This final rule is issued under Marketing Agreement and Order No. 989 (7 CFR part 989), both as amended, regulating the handling of raisins produced from grapes grown in California, hereinafter referred to as the “order.” The order is effective under the Agricultural Marketing Agreement Act of 1937, as amended (7 U.S.C. 601-674), hereinafter referred to as the “Act.”

Marketing orders are rules which are authorized under the Agricultural Marketing Agreement Act of 1937. They are based on evidence developed at a formal hearing. Marketing orders help fruit and vegetable growers work together to solve marketing problems that cannot be solved individually. Industries voluntarily implement these programs and choose to have Federal oversight of certain aspects of their operations.

The California raisin industry has operated under a marketing order since 1949. The order authorizes implementation of volume control for the various varietal types grown. Preliminary and interim free and reserve percentages are computed and announced by the Committee and final percentages are established by the Department of Agriculture. When volume controls are implemented for a particular varietal type, a portion of the crop can be sold by handlers to any market (free tonnage), and the remaining portion (reserve tonnage) is required to be held by handlers for the account of the Committee. Reserve raisins are disposed of through programs authorized under the marketing order. Under the order, reporting and recordkeeping requirements for gathering statistical information and supporting volume control activities are implemented. Quality controls, and marketing research and development, and promotional activities also are implemented in the interest of growers, handlers, and consumers.

Desirable carryout is the amount of raisins from one season needed during the first part of the next season for market needs, and is one of the factors used in computing yearly trade demand. When computed trade demand is less than the quantity of raisins produced, volume controls are implemented under the order.

The Committee recommended the increase in the desirable carryout to make more raisins available to handlers for immediate use early in the season when supplies are often tight, and to bring desirable carryout more in line with actual carryout inventory and early season shipments. The increase is expected to more accurately reflect the marketing conditions currently facing the industry.

Growers and handlers of raisins produced in California will be affected by this action. Volume controls implemented under the order are designed to promote orderly marketing conditions, stabilize prices and supplies, and improve grower returns.

One comment was received. The commenter supports the increase in desirable carryout, but expressed concern over the impact of the change on the Committee's program to promote California raisin sales in foreign markets. The increase in desirable carryout would make more raisins available to handlers as free tonnage, and might reduce the amount of reserve raisins purchased to meet their market needs. However, Committee sponsored promotional activities are not expected to be negatively impacted by the amount of the desirable carryout, because those activities are planned and implemented later in the season when carrying inventories and size of the new crop are known. Additionally, those promotional activities are planned by the Committee with the most recent information available, and approved by the Department.

This action will be effective August 1, 2000, the beginning of the 2000/2001 crop year, and the increased desirable carryout will be used to compute trade demand for that year.

The Department of Agriculture (Department) is issuing this rule in conformance with Executive Order 12866.

This final rule has been reviewed under Executive Order 12988, Civil Justice Reform. This rule is not intended to have retroactive effect. This rule will not preempt any State or local laws, regulations, or policies, unless they present an irreconcilable conflict with this rule.

The Act provides that administrative proceedings must be exhausted before parties may file suit in court. Under section 608c(15)(A) of the Act, any handler subject to an order may file with the Secretary a petition stating that the order, any provision of the order, or any obligation imposed in connection with the order is not in accordance with law and request a modification of the order or to be exempted therefrom. A handler is afforded the opportunity for a hearing on the petition. After the hearing, the Secretary would rule on the petition. The Act provides that the district court of the United States in any district in which the handler is an inhabitant, or has his or her principal place of business, has jurisdiction in equity to review the Secretary's ruling on the petition, provided an action is filed not later than 20 days after the date of the entry of the ruling.

This final rule increases the desirable carryout used to compute the yearly trade demand for raisins regulated under the order. Trade demand is computed based on a formula specified in the order, and is used to determine volume regulation percentages for each crop year, if necessary. Desirable carryout, one factor in this formula, is the amount of tonnage from one crop year needed during the first part of the next crop year to meet market needs, before new crop raisins are available. This rule increases the desirable carryout from 2 1/2 months (August, September, and one-half of October) of prior year's shipments to a rolling average of 3 months (August, September, and October) of shipments over the past 5 years, dropping the high and low figures. This action was recommended by the Committee at a meeting on November 10, 1999.

The order provides authority for volume regulation designed to promote orderly marketing conditions, stabilize prices and supplies, and improve producer returns. When volume regulation is in effect, a certain percentage of the California raisin crop may be sold by handlers to any market (free tonnage) while the remaining percentage must be held by handlers in a reserve pool (reserve) for the account of the Committee. Reserve raisins are disposed of through certain programs authorized under the order. For instance, reserve raisins may be sold by the Committee to handlers for free use or to replace part of the free tonnage raisins they exported; used in diversion programs; carried over as a hedge against a short crop the following year; or disposed of in other outlets not competitive with those for free tonnage raisins, such as government purchase, distilleries, or animal feed. Funds generated from sales of reserve raisins are also used to support handler sales to export markets. Net proceeds from sales of reserve raisins are ultimately distributed to the reserve pool's equity holders, primarily producers.

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

At one time, § 989.54(a) also specified actual tonnages for desirable carryout for each varietal type regulated. However, in 1989, these tonnages were suspended from the order, and flexibility was added so that the Committee could adopt a formula for desirable carryout in the order's rules and regulations. The formula has allowed the Committee to periodically adjust the desirable carryout to better reflect changes in each season's marketing conditions.

The formula for desirable carryout has been specified since 1989 in § 989.154. Initially, the formula was established so that desirable carryout was based on shipments for the first 3 months of the prior crop year—August, September, and October (the crop year runs from August 1 through July 31). This amount was gradually reduced to 2 1/2 months in 1991-92, 2 1/4 months in 1995-96, and to 2 months in 1996-97. The Committee reduced the desirable carryout between 1991-1997 because it believed that an excessive supply of raisins was available early in a new crop year creating unstable market conditions.

In 1998, the Committee determined that, because of the reduced desirable carryout, not enough raisins were being made available for growth. Thus, the desirable carryout was increased to 2 1/2 months of prior year's shipments to allow for a higher trade demand figure and, thus, a higher free tonnage percentage, making more raisins available to handlers, especially for immediate use early in the season when supplies are often tight. This action also allowed desirable carryout to move towards what handlers actually hold in inventory at the end of a crop year, or about 100,000 tons.

The Committee would like to continue to bring the desirable carryout in line with handlers' actual inventory at the end of a crop year. Desirable carryout has averaged 63,364 tons at 2 months, 71,203 tons at 2 1/4 months, and 80,248 tons at 2 1/2 months. For the past 5 years, an average of 102,452 tons has been held in inventory by all handlers at the end of a crop year. Increasing the desirable carryout will also bring this factor more in line with early-season shipments while providing some raisins for market expansion. For the past 5 years, an average of 94,147 tons of raisins has been shipped during the first 3 months of the crop year (August, September, and October).

Thus, the Committee met on November 10, 1999, and recommended increasing the desirable carryout to a rolling average of 3 months of shipments (August, September, and October) over the past 5 years, dropping the high and low figures. If this formula would have been used for the current crop year (1999-2000), the desirable carryout would have equaled 94,083 tons as compared to the current 73,809 tons. The 94,083-ton figure would have thus been much closer to the actual inventory of 102,452 tons, and closer to the 5-year average level of shipments for August, September, and October of 94,147 tons. The following table illustrates this computation.

Finally, as with the 1998-99 increase in the formula, this action will result in a higher free tonnage percentage which will make more raisins available to handlers, especially for immediate use early in the season when supplies can be tight. A higher free tonnage percentage may also improve early season returns to producers (producers are paid an established field price for their free tonnage).

Much of the discussion at the Committee's meeting concerned the desirable carryout of Natural (sun-dried) Seedless raisins (Naturals). Naturals are the major commercial varietal type of raisin produced in California. With the exception of the 1998-99 crop year, volume regulation has been implemented for Naturals for the past several seasons. However, the Committee also believes that the increase in desirable carryout should apply to the other varietal types of raisins covered under the order.

The Committee's vote on this action was 24 in favor and 13 opposed. The no votes were primarily from members who favored a higher desirable carryout. After much deliberation, the majority of Committee members supported basing desirable carryout on a rolling average of 3 months of shipments over the past 5 years, dropping the high and low figures. Thus, paragraph (a) in § 989.154 is modified accordingly.

Pursuant to requirements set forth in the Regulatory Flexibility Act (RFA), the Agricultural Marketing Service (AMS) has considered the economic impact of this action on small entities. Accordingly, AMS has prepared this final regulatory flexibility analysis.

The purpose of the RFA is to fit regulatory actions to the scale of business subject to such actions in order that small businesses will not be unduly or disproportionately burdened. Marketing orders issued pursuant to the Act, and rules issued thereunder, are unique in that they are brought about through group action of essentially small entities acting on their own behalf. Thus, both statutes have small entity orientation and compatibility.

There are approximately 20 handlers of California raisins who are subject to regulation under the order and approximately 4,500 raisin producers in the regulated area. Small agricultural service firms have been defined by the Small Business Administration (13 CFR 121.201) as those having annual receipts of less than $5,000,000, and small agricultural producers are defined as those having annual receipts of less than $500,000. Thirteen of the 20 handlers subject to regulation have annual sales estimated to be at least $5,000,000, and the remaining 7 handlers have sales less than $5,000,000, excluding receipts from any other sources. No more than 7 handlers, and a majority of producers, of California raisins may be classified as small entities.

This final rule increases the desirable carryout used to compute the yearly trade demand for raisins regulated under the order. Trade demand is computed based on a formula specified under § 989.54(a) of the order. It is also part of another formula used to determine volume regulation percentages for each crop year, if necessary. Desirable carryout, one factor in this formula, is the amount of tonnage from one crop year needed during the first part of the succeeding crop year to meet market needs, before new crop raisins are available for shipment. This rule will increase the desirable carryout specified in paragraph (a) of § 989.154 from 2 1/2 months (August, September, and one-half of October) of prior year's shipments to a rolling average of 3 months (August, September, and October) of shipments for the past 5 years, dropping the high and low figures.

The new desirable carryout level will apply uniformly to all handlers in the industry, whether small or large, with no known additional costs incurred by small handlers. As previously mentioned, increasing the desirable carryout will increase the trade demand and free tonnage percentage, making more raisins available to handlers early in the season. A higher free tonnage percentage may also improve early season returns to producers (producers are paid an established field price for their free tonnage).

The Committee considered a number of alternatives to the 3-month rolling shipment average in the desirable carryout level. The Committee has an appointed subcommittee which periodically holds public meetings to discuss changes to the order and other issues. The subcommittee met on November 9, 1999, and discussed desirable carryout. All of the subcommittee members agreed with increasing the desirable carryout and considered a number of alternatives. Options considered included: Basing desirable carryout on a 5-year rolling average of actual carryout inventory; an average of 3 months of prior year's shipments; or a rolling average of 3 months of shipments over the past 5 years, dropping the high and low figures. The subcommittee ultimately recommended to the full Committee that desirable carryout be based on a 5-year rolling average of actual carryout inventory.

At the Committee meeting on November 10, 1999, these options were again reviewed. After much discussion, the majority of Committee members agreed that desirable carryout should be based on shipments, not actual carryout inventory. Most Committee members concurred that basing desirable carryout on actual carryout inventory could create problems if handlers carried out large inventories. In addition, most members believed that shipments are driven by market demand, and should thus continue to be the basis for desirable carryout. The Committee ultimately recommended that the desirable carryout be based on a rolling average of 3 months of shipments for the past 5 years, dropping the high and low figures.

This rule imposes no additional reporting or recordkeeping requirements on either small or large raisin handlers. As with all Federal marketing order programs, reports and forms are periodically reviewed to reduce information requirements and duplication by industry and public sector agencies. Finally, the Department has not identified any relevant Federal rules that duplicate, overlap or conflict with this rule.

In addition, the Committee's subcommittee meeting on November 9, 1999, and the Committee meeting on November 10, 1999, where this action was deliberated, were public meetings widely publicized throughout the raisin industry. All interested persons were invited to attend the meetings and participate in the industry's deliberations.

A proposed rule concerning this action was published in the Federal Register on January 31, 2000 (65 FR 4583). Copies of the rule were mailed by the Committee's staff to all Committee members and alternates, the Raisin Bargaining Association, handlers, and dehydrators. In addition, the rule was made available through the Internet by the Office of the Federal Register. That rule provided for a 60-day comment period which ended March 31, 2000. One comment was received.

The commenter supports the change in desirable carryout, but expressed concern over the impact of the change on the Committee's program to promote California raisin sales in foreign markets. The purpose of this rulemaking action is to change the desirable carryout to more accurately reflect actual carryout inventory and early-season shipments. Desirable carryout is the amount of tonnage from a specific crop year needed during the first part of the succeeding crop year to meet market needs. Failure to provide adequate raisins for market needs during the first part of the crop year would likely have a negative impact on prices and sales later in the season. Such an impact would likely be felt in domestic and foreign markets. The increase in desirable carryout would make more raisins available to handlers as free tonnage, and might reduce the amount of reserve raisins handlers purchase to meet their market needs. However, Committee sponsored promotional activities are not expected to be negatively impacted by this action. Those promotional activities are planned and implemented later in the season, when carryin inventories and the size of the new crop are known. Additionally, those promotional activities are planned by the Committee with the most recent information available, and approved by the Department.

Accordingly, no changes will be made to the rule, as proposed, based on the comment received.

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

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

Pursuant to 5 U.S.C. 553, it is also found that good cause exists for not postponing the effective date of this action until 30 days after publication in the Federal Register because: (1) The 2000-2001 crop year begins on August 1, 2000, and this rule should be effective promptly because the order provides that the Committee meet on or before August 15 to compute and announce the trade demand, and the desirable carryout level is a necessary item in that calculation; (2) this action is a relaxation in that it will make more raisins available to handlers especially for use early in the season; (3) producers and handlers are aware of this action which was unanimously recommended by the Committee at a public meeting; and (4) a 60-day comment period was provided for in the proposed rule, and the comment received is addressed in this final rule.

This rule implements an amendment to the AMAA which directs the Secretary of Agriculture to establish a temporary pilot program for forward contracting of milk under Federal milk marketing orders. The effect of the amendment is to permit a handler to pay producers or cooperative associations a negotiated price, rather than the minimum Federal order price, for milk that is under forward contract, provided that such milk does not exceed the handler's nonfluid use of milk for the month. The amendment appears in Section 3 of H.R. 3428 of the 106th Congress, as enacted by Section 1001(a)(8) of Public Law 106-113 (113 Stat. 1536). It was signed into law on November 29, 1999. The amendment specifies that the pilot program shall only apply to federally regulated milk that is not classified as Class I milk or otherwise intended for fluid use and that is in the current of interstate or foreign commerce or directly burdens, obstructs, or affects interstate or foreign commerce in federally regulated milk. The pilot program expires December 31, 2004.

This pilot program does not invalidate, supersede, or otherwise change existing milk contracts between handlers and dairy farmers. Contracts eligible for this pilot program shall be those contracts beginning no earlier than the effective date of this final rule.

Pursuant to 5 U.S.C. 553, it is also found and determined that good cause exists for not postponing the effective date of this rule until 30 days after publication in the Federal Register because: (1) The pilot program is a voluntary program that does not require extensive preparation for those handlers and dairy farmers who choose to participate in it; and (2) most handlers and farmers desiring to participate in the program are anticipating the publication of this rule and would like to have their contractual transactions under the program effective as soon as possible.

This final rule has been reviewed under Executive Order 12988, Civil Justice Reform. This rule is not intended to have a retroactive effect and will not preempt any state or local laws, regulations, or policies, unless they present an irreconcilable conflict with this rule. There are no administrative procedures which must be exhausted prior to judicial challenge to the provisions of this rule.

The Department is issuing this rule in conformance with Executive Order 12866. This rule is not economically significant for the purposes of Executive Order 12866.

The forward pricing pilot program is a voluntary program that will permit a handler and a producer to negotiate prices that, at times, may be below the minimum order prices that would otherwise apply to such milk. Some producers, proprietary handlers, and cooperative associations now negotiate forward contracts on part or all of their milk. The pilot program will expand the opportunities to engage in forward contracting by exempting participating proprietary handlers from the minimum prices to producers and cooperative associations required under Federal milk marketing orders. These regulations do not affect the ability of cooperative associations to forward contract with their members.

Pursuant to the requirements set forth in the Regulatory Flexibility Act (RFA) (5 U.S.C. 601 et seq. ), the Agricultural Marketing Service (AMS) considered the economic impact of this rule on small entities and has prepared this final regulatory flexibility analysis.

The legal basis for this rule is set forth in an amendment to the AMAA signed into law on November 29, 1999, that directs the Secretary of Agriculture to establish the dairy forward pricing pilot program. The Secretary was directed “to establish a temporary pilot program under which milk producers and cooperatives are authorized to voluntarily enter into forward price contracts with milk handlers.”

The pilot program will provide the dairy industry, which has experienced substantial price volatility in recent years, with another tool to deal with such volatility. With the phase-down of the dairy price support program to a safety-net program, the prices of dairy products have fluctuated to a much greater extent than they did during the prior 20 years. This price fluctuation has created problems for processors of manufactured dairy products ( e.g. , butter, nonfat dry milk, and cheese), the dairy farmers who supply these processors, and the retailers, school systems, and other public institutions who provide these products to consumers.

Under the Small Business Administration's definition, a dairy farm is a small business if it has annual gross revenues of less than $500,000 and a handler is a small business if it has fewer than 500 employees. For the purposes of determining which dairy farms are “small businesses,” the $500,000 per year criterion was used to establish a production guideline of 326,000 pounds per month. Although this guideline does not factor in additional monies that may be received by dairy producers, it should be an inclusive standard for most “small” dairy farmers. For purposes of determining a handler's size, if the plant is part of a larger company operating multiple plants that collectively exceed the 500-employee limit, the plant will be considered a large business even if the local plant has fewer than 500 employees.

Based upon the most current information available, USDA identified as small businesses approximately 66,327 of the 71,716 dairy producers (farmers) that had their milk pooled under a Federal order in January 2000. Thus, small businesses represent approximately 92.5 percent of the dairy farmers in the United States. On the processing side, there were approximately 1,200 plants associated with Federal orders in January 2000, and of these plants, approximately 720 qualify as “small businesses,” representing about 60 percent of the total. At the present time, 142 cooperative associations represent 61,405 dairy farmers under the Federal milk order program. In addition, there were 10,311 dairy farmers who were not affiliated with any cooperative association in January 2000. Of these nonmember producers, 9,559 meet the SBA's definition of a small business.

The recordkeeping and reporting requirements for this rule are minimal. At the present time, any handler that enters into a forward contract with a producer presumably has written proof for such an arrangement. Under the pilot program, a handler will be required to submit a copy of each forward contract with a producer or a cooperative association to the market administrator of the order that regulates the milk. In addition, the handler will be required to attach a specific disclosure statement to each forward contract with each producer under the pilot program. The disclosure statement will have to be signed by each dairy farmer entering into a forward contract. The disclosure statement explains that a dairy farmer entering into a forward contract under the pilot program forfeits his or her right to receive the minimum order price(s) for that portion of their milk that is under contract for the duration of the contract period. These requirements are discussed further in the Paperwork Reduction Act section of this document.

In drafting the rule, the Department considered whether any limit should be established for the amount of milk that a dairy farmer could forward contract. We decided not to impose such a limit because we did not wish to interfere with a dairy farmer's desire to forward contract all of his or her milk. Also, in order to gain as much knowledge as possible about the types of forward contracts that might be offered by handlers, we believe it is beneficial to allow handlers and dairy farmers to decide between themselves how much milk to put under forward contract and how much milk to keep under minimum Federal order pricing.

Comments were specifically requested on the impact of this rule on small businesses. Many comments, particularly from dairy farmers and cheese plant operators, stated that the pilot program would assist them in running their business. No comments were received from a small business stating that the pilot program would be a burden to them.

The Department does not believe that the forward pricing pilot program will unduly burden small entities or impair their ability to compete in the marketplace. In fact, by providing another tool to reduce price risk, the pilot program may aid small businesses in competing with larger entities that have the ability to use existing futures and options markets, and other means, to reduce their price risks.

Several provisions that were in the proposed rule have been modified or eliminated in response to those commenters who noted that these provisions could limit the ability of small businesses to participate in the pilot program. A provision that would have provided a 3-day period in which a forward contract could be canceled has been removed to facilitate hedging of forward contracts, and a provision limiting initial forward contracts to 6 months has been changed to 12 months to better reflect dairy farmers' budgeting practices. In addition, another change was made so that proprietary handlers that do not operate pool plants can participate in the program. These provisions are discussed in more detail in the discussion of the rules applicable to the pilot program.

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

The information collection requirements contained in this final rule were submitted to the Office of Management and Budget (OMB) pursuant to the Paperwork Reduction Act of 1995 (44 U.S.C. chapter 35) for emergency approval and such approval was granted. A separate 60-day notice seeking public comment on the information collection will be published after this final rule is issued. OMB has assigned this request No. 0581-0190.

Under the pilot program for the forward contracting of milk under Federal milk orders, a one-page disclosure statement was designed so that the Secretary's representatives administering the pilot program can be certain that dairy farmers have entered into the pilot program voluntarily. The disclosure statement is attached to a fact sheet containing general guidelines to help dairy farmers understand the forward contracting process. It also explains to the dairy farmer that the program is voluntary and that by entering into the program with a handler, the dairy farmer will be forfeiting his or her right to the minimum prices provided under the order. The form should take no more than 15 minutes to be read, understood, and signed by a dairy farmer. We estimate that the number of dairy farmers involved would be approximately 8,000, and the total annual time burden would not exceed 2,000 hours.

Handlers will be required to submit their forward contracts under the pilot program to their respective market administrator's office. There are 2 reasons for this. First, the market administrator must be able to review the contract to ensure it is signed and to verify that it complies with the regulations provided here. Second, the Department is required to conduct a study of forward contracting under the pilot program to determine the impact on milk prices paid to producers in the United States. This study must be submitted to Congress no later than April 30, 2002. In order to do such a study, the Secretary will have to review, summarize, and evaluate the different types of contracts that were written under the pilot program.

The time required for handlers to prepare and submit copies of contracts would approximate 30 minutes per contract. If all of the nearly 1200 plants associated with Federal orders decide to forward contract under the pilot program, the total annual burden to submit these contracts would be 600 hours.

In the proposed rule, and as continued in this final rule, the disclosure statement described above must be submitted each time that a dairy farmer enters into a forward contract under the pilot program. Several commenters stated that this requirement was redundant and resulted in unnecessary paperwork. They suggested that the disclosure statement should only be required to be submitted the first time that a dairy farmer enters into a forward contract under the pilot program. Except for these comments with respect to the disclosure statement, no other comments were received that relate to paperwork reduction or information collection.

While we are concerned about burdening handlers with unnecessary paperwork, we do not believe that the very short disclosure statement specified in Section 1140.1(e) of this final rule would create such a burden. Furthermore, we are not convinced by the argument that producers need be told only once that entering into a forward contract precludes them from receiving the order minimum prices for their milk. Forward contracting by producers is a significant departure from the historical regulatory environment. As such, it is essential that producers fully understand the consequences of entering into a voluntary contract that forfeits their right to receive minimum order prices for milk. By signing a disclosure statement for each contract, producers will be certifying that they have been given the opportunity to review the Forward Pricing Pilot Program Fact Sheet that describes the program, provides some advice, and cautions the producer to fully understand the terms and conditions of each contract.

A proposed rule was issued on February 25, 2000 (44 FR 10981). Interested parties were given 15 days to file written comments concerning the proposed rule. These comments were accepted by regular mail, e-mail, and by fax. A total of 97 comments were received. These comments came from—in order from most to least—dairy farmers, handlers, federal and state legislators, futures industry representatives, banking industry representatives, and other interested parties. All of the comments are available for viewing on our web site: www.ams.usda.gov/dairy/for_contr_pilot.htm.

Under the rules adopted here to administer the pilot program, producer milk under forward contract with a handler in compliance with the rules will not be subject to a Federal milk order's minimum price requirements provided that such milk does not exceed the handler's Class II, III, and IV utilization of milk for the month in the market that regulates the milk. This rule contains a clarification in § 1140.2(a) to make it clear that in order to be eligible for exemption from minimum order pricing under this pilot program handlers must be in compliance with the program rules.

For convenience, a handler's combined Class II, III, and IV utilization is defined as the handler's eligible milk. In the case of a multi-plant handler, the handler's Class II, III, and IV utilization will be combined together for all of the handler's milk regulated under one order. A handler will only be exempt from paying the order's minimum price(s) on its quantity of eligible milk.

The determination of which producers' milk is over-contracted is left to the handler. If the handler fails to make this determination, the market administrator will prorate the over-contract milk to each producer and cooperative association having a contract with the handler.

Although handlers participating in the pilot program will not be required to pay producers and cooperative associations the order's minimum uniform or component prices for contract milk, they will still be required to account to the pool for all milk they receive at the respective order's minimum class prices. In the case of milk received by transfer from a cooperative association's pool plant, a handler may forward contract for all such transferred milk that is not used in Class I and will be exempt from paying the cooperative the minimum class prices for contract milk.

In the proposed rule (See § 1140.2(a)), forward contracting under the pilot program was restricted to a handler that operates “one or more pool plants.” In this final rule, this has been changed to read “any handler defined in §§ 1000.9 and 1135.9.” The language in the proposed rule would have excluded proprietary handlers that do not operate pool plants from participating in the pilot program. As noted by Kraft Foods in its comment, “this limitation is not in the statute creating the pilot program, and would unnecessarily exclude a number of handlers and producers from enjoying the benefits intended by Congress.”

The language contained in the proposed rule would not have permitted forward contracting for many manufacturing plants that use pooled milk for their manufactured dairy products. In fact, many nonpool plants that receive producer milk by diversion from pool plants would have been unable to forward contract under the pilot program.

In providing for the forward contract pilot program, Congress provided handlers who forward contract with an exemption from paying the minimum Federal order price to producers with whom they have contracted. The November 1999 amendments to the Act did not permit handlers who manufacture Class II, III, and IV products to forward contract because any handler, even handlers with all Class I milk, could have forward contracted prior to the amendments. What the amendments did do, however, was excuse handlers from paying producers minimum order prices for Class II, III, and IV milk under forward contract.

The language in § 1140.2(a) for the proposed rule stated that only pool plant operators could forward contract and be exempt from minimum Federal order pricing. This language, however, does not take into consideration the complex marketing arrangements that exist between pool plants, cooperative association bulk tank handlers, and nonpool plants.

In many markets, milk of nonmember producers that is regularly received at a nonpool plant is actually pooled by a pool plant operator or by a cooperative association through its deliveries to a pool plant. The nonmember milk delivered to the nonpool plant is reported as producer milk diverted to a nonpool plant by the cooperative association on its monthly report of receipts and utilization to the market administrator. Alternatively, if a cooperative association is not involved in the transaction, such milk could be reported by a pool plant operator on its report.

Many nonpool plant operators that receive nonmember milk that is pooled through another handler issue checks to their nonmember producers. They submit their payrolls showing these payments to the market administrator. Nevertheless, these nonpool plant operators are not responsible under the order for paying their nonmember producers the minimum Federal order price; it is the handler— i.e., either the cooperative association or pool plant operator—that pools the milk for them who would be held responsible for an underpayment.

In this final rule, only producer milk that is under forward contract with a handler in compliance with the rules provided here will be exempt from the order's minimum prices. In the case of nonmember milk that is reported as producer milk by a cooperative association handler or pool plant operator, but payrolled by a nonpool plant operator, the cooperative association or pool plant operator, respectively, will be held responsible for any underpayment to a nonmember producer in the event that milk under contract becomes subject to minimum order pricing (for instance, in the case of over-contracted milk). In this way, cooperative association handlers, pool plant operators, and nonpool plant operators may continue the complex arrangements that have evolved to pool milk under the Federal milk order program and all will be permitted to participate in the pilot program.

The language in § 1140.2(a) of this final rule has been modified to reflect the change from “handler that operates one or more pool plants” to simply “handler.” As defined in § 1000.9, handler includes not only the operator of a pool plant or a nonpool plant, but also a broker serving as a handler as provided in § 1000.9(b) and a cooperative association acting as a handler with respect to milk delivered to a pool plant or diverted to a nonpool plant. Finally, the term “handler” includes a proprietary bulk tank handler as defined in § 1135.9 of the Western order.

Any handler participating in the pilot program will still be required to file all of the reports that are now required under an order. This includes reports of receipts and utilization of milk and monthly payroll reports that show all information now required under the orders.

Handlers participating in the pilot program will have to submit to the market administrator a copy of each contract for which it is claiming exemption from the order's minimum pricing. This contract must be signed prior to the 1st day of the 1st month for which the contract applies and must be received by the market administrator by the 15th day of that month. For the first month that the pilot program is effective, contracts must be signed on or after the day on which the program becomes effective. For example, if the program becomes effective on July 17, contracts for August milk must be signed between July 17 and July 31 and must be in the market administrator's office by August 15.

It is the responsibility of each handler to give to each contracting dairy farmer or cooperative association a disclosure statement informing them of the nature of the pilot program and providing them with certain information that they should consider before entering into a forward contract. The disclosure statement must be signed on the same date as the contract by the dairy farmer or cooperative association representative and will have to be returned to the market administrator together with the contract by the 15th day of the month. Any contract that is submitted to the market administrator without the disclosure statement will be considered to be invalid for the purpose of being exempt from the order's minimum pricing and will be returned to the handler.

Several commenters objected to having to submit a disclosure statement each time they contract with a producer. They argued that attaching a disclosure statement to the first forward contract with a producer was sufficient and that having to do so with each succeeding contract involved unnecessary paperwork.

As noted earlier in the section dealing with the Paperwork Reduction Act, we do not believe that the very short disclosure statement specified in Section 1140.1(e) of this final rule would create such a burden. In fact, it is only one paragraph long and can easily be incorporated in the body of a forward contract itself or can be handled as a one-page supplement that may be attached to the forward contract.

In its proposed rule, the Department proposed 2 provisions to help dairy farmers adjust to the new program. One provision would have required that each forward contract under the pilot program contain a clause that gives a dairy farmer 3 days to change his or her mind about forward contracting their milk. The 2nd proposed provision would have limited the contract period for first-time contracts under the pilot program to 6 months. Both of these proposals were opposed by a majority of the commenters who addressed these issues.

Numerous commenters contended that these 2 provisions would be very damaging to the pilot program, even rendering it totally ineffective. One commenter who specializes in hedging price risks noted that the 3-day cancellation provision would severely constrain a handler in offsetting its risk if it had to wait for 3 days after signing a contract before it could safely hedge a price commitment that it had made 3 days earlier. With respect to the proposed rule limiting first-time contracts to 6 months, many commenters observed that a 6-month contract would not match up with a dairy farmer's budgeting process.

In response to those commenters who argued that having to wait 3 days would subject handlers to extraordinary, unreasonable price risk, we undertook a careful review of the options available to handlers for hedging such risk. In particular, we analyzed the costs associated with purchasing at-the-money put options in lieu of selling futures to hedge forward contracts during the 3 days when a forward contract could be canceled. We also looked at the costs incurred in selling futures and simultaneously purchasing an equivalent amount of at-the-money call options to hedge the price risks associated with entering into forward contracts during the 3 days when the contract could be canceled. Our analysis indicates that the costs of the 3-day cancellation provision could amount to between 10 and 15 cents per hundredweight. These costs would likely be passed on to producers in the form of lower contract prices which could dampen any interest in the pilot program.

In proposing the 3-day cancellation clause for producers who enter into forward contracts under the pilot program it was our intent to help farmers adjust to the new program and to protect them from undue pressure in signing forward contracts. However, based on the comments and on our analysis it is clear that the 3-day cancellation provision would result in some additional costs to handlers who enter into forward contracts and hedge such contracts by using the futures market. Such costs could be passed on to producers in terms of lower forward contract prices. Therefore, while we continue to see merit in this provision, we must conclude that, on balance, the 3-day cancellation provision could work against the interests of dairy farmers by denying them the opportunity to utilize forward contracts under the pilot program. Accordingly, this provision has been removed from this final rule. Nevertheless, we will carefully monitor whether producers have been provided with adequate time and information before entering into forward contracts with handlers under the pilot program and will revisit this issue if necessary.

With respect to the 6-month forward contract restriction for producers forward contracting for the first time, we still believe that a restriction for first-time forward contracts would have merit. However, we are convinced by the comments submitted that the maximum contract length should be changed from 6 months to 12 months to be more consistent with budgeting and banking practices. After a producer has entered into his or her first forward contract under the pilot program, subsequent contracts could be written for longer periods of time.

A 3rd proposed provision that was widely opposed by commenters and received virtually no support would have required the basis for pricing milk under a forward contract to be the same as the basis for pricing milk that was not under forward contract. Specifically, in the 4 Federal orders with butterfat and skim milk pricing, forward contracts would have been required to be written in those terms, and in the 7 orders with component pricing of milk, forward contracts would have been required to be written in terms of those same components. This provision was proposed for 2 reasons. First, we thought such pricing would be more understandable to producers who had part of their milk subject to minimum order pricing and part of it subject to forward contract pricing. Second, we thought that such pricing would be easier for producers to verify using testing data provided by the market administrator.

