already been involved in some aspect of the importation or exportation of the merchandise, such as the filing of the consumption or drawback entry, and thus will have the requisite district permit. Proposed § 111.2(b)(2)(iv), on the other hand, allows brokers to represent clients even though they played no part in the original entry. The latter provision was included in the proposed regulations to give importers the choice of engaging one broker to file the entry and entry summary and another to handle any ensuing post-entry matters. It is conceivable that the second broker may be located outside of the broker district in which the entry and entry summary were filed. The proposed § 111.2(b)(2)(iv) exception to the district permit rule simply enables the second broker who has a national permit to represent the client without having to obtain a district permit in the broker district where the entry was filed and where, presumably, the post-entry representations will be made.

This comment has, however, prompted Customs to reevaluate the position reflected in proposed § 111.2(b)(2)(iv) that the post-entry representation provision will only apply if a broker files the entry and entry summary. Upon further reflection, Customs has concluded that the benefits of this provision should also extend to those situations in which the owner or purchaser files the entry and entry summary. Consequently, Customs has amended the regulatory text in this final rule to refer to representation by “a broker” (rather than “another broker”) who did not file the entry, in order to allow post-entry representation by brokers holding a national permit when the entry was filed either by the owner or purchaser or by another broker who was not acting as importer of record. See also the discussion below regarding the reorganization of proposed § 111.2(b)(2).

4. Customs agrees with the assessment that NCAP is a major reason for the establishment of national permits. This opinion is supported by the legislative history discussing national permits. However, it is the position of Customs that their use is by no means restricted to NCAP, and it is noted in this regard that 19 U.S.C. 1641(c)(1)(A) provides for the issuance of national permits to licensed customs brokers “for the conduct of such customs business as the Secretary (of the Treasury) prescribes by regulation.” Clearly, there is agency discretion to determine the purposes for which national permits will be used.

5. The broker would still have to have in his files a valid power of attorney from a client as provided in § 141.46 of the Customs Regulations to establish his authority to represent the client. Customs believes that this requirement (rather than also requiring that the broker establish his authority on a case-by-case basis) is sufficient for purposes of post-entry representations.

6. It is the position of Customs that the selection—or replacement—of a broker by an importer is a matter solely between those two private parties.

7. The observation of this commenter regarding the use of a “primary broker” may be correct, but an importer's preference to have a particular broker perform post-entry functions does not override the statutory requirement that a broker have a district or national permit, or both, to transact customs business. Accordingly, Customs does not agree that this regulatory provision should be eliminated.

8. Customs disagrees. The issuance of national permits is not contingent upon ACE being operational. Further, as already noted above, current law does not allow Customs to abolish or ignore the permit requirement.

9. Customs does not agree with this suggestion. The proposed regulation was specifically drafted in order to, among other things, preclude the application of this district permit exception in cases where a broker is named as the importer of record on the entry. This is because being designated as “importer of record” automatically imposes obligations on the person acting in that capacity. For example, the importer of record is responsible for the payment of estimated duties (and will also be liable for any increased and additional duties if an actual owner's declaration and superseding bond are not filed). Given this assumption of obligations, the importer of record must be allowed to retain the right to represent himself, or to select his own representative, in post-entry matters.

Finally, in the light of the various comments on § 111.2(b) as summarized above and as a consequence of the substantive changes Customs has agreed to make to the regulatory texts as indicated above, Customs has concluded that some restructuring of the regulatory text should also be made. The general rule, that a broker is required to have a separate district permit for each broker district in which the broker conducts customs business for clients, remains as § 111.2(b)(1). However, the “exceptions” to the statutory district permit rule listed in § 111.2(b)(2) as set forth below have been reorganized into two basic groups, the first consisting of a “national permit” exception (which would no longer be limited to NCAP participants and transactions—see also the comment discussion below regarding § 111.19(f)) with subparagraphs covering employee implants, electronic filing of drawback claims outside the designated drawback office, electronic transactions performed under an existing NCAP component, and post-entry-summary representations, and the second consisting of the filing of manual and electronic drawback claims in the designated drawback office.

Comment: One commenter objected to § 111.5(b), which provides that, in order to represent a client before any agency not within the Treasury Department, a broker shall comply with any regulations of such agency governing the appearance of representatives before it. The basis of the objection was that Customs has no statutory authority to regulate a broker's interactions with other government agencies.

Customs response: Customs disagrees with the rationale presented by this commenter. The statutory authority for the regulatory provision in question is section 641(f) of the Tariff Act of 1930, as amended (19 U.S.C. 1641(f)), which gives the Secretary of the Treasury broad authority to prescribe rules and regulations relating to the customs business of customs brokers. Many import transactions involve compliance with the laws and regulations of other government agencies. The involvement of regulations of another agency besides Customs in an import transaction does not take away from the fact that the broker is conducting “customs business.” Since the regulation is directed only to the actions of brokers while conducting customs business, it is entirely consistent with the authority conferred by section 641(f).

Comment: Two commenters requested that the process of qualifying for an individual broker's license be made more stringent, to reflect brokers' status as “experts” under the Customs Modernization Act's reasonable care standards. One method suggested was to require applicants to possess a college degree, preferably in a business discipline; another was to require a person to have a 3-year employment history in the customs brokerage business prior to submitting the application.

Customs response: While Customs agrees with the expressed aim of these comments, the imposition of the suggested additional standards does not appear to be necessary because the same goal can be reached at least as well, if not more effectively, through the present individual written examination process which is specifically designed to test an applicant's knowledge of customs requirements and procedures.

Comment: One commenter objected to the new requirement in § 111.11(a)(4) “to pass the written examination within three years of applying for a broker's license.” A second commenter addressed a related concern, questioning how the new 3-year rule would affect Customs employees who have passed the examination but whose license issuance has been delayed pending their separation from government service.

Customs response: With regard to the first comment, this commenter misinterpreted the new provision. Instead of requiring an applicant to pass the broker's examination within three years of applying for a license, a person will now have three years in which to apply for a license after passing the examination. This arrangement reflects the newly-instituted separation of the examination and license application processes as discussed in the preamble portion of the April 27, 1999, notice of proposed rulemaking. As regards the second comment, that issue is currently under review and will be the subject of a separate policy determination.

Comment: Another commenter stated that the proposed regulation on the basic requirements for a corporate broker license, contained in § 111.11(c), would allow a corporate license to be issued in a district in which the corporation has neither a licensed officer nor a licensed employee resident within the district.

Customs response: Although the comment incorrectly implies that licenses are issued on a district basis (licenses are only issued on a national basis), it has prompted Customs to reevaluate certain aspects of § 111.11. As a result, proposed §§ 111.11(b)(2) and 111.11(c)(3) have been removed because the substance of their intended message—that is, that the holder of a partnership or association or corporate license will establish an office and will employ a licensed individual in the broker district in which the partnership or association or corporation operates as a broker—is adequately addressed in § 111.19 which concerns broker permits. Customs believes that these changes are necessary because it is clear that the proposed §§ 111.11(b)(2) and 111.11(c)(3) relate more logically to the district permit issuance process (which concerns the actual place where a licensee's brokerage activities are carried out) than to the national license issuance process. In addition, §§ 111.11(b) and 111.11(c)(2) have been modified in this final rule to clarify that a partnership, association or corporation must have a licensed member or officer for the partnership, association or corporation to qualify for a broker license. See also the comment discussion below regarding § 111.19 for other related changes made to that section.

Comment: One commenter suggested that notice of the filing of an application for a broker's license should be posted on the Customs Electronic Bulletin Board or in some other electronic fashion in addition to being posted at the customhouse.

Customs response: Customs agrees. Accordingly, § 111.12(b) has been modified in this final rule by the inclusion of a reference to the posting of this information by appropriate electronic means.

