The Federal Meat Inspection Act (FMIA) (21 U.S.C. 601 et seq. ), the Poultry Products Inspection Act (PPIA) (21 U.S.C. 451 et seq. ), and the Egg Products Inspection Act (EPIA) (21 U.S.C. 1031 et seq. ) provide for mandatory Federal inspection of meat and poultry slaughter and processing at official establishments and of egg products at official plants. FSIS bears the cost of mandatory inspection. Establishments and plants pay for inspection services performed on holidays or on an overtime basis.

In addition, under the Agricultural Marketing Act of 1946, as amended (7 U.S.C. 1621 et seq. ), FSIS provides a range of voluntary inspection, certification, and identification services to assist in the orderly marketing of various animal products and byproducts. These services include the certification of technical animal fats and the inspection of exotic animal products, such as antelope and elk. FSIS is required to recover the costs of voluntary inspection, certification, and identification services.

Under the Agricultural Marketing Act of 1946, FSIS also provides certain voluntary laboratory services that establishments and others may request the Agency to perform. Laboratory services are provided for four types of analytic testing: microbiological testing, residue chemistry tests, food composition tests, and pathology testing. FSIS must recover these costs.

Every year FSIS reviews the fees that it charges for providing overtime and holiday inspection services; voluntary inspection, identification, and certification services; and laboratory services. The Agency performs a cost analysis to determine whether the fees that it has established are adequate to recover the costs that it incurs in providing these services. In the Agency's analysis of projected costs for October 8, 2000 to September 30, 2001, the Agency has identified increases in the costs of these nonmandatory inspection services. The proposed increases in fees are attributable to cost escalation, specifically the national and locality pay raise for Federal employees (proposed 3.7 percent effective January 2001) and inflation.

FSIS calculated the proposed fees by adding salaries and inflation for FY 2000 and FY 2001 to the actual cost of the services in FY 1999. The Agency calculated inflation to be 1.55% for FY 2000 and 1.90% for FY 2001. The Agency considered the costs that it will incur because of the pay raise in January 2001 and averaged its pay costs out over the entire FY 2001.

FSIS did not use the fees currently charged as a base for calculating the proposed fees for FY 2001 because the current fees are based on estimates of costs to the Agency for FY 1999 and FY 2000. The Agency now knows the actual cost of inspection services for FY 1999 and used the actual costs in calculating the proposed fees.

FSIS is exploring the possibility of proposing a three to five year plan of fee rate adjustments based on estimates of cost escalation.

FSIS is proposing to amend 9 CFR 391.2 to increase the base time fee for providing meat and poultry voluntary inspection, identification, and certification services from $37.88 per hour per employee to $38.44 per hour per program employee. FSIS is also proposing to amend §§ 391.3, 590.126, and 590.128(a) to increase the rate for providing meat, poultry, and egg products overtime and holiday inspection services from $39.76 per hour per employee to $41.00 per hour per employee. In addition, FSIS is proposing to amend § 391.4 to increase the rate for laboratory services from $58.52 per hour per employee to $60.04 per hour per employee. The current and proposed fees are listed by type of service in Table 1.

The differing fee increase for each type of service is the result of the different amount that it costs FSIS to provide these three types of services. The differences in costs stem from various factors including different salary levels of the program employees who perform the services. See Table 2.

New fees for egg products overtime and holiday inspection services will become effective on July 30, 2000. However, FSIS is proposing a new fee because the Agency has moved to a FY basis for reviewing fees and is charging the same fee for meat, poultry, and egg products overtime and holiday inspection services. FSIS calculated the proposed fees based on the presumption that they would become effective at the start of FY 2001, October 8, 2000.

To expeditiously move this rulemaking to recover the increase in costs, and because the Agency has previously announced (64 FR 61223) (65 FR 11486) that it would be reviewing these fees on a FY basis, the Administrator has determined that 30 days for public comment is sufficient.

Because this proposed rule has been determined to be not significant, the Office of Management and Budget (OMB) did not review it under Executive Order 12866.

The Administrator, FSIS, has determined that this proposed rule would not have a significant economic impact, as defined by the Regulatory Flexibility Act (5 U.S.C. 601), on a substantial number of entities.

Small establishments and plants should not be affected adversely by the proposed increases in fees because the proposed fee increases provided for reflect only a small increase in the costs currently borne by those entities that choose to use certain inspection services. These inspection services are generally sought by larger establishments and plants because of larger production volume, greater complexity and diversity in the products they produce, and the need for on-time delivery of large volumes of product by their clients—generally large commercial or institutional establishments.

Moreover, smaller establishments and plants are unlikely to use a significant amount of overtime and holiday inspection services. Establishments and plants that seek FSIS services are likely to have calculated that the incremental costs of overtime and holiday inspection services would be less than the incremental expected benefits of additional revenues they would realize from additional production.

Under the proposed fees, the Agency expects to collect an estimated $106.2 million in revenues for FY 2001, compared to $103 million under the current fee structure.

The costs that industry would experience by the proposed raise in fees are similar to other increases the industry faces due to inflation and wage increases.

The total volume of meat and poultry slaughtered under Federal inspection in 1998 was about 81 billion pounds. The total volume of U.S. egg product production in 1998 was about 3.2 billion pounds. The increase in cost per pound of product associated with these proposed fees increases is $.00004. Even in competitive industries like meat, poultry, and egg products, this amount of increase in costs would have an insignificant impact on profits and prices.

The industry is likely to pass through a significant portion of the fee increase to consumers because of the inelastic nature of the demand curve facing these firms. Research has shown that consumers are unlikely to reduce demand significantly for meat and poultry products, including egg products, when prices increase. Huang estimates that demand would fall by .36 percent for a one percent increase in price (Huang, Kao S., A Complete System of U.S. Demand for Food . USDA/ERS Technical Bulletin No. 1821, 1993, p.24). Because of the inelastic nature of demand and the competitive nature of the industry, individual firms are not likely to experience any change in market share to response to an increase in inspection fees.

This proposed rule has been reviewed under Executive Order 12988, Civil Justice Reform. This proposed rule: (1) Preempts State and local laws and regulations that are inconsistent with this rule; (2) has no retroactive effect; and (3) does not require administrative proceedings before parties may file suit in court challenging this rule. However, the administrative procedures specified in 9 CFR 306.5, 381.35, and 590.320 through 590.370, respectively, must be exhausted before any judicial challenge of the application of the provisions of this proposed rule, if the challenge involves any decision of an FSIS employee relating to inspection services provided under the FMIA, PPIA, or EPIA.

Public awareness of all segments of rulemaking and policy development is important. Consequently, in an effort to better ensure that minorities, women, and persons with disabilities are aware of this proposed rule, FSIS will announce and provide copies of this Federal Register publication in the FSIS Constituent Update . FSIS provides a weekly FSIS Constituent Update via fax to over 300 organizations and individuals. In addition, the update is available on line through the FSIS web page located at http://www.fsis.usda.gov . The update is used to provide information regarding FSIS policies, procedures, regulations, Federal Register notices, FSIS public meetings, recalls, and any other types of information that could affect or would be of interest to our constituents/stakeholders. The constituent fax list consists of industry, trade, and farm groups, consumer interest groups, allied health professionals, scientific professionals, and other individuals that have requested to be included. Through these various channels, FSIS is able to provide information to a much broader, more diverse audience than would be otherwise possible. For more information or to be added to the constituent fax list, fax your request to the Congressional and Public Affairs Office, at (202) 720-5704.

Accordingly, FSIS proposes to amend 9 CFR chapter III as follows:

In 1994, the Congress enacted the Home Ownership and Equity Protection Act of 1994 (HOEPA) as an amendment to the Truth in Lending Act (TILA). HOEPA was a response to anecdotal reports of abusive lending practices whereby unscrupulous lenders made unaffordable home-secured loans to “house-rich but cash-poor borrowers.” These cases frequently involved elderly and sometimes unsophisticated homeowners who were targeted for loans with high rates and fees and repayment terms that were difficult or impossible for the homeowners to meet. Oftentimes the transactions involved fraud or unlawful misrepresentations by lenders or brokers.

HOEPA does not prohibit creditors from making any type of home-secured loan, nor does it limit or cap rates that creditors may charge. Instead, the act identifies a class of high-cost mortgage loans through rate and fee triggers. For transactions covered by HOEPA, creditors must provide abbreviated disclosures to consumers at least three days before the loan is closed, in addition to the disclosures generally required by TILA. When combined with TILA's three-day right of rescission after the loan closing, the HOEPA disclosures afford consumers a minimum of six days to consider key loan terms before finally deciding to enter into a transaction. Transactions covered by HOEPA are also subject to substantive limitations that prohibit certain terms from being included in the loan agreement.

HOEPA directs the Board, in consultation with its Consumer Advisory Council, to conduct public hearings periodically to examine home-equity loans in the marketplace and consider the adequacy of federal laws (including HOEPA) in protecting consumers—particularly low-income consumers. In June 1997, within two years after HOEPA became effective, the Board held hearings on home-equity lending and HOEPA. The results of those hearings were summarized and submitted to the Congress by the Board and Department of Housing and Urban Development (HUD) in July 1998, in a joint report concerning reform of TILA and the Real Estate Settlement Procedures Act.

Predatory lending practices in home-secured loans continue to receive attention from the Congress and regulatory agencies. The available information concerning predatory lending is essentially anecdotal; there is no ready method for measuring the amount of predatory lending or determining how prevalent a problem it represents. There are enough anecdotal reports, however, to suggest that predatory lending continues to be a problem. Abusive practices may involve, among other things, excessive fees and interest rates, unnecessary insurance, and fraud. Borrowers saddled with unaffordable payments can lose their homes. Excessive up-front fees combined with frequent refinancings (often referred to as “loan flipping”) may also strip the equity from consumers' homes.

Given the wide range of practices that predatory lending may involve, a multifaceted approach to dealing with the problem, including both regulatory and nonregulatory strategies, is likely to be the most effective. This includes strengthening enforcement of current laws, voluntary industry action, community outreach efforts, and consumer education and counseling. Several bills taking different approaches to addressing predatory lending have been introduced in the Congress. Several states have enacted or are considering legislation. The Board has convened a nine-agency working group, including the five federal agencies that supervise depository institutions, HUD, the Office of Federal Housing Enterprises Oversight, the Department of Justice, and the Federal Trade Commission. The aims of the group are to tighten enforcement of existing statutes and to establish a coordinated approach to addressing predatory practices.

On May 24, the Board presented testimony at a hearing held by the House Committee on Banking and Financial Services on predatory lending and possible remedial actions. HUD and the Department of the Treasury have convened a National Task Force on Predatory Lending. The primary mission of the Task Force has been to collect information about predatory lending, provide data on the impact of predatory practices, and comment on existing legislative proposals for reform in order to provide a basis for HUD and Treasury to make recommendations for legislation to the Congress. To solicit information about local and national aspects of the predatory lending problem, HUD and Treasury held five public forums in Los Angeles, Chicago, New York, Atlanta, and Baltimore. On June 20, HUD and Treasury issued a report on their findings, that discusses possible ways to curb predatory lending and contains recommendations to the Congress regarding possible legislative action and to the Board regarding the exercise of the Board's regulatory authority under HOEPA.

The Board's home-equity hearings under HOEPA will be primarily focused on the Board's regulatory authority under that act, and specific ways that the Board might consider exercising that authority. As described below, the Board is authorized to make some adjustments to HOEPA's high-cost triggers that could affect the scope of the act's coverage. The Board is also directed by HOEPA to prohibit certain acts and practices in connection with mortgage loans if the Board makes the finding required by the statute. Based on information gathered during recent public hearings, the interagency discussions, and meetings with industry and consumer representatives, the Board has developed a series of questions for discussion at the HOEPA hearings and for public comment. These questions are intended to solicit views on the ways that the Board might exercise its authority, and will be used to focus the discussion at the HOEPA hearings on possible regulatory approaches to deter predatory lending.

The Truth in Lending Act (TILA) (15 U.S.C. 1601 et seq. ) is intended to promote the informed use of consumer credit by requiring disclosures about its terms and cost. The act requires creditors to disclose the cost of credit as a dollar amount (the “finance charge”) and as an annual percentage rate (the “APR”). Uniformity in creditors' disclosures is intended to assist consumers in comparison shopping. TILA requires additional disclosures for loans secured by a consumer's home and permits consumers to rescind certain transactions that involve their principal dwelling. The act is implemented by the Board's Regulation Z (12 CFR Part 226).