This proposal was seen by commenters to be unnecessarily limiting and an obstacle to effectively hedging contract prices, which may be based upon futures market prices that may not price each component of milk. Therefore, it has been removed. However, producers who are not members of a cooperative association should understand that their milk weights and tests will continue to be handled in the same way by the market administrator even if they choose to enter into a forward contract which prices their milk on a basis that differs from the order in which their milk is pooled. For example, if a producer under the Appalachian Order, which prices milk to dairy farmers on the basis of skim milk and butterfat, enters into a contract that prices milk on the basis of protein, butterfat, other solids, and somatic cell count, the producer will not receive data from the market administrator to compare against the buying handler's test data. If the producer wishes to verify these tests, he or she will have to do so at their own expense.

As proposed, payments specified under a forward contract must be made on the same dates as order payments which they replace. No comments were received in opposition to this provision and it should be carried forward for several reasons. First, nearly every handler entering into forward contracts would have some milk that is subject to minimum order pricing. It is highly unlikely that these handlers would establish a dual accounting and payment system even if they thought that different payment dates would be preferable to those specified under the order. Second, if handlers paid producers under contract at different times than producers not under contract, this disparate treatment could cause problems which might influence the success of the pilot program for reasons entirely apart from more predictable pricing. Third, from an administrative standpoint, it will be much easier to administer the pilot program if payments are made on the same day as minimum order payments.

Some commenters argued that the market administrator should enforce forward contract prices just as they do minimum order prices. Another comment stated that the regulations should enforce payment of all contracts.

The Act requires the Secretary to establish a forward pricing pilot program. Milk for nonfluid use which is covered by forward contracts under the pilot program is exempt from the minimum price provisions of the orders. We do not believe it should be the role of the market administrator or the Department to determine the terms of forward contracts or to enforce negotiated prices. Payment for milk covered under forward contract is required to be made by the dates specified in § 1140.2(e) of the regulations.

Some commenters argued that allowing a handler to draw money from the producer-settlement fund and not pass it on to its producers could create disorderly marketing conditions. One commenter concluded that allowing a handler to keep the difference between the order's blend price and the contract price was an unjustified windfall to the handler.

This issue merits some discussion. Frankly, we do not know what form forward contracts will take under the pilot program. We do know the nature of some forward contracts prior to the pilot program. In the Upper Midwest, where much of the milk that is pooled is used for Class III use, many forward contracts provided for a Class III price plus a pool draw. If a handler was a cheese operation, the pool draw would equal the difference between the order's blend price and the Class III price.

It may be that this same formula will be the popular way to forward contract under the pilot program, but there are several variables that make this unclear. First, the pilot program applies to all Federal order markets, with Class I utilizations ranging from 90 percent to 10 percent. There is a significant difference in the pool draw between these extremes. Second, forward contracts may only cover milk used for Class II, III, or IV use. While a contract providing for a Class III price plus the pool draw might make sense for a cheese plant, it may not fit well with an ice cream or butter-powder operation.

Producers who are contemplating forward contracting should keep in mind that their benchmark price is the Federal order blend price. That is the minimum price that they would receive in the absence of a forward contract. Thus, it seems reasonable that when producers negotiate a forward contract price, they would hope to approximate, ideally, the minimum blend price plus applicable premiums averaged over the forward contract period.

As noted above, we do not know how handlers will arrive at forward contract prices. They could look at futures markets for guidance. A forward contract price could be a flat blend price approximation; it could be an average futures market cheese price plus a pool draw; or, for a butter-powder operation, it could be an average future butter and powder price on a hundredweight basis plus a pool draw.

Over time, we would expect to see forward prices to producers below the blend price in some months and above the blend price in other months. When the contract price is below the blend price, the pool draw could accrue to the contracting handler. On the other hand, when the contract price is above the blend price, the contracting handler will have to supplement the pool draw to pay the producer the contract price. On balance, the pluses and minuses should cancel each other out since, one could argue, the desired objective of forward contracting is to remove the uncertainty and variability in prices, not to reduce a handler's cost by cutting its payments to producers. In fact, if producers continually find that they are losing money by forward contracting, it would seem illogical for them to continue to do so.

Some commenters also argued that handlers with forward contracts under the pilot program should be prohibited from excluding milk from regulation or, as it more commonly called, depooling milk.

This issue would by necessity involve amendments to Federal orders, unlike the pilot program, which involves no amendments to Federal orders. The depooling issue is really separate from forward contracting and is not appropriate for consideration in this informal rulemaking process.

Participation in the pilot program must be entirely voluntary on the part of dairy farmers and handlers. If the Department believes that the program is being used to coerce dairy farmers into signing contracts providing for prices that, on average, are consistently below minimum order prices, steps will be taken to halt such practices. One indication that such practices could be occurring would be complaints from dairy farmers that they were dropped because they refused to sign a forward contract with a handler. Another indication might be manifested by the replacement of one group of dairy farmers with another group of dairy farmers who have entered into forward contracts with the handler. It is conceivable that some farmers might intentionally enter into a forward contract that would consistently provide a price below the minimum order price simply to get their milk pooled on a particular market for possible future benefit. This type of activity would undermine the concept of minimum prices to dairy farmers and lead to the type of conditions that the AMAA was enacted to remedy. Should these types of activities occur after the pilot program becomes effective, the Secretary would consider appropriate actions to halt such activities.

Many commenters, including several members of Congress, took issue with our reference to suspend or terminate the pilot program in the discussion part of the proposed rule. Other commenters, however, specifically welcomed the discussion of these contingencies.

It may be true, as one commenter stated, that it is unnecessary to state that the Secretary of Agriculture can terminate the pilot program if he finds that it is operating in conflict with the Agricultural Marketing Agreement Act. However, we see no harm in stating what may not be obvious to all pilot program participants: If the program is abused, steps will be taken to stop the abuse.

Therefore, based on the rationale set forth in the proposed rule and in this document we are adopting provisions of the proposal as a final rule, with the changes discussed in this document, as well as several technical changes made for clarity.

Additional information about the pilot program is included in the Department's program announcement. The information is also available on the Dairy Programs' web site (www:ams.usda.gov/fmor/index.htm) and is available from local market administrator offices.

The Federal Home Loan Bank System (Bank System) comprises twelve regional Banks that are instrumentalities of the United States organized under the authority of the Federal Home Loan Bank Act (Bank Act). See 12 U.S.C. 1423, 1432(a). The Banks are cooperatives; only members of a Bank may own the capital stock of a Bank and only members and certain eligible nonmember borrowers (housing associates) (such as state housing finance agencies) may obtain access to the products provided by a Bank. See 12 U.S.C. 1426, 1430(a), 1430b. Each Bank is managed by its own board of directors and serves the public by enhancing the availability of residential housing finance and community lending credit through its members and housing associates. See 12 U.S.C. 1427. Any eligible institution (typically, an insured depository institution) may become a member of a Bank by satisfying certain criteria and by purchasing a specified amount of a Bank's capital stock. See 12 U.S.C. 1424, 1426; 12 CFR part 925.

As government sponsored enterprises (GSEs), the Banks are granted certain privileges that enable them to borrow funds in the capital markets on terms more favorable than could be obtained by private entities, so that the Bank System generally can borrow funds at a modest spread over the rates on U.S. Treasury securities of comparable maturity. The Banks pass along their GSE funding advantage to their members, and ultimately to consumers, by providing secured loans, called advances, and other financial products and services at rates and terms that would not otherwise be available to their members.

The Banks must fully secure advances with eligible collateral. See 12 U.S.C. 1430(a). At the time of origination or renewal of an advance, a Bank must obtain a security interest in collateral eligible under one or more of the collateral categories set forth in the Bank Act. See 12 U.S.C. 1430(a).

Under section 10 of the Bank Act and part 950 of the Finance Board's regulations, the Banks have broad authority to make advances in support of residential housing finance, which includes community lending, defined, in the final rule, as providing financing for economic development projects for targeted beneficiaries and, for CFIs, purchasing or funding small business loans, small farm loans or small agri-business loans. See 12 U.S.C. 1430(a), (i), (j); 12 CFR parts 900, 950. The Banks also are required to offer two programs, the Affordable Housing Program (AHP) and the Community Investment Program (CIP), to provide subsidized or at-cost advances, respectively, in support of unmet housing finance or targeted economic development credit needs. See 12 U.S.C. 1430(i), (j); 12 CFR parts 951, 952. In addition, section 10(j)(10) of the Bank Act authorizes the Banks to establish additional Community Investment Cash Advance (CICA) Programs for targeted community lending, defined as providing financing for economic development projects for targeted beneficiaries. See 12 U.S.C. 1430(j)(10); 12 CFR part 952.

On November 12, 1999, the President signed into law the Federal Home Loan Bank System Modernization Act of 1999 (Modernization Act)  1 which, among other things, amended the Bank Act by providing smaller lenders with greater access to membership in the Bank System and greater access to Bank advances. The Modernization Act established a category of members consisting of depository institutions whose deposits are insured by the Federal Deposit Insurance Corporation (FDIC) that have less than $500,000,000 in average total assets (based on an average of total assets over three years) called community financial institutions (CFIs), 2 and authorized the Banks to make long-term advances to CFI members for the purposes of providing funds for small businesses, small farms and small agri-businesses. See Modernization Act, sections 602, 604(a)(2), 605. The Modernization Act also authorized the Banks to accept from CFI members as security for advances secured loans for small business, agriculture, or securities representing a whole interest in such secured loans. See id. , section 604(a)(5)(C).

For all members, the Modernization Act removed the statutory limit on the amount of aggregate outstanding advances that could be secured by “other real estate-related collateral,” which had been capped at 30 percent of a member's capital. See id. , section 604(a)(5)(B). The Banks, therefore, are now authorized to accept other real estate-related collateral as security for advances to any member as long as the collateral has a readily ascertainable value and the Bank is able to perfect a security interest in that collateral. See 12 U.S.C. 1430(a)(3)(D) (as amended).

On May 8, 2000, the Finance Board issued a notice of proposed rulemaking that proposed amendments to the Finance Board's regulations to implement the new statutory authorities described above. See 65 FR 26518 (May 8, 2000). The public comment period on the proposed rule closed on June 7, 2000. The Finance Board received letters from a total of 64 commenters, including: 11 Banks; 15 financial institution trade associations; 34 Bank members; 1 home builders' association; the Farm Credit System trade association; the Bank's trade association; and a Congressman. Comments as they relate to specific issues raised by the proposed rule are discussed below.

The Modernization Act amended the Bank Act to allow CFI members to pledge new types of collateral as security for advances, specifically, secured loans for small business or agriculture, or securities representing a whole interest in such secured loans. See Modernization Act, section 604(a)(5)(C). Proposed § 950.7(b)(1) implemented this amendment by authorizing the Banks to accept from CFI members or their affiliates as security for advances, small business loans, small farm loans or small agri-business loans fully secured by collateral other than real estate, or securities representing a whole interest in such loans, provided that: (i) The loans have a readily ascertainable liquidation value and can be freely liquidated in due course; and (ii) the Bank can perfect a security interest in such collateral (CFI-eligible collateral). Proposed § 950.7(b)(1) also required that, prior to accepting any such CFI-eligible collateral, a Bank shall meet the new business activity requirements of proposed part 980. This requirement was intended to ensure that a Bank has the capacity to value, discount and manage the newly eligible collateral prior to making advances secured by such collateral.

Proposed § 950.7(b)(1) excluded loans secured by real estate because these types of loans were included in proposed § 950.7(a)(4).

a. Types of CFI-eligible collateral—Definitions of “small business loans,” “small farm loans” and “small agri-business loans” . Proposed § 950.1 defined the terms “small business loans,” “small farm loans” and “small agri-business loans” using a loan size approach and an alternative business (or farm) size approach. Specifically, loans below a prescribed aggregate amount—$1 million for small business loans, and $500,000 for small farm loans and small agri-business loans—were considered a proxy for business (or farm) size based on the loan size standards established by regulation of the agencies comprising the Federal Financial Institutions Examination Council (FFIEC), 3 and met the proposed definitions. See 57 FR 54235 (Nov. 17, 1992). As discussed in the SUPPLEMENTARY INFORMATION section of the proposed rule, these aggregate loan size limits were derived from the FFIEC requirement that financial institutions report to their primary regulators small business loans of up to $1 million and small farm loans of up to $500,000. See id . Loans above these aggregate loan size limits would not meet the proposed definitions, unless business data specific to the borrowing enterprise (annual gross receipts or number of employees) showed that the borrower met the eligibility standards for a small business (or farm) concern under the Small Business Administrations (SBA) regulations. See 13 CFR part 121.

As discussed in the SUPPLEMENTARY INFORMATION section of the proposed rule, the business size approach provides greater accuracy, but may result in costs that deter CFI members from fully employing Banks as a funding source for loans to small businesses and small farms. The loan size approach is less precise, but has the advantage of lower implementation costs, since it involves information already available to Federally regulated financial institutions in the reports they are required to file with their primary federal regulator.

In the SUPPLEMENTARY INFORMATION section of the proposed rule, the Finance Board stated that the proposed definitions represented an appropriate compromise between these two approaches that would allow CFI members to use Bank System funding to finance small businesses and small farms, as authorized by the Modernization Act. See Modernization Act, section 604(a)(5)(C). The Finance Board requested comment on whether there were any other appropriate methods of categorizing or defining small business loans, small farm loans, and small agri-business loans.

Many of the community bank commenters noted that the expansion of eligible collateral to secure advances is critical to their funding needs. Many commenters of all types stated that neither of the alternatives set forth in the proposed definitions would allow CFI members to utilize such loans as a source of funding to the extent intended by Congress. The consensus among commenters was that the aggregate loan size limits set forth in the proposed definitions were too restrictive, and that the alternative documentation requirements for loans above the aggregate loan size limits would be too time-consuming and burdensome to offer a practical alternative. Many commenters recommended instead that the Finance Board adopt a definitional approach tied to the legal “loans to one borrower” (LTOB) limits to which members already are subject. Other commenters variously recommended raising the maximum aggregate loan size limits, making any aggregate loan size limits uniform for all categories of CFI-eligible collateral, providing a mechanism that would adjust the aggregate loan size limits over time for inflation, and reducing documentation requirements. One commenter recommended adopting an aggregate loan size limit based on the standard for small farms developed by the Secretary of Agriculture (less than $250,000 in annual gross agricultural sales).

Loans and extensions of credit by insured depository institutions are subject to statutory and regulatory LTOB limits. See, e.g. , 12 U.S.C. 84(a); 12 CFR part 32 (Office of the Comptroller of the Currency); 12 CFR 560.93 (Office of Thrift Supervision). Generally, the total loans and extensions of credit made by an insured depository institution to any one borrower may not exceed 15 percent of that institution's total unimpaired capital and unimpaired surplus, with exceptions for, among other things, loans fully secured by high quality and highly liquid collateral. See 12 U.S.C. 84(a)(1), (2), (c). These LTOB limits are intended to protect the safety and soundness of insured depository institutions by prohibiting concentration of lending to any one entity. Commenters pointed out that, in conjunction with the LTOB limits, the size limit on a member's CFI eligibility of $500 million in total assets effectively limits the size of the loans the member may pledge for advances. Various commenters calculated the “effective” loan limit resulting from the LTOB approach to range from $3.75 million to $6 million for a $500 million institution, depending on the institution's capital level. Several commenters pointed out that the Finance Board adopted a similar approach in amending the definition of “combination business or farm property” in the Advances Regulation in order to permit members with assets of $500 million and less to pledge combination agriculture/residential loans and business/residential loans as eligible collateral. See 63 FR 35117 (June 29, 1998). The Finance Board noted at that time that by limiting the size of members that could pledge the loans, the Finance Board was indirectly limiting the size of the loans themselves. See id. at 35122.

The Finance Board recognizes that the LTOB approach offers certain advantages over the definitions of “small business loans,” “small farm loans,” and “small agri-business loans” set forth in the proposed rule. For example, the aggregate loan size limits in the proposed rule represent static, one-size-fits-all loan amounts. One commenter noted, in this regard, that while the proposed aggregate loan size limits might not impact CFI members with assets of $100 million or less, the proposed limits could create an impediment for larger CFI members making larger loans. By contrast, the LTOB approach would result in aggregate loan size limits that are relative to the size of each CFI member and arguably more relevant and appropriate. Additionally, since LTOB restrictions are already in place, reliance on this measure would ease administration and limit implementation costs. Further, a CFI member's LTOB limit would follow the movement of its assets and capital, thereby making adjustments for inflation unnecessary.

The Finance Board also recognizes that LTOB restrictions are not uniform. Legal lending limits for similarly sized CFI members will vary, not only because institutions will hold different amounts of capital and unimpaired surplus, but because LTOB restrictions themselves may vary in form or application among the federal and state regulatory bodies that promulgate and enforce such restrictions. Even within the same regulatory structure, the size of loan a CFI member is permitted to make may vary depending on the extent to which certain exceptions to the general LTOB limit may apply to that particular loan. However, the Finance Board does not believe that these variances, including the potential for higher loan amounts under certain circumstances, would prevent the LTOB approach from serving as an appropriate method of categorizing or defining small business loans, small farm loans and small agri-business loans.

On balance, the Finance Board is persuaded that the LTOB approach is the most reasonable and cost efficient means of implementing the Modernization Act in a manner that will facilitate CFI member access to Bank advances for the purpose of funding small businesses, small farms and small agri-businesses. Further, the Finance Board does not believe that the LTOB approach raises any additional safety and soundness concerns that cannot be adequately addressed by the collateral policy requirements in § 917.4 and the new business activities requirements in part 980 discussed below. Accordingly, § 950.1 of the final rule defines “small business loans,” “small farm loans,” and “small agri-business loans” as loans that are within the legal lending limit of the reporting CFI member and reported on certain regulatory financial reports as specifically provided in § 950.1. To ensure that loan size is effectively limited by the definitions of “small business loans,” “small farm loans,” and “small agri-business loans,” the definitions shall apply only to whole loans and not to loan participations.

As proposed, § 950.7(b)(1) of the final rule does not explicitly refer to secured loans for agriculture, as does the Modernization Act. See Modernization Act, section 604(a)(5)(C). Instead, the Finance Board has interpreted “agriculture loans” to mean small farm loans and small agri-business loans, and substituted these terms, in the text of § 950.7(b)(1). These terms also appear in § 950.3, which sets forth the authorized purposes of long-term Bank advances, so their use in § 950.7(b)(1) is consistent with the Finance Board's general policy of employing uniform terminology in its regulations whenever possible. The Finance Board also stated in the SUPPLEMENTARY INFORMATION section of the proposed rule that permitting the Banks to accept as collateral only “small” agriculture loans was consistent with both the Banks' mission of assisting members with community lending and with the Modernization Act's emphasis on small institutions' lending to small enterprises. See Modernization Act, sections 602, 604(a)(3), 604(a)(5)(C).

Many commenters stated that the Finance Board's interpretation of the statutory term “agriculture loans” as small farm loans and small agri-business loans was unnecessarily restrictive, on the basis that the Modernization Act does not explicitly specify an aggregate size limit on secured loans for agriculture. The Finance Board's adoption of the LTOB approach to loan size definitions in the final rule resolves this issue, since it allows CFI members to pledge as collateral to secure advances farm loans and agri-business loans up to their respective legal lending limits.

b. Restrictions on acceptance of CFI-eligible collateral. The primary duty of the Finance Board is to ensure that the Banks operate in a financially safe and sound manner. See 12 U.S.C. 1422a(a)(3)(A). As discussed in the SUPPLEMENTARY INFORMATION section of the proposed rule, in view of the potentially greater risks inherent in non-mortgage, CFI-eligible collateral, with which the Banks have limited or no experience, the Finance Board, for safety and soundness reasons, considered whether limits or restrictions should be established on the types of collateral that could secure such loans or securities pledged by a CFI member or affiliate to secure an advance. For example, small business loans secured by accounts receivable or inventory, or small farm loans secured by crops or livestock, which may present greater risks than other types of secured small business or small farm loans, could have been excluded from the types of eligible collateral. The Finance Board chose not to impose limits or restrictions in the proposed rule, but instead to require in proposed § 917.4 that the Banks have policies and capacity to value the collateral, whatever it may be. In addition, proposed part 980 treated the acceptance of CFI-eligible collateral for the first time as a new business activity requiring 60-day notice to the Finance Board before the activity could be undertaken.

The Finance Board requested comment on whether certain types of CFI-eligible collateral should be prohibited as eligible collateral on the basis of risk. Several commenters supported the approach in the proposed rule, stating that no types of CFI-eligible collateral are so inherently risky as to justify a prohibition on their acceptance, and that each Bank should have the discretion to determine risk parameters and eligibility standards for each type of CFI-eligible collateral it chooses to accept.

The Finance Board continues to believe that requiring each Bank to determine the value of collateral in accordance with a member products policy established pursuant to § 917.4 will minimize appropriately the Banks' exposure to risk in accepting CFI-eligible collateral. The Finance Board expects such policies, if properly developed and implemented, will take the appropriate risk factors into account in their valuation and discounting procedures. Of course, those policies, and the Banks' activities in this regard, would continue to be subject to examination by the Finance Board and to the new business activities requirements of part 980, discussed in section II.B., below. Accordingly, as proposed, the final rule establishes no limits on the types of collateral that may secure such loans or securities pledged by a CFI member or affiliate.

c. CFI status. (i) Definition of “CFI”—Determination of CFI status based on calculation of three-year total assets average. The Modernization Act defines a “community financial institution” as an FDIC-insured institution that has, as of the date of the transaction at issue, less than $500 million in average total assets, based on an average of total assets over the three years preceding that date. See Modernization Act, § 602 ( to be codified at 12 U.S.C. 1422(13)). The proposed rule included a definition of “CFI” in § 900.1 that mirrored the statutory definition.

A number of commenters recommended that the Banks be allowed to determine the status of their members by calculating the average total assets of their members on an annual basis, based on calendar year-end financial data available from the institutions' regulatory financial reports filed with their regulators, or, in the alternative, based on data available from the institutions' quarterly regulatory financial reports for the preceding three years. Commenters stated that it would be confusing to determine CFI status on a quarterly or monthly basis when § 925.22(b)(1) of the Membership Regulation requires the Banks to calculate annually each member's minimum capital stock requirement using calendar year-end financial data. Commenters stated that calculation of CFI status on a quarterly or monthly basis would result in unnecessary administrative burdens and expense. Other commenters supported quarterly calculations of average total assets based on the institutions' quarterly regulatory financial reports over the three preceding years. Commenters also stated that calculation of CFI status on a quarterly or monthly basis would cause some members' CFI status to fluctuate more frequently, which, for members approaching the CFI asset cap, could have a negative effect on their reliance on Bank funding secured by CFI-eligible collateral.

The Finance Board finds merit in these comments and believes it would be reasonable and less burdensome for the Banks to determine their members' CFI status by calculating annually the members' average total assets based on data drawn from the members' regulatory financial reports for the three most recent calendar year-ends. The April 1 effective date adopted in the final rule provides sufficient time for the Banks to use calendar year-end data available from the regulatory financial reports.

The issue of how to calculate the three-year total assets average also arises in the context of the membership application review process regarding the determination of whether an applicant for membership qualifies as a CFI and, therefore, is exempt from the statutory requirement that at least 10 percent of its total assets must be residential mortgage loans. See 12 U.S.C. 1424(a)(2) (1994). Because the calculation of the three-year total assets average affects the determination of CFI status for both membership and advances collateral purposes, consistent with the proposed Advances Collateral Rule, the final rule moves the definition of “CFI” to § 900.1, which contains general definitions applying to all Finance Board regulations. The final rule revises the proposed definition of “CFI” to include the calculation for advances collateral purposes described above, as well as a separate calculation for membership purposes discussed in the SUPPLEMENTARY INFORMATION section of the Finance Board's final rule on membership and advances adopted by the Finance Board on June 23, 2000.

(ii) Change in CFI status. The proposed rule provided that if a member that previously qualified as a CFI loses its CFI status, the Bank may not accept as security for new advances CFI-eligible collateral from that member. Proposed § 950.7(b)(2) also provided that a Bank shall not require a member that loses its CFI status and has outstanding advances secured by CFI-eligible collateral to repay such advances prior to the stated maturities, or to provide substitute collateral, eligible under paragraphs (a)(1) through (5), based solely on the member's change in CFI status. All of the comments addressing the change in CFI status provisions in proposed § 950.7(b)(2) supported allowing outstanding advances held by members that no longer qualify as CFIs to run to their stated maturities. Accordingly, this provision is adopted without change in § 950.7(b)(2)(i) of the final rule.

Proposed § 950.7(b)(2) also authorized a Bank to allow a member that has lost its CFI status to renew maturing advances secured by CFI-eligible collateral for up to 6 months in order to provide the member with sufficient time to wind down advances and replace them with other funding in an orderly fashion. The Finance Board requested comment on whether allowing renewals of such advances is appropriate and, if so, whether allowing renewals for up to 6 months would provide sufficient time for members to obtain alternative funding. Some of the commenters stated that the proposed 6-month renewal period for maturing advances was not enough time for members to obtain replacement funding for maturing advances. Alternative suggestions from commenters included a 12-month renewal period, an 18-month renewal period, and allowing members to maintain a permanent maximum eligible collateral limit, based on one-to two-year historical usage. In addition, some of the commenters indicated that it would be difficult to determine which advances are secured by CFI-eligible collateral and which advances are secured by other collateral.

Based on the comments, § 950.7(b)(2) of the final rule has been revised to apply to members that no longer qualify as CFIs and have total advances outstanding that exceed the amount that can be fully secured by collateral under § 950.7(a) (non-CFI-eligible collateral).

While the Finance Board believes that it is inappropriate to allow CFI members that lose their CFI status to continue to pledge CFI-eligible collateral as security for advances indefinitely, it does acknowledge that the proposed 6-month renewal period may not be long enough for members to obtain replacement funding for maturing advances. A 12-month renewal period would appear to be a more reasonable amount of time for transition, especially given that the calculation of CFI status is based on a three-year total assets average and a member, therefore, is likely to be aware of its potential loss of CFI status well before it actually occurs. Accordingly, § 950.7(b)(2)(ii) of the final rule has been revised to provide that maturing advances may be renewed to mature no later that 12 months from the date the Bank determines that a member ceases to qualify as a CFI. Since, as discussed above, § 900.1 of the final rule requires each Bank to perform the CFI calculation of the three-year total assets average on an annual basis effective April 1 of each year, the 12-month renewal period will run from April 1 of the year that a Bank determines that a member no longer qualifies as a CFI to March 31 of the following year.

Section 950.7(b)(2) of the final rule also provides that the total of a member's advances under § § 950.7(b)(2)(i) and (ii) shall be fully secured by collateral set forth in paragraphs (a) and (b) of this section.

d. Readily ascertainable value. Proposed § 950.7(b)(1) authorized the Banks to accept from CFI members or their affiliates as security for advances, CFI-eligible collateral provided that: (i) the loans have a readily ascertainable liquidation value and can be freely liquidated in due course; and (ii) the Bank can perfect a security interest in such collateral. The basis of this standard was the Finance Board's belief that the liquidation value of collateral, and the ability to liquidate the collateral quickly, was an appropriate measure of the value of CFI-eligible collateral securing an advance.

A substantial number of Bank commenters opposed the proposed standard on the grounds that liquidation value is difficult to measure and, therefore, impractical as a standard. The commenters also found the phrase “freely liquidated in due course” to be unclear in terms of when and how frequently such determination would have to be made.

In response to the Banks' concerns, § 950.7(a)(4) is revised in the final rule to provide that CFI-eligible collateral is eligible to secure advances if it has “a readily ascertainable value, can be reliably discounted to account for liquidation and other risks, and can be liquidated in due course.” This standard is intended to clarify that the critical factor is the Bank's ability to reliably discount the collateral in question. The phrase “can be liquidated in due course” is intended to mean that there are no known impediments to liquidation at the time the collateral is accepted by the Bank. This change also is made in § 950.7(a)(4)(i)(A) of the final rule with respect to other real estate-related collateral.

Current § 950.9 of the Advances Regulation (redesignated as § 950.7 in the final rule) sets forth the types of eligible collateral that a Bank may accept to secure advances. The Modernization Act revised section 10(a)(3) of the Bank Act to add “cash” to the types of eligible collateral. See Modernization Act, section 604(a)(5)(A). As proposed, § 950.7(a)(3) of the final rule implements this change by adding cash as eligible collateral.

a. New business activity notice requirement. The Modernization Act amended section 10(a)(4) of the Bank Act by removing the limit on the dollar amount of advances that may be secured by other real estate-related collateral, which had been set at 30 percent of the member's capital. See Modernization Act, section 604(a)(5)(B). Section 950.7(a)(4) of the final rule implements this change by removing the 30 percent limitation. As discussed in the SUPPLEMENTARY INFORMATION section of the proposed rule, because the Banks have had no or limited experience with accepting other real estate-related collateral, the Banks will need to build capacity and exercise caution in evaluating and accepting such collateral. For this reason, the proposed rule treated the acceptance of other real estate-related collateral as a new business activity, and proposed § 950.7(a)(4)(iii) prohibited a Bank from making total advances to all members secured by other real estate-related collateral in an aggregate amount exceeding 25% of the highest level of advances previously secured by such collateral (125% trigger), until the Bank met the new business activity requirements of proposed part 980. Proposed § 980.3 required a Bank to provide at least 60 days prior notice to the Finance Board to include, among other things, information demonstrating the Bank's capacity, sufficiency of experience and expertise to safely value, discount and manage the risks associated with other real estate-related collateral. Under proposed § § 980.4 and 980.5, the Bank was permitted to commence acceptance of other real-estate related collateral if, 60 days after receipt by the Finance Board of the notice, the Finance Board had not issued to the Bank a notice of disapproval, a notice instructing the Bank not to commence the new activity pending further consideration by the Finance Board, a notice of intent to examine, or a request for additional information, or if the Finance Board had issued a letter of approval.

The Finance Board requested comment on what the appropriate threshold should be for triggering the new business activity requirement with respect to the use of other real estate-related collateral, and whether there should be any other limits on the use of such collateral to ensure that the Banks' lending against this type of collateral was done in a safe and sound manner. A number of commenters opposed the proposed 125% trigger, stating that it was too severe, and several suggested a higher trigger. Most of the commenters recommended a trigger linked to a percentage or dollar limit per member. Various commenters recommended a trigger of 100% of member capital, 55% of member capital, 55% of Bank capital, and 100% of Bank capital. One commenter recommended that the final rule establish specific discount rates to be used by the Banks, rather than the Finance Board reviewing each Bank's capacity, sufficiency of experience and expertise to safely discount and manage the risks associated with other real estate-related collateral. Many commenters observed that the Banks had ample experience accepting this type of collateral without limit before the 30 percent cap was imposed by amendment of the Bank Act in 1989 and, thus, already were well qualified to manage and discount this type of collateral.

The Finance Board has reconsidered the 125% trigger in light of the comments, as being more restrictive than may be necessary, and has deleted the trigger from the final rule. However, because other real estate-related collateral has only been accepted by a few Banks in limited amounts since 1989, and because the Bank System's operations were very different prior to 1989, the Finance Board still believes it necessary for the Banks to establish policies and procedures to adequately value and discount this type of collateral. Rather than dictating specific discount rates to be applied by the Banks, which is a management function more appropriately administered by the Banks, which are in the best position to assess their members' underwriting capacity and the quality of loans pledged, § 980.1 of the final rule treats a Bank's acceptance of other real estate-related collateral of any amount as a new business activity, regardless of whether the Bank has accepted such collateral in the past, and § 980.3(b) requires the Bank to file a new business activity notice with the Finance Board prior to accepting such collateral. As stated in the SUPPLEMENTARY INFORMATION section of the proposed rule, in evaluating a Bank's notice, the Finance Board intends to encourage conservative discounting of new collateral until the Bank gains experience in valuing such collateral. However, in order to expedite the Banks' acceptance of such collateral while ensuring that it is done in a safe and sound manner, § 980.4(b) of the final rule allows a Bank to begin accepting such collateral immediately upon receipt by the Finance Board of the notice. The Finance Board intends to review the Banks' acceptance of such collateral through either special examinations or the regular examination process as it deems appropriate.

b. Pledge of all available collateral before pledge of other real estate-related collateral. The Finance Board requested comment in the SUPPLEMENTARY INFORMATION section of the proposed rule on whether members should be required to pledge all available collateral under proposed §§ 950.7(a)(1) through (3) prior to pledging other real estate-related collateral under paragraph (4), in order to prevent members from using only their least liquid collateral to secure Bank advances. While each Bank has the discretion to include such a requirement in its member products policy, the Finance Board questioned whether it would be appropriate to require collateral prioritization by regulation, especially in light of the Modernization Act authorization for the Finance Board to review, and increase, the Banks' standards for other real estate-related collateral. See Modernization Act, section 604(a)(7).

A number of commenters opposed imposition of a collateral prioritization requirement, recommending instead that decisions on adoption of any collateral prioritization standards be left to the discretion of each Bank, although one Bank supported the proposal as sound credit policy. The Finance Board believes generally that decisions on adopting collateral prioritization standards should be dealt with by each Bank in the context of its collateral policies. Accordingly, the final rule does not include a collateral prioritization requirement.

c. Readily ascertainable value. Current § 950.9(a)(4)(i)(A) of the Advances Regulation requires other real estate-related collateral to have a readily ascertainable value. See 12 CFR 950.9(a)(4)(i)(A). The Finance Board stated in the SUPPLEMENTARY INFORMATION section of the proposed rule that the liquidation value of collateral, and the ability to liquidate the collateral quickly, is a more appropriate measure of the value of other real estate-related collateral securing an advance, particularly given the lifting of the 30 percent cap. Accordingly, proposed § 950.7(a)(4)(i)(A) provided that other real estate-related collateral have a readily ascertainable liquidation value and be able to be freely liquidated in due course. As discussed above, this change also was proposed in § 950.7(b)(1)(i) with respect to CFI-eligible collateral.