Comment: One commenter questioned the legality of the provision in § 111.13(c) which authorizes an individual to take a special written examination for the purpose of continuing the business of a sole proprietorship broker, on the ground that a license issued to an individual is non-transferrable. This same commenter also recommended the inclusion of an appeal process for the denial of a request for a special written examination.

Customs response: Customs agrees with the statement that licenses are non-transferrable. However, Customs notes that the provision in question exists solely to allow the continuation of the business infrastructure, and not of the license, of a sole proprietorship in the event of the proprietor's incapacity or death. The regulation contemplates that the person taking the special examination will place the business in his or her own name upon receipt of the license, or that a corporation, association, or partnership will be formed with the newly-licensed individual serving as the qualifying officer or member. Disruption of jobs and client services will thus be minimized. As regards appeals, Customs does not believe that an appeal procedure would be appropriate in this context. The special examination provisions were put in the regulations as an accommodation to brokers. Allowing a person to take a special examination is purely discretionary on Customs part, as is denying a special examination request and directing the prospective broker to take the next regularly scheduled examination.

Comment: Several commenters requested that Customs establish a maximum length of time after receipt of an application for a license during which background investigations on applicants will be completed.

Customs response: Customs has for some time been aware of concerns over this issue, and Customs is currently exploring ways to expedite the investigative process. However, this issue is an administrative, operational matter that should be addressed outside the Part 111 regulatory framework.

Comment: A commenter proposed that Customs, in its investigation of a license applicant, be limited to reviewing derogatory information that occurred within 15 years of the date of the submission of the license application. The use of older convictions or proof of other unacceptable conduct as grounds for denial of a license when the applicant has had an otherwise clean record since that time would be, in this commenter's view, unfair.

Customs response: Customs does not believe that this suggestion should be adopted because Customs must have the most complete information possible on each applicant.

As a consequence of the comments on proposed § 111.11 as discussed above, Customs also performed a general review of proposed § 111.19 which concerns permits. As a result of that review, some wording changes have been made to the § 111.19 text in this final rule to improve its clarity. These changes involve: (1) In § 111.19(b), removal of the references to an “additional” district in the application information provisions in order to clarify that those requirements apply to all permit applications (including an application for an initial permit); (2) in § 111.19(d)(1), changing the first sentence to refer to an applicant for a “district permit” to make it clear that the obligation of a broker regarding a place of business and regarding the exercise of responsible supervision and control over the customs business conducted in each broker district extends to all broker districts (rather than just to those broker districts in which the broker has received an additional permit); and (3) in the introductory text of § 111.19(f), inclusion of a specific statement to clarify what was only implied in § 111.19(a), that is, that a broker must have a district permit in order to obtain a national permit (see also the comment discussion below regarding § 111.19(f) for other changes to this introductory text).

Comment: Two commenters addressed § 111.19(b)(6), which requires applicants for additional district permits to include the place of storage of brokerage records and the names of the applicant's recordkeeping officer and back-up recordkeeping officer in the application. One of the commenters questioned the need for brokers to have a recordkeeping officer at all, and both commenters challenged the back-up recordkeeping officer requirement. Finally, one of these commenters asked why the designated recordkeeper has to be an officer of the broker.

Customs response: Customs notes that the proposed text in question was not consistent with the cross-referenced substantive regulatory provision (that is, § 111.21 which, in paragraph (c), contains no mention of a recordkeeping officer and back-up recordkeeping officer but instead simply requires the existence of a knowledgeable company employee recordkeeping contact). Accordingly, § 111.19(b)(6) has been modified in this final rule to more accurately reflect the terms of § 111.21(c) in this regard. As regards the need for a recordkeeping contact, this requirement was adopted in connection with the revision of the Customs recordkeeping regulations (see T.D. 98-56 which was published in the Federal Register at 63 FR 32916 on June 16, 1998) and should be retained.

Comment: One commenter raised a specific issue with regard to the national permit requirements of § 111.19(f) and then posed a more general question on the entire permit system, as follows:

1. The commenter first asked why national permits would be issued only to NCAP participants.

2. The commenter then asked why individuals who are licensed brokers and who serve as “licensed consultants” need permits at all.

Customs response: 1. Although Customs originally envisioned that applicants for a national permit would have to have NCAP capabilities and therefore included that requirement in proposed § 111.19(f), as indicated in the comment discussion above regarding proposed § 111.2(b)(2), it has since become apparent that the existence of other customs business activities outside of NCAP, for which national permits would be necessary, renders making the application contingent upon NCAP capability impractical. Accordingly, Customs now believes that an applicant for a national permit should simply have to meet certain basic requirements for the permit. Once the national permit has been secured, the national permit holder might then have to separately qualify for a specific program under which the national permit would be used, such as the filing of entries from a remote location, but that would be a function of the specific program at issue rather that a requirement under § 111.19(f). Accordingly, § 111.19(f) has been modified in this final rule by removing all references to NCAP from the introductory text and by removing paragraph (f)(4).

2. A similar question was raised earlier in this document, to which Customs simply responded that permits are required by law. However, “licensed consultants” will be able to represent clients on post-entry matters under § 111.2(b)(2) as modified in this final rule without having to obtain numerous district permits, provided they have a national permit secured by one district permit.

Comment: One commenter noted that the word “papers” (rather than “records”) is used in the last sentence of § 111.23(a)(2).

Customs response: Customs agrees that “records” is the proper term to be used in this context. Accordingly, the text in question has been modified in this final rule by replacing the words “copies of papers” with “records.”

Comment: Two commenters addressed the provision in § 111.23(b)(1) which states that “the option of maintaining records on a consolidated basis is generally available to brokers who have been granted permits to do business in more than one district.” They stated that the use of the word “generally” undermines brokers” absolute right to consolidate their records.

Customs response: Although in connection with the revision of the Customs recordkeeping regulations (see T.D. 98-56 mentioned above) it was decided to dispense with the requirement that brokers obtain approval from Customs before consolidating records, Customs does not agree with these commenters that the consolidation of broker records is an absolute right. This is because, if the consolidation involves going to an alternative method of storage and any of the records to be consolidated are required to be maintained under 19 U.S.C. 1508, some restrictions on the right to consolidate may apply under 19 CFR 163.5(b). Since use of the word “generally” does not adequately clarify this point, § 111.23(b)(1) has been modified in this final rule by removing “generally” and adding an exception clause regarding the application of a restriction under § 163.5(b).

Comment: A commenter stated that brokers should be allowed to retain records of their customs transactions at sites that are accessible to the broker business locations that created them, instead of within the broker districts that cover the Customs ports to which they relate. This commenter argued that brokers holding permits in multiple broker districts may prepare the customs documents at different locations than the ports or even the districts in which the transactions occur, and that it would serve no beneficial purpose to create duplicate sets of records.

Customs response: Customs believes that the consolidation provisions of § 111.23 as proposed would afford brokers the necessary flexibility to store their records at locations that are most convenient to their business operations. Therefore, no further amendment to § 111.23 appears necessary.

Comment: Two commenters expressed general support for the proposed amendment which allows brokers to disclose client information to sureties. One of these commenters, however, expressed concern over the statement in the preamble portion of the April 27, 1999, document that disclosure to a surety “will not automatically constitute a violation,” because the statement implied that in some instances disclosure might constitute a violation. Both of these commenters also objected to the fact that disclosure would be discretionary on the part of the broker.

Customs response: As regards the first point, use of the word “automatically” was not intended to imply that a broker may be subject to sanction if client records are turned over to a surety. Rather, the intent was simply to point out that, in contrast to the former provision, disclosure would no longer constitute a violation. With regard to the second issue, the Customs position continues to be that, absent a subpoena, the disclosure of client records to a surety is at the option of the broker.

Comment: One commenter urged Customs to publish a “positive statement encouraging brokers to provide information to sureties, and for Customs to develop guidelines indicating the situations in which disclosure is most clearly appropriate.”

Customs response: Customs has no intention of taking the suggested actions at this time. Customs remains of the view that these are matters to be worked out between sureties and brokers.