The Home Ownership and Equity Protection Act of 1994 (HOEPA), contained in the Riegle Community Development and Regulatory Improvement Act of 1994, Pub. L. 103-325, 108 Stat. 2160, amends TILA to impose disclosure requirements and substantive limitations on certain home-secured loans (closed-end installment loans) with rates and fees above a specified amount.

A loan is covered by HOEPA if (1) the APR exceeds the rate for treasury securities with a comparable maturity by more than 10 percentage points, or (2) the points and fees paid by the consumer exceed the greater of 8 percent of the loan amount or $400 (adjusted annually based on the consumer price index). HOEPA is implemented by section 32 of the Board's Regulation Z (12 CFR 226.32), effective in October 1995. 60 FR 15463, March 24, 1995.

HOEPA does not prohibit creditors from making any home-secured loan, nor does it limit or cap rates that creditors may charge. Instead, HOEPA layers disclosure and timing requirements onto the requirements already imposed for consumer credit transactions. Creditors offering HOEPA-covered loans must provide abbreviated disclosures to consumers three days before the loan is closed. The disclosures provide that consumers are not obligated to complete the closing, remind borrowers that they could lose their home if they fail to make payments, and state a few key cost disclosures, including the APR, the regular payment, and, if the loan has a variable rate, a “worst case payment” if rates increase as high and quickly as possible under the loan agreement.

In addition, creditors making HOEPA-covered loans are prohibited from including in their loan agreements, among other provisions: (1) Balloon payments in loans with maturities of less than five years, (2) payment schedules that result in negative amortization, (3) higher default interest rates, and (4) prepayment penalties in most instances. Consumers entering into a HOEPA-covered loan may rescind the transaction for up to three years after closing if creditors fail to provide the early disclosures or if they include a prohibited term in the loan agreement.

Home-purchase loans are not covered by HOEPA. Although reverse mortgages are exempt from the HOEPA requirements imposed for traditional mortgages, reverse mortgages are subject to an alternative detailed disclosure scheme under HOEPA (implemented by section 33 of Regulation Z). Home-equity lines of credit (open-end credit) are also exempt from HOEPA, as congressional hearings preceding enactment did not reveal evidence of abusive practices connected with open-end home-equity lending.

In June 1997, the Board held hearings on home-equity lending and HOEPA in Los Angeles, Atlanta, and Washington, D.C. Participants were asked to address several topics, including the effect of HOEPA on homeowners seeking home-equity credit and on credit opportunities in the communities targeted by the legislation (for example, whether there had been changes to the volume or cost of home-equity installment loans); the effectiveness of the disclosures and suggestions for improvements; and whether any exemptions or prohibitions would be appropriate for the Board to consider under its HOEPA rulemaking authority. 62 FR 23189, April 29, 1997.

Those testifying at the hearings generally concurred that it was too soon after HOEPA's enactment to determine the effectiveness of the new law. However, consumer representatives reported continuing abusive practices by home-equity lenders of all degrees of sophistication. The hearings formed the basis for a detailed analysis of the problem of abusive lending practices in mortgage lending contained in a July 1998 report to the Congress by the Board and HUD on possible reforms to TILA and the Real Estate Settlement Procedures Act regarding mortgage-related disclosures. (The 1998 joint report is available at the Board's website address: www.federalreserve.gov/boarddocs/press/general/1998. ) Chapter 6 of the report suggested a multifaceted approach to curbing predatory lending practices, including some legislative action, stronger enforcement of current laws, and nonregulatory strategies such as community outreach efforts and consumer education and counseling. (See also Chapter 2 at page 17, Chapter 7 at page 76, and Appendix D.)

Since HOEPA's enactment, the volume of home-equity lending has increased significantly. This overall growth in home-equity lending has been accompanied by a sharp boost in the subprime mortgage market. HUD reports that the number of subprime home-equity loans has increased from 80,000 in 1993 to 790,000 in 1998.

The growth in subprime lending brought a substantial increase in the availability of credit to borrowers having less-than-perfect credit histories and to other consumers who do not meet the underwriting standards of prime lenders. Because consumers who obtain subprime mortgage loans have, or perceive they have, fewer credit options than other borrowers, they may be more vulnerable to unscrupulous lenders or brokers. With the increase in the number of subprime loans, consumer advocates have been concerned for some time about the potential for a corresponding increase in the number of predatory loans. Some industry representatives have noted, however, that the trend toward securitizing subprime mortgages has served to standardize creditor practices and to limit the opportunity for widespread abuse.

To address concerns about predatory lending and consider approaches the Board might take in exercising its regulatory authority under HOEPA, the Board has scheduled four one-day hearings in Charlotte (Thursday, July 27), Boston (Friday, August 4), Chicago (Wednesday, August 16), and San Francisco (Thursday, September 7). (Notice of the Charlotte, Boston, and San Francisco hearings were published at 65 FR 42889, July 12, 2000.) The hearings will seek statements from the public about home-equity lending in general, but will focus specifically on collecting testimony on the ways that the Board might use its rulewriting authority under HOEPA to address predatory lending practices in the home-equity market. To focus the discussion at the hearings, interested parties wishing to present oral statements at the hearings (and persons submitting written comments to the Board) are asked to address the issues set forth below, as applicable:

HOEPA covers mortgage loans that meet one of the act's two “high-cost” triggers. A loan is covered if (1) the APR exceeds the rate for treasury securities with a comparable maturity by more than 10 percentage points, or (2) the points and fees paid by the consumer exceed the greater of 8 percent of the loan amount or $400. The Board is required to adjust the $400 threshold annually, based on the consumer price index; for 2000 the amount is $451.

1. APR Trigger —HOEPA authorizes the Board to adjust the HOEPA trigger by 2 percentage points from the current standard of 10 percentage points above the U.S. Treasury securities with comparable maturities. Some consumer advocates and others have suggested that, based on the current APR trigger, only a small percentage of subprime mortgage loans are covered by HOEPA. They contend that lowering the APR trigger would allow HOEPA's protections to be extended to a broader class of transactions.

• Would lowering the APR trigger to 8 percentage points be effective in furthering the purposes of HOEPA, and if so, how?

• If the APR trigger were lowered, would such action have any significant impact on the availability or cost of subprime mortgage loans?

The Board also solicits comment on any available data regarding the percentage of subprime mortgage loans covered under the existing APR trigger, and the percentage of transactions that would be affected by lowering the trigger by 2 percentage points.

2. Points and Fees Trigger —A loan is covered by HOEPA if the points and fees paid by the consumer exceed the greater of 8 percent of the loan amount or $400. For this purpose, “points and fees” include all items included in the finance charge and APR except interest, and all compensation paid to mortgage brokers. The act specifically excludes reasonable closing costs that are paid to unaffiliated third parties. HOEPA also authorizes the Board to add “such other charges” to the points and fees test as the Board deems appropriate. Accordingly, comment is solicited on what fees, if any, should be added to the calculation. In particular, comment is requested on the following:

a. Credit Insurance: Premiums paid for credit insurance that a borrower is required to purchase are finance charges that are currently included in both the APR and the points and fees test under HOEPA. But premiums paid for optional credit life insurance currently are not included in the points and fees test. Some consumer advocates assert that because these premiums are excluded, predatory lenders may avoid HOEPA coverage by “packing” loans with high-priced credit insurance that represents a significant source of fee income, in lieu of charging fees that would be included under the current HOEPA trigger.

• What would be the effect of including lump-sum premiums collected at closing for optional credit insurance in HOEPA's points and fees test? Should such premiums be included only if they are paid to the creditor or an affiliate of the creditor, or only to the extent that the creditor receives compensation in connection with the sale of the insurance?

b. Prepayment Penalties: In some cases, prepayment penalties may provide fee income that is an additional incentive for creditors to encourage frequent refinancings that are not in a consumer's interest. If the consumer must pay a prepayment penalty to the same creditor that is refinancing the loan, the prepayment fee could be viewed as a cost of the new transaction.

• What would be the effect of including a prepayment penalty (assessed on the original loan) in HOEPA's points and fees test for the new loan when the loan is refinanced with the same creditor (or an affiliate)?

c. Points: Consumers who refinance their loans generally pay points on the entire refinanced amount.

• What would be the effect of adding any points paid by the consumer for the existing loan to the points and fees test when the same creditor (or an affiliate) refinances the loan within a specified time period?

The current points and fees test under HOEPA is complex. The statute allows many closing costs to be excluded from the calculation if they are reasonable and paid to third parties. The Board solicits comments on whether a better approach would be to recommend a statutory amendment that would include all closing costs in the points and fees test.

The hearings will explore how the Board's regulatory authority under HOEPA to prohibit specific practices can be used to curb predatory lending. Under HOEPA, the Board is authorized to prohibit acts and practices:

• In connection with mortgage loans —if the Board finds the practice to be unfair, deceptive, or designed to evade HOEPA; and

• In connection with refinancings of mortgage loans —if the Board finds that the practice is associated with abusive lending practices or otherwise not in the interest of the borrower.

Comment is invited on the following specific approaches to dealing with predatory lending practices, and whether any new requirements or prohibitions should apply to all mortgage transactions, only to refinancings, or only to HOEPA-covered refinancings. Both regulatory and legislative proposals should be discussed.

1. Credit insurance. Premiums for credit insurance are often collected from the borrower at closing and added to the loan amount, increasing the total finance charges paid by the consumer. Consumer advocates express concern about high-pressure sales tactics, which may mislead consumers about whether the insurance is required. The Board previously recommended that the Congress consider prohibiting the advance collection of premiums for credit insurance policies in connection with HOEPA loans. If no statutory prohibition is adopted, should the Board regulate the conditions under which such policies are sold or financed? For example:

• What would be the effect of the Board's requiring the sale of single-premium policies to be accompanied by a disclosure that the coverage may also be available with periodic premiums? What other disclosures might be helpful?

• To address concerns about “insurance packing,” what would be the effect of the Board's requiring that the sale of single-premium policies include a disclosure at the time of purchase of how unearned premiums will be rebated if the policy is cancelled or the loan is paid in full early?

• What would be the effect of requiring notification to borrowers, after the loan closing, of their right to cancel the policy and obtain a refund?

• What would be the effect of regulations prohibiting creditors from selling single-premium insurance products until after loan closing?

2. Unaffordable loans. Under HOEPA a creditor may not engage in a pattern or practice of extending credit based on the collateral if (given the consumer's current and expected income, current obligations, and employment status) the consumer will be unable to make the scheduled loan payments.

• Would additional interpretative guidance on the “pattern or practice” requirement be useful, or are case-by-case determinations more appropriate? If additional guidance would be useful, what elements of the requirement should the guidance address?

• What regulatory standards could the Board adopt for determining whether a creditor has considered the consumer's ability to repay the loan in order to satisfy this requirement?

3. Refinancing lower-rate loans. When a consumer seeks a second mortgage to consolidate debts or to finance home improvements, some creditors also require the existing first mortgage to be paid off as a condition of providing the new funds. This ensures that the creditor will be the senior lien-holder, but may increase significantly the points and fees paid for the new loan. Is regulatory action appropriate to protect consumers from abuses and, if so, what type of action could be taken without restricting credit in legitimate transactions?

4. Balloon Payments. Depending on the circumstances, mortgages with a balloon payment feature may be attractive to some borrowers, but may harm other consumers. HOEPA currently prohibits balloon payments for high-cost loans that have terms of less than 5 years. Lenders that price their loans just below HOEPA's triggers, however, might include balloon payments that force consumers to refinance the loan and pay additional points and fees.

• For loans not covered by HOEPA's restriction on balloon payments, are any restrictions or additional disclosures needed in connection with balloon payments in order to prevent abusive practices?

• To avoid evasions of HOEPA's restrictions on balloon payments, what would be the effect of the Board's prohibiting “payable on demand” clauses for HOEPA loans unless such a clause is exercised in connection with a consumer's default? (A similar limitation already exists for home-equity lines of credit.)

5. Prepayment penalties. Prepayment penalties allow creditors to recover their transaction costs if loans are prepaid earlier than expected. That rationale may not be relevant in cases where high rates and up-front fees are charged. In such cases, the penalty might be used to deter the consumer from refinancing the loan on more favorable terms.

• Is it feasible to limit the use of prepayment penalties to transactions where consumers receive, in return, a benefit in the form of lower up-front costs or lower interest rates? How might the existence of such benefits be measured?

6. Foreclosures. Consumers who have been victims of abusive practices must be afforded adequate opportunity to assert their rights in order to avoid unwarranted foreclosures. State law and local practice generally govern the procedures followed for foreclosures. Some states require actual notice to the consumer, but in other states notice by publication is sufficient. Even when consumers do receive notice, they may not get adequate information about their legal options.