A significant number of Bank commenters opposed this change on the ground that liquidation value is difficult or impossible to measure and, therefore, impractical as a standard. The commenters also found the phrase “freely liquidated in due course” to be unclear in terms of when and how frequently such determination would have to be made.

In response to the Banks' concerns, the final rule has been revised to provide that other real estate-related collateral is eligible to secure advances if it has “a readily ascertainable value, can be reliably discounted to account for liquidation and other risks, and can be liquidated in due course.” This standard is intended to clarify that the critical factor is the Bank's ability to reliably discount the collateral in question. The phrase “can be liquidated in due course” is intended to mean that there are no known impediments to liquidation at the time the collateral is accepted by the Bank. As discussed above, this change also is made in § 950.7(b)(1)(i) of the final rule with respect to CFI-eligible collateral.

Under current § 950.1 of the Advances Regulation, the term “residential real property” is defined to include combination business or farm property, where at least 50 percent of the total appraised value of the combined property is attributable to the residential portion of the property or, in the case of a CFI, combination business or farm property on which is located a permanent structure actually used as a residence (other than for temporary or seasonal housing), where the residence constitutes an integral part of the property. 12 CFR 950.1. This provision allows mortgage loans on combination properties to qualify as eligible collateral and to be included in a member's total residential housing assets for the purposes of qualifying for membership and obtaining long-term advances. The Modernization Act's removal of the statutory limit on the amount of advances that may be secured by other real estate-related collateral has eliminated the need to allow combination business or farm property to be counted under the mortgage loan category of eligible collateral. In addition, the Modernization Act's removal of the requirement that CFI members have 10 percent of their total assets in residential mortgage loans to qualify for membership and the expansion of the purposes for which advances may be made to CFI members has reduced the significance of counting such combination properties as residential mortgage loans.

The Finance Board requested comment on whether there were any reasons to retain combination business or farm property in the definition of “residential real property.” A number of commenters generally acknowledged that for most institutions seeking to join and borrow from the Bank System, the removal of the 30 percent cap on other real estate-related collateral and the exemption of CFI members from the 10 percent residential mortgage loans requirement reduced the need for the inclusion of combination business or farm property loans as “residential real estate.” However, commenters pointed out that institutions that do not qualify as CFI members would still benefit from the inclusion of combination property loans held in portfolio so long as such loans continued to qualify as “residential real estate.” For that reason, commenters urged that these types of loans be retained in the definition.

The Finance Board believes that non-CFI members have sufficient other means available by which to meet the 10 percent residential mortgage loans requirement (for example, purchasing mortgage-backed securities), and would not have to rely on loans on combination properties to meet the requirement. Accordingly, as proposed, the final rule removes combination business or farm property from the definition of “residential real property” in § 950.1.

As discussed above, the changes in types and amounts of collateral that may now be pledged to secure advances will present new management challenges for the Banks. In order to ensure that entering into these and other new types of business activities will not create safety and soundness concerns, the proposed rule added a new part 980. Proposed § 980.3 required a Bank to provide at least 60 days prior written notice to the Finance Board of any new business activity that the Bank wished to undertake—including the acceptance of increased volumes of other real estate-related collateral (based on a 125% trigger, discussed in section II.A.3.a. above) and of new CFI-eligible collateral for the first time—so that the Finance Board could disapprove, examine, or impose restrictions on, such activities, as necessary, on a case-by-case basis. In addition to the acceptance of new or increased volumes of collateral, proposed § 980.1 defined a “new business activity” as any business activity undertaken, transacted, conducted or engaged in by a Bank that has not been previously approved by the Finance Board, including: (1) A business activity that has not been undertaken previously by that Bank, or was undertaken previously under materially different terms and conditions; (2) a business activity that entails risks not previously and regularly managed by that Bank, its members, or both, as appropriate; or (3) a business activity that involves operations not previously undertaken by that Bank. The prior notice requirement applied to any Bank desiring to pursue a new business activity, even if another Bank had already undertaken the same activity. With respect to accepting either newly eligible collateral or significantly higher volumes of other real estate-related collateral, proposed § 980.3(b) required that the written notice include: a description of the classes or amounts of collateral proposed to be accepted by the Bank; a copy of the Bank's member products policy; a copy of the Bank's procedures for determining the value of the collateral in question; and a demonstration of the Bank's capacity, personnel, technology, experience and expertise to value, discount and manage the risks associated with the collateral in question. This requirement was intended to ensure that a Bank has the capacity to value, discount and manage the additional collateral prior to making advances secured by such collateral.

Many commenters, including most of the Banks, criticized the proposed definition of “new business activity” in § 980.1 as vague or overly broad, and recommended that the definition be revised to include only a new program or new product undertaking and not an expansion or refinement of an existing line of business. Some commenters opposed any prior notice requirement for undertaking new business activities, while other commenters opposed a prior notice requirement specifically for acceptance of increased volumes of other real estate-related collateral and CFI-eligible collateral for the first time. Commenters stated that a prior notice requirement was unnecessary and inconsistent with the general movement toward devolution of corporate governance responsibilities by the Finance Board to the Banks' boards of directors. Commenters expressed concern that a prior notice requirement would significantly delay a Bank's ability to meet marketplace demand or engage in new business activities, or stifle innovation.

Notwithstanding the concerns of the commenters, the Finance Board continues to believe, as discussed above, that a prior notice requirement is necessary in order to maintain adequate safety and soundness oversight over the Banks' acceptance of the newly eligible types of collateral and undertaking of other new business activities. Accordingly, the proposed prior notice requirement is retained in the final rule. However, the Finance Board agrees with commenters that the proposed definition of “new business activity” may be more broad than necessary. Accordingly, the final rule revises the definition of “new business activity” in § 980.1 by substituting the words “such that” for “and that” in the introductory text, which has the effect of including only those activities specifically enumerated in paragraphs (1) through (4) of the definition as “new business activities.” In addition, as further discussed in section II.A.3.a. above, based on the comments, the Finance Board believes that the proposed 125% trigger requiring notice of acceptance of other real estate-related collateral in § 950.7(a)(4)(iii) may be more restrictive than necessary, and has deleted the trigger from the final rule. Instead, “new business activity” is defined in the final rule to include the acceptance of any other real estate-related collateral, and § 980.4 is revised to permit a Bank to commence accepting other real estate-related collateral immediately upon receipt by the Finance Board of a notice of new business activity under § 980.3. This change will enable Banks to accept other real estate-related collateral without undue delay as a result of the § 980.3 prior notice requirement.

A substantial number of commenters also stated that the proposed requirement that the Banks establish procedures for determining the value of other real estate-related collateral and new CFI-eligible collateral on a loan-by-loan basis was administratively burdensome. Commenters recommended that the Banks therefore be permitted to adopt a valuation methodology based on evaluating a member's credit management systems (“institutional underwriting”). Although the Banks evaluate their members from a credit risk perspective, the Banks historically have been collateralized lenders, relying on the collateral securing advances. The Banks' policies of overcollateralizing advances have resulted in the Bank System never suffering a credit loss since it was established in 1932. In light of the significant challenges associated with implementation of the new collateral authority in the Modernization Act, the Finance Board does not believe that this is an appropriate time for the Bank System to turn its attention away from its traditional focus of evaluating the collateral securing its advances.

Current § 950.9(a)(5) of the Advances Regulation provides that a Bank may accept as collateral any security, such as mutual fund shares, the ownership of which represents an undivided equity interest in underlying assets, all of which qualify either as: (i) Eligible collateral under paragraph (a)(1) (mortgage loans and privately issued mortgage-backed securities) or paragraph (a)(2) (agency securities); or (ii) cash or cash equivalents. As discussed above, cash is now included as eligible collateral under paragraph (a)(3). Accordingly, for greater clarity, a reference to paragraph (a)(3) is included in § 950.7(a)(5)(i) of the final rule and the reference to cash in paragraph (a)(5)(ii) is removed.

The current Advances Regulation does not include a definition of “cash equivalents.” As proposed, § 950.1 of the final rule defines “cash equivalents” as investments that: (1) Are readily convertible into known amounts of cash; (2) have a remaining maturity of 90 days or less at the acquisition date; and (3) are held for liquidity purposes. This definition codifies a Finance Board regulatory interpretation (Regulatory Interpretation 2000-RI-1 (March 6, 2000)) that allowed a Bank to accept as collateral under § 950.7(a)(5), shares of mutual funds that enter into certain limited types of repurchase agreements. For cash management purposes, mutual funds typically hold securities, pursuant to repurchase agreements, that represent short-term investments as part of their daily cash management activities. A mutual fund's ability to enter into such repurchase agreements, typically with a maturity of less than 90 days, allows the excess cash in the fund to be invested without losing liquidity or incurring price risk. Even mutual funds with particularly restrictive investment limitations, such as those limited to mortgage loans, government securities, and agency securities, typically use repurchase agreements to maintain a liquidity position and manage the fund.

The Financial Accounting Standards Board (FASB) defines “cash equivalents” for financial reporting purposes as short-term, highly liquid investments that are both: (a) readily convertible into cash; and (b) so near their maturity that they present insignificant risk of changes in value because of changes in interest rates. See FAS 95 Paragraphs 8-10. FASB also states that, generally, only investments with original maturities of three months or less qualify under that definition. See id.

The definition of “cash equivalents” is derived from the FASB definition, but adapts it by requiring that investments have a remaining maturity of 90 days or less at the acquisition date, because this standard is more practical to implement than a requirement that investments be so near their maturity that they present insignificant risk of changes in value because of changes in interest rates. In addition, a requirement that the investments be held for liquidity purposes is included in the definition. The Banks will be required to determine on a case-by-case basis whether this requirement has been met.

Other real estate-related collateral under current § 950.9(a)(4) was not originally included in current § 950.9(a)(5)(i) because the dollar amount of advances that could be secured by other real estate-related collateral was limited to 30 percent of the member's capital and the Finance Board believed this limitation would result in monitoring complexities that would make the inclusion of other real estate-related collateral in § 950.9(a)(5)(i) impractical. See 64 FR 16618 (April 6, 1999). As discussed above, the Modernization Act amended section 10(a)(4) of the Bank Act by removing the 30 percent cap on other real estate-related collateral. See Modernization Act, section 604(a)(5)(B). Since this impediment has been eliminated, § 950.7(a)(5)(i) of the final rule includes a reference to other real estate-related collateral under § 950.7(a)(4).

Section 9 of the Bank Act provides that the Banks have discretion to deny, or to approve with conditions, a request for an advance, and section 10(a)(1) confers on the Banks the authority to determine whether collateral is sufficient to fully secure an advance. See 12 U.S.C. 1429, 1430(a)(1). Current § 950.9(b) of the Advances Regulation grants a Bank the discretion to further restrict the types of eligible collateral it will accept as security for advances based on the creditworthiness or operations of the borrower, the quality of the collateral, or other reasonable criteria. 12 CFR 950.9(b). In the SUPPLEMENTARY INFORMATION section of the proposed rule, the Finance Board stated that the discretionary authority conferred on the Banks by current § 950.9(b) was unnecessary in light of the Banks' statutory authority, and because the factors listed in current § 950.9(b) are ordinarily considered in valuing collateral. Accordingly, the proposed rule removed current § 950.9(b). However, a number of Bank commenters requested that this provision be retained in the final rule because it further clarifies the Banks' statutory authority in this area. Based on these comments, the provision has been retained in § 950.7(c) of the final rule.

The Bank Act does not directly address the acceptance of eligible collateral from an affiliate, apart from section 10(e) of the Bank Act, which gives a priority to any security interest granted by a member or its affiliates, subject to certain exceptions. See 12 U.S.C. 1430(e). Implicit in Congress' inclusion of collateral pledged by an affiliate in the so-called “superlien provision” is the authority for the Banks to accept collateral from members' affiliates. Accordingly, the Finance Board has determined that Congress has authorized the Banks to accept collateral not only from a wholly-owned subsidiary, but from any affiliate of a member, and states that expressly, as proposed, in § 950.7(f) of the final rule. Several Bank commenters supported this interpretation of the statutory authority of the Banks to accept eligible collateral from members' affiliates.

As proposed, § 950.7(f)(1) of the final rule requires that the pledge of collateral by an affiliate of a member used to secure advances to the member shall either directly secure the member's obligation to repay the advances, or secure a surety or other agreement under which the affiliate has assumed, along with the member, a primary co-obligation to repay the advances made to the member. Because the Bank Act requires that each advance be fully secured, see 12 U.S.C. 1430(a), a guaranty by an affiliate of a member's obligation, backed by the eligible assets held by the affiliate, would not meet the requirements of the Bank Act or the final rule, as the collateral would then be securing the affiliate's secondary obligation and not the advance itself. As provided by § 950.7(f)(1), however, where the affiliate enters into a surety arrangement under which it assumes a primary joint and several co-obligation to repay the advance made to the member, and fully secures this primary surety obligation with eligible collateral, such collateral would be considered as securing the advance itself, as required by the statute.

As proposed, § 950.7(f)(2) of the final rule requires the Bank to obtain from an affiliate, and maintain, a legally enforceable security interest pursuant to which the Bank's legal rights and privileges with respect to the collateral are functionally equivalent in all material respects to those that the Bank would possess if the member were to pledge the same collateral directly. The Bank would be required to have on file adequate documentation demonstrating this functional equivalence. The Finance Board anticipates that Banks that decide to accept collateral from affiliates of members will need to make this determination on a case-by-case basis, after careful legal review and analysis, taking into consideration the structure of the transaction and the law of the state that governs the transaction.

These regulatory additions represent a modification of an earlier proposal on third-party collateral that was published for comment by the Finance Board, but that was subsequently withdrawn. In December 1998, the Finance Board published a proposed rule to amend the Advances Regulation (at that time designated as 12 CFR part 935), that, among other things, would have permitted the Banks to accept pledges of eligible collateral from a member's “qualifying investment subsidiary” (QIS) if the Bank were able to obtain and maintain a security interest in the collateral pursuant to which its rights and privileges were functionally equivalent to those that the Bank would possess if the member were to pledge the collateral directly. Under the December 1998 proposed rule, the term “qualifying investment subsidiary” would have included business entities that: (1) Are wholly owned by a member; (2) are operated solely as passive investment vehicles on behalf of that member; and (3) hold only cash equivalents and assets that are eligible collateral under § § 935.9(a)(1) and (2) of the Advances Regulation. See 63 FR 67625 (Dec. 8, 1998).

In proposing the December 1998 amendments, the Finance Board intended to codify into regulation a series of Finance Board regulatory interpretations regarding the acceptance of eligible collateral held by a real estate investment trust and state security corporation subsidiaries. However, in response to the proposed rule, a large number of commenters questioned the Finance Board's proposal to address only pledges of collateral from a narrow class of wholly-owned subsidiaries, while ignoring collateral arrangements with other types of affiliates that may be permissible under the Bank Act. In light of these comments, the Finance Board removed the QIS provisions from the text of the final rule pending further analysis of the issue. See 64 FR 16618 (April 6, 1999).

In conjunction with § 950.7(f) of the final rule, and consistent with the proposed rule, the final rule amends § 950.1 by defining an “affiliate” as any business entity that controls, is controlled by, or is under common control with, a member. The definition of “affiliate” is intended to limit the scope of eligible third-party collateral to assets over which the member exercises control or shares control.

Consistent with the proposed rule, the final rule removes existing § 950.3 of the Finance Board's Advances Regulation. That section requires each Bank's board of directors to adopt and review a policy on advances and outlines some basic criteria for the content of the advances policy. The final rule moves the requirement for the Bank's board of directors to adopt and periodically re-adopt an advances or credit policy to new § 917.4, “Bank Member Products Policy.” The Finance Board believes that it would make for a more logical presentation in its regulations to have all of the requirements for Bank policies contained in one regulatory part (part 917), rather than to have such requirements scattered throughout its regulations. The requirements for Bank member products policies are discussed in section II.F. 2., below.

Prior to the enactment of the Modernization Act, section 10(e) of the Bank Act restricted access to Bank advances to Bank members that did not meet the qualified thrift lender (QTL) test. 4 These restrictions limited the purposes for which non-QTL members could obtain advances, 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). The Bank Act also established a statutory presumption, for the purpose of determining the minimum amount of Bank capital stock that a member must purchase pursuant to section 6(b) of the Bank Act, that each member has at least 30 percent of its assets in home mortgage loans. See 12 U.S.C. 1430(e)(3) (1994). Coupled with the section 6(b) requirement that all members must subscribe to Bank stock equaling at least one percent of the member's aggregate unpaid loan principal, this presumption effectively limited the dollar amount of advances that a non-QTL member could obtain in relation to the amount of Bank stock it had purchased. See id.

The Modernization Act repealed section 10(e) of the Bank Act in its entirety, thereby providing access to Bank advances without regard to the percentage of housing-related assets a member holds. See Modernization Act, section 604(c). In a recently adopted Interim Final Rule that was finalized on June 23, 2000, the Finance Board removed the provisions in its Membership and Advances Regulations containing the additional capital stock purchase requirements and limitations on advances applicable to non-QTL members. See 65 FR 13866 (March 15, 2000). Consistent with the proposed rule, the final rule removes all remaining references to non-QTL status from the Advances Regulation. See 12 CFR 950.1, 950.21 (1999). Specifically, § 950.1 of the final rule deletes the following QTL-related definitions from the Advances Regulation: definitions of the terms “Actual thrift investment percentage” or “ATIP;” “Non-Qualified Thrift Lender Member;” “Qualified Thrift Lender” or “QTL;” and “Qualified Thrift Lender test” or “QTL test.” 12 CFR 950.1.

Section 10(a) of the Bank Act formerly provided that all long-term advances shall be made only for the purpose of providing funds for residential housing finance. See 12 U.S.C. 1430(a) (1994). This purpose is set forth in current § 950.14(a), and is implemented by use of a proxy test set forth in current § 950.14(b). 12 CFR 950.14(a), (b). Specifically, current § 950.14(b)(1) provides that, before funding a long-term advance ( i.e., an advance with a maturity greater than five years), a Bank shall determine that the principal amount of all long-term advances currently held by the member does not exceed the total book value of the member's “residential housing finance assets.” 12 CFR 950.1, 950.14(b)(1). “Residential housing finance assets” are defined in current § 950.1 to mean any of the following: (1) Loans secured by residential real property; (2) mortgage-backed securities; (3) participations in loans secured by residential real property; (4) loans or investments financed by advances made pursuant to a CICA program; (5) loans secured by manufactured housing, regardless of whether such housing qualifies as residential real property; or (6) any loans or investments which the Finance Board, in its discretion, otherwise determines to be residential housing finance assets. 12 CFR 950.1. Current § 950.14(b)(1) requires a Bank to determine the total book value of the member's residential housing finance assets using the most recent Thrift Financial Report, Report of Condition and Income, or financial statement made available by the member. 12 CFR 950.14(b)(1). This proxy test was determined by the Finance Board to be an operationally feasible compliance monitoring mechanism for residential housing finance assets to implement the statutory requirement that long-term advances be only for residential housing finance purposes. See 57 FR 45338 (Oct. 1, 1992).

The Modernization Act amended section 10(a) of the Bank Act to provide that a Bank may make long-term advances not only for the purpose of providing funds for residential housing finance, but also for the purpose of providing funds to any CFI for small businesses, small farms and small agri-businesses. See Modernization Act, section 604(a)(3). Accordingly, consistent with the proposed rule, the final rule amends current § 950.14 by adding this new purpose in redesignated § 950.3. Section 950.3(a) of the final rule provides that a Bank shall make long-term advances only for the purpose of enabling any member to purchase or fund new or existing residential housing finance assets, which include, for CFI members, small business loans, small farm loans and small agri-business loans. Instead of the statutory terms “small businesses,” “small farms” and “small agri-businesses,” § 950.3 utilizes the terms “small business loans,” “small farm loans” and “small agri-business loans,” which the Finance Board is defining for purposes of identifying the new types of collateral that Banks are authorized to accept from CFI members. See Modernization Act, section 604(a)(5)(C). As discussed in the SUPPLEMENTARY INFORMATION section of the proposed rule, the Finance Board believes that a single set of terms that would apply to both CFI-eligible collateral and the new purposes for which Banks may make advances to CFI members will reduce confusion and otherwise provide an efficient means of implementing the new authorities conferred on the Banks in regard to their CFI members. Further, the Modernization Act provides that the terms “small business,” “small farm” and “small agri-business” shall have the meanings given to those terms by regulation of the Finance Board. See Modernization Act, section 604(a)(7). Accordingly, the Finance Board is interpreting the statutory phrase “providing funds to any community financial institution for small businesses, small farms, and small agri-businesses” to mean making advances to CFI members for small business loans, small farm loans and small agri-business loans. Section 950.3(b)(1) of the final rule maintains the proxy test in its current form. However, revisions to certain definitions will have the effect of including small business loans, small farm loans and small agri-business loans in the denominator of the proxy test for CFI members.

Specifically, as proposed, the final rule amends § 900.1 by adding a new definition of “community lending,” which applies, wherever it appears, in all of the Finance Board's regulations. The term “community lending” currently is defined in § 952.3 of the CICA Regulation as “providing financing for economic development projects for targeted beneficiaries.” 12 CFR 952.3. The definition of “community lending” in § 900.1 adds to that definition, “and, for community financial institutions, purchasing or funding small business loans, small farm loans or small agri-business loans, as defined in § 950.1 of this chapter.” This addition to the definition implements changes made by the Modernization Act and supports the Finance Board's belief that CFI lending to small businesses, small farms and small agri-businesses is community lending. For purposes of the CICA and Community Support Regulations, the current definition of “community lending,” redesignated in the final rule as “targeted community lending,” would continue to apply.

Concurrently, the definition of “residential housing finance assets” is amended in the final rule to change the element that currently reads “Loans or investments financed by advances made pursuant to a CICA program” to “Loans or investments qualifying under the definition of community lending in § 900.1 of this chapter.”

Thus, by operation of the revised definitions of “residential housing finance assets” and “community lending,” the proxy test calculation of the total book value of residential housing assets will include, for CFI members, small business loans, small farm loans and small agri-business loans. This result implements section 604(a)(5)(C) of the Modernization Act, which authorizes a Bank to make long-term advances to CFIs for the purpose of providing financing for small businesses, small farms and small agri- businesses. See Modernization Act, section 604(a)(5)(C).

Current § 950.14(b)(1) of the Advances Regulation allows a Bank to determine the total book value of residential housing financial assets using the most recent Thrift Financial Report, Report of Condition and Income, or financial statement made available by the member. 12 CFR 950.14(b)(1). As proposed, § 950.3(b)(1) of the final rule adds to this list “other reliable documentation” made available by the member. This revision is intended to give the Banks more flexibility in the form of documentation they may use in administering the proxy test, as long as the data supplied by the member is reliable.

The Finance Board proposed to clarify a provision of the Advances Regulation dealing with the pricing of advances. Current § 950.6(b)(1) of the Advances Regulation requires each Bank to price its advances to members taking into account two factors: (1) The marginal cost to the Bank of raising matching maturity funds in the marketplace; and (2) the administrative and operating costs associated with making such advances to members. 12 CFR 950.6(b)(1). A separate provision, current § 950.8(b)(1), provides that each Bank shall establish and charge a prepayment fee pursuant to a specified formula which sufficiently compensates the Bank for providing a prepayment option on an advance, and which acts to make the Bank financially indifferent to the borrower's decision to repay the advance prior to its maturity date. 12 CFR 950.8(b)(1). These provisions do not clearly indicate whether Banks must consider the costs of associated options and the administrative costs of funding advances with such options in pricing an advance. Further, because current § 950.6(b)(1) merely requires the Bank “to take into account” the marginal cost to the Bank of raising matching maturity funds in the marketplace, and the administrative and operating costs associated with making such advances to members, the current rule allows a Bank to price an advance below its marginal cost of funds, a practice the Finance Board could find to be an unsafe and unsound practice in some circumstances and one the Finance Board wishes to discourage.

Therefore, redesignated § 950.5(b)(1) of the proposed rule prohibited a Bank from pricing an advance below the Bank's marginal cost of funds, including the cost of any embedded options, plus the administrative and operating costs associated with making the advance when funding an advance with similar maturity and options characteristics.

Several Banks commented that the proposed prohibition on pricing advances below a Bank's marginal cost of funds was too restrictive in that it could prohibit Banks from passing on the benefits of lower costs to member borrowers. However, the Finance Board believes that the proposed exceptions, discussed below, provide the Banks with ample flexibility to pass on lower costs to borrowers for special purposes. Accordingly, the advance pricing prohibition in proposed § 950.5(b) is adopted without change in the final rule.

Proposed § 950.5(b)(3)(i) provided that the advance pricing prohibition would not apply to a Bank's CICA programs. This was intended to provide the Banks with maximum flexibility in designing and offering AHP and other CICA programs. Proposed § 950.5(b)(3)(ii) also provided that the advance pricing prohibition would not apply to any other advances that are volume limited and specifically approved by a Bank's board of directors. This exception was intended to allow a Bank to price targeted advances at below the cost of funds for some special purpose that does not meet all of the criteria for CICA advances. It was intended that the special purpose involve some social benefit, such as providing relief from a natural disaster. The proposed exception also would allow a Bank to conduct market testing of alternative pricing strategies for advances.

The exceptions have been adopted in the final rule as proposed. In response to a Bank comment, the final rule substitutes the term “advances program” for “advances” in § 950.5(b)(3)(ii) to make clear that the exception for volume limited advances does not require a Bank's board of directors to approve each individual advance.

Current § 950.6(d)(1) of the Advances Regulation provides that a Bank that offers a putable advance to a member shall disclose in writing to such member the type and nature of the risks associated with putable advance funding, and that such disclosure should include detail sufficient to describe such risks. 12 CFR 950.6(d)(1). A convertible advance is similar to a putable advance in that it carries risks associated with a triggering event, usually a shift in a designated interest rate index. Accordingly, redesignated § 950.5(d)(1) of the proposed rule made the current disclosure requirements for putable advances applicable to convertible advances as well. Current § 950.6(d)(2) was not proposed to be revised because replacement funding is not an issue for convertible advances, as convertible advances involve only a change in the stated interest rate, not the repayment of funds.

The Finance Board requested comment on whether there are other appropriate requirements for putable or convertible advances. A Bank commenter suggested that the final rule clarify that replacement funding for putable advances is subject to normal and customary safety and soundness considerations. The final rule adopts § 950.5(d) as proposed except for a revision to paragraph (d)(2), in response to the Bank comment, to clarify that a member receiving replacement funding for putable advances must be able to satisfy the normal credit and collateral requirements of the Bank for such funding.

As part of a continuing effort to revise and achieve consistency in regulatory nomenclature regarding nonmember borrowers, the proposed rule amended the text, where appropriate, to refer to nonmember borrowers who are eligible under section 10b of the Bank Act, 12 U.S.C. 1430b, to obtain advances from the Banks, as “associates.” The definition of “associate” was recently added to 12 CFR 900.1, which contains definitions of terms that apply to all parts of the Finance Board's regulations. In response to a commenter's suggestion, the final rule replaces the term “associates” with the term “housing associates,” which the Finance Board has acknowledged represents a more accurate description of such borrowers. Consistent with this change, the final rule revises the title of subpart B to “Advances to Housing Associates.” Since the term “housing associate” is defined in § 900.1, it is not defined in any of the individual parts addressed by this final rule.

Eligibility requirements for housing associates, including application procedures and requirements for advances to housing associates, currently are contained in the Advances Regulation. See 12 CFR 950.22, 950.23. For the sake of greater organizational clarity, consistent with the proposed rule, the final rule sets forth the housing associate eligibility requirements and advances requirements in separate regulations, by moving the housing associate eligibility requirements to a new part 926 under subpart B. No substantive changes have been made in subpart B.

In its recently adopted final rule, “Powers and Responsibilities of Bank Boards of Directors and Senior Management,” the Finance Board consolidated all of the requirements for the Bank's board of directors' operational policies into one regulatory part, part 917, rather than have such requirements scattered throughout its regulations. See 65 FR 25267 (May 1, 2000). As proposed, § 917.4 of the final rule adds to that part a new requirement for adoption by a Bank's board of directors of a member products policy that would combine the requirements for an advances policy from current § 950.3(a), with the requirements for a standby letter of credit policy from current § 961.5(a), into one policy. The member products policy also addresses other products that the Banks may offer, such as acquired member assets.

As proposed, § 917.4(b) of the final rule requires a Bank's member products policy to address the following items: the credit underwriting criteria to be applied to advances (including renewals) and standby letters of credit; collateralization (including levels, valuation and discounts) for advances and standby letters of credit; advances-related fees (including any schedules or formulas pertaining to such fees); standards and criteria for pricing member products (including differential pricing of advances pursuant to § 950.4(b)(2)); criteria regarding the pricing of standby letters of credit (including any special pricing provisions for standby letters of credit that facilitate the financing of projects that are eligible for any CICA programs under part 952); the maintenance of appropriate systems, procedures and internal controls; and the maintenance of appropriate operational and personnel capacity.

A Bank's member products policy also must provide that, for any draw made by a beneficiary under a standby letter of credit, the member will be charged a processing fee calculated in accordance with § 975.6(b).

As proposed, § 917.4(a)(2) of the final rule requires each Bank's board of directors to review the Bank's member products policy annually, amend the policy as appropriate, and re-adopt the policy, including interim amendments, not less often than every three years.

References to the “advances policy” in other sections of the Finance Board's current regulations are changed in the final rule to references to the “member products policy.”

A few commenters questioned whether it was appropriate to include all of the information required by a Bank in a policy that may be distributed to members. Commenters also stated that policies governing member credit products should be separate and distinct from policies governing acquired member assets, that the regulation should accommodate policy differences among Banks from one year to the next, and that some of the member products policy requirements may already be covered in the regulatory requirements for the Banks' risk management policies.

The final rule retains all of the member products policy requirements contained in the proposed rule because it is important that the Banks' boards consider and address all of these issues as they pertain to advances and other member products. By requiring that each Bank adopt its own member products policy, the Finance Board recognizes that such policies will differ among the Banks, as is currently the case with the Banks' advances policies. The Finance Board also recognizes that some provisions contained in the member products policies will apply only to certain products, and that a Bank may address different products separately in its policy as it sees fit. In addition, the member products policy requirement does not preclude a Bank from creating separate materials for distribution to members.

In the Finance Board's recently adopted final rule on parts 900, 917 and 940, the Finance Board revised part 940 to add a new definition of the mission of the Banks. See 65 FR 25267 (May 1, 2000). Accordingly, as proposed, the final rule removes existing § 950.2 of the Advances Regulation, which states the primary credit mission of the Banks and how the Banks must fulfill such mission, as no longer necessary.

As discussed previously, the final rule amends part 944 and § 952.3 by re-designating the term “community lending” as “targeted community lending,” with no substantive change to the corresponding definition. This revision is intended to differentiate CICA community lending, which is targeted, from the broader term “community lending” that the final rule adds to § 900.1. The broader definition of “community lending” in § 900.1 would include, for CFIs, purchasing or funding small business loans, small farm loans and small agri-business loans, as defined in § 950.1 of this chapter.

As proposed, the final rule amends part 961 to update cross-references to reflect the reorganization of Finance Board regulations, change references from nonmember mortgagees to housing associates, and make other technical and conforming changes. The proposed rule amended § 961.2(c)(2)(i) to allow standby letters of credit issued for a purpose described in § 961.2(a)(1) or (2) to be secured by CFI-eligible collateral, regardless of whether the applicant is a CFI. The final rule removes this provision because the loan-to-one-borrower approach to the definition of “small business loans,” “small farm loans” and “small agribusiness loans” adopted in the final rule does not apply to members that do not qualify as CFIs. The final rule retains the current provision in § 961.2(c)(2)(ii) authorizing investment-grade obligations of state or local government units or agencies as additional collateral eligible to secure standby letters of credit issued for a purpose described in § 961.2(a)(1) or (2).

The final rule does not contain any collections of information pursuant to the Paperwork Reduction Act of 1995. See 33 U.S.C. 3501 et seq. Therefore, the Finance Board has not submitted any information to the Office of Management and Budget for review.

The final rule applies only to the Banks, which do not come within the meaning of “small entities,” as defined in the Regulatory Flexibility Act (RFA). See 5 U.S.C. 601(6). Therefore, in accordance with section 605(b) of the RFA, see id. § 605(b), the Finance Board hereby certifies that this final rule will not have a significant economic impact on a substantial number of small entities.

On June 14, 2000, the Federal Aviation Administration (FAA) issued AD 2000-12-21, amendment 39-11799 (65 FR 39079, June 23, 2000), which applies to certain Boeing Model 747-400 series airplanes. That AD requires installation of a modification of the thrust reverser control and indication system and wiring on each engine; and repetitive functional tests of that installation to detect discrepancies, and repair, if necessary. That AD was prompted by the results of a safety review, which revealed that in-flight deployment of a thrust reverser could result in a significant reduction in airplane controllability. The actions required by that AD are intended to ensure the integrity of the fail-safe features of the thrust reverser system by preventing possible failure modes, which could result in inadvertent deployment of a thrust reverser during flight, and consequent reduced controllability of the airplane.