Comment: A commenter stated that the term “or other duly accredited officers or agents of the United States” should be more clearly defined, or eliminated entirely. This commenter asserted that, in the absence of a subpoena, brokers should only be required to turn over client records to officers under the jurisdiction of the Commissioner of Customs. By way of explanation, the commenter related an incident in which there was confusion when state tax authorities requested importer records from a broker.

Customs response: Customs believes that it is commonly understood that “an officer or agent of the United States” refers to employees of the federal government, and not to state or local authorities. Consequently, no change to the regulatory text is necessary in this regard.

Comment: One commenter stated that part 111 should advise brokers of their right to refuse access to records unless served with an administrative summons. This commenter stated that this right is conferred by the general recordkeeping regulations of 19 CFR part 163.

Customs response: Customs disagrees with the observations of this commenter for two basic reasons. First, part 163 does not give a broker an unconditional right to refuse access to records unless served with an administrative summons. In the case of entry records required to be maintained and made available by a broker under 19 U.S.C. 1508 and 1509 and under part 163, if the broker fails to timely produce any of those records following receipt of a written, oral or electronic demand for the records from Customs pursuant to § 163.6(a), the broker may be subject to monetary penalties as provided in § 163.6(b). In addition, in the case of records of a broker that are not entry records but that are nevertheless subject to the retention and examination requirements of 19 U.S.C. 1508 and 1509 and part 163 (see § 163.6(c)), or if a broker fails to produce demanded entry records but no monetary penalty action is taken under part 163, the broker may be subject to disciplinary action under part 111. In both cases the sanctions that may be applied do not depend on the issuance of a Customs summons which is a separate procedure having its own enforcement mechanism (see §§ 163.7 through 163.10). Second, whereas the provisions of part 163 apply specifically to records (including those of brokers) that relate to activities listed in 19 U.S.C. 1508, there are other records that brokers must maintain outside the part 163 context, that is, records that are unique to the conduct of a brokerage business under 19 U.S.C. 1641 and part 111 (for example, powers of attorney and financial records regarding clients' accounts). This distinction is noted in § 163.2(d), which provides that “(e)ach customs broker must also make and maintain records and make such records available in accordance with part 111 of this chapter,” and in the last sentence of § 111.25 which states that “(r)ecords subject to the requirements of part 163 of this chapter shall be made available to Customs in accordance with the provisions of that part.” Section 111.25, the substance of which relates to records that arise in a part 111 context, provides that the records be made available “upon reasonable notice” but does not require the issuance of a summons, and a failure to make those records available to Customs could result in disciplinary action under part 111.

Comment: The following comments were made regarding the employee information reporting provisions of § 111.28(b):

1. A commenter stated that the lists of current and new employees required by § 111.28(b) should be provided to the port director at the “lead” port, and not at every port within the broker district where the broker does business.

2. Several commenters questioned the requirement in proposed § 111.28(b)(1)(i) for an updated list of current employees to be submitted with the triennial status report. If Customs decides to retain the requirement, it was suggested that the list should only contain information on name, current address, date and place of birth, and social security number. One of these commenters argued that it would be administratively burdensome for brokers to have to keep track of their employees' last prior home addresses and of which employees had been employed for 3 years or less. Since that information would have been reported initially to Customs, it was suggested that it would be unnecessary to do so again.

3. A commenter questioned why updated lists should be sent to the port director of the port where the license was issued, instead of to the ports in which the broker is permitted to conduct customs business.

4. Another commenter observed that § 111.28 makes no provision for the reporting of transferred employees of brokers.

Customs response: 1. Customs disagrees. One of the main purposes behind this requirement is for the local customs officers to be familiar with the local brokerage community. This can best be accomplished by notification at the port at which the employee of the broker will be working.

2. Customs agrees in part with the concerns expressed by these commenters. While it remains the position of Customs that updated employee lists are necessary, upon reconsideration Customs now believes that some of the information proposed to be required in the updated reports is superfluous. Accordingly, the last sentence of § 111.28(b)(1)(i) has been modified in this final rule to list the specific information that must be included in the updated employee list (which does not include the last prior home address or the prior employment information on an employee employed by the broker for less than 3 years).

3. Updated employee lists are sent to the port through which the license was delivered simply because they are submitted with the triennial status report (see also the comment discussion regarding § 111.30(d) below). Customs will then route the lists to the various ports identified in the updated lists as being the ports in which the broker employees are working.

4. While there is no specific reference to the reporting of a transfer of an employee, Customs believes that a broker employee who is transferred from one port to another would have to be reported under § 111.28(b)(1)(i) either upon the opening of a new office or as an inclusion in the update list submitted with the triennial report.

Comment: The following comments were submitted regarding § 111.28(d), which requires the reporting of ownership changes in a broker to Customs:

1. Several commenters asked why brokers are required to send a copy of the notice of change in ownership to the directors of each port through which a permit has been granted. They stated that notice to Customs headquarters should suffice.

2. Another commenter stated that § 111.28(d) would require a broker to notify Customs whenever there is a five percent or greater change in ownership of a broker and the ownership shares are not publicly traded. This commenter then went on to say that it would be very difficult for a broker whose shares are not publicly traded and are owned by another publicly traded firm, to keep track of and report changes of ownership in the parent firm. The commenter asked that an exception to the reporting requirement be made if the owner of the not-publicly-traded shares of the brokerage is a large publicly traded company.

3. Another commenter questioned the statutory authority of Customs to force a broker to divest itself of a new principal who does not pass a background investigation. This commenter also claimed that applying this rule only to non-publicly-traded brokers is discriminatory.

Customs response: 1. Customs disagrees. One of the purposes behind this regulation is to enable Customs to better monitor who participates in the customs brokerage industry. Local Customs officials will in some instances have a greater familiarity than their counterparts at Customs headquarters with the reputations of persons acquiring all or part of an established brokerage firm. Therefore, the notification requirement at both the port and headquarters levels must remain in place.

2. Customs would first point out that this comment appears to read the regulatory text as providing that at least a five percent interest must change hands before the reporting requirement is triggered. This reading of the text is incorrect. The proposed regulation states that a broker shall immediately provide written notice to Customs “(i)f the ownership of a broker changes and ownership shares in the broker are not publicly traded.” It does not attach a percentage threshold below which an ownership change is not required to be reported. The five percent figure comes into play in identifying whether a change of ownership results in the addition of a new principal. This is because a principal is defined as “any person having at least a 5 percent capital, beneficiary or other direct or indirect interest in a broker or in the business of a broker.” The addition of a principal is significant for purposes of § 111.28(d) because Customs reserves the right to conduct background investigations of new principals and to require their removal if the results of the investigation are unsatisfactory. However, the five percent figure does not directly relate to the change of ownership reporting requirement. With respect to the concern expressed that it will be difficult to monitor and report trades in the shares of the parent firm, when such a firm exists, it is Customs intent that only changes in the ownership of the broker, and not of the broker's parent firm, be reported to Customs.

3. The authority to force a broker to divest itself of a new principal who does not pass a background investigation stems from 19 U.S.C. 1641(f), which permits the Secretary of the Treasury to prescribe such rules and regulations relating to the customs business of customs brokers as the Secretary “considers necessary to protect importers and the revenue of the United States * * *.” As regards the issue of discrimination, it is not the intent of Customs to discriminate among classes of brokers because of their business structure. Indeed, Customs wants to reserve the right to investigate all new principals, regardless of how they obtained their ownership interest in the broker. The reporting onus falls on non-publicly-traded companies simply because information about publicly-traded corporations is widely available from other sources. However, Customs agrees that the proposed regulation could be read to restrict investigation and removal to new principals of non-publicly-traded companies. Therefore, § 111.28(d) has been modified in this final rule to ensure that the investigation and removal processes apply equally to new principals of publicly-traded brokers and to new principals of non-publicly-traded brokers.