• What would be the effect of setting minimum federal standards for foreclosures involving a consumer's primary dwelling? For example, a creditor might be required to provide the consumer with actual notice of (1) the applicable foreclosure procedures; (2) any legal rights the consumer may have to avoid the foreclosure; and (3) the specific amount that, if paid in accordance with the notice, will terminate the foreclosure.

7. Misrepresentations regarding borrower's qualifications. There is some concern that many borrowers who obtain high-cost loans may actually qualify for lower cost credit. Some brokers or creditors may provide consumers with false or materially misleading information that the consumer does not qualify for a lower cost loan based on the creditor's underwriting criteria. Such a practice generally would be illegal under state laws that protect against fraud and deception. What benefit to consumers might be achieved if the Board issued a rule that prohibited such misrepresentations as unfair and deceptive under HOEPA?

8. Reporting borrowers' payment history. Some creditors do not report to consumer reporting agencies subprime borrowers' good payment history in order to avoid having the borrowers solicited by competitors for a refinancing on more attractive terms. What would be the effect of requiring creditors that choose not to report borrowers' positive payment history to disclose that fact?

9. Referral to credit counseling services. What regulatory action would better enable consumers in general, or HOEPA borrowers in particular, to take advantage of any available credit counseling services?

10. HOEPA disclosures. In their 1998 report to the Congress, the Board and HUD recommended amendments to the required disclosures, including adding references to the availability of credit counseling, using more “user-friendly” text in the narrative reminders about the potential consequences for not making payments, and requiring the consumer's monthly income to be disclosed in close proximity to the consumer's monthly payment. Comment is requested on those recommendations. Comment also is solicited on whether additional information in the current HOEPA disclosures would benefit consumers. For example:

• The consumer must receive HOEPA disclosures three days before loan closing, specifying the APR and monthly payment amount. Due to the marketing practices of some lenders, consumers may not be aware of high up-front costs that will be financed. What would be the effect of the Board's requiring that the disclosure also include additional information, such as the total loan amount on which the disclosed monthly payment is based?

• For HOEPA loans, what would be the effect of requiring that consumers receive a complete Truth in Lending disclosure statement three days before closing?

11. Open-end home equity lines. HOEPA does not cover home-equity lines of credit. Is there evidence that lenders are using open-end credit lines to evade HOEPA? If so, what benefit might be derived from prohibiting the practice of structuring a home-secured loan as open-end credit in order to evade the provisions of HOEPA? How could such practices be identified and what limitations on these practices would be appropriate to effect the purposes of HOEPA?

In addition to issues concerning the Board's regulatory authority under HOPEA, views will also be elicited at the hearings about nonregulatory approaches to curbing predatory lending, such as community outreach and consumer education. Accordingly, the Board seeks comment on the following:

What community outreach activities and consumer education efforts are being pursued currently? Which types of products, programs, and delivery systems have been most effective? What other strategies might be implemented to reach the targeted populations? How might outreach and education efforts be tailored to address some lenders' and brokers' aggressive marketing practices? What role can government agencies play in increasing the effectiveness of these programs?

The Board seeks information about any studies or data pertaining to subprime lending or HOEPA loans that would be useful in determining how the Board might use its regulatory authority under HOEPA. For example, are there data regarding the percentage of HOEPA loans that result in foreclosures? Are there data regarding the effect of HOEPA disclosures showing the percentage of transactions cancelled by borrowers based on disclosures provided before closing?

These hearings are open to the public to attend. Invited speakers will participate in panel discussions. In addition, about two hours is reserved for brief statements by other interested parties, starting at approximately 2:30 p.m. To allow as many persons as possible to offer their views during this period, oral statements should be brief (five minutes or less); written statements of any length may be submitted for the record. Interested parties who wish to participate during this “open-mike” period are asked to contact the Board in advance of the hearing date, to facilitate planning for this portion of the hearings. The order of speakers generally will be based on their registration at the hearing site on the day of the hearing.

Comment letters should refer to Docket No. R-1075, and, when possible, should use a standard typeface with a font size of 10 or 12. This will enable the Board to convert the text to machine-readable form through electronic scanning, and will facilitate automated retrieval of comments for review. Also, if accompanied by an original document in paper form, comments may be submitted on 3 1/2 inch computer diskettes in any IBM-compatible DOS-or Windows-based format.

Eight years ago the Department readopted the regulations governing CRSs, 14 CFR Part 255, because each of the systems was then controlled by one or more airlines and airline affiliates and because, if CRS firms were unregulated, their owners could use the systems to injure airline competition and deny consumers and travel agents access to accurate and complete information on airline services. Those rules called for a Department reexamination of whether the rules were necessary and effective. We began a proceeding to reexamine our regulations to see whether they are still necessary and, if so, whether they should be changed, by publishing an advance notice of proposed rulemaking. 62 FR 47606 (September 10, 1997).

The comment period set by our advance notice closed two years ago. We recognize the importance of reexamining our rules to see whether they remain necessary and effective in light of the changes in the computer reservations system business and airline distribution. We now wish to move forward on the rulemaking. Doing so requires us to ask the parties to submit updated comments due to the significant changes that have occurred in airline distribution and the computer reservations system business in the last two years.

In addition, we wish to obtain comments on whether we should adopt any rules covering the distribution of airline services through the Internet. The use of the Internet for airline distribution raises issues that are similar to those traditionally considered in our CRS rulemakings. On-line travel agencies, for example, use the systems as their booking engines.

We therefore ask all interested persons to submit comments in response to this supplemental advance notice of proposed rulemaking. Commenters should discuss the specific issues set forth in this notice and, to the extent necessary to address changes in the CRS business and airline distribution practices, the issues listed in the advance notice, 62 FR at 47609-47610.

The advance notice described the CRS business and summarized our findings in earlier proceedings on the need for CRS rules. In this notice we will describe the history of CRS regulation and our past findings insofar as necessary to explain our requests that the supplemental comments address certain specific issues.

A CRS provides information on the travel services sold through the system and enables users to book those services. Traditionally the most important users of the systems have been travel agents, but corporate travel departments and consumers also use the systems. Travel agents and corporate travel departments usually access a system through computer terminals linked with the system's database, while consumers access systems through on-line services, such as Expedia and Travelocity. Airline transportation is the most important service sold through a system, but the systems also provide information and make bookings on rental cars, hotels, and other travel services. A CRS enables users to find out what airline seats and fares are available, to book a seat, and to purchase transportation on each airline that “participates” in the system, that is, that makes its services saleable through the CRS.

The four CRSs operating in the United States—Sabre, Galileo, Amadeus, and Worldspan—were each developed by one or more airlines. When we last reexamined our rules, each of the systems was owned and controlled by one or more airlines and airline affiliates. 57 FR 43780, 43782-43783 (September 22, 1992). Since then, however, the systems' ownership has changed—public shareholders now own all of Sabre's stock, and two of the other three systems have some public shareholders.

The Civil Aeronautics Board (“the Board”) concluded that CRS rules were essential to protect airline competition and prevent consumer deception due to the systems' role in airline distribution. 49 FR 32540 (August 15, 1984). Airlines relied on travel agencies for distribution, travel agencies relied on the systems to obtain information on airline flights and fares and make bookings, and each system's owner airline had the ability and incentive to use the system to prejudice airline competition and give consumers misleading or incomplete information in order to obtain more airline bookings. The Board adopted its rules primarily under its authority under section 411 of the Federal Aviation Act, later recodified as 49 U.S.C. 41712, to prevent unfair methods of competition and unfair and deceptive practices in air transportation and the sale of airline transportation (we will refer to the statute by its traditional and still commonly-used name, section 411). On review the Seventh Circuit upheld the Board's rules. United Air Lines v. CAB, 766 F.2d 1107 (7th Cir. 1985).

We assumed the Board's responsibility to enforce section 411 and its regulation of the systems upon the Board's sunset on December 31, 1984. After reexamining the rules, as they required us to do, we readopted them with changes designed to strengthen them. 57 FR 43780 (September 22, 1992). We did not expand the coverage of the rules, which govern systems operated by airlines or airline affiliates insofar as they provide services to travel agencies. 57 FR at 43794-43795. We concluded that CRS rules remained necessary to promote airline competition and to help ensure that consumers did not receive inaccurate or misleading information on airline services. Like the Board, we found that CRSs remained essential for the marketing of the services of virtually all airlines. 57 FR at 43783-43784.

We based our decision to continue regulating the systems on their control by airlines and airline affiliates. One or more airlines or airline affiliates then owned and controlled each of the systems, and the systems' owners could still use their control of the systems to prejudice airline competition if there were no rules. 57 FR at 43783-43787, 43794.

Our rules included a sunset date, December 31, 1997, to ensure that we would reinvestigate the need for the rules and their effectiveness. 14 CFR 255.12; 57 FR at 43829-43830 (September 22, 1992).

To begin the formal reexamination of our rules, we issued an advance notice of proposed rulemaking that asked interested persons to comment on whether our CRS rules are still necessary and, if so, whether they should be changed. 62 FR 47606 (September 10, 1997). We intended to focus “on rule proposals that will increase competitive market forces in the CRS industry rather than on proposals for detailed regulation of CRS practices.” 62 FR at 47609. To help us resolve the issues, we listed a series of questions that we asked the parties to address in their comments, 62 FR at 47609-47610.

We received comments from over sixty parties, virtually all of whom stated that we should maintain CRS rules.

In addition to those comments, we have received petitions for rulemaking from America West Airlines on booking fee issues, Docket OST-97-3014, and by the Association of Retail Travel Agents on certain travel agency contract issues, Docket OST-98-4775. We will consider the issues raised by those petitions in this proceeding.

Amadeus Global Travel Distribution filed a petition asking that we interpret the existing rules as prohibiting the tying of a travel agency's access to an airline's corporate discount fares with the travel agency's choice of the CRS affiliated with that airline, Docket OST-99-5888. We are reviewing that petition to determine how best to proceed with the issue that it raises.

We have maintained the current rules in place while we conduct our reexamination of the need for the rules and the rules' effectiveness. 62 FR 66272 (December 18, 1997); 64 FR 15127 (March 30, 1999); 65 FR 16808 (March 30, 2000).

Our rules currently require each system to allow all airlines to participate on non-discriminatory terms, to offer at least one unbiased display, and to make available to each airline participant any marketing and booking data from bookings for domestic travel that it chooses to generate from its system. The rules also prohibit certain contract terms that restrict the travel agencies' ability to choose between systems. They give travel agencies the right to use third-party hardware and software, subject to certain compatibility conditions, and to access any system or database with airline information from the agency's terminals, unless the terminals are owned by a system. The rules cover systems controlled by an airline or airline affiliate insofar as the systems provide information and booking services to travel agencies.

Our rules are designed to prevent practices by systems and airlines related to CRS operations that are either anti-competitive or likely to cause consumers to be misled. We have not otherwise tried to prescribe how airlines must distribute their services, with the exception of the requirement that airlines with a significant ownership interest in a system must participate in competing systems, section 255.7. As a result, airlines with no significant system ownership interest are free to decide whether to participate in any system and to choose their level of participation. Southwest, for example, has been unwilling to pay for participation in any system but Sabre. And we adopted a rule barring system from unreasonably restricting the ability of participating airlines to choose a different level of service in each system. 62 FR 59784 (November 5, 1997).

Airlines have chosen to use a wide variety of channels for distributing their services, and they do not treat all firms within each channel the same. Airlines, for example, commonly give favored travel agencies access to discount fares and marketing benefits not made available to other agencies and enable favored agencies to waive some restrictions on discount fares and to book customers on oversold flights. General Accounting Office, “Effects of Changes in How Airline Tickets Are Sold” (July 1999), at 15; Secretary's Task Force on Competition in the U.S. Domestic Airline Industry, “Airline Marketing Practices” (February 1990), at 25, 26. Travel suppliers have also used consolidators to sell seats at low fares not made directly available from travel agencies and airline reservations agents. Bear, Stearns, “Point, Click, Trip: An Introduction to the On-Line Travel Industry” (April 2000) at 58.

Our CRS rules with few exceptions regulate neither the manner in which travel agencies operate nor their use of the information and transaction capabilities provided by a system. Those regulations do not prescribe the kind of advice that travel agencies must give customers seeking information on airline services and do not prohibit travel agencies from reshaping the information provided by a system into displays biased in favor of the agency's preferred suppliers. 57 FR at 43809. See also Midwest Express Comments at 26 (one major travel agency allegedly biases its displays in favor of its preferred suppliers). We have, however, adopted rules applicable to both traditional and on-line travel agencies that state that certain practices will be considered unfair and deceptive. See, e.g. , 14 CFR Part 257 and section 399.80.