Since the issuance of that AD, the FAA discovered that Appendix 1 was inadvertently omitted from the final version of the AD. Appendix 1 is referenced in paragraph (b) of the AD as the appropriate source of procedures for the functional test to detect discrepancies of the additional locking system on each engine thrust reverser. Appendix 1 was published in the notice of proposed rulemaking (NPRM), which preceded the final rule. No comments affecting the procedures described in Appendix 1 were received in response to the NPRM.

The FAA has determined that a correction to AD 2000-12-21 is necessary. The correction will add Appendix 1 to the existing AD to ensure that operators have the procedures necessary to perform the functional test required by paragraph (b) of the AD.

This document adds Appendix 1 and correctly adds the AD as an amendment to section 39.13 of the Federal Aviation Regulations (14 CFR 39.13).

The AD is reprinted in its entirety for the convenience of affected operators. The effective date of the AD remains July 28, 2000.

Since this action only adds procedures to make it possible for operators to accomplish the AD, it has no adverse economic impact and imposes no additional burden on any person. Therefore, the FAA has determined that notice and public procedures are unnecessary.

Air transportation, Aircraft, Aviation safety, Incorporation by reference, Safety.

The FAA published this direct final rule with a request for comments in the Federal Register on April 21, 2000, (65 FR 21301). The FAA uses the direct final rulemaking procedure for a noncontroversial rule where the FAA believes that there will be no adverse public comment. This direct final rule advised the public that no adverse comments were anticipated, and that unless a written adverse comment, or a written notice of intent to submit such an adverse comment, were received within the comment period, the regulation would become effective on August 10, 2000. No adverse comments were received, and, thus, this action confirms that this direct final rule will be effective on that date.

In Title 19 of the Code of Federal Regulations, Parts 1 to 140, revised as of April 1, 2000, on page 64, in §4.95, the third sentence is removed.

In the Federal Register of January 24, 2000 (65 FR 3627), FDA published a direct final rule and a companion proposed rule to amend various medical device regulations. The amendments would update references in those regulations to various standards issued by the American Society for Testing and Materials (ASTM). The preamble to the direct final rule and the companion proposed rule explained that ASTM had been working on a project to help Federal agencies update and maintain the ASTM standards that are referenced in the Code of Federal Regulations. As part of the ASTM project, ASTM informed FDA that many ASTM standards cited in FDA's food additive and device regulations were out-of-date and provided a list of standards with their current year designations.

Based on information received from ASTM, FDA, through the direct final rule and companion proposed rule, identified several device regulations that contained obsolete or withdrawn ASTM standards. The medical device regulations and the ASTM standards at issue are:

f 21 CFR 801.410 Use of impact-resistant lenses in eyeglasses and sunglasses —The agency proposed to amend paragraph (d)(2) by replacing “ASTM Method D 1415-68 ‘Test for International Hardness of Vulcanized Rubber,”’ with “ASTM Method D 1415-88, ‘Standard Test Method for Rubber Property—International Hardness,”’ and also replace “ASTM Method D 412-68 ‘Tension Test of Vulcanized Rubber”’ with “ASTM Method D 412-97, ‘Standard Test Methods for Vulcanized Rubber and Thermoplastic Rubbers and Thermoplastic Elastomers—Tension”’.

f 21 CFR 801.430 User labeling for menstrual tampons —The agency sought to amend paragraph (f)(2) by replacing “(ASTM) D 3492-83, ‘Standard Specification for Rubber Contraceptives (Male Condoms)”’ with “(ASTM) D 3492-96, ‘Standard Specification for Rubber Contraceptives (Male Condoms)”’.

FDA received one comment. The comment, submitted by ASTM, pointed out that because ASTM had revised two of the cited ASTM references again, the two references in the direct final rule were now obsolete. ASTM recommended changing D412-97 to D412-98A and D3492-96 to D3492-97 to reflect the current ASTM cites. ASTM's comment explained how the standards had changed and provided detailed descriptions of the changes in its comment. In general, the changes were not significant; some changes involved removing terms that were not commonly used or defined, deleting redundant wording, adding metric measurements, and changing measurement methods to improve accuracy or clarity.

Because these changes are not significant and ASTM has already made these changes to its standards, FDA finds for good cause that notice and public comment on the latest ASTM standards citation revisions is unnecessary.

Therefore, FDA is confirming, in part, the direct final rule insofar as it pertains to § 801.410 and its reference to ASTM Method D 1415-88, “Standard Test Method for Rubber Property—International Hardness” and the addresses where the standards may be found or inspected. Similarly, FDA is confirming the addresses in § 801.430 where the standards may be found or inspected, although it is correcting errors that were made in the direct final rule regarding the ASTM's address.

FDA is amending § 801.410 by replacing “ASTM Method D 412-97” with “ASTM Method D 412-98A” and using the current title for ASTM method D 412.98A. FDA is also amending § 801.430(f)(2) by replacing “(ASTM), D 3492-96,” with “(ASTM) D 3492-97,”.

Therefore, under the Federal Food, Drug, and Cosmetic Act and under the authority delegated to the Commissioner of Food and Drugs, the direct final rule published on January 24, 2000 (65 FR 3627), is confirmed as effective June 7, 2000, with the following changes:

This document contains amendments to the Income Tax Regulations (26 CFR part 1) relating to the penalty for failure to sign an income tax return under section 6695(b) of the Internal Revenue Code.

On December 31, 1998, final and temporary regulations (TD 8803, 1999-12 I.R.B. 15) under section 6695 were published in the Federal Register (63 FR 72182). A notice of proposed rulemaking (REG-106386-98, 1999-12 I.R.B. 31) cross-referencing the temporary regulations was published in the Federal Register (63 FR 72218) on the same date. Although written or electronic comments and requests for a public hearing were solicited, no comments were received and no public hearing was requested or held. The proposed regulations under section 6695 are adopted by this Treasury decision and the corresponding temporary regulations are removed.

Section 6695(b) provides that any person who is an income tax return preparer with respect to a return or claim for refund, who is required by regulations prescribed by the Secretary to sign the return or claim, and who fails to comply with those regulations, must pay a penalty of $50 for such failure, unless it is shown that the failure is due to reasonable cause and not willful neglect. The maximum penalty imposed with respect to documents filed during a calendar year will not exceed $25,000.

Section 7701(a)(36)(A) provides that, in general, the term income tax return preparer means any person who prepares for compensation, or who employs one or more persons to prepare for compensation, any return of tax or claim for refund imposed by subtitle A. For purposes of the preceding sentence, the preparation of a substantial portion of a return or claim is treated as if it were the preparation of such return or claim.

Section 1.6695-1(b)(1) generally provides that an income tax return preparer, with respect to a return or claim for refund, must manually sign the return or claim (which may be a photocopy) in the appropriate space provided on the return or claim after it is completed and before it is presented to the taxpayer (or nontaxable entity) for signature.

The final regulations provide that the employer of the preparer or the partnership in which the preparer is a partner, or the preparer (if not employed or engaged by a preparer and not a partner of a partnership which is a preparer), must retain the manually signed copy of the return or claim. In the alternative, the person required to retain the manually signed copy of the return or claim may either retain a photocopy of that manually signed copy or use an electronic storage system meeting the requirements of section 4 of Rev. Proc. 97-22 (1997-1 C.B. 652), or procedures subsequently prescribed by the Commissioner, to store and produce a copy of the return or claim manually signed by the preparer.

It has been determined that this Treasury decision is not a significant regulatory action as defined in Executive Order 12866. Therefore, a regulatory assessment is not required. It also has been determined that section 553(b) of the Administrative Procedure Act (5 U.S.C. chapter 5) does not apply to these regulations, and because the regulations do not impose a collection of information on small entities, the Regulatory Flexibility Act (5 U.S.C. chapter 6) does not apply. Pursuant to section 7805(f) of the Internal Revenue Code, the notice of proposed rulemaking that preceded these regulations was submitted to the Chief Counsel for Advocacy of the Small Business Administration for comment on its impact on small business.

The principal author of these regulations is Beverly A. Baughman of the Office of Assistant Chief Counsel (Income Tax & Accounting). However, other personnel from the IRS and Treasury Department participated in their development.

On December 27, 1993, the IRS issued temporary regulations (TD 8510) in the Federal Register (58 FR 68295) under sections 6012, 6061, and 6065 relating to the TeleFile Voice Signature test. Because the temporary regulations applied only to 1992 and 1993 calendar year returns, the IRS has decided to remove them. Therefore, temporary regulations §§ 1.6012-7T, 1.6061-2T, and 1.6065-2T are being removed.

On December 27, 1993, the IRS also issued a notice of proposed rulemaking (58 FR 68335) under sections 6012, 6061, and 6065. Although written comments and requests for a public hearing were solicited, no written or oral comments were received and no public hearing was requested or held. This notice of proposed rulemaking is being withdrawn in a separate document.

Under sections 6012, 6061, and 6065 of the Internal Revenue Code, each individual with gross income in excess of a specified amount must file an annual income tax return that (i) is signed in accordance with prescribed forms and instructions and, (ii) except as otherwise provided by the Service, contains (or is verified by) a written declaration that the return is made under penalties of perjury.

The temporary regulations provide rules to facilitate the implementation of the Telefile Voice Signature test. Generally, pursuant to the temporary regulations a taxpayer's individual income tax return will be treated as having been properly filed if the taxpayer is eligible to participate in the Telefile Voice Signature test and, pursuant to the instructions from the Telefile system interactive voice computer, provides the requested information and the voice signature during the telephonic filing season.

The Telefile Voice Signature test occurred during the 1993 and 1994 filing seasons. Since that time the Service has published final regulations generally authorizing alternative signature methods. See § 301.6061-1. Accordingly, the regulations relating to the Telefile Voice Signature test are being removed.

The principal author of these regulations is Beverly A. Baughman of the Office of Assistant Chief Counsel (Income Tax and Accounting), IRS. However, personnel from other offices of the Internal Revenue Service and Treasury Department participated in their development.

Global Package Link service is an international mail service designed for companies sending merchandise packages to other countries. To use GPL, a customer must send at least 10,000 packages per year of mailing and agree to link its information systems with the Postal Service so that certain information about the contents of the customer's packages can be extracted for operational, customs clearance, and other purposes.

The Postal Service is proposing to add new features to GPL that will enhance its value to customers. The weight and size limits for items sent to Argentina are being increased. The weight limit is increased to 70 pounds from 44 pounds for both premium and standard services. The maximum size is increased to 60 inches in length and 108 inches in length and girth combined.

Service is being extended to Australia. Service to Australia includes premium and standard service. The maximum weight is 66 pounds for both premium and standard services. The maximum size limit for premium items is 36 inches maximum length and a maximum length and girth combined of 79 inches. The maximum size limit for standard items is 42 inches maximum length and a maximum length and girth combined of 79 inches.

The rates for service to Australia are:

The Postal Service is extending service to all countries in the EU. Under this service, packages will be transported to Great Britain for customs clearance. Once cleared, the packages will be delivered to the other countries in the EU with no further customs clearance required. There are two rate groups. Rate Group 1 includes Ireland, Belgium, The Netherlands, Denmark, France, and Germany. Rate Group 2 includes Luxembourg, Greece, Italy, Portugal, Spain, Austria, Finland, and Sweden. The rates for this service are as follows:

The rates for oversized packages to Japan are increased 5 percent. These packages, which are too large for delivery by Japanese postal authorities, are tendered to a private delivery firm for delivery. The rates for this service are as follows:

The Postal Service is increasing the rates of all existing GPL services by 5 percent. Japan rates are also being announced for parcels weighing up to 66 lbs. Rates for each country are as follows:

The Postal Service is introducing storage and other charges for GPL items tendered when the data required from the mailer is not sent, is incomplete or corrupt, or otherwise cannot be processed due to the mailer's fault. The lack of correct data causes significant operational problems and requires that packages be stored and rehandled. Such storage and rehandling results in additional costs, which are caused by the mailer. The Postal Service will charge fees for modifying corrupt data files sent by the mailer so that the mailer's packages can be processed and delivered. The Postal Service will charge a fee of $.30 per package for storage, $1.50 for each data exception, and $50 for each file modification.

The Postal Service is establishing a new surcharge for customers not mailing at least 10,000 packages per year. If a mailer does not send 10,000 packages, combined volumes to GPL destination countries, in any year of mailing, an $11 per package surcharge will be applied. The mailer will also be required to use only the premium service level. The Postal Service will review a mailer's volume annually after its first complete year of mailing, based on the previous 13 complete accounting periods of mailing. The surcharge will be effective 30 days thereafter. In addition, the Postal Service is invoking the standard for bulk mailings such that GPL mailers will be required to send a minimum of 200 pieces or 50 pounds per mailing.

The Postal Service is revising the customs clearance service procedures to specify information a mailer must or may provide. The existing fee of $1.25 for each item harmonized is being replaced with a new fee structure. Before customs clearance services are initiated, the Postal Service will provide the mailer with a binding proposal stating the number of hours required to complete the service and the total fee for the service calculated on an hourly basis at $250 per hour. In addition, the existing harmonization of 2,500 free items in the first year of using GPL is changed to 2,500 annually. The current fee and customs clearance service causes additional costs to be incurred by the Postal Service and causes uncertainty among mailers in their not knowing the fees they will be charged. The Postal Service is also instituting a fee for assisting mailers in establishing an electronic data interchange or for manifesting GPL packages. Prior to providing such assistance, the Postal Service will provide the mailer with a binding proposal stating the number of hours that will be required to complete the assistance and the total fee for the assistance calculated on an hourly basis at $250 per hour.

Although the Postal Service is exempted by 39 U.S.C. 410(a) from the advance notice requirements of the Administrative Procedure Act regarding proposed rulemaking (5 U.S.C. 553), the Postal Service invites public comment at the above address.

The Postal Service is amending Subchapter 620, “Global Package Link,” and the appropriate Individual Country Listings, International Mail Manual, which are incorporated by reference in the Code of Federal Regulations. See 39 CFR 20.1.

You may be affected by this action if you are an agricultural producer, food manufacturer, or pesticide manufacturer. Potentially affected categories and entities may include, but are not limited to:

This listing is not intended to be exhaustive, but rather provides a guide for readers regarding entities likely to be affected by this action. Other types of entities not listed in the table could also be affected. The North American Industrial Classification System (NAICS) codes have been provided to assist you and others in determining whether or not this action might apply to certain entities. If you have questions regarding the applicability of this action to a particular entity, consult the person listed in the FOR FURTHER INFORMATION CONTACT section.

1. Electronically. You may obtain electronic copies of this document, and certain other related documents that might be available electronically, from the EPA Internet Home Page at http://www.epa.gov/. To access this document, on the Home Page select “Laws and Regulations” and then look up the entry for this document under the “ Federal Register —Environmental Documents.” You can also go directly to the Federal Register listings at http://www.epa.gov/fedrgstr/.

2. In person. The Agency has established an official record for this action under docket control number OPP-301014. The official record consists of the documents specifically referenced in this action, and other information related to this action, including any information claimed as Confidential Business Information (CBI). This official record includes the documents that are physically located in the docket, as well as the documents that are referenced in those documents. The public version of the official record does not include any information claimed as CBI. The public version of the official record, which includes printed, paper versions of any electronic comments submitted during an applicable comment period is available for inspection in the Public Information and Records Integrity Branch (PIRIB), Rm. 119, Crystal Mall #2, 1921 Jefferson Davis Hwy., Arlington, VA, from 8:30 a.m. to 4 p.m., Monday through Friday, excluding legal holidays. The PIRIB telephone number is (703) 305-5805.

In the Federal Register of August 17, 1998 (63 FR 43937) (FRL-6018-2), EPA issued a notice pursuant to section 408 of the Federal Food, Drug, and Cosmetic Act (FFDCA), 21 U.S.C. 346a as amended by the Food Quality Protection Act of 1996 (FQPA) (Public Law 104-170) announcing the filing of a pesticide petition (PP) 8F4955 for tolerances by Novartis Crop Protection, Inc. This notice included a summary of the petition prepared by Novartis Crop Protection, Inc., the registrant. An amendment to the notice of filing was published in the Federal Register of August 26, 1999 (64 FR 46680) (FRL-6099-8) which revised proposed tolerance levels and added the metabolite CGA-321113. No comments were received in response to the amendment.

The petition requested that 40 CFR part 180 be amended by establishing a tolerance for combined residues of the fungicide trifloxystrobin and the free form of its acid metabolite CGA-321113, in or on almond nutmeat at 0.04 parts per million (ppm), almond hulls at 3.0 ppm, dried hops cones at 11.0 ppm, sugar beet roots at 0.1 ppm, sugar beet tops at 4.0 ppm, sugar beet dried pulp at 0.4 ppm, sugar beet molasses at 0.2 ppm, potato tubers at 0.04 ppm, fruiting vegetables at 0.5 ppm, wheat grain at 0.05 ppm, wheat forage at 0.3 ppm, wheat hay at 0.2, wheat straw at 5.0 ppm, and aspirated grain fractions at 5.0 ppm.

Section 408(b)(2)(A)(i) of the FFDCA allows EPA to establish a tolerance (the legal limit for a pesticide chemical residue in or on a food) only if EPA determines that the tolerance is “safe.” Section 408(b)(2)(A)(ii) defines “safe” to mean that “there is a reasonable certainty that no harm will result from aggregate exposure to the pesticide chemical residue, including all anticipated dietary exposures and all other exposures for which there is reliable information.” This includes exposure through drinking water and in residential settings, but does not include occupational exposure. Section 408(b)(2)(C) requires EPA to give special consideration to exposure of infants and children to the pesticide chemical residue in establishing a tolerance and to “ensure that there is a reasonable certainty that no harm will result to infants and children from aggregate exposure to the pesticide chemical residue....”

EPA performs a number of analyses to determine the risks from aggregate exposure to pesticide residues. For further discussion of the regulatory requirements of section 408 and a complete description of the risk assessment process, see the final rule on Bifenthrin Pesticide Tolerances (62 FR 62961, November 26, 1997) (FRL-5754-7).

Consistent with section 408(b)(2)(D), EPA has reviewed the available scientific data and other relevant information in support of this action. EPA has sufficient data to assess the hazards of trifloxystrobin and to make a determination on aggregate exposure, consistent with section 408(b)(2), for a tolerance for combined residues of trifloxystrobin and the free form of its acid metabolite CGA-321113 on almond nutmeat at 0.04 ppm, almond hulls at 3.0 ppm, dried hops cones at 11.0 ppm, sugar beet roots at 0.1 ppm, sugar beet tops at 4.0 ppm, sugar beet dried pulp at 0.4 ppm, sugar beet molasses at 0.2 ppm, potato tubers at 0.04 ppm, fruiting vegetables at 0.5 ppm, wheat grain at 0.05 ppm, wheat forage at 0.3 ppm, wheat hay at 0.2, wheat bran at 0.15 ppm, and aspirated grain fractions at 5.0 ppm. EPA's assessment of the dietary exposures and risks associated with establishing the tolerance follows.

EPA has evaluated the available toxicity data and considered its validity, completeness, and reliability as well as the relationship of the results of the studies to human risk. EPA has also considered available information concerning the variability of the sensitivities of major identifiable subgroups of consumers, including infants and children. The results of toxicity studies for trifloxystrobin are listed below:

1. Subchronic-Feeding Study— Rat . The No Observed Adverse Effects Level (NOAEL) was 500 ppm (30.6-32.8 milligrams/kilogram/day (mg/kg/day). Decreased body weight, hypertrophy of hepatocytes in males and pancreatic atrophy were observed at the Lowest Observed Adverse Effects Level (LOAEL) of 2,000 ppm (127-133 mg/kg/day).

2. Subchronic-Feeding Study— Mouse . The NOAEL was 500 ppm (76.9-110 mg/kg/day). Increased liver weights and necrosis of hepatocytes were observed at the LOAEL of 2,000 ppm (315-425 mg/kg/day).

3. Subchronic-Feeding Study— Dog. The NOAEL was 30 mg/kg/day. Increased liver weight and hepatocyte hypertrophy in males were observed at the LOAEL of 150 mg/kg/day.

4. 28-Day Dermal Toxicity Study— Rat . The NOAEL was 100 mg/kg/day. Increased liver and kidney weight were observed at the LOAEL of 1,000 mg/kg/day.

5. Developmental Toxicity Study— Rat . The maternal NOAEL was 10 mg/kg/day. Decreased body weight gain and food consumption were observed at the maternal LOAEL of 100 mg/kg/day. The developmental NOAEL was 1,000 mg/kg/day. No developmental effects were observed. The developmental LOAEL was equal to or greater than 1,000 mg/kg/day.

6. Developmental Toxicity Study— Rabbit. The maternal NOAEL was 10 mg/kg/day. Decreased mean body weights and decreased mean body weight gain (compared to control), food consumption and efficiency were observed at the maternal LOAEL of 50 mg/kg/day. The developmental NOAEL was 250 mg/kg/day. Skeletal anomolies were observed at the Developmental LOAEL of 500 mg/kg/day.

7. Reproductive Toxicity Study— Rat . The parental NOAEL was 50 ppm (3.8 mg/kg/day). Decreased mean body weight and decreased mean weight gain (compared to control), decreased food consumption, and increased incidence of liver, kidney and spleen effects were observed at the parental LOAEL of 750 ppm (55.3 mg/kg/day). The reproductive NOAEL was 1,500 ppm (110.6 mg/kg/day). The reproductive LOAEL was greater than 1,500 ppm (110.6 mg/kg/day).

8. Chronic-Feeding Study— Dog . The NOAEL was 5 mg/kg/day. Increased clinical signs, increased liver weight and hepatocellular hypertrophy were observed at the LOAEL of 50 mg/kg/day.

9. Carcinogenicity Study— Mouse. The NOAEL was 300 ppm (39.4 mg/kg/day). Liver effects were observed at the LOAEL of 1,000 ppm (131.1 mg/kg/day).

10. Chronic Toxicity/Carcinogenicity Study— Rat. The NOAEL was 250 ppm (9.81-11.37 mg/kg/day). Decreased mean body weight and decreased mean body weight gain (compared to control) were observed at the LOAEL of 750 ppm (29.7-34.5 mg/kg/day).

11. Gene Mutation Study— Salmonella . Negative.

12. Gene Mutation study— Chinese Hamster Cultured V-79 . Positive.

13. Structural Chromosome Aberration-Micronucleus study— Mouse. Negative.

14. Structural Chromosome Aberration-Cytogenetics study— Chinese Hamster . Negative.

15. DNA Repair study-hepatocytes— Rat. Negative.

16. Acute Oral Neurotoxicity study— Rat . The NOAEL and LOAEL could not be determined.

17. Metabolism study—Rat . The tissue half-lives ranged from 13 to 42 hours. The highest residues were found in liver, kidneys, spleen and blood. The parent compound was extensively metabolized to approximately 35 metabolites.

The following endpoints were used in the the risk assessments for trifloxystrobin.

1. Acute toxicity—Dietary Developmental Toxicity Study— Rabbits. The developmental NOAEL was 250 mg/kg/day. The endpoint was an increase in fetal incidence of fused sternebrae 1#3 and 1#4 at a LOAEL of 500 mg/kg/day. The uncertainty factor (UF) was 100 based on intraspecies and interspecies variation. The acute reference dose (RfD) was 2.5 mg/kg/day; the acute population adjusted dose (aPAD) was 2.5 mg/kg/day. In the study selected, the developmental effects were presumed to occur after a single exposure. Since this is an in utero effect it is applicable only to the population subgroup, females 13+ years.

2. Short- and intermediate-term toxicity— 28-Day Dermal Toxicity Study— Rats. The systemic NOAEL was 100 mg/kg/day. The endpoint was an increase in liver and kidney weights at a LOAEL of 1,000 mg/kg/day.

3. Long-term toxicity . Long-term dermal exposure is not expected based on the proposed use pattern. Therefore, a long term dermal risk assessment was not performed.

4. Chronic toxicity—Chronic Toxicity Study— Dogs . The NOAEL was 5 mg/kg/day. The endpoint was an increased incidence of clinical signs, increased mean liver weight and hepatocellular hypertrophy at a LOAEL of 50 mg/kg/day. The UF was 100 for intraspecies and intraspecies variation. The chronic RfD was 0.05 mg/kg/day; the chronic PAD was 0.05 mg/kg/day. The chronic toxicity study in dogs was chosen for the chronic dietary risk assessment because the study is chronic and the systemic NOAEL is lower than that in the chronic rat study. Also, the toxic effects observed were seen in the chronic rat study and the multi-generation reproduction study in rats.

5. Carcinogenicity. Trifloxystrobin has been classified as a “not likely human carcinogen”.

1. From food and feed uses. Tolerances are being established for the combined residues of trifloxystrobin and the free form of its acid metabolite CGA-321113 on the following commodities: almond nutmeat at 0.04 ppm, almond hulls at 3.0 ppm, dried hops cones at 11.0 ppm, sugar beet roots at 0.1 ppm, sugar beet tops at 4.0 ppm, sugar beet dried pulp at 0.4 ppm, sugar beet molasses at 0.2 ppm, potato tubers at 0.04 ppm, fruiting vegetables at 0.5 ppm, wheat grain at 0.05 ppm, wheat forage at 0.3 ppm, wheat hay at 0.2, wheat straw at 5.0 ppm, wheat bran 0.15 ppm, and aspirated grain fractions at 5.0 ppm. Risk assessments were conducted by EPA to assess dietary exposures as follows:

i. Acute exposure and risk. Acute dietary risk assessments are performed for a food-use pesticide if a toxicological study has indicated the possibility of an effect of concern occurring as a result of a 1-day or single exposure. The Dietary Exposure Evaluation Model (DEEM) detailed acute analysis estimates the distribution of single exposures for the overall U.S. population and certain subgroups. For this assessment, the only population subgroup of concern for acute dietary risk is Females 13 years and older. The analysis evaluates individual food consumption as reported by respondents in the USDA 1989-1992 Continuing Survey of Food Intake by Individuals (CSFII) and accumulates exposure to the chemical for each commodity. Each analysis assumes uniform distribution of trifloxystrobin in the commodity supply. In conducting the acute dietary risk assessment, the Agency made highly conservative assumptions. One hundred percent of proposed crops are assumed to be treated with trifloxystrobin, and this is expected to result in an overestimate of dietary risk. Therefore, this acute dietary (food only) risk assessment should be viewed as a highly conservative risk estimate. Further refinement using anticipated residues or percent of crop treated data in conjunction with a Monte Carlo analysis would result in a lower dietary exposure estimate. In the DEEM acute analysis the proposed tolerances for combined residues of trifloxystrobin and CGA-321113 utilized < 1% of the aPAD for females 13-50 years.

ii. Chronic exposure and risk. In conducting the chronic dietary (food only) risk assessment, the Agency made highly conservative assumptions which resulted in an overestimate of human dietary exposure. One hundred percent of proposed crops are assumed to be treated with trifloxystrobin, and this is expected to result in an overestimate of dietary risk. Therefore, this chronic dietary (food only) risk assessment should be viewed as a highly conservative risk estimate. Further refinement using anticipated residues or percent of crop treated data would result in a lower dietary exposure estimate. Thus, in making a safety determination for these tolerances, EPA takes into account this highly conservative exposure assessment. The Agency is generally concerned with chronic exposures that exceed 100% of the chronic PAD (cPAD) or chronic RfD. The proposed trifloxystrobin tolerances were used to calculate the the exposure and risk estimate. The percentages cPAD utilized were 15% for all infants ( < 1 year), 18% for children 1-6 years old, and 7.5% or lower for other population subgroups.

iii. Cancer dietary risk from food sources. Trifloxystrobin was classified as a “not likely human carcinogen.” Therefore, a cancer risk assessment was not conducted.

2. From drinking water. EPA does not have monitoring data available to perform a quantitative dietary (drinking water) risk assessment for trifloxystrobin and the free form of its acid metabolite. In the absence of reliable, available monitoring data, EPA uses models to estimate concentrations of pesticides in ground-water and surface water. Drinking water estimates for the parent, trifloxystrobin, plus the free form of its acid metabolite CGA-321113, were generated by the Screening Concentration in Ground Water (SCI-GROW) model. Conservative assumptions were built into the ground water scenario used by the SCI-GROW model, such as assuming shallow ground water, coarse soils and high levels of irrigation. The estimate from SCI-GROW represents an upper bound on the concentration of trifloxystrobin in ground waters as a result of agricultural use.

The estimate for the parent, trifloxystrobin, using the SCI-GROW model is 0.006 part per billion (ppb). For the primary metabolite CGA-321113, the estimated value is 4.9 ppb. For risk assessment purposes, EPA used the estimates for the primary metabolite (and not a sum of parent plus metabolite) because the SCI-GROW model assumes 100% conversion from parent to CGA-321113.

Estimates of concentrations of trifloxystrobin and its metabolite in surface water were made using the generic expected environmental concentration (GENEEC) model. The peak estimate for the parent, trifloxystrobin, using the GENEEC model, ranges from 5.29 to 5.56 ppb. The 56-day average for the parent ranges from 0.64 to 2.97. For the primary metabolite, the peak estimate is 47.98 ppb, and the 56-day average estimate is 47.31 ppb. For risk assessment purposes, EPA used the estimates for the primary metabolite (and not a sum of parent plus metabolite) because the GENEEC model assumes 100% conversion from parent to CGA-321113.

A Drinking Water Level of Comparison (DWLOC) is a theoretical upper limit of a pesticide's concentration in drinking water in light of total aggregate exposure to that pesticide in food and through residential uses. A DWLOC will vary depending on the toxic endpoint, consumption and body weight. Different populations will have different DWLOCs. EPA uses DWLOCs internally in the risk assessment process as a surrogate measure of potential exposure associated with pesticide exposure through drinking water. In the absence of monitoring data for pesticides, the DWLOC is used as a point of comparison against conservative model estimates of potential pesticide concentration in water. DWLOC values are not regulatory standards for drinking water. EPA has calculated DWLOCs for acute and chronic (non-cancer) exposure to trifloxystrobin and the primary metabolite CGA-321113 for the U.S. population and selected subgroups.

The DWLOC for acute risk is 75,000 m g/l for females 13-50 years. The DWLOCs for chronic exposure are 1,600 m g/l for the U.S. population, 430 m g/l for all infants, 1,400 m g/l for females 13-50 years, and 615 m g/l for children 1-6 years. The estimated concentrations of trifloxystrobin in ground water, 4.9 m g/l and surface water, 47 m g/l, are less than the DWLOCs as a contribution to acute and chronic exposure. The estimated concentrations of trifloxystrobin and its primary metabolite in ground and surface water are considered conservative estimates. Therefore, EPA concludes with reasonable certainty that residues of trifloxystrobin in food and drinking water would not result in an unacceptable estimate of acute or chronic (non-cancer) aggregate human health risk.

3. From non-dietary exposure. Trifloxystrobin, is proposed for use on the following residential non-food sites: turfgrass and ornamentals. There are no homeowner uses of trifloxystrobin proposed, but residential lawns are listed on the label as sites which may be treated by a professional pesticide applicator. Therefore, risk assessments (dermal and oral) were conducted for adults and children who may be exposed to trifloxystrobin after application by a professional pesticide applicator. Short and intermediate-term post-application residential risk estimates do not exceed EPA's level of concern, Margins Of Exposure (MOE) range from 760 to 300,000. Acute and chronic aggregate risk (food plus water) estimates do not exceed EPA's level of concern. Short- and intermediate-term aggregate risk estimates also do not exceed EPA's level of concern.

4. Cumulative exposure to substances with common mechanism of toxicity . Section 408(b)(2)(D)(v) requires that, when considering whether to establish, modify, or revoke a tolerance, the Agency consider “available information” concerning the cumulative effects of a particular pesticide's residues and “other substances that have a common mechanism of toxicity.” Trifloxystrobin belongs to a new class of fungicides, the MAEs (beta-methoxyacryl esters), which are synthetic analogs of strobilurin A, an antifungal secondary metabolite of the fungus Strobilurus tenacellus . Trifloxystrobin works by interfering with respiration in plant pathogenic fungi. The site of action of strobilurin compounds is located in the mitochondrial respiration pathway between cytochromes b and c1 at the level of the hydroquinone binding site. As a result of this mode of action, trifloxystrobin is a potent inhibitor of fungal spore germination and mycelial growth. Trifloxystrobin can be referred to more specifically as an oximinoacetate.

EPA does not have, at this time, available data to determine whether trifloxystrobin has a common mechanism of toxicity with other substances or how to include this pesticide in a cumulative risk assessment. Unlike other pesticides for which EPA has followed a cumulative risk approach based on a common mechanism of toxicity, trifloxystrobin does not appear to produce a toxic metabolite produced by other substances. For the purposes of this tolerance action, therefore, EPA has not assumed that trifloxystrobin has a common mechanism of toxicity with other substances. For information regarding EPA efforts to determine which chemicals have a common mechanism of toxicity and to evaluate the cumulative effects of such chemicals, see the final rule for Bifenthrin Pesticide Tolerances (62 FR 62961, November 26, 1997) (FRL. start

1. Acute risk. To calculate acute aggregate dietary risk, high-end exposures from food and drinking water sources are compared to the acute PAD. Exposure to trifloxystrobin residues and the free form of its acid metabolite, CGA-321113 in food will occupy no more than < 1% of the acute PAD for females 13-50 years. Acute dietary risk from food was calculated for females 13-50 years because the endpoint upon which the acute PAD is based is on developmental effects. Residue levels used for food-source dietary risk assessments were very conservative: proposed tolerance levels were used, and 100% crop treated was assumed, with no refinements. Acute dietary exposure estimates were calculated for the 95th percentile. Estimated drinking water levels were calculated using drinking water models (SCI-GROW and GENEEC)). Estimated concentrations of trifloxystrobin residues in surface and ground water are lower than EPA's DWLOCs. Therefore, EPA does not expect acute aggregate risk to trifloxystrobin residues from acute food and drinking water sources to exceed EPA's level of concern for acute aggregate risk.