Comment: A commenter requested that proposed § 111.29(a) be changed to require the broker to remit overdue payments received from a client within 5 working days from the funds being confirmed as paid by the client's bank, instead of within 5 working days from receipt by the broker. This request was made to protect brokers in situations where there are insufficient funds to cover the client's check.

Customs response: Customs does not believe that an amendment to the regulatory text is required to accommodate this commenter's concern because, under a proper interpretation of § 111.29(a), “receipt” by a broker would mean actual receipt of the funds following their clearance from the client's bank.

Comment: One commenter referred to the requirement in § 111.29(b)(2)(i) that importers must be provided with written notification that payment to a broker will not relieve the importer of liability for Customs charges if the charges are not paid by the broker and that the notification must be on, or attached to, any power of attorney provided by the broker to a client for execution on or after September 27, 1982. This commenter stated that the “September 27, 1982” effective date must be removed and replaced with “the effective date of these regulations;” otherwise, any power of attorney issued after September 27, 1982, would be invalid if it did not have the required notification.

Customs response: The commenter's observation about powers of attorney without the notification being invalid is correct. This is because this regulation, and its notification requirement, have been in effect since the effective date of Treasury Decision 82-134 (September 27, 1982). The current revision of part 111 does not nullify the notification requirement that has been in place since that date, nor does it render post-1982 powers of attorney without the requisite notification suddenly valid. Consequently, Customs declines to adopt the change suggested by this commenter.

Comment: One commenter requested clarification of the requirement in proposed § 111.30(b)(2) that an organization report any other change in the legal nature of the organization, particularly as regards the meaning of “change in the legal nature.” Absent clarification, this commenter argued, Customs could be inundated with irrelevant paperwork, and brokers could unwittingly be sanctioned for lack of compliance.

Customs response: Customs agrees that some clarification would be useful. Although it is not possible to come up with an all-inclusive list of potential changes in legal nature, the § 111.30(b)(2) text has been modified in this final rule by the inclusion of several illustrative examples.

Comment: Another commenter referred to the triennial status report of § 111.30(d). This commenter first stated that Customs should devise a specific form to be used as a status report. The commenter then questioned the need in § 111.30(d)(2)(iii) for individual brokers to have to make a statement that they continue to meet the requirements of § 111.11 and § 111.19 and have not engaged in any conduct that could constitute grounds for suspension or revocation.

Customs response: Regarding the first point, Customs already provides a specific form to be used as a status report; Customs sends this form to license holders at their last known address prior to the filing date of the report. With regard to the second issue, Congress has vested Customs with authority to protect importers and the revenue through regulation of customs brokers. Requiring the statement is an exercise of that authority. Customs considers this to be far less onerous on brokers than requiring them to submit to periodic background reinvestigations. Therefore, Customs believes that the requirement is appropriate and should be retained in the regulations.

Comment: One commenter suggested that proposed § 111.30(d)(1) be amended to require submission of the triennial status report to the port director through which the application for the broker's license was made, instead of to the director of the port through which the broker's license was issued. Two reasons were given for this request. First, the actual license, printed on Customs Form 3131, states that licenses are issued in Washington, D.C. Second, there has been confusion when individuals have applied for a license in one port and have received their license at another following a job transfer or move.

Customs response: While a broker's license is always issued out of Customs Headquarters, § 111.15 provides for delivery of the license to the broker through a port director's office (normally the port where the license application was filed and processed). In order to avoid any confusion on the points raised by this commenter, § 111.30(d)(1) has been modified in this final rule to provide that the status report must be addressed to the director of the port “through which the license was delivered to the licensee (see § 111.15).” For purposes of consistency, similar language has been included in § 111.19(a) as set forth below regarding concurrent issuance of an initial district permit.

Comment: The following comments were submitted on § 111.36(a) which concerns obligations of a broker when the broker is employed by an unlicensed person other than the importer:

1. Two commenters stated that the broker should be required to send a copy of the entry to the actual importer in situations where the broker has been hired by another person (the proposed regulatory text requires the broker to send a copy of the entry or of his bill for services rendered but allows the importer to waive transmittal of both in writing). One of these commenters asserted that the importer needs to see the entry to satisfy “reasonable care” requirements. This commenter also urged that the provision be structured to require that the “actual importer” be notified in advance of the entry being filed of who the broker will be.

2. A commenter stated that the issue of fee sharing remains vague. This commenter asked for clarification regarding how this rule would apply to several specific factual situations.

Customs response: 1. Customs disagrees. Giving the broker the option of sending either a copy of his bill for services rendered or a copy of the entry (rather than specifying only a copy of the entry) is intended to strike an appropriate balance between the important principles of disclosure and confidentiality. As regards reasonable care, if the broker is hired by a party other than the actual importer, no obligation to exercise reasonable care devolves upon the actual importer. Moreover, the entry law allows the nominal consignee to appoint a broker, so Customs has no right to interfere in that choice. The primary function of the regulation is to enable the actual importer to have access to information which can be used to protect the actual importer's rights in the importation process, such as by filing a protest.

2. The questions presented by this commenter raise issues that are not proper for resolution in the regulations but rather would be more appropriately addressed through the issuance of either a binding ruling or a response to an internal advice request. Consequently, Customs invites the commenter to write in for a binding ruling or to request internal advice on the matters in question in accordance with the requirements and procedures set forth in 19 CFR part 177.

Upon further internal review of the proposed § 111.36(a) text, Customs has determined that the words “purchased for delivery on an all-free basis (duty and brokerage charges paid by the unlicensed person)” should be replaced by the words “purchased on a delivered duty-paid basis,” to bring the text in line with modern terms of sale phraseology. The text in this final rule has been modified accordingly.

Comment: A commenter questioned the need for the special rules governing a broker's relations with freight forwarders in § 111.36(c). The commenter expressed the view that the prohibition against brokers sharing fees with unlicensed persons should apply to all unlicensed persons, including freight forwarders. This same commenter also stated that the definition of “freight forwarder” contained in § 111.1 is out-of-date and should be changed to take into account new entities such as ocean transport intermediaries, consolidators, and freight brokers.

Customs response: While these comments raise some new and interesting points, these issues are not appropriate for this final rule document but rather should be the subject of separate consideration with a view to possible further regulatory changes at a later date.

Comment: One commenter requested that the term “notoriously disreputable” be more clearly defined in the regulations.

Customs response: Customs is of the view that the term is self-explanatory and therefore requires no further elaboration.

Comment: One commenter objected to the requirement that the permit user fee be collected by Customs on an annual basis, stating that it places an unnecessary administrative burden on brokers and on Customs. A suggested alternative would be to pay the fee in advance every three years, at the same time as the submission of the triennial status report and the status report fee.

Customs response: For two reasons, it would be inappropriate for Customs to adopt this suggestion. First, it would in effect create a triennial fee when the statute (19 U.S.C. 58c(a)(7)) refers to an annual fee and this, in turn, would lead to potential complications in complying with the mandate of the statute (19 U.S.C. 58c(d)(4)(A)) regarding publication of notice of the permit fee 60 days before the due date. Second, even if the permit fee statute were no bar to this suggestion, Customs believes that adoption of this change would create new administrative burdens, such as having to set up a refund system to reimburse brokers who close operations in a particular broker district within the three-year period.

In addition to the changes to the proposed regulatory texts identified and discussed above in connection with the public comments, Customs has included the following regulatory changes in this document:

1. Some minor, editorial wording or punctuation changes have been made to the Part 111 texts to enhance their clarity, readability and application but without the intention of substantively affecting the texts. In addition, throughout the part 111 texts, an attempt has been made, wherever practicable, to replace legalistic wording with simple or more direct phraseology, consistent with prevailing plain English drafting principles. Thus, for example, the word “shall” has been replaced with either “must” or “will” depending on the context, the word “such” has been either removed or replaced, and, except where it forms part of a defined term, the word “thereof” has been removed in favor of repeating the actual words to which it relates.