Travel agencies, of course, have different operating strategies—some primarily handle corporate travel while others primarily handle leisure travel. Some hold themselves out as generalists while others specialize, for example, on travel to a particular destination. In doing business over the Internet, on-line travel agencies must cope with an environment different from that within which traditional travel agencies operate. On-line agencies must use new methods of attracting customers, such as creating links with web portals like Yahoo! On-line agencies have also begun to buy blocks of airline seats and hotel rooms at negotiated prices substantially below the supplier's published rates. Bear, Stearns, “Point, Click, Trip,” at 48, 49. While giving consumers an opportunity to bid on a ticket price, Priceline only sells seats according to negotiated deals with airlines and other suppliers. Id. at 53-55.

When we readopted the rules in 1992, we primarily relied on our authority under section 411 to prohibit unfair and deceptive practices and unfair methods of competition in air transportation and the sale of air transportation. We also relied to some extent on our obligation to act consistently with the United States' international obligations when we adopted our current rules. 57 FR at 43791-43792.

Section 411 reads, “[T]he Secretary may investigate and decide whether an air carrier, foreign air carrier, or ticket agent has been or is engaged in an unfair or deceptive practice or an unfair method of competition in air transportation or the sale of air transportation.” Section 411 authorizes us to regulate the practices of U.S. and foreign airlines and “ticket agents.” The statute, 49 U.S.C. 40102(a)(40), defines a ticket agent as a person “that as principal or agent sells, offers for sale, negotiates for, or holds itself out as selling, providing, or arranging for, air transportation.”

An unfair method of competition is a practice that violates the antitrust laws or antitrust principles. United Air Lines v. CAB, supra. We concluded in our last rulemaking that the practices barred by the rules were unfair methods of competition, since those practices—display bias and discriminatory booking fees, for example—violated antitrust principles. Those practices were analogous to conduct prohibited by the antitrust laws: a firm's refusal to allow competitors to obtain access to an essential facility on reasonable terms and monopoly leveraging (the use of market power in one line of business to obtain unfair competitive advantages in a second line of business). These antitrust analogies were applicable because each of the systems was controlled by airlines that competed with other airlines whose ability to successfully market their services depended on their ability to participate in the systems on reasonable terms. 57 FR at 43789-43791.

Congress modeled section 411 on the Federal Trade Commission's authority under section 5 of the Federal Trade Commission Act, 15 U.S.C. 45, to prohibit unfair methods of competition and unfair and deceptive practices in most U.S. industries. See, e.g., United Air Lines, 766 F.2d at 1111-1112. As a result, the judicial decisions on the scope of the FTC's authority are relevant to the analysis of our own authority under section 411. The courts have held that the FTC may not prohibit practices as unfair methods of competition in order to improve competitive conditions in an industry unless the FTC finds that the practices violate antitrust laws or antitrust principles. E.I. DuPont de Nemours & Co. v. FTC, 729 F.2d 128 (2nd Cir. 1984). The Second Circuit has held that the FTC may not regulate the conduct of a firm with monopoly power in one industry in order to promote competition in a second industry unless the firm competes in the second industry as well. Official Airline Guides, Inc. v. FTC, 630 F.2d 920 (2nd Cir. 1980). But see LaPeyre v. FTC, 366 F.2d 117 (5th Cir. 1966).

Moreover, section 411 does not gives us the authority to determine how airline services should best be distributed. Since airline deregulation began twenty years ago, the airlines have been generally free to determine how to distribute and sell their services, including sales through travel agencies. This result is consistent with the antitrust laws, which generally allow individual firms to choose how to distribute their products and services. See, e.g., Paschall v. Kansas City Star Co., 727 F.2d 692 (8th Cir. 1984) (en banc); Auburn News Co. v. Providence Journal Co., 659 F.2d 273, 278 (1st Cir. 1981).

As noted above, we also relied on our section 411 authority to prohibit unfair and deceptive practices when we readopted the rules. 57 FR at 43791. Section 411 gives us broad authority to prohibit unfair and deceptive practices by airlines and ticket agents. See United Air Lines.

We also held that our obligation under section 1102(b) of the Federal Aviation Act, recodified as 49 U.S.C. 40105(b), to act consistently with the United States' obligations under treaties and bilateral air services agreements supported our continuation of the CRS regulations. Many of those bilateral agreements assure the airlines of each party a fair and equal opportunity to compete. We have held that the fair and equal opportunity to compete includes, among other things, a right to have an airline's services fairly displayed in CRSs. Our rules against display bias and discriminatory treatment help to provide foreign airlines with a fair and equal opportunity to compete in the United States. 57 FR at 43791-43792. Foreign governments—the European Union, Canada, and Australia, for example—have similarly adopted rules giving airlines fair and non-discriminatory access to CRS services.

Congress, moreover, recently reaffirmed the importance of preventing anticompetitive and discriminatory practices by systems and affiliated airlines that would distort international competition. The Wendell H. Ford Aviation Investment and Reform Act for the 21st Century, Public Law 106-181 (April 5, 2000) (“AIR 21”), includes a provision, section 741, that expands our authority under 49 U.S.C. 41310 to take countermeasures against an activity that involves airline service of a foreign system or foreign airline owning a system that constitutes an unjustifiably discriminatory or anticompetitive practice against a U.S. CRS or represents the imposition of unjustifiable restrictions on access by a U.S. system to a foreign market.

We are interested in obtaining supplemental comments for two reasons: our decision to consider Internet issues in this proceeding and our wish to consider the changes that have occurred in the CRS business and airline marketing practices since we issued our advance notice of proposed rulemaking.

One of these changes is the airlines' diminishing control of the systems. Since we published our advance notice, airlines affiliated with the systems have substantially divested their CRS ownership interests. As a result, Sabre is now entirely owned by the public, and only one-fourth of Galileo's stock is owned by airlines and airline affiliates. October 7, 1999, United Supplemental Comments at 4. While Amadeus is still controlled by three foreign airlines, Lufthansa, Air France, and Iberia, Continental has sold all of its stock, and the public now holds a significant portion of Amadeus' stock. Only Worldspan is still owned entirely by airlines and airline affiliates. However, every system still has ties with one or more airlines. American and Southwest market Sabre, and United provides some marketing support for Galileo.

A second major change is the increasing use of the Internet for airline distribution. The Internet gives airlines, like other travel suppliers, new ways to sell their services and inform consumers as well as opportunities to significantly cut distribution costs. The Internet similarly makes it easier for many travellers to obtain information and make bookings. General Accounting Office, “Effects of Changes in How Airline Tickets Are Sold” (July 1999) at 13.

Many airlines have websites, and a number of airlines offer special discount fares and other benefits to travellers who book seats through their own websites instead of another distribution channel. Southwest now obtains one fourth of its bookings on-line, and several other airlines—Alaska and America West, for example—obtain at least one-tenth of their bookings on-line. February 28, 2000, Southwest Airlines Press Release. In addition, five major airlines are creating a website in which dozens of airlines and other travel suppliers will participate. Several major on-line travel agencies now exist, including Travelocity, affiliated with Sabre; Expedia, developed by Microsoft; and Priceline, a firm that allows consumers to bid for tickets at fares they choose.

Using the Internet for bookings appears to be much less costly for airlines than the traditional methods of selling airline tickets. According to a 1999 study, for example, each booking made through traditional travel agencies cost America West $23, a booking made through an electronic travel agency cost $20, a booking made through the airline's reservations agents cost $13, and a booking made through the airline's website cost $6. GAO, “Effects of Changes in How Airline Tickets Are Sold” at 17. The Internet also benefits the marketing efforts of travel suppliers, especially smaller suppliers. A tourism official for the Maldive Islands thus stated, “Marketing is quite expensive and we are working on a very small budget. Because of the Internet we are able to do a lot of marketing with less expense.” “Travel industry suffers Internet growing pains,” March 15, 2000, Reuters story published on Yahoo (we are placing in the docket a copy of this article and other less widely-available material cited in this notice).

Distribution through the Internet, however, seems unlikely to end the airlines' dependence on CRS participation. The on-line travel agencies so far have not provided airlines a way of bypassing the systems, because on-line agencies use one of the systems as a booking engine. Expedia, for example, uses Worldspan, and Travelocity uses Sabre. Even the website being established by five major airlines—United, Delta, Northwest, Continental, and American—will use Worldspan as its booking engine. Thus airlines continue to need CRS access and remain obligated to pay CRS fees, although future developments may in time lessen their reliance on the systems.

While the growing use of the Internet and other changes in distribution practices will likely make it harder for some travel agencies to remain in business, these changes should not cause travel agencies to disappear. A Sabre official has predicted, for example, that travel agencies will account for 65 percent of all airline bookings in 2005 (45 percent by traditional travel agencies and 20 percent by travel agency websites). “Sabre: Agents could retain 65% of air sales by 2005,” TRAVEL WEEKLY (April 3, 2000) at 10. An independent research firm specializing in on-line travel issues recently stated that consumers prefer using a travel agency website since they believe that they are likely to get a better price from a travel agency website than from an airline website. April 17, 2000, PhoCusWright Press Release. Travel agents provide services that benefit many travellers. The GAO found, for example, that consumers are more likely to obtain the lowest available fare from a travel agent than from other sources of airline information. General Accounting Office, “Effects of Changes in How Airline Tickets Are Sold” (July 1999) at 13.

We have been monitoring the airlines' increasing use of the Internet and other changes in airline distribution practices as part of our obligation to keep informed of developments in the airline industry. Our staff has been studying the CRS business and airline marketing practices. See Order 94-9-35 (September 26, 1994). The staff has reviewed relevant documents obtained from the systems pursuant to Order 94-9-35 and has interviewed officials from the systems, airlines, travel agencies and travel agency groups, as well as other industry experts. The staff has learned a great deal from this work, which will help us consider the issues in this proceeding. We plan to incorporate the staff's findings into the notice of proposed rulemaking rather than publish a separate report as originally intended. Proceeding in this manner should expedite this rulemaking.

In addition, we have begun to study airline distribution issues in other contexts. The cited staff study of the CRS business has not focused on the Internet's role in airline distribution. Due to concerns raised by travel agency groups and others about the airlines' use of the Internet, our staff will be informally studying the airlines' use of the Internet for marketing their services. The staff's findings will, if practicable, be included in the notice of proposed rulemaking and be used in other contexts where we will be addressing airline distribution and Internet issues. A related staff study is reviewing Orbitz, the joint website being created by five major airlines.

Other agencies have also investigated airline distribution issues. The Department's Inspector General conducted a study of travel agency override commissions. Office of the Inspector General, U.S. Dept. of Transportation, “Report on Travel Agent Commission Overrides” (March 2, 1999). While the report largely dealt with issues outside the scope of this proceeding, the report noted that airlines use the marketing and booking data sold by the systems to implement their override commission programs. Id. at 8.

The General Accounting Office (“GAO”) issued a report on several issues: whether consumers have been affected by changes in the airlines' methods of selling tickets, whether airlines require travel agencies to follow different rules on selling tickets than are followed by airline reservations agents, what the airlines' policies are for making discount fares available to consumers and travel agencies, and how the airlines use data on travel agency sales. General Accounting Office, “Effects of Changes in How Airline Tickets Are Sold” (July 1999). The GAO's findings thus touch on some of the matters that we intend to consider in this proceeding.

In 1998 Congress requested the Transportation Research Board (“TRB”) of the National Research Council to update its 1991 report on airline competition, “Winds of Change: Domestic Air Transport since Deregulation.” The TRB did so by publishing a report, “Entry and Competition in the U.S. Airline Industry: Issues and Opportunities” (1999), which addresses among other competition issues the impact of changes in airline distribution. TRB Report at 124-129.

In addition, Congress has required three studies of issues related to airline distribution. The Department of Transportation and Related Agencies Appropriations Act, 2000, Public Law 106-69, 113 Stat. 985 (1999), requires the Department's Inspector General to submit a report “on the extent to which actual or potential barriers exist to consumer access to comparative price and service information from independent sources on the purchase of passenger air transportation.” 113 Stat. at 1014.

Section 207 of AIR 21 requires the Secretary to review airline marketing practices that may keep small and medium-sized communities from receiving quality, affordable airline services. Section 228 of AIR 21 will create the National Commission to Ensure Consumer Information and Choice in the Airline Industry. The commission will study (i) whether the financial condition of travel agencies is declining and, if so, the effect on consumers; and (ii) whether there are impediments to information on airline services and the effect of any such impediments on travel agencies, Internet-based distributors, and consumers. The Commission shall make recommendations it considers necessary to improve the condition of travel agents, especially smaller travel agents, and to improve consumer access to travel information.