2. Chronic risk. Exposure to trifloxystrobin and the free form of its acid metabolite, CGA-321113 residues in food will occupy no more than 3.5% of the chronic PAD for adult population subgroups (females 13-50 years) and no more than 18% of the chronic PAD for infant/children subgroups (highest subgroup: children 1-6 years). Residue levels used for food-source dietary risk assessments were not refined and did not incorporate percent of crop treated. Estimated concentrations of trifloxystrobin residues in surface and ground water are lower than EPA's DWLOCs. Estimated drinking water levels were calculated using drinking water models. Chronic residential exposure of trifloxystrobin is not expected. EPA does not expect chronic aggregate risk to trifloxystrobin residues from food, water and residential sources to exceed EPA's level of concern for chronic aggregate risk.

3. Short-term risk. To calculate short-term aggregate risk, high-end residential risk (oral) is combined with chronic food and drinking water risks. Since trifloxystrobin causes the same toxic effects but different NOAELs were found across different routes, risks for food, drinking water and residential exposure paths are combined to estimate short-term risk. Based on EPA's short-term aggregate risk calculation, EPA does not expect short-term aggregate risk to trifloxystrobin residues from food, water and residential sources to exceed EPA's level of concern for short-term aggregate risk.

4. Intermediate-term risk. To calculate intermediate-term aggregate risk, high-end residential risk (oral) are combined with chronic food and drinking water risks. Since trifloxystrobin causes the same toxic effects but different NOAELs were found across different routes, risks for food, drinking water and residential exposure paths are combined to estimate intermediate-term risk. Based on EPA's intermediate term aggregate risk calculation, EPA does not expect intermediate-term aggregate risk to trifloxystrobin residues from food, water and residential sources to exceed the EPA's level of concern for intermediate-term aggregate risk.

5. Aggregate cancer risk for U.S. population . Not applicable. There is no evidence of carcinogenicity.

6. Determination of safety . Based on these risk assessments, EPA concludes that there is a reasonable certainty that no harm will result from aggregate exposure to residues.

EPA determined the 10x safety factor for the protection of infants and children should be removed. Based on the following:

1. The toxicology database is complete for FQPA assessment.

2. There is no indication of increased susceptibility of rat or rabbits to trifloxystrobin. In the developmental and reproductive toxicity studies, effects in the fetuses/offspring were observed only at or above treatment levels which resulted in evidence of parental toxicity.

3. It was determined that a developmental neurotoxicity study in rats is not required.

4. The exposure assessments will not underestimate the potential dietary (food and drinking water) or nondietary exposures for infants and children from the use of trifloxystrobin.

1. For plants . EPA determined that the qualitative nature of the residue in plants is adequately understood for almonds, hops, fruiting vegetables, tuberous and corm vegetables, and sugar beets based on acceptable studies conducted on apples, cucumbers, peanuts and a supplementary study on wheat and that these plant commodities are of concern for both regulatory and risk assessment purposes. EPA concluded that additional metabolism studies would be needed to support registration of trifloxystrobin and the free form of its acid metabolite CGA-321113 on wheat.

2. For animals . The EPA determined that the qualitative nature of the residue in animals is adequately understood based on acceptable studies conducted in goats and laying hens. It was determined that the total toxic residues for animals, both for regulatory and risk assessment purposes, is trifloxystrobin and the free form of its acid metabolite CGA-321113. Additionally, the liver contribution for metabolite L7a (taurine conjugate of trifloxystrobin) is to be included for risk assessment purposes, assuming equal toxicity as trifloxystrobin.

EPA has completed a method validation of AG-659A on apples, wet apple pomace, grapes, summer squash, peanut hay, peanuts, cow liver, cow milk and raisins, and concluded that AG-659A is suitable for enforcement of trifloxystrobin and the free form of its acid metabolite in plant and animal commodities. Method AG-659A is the proposed analytical method for the enforcement of trifloxystrobin in plant and animal commodities. It supersedes Method AG-659. Compared to AG-659, AG-659A also includes extractability and accountability of 14 C-CGA-279202 in animal matrices, minor changes, and suggestions resulting from the independent laboratory validation (ILV) to improve the ruggedness of the method. Method AG-659A has been validated by the petitioner for both trifloxystrobin and its acid metabolite CGA-321113. This method adequately recovers residues of trifloxystrobin and CGA-321113, usually with a limit of quantitation (LOQ) of 0.02 ppm.

1. Crop field trials. The field trials were adequate in number, geographically representative, and reasonably reflected the proposed use patterns. In all cases, the tolerances EPA recommended were for combined residues of trifloxystrobin and the free form of its acid metabolite CGA-321113.

i. Almond. EPA recommended for a 0.04 ppm tolerance in/on almond nutmeats and 3.0 ppm in/on almond hulls.

ii. Fruiting vegetables. Additional residue data would be needed to support future registrations for fruiting vegetables. In the interim, EPA recommended for a 0.5 ppm tolerance.

iii. Hops. EPA recommended for a 11.0 ppm tolerance in/on hops, dried cones.

iv. Potato . EPA recommended for a tolerance of 0.04 ppm (based on LOQs).

v. Sugar beet . EPA recommended for a 0.1 ppm tolerance on sugar beet roots and 4.0 ppm on sugar beet tops.

vi. Wheat . EPA recommended at 0.05 ppm on wheat grain, 0.3 ppm on wheat forage, 0.2 ppm on wheat hay, 5.0 ppm on wheat straw.

vii. Aspirated grain fractions . EPA recommended for a 5.0 ppm tolerance.

2. Processed commodities. In all cases, the tolerances EPA recommended were for combined residues of trifloxystrobin and the free form of its acid metabolite CGA-321113.

i. Sugar beet. No concentration of residues occurred in refined sugar; no tolerance is required. EPA recommended a 0.2 ppm in molasses and 0.4 ppm in dried beet pulp.

ii. Potato. No concentration of residues occured in flakes and chips, and no tolerances are required. Residues for wet peel were lower than the tolerance level recommended for potato, hence, no tolerance for wet peel is required.

iii. Tomato . No concentration of residues occurred in puree; no tolerance is required. No tolerance on tomato paste is required, pending residue data reflecting the maximum application rate.

iv. Wheat . No concentration of residues occurred in germ, middlings, shorts, and flour. EPA recommended tolerance of 0.15 ppm on bran and 5.0 ppm on aspirated grain fractions.

3. Residues in poultry and eggs . Based on the poultry metabolism study, EPA concluded that finite residues of trifloxystrobin are not expected in poultry commodities. Thus, poultry feeding data and tolerances for poultry commodities are not required at this time.

4. Residues in meat and milk. A dairy cattle feeding study was conducted at levels equivalent to 2, 6, and 20 ppm in the diet (mg/kg diet on a dry weight basis). Because the highest feeding level was only 3-4x the calculated maximum theoretical dietary burden (6.2 ppm, beef cattle; 4.9 ppm, dairy cattle) and because residues of trifloxystrobin and the acid metabolite CGA-321113 were detected in fat at this feeding level, EPA concluded that animal commodity tolerances were needed. Based on LOQs each for parent and CGA-321113 of 0.01 ppm for milk and 0.02 ppm for other animal commodities, EPA has established a 0.02 ppm LOQ tolerance for combined residues of trifloxystrobin and the free form of its acid metabolite CGA-321113 in milk and a 0.05 ppm combined residue tolerance for the meat, fat and meat byproducts of cattle, goats, hogs, horses and sheep. For risk assessment purposes only, 0.1 ppm trifloxystrobin-equivalent residue is used for liver. This value is based on the sum of the liver contribution of metabolite L7a (estimated at ca 0.05 ppm trifloxystrobin equivalent, adjusted to a 1x feeding level from the goat metabolism study, TFMP- 14 C label) plus that of the recommended 0.05 ppm tolerance for the combined residues of trifloxystrobin and CGA-321113 in meat byproducts.

There are no Codex, Canadian, or Mexican maximum residue limits (MRLs) established for trifloxystrobin. Harmonization is thus not an issue at this time.

An acceptable confined rotational crop study was submitted. The predominant metabolite, trifluoroacetic acid, is not of concern at the (≤ 0.2 ppm) levels reported. Quantifiable residues (" 0.02 ppm) of trifloxystrobin and CGA-321113 are not expected in/on crops rotated at a 30-day plantback interval. Nonetheless, the petitioner did submit new data on field accumulation in rotational crops. Trifloxystrobin (as CGA-279202 50 WG) was applied to squash or cucumbers as a post-foliar spray four times at 7-day intervals at 0.25 lb active ingredient/acre (ai/A/) application for a maximum rate of 1.0 lb ai/A/season. The last application occurred on the day of primary crop harvest. Rotational crops were planted 30-31, and 120 days after the last application. The following rotational crops were planted: leaf lettuce, turnips, and wheat. Crops were grown under normal agricultural conditions. Samples of the appropriate RACs were collected at normal harvest maturity, frozen, and maintained frozen (approximately -20° C) until analysis using method AG-659A. The LOQ for both analytes were 0.02 ppm. Residues of trifloxystrobin and its acid metabolite CGA-321113 were all less than the LOQ in all crops planted at 30-31 days after the last application. The revised draft Flint® label (EPA Reg. 100-919) proposes a 30-day plantback restriction for crops not listed on the label and would permit treated areas to be replanted immediately following harvest with any crop listed on the label (pome fruits, grapes, cucurbit vegetables, almonds, fruiting vegetables, hops, potatoes, sugar beets, and wheat). For the Stratego® labels, celery, cereals, corn, pineapple, and sugarcane may be replanted 30 days after the last application; for all other crops, a 105-day plantback interval must be observed. The proposed plantback restrictions for Flint® and Stratego® are adequate and no rotational crop tolerances need to be proposed, provided that rotational crop restrictions of the Stratego® labels are compatible with those of the propiconazole labels.

Therefore, tolerances are established for combined residues of trifloxystrobin and the free form of its acid metabolite CGA-321113 in/on almond nutmeat at 0.04 ppm, almond hulls at 3.0 ppm, dried hops cones at 11.0 ppm, sugar beet roots at 0.1 ppm, sugar beet tops at 4.0 ppm, sugar beet dried pulp at 0.4 ppm, sugar beet molasses at 0.2 ppm, potato tubers at 0.04 ppm, fruiting vegetables at 0.5 ppm, wheat grain at 0.05 ppm, wheat forage at 0.3 ppm, wheat hay at 0.2, wheat straw at 5.0 ppm, wheat bran 0.15 ppm, and aspirated grain fractions at 5.0 ppm.

Under section 408(g) of the FFDCA, as amended by the FQPA, any person may file an objection to any aspect of this regulation and may also request a hearing on those objections. The EPA procedural regulations which govern the submission of objections and requests for hearings appear in 40 CFR part 178. Although the procedures in those regulations require some modification to reflect the amendments made to the FFDCA by the FQPA of 1996, EPA will continue to use those procedures, with appropriate adjustments, until the necessary modifications can be made. The new section 408(g) provides essentially the same process for persons to “object” to a regulation for an exemption from the requirement of a tolerance issued by EPA under new section 408(d), as was provided in the old FFDCA sections 408 and 409. However, the period for filing objections is now 60 days, rather than 30 days.

You must file your objection or request a hearing on this regulation in accordance with the instructions provided in this unit and in 40 CFR part 178. To ensure proper receipt by EPA, you must identify docket control number OPP-301014 in the subject line on the first page of your submission. All requests must be in writing, and must be mailed or delivered to the Hearing Clerk on or before September 18, 2000.

1. Filing the request. Your objection must specify the specific provisions in the regulation that you object to, and the grounds for the objections (40 CFR 178.25). If a hearing is requested, the objections must include a statement of the factual issues(s) on which a hearing is requested, the requestor's contentions on such issues, and a summary of any evidence relied upon by the objector (40 CFR 178.27). Information submitted in connection with an objection or hearing request may be claimed confidential by marking any part or all of that information as CBI. Information so marked will not be disclosed except in accordance with procedures set forth in 40 CFR part 2. A copy of the information that does not contain CBI must be submitted for inclusion in the public record. Information not marked confidential may be disclosed publicly by EPA without prior notice.

Mail your written request to: Office of the Hearing Clerk (1900), Environmental Protection Agency, 401 M St., SW., Washington, DC 20460. You may also deliver your request to the Office of the Hearing Clerk in Room M3708, Waterside Mall, 401 M St., SW., Washington, DC 20460. The Office of the Hearing Clerk is open from 8 a.m. to 4 p.m., Monday through Friday, excluding legal holidays. The telephone number for the Office of the Hearing Clerk is (202) 260-4865.

2. Tolerance fee payment. If you file an objection or request a hearing, you must also pay the fee prescribed by 40 CFR 180.33(i) or request a waiver of that fee pursuant to 40 CFR 180.33(m). You must mail the fee to: EPA Headquarters Accounting Operations Branch, Office of Pesticide Programs, P.O. Box 360277M, Pittsburgh, PA 15251. Please identify the fee submission by labeling it “Tolerance Petition Fees.”

EPA is authorized to waive any fee requirement “when in the judgement of the Administrator such a waiver or refund is equitable and not contrary to the purpose of this subsection.” For additional information regarding the waiver of these fees, you may contact James Tompkins by phone at (703) 305-5697, by e-mail at tompkins.jim@epa.gov , or by mailing a request for information to Mr. Tompkins at Registration Division (7505C), Office of Pesticide Programs, Environmental Protection Agency, 401 M St., SW., Washington, DC 20460.

If you would like to request a waiver of the tolerance objection fees, you must mail your request for such a waiver to: James Hollins, Information Resources and Services Division (7502C), Office of Pesticide Programs, Environmental Protection Agency, 401 M St., SW., Washington, DC 20460.

3. Copies for the Docket. In addition to filing an objection or hearing request with the Hearing Clerk as described in Unit VI.A. of this preamble, you should also send a copy of your request to the PIRB for its inclusion in the official record that is described in Unit I.B.2. of this preamble. Mail your copies, identified by docket number OPP-301014, to: Public Information and Records Integrity Branch, Information Resources and Services Division (7502C), Office of Pesticide Programs, Environmental Protection Agency, 401 M St., SW., Washington, DC 20460. In person or by courier, bring a copy to the location of the PRIB described in Unit I.B.2. of this preamble. You may also send an electronic copy of your request via e-mail to: opp-docket@epa.gov . Please use an ASCII file format and avoid the use of special characters and any form of encryption. Copies of electronic objections and hearing requests will also be accepted on disks in WordPerfect 5.1/6.1 file format or ASCII file format. Do not include any CBI in your electronic copy. You may also submit an electronic copy of your request at many Federal Depository Libraries.

A request for a hearing will be granted if the Administrator determines that the material submitted shows the following: There is a genuine and substantial issue of fact; there is a reasonable possibility that available evidence identified by the requestor would, if established EPA, resolve one or more of such issues in favor of the requestor, taking into account uncontested claims or facts to the contrary; and resolution of the factual issues(s) in the manner sought by the requestor would be adequate to justify the action requested (40 CFR 178.32).

This final rule establishes tolerances under FFDCA section 408(d) in response to a petition submitted to the Agency. The Office of Management and Budget (OMB) has exempted these types of actions from review under Executive Order 12866, entitled Regulatory Planning and Review (58 FR 51735, October 4, 1993). This final rule does not contain any information collections subject to OMB approval under the Paperwork Reduction Act (PRA), 44 U.S.C. 3501 et seq., or impose any enforceable duty or contain any unfunded mandate as described under Title II of the Unfunded Mandates Reform Act of 1995 (UMRA) (Public Law 104-4). Nor does it require any prior consultation as specified by Executive Order 13084, entitled Consultation and Coordination with Indian Tribal Governments (63 FR 27655, May 19, 1998); special considerations as required by Executive Order 12898, entitled Federal Actions to Address Environmental Justice in Minority Populations and Low-Income Populations (59 FR 7629, February 16, 1994); or require OMB review or any Agency action under Executive Order 13045, entitled Protection of Children from Environmental Health Risks and Safety Risks (62 FR 19885, April 23, 1997). This action does not involve any technical standards that would require Agency consideration of voluntary consensus standards pursuant to section 12(d) of the National Technology Transfer and Advancement Act of 1995 (NTTAA), Public Law 104-113, section 12(d) (15 U.S.C. 272 note). Since tolerances and exemptions that are established on the basis of a petition under FFDCA section 408(d), such as the tolerance in this final rule, do not require the issuance of a proposed rule, the requirements of the Regulatory Flexibility Act (RFA) (5 U.S.C. 601 et seq.) do not apply. In addition, the Agency has determined that this action will not have a substantial direct effect on 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, as specified in Executive Order 13132, entitled Federalism (64 FR 43255, August 10, 1999). Executive Order 13132 requires EPA to develop an accountable process to ensure “meaningful and timely input by State and local officials in the development of regulatory policies that have federalism implications.” “Policies that have federalism implications” is defined in the Executive Order to include regulations that 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.” This final rule directly regulates growers, food processors, food handlers and food retailers, not States. This action does not alter the relationships or distribution of power and responsibilities established by Congress in the preemption provisions of FFDCA section 408(n)(4).

The Congressional Review Act, 5 U.S.C. 801 et seq. , as added by the Small Business Regulatory Enforcement Fairness Act of 1996, generally provides that before a rule may take effect, the agency promulgating the rule must submit a rule report, which includes a copy of the rule, to each House of the Congress and to the Comptroller General of the United States. EPA will submit a report containing this rule and other required information to the U.S. Senate, the U.S. House of Representatives, and the Comptroller General of the United States prior to publication of this rule in the Federal Register . This rule is not a “major rule” as defined by 5 U.S.C. 804(2).

Therefore, 40 CFR chapter I is amended as follows:

You may be affected by this action if you are an agricultural producer, food manufacturer, or pesticide manufacturer. Potentially affected categories and entities may include, but are not limited to:

This listing is not intended to be exhaustive, but rather provides a guide for readers regarding entities likely to be affected by this action. Other types of entities not listed in the table could also be affected. The North American Industrial Classification System (NAICS) codes have been provided to assist you and others in determining whether or not this action might apply to certain entities. If you have questions regarding the applicability of this action to a particular entity, consult the person listed under FOR FURTHER INFORMATION CONTACT.

1. Electronically . You may obtain electronic copies of this document, and certain other related documents that might be available electronically, from the EPA Internet Home Page at http://www.epa.gov/. To access this document, on the Home Page select “Laws and Regulations” and then look up the entry for this document under the “ Federal Register —Environmental Documents.” You can also go directly to the Federal Register listings at http://www.epa.gov/fedrgstr/.

2. In person . The Agency has established an official record for this action under docket control number OPP-301015. The official record consists of the documents specifically referenced in this action, and other information related to this action, including any information claimed as Confidential Business Information (CBI). This official record includes the documents that are physically located in the docket, as well as the documents that are referenced in those documents. The public version of the official record does not include any information claimed as CBI. The public version of the official record, which includes printed, paper versions of any electronic comments submitted during an applicable comment period is available for inspection in the Public Information and Records Integrity Branch (PIRIB), Rm. 119, Crystal Mall #2, 1921 Jefferson Davis Hwy., Arlington, VA, from 8:30 a.m. to 4 p.m., Monday through Friday, excluding legal holidays. The PIRIB telephone number is (703) 305-5805.

In the Federal Register of April 21, 2000 (65 FR 78) (FRL-6555-6), EPA issued a notice pursuant to section 408 of the Federal Food, Drug, and Cosmetic Act (FFDCA), 21 U.S.C. 346a as amended by the Food Quality Protection Act of 1996 (FQPA) (Public Law 104-170) announcing the filing of a pesticide petition (PP 0F6079) for tolerances by BASF Corporation, Agricultural Products, P.O. Box 13528, Research Triangle Park, NC 27709. This notice included a summary of the petition prepared by BASF Corporation, the registrant. In addition, on June 2, 2000, the Agency added a supplemental notice of filing to the docket which summarized the toxicity and risk associated with the proposed tolerances. The Agency received comments from the Natural Resources Defense Council (NRDC), Earthjustice Legal Defense Fund (EJLDF), and BASF Corporation. The comments from outside parties are summarized in Unit IV below, followed by the Agency's response.

The petition requested that 40 CFR 180.380 be amended by establishing tolerances for combined residues of the fungicide vinclozolin, 3-(3,5-dichlorophenyl)-5-ethenyl-5-methyl-2,4-oxazolidinedione and its metabolites containing the 3,5-dichloroaniline moiety, in or on succulent beans at 2.0 ppm and canola at 1.0 ppm. The petition was later amended to request tolerances on eggs, milk, and the meat, fat, and meat byproducts of cattle, goats, hogs, horses, and sheep at 0.05 ppm and in the meat, fat, and meat byproducts of poultry at 0.1 ppm.

Section 408(b)(2)(A)(i) of the FFDCA allows EPA to establish a tolerance (the legal limit for a pesticide chemical residue in or on a food) only if EPA determines that the tolerance is “safe.” Section 408(b)(2)(A)(ii) defines “safe” to mean that “there is a reasonable certainty that no harm will result from aggregate exposure to the pesticide chemical residue, including all anticipated dietary exposures and all other exposures for which there is reliable information.” This includes exposure through drinking water and in residential settings, but does not include occupational exposure. Section 408(b)(2)(C) requires EPA to give special consideration to exposure of infants and children to the pesticide chemical residue in establishing a tolerance and to “ensure that there is a reasonable certainty that no harm will result to infants and children from aggregate exposure to the pesticide chemical residue....”

EPA performs a number of analyses to determine the risks from aggregate exposure to pesticide residues. For further discussion of the regulatory requirements of section 408 and a complete description of the risk assessment process, see the final rule on Bifenthrin Pesticide Tolerances (62 FR 62961, November 26, 1997) (FRL-5754-7).

Consistent with section 408(b)(2)(D), EPA has reviewed the available scientific data and other relevant information in support of this action. EPA has sufficient data to assess the hazards of and to make a determination on aggregate exposure, consistent with section 408(b)(2), for tolerances for combined residues of vinclozolin in or on succulent beans at 2.0 ppm; canola at 1.0 ppm; eggs, milk, and the meat, fat, and meat byproducts of cattle, goats, hogs, horses, and sheep at 0.05 ppm; and the meat, fat, and meat byproducts of poultry at 0.1 ppm. EPA's assessment of the exposures and risks associated with establishing the tolerance follows.

EPA has evaluated the available toxicity data and considered its validity, completeness, and reliability as well as the relationship of the results of the studies to human risk. EPA has also considered available information concerning the variability of the sensitivities of major identifiable subgroups of consumers, including infants and children. The nature of the toxic effects caused by vinclozolin are discussed in this unit.

1. Acute toxicity. A battery of acute toxicity studies placed technical vinclozolin in toxicity category IV for acute oral toxicity (LD 50 of > 10,000 mg/kg), and acute inhalation toxicity (LC 50 of 29.1 mg/l); and toxicity category III for acute dermal toxicity (LD 50 of > 5,000 mg/kg). Technical vinclozolin caused minimal eye and dermal irritation and the technical material is positive for skin sensitization.

2. Chronic toxicity. i. A 1-year chronic feeding study in dogs fed dosages of 0, 1.1, 2.4, 4.9, and 48.7 mg/kg/day with a No-Observed-Adverse-Effect Level (NOAEL) of 2.4 mg/kg/day based on the following effects: (1) Slight decrease in hematological and increase in clinical chemistry values in the 48.7 mg/kg/day dose group (highest dose tested—HDT); (2) increased absolute and/or relative weights for the testes (male only), adrenal, liver, spleen, and thyroids in the 4.9 or 48.7 mg/kg/day dose groups; (3) a dose-related atrophy of the prostate in the 4.9 or 48.7 mg/kg/day dose groups; and (4) microscopic findings in the adrenal and testes (males) in the 48.7 mg/kg/day dose group and liver findings for both male and female dogs in the 48.7 mg/kg/day dose groups and in the females in the 4.9 mg/kg/day dose group, only.

ii. A combination of two chronic feeding studies and one carcinogenicity study resulted in rats being fed combined dosages of 0, 1.2, 2.4, 7.0, 23, 71, 143, and 221 mg/kg/day (males) and 0, 1.6, 3.1, 7.0, 23, 71, 180, and 221 mg/kg/day (females) with a NOAEL of 1.2 mg/kg/day (males) and 1.6 mg/kg/day (females) based on the following effects: (1) Decreased body weights in both male and female rats at dose levels " 23 mg/kg/day with a progression of severity to the upper levels; (2) decreased food consumption in both male and female rats at dose levels " 71 mg/kg/day with a progression of severity to the upper dose levels; (3) cataracts with associated histopathology at dose levels " 23 mg/kg/day and lenticular changes at dose levels " 7.0 mg/kg/day for male and female rats; (4) hematological and clinical chemistry value changes at dose levels " 71 mg/kg/day with increase of severity at the higher doses tested; (5) increased absolute and/or relative weights for adrenal at dose levels " 143 mg/kg/day, for the liver at dose levels " 71 mg/kg/day, for the testes at dose levels " 23 mg/kg/day, and for the ovaries at dose levels " 143 mg/kg/day; (6) microscopic findings were observed in the liver, adrenal, pancreas, testes (males), ovaries and uterus (females) at dose levels of " 7.0 mg/kg/day with a progression of severity of histological effects in the upper dose levels; and (7) an increased incidence of neoplasms occurred at dose levels greater than the maximum tolerated dose (MTD) of " 23 mg/kg/day in the liver, adrenal, pituitary, prostate (males), uterus (females), and ovaries (females) at dose levels " 143 mg/kg/day. In the testes (males), Leydig cell adenomas were seen at the MTD for dose levels " 23.0 mg/kg/day due to the anti-androgenic nature of vinclozolin.

3. Carcinogenicity . A carcinogenicity study in mice fed dosages of 0, 2.1, 20.6, 432, and 1,225 HDT mg/kg/day (males) and 0, 2.8, 28.5, 557, and 1,411 (HDT) mg/kg/day (females) with a NOAEL of 20.6 mg/kg/day (males) and 28.5 mg/kg/day (females) based on the following effects:

i. Increased mortality in the HDT as compared to controls;

ii. Decreased body weights and significant signs of clinical toxicity were observed in both male and female mice at the upper two dose levels with a progression of severity;

iii. Hematological and clinical chemistry value changes were observed at the highest dose tested;

iv. Increased absolute and/or relative weights for adrenal and liver were observed at the upper two dose levels, atrophic seminal vesicles and coagulation glands with reduction of the prostate (males) and atrophic uteri were observed at the upper two dose levels;

v. Microscopic findings were observed in the liver, adrenal, testes (males), ovaries and uterus (females), and related sexual organs in the upper two dose levels;

vi An increased incidence of neoplasms occurred at dose levels greater than the maximum tolerated dose (> 28.5 mg/kg/day) in the liver of female mice.

4. Developmental toxicity. i. In four developmental toxicity studies, vinclozolin was given orally from gestational day (gd) 6 through 19 as follows: Study 4—dose levels of 0, 15, 50, or 150 mg/kg/day; study 5—dose levels of 0, 50, 100, 200 mg/kg/day, study 6—dose levels of 0, 200, 400 mg/kg/day and study 8—dose levels of 0, 600, and 1,000 mg/kg/day. At the gd 20, the fetuses were evaluated.

Maternal toxicity was demonstrated at 600 and 1,000 mg/kg/day by the statistically significant increase in absolute and relative adrenal and liver weight in study 8. This was the only study where organ weights were determined. A maternal NOAEL could not be established and therefore, the study was not considered to demonstrate any extra sensitivity. No histology was conducted on the organs, but other studies have demonstrated lipid accumulation in the adrenals, and centrilobular cloudiness of the liver. In addition, a dermal developmental study has indicated adrenal and liver weight increases occurred at 180 mg/kg/day and higher. Statistically significant increases and decreases occurred in the body weight gain and in food consumption with no apparent dose relatedness in any of the studies. The relative efficiency of food utilization was too variable to be definitive.

Statistically significant male and female fetal body weight decrement occurred at 1,000 mg/kg/day. These weight decrements were considered test material related. A statistically significant decrease occurred in anogenital distance among male fetuses. The term pseudohermaphroditism was used to describe the effect because these males exhibited decreased anogenital distances, but exhibited superficially normal internal testes. The anogenital distance in male fetuses was statistically decreased at 50 mg/kg/day and higher in studies 4, 6, and 8. (The anogenital index was statistically significantly depressed at 150 mg/kg/day and higher). The anogenital distance and index were not determined in study 5. The response was dose related. Although the anogenital index was not statistically significantly depressed at 50 mg/kg/day, it was nominally depressed. Considering the significantly depressed anogenital distance at 50 mg/kg/day and higher and the nominally depressed anogenital index at 50 mg/kg/day, the NOAEL for this study was considered to be 15 mg/kg/day, the lowest dose tested (LDT). These results are consistent with hormonal or anti-hormonal effects from the test material.

Soft tissue examination of fetuses indicated that increased incidence occurred in dilated renal pelvis and hydro-ureter at 400 mg/kg/day in study 6. At higher dose levels in study 8, the incidence of dilated renal pelvis and hydro-ureter was nominally increased. The failure of the dilated renal pelvis, and hydro-ureter to be significantly increased in study 8 was attributed to the fewer litters used (7, 5, and 8 in controls, 600, and 1,000 mg/kg/day). The NOAEL for these renal effects is considered to be 200 mg/kg/day.

Skeletal examination of fetuses indicated increased incidence of accessory 14th rib at 400 mg/kg/day and in fetuses and litters at 600, and 1,000 mg/kg/day. These effects on the 14th rib may be related to dose administration. Evaluation of the Preliminary Study suggested a dose related increase in 14th ribs at these high dose levels. No other dose related effects were reported.

The developmental toxicity NOAEL was set at 15 mg/kg/day and the developmental LOAEL was 50 mg/kg/day based on decreased anogenital distance in males. Increased incidence of dilated renal pelvis, hydro-ureter, and accessary 14th rib may have occurred at 400 mg/kg/day and higher. The maternal toxicity LOAEL was < 600 mg/kg/day based on increases in absolute and relative adrenal and liver weight. Organ weights were not determined at lower dose levels.

ii. A developmental study in rats via dermal exposure for 6 hours/day on intact skin with dosages of 0, 60, 180, and 360 mg/kg/day HDT had a developmental NOAEL of 60 mg/kg/day and a maternal NOAEL of 60 mg/kg/day based on the following: (1) Increased absolute liver weights at dose levels > 180 mg/kg/day; and (2) decreased anogenital distance and index at dose levels " 180 mg/kg/day.

iii. A developmental study in rabbits via oral gavage resulted in dosages of 0, 20, 80, and 300 mg/kg/day HDT with a developmental NOAEL of 300 mg/kg/day and a maternal NOAEL of 300 mg/kg/day based on no signs of maternal or meaningful fetal toxicity observed at any of the dose levels mentioned.

iv. A second developmental study in rabbits via oral gavage resulted in dosages of 0, 50, 200, and 800 mg/kg/day HDT with a development toxicity NOAEL of 200 mg/kg/day and a maternal toxicity NOAEL of 50 mg/kg/day based on the following: (1) Severe maternal toxicity with simultaneous change in hematological values and high number of abortions at the HDT; and (2) increased absolute and/or relative weights for adrenal in the mid and high dose groups.

v. A two-generation rat reproduction study (consisting of two studies: Study A—dose levels of 0, 2.0 and 4.1 mg/kg/day; study B—dose levels of 0, 4.9, 29, 100, and 307 mg/kg/day) with a reproductive NOAEL of 4.9 mg/kg/day based on decreased epididymal weight and male's inability to mate at dose levels > 100 mg/kg/day and pup effects at 29 mg/kg/day; and with a parental NOAEL of 4.9 mg/kg/day based on general toxicity consistent with previous rat studies at levels > 29 mg/kg/day. Study A was performed to clarify an equivocal finding of decreased absolute and relative weight of the epididymides without any morphological correlation in the male FY and FZ generations in Study B. However, the Agency concluded that the effects at the 4.9 mg/kg/day dose level were minimal and considered sufficiently close to the NOAEL. The study is acceptable and the 4.9 mg/kg/day dose level was considered to be the NOAEL.

5. Mutagenicity. The following test/assays showed no evidence of mutagenic activity: Modified Ames Test (3 studies, point mutation); Host-Mediated Assay (point mutation); Mouse Lymphoma Test (point mutation); In Vitro CHO Cells (point mutation); In Vitro Cytogenetics—CHO Cells (Chromosome Aberrations); In Vivo Dominant Lethal Test—Male NMRI Mouse (Chromosome Aberrations); Rec Assay (2 test, DNA damage and repair); In Vitro UDS Test Using Hepatocyte (DNA damage and repair); and In Vivo SCE Using Chinese Hamster (DNA damage and repair).

6. Mechanistic studies-anti-androgenicity activity. A series of mechanistic studies ( In Vivo and In Vitro ) were conducted to define the anti-androgenic properties of vinclozolin. The results of these studies showed that vinclozolin elicits the anti-androgenic effects by binding to androgen sensitive organs.