2. In § 24.1(a)(3)(i) of the Customs Regulations (19 CFR 24.1(a)(3)(i)), the third sentence refers to “* * * a customhouse broker, not licensed in the district (see definition of “district” at § 111.1) where an entry is filed * * *.” This text is outdated in that it uses the old “customhouse” (rather than “customs”) broker terminology and in that it does not reflect the fact that under the present statute and regulations brokers are licensed on a national, rather than district, basis. The regulatory text has been modified as set forth below to address these points.

3. Finally, this document includes an appropriate update of the list of information collection approvals (see the Paperwork Reduction Act portion of this document below) contained in § 178.2 of the Customs Regulations (19 CFR 178.2).

Accordingly, based on the comments received and the analysis of those comments as set forth above, and after further review of this matter, Customs believes that the proposed regulatory amendments should be adopted as a final rule with certain changes as discussed above and as set forth below.

This document does not meet the criteria for a “significant regulatory action” as specified in E.O. 12866.

Pursuant to the provisions of the Regulatory Flexibility Act (5 U.S.C. 601 et seq. ), it is certified that these amendments will not have a significant economic impact on a substantial number of small entities. The regulatory amendments primarily represent a clarification of existing statutory and regulatory requirements. Accordingly, the amendments are not subject to the regulatory analysis or other requirements of 5 U.S.C. 603 and 604.

The collections of information contained in this final rule have been reviewed and approved by the Office of Management and Budget (OMB) in accordance with the Paperwork Reduction Act of 1995 (44 U.S.C. 3507(d)) under control numbers 1515-0076 and 1515-0100. An agency may not conduct or sponsor, and a person is not required to respond to, a collection of information unless it displays a valid control number assigned by OMB.

The collections of information reviewed and approved under control number 1515-0076 are in §§ 111.12, 111.13, 111.17, 111.19, and 111.28. The information to be collected is necessary for the issuance of customs broker licenses and permits and for monitoring the performance of brokers in the conduct of customs business. The collections of information reviewed and approved under control number 1515-0100 are in §§ 111.30, 111.36, 111.60, and 111.76. The information to be collected is necessary for monitoring the performance of brokers in the conduct of customs business and in connection with the institution of disciplinary actions against brokers. The likely respondents to the collections of information in this final rule are individuals, partnerships, associations, and corporations, including individuals and organizations that are licensed brokers.

The estimated average annual burden associated with the collections of information reviewed and approved under control number 1515-0076 is 1 hour per respondent or recordkeeper. The estimated average annual burden associated with the collections of information reviewed and approved under control number 1515-0100 is 1 hour per respondent or recordkeeper. Comments concerning the accuracy of these burden estimates and suggestions for reducing these burdens should be directed to the U.S. Customs Service, Information Services Group, Office of Finance, 1300 Pennsylvania Avenue, NW, Washington, DC 20229, and to OMB, Attention: Desk Officer for the Department of the Treasury, Office of Information and Regulatory Affairs, Washington, DC 20503.

Drafting information. The principal author of this document was Francis W. Foote, Office of Regulations and Rulings, U.S. Customs Service. However, personnel from other offices participated in its development.

Novartis Animal Health US, Inc., P.O. Box 18300, Greensboro, NC 27419-8300, filed NADA 141-163 that provides for veterinary prescription use of MILBEMITE TM Otic Solution (0.1 percent milbemycin oxime) for the treatment of ear mite ( Otodectes cynotis ) infestations in cats and kittens 8 weeks of age and older. Effectiveness is maintained throughout the life cycle of the ear mite. The NADA provides for use of one 0.25-milliliter tube per ear as a single treatment. NADA 141-163 is approved as of February 2, 2000, and the regulations are amended in 21 CFR part 524 by adding new § 524.1446 to reflect the approval. The basis of approval is discussed in the freedom of information summary.

In accordance with the freedom of information provisions of 21 CFR part 20 and 514.11(e)(2)(ii), a summary of safety and effectiveness data and information submitted to support approval of this application may be seen in the Dockets Management Branch (HFA-305), Food and Drug Administration, 5630 Fishers Lane, rm. 1061, Rockville, MD 20852, between 9 a.m. and 4 p.m., Monday through Friday.

Under section 512(c)(2)(F)(ii) of the Federal Food, Drug, and Cosmetic Act (21 U.S.C. 360b(c)(2)(F)(ii)), this approval for non-food-producing animals qualifies for 3 years of marketing exclusivity beginning February 2, 2000, because the application contains substantial evidence of effectiveness of the drug involved or any studies of animal safety required for approval of the application and conducted or sponsored by the applicant.

FDA has determined under 21 CFR 25.33(d)(1) that this action is of a type that does not individually or cumulatively have a significant effect on the human environment. Therefore, neither an environmental assessment nor an environmental impact statement is required.

This rule does not meet the definition of “rule” in 5 U.S.C. 804(3)(A) because it is a rule of “particular applicability.” Therefore, it is not subject to the congressional review requirements in 5 U.S.C. 801-808.

The PBGC's regulation on Allocation of Assets in Single-Employer Plans (29 CFR part 4044) prescribes actuarial assumptions for valuing plan benefits of terminating single-employer plans covered by title IV of the Employee Retirement Income Security Act of 1974.

Among the actuarial assumptions prescribed in part 4044 are interest assumptions. These interest assumptions are intended to reflect current conditions in the financial and annuity markets.

Two sets of interest assumptions are prescribed, one set for the valuation of benefits to be paid as annuities and one set for the valuation of benefits to be paid as lump sums. This amendment adds to appendix B to part 4044 the annuity and lump sum interest assumptions for valuing benefits in plans with valuation dates during April 2000.

For annuity benefits, the interest assumptions will be 7.10 percent for the first 25 years following the valuation date and 6.25 percent thereafter. The annuity interest assumptions are unchanged from those in effect for March 2000.

For benefits to be paid as lump sums, the interest assumptions to be used by the PBGC will be 5.25 percent for the period during which a benefit is in pay status, 4.50 percent during the seven-year period directly preceding the benefit's placement in pay status, and 4.00 percent during any other years preceding the benefit's placement in pay status. The lump sum interest assumptions are unchanged from those in effect for March 2000.

The PBGC has determined that notice and public comment on this amendment are impracticable and contrary to the public interest. This finding is based on the need to determine and issue new interest assumptions promptly so that the assumptions can reflect, as accurately as possible, current market conditions.

Because of the need to provide immediate guidance for the valuation of benefits in plans with valuation dates during April 2000, the PBGC finds that good cause exists for making the assumptions set forth in this amendment effective less than 30 days after publication.

The PBGC has determined that this action is not a “significant regulatory action” under the criteria set forth in Executive Order 12866.

Because no general notice of proposed rulemaking is required for this amendment, the Regulatory Flexibility Act of 1980 does not apply. See 5 U.S.C. 601(2).

1. Background: This interim rule implements section 343 of the FY 2000 Department of Defense Authorization Act, Public Law 106-65 and 10 U.S.C. 2461(g). In February 1997, the Assistant Secretary of the Army (Manpower and Reserve Affairs) included the reporting of contractor manpower as a milestone required to remedy a finding by the Secretary of Defense of material weakness in manpower requirements determination within the Army under the Federal Manager's Financial Integrity Act.

2. From May to December, 1997, the Assistant Secretary of the Army (Manpower and Reserve Affairs) and the Assistant Secretary of the Army (Research, Development, and Acquisition) participated in a joint study to identify and estimate the work-year equivalents performed by contractors providing services to the Department of the Army during fiscal year 1996. The study used existing contract reporting systems, manually accessible data, and some queries to contractors, to identify expenditures on service contracts by Federal Supply Class (FSC) Service code function, organizational name and unit identification code of the Army element contracting for the services, and the appropriations from which the contracted services were funded.