To the extent that the findings and recommendations of these studies are relevant, we will take them into account in developing our notice of proposed rulemaking in this proceeding, if practicable. If not, we will consider them in other proceedings.

Finally, two travel agency trade associations have filed formal complaints involving airline distribution practices related to the issues in this proceeding. The American Society of Travel Agents filed a complaint against several airline practices that assertedly constitute unfair methods of competition because they will allegedly eliminate travel agencies as a source of unbiased information for consumers (Docket OST-99-6410). The Association of Retail Travel Agents has filed a complaint against the airlines that plan to create a joint website for the sale of airline tickets and other travel services (Docket OST-99-6691). It alleges that any joint airline site will threaten competition and therefore be an unfair method of competition. Despite whatever action is taken by the Enforcement Office on these complaints, we also intend to analyze some of these issues in this proceeding, and the staff will be examining some in their informal study of the airlines' use of the Internet and other distribution practices.

While the studies being undertaken by our staff and by other agencies will assist us in analyzing the issues in this rulemaking, we cannot wisely resolve those issues without the parties' comments. We therefore invite the parties to file supplemental comments in response to our advance notice of proposed rulemaking and this notice. Since we will decide the issues on the basis of all of the comments, both those filed so far and the supplemental comments requested by this notice, the parties need not repeat the factual and legal arguments contained in their original comments. The supplemental comments should focus on discussing the issues in this proceeding in light of the changes in the CRS business and airline distribution that have occurred since the end of the original comment period.

In addition, as we have stated, parties are free to make any rule proposal related to the questions being considered in this proceeding and to present any relevant factual, policy, and legal arguments. 62 FR at 47610. We also asked the parties, however, to comment on the specific questions set forth in our advance notice. 62 FR at 47609-47610. We are now asking the parties to address two additional issues, the effect of the reduced ties between the systems and the airlines that have controlled them, and the advisability of regulating airline distribution practices involving the Internet.

The discussion of the issues set forth in this notice is, of course, tentative. We have made no decision on the questions at issue in this proceeding.

We wish to ensure that travellers will continue to benefit from a competitive airline industry and have access to accurate and comprehensive information on airline services. However, as explained above, under section 411 to adopt a rule we must consider whether the practice at issue harms consumers by significantly reducing competition or potentially causing deception and whether market forces (or alternative less intrusive rules) may correct the perceived problem. Furthermore, in examining rule proposals we must analyze whether they would produce benefits outweighing their costs. We will be hesitant to adopt rules when compliance or enforcement is likely to be impracticable.

The Legal Basis for the Department's Rules. The changes in the systems' ownership and our wish to consider whether any rules are needed with respect to Internet practices require us to reexamine the legal predicates for our regulation of system operations.

The systems' growing independence from airline control raises two questions about our authority—(i) whether section 411 authorizes us to regulate the conduct of a system that is not owned, controlled, or marketed by an airline or airline affiliate, and (ii) whether our determinations that the system practices prohibited by our rules are unfair methods of competition are still valid, when those determinations relied on the systems' control by airlines that competed with airlines dependent on the systems for distribution.

Factual and policy considerations led to our determination in 1992 and the Board's determination in 1984 to limit the scope of the rules to systems owned or marketed by airlines. 57 FR 43794; 49 FR 32549. As a result, neither we nor the Board have ruled on whether we may regulate a system that has no links to airlines except insofar as airlines participate in the system. The changes in the systems' ownership now appear to require us to consider this issue.

The Reduced Ties between the Systems and Airline Owners. As discussed above, we readopted CRS rules because the airlines controlling the systems could use them to distort airline competition and provide misleading information, as shown by the systems' use of discriminatory fees and display bias. The airlines controlling the systems had an incentive to take such action, since they competed with the airlines whose services are sold through the systems.

The ties between the systems and their former airline owners have since diminished greatly, at least with respect to Sabre and Galileo, as discussed above. United accordingly has suggested that Galileo is no longer covered by the rules, since no airline or airline affiliate allegedly controls it, despite United's ownership of seventeen percent of Galileo's stock (Galileo, however, has not endorsed this suggestion). October 7, 1999, United Supp. Comments at 5, n. 5. Amadeus already has public owners and may sell additional shares to the public. Finally, the willingness of many airlines, including Continental and US Airways, to divest their system interests suggests that airlines may no longer believe that control of the systems is essential for protecting their ability to market their services.

Given these developments, we ask the parties to comment on whether CRS rules remain necessary and, if so, the basis for our maintenance of such rules as to systems that would have few, if any, affiliations with airlines. The parties should present their factual and legal arguments on whether the reduction in airline control of the systems has reduced or eliminated the need to maintain rules governing system operations. If commenters believe that the rules remain necessary for other reasons, they should explain why and further show that readopting rules would be consistent with our authority under section 411.

Parties should additionally discuss whether the rules, if any, should be the same for each system regardless of the degree of its ties with one or more airlines. That issue involves the question of whether subjecting some systems but not others to regulation would impose an unreasonable competitive handicap on the systems subject to more regulation. As on all other issues, parties seeking to convince us that a regulated system will suffer competitive disadvantages (or that a regulated system will not suffer such disadvantages) should provide a persuasive factual basis for their assertions.

If we may not regulate non-airline systems directly, our authority to regulate airline practices under section 411 may allow us to prevent potential abuses. For example, with respect to the regulation of Internet sites, potential problems could perhaps be alleviated by barring airlines from seeking or obtaining preferential displays or discriminatory fees. If justified by the record, we could impose a similar ban on airlines with respect to system services provided travel agencies. We ask whether such a regulation would adequately resolve any potential problems that might arise from the operation of systems that have no airlines or airline affiliates as owners or marketers. Conceivably certain types of contract clauses in agreements between travel agencies and a system could also be prohibited as agreements analogous to contracts that unreasonably restrain trade in violation of section 1 of the Sherman Act.

Internet Issues. The Internet—an increasingly important channel for airline distribution—provides efficiency benefits for consumers and travel suppliers. We will consider whether there is a significant risk that some practices associated with the use of the Internet are likely to reduce competition in the airline industry or result in consumers obtaining incomplete or misleading information. The relevant questions may include the following: whether airlines are able to participate in on-line services on reasonable terms, whether consumers have a reasonable opportunity to obtain non-deceptive information on airline services and to make bookings, and whether the Internet's use presents questions about the competitiveness of the airline and distribution industries.

The proposals for Internet regulation generally fall into two categories—proposals for regulating websites, including those operated by on-line travel agencies, and proposals for regulating the airlines' use of the Internet, both with respect to airline websites and third-party websites. No one has yet suggested, however, that we adopt rules governing websites operated by individual airlines, although some contend that we should bar airlines from offering fares available only through their own websites.

Various parties have alleged in their comments that the operation of websites by travel agencies and the systems creates a potential for abuse, since the site operator may be induced to bias its displays of airline information. Our CRS rules currently apply to system services provided to websites operated by travel agencies, 14 CFR 255.1 and 255.2, but, as noted above, do not govern the use made by travel agencies of the information and displays made available by a system. Commenters should also state whether any travel agency websites are currently biased or provide deceptive information and, if so, provide supporting evidence.

Parties contending that additional rules are necessary for Internet services should explain why on-line agencies should be treated differently than traditional agencies. As we explained in our advance notice, consumers use CRSs differently than they do Internet services. 62 FR at 47610. Consumers relying on travel agencies for information and advice do not see the displays used by the travel agent, but consumers using a website do see displays created from the information provided by a system. In our past rulemakings we found CRS regulation necessary because, among other things, most travel agencies used only one system, travel agencies could not easily switch systems or use more than one system, and the time pressures on travel agents tend to cause them to book one of the first flights shown on a display, even if flights displayed later may better suit the traveller's needs. 57 FR at 43783, 43785-43786. These factors seem unlikely to be as true for consumer use of Internet booking sites. Some studies nonetheless have shown a substantial variance between the fares quoted by different websites. See “Frictions in cyberspace,” ECONOMIST (November 20, 1999).

In addition to the proposals for regulating websites and the airlines' use of the Internet, Delta has asked us to forbid systems from tying participation in the system services provided on-line travel agencies and other websites with participation in the system services provided traditional travel agencies. Our advance notice asked parties to comment on that proposal, 62 FR 47610, and a number of parties discussed the proposal in their comments. We will consider it along with the parties' other proposals.

Our CRS rules were a significant regulatory action under section 3(f) of Executive Order 12866 and were reviewed by the Office of Management and Budget under that order. As required by section 6(a)(3) of that Executive Order, we prepared an assessment of the rules' costs and benefits. The rules were also significant under the regulatory policies and procedures of the Department of Transportation, 44 FR 11034.

As we stated in our advance notice, we do not know now whether we will propose new rules that would have a substantial impact and would thus be considered significant under the Executive Order. OMB has waived review of this supplemental advance notice of proposed rulemaking.

The comments submitted in response to this notice should address the potential effects any changes would have on the economy, costs or prices for consumers and the government, and adverse effects on competition.

We do not expect that this rulemaking will impose unfunded mandates or requirements that will have any impact on the quality of the human environment.

Congress enacted the Regulatory Flexibility Act of 1980, 5 U.S.C. 601 et seq. , to keep small entities from being unnecessarily and disproportionately burdened by government regulations. The act requires agencies to review proposed regulations that may have a significant economic impact on a substantial number of small entities. For purposes of this rule, small entities include smaller U.S. and foreign airlines and smaller travel agencies.

Any rules adopted by us regulating CRS operations are likely to affect the operations of many small entities, primarily travel agencies, even though they would not be regulated directly if we readopted the existing rules. When we publish a notice of proposed rulemaking in this proceeding, we will include an initial regulatory flexibility analysis as required by the Regulatory Flexibility Act.

That act also requires each agency to periodically review rules which have a significant economic impact upon a substantial number of small entities. 5 U.S.C. 610. This rulemaking will constitute the required review of our CRS rules.

The current rules contain no collection-of-information requirements subject to the Paperwork Reduction Act, P.L. No. 96-511, 44 U.S.C. Chapter 35. See 57 FR at 43834.

This request for comments will have no substantial direct effects on the States, on the relationship between the national government and the States, or on the distribution of power and responsibilities among the various levels of government. Therefore, in accordance with Executive Order 13132, dated August 4, 1999, we have determined that it does not present sufficient federalism implications to warrant consultations with State and local governments.

The Indian Gaming Regulatory Act (IGRA, or the Act), enacted on October 17, 1988, established the National Indian Gaming Commission (Commission). Under the Act, the Commission is charged with regulating gaming activities on Indian lands. The Act expressly authorizes the Commission to “promulgate such regulations and guidelines as it deems appropriate to implement provisions of this (Act).” 25 U.S.C. 2706(b)(10).

The regulations proposed today would implement the Commission's authority to issue environment, public health and safety regulations. This criteria is set forth in 25 U.S.C. 2710 (b)(2)(E) and provides that tribal ordinances or resolutions submitted for the Chairman's approval ensure that “the construction and maintenance of the gaming facility, and the operation of that gaming (facility) (sic) is conducted in a manner which adequately protects the environment and the public health and safety.”

On April 27, 1999, the Commission issued an Advance Notice of Proposed Rulemaking regarding the establishment of environment, public health and safety procedures. After reviewing the information solicited through this notice, the Commission decided to move forward with proposed regulations. In November 1999, a Tribal-Commission Advisory Committee was formed to consult on the project. The Commission attempted to assemble a diverse advisory committee that represented the interests of a broad range of gaming tribes. During the period from November 1999 through May 2000, the Commission and the Tribal Advisory Committee met four times to develop a regulatory proposal. Ultimately, the Commission and the Committee selected an approach that strikes a balance between the inherent authority of tribal governments and the statutory authority of the Commission. This approach enables the Commission to meet its regulatory responsibilities without creating a set of substantive standards that may be inconsistent with existing provisions of tribal law or tribal-state gaming compacts.

The Commission's decision to propose this regulation is based primarily on three considerations: (1) The need to ensure that adequate environment, public health and safety programs are in place at all Indian gaming operations; (2) the need to set forth applicable standards for these programs so that the tribes and the Commission will have notice of compliance requirements; and (3) the impediment to effective enforcement that exists in the absence of a clear statement of applicable standards.