1. Acute toxicity . EPA selected the NOAEL of 6 mg/kg/day (adjusted for a single dose) from a developmental toxicity study in rats based on decreased ventral prostate weight in male offspring observed at the adjusted LOAEL of 11.5 mg/kg/day. The endpoint is the most sensitive indicator of acute anti-androgenic developmental toxicity. The population subgroup of concern is females (13+) because the endpoint is an in utero effect applicable only to females of childbearing age. An uncertainty factor of 100 was used to account for interspecies extrapolation and intraspecies variation. On this basis, the acute reference dose (aRfD) is 0.06 mg/kg/day. EPA determined that a 10X FQPA safety factor is applicable, and the margin of exposure (MOE) for the population subgroup of concern, females (13+) is 1,000X. The acute population adjusted dose (aPAD) is 0.006 mg/kg/day. An acute dose and endpoint were not identified for other population subgroups.

2. Chronic toxicity . EPA has established the Reference Dose (RfD) for vinclozolin at 0.012 mg/kg/day. This RfD is based on a NOAEL of 1.2 mg/kg/day from the combined chronic toxicity/carcinogenicity study in rats in which histopathological lesions occurred in the lungs and livers of male rats, in ovaries of females, and in the eyes of both sexes at the LOAEL of 2.3 mg/kg/day. An uncertainty factor of 100 was used to account for interspecies extrapolation and intraspecies variation. A 10X FQPA safety factor was added resulting in a cPAD of 0.0012 mg/kg/day.

3. Short- and intermediate-term toxicity. For short- and intermediate-term dermal and inhalation toxicity, the NOAEL of 3 mg/kg/day from a rat developmental toxicity study was selected for the population subgroup of concern, females (13+). The LOAEL of 6 mg/kg/day was based on decreased ventral prostate weights. For short- and intermediate-term dermal and inhalation toxicity, the NOAEL of 5 mg/kg/day from a rat developmental toxicity study was selected for the population subgroup of concern, infants and children. The LOAEL of 15 mg/kg/day was based on delayed puberty. A dermal absorption factor of 25% was used to correct for route-to-route extrapolation (oral to dermal exposure) and a default inhalation absorption factor of 100% was assumed for oral to inhalation exposure. The MOE for females (13+), infants and children is 1,000X.

4. Long-term dermal and inhalation toxicity (cancer and non- cancer). For chronic non-cancer and cancer dermal and inhalation toxicity, EPA selected the chronic NOAEL of 1.2 mg/kg/day from the combined rat chronic toxicity/carcinogenicity study in which histopathological lesions occurred in the lungs and livers of male rats, in ovaries of females, and in the eyes of both sexes at the LOAEL of 2.3 mg/kg/day. The Q 1 * calculated in a low-dose linear extrapolation is 2.9 × 10 -1 (mg/kg/day) -1 . A dermal absorption factor of 25% was used to correct for route-to-route extrapolation (oral to dermal exposure) and a default inhalation absorption factor of 100% was assumed for oral to inhalation exposure. The cancer assessment includes not only the adult U.S. population but also infants and children as well.

5. Carcinogenicity . Vinclozolin is classified as a Group C carcinogen based on Leydig (interstitial testicular) cell tumors in a perinatal rat developmental toxicity study. A non-linear (MOE) approach was determined to be appropriate based on a weight-of-the-evidence conclusion that tumor induction is via an anti-androgenic mechanism. Prostate weight decreases occurred at the LOAEL of 6 mg/kg/day; the point of departure for use in the non-linear risk assessment is 3 mg/kg/day (NOAEL). EPA believes that use of the population adjusted dose (PAD) for overall anti-androgenic effects (0.0012 mg/kg/day) is also protective of cancer effects because it is protective of the anti-androgenic effects that are, in effect, precursors to tumor formation.

6. Overall anti-androgenic effects. The Agency has determined that use of the most sensitive regulatory toxicity endpoint and the highest uncertainty factor (UF) would be protective of the anti-androgenic effects on all population subgroups caused by vinclozolin including developmental/reproductive effects as well as carcinogenic effects. In the case of vinclozolin, the most sensitive toxicity endpoint/dose and UF are derived from the rat oral chronic/carcinogenicity study, i.e., the NOAEL of 1.2 mg/kg/day and an UF of 1,000. The PAD of 0.0012 mg/kg/day was used in assessment of risks resulting from the anti-androgenic activity of vinclozolin.

1. From food and feed uses . Tolerances have been established (40 CFR 180.380) for the combined residues of vinclozolin and its metabolites containing the 3,5-dichloroaniline moiety, in or on the following raw agricultural commodities: Belgian endive tops, cucumbers, wine grapes, kiwi fruit, head and leaf lettuce, dry bulb onions, bell peppers, raspberries, stone fruit (except plums/fresh prunes), and strawberries. There are no U.S. registered vinclozolin products for use on wine grapes, cucumbers, and peppers, and the current tolerances for these commodities are for imported commodities only. In addition, as a risk mitigation measure, BASF requested deletion of the strawberry and stone fruit uses from their vinclozolin label on June 30, 1998. The Agency published a Federal Register notice announcing the use deletion on July 30, 1998, (63 FR 40710) (FRL-6020-9) and under the existing stock plan, vinclozolin could be used on strawberries and stone fruit until January 30, 2000. Revocation of the stone fruit and strawberry tolerances are expected in the near future.

To further mitigate risk associated with the use of vinclozolin, the Agency is considering a proposal submitted by the registrant which includes the following items to occur over the next 5 years: A phase out of all domestic food uses of vinclozolin except for the use on canola, and the reinstatement of the snap bean tolerance for a period of 5 years; revocation of all import tolerances except for wine grapes to cover residues in wine; future phase out of use on sod farms resulting in the remaining turf use limited to golf courses; and voluntary cancellation of use on ornamental plants. In addition as a short-term risk reduction measure, label amendments were approved on June 14, 2000 to add a 24-day pre-harvest interval for sod harvested for residential uses.

The Agency has been petitioned by BASF Corporation to establish tolerances on the following commodities: Succulent beans; canola; eggs, milk, meat, fat, and meat byproducts of cattle, goats, hogs, horses, and sheep; and fat, meat, and meat byproducts of poultry. Risk assessments were conducted by EPA to assess dietary exposure from vinclozolin as a result of all current tolerances (excluding stone fruit and strawberries) and all proposed tolerances. Strawberries and stone fruit were excluded because the use of vinclozolin on these crops was deleted and significant residues are not expected to occur in these crops as the latest possible use of vinclozolin under the existing stocks plan was January 30, 2000.

Section 408(b)(2)(E) authorizes EPA to use available data and information on the anticipated residue levels of pesticide residues in food and the actual levels of pesticide chemicals that have been measured in food. If EPA relies on such information, EPA must require that data be provided 5 years after the tolerance is established, modified, or left in effect, demonstrating that the levels in food are not above the levels anticipated. Following the initial data submission, EPA is authorized to require similar data on a time frame it deems appropriate. As required by section 408(b)(2)(E), EPA will issue a data call-in for information relating to anticipated residues to be submitted no later than 5 years from the date of issuance of this tolerance.

Section 408(b)(2)(F) states that the Agency may use data on the actual percent of food treated for assessing chronic dietary risk only if the Agency can make the following findings: Condition 1, that the data used are reliable and provide a valid basis to show what percentage of the food derived from such crop is likely to contain such pesticide residue; Condition 2, that the exposure estimate does not underestimate exposure for any significant subpopulation group; and Condition 3, if data are available on pesticide use and food consumption in a particular area, the exposure estimate does not understate exposure for the population in such area. In addition, the Agency must provide for periodic evaluation of any estimates used. To provide for the periodic evaluation of the estimate of percent of crop treated (PCT) as required by section 408(b)(2)(F), EPA may require registrants to submit data on PCT.

The Agency used PCT data for domestic crops and percent of imported crop treated (PICT) data for all imported crops. Data on stone fruits and strawberries were not included as the uses have been deleted from labels. For the acute analysis, the estimated maximum PCT was used and for the chronic analyses, the weighted average PCT was incorporated.

The Agency believes that the three conditions listed above have been met. With respect to Condition 1, PCT estimates are derived from Federal and private market survey data, which are reliable and have a valid basis. EPA uses a weighted average PCT for chronic dietary exposure estimates. This weighted average PCT figure is derived by averaging State-level data for a period of up to 10 years, and weighting for the more robust and recent data. A weighted average of the PCT reasonably represents a person's dietary exposure over a lifetime, and is unlikely to underestimate exposure to an individual because of the fact that pesticide use patterns (both regionally and nationally) tend to change continuously over time, such that an individual is unlikely to be exposed to more than the average PCT over a lifetime. For acute dietary exposure estimates, EPA uses an estimated maximum PCT. The exposure estimates resulting from this approach reasonably represent the highest levels to which an individual could be exposed, and are unlikely to underestimate an individual's acute dietary exposure. The Agency is reasonably certain that the percentage of the food treated is not likely to be an underestimate. As to Conditions 2 and 3, regional consumption information and consumption information for significant subpopulations is taken into account through EPA's computer-based model for evaluating the exposure of significant subpopulations including several regional groups. Use of this consumption information in EPA's risk assessment process ensures that EPA's exposure estimate does not understate exposure for any significant subpopulation group and allows the Agency to be reasonably certain that no regional population is exposed to residue levels higher than those estimated by the Agency. Other than the data available through national food consumption surveys, EPA does not have available information on the regional consumption of food to which the pesticide may be applied in a particular area.

The dietary (food only) risk assessments used anticipated residues from field trial data which EPA believes are very conservative for the following qualitative reasons: (1) Field trial data assumes that all crops are treated at the maximum application rate and harvested at the minimum pre-harvest interval (PHI). In practice, crops are sometimes treated at lower application rates and harvested at longer PHI's leading to lower residues in the crops; (2) Field trial data assumes no decline between harvest and consumption of the crop. However, residues of vinclozolin will decline between harvest and consumption. Data are not available to quantify the extent of this decline; (3) Home “processing” was not accounted for in the risk assessment. Practices such as washing, peeling, and cooking could lead to significantly lower residues than those from field trial data; and (4) For the acute dietary risk assessment, the vinclozolin metabolites of greatest concern are those closely related to the parent compound. Use of field trial data in the acute dietary assessment assumes that all residues have structures closely related to the parent compound and that they all elicit the developmental effects of concern. In reality, many metabolites convertible to 3,5-DCA may have structures different from the parent such that they are not of acute concern.

Although EPA cannot quantify for vinclozolin the combined residue reduction from the factors identified above, for many pesticides the difference in residues between field trial and monitoring data can be an order of magnitude 10X or more. The registrant is submitting processing (washing/cooking) studies which could allow for further future refinement of the dietary risk assessment.

The Dietary Exposure Evaluation Model (DEEM®), which incorporates consumption data generated in USDA's Continuing Surveys of Food Intakes by Individuals (CSFII), 1989-1992 was used to conduct the dietary risk assessments. For refined acute dietary risk assessments, the entire distribution of consumption events for individuals is multiplied by the distribution of residues to obtain a distribution of exposures in mg/kg/day. This is a probabilistic analysis, referred to as a “Monte Carlo” analysis and the risk is reported at various percentiles of exposure. For chronic dietary risk assessments, the 3-day average of consumption for each population subgroup is combined with residues in commodities to determine average exposure in mg/kg/day.

i. Acute exposure and risk . Acute dietary risk assessments are performed for a food-use pesticide if a toxicological study has indicated the possibility of an effect of concern occurring as a result of a 1-day or single exposure. The acute dietary exposure estimates for the only population subgroup of concern (taking into account the toxicological studies on vinclozolin), females (13+), utilized the following percentage of the aPAD (0.006 mg/kg/day) at the various percentiles of exposure as indicated: 120% of the aPAD at the 99.9 th percentile; 98% of the aPAD at 99.85 th percentile; 83% of the aPAD at the 99.8 th percentile; 73% of the aPAD at the 99.75 th percentile; 60% of the aPAD at the 99.6 th percentile; and 49% of the aPAD at the 99.5 th percentile. Because the anticipated residues are based on field trial data and are conservative estimates (i.e. they overestimate residue levels), the Agency believes that basing its exposure estimate on the very upper ranges of potential exposure (the 99.5 th and above) will unreasonably overestimate exposure. Considering this factor in choosing a population percentile of exposure that is adequately protective was explicitly discussed in EPA's policy on the use of population percentiles of exposure in acute risk assessments. U.S. EPA (Office of Pesticide Programs), “Choosing A Percentile of Acute Dietary Exposure as a Threshold of Regulatory Concern” (March 2000). In addition, as part of the reregistration process for vinclozolin, the registrant is proposing to further reduce the dietary exposure to vinclozolin, and the Agency may request future tolerance revocations for certain commodities as well. The very conservatively estimated acute dietary risk (food only) does not exceed the Agency's level of concern.

ii. Chronic exposure and risk . The chronic dietary exposure estimates expressed as a percentage of the cPAD (0.0012 mg/kg/day) were 4% for the U.S. population and 7% for the most highly exposed population subgroup, children (1-6 years old). EPA generally has no concern for exposures below 100% of the cPAD because the cPAD represents the level at or below which daily aggregate dietary exposure over a lifetime will not pose appreciable risk to human health. Therefore, the chronic dietary risk (food only) does not exceed the Agency's level of concern.

iii. For cancer and anti-androgenic risk assessment. EPA believes that vinclozolin should be classified as a Group C carcinogen. The cancer risk assessment included both the U.S. population and infants and children. EPA believes the key concern for infants and children exposed to vinclozolin is the potential for developmental/reproductive effects related to the anti-androgenic properties of vinclozolin. In addition, the possibility of increased incidence of testicular Leydig cell tumors in adults as a result of exposure to vinclozolin as infants or children cannot be ruled out. However, due to the relationship between vinclozolin's anti-androgenic properties and its carcinogenic effects, the Agency believes protecting against the anti-androgenic effects would also be protective against potential carcinogenic effects to all population subgroups (including infants and children).

Accordingly, the cPAD will be protective against potential carcinogenic effects as well as the developmental/reproductive effects. The cPAD already incorporates the full, additional 10x safety factor for the protection of infants and children (i.e., it is derived from the NOAEL of 1.2 mg/kg/day with an MOE of 1,000 - 10x for intraspecies extrapolation; 10x for interspecies variation; and 10x for FQPA). Since this approach (using the cPAD) would be more protective than the proposed POD for cancer risk assessment of 3 mg/kg/day, and includes an additional 10x factor for the protection of infants and children, a separate non-linear risk assessment for cancer is not necessary.

Exposure estimates expressed as a percentage of the anti-androgenic PAD (0.0012 mg/kg/day) were 4% for the general U.S. population and 7% for the most highly exposed population subgroup, children (1-6 years old). In addition, as a point of comparison, the MOE was calculated to be 75,000 for the general U.S. population and 38,000 for children (1-6 years old).

2. From drinking water . In general, available monitoring data are of limited use because metabolite concentration measurements were not performed. For both surface water and groundwater, the sum of vinclozolin and its principal metabolites, assumed to degrade completely to 3,5-dichloroaniline (hereafter referred to as 3,5-DCA), have been used to assess the cancer risk associated with 3,5-DCA whereas vinclozolin per se has been used for the vinclozolin risk assessments.

In the absence of reliable, available monitoring data, EPA uses models to calculate the estimated environmental concentrations (EECs) of pesticides in ground and surface water. However, EPA does not use these model estimates to quantify risk. Currently, EPA uses DWLOCs as a surrogate to capture risk associated with exposure to pesticides in drinking water. A DWLOC represents the concentration of a pesticide in drinking water that would be acceptable as an upper limit in light of total aggregate exposure to that pesticide from food, water, and residential uses (if any). A DWLOC will vary depending on the residue level in foods, the toxicity endpoint and the drinking water consumption patterns and body weights for specific population subgroups. The calculated DWLOC is compared to the model estimate (EEC), and if the model estimates are below the DWLOC, the risks are not considered to be of concern.

For estimating groundwater concentrations of vinclozolin and 3,5-DCA, EPA used the Screening Concentration in Ground Water (SCI-GROW) model. The SCI-GROW model is based on scaled groundwater concentration from groundwater monitoring studies, and environmental fate properties (aerobic soil half-lives and organic carbon partitioning coefficients-Koc's). SCI-GROW provides a screening concentration which is an estimate of likely groundwater concentrations if the pesticide were used at the maximum allowed label rate in areas with groundwater vulnerable to contamination. In most cases, a majority of the pesticide use area will have groundwater that is less vulnerable to contamination than the areas used to derive the SCI-GROW estimate. Using SCI-GROW, the acute and chronic ground water EEC of vinclozolin per se is 0.53 parts per billion (ppb), and the acute and chronic ground water EEC of 3,5-DCA is 2.65 ppb.

For estimating surface water concentrations of vinclozolin and 3,5-DCA, EPA used tier II models, Pesticide Root Zone Model (PRZM) 3.12 and Exposuer Analysis Modeling System (EXAMS) 2.975, which assumed decline of parent vinclozolin and formation and decline of metabolites in a sequential degradation pattern in both field and pond such that degradation proceeds completely to 3,5-DCA. Vinclozolin per se is a major residue near application, but eventually the metabolites are the principal residues in both surface and drinking water. The metabolites are the only residues that are likely to be found in the environment except fairly soon after application. The scenario used in the model (application to onions in California) is the worst-case scenario for water modeling. A tier II EEC for a particular crop or use is based on a single site that represents a high exposure scenario for the crop or use. Weather and agricultural practices are simulated at the site for 36 years to estimate the probability of exceeding a given concentration (maximum concentration or average concentration) in a single year. Maximum EECs are calculated so that there is a 10% probability that the maximum concentration in a given year will exceed the EEC at the site; peak and chronic EECs were calculated so that there is a 10% probability the maximum average concentration for a given duration (4-day, 21-day, etc.) will equal or exceed the EEC at the site. This can also be expressed as an expectation that water concentrations will exceed EECs once every 10 years. The acute (peak) surface water EEC for vinclozolin is 5.68 ppb and for 3,5-DCA is 26 ppb. The chronic (annual mean) surface water EEC for vinclozolin is 0.165 ppb and for 3,5-DCA is 3.12 ppb.

i. Acute exposure and risk . For the population subgroup of concern, females (13+), the DWLOCs for vinclozolin per se at the various percentiles of exposure are as follows: 0 ppb at the 99.9 th percentile; 4 ppb at the 99.85 th percentile; 30 ppb at the 99.8 th percentile; 47 ppb at the 99.75 th percentile; 80 ppb at the 99.6 th percentile; and 92 at the 99.5 th percentile. At all but the very highest percentiles of exposure (99.85 th and above), the DWLOC for vinclozolin per se is higher than the EEC of 5.68 ppb in surface water and 0.53 ppb in ground water. As explained above, given the level of refinement in the vinclozolin exposure estimate, EPA believes using the highest percentiles of exposure in estimating risk would unreasonably overstate risk. Therefore, EPA is reasonably certain that exposure to vinclozolin per se in drinking water will result in no harm.

ii. Chronic exposure and risk . The following chronic DWLOCs were calculated for vinclozolin per se: general U.S. population, 41 ppb; females (13+) 35 ppb; and children (1-6 years old), 11 ppb. The lowest DWLOC of 11 ppb for children 1-6 years old is higher than the EEC of 0.165 ppb in surface water and 0.53 ppb in ground water. Therefore, EPA is reasonably certain that exposure to vinclozolin in drinking water will result in no harm.

3. From non-dietary exposure . There are no vinclozolin pesticide products registered for use by homeowners. Therefore, there is no potential for homeowner handler exposure to vinclozolin pesticide products. Vinclozolin can, however, be occupationally used in a manner that may lead to post-application exposures to the general population, in particular, golfers playing on treated golf courses and homeowners and their families coming into contact with or playing on sod which was previously treated on a sod farm. A chemical-specific turf exposure study was used to measure human exposure as well as residue dissipation over time.

All residential exposures are considered to be short-/intermediate-term duration (i.e., 1 day to 1 week and 1 week to several months, respectively), and the same endpoint applies to both durations of exposure. As the endpoints selected are from oral toxicity studies (NOAEL of 3 mg/kg/day for females (13+)) and NOAEL of 5 mg/kg/day for infants and children, route-to-route exposure was corrected by applying a 25% dermal absorption factor and a 100% default inhalation absorption factor was assumed. A 100% safety factor was used and a 10X FQPA safety factor was added raising the Agency's level of concern to 1,000.

Post-application risks to the general population were considered for golfers following treatment of greens, tees, and fairways. Adult golfer exposures, women (13+), were less than the Agency's level of concern even on the day of application (MOE = 1,700). Given the magnitude of the MOE for adult women golfers, the Agency does not believe that the risks to child golfers would exceed the Agency level of concern either because the skin surface area/body weight ratio of the typical child golfer is similar to that of adults (within 15%). Therefore, the MOE for a child golfer is only slightly less than the MOE for adult golfers.

The exposure scenario used for toddlers playing on treated sod was the worst case scenario. The exposure scenario assumed that toddlers were playing on sod which had been treated with vinclozolin on a sod farm that same day, cut and laid in a residential setting. The MOE for toddlers is 33. This MOE represents an upper-bound exposure which includes dermal and non-dietary ingestion pathways (dermal exposure and hand-to-mouth oral exposure to grass and dirt). EPA has calculated that foliar dislodgeable residues on the sod decline such that risks fall beneath the Agency's level of concern 26 days after application (MOE = 1,100). To mitigate the unacceptable risk resulting from exposure before the 26-day period has elapsed; the registrant has proposed deletion of use on sod farms; amended the label to add a 24-day pre-harvest interval; and initiated the immediate restickering of all product in the channels of trade to require a 24-day period before sod can be harvested. It is assumed that, at a minimum, sod harvesting and replanting in a residential setting would take an additional 2 days; thereby, providing a total of 26 days for residues of vinclozolin to decline to an acceptable level. Although the Agency's level of concern is exceeded, EPA believes that these risk reduction measures when taken into consideration with the extremely conservative exposure scenario and exposure assumptions will immediately reduce the exposure such that it is below the Agency's level of concern.

4. Cumulative exposure to substances with a common mechanism of toxicity. Section 408(b)(2)(D)(v) requires that, when considering whether to establish, modify, or revoke a tolerance, the Agency consider “available information” concerning the cumulative effects of a particular pesticide's residues and “other substances that have a common mechanism of toxicity.”

Vinclozolin, procymidone, and iprodione are members of the imide group of the dicarboximide class of fungicides. Each of these three pesticides can metabolize to 3,5-DCA. FQPA requires EPA to estimate cumulative risk from consumption of food and water containing 3,5-DCA derived from vinclozolin, iprodione, and procymidone.

i. Acute exposure and risk. EPA has certain evidence that these compounds induce similar toxic effects but has not yet determined whether or not these compounds modulate androgens by a common mechanism of toxicity. In fact, there is evidence that iprodione does not share a common mechanism of toxicity as it disrupts the endocrine system by inhibiting androgen synthesis rather than competing for the androgen receptor as vinclozolin does. In addition, these three chemicals do not have any known metabolites/degradates in common with the possible exception of 3,5-DCA which is structurally and toxicologically different from the parent compounds and unlikely to be an androgen receptor antagonist.

EPA has, at this time, some data which suggests that vinclozolin and procymidone have a common mechanism of toxicity. An article published in Toxicology & Industrial Health (Vol. 15, ISS 1-2, 1999, page 80-93) which reports the findings by Dr. Earl Gray, National Health and Environmental Effects Research Laboratory, U.S. EPA, Research Triangle Park, NC, suggests that procymidone alters sexual differentiation in the male rat by acting as an androgen-receptor antagonist in vivo and in vitro . The Agency has yet to make a conclusion as to whether these data are sufficient to evaluate whether vinclozolin and procymidone have a common mechanism of toxicity. Within the next year, the Agency expects to reach a conclusion as to whether these data are sufficient to determine that vinclozolin and procymidone have a common mechanism of toxicity.

Even if it is assumed that vinclozolin and procymidone share a common mechanism of toxicity, EPA believes that it can still make the finding of reasonable certainty of no harm for vinclozolin because any cumulative risk resulting from adding procymidone residues in wine to vinclozolin exposure is unlikely to differ significantly from the risk of vinclozolin alone. This conclusion is based on a number of factors. The exposure assessment for vinclozolin estimates that vinclozolin exposure through wine grapes contributes < 2% of the total vinclozolin exposure. The percent of imported wine grapes that are treated with procymidone is similar to that of vinclozolin (estimated 10% of wine grapes treated with vinclozolin and 9.4% of wine grapes treated with procymidone), and therefore, the exposure pattern for these chemicals is similar. In addition, the exposure estimates conservatively assume that all wine bearing vinclozolin residues also contain procymidone residues. In all likelihood, wine grapes would be treated with either vinclozolin or procymidone but not both chemicals. Therefore, EPA believes that vinclozolin exposure and procymidone exposure through wine grapes would each add < 2% to the “cumulative exposure”. As noted above, the acute food-only risk of vinclozolin is 83% of the aPAD at the 99.8 th percentile of exposure, and the acute ground water EEC of 0.53 ppb and the acute surface water EEC of 5.68 ppb are lower than the drinking water DWLOC which is 30 ppb at the 99.8 th percentile of exposure. EPA believes there is ultimately enough room in the risk cup to accommodate vinclozolin and procymidone risk, even, if in the future, EPA does determine that procymidone and vinclozolin share a common mechanism of toxicity.

ii. Carcinogenic exposure and risk. Since 3,5-DCA is not a registered pesticide, there is no FIFRA toxicology data base for this compound. EPA has used the Q 1 * for p -chloroaniline (PCA) to assess the carcinogenicity (only toxicological endpoint identified for 3,5-DCA) for other structurally related chloroanilines. EPA's approach on chloroanilines is to consider chloroaniline metabolites to be toxicologically equivalent to PCA unless there is sufficient evidence that the metabolite is not carcinogenic. A Q 1 * of 6.38 × 10 -2 (mg/kg/day) -1 has been calculated for p -chloroaniline based on the spleen sarcoma rate in male rats from a National Toxicology Program bioassay.

Exposure to 3,5-DCA was evaluated from the following sources: residues of vinclozolin- and iprodione-derived 3,5-DCA in food and wine, residues of procymidone-derived 3,5-DCA in imported wine, and 3,5-DCA residues in water from domestic agricultural uses of iprodione and vinclozolin. There are no U.S. registrations for procymidone. Therefore, an evaluation of exposure to procymidone-derived 3,5-DCA in water is not appropriate.

a. Food risk — (1) From vinclozolin-derived 3,5-DCA residues. Cancer risks were 5.1 × 10 -7 for all crops, including strawberries and stone fruits. Cancer risks were 2.6 × 10 -7 for all crops, excluding strawberries and stone fruits. Neither of these risks exceed the Agency's level of concern.

(2) From iprodione-derived 3,5-DCA residues. As stated in the July 1998 Iprodione RED, the cancer risk associated with 3,5-DCA derived from iprodione was 6 × 10 -9 . This risk does not exceed the Agency's level of concern.

(3) From procymidone-derived 3,5-DCA residues. The cancer risk associated with 3,5-DCA in imported wine produced from grapes treated with procymidone was estimated to be 3.7 × 10 -7 . This risk does not exceed the Agency's level of concern

b. Drinking water risk— (1) From vinclozolin derived 3,5- DCA. As stated previously, Tier II surface water EECs were generated using PRZM/EXAMS for 3,5-DCA. Onions grown in California were considered to be the worst-case scenario for water modeling. The highest chronic EEC is 3.12 ppb in surface water while the carcinogenic DWLOC for 3,5-DCA has been calculated to range from 0.47 ppb to 1.6 ppb. Therefore, the EEC exceeds the DWLOC indicating a potential for concern. The onion scenario was selected because this use site represents the highest maximum seasonal rate currently allowed on vinclozolin labels. However, the registrant has requested deletion of onions after this growing season (July 15, 2000). If the Agency accepts this request, this scenario is not appropriate for use in a carcinogenic risk assessment which represents life-time exposure.

Assuming acceptance of BASF's use deletion request, the carcinogenic DWLOC for 3,5-DCA (based on the commodities available for consumption after this use season) has been calculated to range from 0.46 ppb to 1.6 ppb. Using Tier II PRZM/EXAMS, the modeled EECs are 0.64 ppb for lettuce and 0.34 ppb for canola. The use site which represents the highest modeled exposure in drinking water is golf courses. Application to golf course turf is currently permitted on grass mowed at 1 inch or less. Using the Tier I generic expected environmental concentration (GENEEC) model, the Agency has calculated a chronic EEC of 0.29 ppb based on application to tees and greens and a chronic EEC of 2.33 ppb assuming application to tees, greens, and fairways. These EECs were the result of refinements to the GENEEC model. These refinements included the incorporation of an 87 percent crop area (PCA) factor as well as the percentage of the golf course that actually receives pesticide treatment, bringing the resulting PCA factor down to 17%. It was assumed that tees and greens comprise 2.8% of the acreage of a golf course. When fairways are included, an additional 16.7% of the golf course is treated. The EEC of 2.33 ppb exceeds the DWLOC. In evaluating whether this EEC indicated a risk of concern EPA considered the following factors:

(i) The drinking water assessment on turf is based on GENEEC, a screening-level Tier I model. At present, PRZM-EXAMS, the Tier II model, does not have the appropriate parameters to accurately model turf runoff. Although GENEEC is not an ideal tool for use in drinking water risk assessments, it can provide high-end estimates of the concentrations that might be found in a confined pond of one hectare. Drinking water from surface water sources does not typically come from this type of scenario, but rather from bodies of water that are substantially larger than such ponds and from diverse watersheds. Unlike a confined pond, there is always some flow (in a river) or turn over (in a lake or reservoir) resulting in an over-estimation of the persistence of the chemicals near the drinking water utility intakes. Although a PCA of 17% was used to refine the model, the Agency recognizes that there are still uncertainties in the accuracy of the model to represent drinking water concentrations.

(ii) The GENEEC model uses the 56-day average of pesticide concentrations immediately after an event (application of pesticide). This short time-period may not adequately characterize a person's average daily exposure over a year, even more so, over a life time of 70 years.

(iii) The GENEEC model assumes that once in every 10 years the EEC will be exceeded. For the other 9 out of 10 years the level of residue in drinking water is likely to be below the EEC with at least one half of the years falling significantly below by a factor of 5 to 10. Therefore, a person may be exposed to the EEC once in every 10 years or a total of seven times during a lifetime of 70 years. The Agency believes the potential for such a lifetime exposure is minimal.

The first of these factors raises some concern because there is a possibility that GENEEC may underpredict residue levels although such underprediction would not be expected to be great. The second and third factors, on the other hand, could lead to a significant overstatement of drinking water exposure values. In light of all of these factors, EPA believes that it is likely there is no risk of concern from exposure to vinclozolin-derived 3,5-DCA.

Nonetheless, the exceedance of the DWLOC, based on a screening level model, does indicate a need to take steps to insure that exposures do not raise a risk of concern. Therefore, the Agency is considering requiring the registrants of vinclozolin and iprodione to submit targeted surface water monitoring studies. The studies would be used to compare the existing modeled results to the more accurate data. The Agency will also consider requiring BASF to develop a survey of golf course superintendents to obtain current information on actual vinclozolin use patterns. Estimates for turf use will be examined further pending receipt of better usage characterization data. Lastly, the Agency is considering requiring additional toxicological information on 3,5-DCA from the registrants of vinclozolin, iprodione and procymidone, including data for use in evaluating the carcinogenic potential of this metabolite.

(2) Iprodione 3,5-DCA. As stated in the RED, the DWLOC for 3,5-DCA derived from domestic uses of iprodione was estimated to be 0.55 ppb. The 3,5-DCA EEC in surface water associated with the use of iprodione alone was estimated to be 0.45 ppb. Thus, the iprodione derived 3,5-DCA carcinogenic DWLOC is not exceeded.

(3) From procymidone 3,5-DCA. There is no drinking water exposure because procymidone is not registered for use in the United States.

c. Cumulative risk. The cumulative, food-only cancer risk associated with 3,5-DCA derived from all three of these imide fungicides is 9.2 × 10 -7 (includes stone fruit and strawberries) and the cumulative food-only cancer risk is 6.3 × 10 -7 when stone fruit and strawberries are excluded. There is uncertainty in the above risk estimates in that a surrogate Q 1 * is being used for 3,5-DCA. However, due to the structural similarities of 3,5-DCA and p -chloroaniline (PCA), EPA believes that for 3,5-DCA, the use of the PCA Q 1 * represents an upper-bound estimate. The Agency is considering requiring registrants of vinclozolin, iprodione, and procymidone to provide additional toxicological information on 3,5-DCA including data for use in evaluating the carcinogenic potential. The cumulative, food-only cancer risk estimates are conservative and are considered to be a negligible cancer risk.

The 3,5-DCA DWLOC from all three imide fungicides (including canola, snap beans and those currently registered vinclozolin uses which are not being supported after this use season) ranges from 0.26 ppb to 1.4 ppb. The estimated concentration of 3,5-DCA in water from applications of iprodione (1998 iprodione RED) is 0.45 ppb and falls within the range of the aggregated DWLOC cited above. The estimated concentration of 3,5-DCA in water from applications of vinclozolin after this use season is estimated to range from 0.29 ppb to 2.33 ppb. As already stated, this range could potentially present a risk of concern based on the model, however, based on how the model estimates residue concentrations for cancer assessment, EPA believes that it is unlikely that a cancer risk of concern is present.