3. The study sampled approximately 12.8 percent of the service contracts awarded in fiscal year 1996 for the purposes of obtaining direct and indirect man-hours, which were used to develop a planning factor for converting contract expenditures for specific groupings of FSC Service code functions into work-year equivalents for those functions. A commitment was made to not release the information provided by contractors for use in any governmental audits of the contractor or any other governmental purpose, since the information was being used solely for the purposes of improving Army manpower requirements planning and the accuracy of the report required by section 2461(g) of title 10. (i.e., the information provided by contractors on a voluntary basis was treated as proprietary information).

4. The contractor manpower equivalent model developed from this study was presented to the Chief of Staff of the Army in July 1998, and a decision was made to use this information in the Total Army Analysis, the Army's planning process for determining and prioritizing its manpower requirements for its force structure and infrastructure. The estimated level of contract support of an Army organization within a function was used as an offset for purposes of allocating in-house resources to meet that organization's requirements. The estimated level of contract support of an Army organization also provided, for planning purposes, a gross estimate of the organization's total capabilities in various war-fighting and non-war-fighting scenarios.

5. The contractor work year equivalents estimated from this model were also used to assist in establishing equitable competition targets among different Army organizations for purposes of implementing Defense Reform Initiative Directive 20, “Review of Inherently Governmental Functions”. Army organizations were credited with the estimated contractor support work-year equivalents for purposes of determining the percentage of the in-house workforce in that organization that would be potentially subject to competition relative to the same function in other Army organizations.

In January 1998 the Army compared Army contractor expenditures reflected in the Defense budget with the level of contract manpower used as the basis for estimating the contractor percentage required by section 2461(g) of title 10. The fiscal year 1997 section 2461(g) report for the Army reported 44,000 contract manpower equivalents (CMEs), as compared with over $21 billion in service contracts awarded by Army contracting offices during the same period. While recognizing that a small percentage of those services may not have been reportable under the CME report, the Army leadership determined to use the more comprehensive and credible Contractor Manpower Equivalent model developed for its Total Army Analysis as a basis for the FY 1998 2461(g) report as an interim measure until a more accurate data collection methodology was established. (As a result, the Army reported 269,000 CMEs in its fiscal year 1998 report, as compared to $24 billion service contract expenditures, thereby reducing the questionable disparity between contract expenditures and CMEs reported in the fiscal year 1997 report.)

6. Implementation: It has been determined, after a review of numerous alternatives and Army lessons-learned, that the only way to collect the required information economically, in a timely way, accurately and credibly, with the least burden on the public and expense to the Government, is to request contemporaneous submission directly from affected contractors. Accordingly, the Army will direct Army contracting officers to include in new solicitations and contracts, and any existing contract bilaterally modified, a requirement that contractors providing services to the Army identify, itemize and report their direct labor hours of support and provide a related composite indirect labor rate so that we might estimate the relevant indirect hours. This submission is expected to be coincident with requests for payment (e.g., contract vouchers, invoices, or requests for progress payments). The information obtained will be transmitted directly to the Office of the Assistant Secretary of the Army (Manpower and Reserve Affairs). For security and convenience, a secure web site will be established for this purpose. This reporting requirement is not viewed as violating the objectives of performance based contracting since the reported labor hours are neither being requested for, nor viewed as a basis for, payment under the contract, but rather, are to be provided to meet Congressional reporting requirements and for internal Governmental manpower planning and management uses only.

7. The reporting requirement has been tailored as narrowly as possible to comply with the law, allow the acquisition of useful data, and minimize any undue workload on respondents. It will be applied prospectively (i.e., to solicitations issued and contracts awarded (or modified, in the case of existing contracts) after the effective date of this interim rule); for reporting contemporaneous with normal billings by the contractor (and consistent with contractor accrual and allocation practices and systems), so as to minimize the impact on contractor operations and administrative costs, and to allow uniform reporting. However respondents under preexisting contracts modified during this period, will be asked to report from October 1, 1999, or the date the contract action began, whichever is later.

8. Reporting will not be required if a contractor does not have an internal system for aggregating billable hours in the direct and indirect pools and does not otherwise have to provide this information to the Government. We believe that a global requirement to identify, collect, validate and report this information after the fact (e.g., at the end of the fiscal year) would necessitate burdensome additional record keeping and administrative efforts by contractors and Government personnel and would significantly degrade the quality and usefulness of the information collected. On the other hand, it is reasonable and not an undue burden on a contractor to provide labor hour information at the time that the contractor has readily available the labor hour records used, as a basis for meeting its payroll or charging the government for its services (or for tax purposes, or cost allocation in accordance with Generally Accepted Accounting Principles and practices).

9. Consistent with the above, the reporting requirement will not be mandated under the following categories of contracts and situations:

a. Contracts awarded under the authority of Part 12 of the Federal Acquisition Regulations (FAR).

b. Contracts valued at $100,000 or below.

c. When a contractor does not have an internal system for aggregating billable hours in the direct and indirect pools, or an internal payroll accounting system, and does not otherwise have to provide this information to the Government.

d. Contracts awarded by the Army contracting office solely as a contracting agent in support of non-Army customer(s). (We are interested in labor hour data in support of Army at this time. (If the name and address of the organization receiving the benefit of the services is an Army organization, then the labor hour data is reportable as an Army requirement, even though the appropriations funding all or part of the requirement are not Army appropriations).

10. The intent of the reporting requirement is to obtain direct and indirect labor hour data for services in support of the Army under contracts not covered by the above exclusions.

11. The labor hour information provided will be protected as company proprietary data (when associated with contract number and contractor name) and will be required at a level of detail not greater than required for the intended use. The reports will include: the Federal Supply Class or Service Code pertinent to the services reported (this can be identified by the respondent from the lists found in the Procurement Coding Manual on the internet at http://web1.whs.osd.mil/peidhome/guide/mn02/mn02.htm ); the complete appropriations data for the appropriations funding the line item(s)/contract/order; the name, complete address and location of the Army contracting office; the name and address of the Army organization receiving the benefit of the services ( i.e., the most proximate Army customer reviewing and receiving work); the time period covered by the report; and the contract/order number and the associated (estimated) value. Information provided should be consistent with the contract terms and requirements and with other data provided to the Government by the reporting contractor ( e.g., vouchers, invoices, requests for progress payment, or other reports to the Army).

This interim rule contains collection of information requirements. Information collection is required to provide documentation of various support services from contractors in compliance with Section 343 of Public Law 106-65 (FY 2000 National Defense Authorization Act), and Section 2461(g) of Title 10 United States Code (10 U.S.C. 2461(g)). The Paperwork Reduction Act of 1995, 44 U.S.C. 3507 (d) and 5 CFR 1320.11, require Federal agencies to submit collections of information contained in rules to the Office of Management and Budget (OMB) for review. To request more details pertaining to the collection of information requirements or to obtain a copy of the associated collection instruments, please write to the above address or call Department of the Army Reports Clearance Officer at (703) 614-0454.

Title: Report required by National Defense Authorization Act for Fiscal Year 2000, Section 343; and to comply fully with the reporting requirements at 10 U.S.C. 2461(g).

Needs and Uses: Section 343 of the FY2000 National Defense Authorization Act; Section 2461(g) of Title 10; and the Total Army Analysis. Army requires contract manpower data to remedy its declared material weakness in manpower requirements determinations and to improve the accuracy of related reports to Congress. Data will be used in the Total Army Analysis force structure planning, Functional Area Assessments, and to support HQDA decision-making. Data will also provide a more complete picture of organizations, functions and capabilities in war fighting and non-war fighting scenarios.

Affected Public: Primarily business or other for profit.

Annual Burden Hours: 33,928.

Number of Respondents: 7,400.

Responses Per Respondent: 55.24.

Average Per Respondent: .083 hours.

Frequency: Contemporaneous with submission of requests for payment (vouchers, invoices or requests for progress payment), usually monthly (dependent on contractor's internal systems for allocating costs and contract requirements).

The rule does not require the preparation of a regulatory flexibility analysis since it is not expected to have a significant economic impact on a substantial number of small entities (i.e. small and small disadvantaged businesses).