In proposing this regulation, the Commission is aware that many tribes have taken steps to ensure that their gaming facilities are constructed, maintained, and operated in a manner, which protects the environment, and public health and safety. The Commission notes, however, that there is no existing regulatory mechanism to ensure that adequate protections are in place at all Indian gaming facilities. In the view of the Commission, the most effective means of ensuring that adequate programs are implemented on an industry wide basis is to promulgate a rule which would be applicable to all gaming tribes. In addition, in the last several years the Commission has encountered a number of potential threats to the environment, public health, and safety at Indian gaming facilities. In assessing these matters it is apparent that, absent a rulemaking which sets forth applicable standards, neither tribal governments nor the Commission have a viable means of determining whether tribes are in compliance with requirements of the Act. Moreover, the absence of a clear statement of applicable standards creates an impediment to effective enforcement for both tribes and the Commission.

The proposed rule applies whenever an Indian tribe undertakes the ownership, operation, regulation, or licensing of gaming facilities on Indian lands as defined by the Act. Under this regulation, tribal government(s) are encouraged to assume the full responsibility for the development, and implementation of environment, public health and safety laws, codes, ordinances and resolutions applicable to their gaming operation(s). To comply with this rule, a gaming tribe must prepare and submit to the Commission an environment, public health and safety plan (Plan) which sets forth the tribe's policies for ensuring that its gaming operations do not pose a threat to the environment, public health and safety. Under this regulation, the Plan is to contain the tribe's policies for the development, implementation, and enforcement of environmental, public health and safety standards for its gaming operation(s); describe the tribe's standards, regulatory structure(s), and enforcement program(s) in place or to be implemented to ensure that the environment, public health and safety of its gaming operation(s) are adequately protected; and meet the requirements of § 580.20 of the regulation. Section 580.20 includes requirements for emergency preparedness, construction, maintenance and operation, drinking water and food, use, storage and disposal of hazardous materials, and sanitation and waste disposal.

The Commission will review the Plans to ensure that they comply with requirements in this rule. A preliminary review will be conducted at the time of submission to ensure completeness and to notify the tribe of any apparent deficiencies. Tribes will be notified at the time the Commission undertakes a formal review of their Plan. The Commission's role in enforcing compliance with this regulation focuses on the tribe's compliance with its Plan. The Commission's oversight of such Plans will provide a comprehensive mechanism for ensuring that all tribal gaming facilities are constructed, maintained and operated in the manner required under the Act.

Therefore, pursuant to 25 U.S.C. 2710(b)(2)(E), these regulations are being proposed to establish the adequate protection of the environment, public health and safety at Indian gaming operations regulated by the Act.

The Commission certifies that this document will not have a significant economic effect on a substantial number of small entities under the Regulatory Flexibility Act (5 U.S.C. 601 et seq. ). Indian tribes are not considered to be small entities for purposes of the Regulatory Flexibility Act.

This proposed rule is not a major rule as defined by section 804 of the Small Business Regulatory Enforcement Fairness Act of 1996. This proposed rule will not: (1) Result in an annual effect on the economy of $100 million or more; (2) cause a major increase in costs or prices for consumers, individual industries, Federal, State or local government agencies or geographic regions; and (3) have significant adverse effects on competition, employment, investment, productivity, innovation, or the ability of United States-based enterprises to compete with foreign-based companies in domestic and export markets.

The Commission has determined that this proposed rule does not impose an unfunded mandate on State, local or tribal governments or on the private sector of more than $100 million per year. The Commission has determined that this proposed rule may have a unique effect on tribal governments, as this rule applies exclusively to tribal governments, whenever they undertake the ownership, operation, regulation, or licensing of gaming facilities on Indian lands as defined by the Indian Gaming Regulatory Act. Thus, in accordance with section 203 of the Unfunded Mandates Reform Act, the Commission has developed a small government agency plan which provides tribal governments with adequate notice, opportunity for “meaningful” consultation, and information, advice and education on compliance.

The Commission's small government agency plan includes: formation of a tribal advisory committee; discussions with Tribal leaders and tribal associations; preparation of guidance material and model documents; and technical assistance. During the period from November 1999 through May 2000, the Commission and the Tribal Advisory Committee met four times to develop a regulatory proposal. In selecting committee members, consideration was placed on the current level of environmental, public health and safety regulation exercised by the tribe represented, the applicant's experience in this area, as well as the size of the tribe the nominee represented, geographic location of the gaming operation and the size and type of gaming conducted. The Commission attempted to assemble a committee that incorporates diversity and is representative of Indian gaming interests. Since beginning formulation of this proposed rule, the Commission spoke at three tribal association meetings and held three field consultations with tribes. The Commission is in the process of developing guidance materials that will include a model Environment, Public Health and Safety Plan. The Commission will meet with the Tribal Advisory Committee to discuss the public comments that are received as a result of publication of this proposed rule. Lastly, prior to the implementation deadline of this proposed rule, the Commission will hold numerous regional technical assistance workshops.

The Commission is in the process of obtaining clearance from the Office of Management and Budget (OMB) for the information collection requirements contained in this proposed rule, as required by 44 U.S.C. 3501 et seq. The information required to be submitted is identified in §§ 580.20-580.30, and will be used to determine compliance with this part.

The public reporting burden for this collection of information is estimated to average 150 hours, to initially prepare an Environmental, Public Health and Safety Plan, including the time for reviewing instructions, gathering and maintaining the data needed, and completing and reviewing the collection of information. The Commission estimates that information needed to maintain the Plan will require an annual burden of 190 hours. It is estimated that an additional 21 hours will be required to prepare, and gather the data needed, and to complete the collection of information necessary to prepare for plan renewal. Plans need to be renewed every five years.

Public reporting burden for this collection of information is estimated to average 361 hours per year including the time for initial Plan preparation, monitoring, recordkeeping and Plan renewal preparation. The Commission estimates that approximately 198 tribes will need to file an Environmental, Public Health and Safety Plan for an annual burden of 71,478 hours.

Send comments regarding this collection of information, including suggestions for reducing the burden to both, Environment, Public Health and Safety Comments, National Indian Gaming Commission, 1441 L Street NW, Suite 9100, Washington, DC 20005; and to the Office of Information and Regulatory Affair, Office of Management and Budget, Washington, DC 20503. The Office of Management and Budget (OMB) has up to 60 days to approve or disapprove the information collection, but may respond after 30 days; therefore public comments should be submitted to OMB within 30 days in order to assure their maximum consideration.

The Commission solicits public comment as to:

a. Whether the collection of information is necessary for the proper performance of the functions of the Commission, and whether the information will have practical utility;

b. The accuracy of the Commission's estimate of the burden of the collection of information, including the validity of the methodology and assumptions used;

c. The quality, utility, and clarity of the information to be collected; and

d. How to minimize the burden of the collection of information on those who are to respond, including the use of appropriate automated electronic, mechanical, or other forms of information technology.

An agency may not conduct, and a person is not required to respond to a collection of information unless it displays a currently valid OMB control number.

The Commission has determined that this proposed rule does not constitute a major Federal action significantly affecting the quality of the human environment and that no detailed statement is required pursuant to the National Environmental Policy Act of 1969 (42 U.S.C. 4321 et seq ).

The Commission has determined that this proposed rule does not have significant “takings” implications. Thus, a takings implications assessment is not required.

The Commission has determined that this proposed rule does not have significant Federalism effects because it pertains solely to Federal-tribal relations and will not interfere with the roles, rights and responsibilities of States.

In accordance with Executive Order 12988, the Commission has determined that this proposed rule does not unduly burden the judicial system and meets the requirements of sections 3(a) and 3(b)(2) of the Order.

For the reasons stated in the preamble, the National Indian Gaming Commission proposes to amend 25 CFR by adding a new part 580 as follows:

Throughout this document, “we,” “us” and “our” refer to EPA.

Table 1 lists the rules addressed by this proposal with the dates that they were adopted by PCAQCD and submitted by the Arizona Department of Environmental Quality (ADEQ).

On February 2, 1996, these rule submittals were found to meet the completeness criteria in 40 CFR part 51, appendix V, which must be met before formal EPA review.

There are previous versions of Rules 5-18-740, 5-19-800, and 5-24-1055 in the SIP. We approved a version of the above rules into the SIP on November 15, 1978. The PCAQCD adopted revisions to the SIP-approved version on February 2, 1995 and ADEQ submitted them to us on November 27, 1995.

The only purpose of the submitted rule revisions was the renumbering of the SIP approved version. Rule 7-3-2.1 was renumbered as 5-18-740, Rule 7-3-3.2 was renumbered as 5-19-800, and Rule 7-3-3.3 was renumbered as 5-24-1055. The TSD has more information about these rules.

A. How Is EPA Evaluating the Rules?

Generally, SIP rules must be enforceable (see section 110(a) of the Act), must require Reasonably Available Control Technology (RACT) for major sources in nonattainment areas (see section 182(a)(2)(A)), and must not relax existing requirements (see sections 110(l) and 193). The PCAQCD regulates an ozone attainment area (see 40 CFR part 81). So RACT requirements do not apply.

Guidance and policy documents that we used to define specific enforceability include the following:

1. “Issues Relating to VOC Regulation Cutpoints, Deficiencies, and Deviations; Clarification to Appendix D of November 24, 1987 Federal Register document,” (Blue Book), notice of availability published in the May 25, 1988 Federal Register (This applies to all the above rules).

2. Control Technique Guideline Document (CTG) entitled “Control of Volatile Organic Emissions from Storage of Petroleum Liquids in Fixed-Roof Tanks ,” EPA-450/2-77-036, U.S.EPA, December 1977 (applies to Rule 5-18-740).

3. Control Technique Guideline Document (CTG) entitled “Control of Volatile Organic Emissions from Petroleum Liquid Storage in External Floating Roof Tanks , “ EPA-450/2-78-047, December, 1977 (applies to Rule 5-18-740).

4. Control Technique Guideline Document (CTG) entitled “Control of Volatile Organic Emissions from Bulk Gasoline Plants ,” EPA-450/2-77-035, December 1977 (applies to Rule 5-19-800).

5. Control Technique Guideline Document (CTG) entitled “Control of Hydrocarbons from Tank Truck Gasoline Loading Terminals ,” EPA-450/2-77-026, October 1977 (applies to Rule 5-19-800).

6. Control Technique Guideline Document (CTG) entitled “Control of Volatile Organic Compound Leaks from Synthetic Organic Chemical and Polymer Manufacturing Equipment ,” EPA-450/3-83-006 (applies to Rule 5-24-1055).

These rules are essentially inconsistent with the relevant policy and guidance regarding enforceability. Rule provisions which do not meet the evaluation criteria are summarized below and discussed further in the TSD.

We have identified the following deficiencies:

1. None of the above rules adequately specify or reference applicability, exemptions, definitions, test methods, recordkeeping and monitoring requirements to make each rule federally enforceable.

2. SIP version of Rule 3-1-160 (Test Method and Procedures) which may be applicable to the above rules has a “Director Discretion” which needs to be deleted/corrected. If PCAQCD wishes to retain this part in the rule, the phrase should be worded to include EPA's approval.

These provisions conflict with section 110 and part D of the Act and prevent full approval of the SIP revision.

As authorized in sections 110(k)(3) and 301(a) of the Act, EPA is proposing a limited approval of the submitted rules to the SIP. If finalized, this action would incorporate the submitted rules into the SIP, including those provisions identified as deficient and will supercede Rules 7-3-3.1, 7-3-3.2, and 7-3-3.3 from the SIP. This approval is limited because of the preceding deficiencies. Note that the submitted rules have been adopted by the PCAQCD, and EPA's final limited approval would not prevent the local agency from enforcing them. Because this is an attainment area, EPA is not simultaneously proposing a limited disapproval of the rules. As a result, no sanction clocks under section 179 or FIP clocks under section 110(c) are associated with this action.

We will accept comments from the public on the proposed limited approval for the next 30 days.

VOCs help produce ground-level ozone and smog, which harm human health and the environment. Section 110(a) of the CAA requires states to submit regulations that control VOC emissions.

The Office of Management and Budget (OMB) has exempted this regulatory action from Executive Order 12866, Regulatory Planning and Review.

Executive Order 13045, entitled Protection of Children from Environmental Health Risks and Safety Risks (62 FR 19885, April 23, 1997), applies to any rule that: (1) is determined to be “economically significant” as defined under Executive Order 12866, and (2) concerns an environmental health or safety risk that EPA has reason to believe may have a disproportionate effect on children. If the regulatory action meets both criteria, the Agency must evaluate the environmental health or safety effects of the planned rule on children, and explain why the planned regulation is preferable to other potentially effective and reasonably feasible alternatives considered by the Agency.

This rule is not subject to Executive Order 13045 because it does not involve decisions intended to mitigate environmental health or safety risks.