1. Acute risk . The acute dietary (food only) risk does not exceed the Agency's level of concern at the percentiles of exposure up to the 99.8 th percentile. Using anticipated residues, PCT data, and PICT data, the population subgroup of concern, females (13+) utilized 83% of the dietary (food only) aPAD at the 99.8 th percentile of exposure. For drinking water, the EEC of 5.68 ppb in surface water and the EEC of 0.53 in groundwater did not exceed the DWLOC of 30 ppb at the 99.8 th percentile of exposure.

2. Chronic risk . Using the exposure assumptions described above, EPA believes that aggregate dietary exposure to the U.S. population will use 4% of the cPAD and exposure to the most highly exposed population subgroup, children (1-6 year old) will use 7% of the cPAD. The chronic DWLOCs for vinclozolin were 41 ppb for the general U.S. population and 35 ppb for the most highly exposed population subgroup, women (13+). The chronic DWLOCs were higher than the chronic EEC of 0.53 ppb in ground water and 0.165 ppb in surface water. EPA generally has no concern for exposures below 100% of the cPAD because the cPAD represents the level at or below which daily aggregate dietary exposure over a lifetime will not pose appreciable risks to human health.

3. Short- and intermediate-term risk . Short- and intermediate-term aggregate exposure takes into account chronic dietary food and water (considered to be a background exposure level) plus indoor and outdoor residential exposure. All residential exposures are considered to be short- and intermediate-term duration and since the same endpoint applies to both durations of exposures, the dermal and inhalation exposures must be aggregated together with the food and water exposures for each population subgroup of concern, females (13+) and infants and children. The risks currently exceed the Agency's level of concern. However, when considering the conservative method of exposure estimations previously discussed, and the following risk mitigation measures (stone fruit and strawberry use deletion, and the immediate restickering of all vinclozolin products for sod farm use to include a 24-day period before harvesting), the MOE is "1,010 for aggregate risks to the population subgroups of concern, females (13+) and infants and children as well as the general U.S. population resulting from vinclozolin uses are not of concern. Therefore, the risks do not exceed the Agency's level of concern.

4. Aggregate cancer risk for U.S. population . Because the overall anti-androgenic effects are a prerequisite for hyperplasia and tumor formation, and are considered to be protective of the potential carcinogenic outcome of exposure to the anti-androgenic vinclozolin and its metabolites, the overall anti-androgenic aggregate risk which are identical to the chronic aggregate risk. The chronic aggregate risks are presented. The chronic (non-cancer) aggregate risk was below the Agency's level of concern for food and drinking water sources of exposure. Chronic food-source risks were ≤7% of the cPAD when stone fruit and strawberries are excluded (uses have been canceled). Estimated environmental concentrations were compared to the chronic DWLOCs. The chronic EEC for residues of vinclozolin per se in ground water (0.53 ppb) was below the chronic DWLOCs for water consumption by adults (41 ppb for the general U.S. population and 35 ppb for females (13+)) and by children (11 ppb).

Cancer risks from vinclozolin derived 3,5-DCA were 2.6 × 10 -7 for all crops, excluding strawberries and stone fruits. This risk does not exceed the Agency's level of concern. The 3,5-DCA DWLOC from all three Imide fungicides (including canola, snap beans and those currently registered vinclozolin uses which are not being supported after this use season) ranges from 0.26 ppb to 1.4 ppb. The 3,5-DCA EEC resulting from iprodione use is 0.45 ppb and falls with the range of the aggregated DWLOC cited above. The 3,5-DCA EEC resulting from vinclozolin use after this use season is estimated to range from 0.29 ppb to 2.33 ppb. As already stated, this range could potentially present a risk of concern based on the model, however, based on how the model estimates residue concentrations for cancer assessment, EPA believes that it is unlikely that a cancer risk of concern is present.

5. Determination of safety . Based on these risk assessments, EPA concludes that there is a reasonable certainty that no harm will result from aggregate exposure to vinclozolin residues.

1. Safety factor for infants and children —i. In general . In assessing the potential for additional sensitivity of infants and children to residues of vinclozolin, EPA considered data from developmental toxicity studies in the rat and rabbit and a 2-generation reproduction study in the rat. The developmental toxicity studies are designed to evaluate adverse effects on the developing organism resulting from maternal pesticide exposure during gestation. Reproduction studies provide information relating to effects from exposure to the pesticide on the reproductive capability of mating animals and data on systemic toxicity.

FFDCA section 408 provides that EPA shall apply an additional tenfold margin of safety for infants and children in the case of threshold effects to account for prenatal and postnatal toxicity and the completeness of the data base unless EPA determines that a different margin of safety will be safe for infants and children.

ii. Prenatal and postnatal sensitivity . The rationale for retaining the 10X FQPA safety factor is explained below:

a. There is evidence of increased susceptibility of offspring following in utero exposure to vinclozolin in the prenatal developmental toxicity study in rats.

b. A developmental neurotoxicity study in rats with an expanded protocol is required for vinclozolin as a result of concern for the anti-androgenic properties of vinclozolin and its metabolites.

iii. Conclusion . Based on the developmental and reproductive data for vinclozolin, EPA determined that an additional 10X safety factor for the protection of infants and children (as required by FQPA) should be retained.

2. Acute risk . No study with vinclozolin indicated that acute exposure to vinclozolin is likely to cause an adverse effect of concern on infants or children or the general public with the exception of the in utero effects on the developing fetus. Risks to the fetus are estimated by examining exposure to women of child-bearing age.

3. Chronic risk . Using the exposure assumptions described in this unit, EPA has concluded that aggregate exposure to vinclozolin from food will utilize 7% of the cPAD for infants and children. EPA generally has no concern for exposures below 100% of the cPAD because the cPAD represents the level at or below which daily aggregate dietary exposure over a lifetime will not pose appreciable risks to human health. Since the EEC's for residues of vinclozolin per se are lower than the chronic DWLOC's, EPA does not expect the aggregate exposure to exceed 100% of the cPAD.

4. Short- or intermediate-term risk . The short- and intermediate-term risks currently exceed the Agency's level of concern (MOE = 1,000). However, the Agency believes the exposure estimates are conservative, as previously discussed, and therefore, overestimate risk. When the following risk mitigation measures (stone fruit and strawberry use deletion, and the immediate restickering of all vinclozolin products for sod farm use to include a 24-day period before harvesting) are taken into consideration, the MOE is " 1,010 for aggregate risks to infants and children resulting from use of vinclozolin. Therefore, the risks do not exceed the Agency's level of concern.

5. Determination of safety . Based on these risk assessments, EPA concludes that there is a reasonable certainty that no harm will result to infants and children from aggregate exposure to vinclozolin residues.

1. Comment number 1 . NRDC argues that EPA is not authorized to use percent crop treated information in acute risk assessments. NRDC bases this argument on the fact that the provision explicitly addressing percent crop treated information, section 408(b)(2)(F), only mentions use of such information in chronic assessments.

Agency response . EPA disagrees with this interpretation of the FFDCA. FFDCA Section 408(b)(2)(D)(vi) directs EPA, in making tolerance decisions, to consider “available information concerning the aggregate exposure levels of consumers to the pesticide chemical residue.”

Congress explicitly addressed use of percent crop treated information in section 408(b)(2)(F) where it imposed certain conditions on EPA's use of percent crop treated information in chronic risk assessments. Section 408(b)(2)(F) states:

NRDC contends that subparagraph (F) impliedly bars EPA from relying on percent crop treated information for acute risk assessments under subparagraph (D)(vi) because subparagraph (F) only mentions chronic risk assessments. EPA, however, does not believe that the statutory silence on acute risk assessments in subparagraph (F) compels such an interpretation. In fact, the statutory structure suggests the converse conclusion. Subparagraph (F) clearly sets forth that percent crop treated information may be used in chronic risk assessments “only if” four conditions can be met. If Congress had intended that this provision limit EPA's general authority to consider percent crop treated information other than as applied to chronic risk assessments, the reference to chronic risk assessments should not have been included as part of the introductory clause but as one of the “only if” conditions. Failure to include it as one of the “only if” conditions suggests that Congress was merely setting out rules for chronic risk assessments and not making a broader statement about use of percent crop treated information generally.

Moreover, it is not surprising that Congress chose only to address use of percent crop treated information in the context of chronic risk assessment given EPA's historical practice regarding use of percent crop treated data. Although EPA has considered percent crop treated information in chronic risk assessment for decades, use of such information in acute risk assessments is a relatively recent phenomenon, and Congress, in 1996, may have either not been aware of the rapidly evolving risk assessment techniques for acute hazards or believed that it was premature to enact statutory requirements as to such assessments.

There were two key events in 1995 that triggered the use of percent crop treated information in acute risk assessments: (1) A new focus on acute hazards; and (2) a new risk methodology for assessing acute risks. In 1995, EPA began for the first time consistently identifying acute endpoints and performing acute risk assessments for each pesticide. EPA was initially reluctant to use percent crop treated information in such assessments due to the difference between acute and chronic risks. With chronic risk, EPA is concerned with hazards that occur from exposure over an extended time period. Thus, in assessing chronic risk, EPA generally combines percent crop treated information with data on residue levels to produce an estimate of the residue level a person is exposed to over an extended time-frame assuming the person gets a mixture of treated and untreated commodities. With acute hazards, EPA is concerned with the risk from a single exposure and thus is interested in the exposure that can come from a single commodity. Accordingly, for acute risk assessments it is inappropriate to produce a single estimate of the residue level in commodities if such estimate does not reflect high end values that are likely to occur. Use of percent crop treated data in the manner used in chronic assessment, however, reduces high-end values in proportion to percent of crop treated. To overcome this problem, a new risk assessment methodology was developed that used a complex, probabilistic model that incorporated all residue values, including the high end values, and percent crop treated information. EPA first accepted these probabilistic acute risk assessments late in 1995, and use of this new risk assessment technique in regulatory actions was still relatively infrequent prior to the drafting and passage of the FQPA in the summer of 1996.

In sum, NRDC can demonstrate, at best, that the statute is silent regarding use of percent crop treated information in acute risk assessments. Given the general language in section 408 directing EPA to consider “available information” on aggregate exposure levels, EPA's interpretation of section 408 as permitting use of percent crop treated data in acute risk assessments is certainly reasonable. NRDC's interpretation, on the other hand, would erect an absolute bar to the use of the most advanced scientific techniques for reliably and accurately estimating anticipated exposure to pesticide residues.

2. Comment number 2 . EPA fails to identify the correct NOAEL for vinclozolin's endocrine disrupting effects. Dr. Gray has reported an apparent lack of a NOAEL for vinclozolin's developmental effects. Therefore, use of a NOAEL of 6 mg/kg/day for the acute analysis and use of 3 mg/kg/day as the NOAEL for short-term, intermediate-term, and carcinogenic risk assessments is not scientifically supportable. NRDC feels that a LOAEL of 3 mg/kg/day, adjusted for the lack of a true NOAEL, should be used as the hazard component in risk assessments.

Agency response . First, the Agency stresses that it conducted a statistical analysis of anogenital distance in response to dose in the Gray developmental rat study, and it was determined that the NOAEL for acute effects was 6 mg/kg/day and the LOAEL was 12 mg/kg/day. In a 12/8/99 memorandum, the Agency determined that decreased ventral prostate weight, observed at 6 mg/kg/day, was an even more sensitive indicator of the anti-androgenic activity of vinclozolin; the next lower dose (3 mg/kg/day) was thus selected as the study NOAEL.

Second, the Agency must stress that the NOAEL of 6 mg/kg/day for the acute dietary analysis represents the 3 mg/kg/day treatment level (study NOAEL) in the [multidose] perinatal oral developmental rat study noted above that has been adjusted by a plasma equilibrium factor to derive an adjusted NOAEL that reflects a single dose; the adjusted LOAEL causing decreased ventral prostate weight has been calculated to be 11.5 mg/kg/day.

The perinatal oral developmental rat study mentioned above was also used as the source of the NOAEL for short-term and intermediate-term dermal and inhalation risk assessments for women (13-50); note that the study NOAEL of 3 mg/kg/day was not adjusted for the plasma equilibrium factor because the applicable short-term and intermediate-term routes of exposure are not oral and because they typically reflect multiple exposure events more closely approximated by the multidose oral developmental rat study.

The Agency disagrees with NRDC's suggestion that the 3 mg/kg dose from the Gray, et al. oral developmental rat study is a LOAEL. As noted above, EPA's statistical analysis shows that the anogenital distance effect has a NOAEL of 6 mg/kg/day in the Gray study. NRDC has not offered any explanation of why it does not agree with that statistical analysis. Second, as to the decreased ventral prostate weight effect, EPA's review of the data shows that this adverse affect was not present at 3 mg/kg; however, this adverse effect was a dose-related effect in male offspring at 6 mg/kg and above. No adverse effects were observed at the 3 mg/kg/day dose level. Thus, EPA cannot agree with NRDC that the 3 mg/kg/day dose should be treated as a LOAEL in conducting the risk assessment for vinclozolin.

The perinatal rat developmental toxicity study was also used to derive the point of departure (POD = NOAEL of 3 mg/kg/day) to be used in the non-linear carcinogenicity risk assessments; the effect seen at the LOAEL of 6 mg/kg/day was prostate weight decrease, seen as an early manifestation of the anti-androgenic action of vinclozolin ultimately resulting in Leydig (testicular interstitial) cell tumors in the chronic/cancer studies. However, note that the NOAEL of 1.2 mg/kg/day from the rat chronic/cancer studies is considered to be protective of cancer effects because it is protective of the anti-androgenic effects that are the likely precursors to tumor formation. The chronic Population Adjusted Dose (cPAD), used to calculate risk, is derived by dividing the NOAEL of 1.2 mg/kg/day by the safety factor of 1,000 (10X for intraspecies extrapolation, 10X for interspecies variation, and 10X for FQPA). Because this approach (using the cPAD) would be more protective than the proposed POD for cancer risk assessment of 3 mg/kg/day, and includes an additional 10X factor for the protection of infants and children, a separate non-linear risk assessment for cancer is not necessary.

3. Comment number 3 . Vinclozolin and iprodione do share a common mechanism of toxicity. NRDC disagrees with EPA's judgement that vinclozolin and iprodione do not share a common mechanism because they are both known anti-androgens, both have the metabolite 3,5-dichloroaniline in common, and both cause the same effect even if the exact manner of androgen interference is different. In fact, they may act additively or synergistically as a result of affecting the androgen pathway at different sites as opposed to the potential competition for the same binding site if both act at the exact same point in the process.

Agency response . FQPA requires EPA to consider available information concerning the cumulative effects of compounds that have a common mechanism of toxicity. It should be stressed, however, that EPA is moving in a stepwise fashion to evaluating the cumulative assessment of anti-androgenic pesticides.

Vinclozolin, procymidone, and iprodione are members of the imide group of the dicarboximide class of fungicides. There is some evidence that these compounds induce similar toxic effects. Further, all of these fungicides appear to be anti-androgenic. The mechanistic basis for their anti-androgenic properties have been studied to different degrees. There are studies underway at EPA's National Health and Environmental Effects Laboratory to better elucidate the mechanism of toxicity for these anti-androgenic fungicides as well as mixture studies on how they interact. Although all three of these fungicides effectively reduce the level of testosterone, they do so by different pathways. Vinclozolin and procymidone bind and compete for the androgen receptor. Iprodione disrupts the endocrine system by inhibiting androgen synthesis rather than competing for the androgen receptor. It should be noted that these three chemicals do not have any known metabolites/degradates in common with the possible exception of 3,5-dichloroaniline which is structurally and toxicologically different from the parent compounds and unlikely to be anti-androgenic.

The androgen system may be modulated in different ways including competitive binding to androgen receptors, interference with gene control over the synthesis of several enzymes or other factors associated with synthesis of androgen and testosterone. All of these variables relate to the potency, specificity, and site of action of the anti-androgen and determine the expression of the anti-androgenicity induced by various compounds. Because of the complexity of the androgen system, a careful evaluation of all the available data is needed as well as peer review by the FIFRA Science Advisory Panel before a formal decision is made regarding whether or not these compounds modulate androgens by a common mechanism of toxicity. The evaluation of a common mechanism would follow the 1999 EPA Guidance for Identifying Pesticide Chemicals and Other Substances That Have A Common Mechanism of Toxicity (64 FR 5796, February 5, 1999) (FRL-6060-7). Furthermore, procymidone has yet to be subjected to the Reregistration Eligibility Decision (RED) process and, as part of this process, its toxicology database must meet current standards of acceptability. Although there are data suggesting that these dicarboximide fungicides induce some of the same anti-androgenic effects, the mechanism by which they cause these toxic effects have not been adequately evaluated.

Even after an evaluation of all the data and a decision is made regarding a common mechanism of toxicity, other analyses are important to conduct regarding the integration of exposure and hazard data to determine the likelihood that such groupings might result in a cumulative risk as described in the Agency's Proposed Guidance on Cumulative Risk Assessment of Pesticide Chemicals That Have a Common Mechanism of Toxicity (http://www.epa.gov/scipoly/sap/1999/september/cumdoc.pdf). Only then can it be determined whether there is a need to conduct a cumulative risk assessment on these dicarboximide fungicides.

Nonetheless, because of the apparent similarity of mechanism of toxicity between vinclozolin and procymidone EPA has considered, as discussed above, whether the cumulative effects from vinclozolin and procymidone (assuming these pesticides' effects are cumulative) would raise a risk of concern. EPA is unwilling, at this time, to make the same assumption concerning iprodione and vinclozolin. NRDC hypothesizes that, because iprodione and vinclozolin operate in a different manner on the androgen system, they are likely to have an additive anti-androgenic effect. A conclusion that chemicals that operate at different stages in the androgen pathway are acting through a common mechanism of toxicity or otherwise merit a cumulative assessment is beyond any cumulative effects determination EPA has made either pre- or post-FQPA. That does not mean that further evaluation of the science of cumulative effects concerning anti-androgenic effects will not lead to a conclusion that iprodione and vinclozolin have a common mechanism of toxicity. At this time, however, given the scientific understanding of the mechanisms of these two pesticides, EPA is unwilling to presume that such common mechanism exists or that there is some other justification for treating these pesticides as having cumulative effects.

4. Comment number 4 . EPA should not approve tolerances that exceed safe levels. The elevated risk numbers in the case of short-term and intermediate-term risk and the exceedance of the drinking water level of concern (DWLOC) are especially of concern and there is doubt that the proposed mitigation measures will alleviate the estimated risks. There is concern that EPA's assessments are not sufficiently conservative to protect public health and the Agency should not ignore or explain-away its own elevated risk estimates.

Agency response . EPA has high confidence in the short-term and intermediate-term risk assessments (these involve treated sod) because a chemical-specific turf exposure study was used and because foliar residue dissipation over time was determined. We, therefore, have confidence that the mitigation measure to require a 24-day interval between final treatment and harvest of sod before it is shipped for placement in a residential setting will be protective. Only in the case of acute aggregate risk from vinclozolin and carcinogenic risk from 3,5-DCA was there an indication of a potential drinking water concern. The exposure estimates (EECs) were based on conservative modeling. Also, the food exposures (subtracted from the aPAD to determine the DWLOC) are very conservative because they are based on field trial residue data. DWLOCs cannot be used in a quantitative risk assessment as representative monitoring data may. Rather, they are used to determine the magnitude of potential concern by comparison to the EEC's. As the 99.9 th percentile of food exposure to vinclozolin is considered to be overly conservative given the use in this exposure assessment and the overly conservative drinking water assessment, EPA has little concern for an apparent elevated risk particularly in light of the registrant's mitigation proposals. Finally, discussion of the strengths and weaknesses of our assessments, the assumptions made, and our level of confidence are all part of the risk characterization component of risk assessment. We must provide qualitative descriptors to facilitate the risk management process.

Comment . EPA is asked to consider Earthjustice's prior comments and objections to the previous vinclozolin tolerance.

Agency response . EPA has addressed Earthjustice's prior comments and objections in the Agency letter of May 11, 2000 to the Earthjustice Legal Defense Fund, and therefore, the Agency believes that further detailed discussion is not necessary. In brief, Earthjustice's prior comments focused on two issues: the use of the additional safety factor for the protection of infants and children; and the cumulative effects of vinclozolin, iprodione, and procymidone. In considering Earthjustice's comments in the course of assessing vinclozolin, EPA has acceded to Earthjustice's request to retain the additional safety factor for the protection of infants and children and has assumed, for this tolerance rulemaking, that vinclozolin and procymidone have a common mechanism of action that will lead to cumulative effects. EPA decided against reaching that conclusion as to vinclozolin and iprodione for the reasons explained above. EPA's full response to Earthjustice has been included in the docket for this action.

1. Comment number 1 . BASF has supplied information which would allow the Agency to further refine the acute dietary risk by using monitoring data provided in response to the Agency's preliminary risk assessment. Use of this information would significantly reduce the calculated acute dietary risk.

Agency response . BASF did submit grape and lettuce metabolism studies and a proposal that monitoring data be used as a source of refined dietary exposure estimates, i.e., anticipated residues. FDA and USDA/Pesticide Data Program monitoring data are available for most foods expected to bear vinclozolin residues. However, these monitoring data are not useful for risk assessment purposes because these programs do not analyze all 3,5-DCA containing metabolites, which are the residues of concern. Agency review of the plant metabolism studies reveals that a significant portion of the vinclozolin residue may exist as 3,5-DCA per se or conjugates, all of which tend to increase with time as they are the terminal, more stable residues. Conjugates and 3,5-DCA per se are not analyzed by either FDA or PDP. These residues are, however, analyzed by the data collection method used to generate the field trial data because the method converts all of these residues to a common moiety (derivatized 3,5-DCA). Also, there was significant variability in the ratios of vinclozolin per se to total residues with time, between crops, and between studies on the same crop. Therefore, at this time the Agency does not believe that the plant metabolism studies provide sufficient additional information supporting use of monitoring data to generate anticipated residues (ARs) and that field trial data should be used to calculate AR values for dietary exposure in food.

2. Comment number 2 . BASF has submitted or cited information it feels supports their contention that 3,5-DCA should not be assumed to be toxicologically equivalent to p -chloroaniline, i.e., that 3,5-DCA should not be considered to be a carcinogen like p -chloroaniline for risk assessment purposes. Based on physicochemical and stereochemical differences from p -chloroaniline, BASF thinks that 3,5-DCA would not be mutagenic. Calculations indicate that the amino group of p -chloroaniline is 1,300 times more reactive than the amino group of 3,5-DCA in a peroxidation reaction, a step necessary to generate the corresponding hydroxylamine which is a prerequisite for mutagenicity. Side-by-side Ames Bioassays demonstrated that p -chloroaniline is clearly mutagenic whereas 3,5-DCA is nonmutagenic in the presence of metabolic activation and a cocarcinogen. This indicates that the two chloroanilines behave different biologically.

Agency response . While the submitted information provides some support for the claim that 3,5-DCA may be less potent than p -chloroaniline, there is insufficient evidence to show that 3,5-DCA is not mutagenic or carcinogenic. The available mutagenicity data are insufficient because 3,5-DCA was tested using only one of the four or five Salmonella typhimurium strains usually tested in the Ames bioassay; also, 3,5-DCA was not the subject of any other in vitro mutagenicity study required for pesticide registration.

Only long-term studies in which two mammalian species are exposed to a potential carcinogen can provide concrete evidence of carcinogenicity. Therefore, until sufficient data are submitted, DCA will continue to be regulated based on a Q 1 * calculation for p -chloroaniline.

3. Comment number 3 . BASF claims that recently submitted details of calculations of turf foliar dislodgeable residues provides evidence that a 9-day preharvest interval (PHI), rather than the Agency-calculated 24-day PHI, is sufficient to bring the children's MOE to a level below the Agency's level of concern. Regardless of the outcome of the Agency review, BASF is willing to impose the 24-day PHI suggested in the supplemental notice.

Agency response . These data are currently under review, and no comment can be provided at this time.

1. Plant metabolism . The qualitative nature of the residue in plants is adequately understood based on metabolism studies on strawberries, lettuce, peaches, and grapes. The plant metabolism studies indicate that metabolism in plants results from the hydrolytic cleavage of the oxazolidinedione ring and/or loss of the ethenyl moiety. Formation of conjugates and hydrolysis to 3,5-DCA occur and these may increase with time. The residues of concern are vinclozolin per se and its metabolites containing the 3,5-DCA moiety.

2. Animal metabolism . The qualitative nature of the residue in livestock is adequately understood based on adequate ruminant and poultry metabolism studies submitted in conjunction with pesticide petitions PP#7H5531 and PP#9F3750. The residues of concern are vinclozolin, a mixture of the diastereomers of N -(3,5-dichlorophenyl)-2-methyl-2,3,4-trihydroxybutyramide (BF 352-25), and a mixture of diastereomers derived by dihydroxylation of the vinclozolin vinyl group (BF 352-37). These metabolites are covered by the present tolerance expression, i.e., they contain the 3,5-DCA moiety.

1. Plants . Adequate analytical methodology is available for data collection and enforcing tolerances of vinclozolin per se and its metabolites containing the 3,5-DCA moiety in/on plant commodities. Method I in PAM, Vol. II, which underwent a successful EPA method validation on strawberries, involves base hydrolysis of residues to convert vinclozolin and its metabolites to 3,5-DCA. After steam distillation and organic solvent extraction, the isolated DCA is derivatized to N -(3,5- dichlorophenyl)chloroacetamide using chloroacetyl chloride prior to quantitation by gas chromatography/electron capture detection (GC/ECD). The limit of quantitation is 0.05 ppm.

2. Livestock . EPA has concluded that the following methods are available for the enforcement of tolerances for livestock tissues: method A9004A, a GC/ECD method, and method A9207, a High Performance Liquid Chromatography method. Method A9004A is based on conversion of vinclozolin and its metabolites to 3,5-DCA. However, it does not distinguish between residues of vinclozolin and other compounds convertible to 3,5-DCA. The LOQ is generally 0.05 ppm (0.1 ppm for poultry commodities). To confirm that the 3,5-DCA detected by method A9004A is derived from vinclozolin, method A9207 is used to measure 2,3,4-trihydroxy- w -methylbutanoic acid-(3,5-dichloroanilide) (BF 352-25), the major metabolite of vinclozolin in livestock commodities. The LOQ and the limit of detection are estimated to be 0.05 and 0.025 ppm, respectively. Both methods have been successfully validated.

3. The FDA PESTDATA database dated 1/94 (PAM, Vol. I, Appendix II) indicates that vinclozolin is completely recovered (> 80%) using FDA Multiresidue Protocols D and E (oily and non-oily matrices). Vinclozolin metabolite B is completely recovered using Protocols D and E (for oily matrices), and only partially recovered (50-80%) using Protocol E for non-oily matrices. Metabolite E is completely recovered using Protocol D. Metabolite F is recovered using Protocol D but no quantitative information is available. Metabolite S is partially recovered using Protocol E (non-oily matrices). The FDA multiresidue methodology differentiates between vinclozolin and iprodione, a pesticide that also contains the DCA moiety.

1. Snap beans . Sixteen (16) residue trials were conducted in a total of 7 states. Each trial consisted of a single residue sample. The residue trials were conducted using the Ronilin WP formulation. Eight of the trials involved application to lima beans and eight to snap beans. Ground applications were made in approximately 50 gallons of finish spray per acre and air applications in 5 to 15 gallons per acre. Samples of beans, cannery waste, green forage, and dry forage were analyzed. Residues in snap beans were as follows: 0.38, 0.53, 0.62, 0.64, 0.73, 0.76, 0.95, and 2.40 ppm.

2. Canola . Four field trials were conducted in Canada (two in Alberta and one each in Manitoba and Saskatchewan). These sites represent Regions 5, 7, and 14. A single treatment was applied at 0.22, 0.33, or 0.45 lb active ingredient per acre (ai/A) (0.44X, 0.66X, and 0.89X the maximum rate of 0.5 lb ai/A proposed on the U.S. label) in 40 gallons of water per acre using ground equipment. Two major canola varieties were treated at 20-35% bloom; the treatment-to-harvest intervals were 37-57 days. The canola seed were stored frozen for 330 days. The preponderance of data support the storage stability of the 3,5-DCA moiety for this length of time in canola seed. At the 0.44X application rate, canola seed contained 3,5-DCA-containing residues of 0.038-0.20 ppm. At the 0.33X rate, residues were detected at 0.065-0.28 ppm. At the 0.88X rate, residues were found at 0.068-0.42 ppm. An additional six field trials were conducted in Canada between 1982 and 1996 to support Section 18 requests. A single application was made at 0.22-0.67 lb ai/A (0.44X - 1.34X) during the early bloom to the mid-bloom stage using aerial and ground equipment. The treatment-to-harvest intervals were 36-69 days. Residues containing the 3,5-DCA moiety in canola seed were ≤ 0.93 ppm. The highest residue value resulted from an application of 0.44 lb ai/A (0.88X). Although some of the available trials do not reflect the maximum rate, others represent exaggerated rates. The earlier-submitted data, combined with the four Canadian field trials submitted with this petition, provide sufficient magnitude of the residue data upon which to base a canola seed tolerance.

A canola seed processing study was conducted on seed harvested from a Saskatchewan field trial. A single treatment at 0.45 lb ai/A (0.89X) occurred at 40% bloom. At maturity, 49 days later, seeds were subjected to typical processing into oil and meal. The seed, crude oil, refined oil, and meal byproduct were analyzed in Germany by BASF using method P-14.003.02. Residues containing the 3,5-DCA moiety were detected at 0.62 - 0.89 ppm in four replicates of seed (mean = 0.76 ppm). Residues in crude oil were 0.85 = 0.94 ppm (mean = 0.88 ppm) indicating very slight concentration in this intermediate component of the process that is not used for food or feed. Upon purifying, refined oil (the product for commerce) did not contain detectable residues ( < 0.05 ppm) indicating residue reduction. In addition, the byproduct canola meal contained residue levels identical to those in the seed (0.68 - 0.89 ppm) demonstrating a lack of concentration of vinclozolin residues in this livestock feed.

3. Meat, milk, poultry, and eggs . There are no feed items associated with the currently registered use sites or succulent beans. However, canola meal may be fed to beef and dairy cows, swine, and poultry at up to 15% of the diet. The canola seed tolerance level of 1 ppm was used for canola meal to calculate livestock diets because the processing study indicated that vinclozolin concentrations in seed remains the same in the meal. The meal dry matter content of 88% (corrected for cattle only) was also used to calculate livestock diets for tolerance-setting purposes. The dietary burdens are thus: 0.17 ppm for beef and dairy cattle and 0.15 ppm for swine and poultry.

Based on livestock feeding studies, the theoretical residues in tissues were calculated using tissue residues at the lowest feeding level (100 ppm) extrapolated to the dietary burdens provided above. Livestock commodity residues resulting from the three feeding levels (100, 300, and 1,000 ppm) were fairly linear lending some support to the assumed linearity down to the dietary burden levels. Theoretical residues ranged from 0.004 ppm to 0.015 ppm in cattle tissues and milk, 0.001 ppm to 0.004 ppm in poultry tissues and eggs, and 0.003 ppm to 0.014 ppm in swine tissues. In accordance with 40 CFR 180.6(a)(2), EPA believes that the available data indicate that there is a reasonable expectation of finite residues of vinclozolin transferring from treated canola to livestock commodities via canola meal in the diet. Accordingly, EPA recommends that tolerances at the LOQ of the method be proposed as follows: 0.05 ppm in eggs, milk, and the meat, fat, and meat byproducts of cattle, goats, hogs, horses, and sheep; and 0.1 ppm in the meat, fat, and meat byproducts of poultry.

CODEX maximum residue limits (MRLs) for residues of vinclozolin and its metabolites containing the 3,5-DCA moiety have been established in common bean at 2 ppm, rape seed at 1 ppm (no limit for canola), cattle meat and milk at 0.5 ppm, and chicken meat and eggs at 0.05 ppm. No Canadian or Mexican tolerances have been established for vinclozolin residues in succulent beans, rape, canola, meat, milk, poultry, or eggs.

The CODEX MRLs for canola (rape seed), cattle meat, cattle milk, and poultry eggs are in harmony with the proposed tolerances associated with this petition. The chicken meat MRL (0.05 ppm) is not in harmony with the proposed tolerance in poultry meat (0.1 ppm) due to recovery discrepancies with the analytical method.

Based on a limited field rotational crop study which was adequate to satisfy the data requirement, vinclozolin residues were all < 0.05 ppm (LOQ of method) in all plant commodities (wheat, cabbage, and potatoes) at the minimum plant-back interval of 30 days. Therefore, EPA has concluded that it is permissible to rotate to small grains, leafy vegetables and root crops after a 30-day interval.

Therefore, tolerances are established for combined residues of vinclozolin, 3-(3,5-dichlorophenyl)-5-ethynyl-5-methyl-2,4-oxazolidinedione and its metabolites containing the 3,5-dichloroaniline moiety, in or on succulent beans at 2.0 ppm; canola at 1.0 ppm; eggs, milk, and the meat, fat, and meat byproducts of cattle, goats, hogs, horses, and sheep at 0.05 ppm; and the meat, fat, and meat byproducts of poultry at 0.1 ppm.

Under section 408(g) of the FFDCA, as amended by the FQPA, any person may file an objection to any aspect of this regulation and may also request a hearing on those objections. The EPA procedural regulations which govern the submission of objections and requests for hearings appear in 40 CFR part 178. Although the procedures in those regulations require some modification to reflect the amendments made to the FFDCA by the FQPA of 1996, EPA will continue to use those procedures, with appropriate adjustments, until the necessary modifications can be made. The new section 408(g) provides essentially the same process for persons to “object” to a regulation for an exemption from the requirement of a tolerance issued by EPA under new section 408(d), as was provided in the old FFDCA sections 408 and 409. However, the period for filing objections is now 60 days, rather than 30 days.