The rule does not impose an enforceable duty among small governments (i.e. States and local governments).

Pursuant to the Paperwork Reduction Act of 1995, the reporting provisions of this rule have been approved by the Office of Management and Budget (OMB) and assigned OMB control Number 0702-0112, with an expiration date of August 31, 2000.

In compliance with Section 3506(c)(2)(A) of the Paperwork Reduction Act, the Office of the Assistant Secretary of the Army for Manpower & Reserve Affairs (ASA (M&RA)) announces a public information collection requirement as described in this rule and seeks public comment on the provisions thereof. Comments are invited on (1) whether the collection of information is necessary for the proper performance of the functions of the agency, including whether the information shall have practical utility; (2) the accuracy of the agency's estimates of burden of the information collection; (3) ways to enhance the quality, utility, and clarity of the information to be collected; and, (4) ways to minimize the burden of the information collection on respondents, including the use of automated collection techniques or other forms of information technology.

Comments on these requirements should be submitted to the Office of the Assistant Secretary of the Army for Manpower & Reserve Affairs (ASA (M&RA)), Attention: SAMR-FMMR, Rm. 2A672, Washington, DC 20310-0111. When the Department of the Army promulgates the Final Rule, the Department will also respond to comments or the public regarding the information collection provision requirements of the rule.

This is not a significant regulatory action in that it is not likely to result in a rule that will have an annual effect on the economy of $100 million or more or adversely affect productivity, the environment, public health or safety.

It has been determined that this rule does not have sufficient Federalism implications to warrant the preparation of a Federalism Assessment. The provisions contained in this rule will have little or no direct effect on States or local governments.

Pursuant to 5 U.S.C., Chapter 8, the rule will be forwarded to both Houses of Congress and the GAO in the final rule announcement together with the GAO prescribed special reporting form for this purpose.

In general, Medicare payment for ambulance services provided in accordance with section 1861(s)(7) of the Social Security Act (the Act) may be made only to the ambulance supplier furnishing the ambulance transport. Paramedic intercept services are advanced life support (ALS) services delivered by paramedics who furnish services separately from the agency that furnishes the ambulance transport. Except in the very limited circumstances described below, Medicare program payment for these services may be made only to the ambulance company furnishing the ambulance transport. Paramedic intercept services are most often furnished for an emergency ambulance transport in which a local volunteer ambulance that can furnish only basic life support (BLS) services is dispatched to transport a beneficiary. If the beneficiary needs ALS services (such as EKG monitoring, chest decompression, or IV therapy), another agency (typically a hospital or proprietary emergency medical service) dispatches a paramedic to meet the BLS ambulance at the scene or enroute to the hospital. The ALS paramedics then furnish the ALS services to the beneficiary. This tiered approach to life-saving may be cost effective in some areas because most volunteer ambulances do not charge for their services, and one paramedic service can cover many communities.

Section 4531(c) of the Balanced Budget Act of 1997 (BBA) provided that the Secretary could include limited coverage of these intercept services furnished in a rural area: that is, payment may be made directly to the agency furnishing the paramedic service in a rural area. The services, however, are covered only if they are furnished under contract with one or more volunteer ambulance services and they are medically necessary based on the condition of the beneficiary receiving the ambulance service. In addition, by law, the volunteer ambulance service involved must meet all of the following requirements:

• Furnish only BLS services at the time of the intercept.

• Be prohibited by State law from billing for any service.

Finally, the entity furnishing the ALS paramedic intercept service must meet the following requirements:

• Be certified as qualified to furnish the ambulance services under the Medicare program (including compliance with State laws and regulations).

• Bill all recipients who receive ALS paramedic intercept services from the entity, regardless of whether or not those recipients are Medicare beneficiaries.

On January 25, 1999, we published a final rule with comment period in the Federal Register (64 FR 3637), which, in part, revised 42 CFR 410.40 to implement section 4531(c) of the BBA. In implementing the law, we defined “rural area” in the same way it is defined for purposes of the Medicare hospital inpatient prospective payment system under section 1886(d)(2)(D) of the Act and in regulations at § 412.62(f). That is, a rural area is any area outside of a Metropolitan Statistical Area (MSA) or New England County Metropolitan Area as defined by the Office of Management and Budget.

Although it provided the Secretary with the authority to cover paramedic intercept services under certain conditions, section 4531(c) of the BBA did not specify what the payment should be for those services. After considering several options, we decided to pay for paramedic intercept services based on the difference between the ALS payment rate and the BLS payment rate for each carrier's geographic pricing locality. We believed that this option balanced considerations for access to care and consistency with current ambulance payment policy. We would be providing the intercept company with a reasonable payment while not providing the same amount of payment that we generally would provide to an ambulance company that furnishes both the transport and the paramedic service. We reasoned that if we paid the difference between the ALS and BLS rates to the intercept company, we would be acknowledging the BLS rate that would have been paid to the volunteer company had it been permitted by the State to bill the program for the transport.

Section 412 of the Medicare, Medicaid, and State Children's Health Insurance Programs Balanced Budget Refinement Act of 1999 (BBRA) (Pub. L. 106-113), enacted on November 29, 1999, amends section 4531(c) of the BBA. Section 412 states “* * * an area shall be treated as a rural area if it is designated as a rural area by any law or regulation of the State or if it is located in a rural census tract of a metropolitan statistical area (as determined under the most recent Goldsmith Modification, originally published in the Federal Register on February 27, 1992, (57 FR 6725)).” (The Goldsmith Modification is a methodology to identify small towns and rural areas within large metropolitan counties that are isolated from central areas by distance or other features. This Modification has been useful for expanding the eligibility for Federal programs that assist rural populations to include isolated rural populations of large metropolitan counties).

In response to the final rule with comment period published on January 25, 1999, we received approximately 175 comments from ambulance suppliers and their employees, Medicare beneficiaries, and two members of the Congress. The majority of the comments were identical or nearly identical. The comments and responses are set forth below:

Comment: Commenters stated that using a rural definition based on MSAs and non-MSAs was not appropriate in the context of ambulance services. The commenters pointed out that, in large urban counties, many areas are very rural in nature. Because of the distance between these “rural” areas in an MSA and the nearest appropriate hospital, paramedic intercept services delivered in these rural areas are just as worthy of being recognized as those delivered in a rural county.

The commenters suggested alternatives that included: (1) the area where services are furnished meets either the non-MSA criterion or is located in a rural area as defined by the Census Bureau; (2) setting some other population density criterion; or (3) considering driving distance.

Some commenters stated that the paramedic intercept provision should not be limited to rural areas because this service is needed everywhere, not just in rural areas.

Response: Section 4531(c) of the BBA, as amended by section 412 of the BBRA, specifically limits coverage of this service to rural areas; therefore, we cannot extend the paramedic intercept provision to all areas. In accordance with the provisions of section 412 of the BBRA, we are revising the definition of “rural area” in § 410.40(c)(1). For this purpose, an area will be treated as a rural area if it is designated as a rural area by any law or regulation of the State or if it is located in a rural census tract of a metropolitan statistical area (as determined under the most recent Goldsmith Modification, originally published in the Federal Register on February 27, 1992 (57 FR 6725)).

Comment: Some commenters inquired whether the rural criteria would be applied to the location from which the beneficiary is transported (that is, pick-up point) or the location of the garage for the intercept services vehicle. One commenter suggested that coverage be limited to a service furnished in whole or in part in a rural area regardless of the location of the garage housing the vehicle used by the paramedic.

Response: We are applying the rural area criteria to the location from which the beneficiary is transported, that is, the location of the beneficiary at the time the ambulance or the paramedic intercept encounters the beneficiary, whichever occurs first.

Comment : Some commenters stated that the paramedic intercept provision in the BBA is not fair because it requires that the volunteer BLS ambulance be prohibited by State law from billing anyone for its services and that the only State with such a law is New York. Therefore, no suppliers in States other than New York can qualify for this benefit. The commenters stated that we should implement this provision everywhere in the country equitably or not implement it at all.