Under Executive Order 13084, Consultation and Coordination with Indian Tribal Governments, EPA may not issue a regulation that is not required by statute, that significantly or uniquely affects the communities of Indian tribal governments, and that imposes substantial direct compliance costs on those communities, unless the Federal government provides the funds necessary to pay the direct compliance costs incurred by the tribal governments, or EPA consults with those governments. If EPA complies by consulting, Executive Order 13084 requires EPA to provide to the OMB in a separately identified section of the preamble to the rule, a description of the extent of EPA's prior consultation with representatives of affected tribal governments, a summary of the nature of their concerns, and a statement supporting the need to issue the regulation. In addition, Executive Order 13084 requires EPA to develop an effective process permitting elected officials and other representatives of Indian tribal governments “to provide meaningful and timely input in the development of regulatory policies on matters that significantly or uniquely affect their communities.”

Today's proposed rule does not significantly or uniquely affect the communities of Indian tribal governments. Accordingly, the requirements of section 3(b) of Executive Order 13084 do not apply to this proposed rule.

Executive Order 13132, entitled Federalism (64 FR 43255, August 10, 1999) revokes and replaces Executive Orders 12612, Federalism and 12875, Enhancing the Intergovernmental Partnership. 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.” Under Executive Order 13132, EPA may not issue a regulation that has federalism implications, that imposes substantial direct compliance costs, and that is not required by statute, unless the Federal government provides the funds necessary to pay the direct compliance costs incurred by State and local governments, or EPA consults with State and local officials early in the process of developing the proposed regulation. EPA also may not issue a regulation that has federalism implications and that preempts State law unless the Agency consults with State and local officials early in the process of developing the proposed regulation.

This proposed rule will not have substantial direct effects on the States, on the relationship between the national government and the States, or on the distribution of power and responsibilities among the various levels of government, as specified in Executive Order 13132, because it merely acts on a state rule implementing a federal standard, and does not alter the relationship or the distribution of power and responsibilities established in the Clean Air Act. Thus, the requirements of section 6 of the Executive Order do not apply to this proposed rule.

The Regulatory Flexibility Act (RFA) generally requires an agency to conduct a regulatory flexibility analysis of any rule subject to notice and comment rulemaking requirements unless the agency certifies that the rule will not have a significant economic impact on a substantial number of small entities. Small entities include small businesses, small not-for-profit enterprises, and small governmental jurisdictions.

This proposed rule will not have a significant impact on a substantial number of small entities because SIP approvals under section 110 and subchapter I, part D of the Clean Air Act do not create any new requirements but simply act on requirements that the State is already imposing. Therefore, because the Federal SIP approval does not create any new requirements, I certify that this action will not have a significant economic impact on a substantial number of small entities.

EPA's proposed limited approval of the state request under section 110 and subchapter I, part D of the Clean Air Act does not affect any existing requirements applicable to small entities. Any pre-existing federal requirements remain in place after this limited approval. Federal limited approval of the state submittal does not affect state enforceability. Moreover, EPA's limited approval of the submittal does not impose any new Federal requirements. Therefore, I certify that this action will not have a significant economic impact on a substantial number of small entities.

Moreover, due to the nature of the Federal-State relationship under the Clean Air Act, preparation of flexibility analysis would constitute Federal inquiry into the economic reasonableness of state action. The Clean Air Act forbids EPA to base its actions concerning SIPs on such grounds. Union Electric Co., v. U.S. EPA, 427 U.S. 246, 255-66 (1976); 42 U.S.C. 7410(a)(2).

Under section 202 of the Unfunded Mandates Reform Act of 1995 (“Unfunded Mandates Act”), signed into law on March 22, 1995, EPA must prepare a budgetary impact statement to accompany any proposed or final rule that includes a Federal mandate that may result in estimated annual costs to State, local, or tribal governments in the aggregate; or to private sector, of $100 million or more. Under section 205, EPA must select the most cost-effective and least burdensome alternative that achieves the objectives of the rule and is consistent with statutory requirements. Section 203 requires EPA to establish a plan for informing and advising any small governments that may be significantly or uniquely impacted by the rule.

EPA has determined that the proposed action does not include a Federal mandate that may result in estimated annual costs of $100 million or more to either State, local, or tribal governments in the aggregate, or to the private sector. This proposed Federal action acts on pre-existing requirements under State or local law, and imposes no new requirements. Accordingly, no additional costs to State, local, or tribal governments, or to the private sector, result from this action.

Section 12 of the National Technology Transfer and Advancement Act (NTTAA) of 1995 requires Federal agencies to evaluate existing technical standards when developing a new regulation. To comply with NTTAA, EPA must consider and use “voluntary consensus standards” (VCS) if available and applicable when developing programs and policies unless doing so would be inconsistent with applicable law or otherwise impractical.

EPA believes that VCS are inapplicable to today's proposed action because it does not require the public to perform activities conducive to the use of VCS.

This proposed rule may directly affect any person or company who might petition the Agency for new tolerances, hold a pesticide registration with existing tolerances, or any person or company who is interested in obtaining or retaining a tolerance in the absence of a registration. This group can include pesticide manufacturers or formulators, companies that manufacture inert ingredients, importers of food, grower groups, or any person who seeks a tolerance. Federal, State, local, territorial, or tribal government agencies that petition for, or hold, emergency exemption tolerances are exempt from this rule. The vast majority of 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 regulated by this action. Other types of entities not listed above also could potentially be affected by this notice. If available, the four-digit Standard Industrial Classification (SIC) codes or the six-digit North American Industrial Classification System (NAICS) codes have been provided to assist you and others in determining whether or not this notice applies to certain entities. To determine whether you or your business is regulated by this action, you should carefully examine the applicability provisions in this document (see Unit IV). If you have any 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 various support documents from the EPA Internet Home Page at http://www.epa.gov/. 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/homepage/fedrgstr.

2. In person. If you have any questions or need additional information about this action, you may contact the person identified in the “FOR FURTHER INFORMATION CONTACT” section. In addition, the official record for this notice, including the public version, has been established under docket control number OPP-30115B (including comments and data submitted electronically as described below). A public version of this record, including printed, paper versions of any electronic comments, which does not include any information claimed as Confidential Business Information (CBI), is available for inspection in Rm. 119, Crystal Mall #2, 1921 Jefferson Davis Highway, Arlington, VA, from 8:30 a.m. to 4 p.m., Monday through Friday, excluding legal holidays. The Public Information and Records Integrity Branch telephone number is (703) 305-5805.

You may submit comments through the mail, in person, or electronically. Be sure to identify the appropriate docket number (i.e., “OPP-30115B”) in your correspondence.

1. By mail . Submit written comments 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., Washington, DC 20460.

2. In person or by courier . Deliver written comments to: Public Information and Records Integrity Branch, Information Resources and Services Division (7502C), Office of Pesticide Programs, Environmental Protection Agency, Rm. 119, Crystal Mall #2, 1921 Jefferson Davis Highway, Arlington, VA.

3. Electronically . Submit your comments and/or data electronically by e-mail to: opp-docket@epamail.epa.gov. Do not submit any information electronically that you consider to be CBI. Submit electronic comments as an ASCII file, avoiding the use of special characters and any form of encryption. Comment and data will also be accepted on standard computer disks in WordPerfect or ASCII file format. All comments and data in electronic form must be identified by the docket control number [OPP-30115B]. Electronic comments on this notice may also be filed online at many Federal Depository Libraries.

You may claim information that you submit in response to this document as CBI 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 comment that does not contain CBI must be submitted for inclusion in the public record. Information not marked confidential will be included in the public docket by EPA without prior notice. If you have any questions about CBI or the procedures for claiming CBI, please consult the person identified in the “FOR FURTHER INFORMATION CONTACT” section.

We invite you to provide your views on the information presented, new approaches to be considered, the potential impacts of the information (including possible unintended consequences), and any data or information that you would like the Agency to consider during the development of the final action. You may find the following suggestions helpful for preparing your comments:

• Explain your views as clearly as possible.

• Describe any assumptions that you used.

• Provide solid technical information and/or data to support your views.

• If you estimate potential burden or costs, explain how you arrived at the estimate.

• Tell us what you support, as well as what you disagree with.

• Provide specific examples to illustrate your concerns.

• Offer alternative ways to improve the rule or collection activity.

• Make sure to submit your comments by the deadline in this notice.

• At the beginning of your comments (e.g., as part of the “Subject” heading), be sure to properly identify the document you are commenting on. You can do this by providing the docket number assigned to the notice, along with the name, date, and Federal Register citation.

Pesticide products contain both “active” and “inert” ingredients. These two terms are defined in Federal law as part of the Federal Insecticide, Fungicide, and Rodenticide Act (FIFRA). An inert ingredient is defined as any ingredient in a pesticide product that is not intended to affect the target pest. Because of the potential to mislead the public into assuming that all inert ingredients are non-toxic or harmless, EPA has asked formulators to use the term “other ingredients” instead of “inert ingredient” on their label ingredient statements. As a result both terms are now used to identify ingredients used in pesticide products in addition to active ingredients. To avoid any regulatory confusion, however, throughout this document and all subsequent documents relating to tolerance processing fees, EPA will to use the term “inert ingredients” to describe these non-active chemicals.

Legislative changes included in the Food Quality Protection Act of 1996 (FQPA) put a greater emphasis on inert ingredients and clarified that these chemicals are covered by the definition of a pesticide chemical under the Food, Drug, and Cosmetic Act. Subsequently, on June 9, 1999 EPA issued a proposed rule to revise its existing tolerance fee regulations to account for new provisions affecting tolerance reviews for all pesticide chemicals, including inerts. At the same time, the Agency updated the fee amounts to reflect the increase in processing costs since the last time tolerance fees were amended 15 years ago. In its proposed rule, EPA outlined a regulatory scheme to make, to the extent possible, the tolerance processing system self-supporting as directed by statute. While the Agency historically has not charged a fee for tolerance actions for inert ingredients, the increased costs of reviews coupled with the statutory mandate to fully cover the cost of processing tolerances via fees has resulted in EPA proposing tolerance fees for them.

In response to its proposed rule, EPA received 27 comments from industry stakeholders—24 of them were from the inerts industry. These commentors expressed their view that the tolerance fee rule, as proposed, would result in severe consequences to both their industry and the pesticide industry as a whole. Many commentors pointed out that inert ingredients are low profit products and that companies that manufacture these products derived limited profits from their sales in pesticide formulations. A number of comments also were received on the mechanism for collecting fees for the reassessment of inert ingredient tolerances or exemptions. Commentors expressed concern that unlike registrants of active ingredients, the identities of the parties that may be subject to an inert tolerance reassessment fee are not public information. Not knowing who else holds responsibility for the required fee would impede attempts to enter into arrangements to share in the costs of fees. In response to these concerns, EPA has revisited this issue and has refined its analysis and proposed process. The approach outlined in this document is an effort to ease the regulatory and economic impact to this sector of the pesticide industry. The Agency is seeking comment on whether these measures are appropriate.

Since the close of the comment period for the proposed rule, EPA has carefully considered the concerns raised. First, the Agency has revised its resource estimates for inert tolerance actions which has resulted in lower fees. Second, EPA divided the inerts tolerance exemption category into those chemicals that require a full review from those that need only a minimal scientific review. The resulting fees for inerts tolerance actions are substantially reduced and more accurately reflect actual costs than the fees that were initially proposed. Third, for inert tolerances requiring reassessment, EPA is clarifying the notification process. The Agency could put into place a comprehensive process aimed at expanding cost sharing opportunities and reducing the economic impact.

Finally, EPA is introducing changes designed to address a company's size and ability to pay. For example, the Agency is revising its definition of a small business for the purpose of determining eligibility of fee waivers. A business will be considered small, and therefore eligible for a fee waiver, if it has 500 or fewer employees and an average annual gross revenue from global pesticide sales of less than $60 million over the most recent 3 year-period. Further, for a business entity with one or more affiliates, the gross revenue limit shall apply to the total global pesticide sales for the entity and all of its affiliates, including the parent and subsidiaries. EPA also intends to decrease the proposed fee for requesting a fee waiver because the majority of companies that qualify for a fee waiver are likely to be companies that can least afford the waiver request fee. These two allowances to small businesses should reduce the number of unsupported tolerances and exemptions, and minimize the loss of chemicals available to pesticide formulators and growers.

The Agency is seeking comment on reestimates of the cost incurred in processing several types of tolerance actions of inert ingredients, as well as an overall approach to the collection of tolerance fees for them.