You must file your objection or request a hearing on this regulation in accordance with the instructions provided in this unit and in 40 CFR part 178. To ensure proper receipt by EPA, you must identify docket control number OPP-301015 in the subject line on the first page of your submission. All requests must be in writing, and must be mailed or delivered to the Hearing Clerk on or before September 18, 2000.

1. Filing the request . Your objection must specify the specific provisions in the regulation that you object to, and the grounds for the objections (40 CFR 178.25). If a hearing is requested, the objections must include a statement of the factual issues(s) on which a hearing is requested, the requestor's contentions on such issues, and a summary of any evidence relied upon by the objector (40 CFR 178.27). Information submitted in connection with an objection or hearing request may be claimed confidential by marking any part or all of that information as CBI. Information so marked will not be disclosed except in accordance with procedures set forth in 40 CFR part 2. A copy of the information that does not contain CBI must be submitted for inclusion in the public record. Information not marked confidential may be disclosed publicly by EPA without prior notice.

Mail your written request to: Office of the Hearing Clerk (1900), Environmental Protection Agency, Ariel Rios Bldg., 1200 Pennsylvania Ave., NW., Washington, DC 20460. You may also deliver your request to the Office of the Hearing Clerk in Rm. C400, Waterside Mall, 401 M St., SW., Washington, DC 20460. The Office of the Hearing Clerk is open from 8 a.m. to 4 p.m., Monday through Friday, excluding legal holidays. The telephone number for the Office of the Hearing Clerk is (202) 260-4865.

2. Tolerance fee payment . If you file an objection or request a hearing, you must also pay the fee prescribed by 40 CFR 180.33(i) or request a waiver of that fee pursuant to 40 CFR 180.33(m). You must mail the fee to: EPA Headquarters Accounting Operations Branch, Office of Pesticide Programs, P.O. Box 360277M, Pittsburgh, PA 15251. Please identify the fee submission by labeling it “Tolerance Petition Fees.”

EPA is authorized to waive any fee requirement “when in the judgement of the Administrator such a waiver or refund is equitable and not contrary to the purpose of this subsection.” For additional information regarding the waiver of these fees, you may contact James Tompkins by phone at (703) 305-5697, by e-mail at tompkins.jim@epa.gov, or by mailing a request for information to Mr. Tompkins at Registration Division (7505C), Office of Pesticide Programs, Environmental Protection Agency, Ariel Rios Bldg., 1200 Pennsylvania Ave., NW., Washington, DC 20460.

If you would like to request a waiver of the tolerance objection fees, you must mail your request for such a waiver to: James Hollins, Information Resources and Services Division (7502C), Office of Pesticide Programs, Environmental Protection Agency, Ariel Rios Bldg., 1200 Pennsylvania Ave., NW., Washington, DC 20460.

3. Copies for the Docket . In addition to filing an objection or hearing request with the Hearing Clerk as described in Unit VI.A., you should also send a copy of your request to the PIRIB for its inclusion in the official record that is described in Unit I.B.2. Mail your copies, identified by docket control number OPP-301015, to: Public Information and Records Integrity Branch, Information Resources and Services Division (7502C), Office of Pesticide Programs, Environmental Protection Agency, Ariel Rios Bldg., 1200 Pennsylvania Ave., NW., Washington, DC 20460. In person or by courier, bring a copy to the location of the PIRIB described in Unit I.B.2. You may also send an electronic copy of your request via e-mail to: opp-docket@epa.gov. Please use an ASCII file format and avoid the use of special characters and any form of encryption. Copies of electronic objections and hearing requests will also be accepted on disks in WordPerfect 6.1/8.0 file format or ASCII file format. Do not include any CBI in your electronic copy. You may also submit an electronic copy of your request at many Federal Depository Libraries.

A request for a hearing will be granted if the Administrator determines that the material submitted shows the following: There is a genuine and substantial issue of fact; there is a reasonable possibility that available evidence identified by the requestor would, if established resolve one or more of such issues in favor of the requestor, taking into account uncontested claims or facts to the contrary; and resolution of the factual issues(s) in the manner sought by the requestor would be adequate to justify the action requested (40 CFR 178.32).

This final rule establishes a tolerance under FFDCA section 408(d) in response to a petition submitted to the Agency. The Office of Management and Budget (OMB) has exempted these types of actions from review under Executive Order 12866, entitled Regulatory Planning and Review (58 FR 51735, October 4, 1993). This final rule does not contain any information collections subject to OMB approval under the Paperwork Reduction Act (PRA), 44 U.S.C. 3501 et seq. , or impose any enforceable duty or contain any unfunded mandate as described under Title II of the Unfunded Mandates Reform Act of 1995 (UMRA) (Public Law 104-4). Nor does it require any prior consultation as specified by Executive Order 13084, entitled Consultation and Coordination with Indian Tribal Governments (63 FR 27655, May 19, 1998); special considerations as required by Executive Order 12898, entitled Federal Actions to Address Environmental Justice in Minority Populations and Low-Income Populations (59 FR 7629, February 16, 1994); or require OMB review or any Agency action under Executive Order 13045, entitled Protection of Children from Environmental Health Risks and Safety Risks (62 FR 19885, April 23, 1997). This action does not involve any technical standards that would require Agency consideration of voluntary consensus standards pursuant to section 12(d) of the National Technology Transfer and Advancement Act of 1995 (NTTAA), Public Law 104-113, section 12(d) (15 U.S.C. 272 note). Since tolerances and exemptions that are established on the basis of a petition under FFDCA section 408(d), such as the tolerance in this final rule, do not require the issuance of a proposed rule, the requirements of the Regulatory Flexibility Act (RFA) (5 U.S.C. 601 et seq .) do not apply. In addition, the Agency has determined that this action will not have a substantial direct effect on 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, as specified in Executive Order 13132, entitled Federalism (64 FR 43255, August 10, 1999). Executive Order 13132 requires EPA to develop an accountable process to ensure “meaningful and timely input by State and local officials in the development of regulatory policies that have federalism implications.” “Policies that have federalism implications” is defined in the Executive Order to include regulations that 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.” This final rule directly regulates growers, food processors, food handlers and food retailers, not States. This action does not alter the relationships or distribution of power and responsibilities established by Congress in the preemption provisions of FFDCA section 408(n)(4).

The Congressional Review Act, 5 U.S.C. 801 et seq., as added by the Small Business Regulatory Enforcement Fairness Act of 1996, generally provides that before a rule may take effect, the agency promulgating the rule must submit a rule report, which includes a copy of the rule, to each House of the Congress and to the Comptroller General of the United States. EPA will submit a report containing this rule and other required information to the U.S. Senate, the U.S. House of Representatives, and the Comptroller General of the United States prior to publication of this final rule in the Federal Register . This final rule is not a “major rule” as defined by 5 U.S.C. 804(2).

Therefore, 40 CFR chapter I is amended as follows:

You may be affected by this action if you are an agricultural producer, food manufacturer, or pesticide manufacturer. Potentially affected categories and entities may include, but are not limited to:

This listing is not intended to be exhaustive, but rather provides a guide for readers regarding entities likely to be affected by this action. Other types of entities not listed in the table could also be affected. The North American Industrial Classification System (NAICS) codes have been provided to assist you and others in determining whether or not this action might apply to certain entities. If you have questions regarding the applicability of this action to a particular entity, consult the person listed under FOR FURTHER INFORMATION CONTACT.

1. Electronically. You may obtain electronic copies of this document, and certain other related documents that might be available electronically, from the EPA Internet Home Page at http://www.epa.gov/. To access this document, on the Home Page select “Laws and Regulations” and then look up the entry for this document under the “ Federal Register —Environmental Documents.” You can also go directly to the Federal Register listings at http://www.epa.gov/fedrgstr/.

2. In person. The Agency has established an official record for this action under docket control number OPP-301017. The official record consists of the documents specifically referenced in this action, and other information related to this action, including any information claimed as Confidential Business Information (CBI). This official record includes the documents that are physically located in the docket, as well as the documents that are referenced in those documents. The public version of the official record does not include any information claimed as CBI. The public version of the official record, which includes printed, paper versions of any electronic comments submitted during an applicable comment period is available for inspection in the Public Information and Records Integrity Branch (PIRIB), Rm. 119, Crystal Mall #2, 1921 Jefferson Davis Hwy., Arlington, VA, from 8:30 a.m. to 4 p.m., Monday through Friday, excluding legal holidays. The PIRIB telephone number is (703) 305-5805.

In the Federal Register of April 12, 2000 (65 FR 19759) (FRL-6498-8), EPA issued a notice pursuant to section 408 of the Federal Food, Drug, and Cosmetic Act (FFDCA), 21 U.S.C. 346a, as amended by the Food Quality Protection Act (FQPA) (Public Law 104-170) announcing the filing of a pesticide petition PP 6E4705 by, LignoTech USA, Inc., 100 Highway 51 South, Rothschild, WI 54474-1198. This notice included a summary of the petition prepared by the petitioner LignoTech USA, Inc. There were no comments received in response to the notice of filing.

The initial petition requested that 40 CFR 180.1001(c) and (e) be amended by establishing an exemption from the requirement of a tolerance for residues of humic acid, sodium salt. Subsequently the petitioner revised the petition to request the establishment of an exemption from the requirement of a tolerance for residues of humic acid, sodium salt under 40 CFR 180.1001(c) only.

Section 408(b)(2)(A)(i) of the FFDCA allows EPA to establish an exemption from the requirement for a tolerance (the legal limit for a pesticide chemical residue in or on a food) only if EPA determines that the tolerance is “safe.” Section 408(b)(2)(A)(ii) defines “safe” to mean that “there is a reasonable certainty that no harm will result from aggregate exposure to the pesticide chemical residue, including all anticipated dietary exposures and all other exposures for which there is reliable information.” This includes exposure through drinking water and in residential settings, but does not include occupational exposure. Section 408(b)(2)(C) requires EPA to give special consideration to exposure of infants and children to the pesticide chemical residue in establishing a tolerance and to “ensure that there is a reasonable certainty that no harm will result to infants and children from aggregate exposure to the pesticide chemical residue....”

EPA performs a number of analyses to determine the risks from aggregate exposure to pesticide residues. First, EPA determines the toxicity of pesticides. Second, EPA examines exposure to the pesticide through food, drinking water, and through other exposures that occur as a result of pesticide use in residential settings.

Consistent with section 408(b)(2)(D) of FFDCA, EPA has reviewed the available scientific data and other relevant information in support of this action and considered its validity, completeness and reliability and the relationship of this information to human risk. EPA has also considered available information concerning the variability of the sensitivities of major identifiable subgroups of consumers, including infants and children. The nature of the toxic effects caused by humic acid, sodium salt are discussed in this unit.

Humic substances including humic acid, sodium salt occur naturally in the environment, as they are derived from soil or soil deposits. Humic acid, sodium salt is a hydrophilic, reversible colloid whose molecular weight ranges from 2,000-500,000 daltons. Chemically, humic acids are complex, polymeric polyhydroxy acids formed by the process of degradation of organic matter under the action of soil microorganisms and ground worms.

The Agency has reviewed three mammalian acute toxicity tests. In an acute oral toxicity test of humic acid, sodium salt, an LD 50 > 5,000 milligrams/kilograms (mg/kg) was determined. This was Toxicity Category IV. In a primary dermal irritation test, humic acid, sodium salt was found to be Toxicity Category IV. In a primary eye irritation test, humic acid, sodium salt was found to be a mild eye irritant. This was Toxicity Category III. Due to placement in Categories III and IV, no acute effects are expected to occur. Due to the ubiquitous nature of humic substances including humic acid, sodium salt, no chronic effects are expected to occur. There is no available information to indicate that these naturally occuring substances are carcinogenic, mutagenic, or are expected to have any effect on the immune or endocrine systems.

In examining aggregate exposure, FFDCA section 408 directs EPA to consider available information concerning exposures from the pesticide residue in food and all other non-occupational exposures, including drinking water from ground water or surface water and exposure through pesticide use in gardens, lawns, or buildings (residential and other indoor uses).

1. Food. Not only are humic substances abundant in nature, but they have been used in commercial agriculture for years to condition soils. Therefore, increased dietary exposure from the use of humic acid, sodium salt as an inert ingredient in pesticide formulations is expected to be minimal.

2. Drinking water exposure. Humic substances occur in abundance in nature, including soils, fresh water and oceans. Increased drinking water exposure from the use of humic acid, sodium salt in pesticide formulations would not be expected.

Humic substances occur in abundance in nature, including soils that are in and around the home. The potential for an increase in the existing non-dietary exposure to the general population, including infants and children, is unlikely as these pesticide formulations containing humic acid, sodium salt would be used in agricultural and horticultural settings.

Section 408(b)(2)(D)(v) of FFDCA requires that, when considering whether to establish, modify or revoke a tolerance or tolerance exemption, the Agency consider “available information” concerning the cumulative effects of a particular chemical's residues and “other substances that have a common mechanism of toxicity.” The Agency has not made any conclusions as to whether or not humic acid, sodium salt shares a common mechanism of toxicity with other chemicals. However, humic acid, sodium salt is expected to be practically non-toxic to mammals. Due to the expected lack of toxicity, a cummulative risk assessment is not necessary.

Humic substances are present in abundance in the soil and the environment. Humic substances have been used in commercial agriculture for years to condition soils. Based on known acute toxicity studies, humic acid, sodium salt is not acutely toxic. Due to the ubiquitous nature of humic substances including humic acid, sodium salt, no chronic effects are expected to occur. There is no available information to indicate that these naturally occuring substances are carcinogenic or mutagenic, or expected to have any effect on the immune or endocrine systems. Because of its abundance in nature and lack of toxicity, the Agency did not use the safety factor analysis in evaluating the risk posed by humic acid, sodium salt and did not apply an additional tenfold safety factor to protect infants and children.

Based on the information in this preamble, EPA concludes that there is a reasonable certainty of no harm from aggregate exposure to residues of humic acid, sodium salt. Accordingly, EPA finds that exempting humic acid, sodium salt from the requirement of a tolerance will be safe.

An analytical method is not required for enforcement purposes since the Agency is establishing an exemption from the requirement of a tolerance without any numerical limitation.

There are no existing tolerance exemptions for humic acid, sodium salt.

There are no international tolerances or tolerance exemptions for humic acid, sodium salt. No CODEX maximum residue levels have been established for humic acid, sodium salt.

Therefore, based on the information and the data considered, EPA is establishing an exemption from the requirement of a tolerance for residues of humic acid, sodium salt.

Under section 408(g) of the FFDCA, as amended by the FQPA, any person may file an objection to any aspect of this regulation and may also request a hearing on those objections. The EPA procedural regulations which govern the submission of objections and requests for hearings appear in 40 CFR part 178. Although the procedures in those regulations require some modification to reflect the amendments made to the FFDCA by the FQPA of 1996, EPA will continue to use those procedures, with appropriate adjustments, until the necessary modifications can be made. The new section 408(g) provides essentially the same process for persons to “object” to a regulation for an exemption from the requirement of a tolerance issued by EPA under new section 408(d), as was provided in the old FFDCA sections 408 and 409. However, the period for filing objections is now 60 days, rather than 30 days.

You must file your objection or request a hearing on this regulation in accordance with the instructions provided in this unit and in 40 CFR part 178. To ensure proper receipt by EPA, you must identify docket control number OPP-301017 in the subject line on the first page of your submission. All requests must be in writing, and must be mailed or delivered to the Hearing Clerk on or before September 18, 2000.

1. Filing the request . Your objection must specify the specific provisions in the regulation that you object to, and the grounds for the objections (40 CFR 178.25). If a hearing is requested, the objections must include a statement of the factual issues(s) on which a hearing is requested, the requestor's contentions on such issues, and a summary of any evidence relied upon by the objector (40 CFR 178.27). Information submitted in connection with an objection or hearing request may be claimed confidential by marking any part or all of that information as CBI. Information so marked will not be disclosed except in accordance with procedures set forth in 40 CFR part 2. A copy of the information that does not contain CBI must be submitted for inclusion in the public record. Information not marked confidential may be disclosed publicly by EPA without prior notice.

Mail your written request to: Office of the Hearing Clerk (1900), Environmental Protection Agency, 1200 Pennsylvania Ave., NW., Washington, DC 20460. You may also deliver your request to the Office of the Hearing Clerk in Rm. C400, Waterside Mall, 401 M St., SW., Washington, DC 20460. The Office of the Hearing Clerk is open from 8 a.m. to 4 p.m., Monday through Friday, excluding legal holidays. The telephone number for the Office of the Hearing Clerk is (202) 260-4865.

2. Tolerance fee payment . If you file an objection or request a hearing, you must also pay the fee prescribed by 40 CFR 180.33(i) or request a waiver of that fee pursuant to 40 CFR 180.33(m). You must mail the fee to: EPA Headquarters Accounting Operations Branch, Office of Pesticide Programs, P.O. Box 360277M, Pittsburgh, PA 15251. Please identify the fee submission by labeling it “Tolerance Petition Fees.”

EPA is authorized to waive any fee requirement “when in the judgement of the Administrator such a waiver or refund is equitable and not contrary to the purpose of this subsection.” For additional information regarding the waiver of these fees, you may contact James Tompkins by phone at (703) 305-5697, by e-mail at tompkins.jim@epa.gov, or by mailing a request for information to Mr. Tompkins at Registration Division (7505C), Office of Pesticide Programs, Environmental Protection Agency, 1200 Pennsylvania Ave., NW., Washington, DC 20460.

If you would like to request a waiver of the tolerance objection fees, you must mail your request for such a waiver to: James Hollins, Information Resources and Services Division (7502C), Office of Pesticide Programs, Environmental Protection Agency, 1200 Pennsylvania Ave., NW., Washington, DC 20460.

3. Copies for the Docket . In addition to filing an objection or hearing request with the Hearing Clerk as described in Unit VIII.A., you should also send a copy of your request to the PIRIB for its inclusion in the official record that is described in Unit I.B.2. Mail your copies, identified by docket control number OPP-301017, to: Public Information and Records Integrity Branch, Information Resources and Services Division (7502C), Office of Pesticide Programs, Environmental Protection Agency, 1200 Pennsylvania Ave., NW., Washington, DC 20460. In person or by courier, bring a copy to the location of the PIRIB described in Unit I.B.2. You may also send an electronic copy of your request via e-mail to: opp-docket@epa.gov. Please use an ASCII file format and avoid the use of special characters and any form of encryption. Copies of electronic objections and hearing requests will also be accepted on disks in WordPerfect 6.1/8.0 file format or ASCII file format. Do not include any CBI in your electronic copy. You may also submit an electronic copy of your request at many Federal Depository Libraries.

A request for a hearing will be granted if the Administrator determines that the material submitted shows the following: There is a genuine and substantial issue of fact; there is a reasonable possibility that available evidence identified by the requestor would, if established resolve one or more of such issues in favor of the requestor, taking into account uncontested claims or facts to the contrary; and resolution of the factual issues(s) in the manner sought by the requestor would be adequate to justify the action requested (40 CFR 178.32).

This final rule establishes an exemption from the tolerance requirement under FFDCA section 408(d) in response to a petition submitted to the Agency. The Office of Management and Budget (OMB) has exempted these types of actions from review under Executive Order 12866, entitled Regulatory Planning and Review (58 FR 51735, October 4, 1993). This final rule does not contain any information collections subject to OMB approval under the Paperwork Reduction Act (PRA), 44 U.S.C. 3501 et seq ., or impose any enforceable duty or contain any unfunded mandate as described under Title II of the Unfunded Mandates Reform Act of 1995 (UMRA) (Public Law 104-4). Nor does it require any prior consultation as specified by Executive Order 13084, entitled Consultation and Coordination with Indian Tribal Governments (63 FR 27655, May 19, 1998); special considerations as required by Executive Order 12898, entitled Federal Actions to Address Environmental Justice in Minority Populations and Low-Income Populations (59 FR 7629, February 16, 1994); or require OMB review or any Agency action under Executive Order 13045, entitled Protection of Children from Environmental Health Risks and Safety Risks (62 FR 19885, April 23, 1997). This action does not involve any technical standards that would require Agency consideration of voluntary consensus standards pursuant to section 12(d) of the National Technology Transfer and Advancement Act of 1995 (NTTAA), Public Law 104-113, section 12(d) (15 U.S.C. 272 note). Since tolerances and exemptions that are established on the basis of a petition under FFDCA section 408(d), such as the exemption in this final rule, do not require the issuance of a proposed rule, the requirements of the Regulatory Flexibility Act (RFA) (5 U.S.C. 601 et seq .) do not apply. In addition, the Agency has determined that this action will not have a substantial direct effect on 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, as specified in Executive Order 13132, entitled Federalism (64 FR 43255, August 10, 1999). Executive Order 13132 requires EPA to develop an accountable process to ensure “meaningful and timely input by State and local officials in the development of regulatory policies that have federalism implications.” “Policies that have federalism implications” is defined in the Executive Order to include regulations that 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.” This final rule directly regulates growers, food processors, food handlers and food retailers, not States. This action does not alter the relationships or distribution of power and responsibilities established by Congress in the preemption provisions of FFDCA section 408(n)(4).

The Congressional Review Act, 5 U.S.C. 801 et seq ., as added by the Small Business Regulatory Enforcement Fairness Act of 1996, generally provides that before a rule may take effect, the agency promulgating the rule must submit a rule report, which includes a copy of the rule, to each House of the Congress and to the Comptroller General of the United States. EPA will submit a report containing this rule and other required information to the U.S. Senate, the U.S. House of Representatives, and the Comptroller General of the United States prior to publication of this final rule in the Federal Register . This final rule is not a “major rule” as defined by 5 U.S.C. 804(2).

Therefore, 40 CFR chapter I is amended as follows:

You may be affected by this action if you are an agricultural producer, food manufacturer, or pesticide manufacturer. Potentially affected categories and entities may include, but are not limited to:

This listing is not intended to be exhaustive, but rather provides a guide for readers regarding entities likely to be affected by this action. Other types of entities not listed in the table could also be affected. The North American Industrial Classification System (NAICS) codes have been provided to assist you and others in determining whether or not this action might apply to certain entities. If you have questions regarding the applicability of this action to a particular entity, consult the person listed under FOR FURTHER INFORMATION CONTACT.

1. Electronically . You may obtain electronic copies of this document, and certain other related documents that might be available electronically, from the EPA Internet Home Page at http://www.epa.gov/. To access this document, on the Home Page select “Laws and Regulations” and then look up the entry for this document under the “ Federal Register —Environmental Documents.” You can also go directly to the Federal Register listings at http://www.epa.gov/fedrgstr/.

2. In person . The Agency has established an official record for this action under docket control number OPP-301022. The official record consists of the documents specifically referenced in this action, and other information related to this action, including any information claimed as Confidential Business Information (CBI). This official record includes the documents that are physically located in the docket, as well as the documents that are referenced in those documents. The public version of the official record does not include any information claimed as CBI. The public version of the official record, which includes printed, paper versions of any electronic comments submitted during an applicable comment period is available for inspection in the Public Information and Records Integrity Branch (PIRIB), Rm. 119, Crystal Mall #2, 1921 Jefferson Davis Hwy., Arlington, VA, from 8:30 a.m. to 4 p.m., Monday through Friday, excluding legal holidays. The PIRIB telephone number is (703) 305-5805.

EPA issued a final rule, published in the Federal Register of May 26, 1999 (64 FR 28377) (FRL-6079-1), which announced that on its own initiative under section 408 of the Federal Food, Drug, and Cosmetic Act (FFDCA), 21 U.S.C. 346a, as amended by the Food Quality Protection Act of 1996 (FQPA) (Public Law 104-170) it established a time-limited tolerance for the residues of tebuconazole in or on garlic at 0.1 ppm, with an expiration date of June 30, 2000. EPA established the tolerance because section 408(l)(6) of the FFDCA requires EPA to establish a time-limited tolerance or exemption from the requirement for a tolerance for pesticide chemical residues in food that will result from the use of a pesticide under an emergency exemption granted by EPA under section 18 of the Federal Insecticide, Fungicide, and Rodenticide Act (FIFRA). Such tolerances can be established without providing notice or period for public comment.

EPA received a request to extend the use of tebuconazole on garlic for this year's growing season due to the continued inefficacy of registered fungicides at controlling rust under high pest pressure and continued mild winters which have led to infection earlier in the growing season. After having reviewed the submission, EPA concurs that emergency conditions exist. EPA has authorized under FIFRA section 18 the use of tebuconazole on garlic for control of rust in Arizona, California, and Nevada.

EPA assessed the potential risks presented by residues of tebuconazole in or on garlic. In doing so, EPA considered the safety standard in FFDCA section 408(b)(2), and decided that the necessary tolerance under FFDCA section 408(l)(6) would be consistent with the safety standard and with FIFRA section 18. The data and other relevant material have been evaluated and discussed in the final rule of May 26, 1999 (64 FR 28377). Based on that data and information considered, the Agency reaffirms that extension of the time-limited tolerance will continue to meet the requirements of section 408(l)(6). Therefore, the time-limited tolerance is extended for an additional 18-month period. EPA will publish a document in the Federal Register to remove the revoked tolerance from the Code of Federal Regulations (CFR). Although this tolerance will expire and is revoked on December 31, 2001, under FFDCA section 408(l)(5), residues of the pesticide not in excess of the amounts specified in the tolerance remaining in or on garlic after that date will not be unlawful, provided the pesticide is applied in a manner that was lawful under FIFRA and the application occurred prior to the revocation of the tolerance. EPA will take action to revoke this tolerance earlier if any experience with, scientific data on, or other relevant information on this pesticide indicate that the residues are not safe.

Under section 408(g) of the FFDCA, as amended by the FQPA, any person may file an objection to any aspect of this regulation and may also request a hearing on those objections. The EPA procedural regulations which govern the submission of objections and requests for hearings appear in 40 CFR part 178. Although the procedures in those regulations require some modification to reflect the amendments made to the FFDCA by the FQPA of 1996, EPA will continue to use those procedures, with appropriate adjustments, until the necessary modifications can be made. The new section 408(g) provides essentially the same process for persons to “object” to a regulation for an exemption from the requirement of a tolerance issued by EPA under new section 408(d), as was provided in the old FFDCA sections 408 and 409. However, the period for filing objections is now 60 days, rather than 30 days.

You must file your objection or request a hearing on this regulation in accordance with the instructions provided in this unit and in 40 CFR part 178. To ensure proper receipt by EPA, you must identify docket control number OPP-301022 in the subject line on the first page of your submission. All requests must be in writing, and must be mailed or delivered to the Hearing Clerk on or before September 18, 2000.

1. Filing the request . Your objection must specify the specific provisions in the regulation that you object to, and the grounds for the objections (40 CFR 178.25). If a hearing is requested, the objections must include a statement of the factual issues(s) on which a hearing is requested, the requestor's contentions on such issues, and a summary of any evidence relied upon by the objector (40 CFR 178.27). Information submitted in connection with an objection or hearing request may be claimed confidential by marking any part or all of that information as CBI. Information so marked will not be disclosed except in accordance with procedures set forth in 40 CFR part 2. A copy of the information that does not contain CBI must be submitted for inclusion in the public record. Information not marked confidential may be disclosed publicly by EPA without prior notice.

Mail your written request to: Office of the Hearing Clerk (1900), Environmental Protection Agency, 1200 Pennsylvania Ave., NW., Washington, DC 20460. You may also deliver your request to the Office of the Hearing Clerk in Rm. C400, Waterside Mall, 401 M St., SW., Washington, DC 20460. The Office of the Hearing Clerk is open from 8 a.m. to 4 p.m., Monday through Friday, excluding legal holidays. The telephone number for the Office of the Hearing Clerk is (202) 260-4865.

2. Tolerance fee payment . If you file an objection or request a hearing, you must also pay the fee prescribed by 40 CFR 180.33(i) or request a waiver of that fee pursuant to 40 CFR 180.33(m). You must mail the fee to: EPA Headquarters Accounting Operations Branch, Office of Pesticide Programs, P.O. Box 360277M, Pittsburgh, PA 15251. Please identify the fee submission by labeling it “Tolerance Petition Fees.”

EPA is authorized to waive any fee requirement “when in the judgement of the Administrator such a waiver or refund is equitable and not contrary to the purpose of this subsection.” For additional information regarding the waiver of these fees, you may contact James Tompkins by phone at (703) 305- 5697, by e-mail at tompkins.jim@epa.gov , or by mailing a request for information to Mr. Tompkins at Registration Division (7505C), Office of Pesticide Programs, Environmental Protection Agency, 1200 Pennsylvania Ave., NW., Washington, DC 20460.

If you would like to request a waiver of the tolerance objection fees, you must mail your request for such a waiver to: James Hollins, Information Resources and Services Division (7502C), Office of Pesticide Programs, Environmental Protection Agency, 1200 Pennsylvania Ave., NW., Washington, DC 20460.

3. Copies for the Docket . In addition to filing an objection or hearing request with the Hearing Clerk as described in Unit III.A., you should also send a copy of your request to the PIRIB for its inclusion in the official record that is described in Unit I.B.2. Mail your copies, identified by docket control number OPP-301022, to: Public Information and Records Integrity Branch, Information Resources and Services Division (7502C), Office of Pesticide Programs, Environmental Protection Agency, 1200 Pennsylvania Ave., NW., Washington, DC 20460. In person or by courier, bring a copy to the location of the PIRIB described in Unit I.B.2. You may also send an electronic copy of your request via e-mail to: opp-docket@epa.gov . Please use an ASCII file format and avoid the use of special characters and any form of encryption. Copies of electronic objections and hearing requests will also be accepted on disks in WordPerfect 6.1/8.0 file format or ASCII file format. Do not include any CBI in your electronic copy. You may also submit an electronic copy of your request at many Federal Depository Libraries.

A request for a hearing will be granted if the Administrator determines that the material submitted shows the following: There is a genuine and substantial issue of fact; there is a reasonable possibility that available evidence identified by the requestor would, if established resolve one or more of such issues in favor of the requestor, taking into account uncontested claims or facts to the contrary; and resolution of the factual issues(s) in the manner sought by the requestor would be adequate to justify the action requested (40 CFR 178.32).

This final rule establishes a time-limited tolerance under FFDCA section 408. The Office of Management and Budget (OMB) has exempted these types of actions from review under Executive Order 12866, entitled Regulatory Planning and Review (58 FR 51735, October 4, 1993). This final rule does not contain any information collections subject to OMB approval under the Paperwork Reduction Act (PRA), 44 U.S.C. 3501 et seq. , or impose any enforceable duty or contain any unfunded mandate as described under Title II of the Unfunded Mandates Reform Act of 1995 (UMRA) (Public Law 104-4). Nor does it require any prior consultation as specified by Executive Order 13084, entitled Consultation and Coordination with Indian Tribal Governments (63 FR 27655, May 19, 1998); special considerations as required by Executive Order 12898, entitled Federal Actions to Address Environmental Justice in Minority Populations and Low-Income Populations (59 FR 7629, February 16, 1994); or require OMB review or any Agency action under Executive Order 13045, entitled Protection of Children from Environmental Health Risks and Safety Risks (62 FR 19885, April 23, 1997). This action does not involve any technical standards that would require Agency consideration of voluntary consensus standards pursuant to section 12(d) of the National Technology Transfer and Advancement Act of 1995 (NTTAA), Public Law 104-113, section 12(d) (15 U.S.C. 272 note). Since tolerances and exemptions that are established on the basis of a FIFRA section 18 petition under FFDCA section 408, such as the tolerance in this final rule, do not require the issuance of a proposed rule, the requirements of the Regulatory Flexibility Act (RFA) (5 U.S.C. 601 et seq. ) do not apply. In addition, the Agency has determined that this action will not have a substantial direct effect on 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, as specified in Executive Order 13132, entitled Federalism (64 FR 43255, August 10, 1999). Executive Order 13132 requires EPA to develop an accountable process to ensure “meaningful and timely input by State and local officials in the development of regulatory policies that have federalism implications.” “Policies that have federalism implications” is defined in the Executive Order to include regulations that 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.” This final rule directly regulates growers, food processors, food handlers and food retailers, not States. This action does not alter the relationships or distribution of power and responsibilities established by Congress in the preemption provisions of FFDCA section 408(n)(4).

The Congressional Review Act, 5 U.S.C. 801 et seq. , as added by the Small Business Regulatory Enforcement Fairness Act of 1996, generally provides that before a rule may take effect, the agency promulgating the rule must submit a rule report, which includes a copy of the rule, to each House of the Congress and to the Comptroller General of the United States. EPA will submit a report containing this rule and other required information to the U.S. Senate, the U.S. House of Representatives, and the Comptroller General of the United States prior to publication of this final rule in the Federal Register . This final rule is not a “major rule” as defined by 5 U.S.C. 804(2).

Therefore, 40 CFR chapter I is amended as follows:

This is a synopsis of the Commission's Report and Order, MM Docket No. 99-345, adopted June 28, 2000, and released July 7, 2000. The full text of this Commission decision is available for inspection and copying during normal business hours in the FCC Reference Center (Room 239), 445 12th Street, SW, Washington, DC. The complete text of this decision may also be purchased from the Commission's copy contractor, International Transcription Services, Inc., (202) 857-3800, 1231 20th Street, NW, Washington, DC 20036.