Response : The statute clearly defines the conditions under which Medicare may cover paramedic intercept services. Section 4531(c) of the BBA states that the volunteer ambulance service involved in the intercept service must be prohibited by State law from billing for any services. Therefore, we have no discretion to broaden its application. The Congress gave the Secretary authority to implement the paramedic intercept provision only under the conditions set forth in the law. Thus, we believe our implementation of the provision is appropriate.

Comment : We received numerous comments on the payment rate that we established for paramedic intercept services. Some commenters believed that we should pay the cost or reasonable charge of the service. Others suggested we pay the full ALS rate. In addition, commenters suggested we pay for paramedic intercept mileage. Finally, one commenter believed that we should pay on a State-wide basis rather than on an individual carrier locality basis.

Response : Based on the comments, we are revising the payment methodology for paramedic intercept services (§ 405.502). Rather than basing the payment on the ALS rate minus the BLS rate, we will use the ALS rate minus 40 percent of the BLS rate. In the case of ALS intercept services, a full ALS service is being furnished except that the BLS ambulance cannot charge for the portion of the service it furnishes. In particular, the paramedic drives a “flycar” to the scene where the BLS crew is waiting with the beneficiary. (A “flycar” is the special vehicle that a paramedic drives to the BLS ambulance and that contains necessary medical supplies with which a BLS ambulance is not equipped.) The paramedic transfers supplies and equipment from the flycar to the BLS ambulance and treats the beneficiary while the BLS ambulance crew drives the ambulance to the hospital. Because the BLS ambulance service is volunteer and cannot charge, we need to estimate the percentage of the service that is nonreimbursable. We estimate that the amount of the service that is furnished by the BLS volunteer ambulance is the nonlabor portion of the BLS ambulance service, which is about 40 percent of the total BLS payment allowance. The difference between the ALS payment rate and the BLS payment rate that we are paying is our estimate of the reimbursable costs of the equipment and supplies furnished by the paramedic as well as the labor portion that we are attributing to the paramedic intercept services. In addition, for administrative simplicity and equity of payment, we are establishing the rate on a carrier-wide basis, by using the median allowance from all localities within the individual carrier's jurisdiction. We are not paying mileage for the paramedic intercept because the intercept vehicle is not used to transport the beneficiary and Medicare covers only the mileage incurred to transport the beneficiary.

Comment : A commenter stated that the statute requires mandatory assignment of benefits for ambulance services effective January 1, 2000. This mandatory assignment would not allow the ALS intercept provider to recoup its cost from the beneficiary if the payment allowance remained less than the cost of furnishing the service.

Response : The mandatory assignment provision in the statute coincides with implementation of the ambulance fee schedule, which is currently being developed by a negotiated rulemaking committee. Mandatory assignment will not be implemented until payment under the fee schedule is implemented.

We note that, while this final rule sets forth a payment rate for paramedic intercept services in accordance with the authority in section 4531(c) of the BBA, section 4531(b) of the BBA requires the establishment of a fee schedule for Medicare ambulance services by negotiated rulemaking. This negotiated rulemaking process is currently underway and may result in a different payment rate from that provided in this final rule. We will set forth any new payment rate in the proposed rule that includes other provisions for the ambulance fee schedule. The subsequent final rule would supercede the provisions of this paramedic intercept final rule.

Finally, this rule affects only those paramedic intercept services that may be billed, and paid, by Medicare directly to the intercept provider. This rule will not affect any private arrangements between any BLS ambulance suppliers and providers of ALS services.

Currently, under § 410.40(c), Medicare covers paramedic intercept services if they are furnished in a rural area as defined in § 412.62(f). We are revising § 410.40(c) to state that to qualify for Medicare coverage, paramedic intercept services must be furnished in an area that is designated as a rural area by any law or regulation of the State or that is located in a rural census tract of a metropolitan statistical area (as determined under the most recent Goldsmith Modification, originally published in the Federal Register on Friday, February 27, 1992 (57 FR 6725)).

Additionally, we are revising the methodology for determining the payment rate. We are establishing the payment allowance on a carrier-wide basis, by using the median allowance from all localities within the individual carrier's jurisdiction. We chose the median because it is the most accurate statistical measure of central tendency of an array of numbers. We are also changing the formula. Rather than using the ALS rate minus the BLS rate, we are using the ALS rate minus 40 percent of the BLS rate. We will base Medicare payment for paramedic intercept services on the lower of the actual charge or the ALS rate minus 40 percent of the BLS rate. We are adding these payment rules as new paragraph (i) in § 405.502.

This document does not impose information collection and recordkeeping requirements. Consequently, it need not be reviewed by the Office of Management and Budget under the authority of the Paperwork Reduction Act of 1995.

Consistent with the Regulatory Flexibility Act (RFA) (5 U.S.C. 601 through 612), we prepare a regulatory flexibility analysis unless the Secretary certifies that a rule will not have a significant economic impact on a substantial number of small entities. For purposes of the RFA, all suppliers of ambulance services are considered to be small entities. Individuals, carriers, and States are not considered to be “small entities.”

In addition, section 1102(b) of the Act requires the Secretary to prepare a regulatory impact analysis if a rule may have a significant impact on the operations of a substantial number of small rural hospitals. This analysis must conform to the provisions of section 604 of the RFA. For purposes of section 1102(b) of the Act, we define a small rural hospital as a hospital that is located outside of a Metropolitan Statistical Area and has fewer than 50 beds.

As illustrated below, the impact of this regulation does not meet the criteria under Executive Order 12866 to require a regulatory impact analysis; however, the following information, together with information provided elsewhere in this preamble, constitutes a voluntary analysis and meets the requirements of the RFA.

Effective with services furnished on February 24, 1999, Medicare began paying for paramedic intercept services that meet the conditions for coverage. When these services have been furnished to a Medicare beneficiary, the ALS paramedic intercept company has had an incentive to bill the beneficiary for the difference between its full charge for the intercept service and 80 percent of the Medicare payment rate if it believed that the Medicare payment rate was inadequate to cover the cost of the service. Now that the payment rate will be increased, we anticipate that the paramedic intercept suppliers will accept Medicare's rate and bill the beneficiary for only the applicable deductible and coinsurance amounts. This will benefit both the company and the beneficiary.

As we stated in the January 25, 1999 final rule with comment period, we believe that the only State in which the conditions described in section 4531(c) of the BBA exist is New York. After consultations with the ambulance industry in New York and examination of the Medicare program data, we estimate the volume of services that will be covered under this provision in a year will be between 2,000 and 4,000. The current payment rates for these services range from about $88 to about $162 depending upon the location of the service. A payment allowance of approximately $262 per service (the difference between the carrier-wide payment allowance for ALS and 40 percent of the carrier-wide allowance for BLS) in western New York State, and approximately $223 for the rest of the State yields a negligible cost compared to the current rates paid for these services. For paramedic intercept services that meet the conditions for Medicare coverage, we estimate the total cost for the first year of implementation of this rule to be between $200,000 to $400,000. Because the Medicare Part B coinsurance and deductible provisions apply, the program portion of this cost is estimated to be between $160,000 and $320,000. The remainder of the cost will be the responsibility of beneficiaries.

Section 202 of the Unfunded Mandates Reform Act of 1995 also requires that agencies assess anticipated costs and benefits before issuing any final rule that may result in an expenditure in any one year by State, local or tribal government, in the aggregate, or by the private sector of $100 million. This final rule will not have an effect on the governments mentioned, and private sector costs will be less than the $100 million threshold.

In accordance with the provisions of Executive Order 12866, this regulation was reviewed by the Office of Management and Budget.

We have reviewed this final rule under the threshold criteria of Executive Order 13132, Federalism. We have determined that it does not significantly affect the rights, roles, and responsibilities of States.