1. Fee estimates. In its recalculations, EPA brought its 1997 cost estimates up to date with the latest data and labor rate figures. The 1999 rate of $89,000 per Full-time Equivalent (FTE) was incorporated into the calculations, and the adjustment factor, which accounts for the activities EPA has proposed to waive, has also changed slightly from 1.48 to 1.24 for petitioned actions and from 1.23 to 1.29 for reassessment actions. Total annual costs for the Agency to process all inert tolerance actions are now estimated to be $11,393,254 based on actual data from fiscal years 1997, 1998, and 1999.

The inerts tolerance fee category also was further subdivided to create a more accurate fee structure. The tolerance exemption actions requiring a minimal science review would be those petitions that are not accompanied by supporting health and safety studies, such as petitions for the establishment of tolerance exemptions for polymers that are based on conformance with the Office of Pollution Prevention and Toxics' polymer exemption rule criteria.

The proposed fees for inert ingredients are as follows. The complete revised cost estimates and fee derivations are contained in Unit V of this document.

2. Sharing the costs of reassessment. Because many of EPA's records on inerts are old and a number of chemicals were “grandfathered” in when EPA first became responsible for regulating pesticides, a procedure for identifying the original petitioner for the purposes of levying tolerance reassessment fees is not possible. Presently, there are no mechanisms in place to identify all responsible parties on a company-by-company, tolerance-by-tolerance basis. Additionally, it may be extremely difficult to ascertain all of the parties that may utilize the inert tolerance and therefore would be expected to pay (or share in the cost of paying) the fee since these parties may not be exclusively registrants.

To address this problem, EPA could issue a public notice in the Federal Register for any person or company who may have an economic interest in the maintenance of the inert tolerance or tolerance exemption. The notice would be published 6 months in advance of initiating the reassessments of the inert tolerances or exemptions and will consist of a list of those inert chemicals that are scheduled for tolerance reassessment in the subsequent 6 month period. At the same time, a separate letter would be sent to all registrants that have one or more of the scheduled inert ingredients in their products, and all known inert producers who are not registrants. The notice and letters would announce the pending tolerance reassessments and issue a call for the required fee to support each inert ingredient. In these letters, EPA will suggest that it may be incumbent upon each registrant to contact and coordinate with their supplier(s), even if the identity of their inert ingredients are not known to them. If a company wishes to protect the identity of its inert product, it may opt to designate a third party to act on its behalf for the purposes of arranging payment. The Agency also believes that the industry trade associations could assist in this effort to the extent allowed by law.

EPA recognizes that not all current manufacturers of inerts may wish to support the reassessment of the tolerance or tolerance exemption. Based on the notification process outlined above, EPA anticipates that those with an economic stake in the tolerance will pay all or a portion of the appropriate fee. As more companies participate in the cost sharing, the less the fee will be to each individual company. If the revenues received exceed the required amount, EPA will refund an equitable amount to all parties who paid in proportion to the percentage of the total fee and the amount each company submitted. If receipts do not cover the required fee, EPA will contact those parties who have paid to request additional monies. EPA strongly believes that it is clearly within a company's best interest to cost share.

3. Transition . Petitioned inerts tolerance actions that are on EPA's published Work Plan for year 2000 and for suceeding years would be subject to new tolerance fees. Tolerance actions for inert chemicals that are currently pending review and not scheduled on the published Work Plan at the time of promulgation of the rule would be subject to the new fees, but not until the Agency has actively scheduled them for review. EPA would not issue notices for fees for all pending inerts tolerance actions at the same time. Instead, it would notify each petitioner in advance of the pending review of the upcoming review and request remittance of the required fee. EPA's Work Plan can be found on the Internet at http://www.epa.gov/opprd001/workplan.

For inerts tolerance reassessment actions, the transition provision presented in the proposal still applies. That is, a chemical will not be considered officially reassessed until the appropriate tolerance fee is paid. Thus, those inert chemical tolerances or exemptions that are reassessed prior to promulgation of the final rule will be subject to the new fee. However, since the majority of existing inert chemicals are not scheduled for tolerance reassessment until 2003 or later, they are virtually unaffected.

4. Allowances for small companies. Many parties that commented on the proposed rule felt that small businesses should receive some form of concession based on their ability to pay. Commentors were not in agreement, however, as to the appropriate definition of a small business. Currently, FIFRA defines a small business as one with fewer than 150 employees and 3-year average annual sales of less than $40 million. This definition, however, may no longer reflect the pesticide industry. Therefore, EPA could consider a business small for the purposes of imposing a tolerance fee, if it has 500 or fewer employees and an average gross revenue from global pesticide sales of less than $60 million over the most recent 3-year period. For a business entity with one or more affiliates, the gross revenue limit shall apply to the total global pesticide sales for the entity and all of its affiliates including the parent and subsidiaries. While this definition encompasses an increased number of companies, each company would still need to apply for a fee waiver. The Agency will issue a Pesticide Registration (PR) notice in the near future that will outline how a company may apply for a fee waiver, what types of information should be submitted, and other criteria for the Agency to make a determination. The PR notice will be available for public comment before being implemented.

While some companies commented that a fee to request a waiver is useful in deterring frivolous requests and tying up Agency resources, many commentors cited the increased waiver fee amount itself as serving as a deterrent to deserving companies from requesting a waiver for fear that they would lose this money if the request was not granted. EPA agrees and intends to retain the existing fee waiver request fee of $1,700 per request and will refund it if the waiver is granted. In addition, if the fee waiver request is denied, EPA will credit this amount toward the appropriate tolerance fee.

1. Resource estimates for each division (Columns A, B, C, D and M, N, O, P) . Included in any application for a pesticide registration for a pesticide to be used in or on a food item, a petition to establish or exempt from the requirement of a tolerance must also be submitted. Programmatic estimates were derived from resource needs to process only tolerance petitions and not other aspects of the registration application. The Registration Division (RD), Health Effects Division (HED), Environmental Fate and Effects Division (EFED), and Special Review and Reregistration Division (SRRD) provided individual estimates for the resources necessary to process each type of inert tolerance petitioned actions. These estimates are based on current Agency policy for regulating inert ingredients as outlined in its Policy Statement of April, 1997. It is important to note that the estimates do not reflect costs to the Agency with respect to the possible revisions of the data requirements for these other pesticide ingredients.

Estimates were given in Full-Time Equivalents (FTEs) per Unit. One FTE, which is defined as the number of hours a full time employee works in 1 year, is equal to 2080 hours. Each division within the program provided a best-estimate of burden hours based on its own method of accounting. A “Unit” was defined in the proposed rule as a petition in the case of a new tolerance actions and a chemical for tolerances that need to be reassessed. For a vast majority of cases involving inert tolerances (new or existing), the number of tolerances per petition or tolerances per chemical is one. Hence in the tables presented in this document, one unit equals one tolerance.

The Biopesticides and Pollution Prevention Division provided resource estimates for the small number of biological inert ingredients. Total costs were estimated in a like manner to conventional inert chemicals. The cost to process a tolerance exemption for a biological other ingredient is estimated at $45,746 per year. Since the Agency has chosen to waive all tolerance costs associated with biopesticides, this cost is not included in the table, yet is incorporated in the derivation of the adjustment factor (column K).

Other divisions not listed are not directly involved in processing or evaluating tolerance petitions, but may have a supporting role in which the associated costs are contained in the ­Agency's overhead rate (column G and S).

2. Programmatic resource estimates (Columns E and Q) . Columns E and Q contain the total resource estimates for the Office of Pesticide Programs. By summing the resource needs for each division within the program (columns A, B, C, D, and M, N, O, P, respectively), the total resources estimated in FTEs per tolerance action are calculated.

3. Annual salary for a full-time equivalent (Columns F and R) . Columns F and R contain figures for the average annual salary (including benefits) of an Agency employee during fiscal year 1999. The $89,000 includes the two cost of living increases in the government GS pay scale that occurred since the proposed rule. In 1997 the average annual Agency salary and the figure used in the fee calculations was $78,000 per FTE.

4. Overhead rate (Columns G and S) . Overhead rates for both new tolerance processing activities and existing tolerance reassessments (columns G and S, respectively) were calculated as a percentage of overall Agency activities that directly and indirectly support EPA's mandate to set and maintain pesticide residue tolerances on food. The overhead rate used in this document is the same as was used in the proposed rule. The methodology used to derive each rate is explained in section 2.1.1 of the Economic Analysis to the Proposed Rule. Further explanation was also provided during the comment period of the proposal as part of supplementary materials. Both of these documents are in the official docket for this rulemaking (OPP-30115).

5. Total cost per tolerance (Columns H and T) . The figures provided in columns H and T reflect the Agency's estimation of how much it costs to process a single new or old tolerance. The total cost per tolerance is derived by summing the direct FTE costs with indirect FTE costs and converting this into dollars. This is illustrated by the following equations:

6. Number of tolerances per year and the total annual cost (Columns I, J and U, V) . Columns I and J, and U and V, are included in the tables for illustrative purposes only and do not enter into the final fee calculations. However, the total annual costs of processing tolerances for all chemicals is used to calculate the overall adjustment factors which appears in columns K and W of the tables in this document.

7. Recovering costs of waived actions (Columns K and W) . Columns K and W contain the adjustment factor which is applied to the total cost per tolerance action to recover the costs of tolerance actions for which the Agency chose to waive the fee. It is not specific to other ingredients (inerts). It is derived from the estimated cost for tolerances for all pesticide chemicals. For all petitioned tolerance actions, waived actions total $2,450,224. Out of a total annual costs of $13,641,457, $892,047 is theoretically paid through registration fees leaving a balance of $12,749,410 to be collected via new tolerance fees. The adjustment factor, or amount which fees must be raised to recover these costs is 1.24. For tolerance reassessment actions, waived actions total $6,291,789, and total costs to be collected via tolerances fees is $27,751,995. Hence the adjustment factor for tolerance reassessment fees is 1.29. The following equations are applicable to both new and reassessed tolerance actions:

8. Derivation of tolerance fee (Columns L and X) . The calculated tolerance fee is derived by multiplying the total cost per tolerance by the adjustment factor, i.e., (H * K) and (T * W). The actual fee that will be imposed per tolerance type is the calculated fee rounded off to the nearest hundred dollars.

9. The complete revised cost estimates and fee derivations are shown in the following tables 1 and 2.

Yes. This action discusses and requests comments on additional data and/or information related to a proposed rule that was previously published in the Federal Register on June 9, 1999 (64 FR 31039) (FRL-6028-2). For information about the applicability of the regulatory assessment requirements to the proposed rule and this supplemental proposal, please refer to the discussion in Unit VII of that document.

This rule proposes amendments to the profit policy in DFARS Subpart 215.4. The existing structure of DoD profit policy was established as a result of the report published in 1985 on the Defense Financial and Investment Review (DFAIR). Since 1985, the defense industry has downsized and consolidated due to substantial reductions in the defense budget. While a key DFAIR objective was to encourage defense contractors to invest in productivity-enhancing facilities, the defense industry now has excess capacity and under-utilized facilities. In this environment, rewarding contractors for investing is counter-productive and acts as a disincentive to the further rationalization of the defense industry.

The primary purpose of this rule is to reduce and, over time, eliminate facilities invesment as a factor in establishing profit objectives on sole-source, negotiated contracts. The changes in the rule include—

• Adding general and administrative expense to the cost base used to establish profit objectives.

• Reducing the values assigned to facilties capital investment by 50 percent.

• Offsetting these changes by increasing the values for performance risk by 1 percentage point and decreasing the values for contract type risk by 0.5 percentage point.

• Adding a special factor for cost efficiency to encourage cost reduction efforts.

Two years after the date this rule becomes effective, DoD will eliminate buildings as a factor used to establish profit objectves and will reduce the value of equipment by 50 percnet. This will be offset by an increase to performance risk values of 1 percentage point.

Four years after the date this rule becomes effective, DoD will eliminate facilities capital employed as a factor used to establish profit objectives and will offset this elimination with another 1 percentage point increase to performance risk values.

Excluding the addition of the special cost efficiency factor, these changes have been developed with the objective of reorienting profit incentives from facilities investment to contract performance risk factors without causing a significant impact to overall profit levels on DoD contracts. However, contracting officers will be able to use the special cost efficiency factor to reward companies that undertake meaningful efforts to reduce contract costs with additional profit not available under the current profit guidelines.

In addition to these changes, the rule proposes a number of other clarifying and editorial amendments and includes changes proposed under DFARS Case 2000-D300, Profit Incentives to Produce Innovative New Technologies, published at 65 FR 32066 on May 22, 2000.

This rule was not subject to Office of Management and Budget review under Executive order 12866, dated September 30, 1993.

The proposed rule is not expected to have a significant economic impact on a substantial number of small entities within the meaning of the Regulatory Flexibility Act, 5 U.S.C. 601, et seq. , because most contracts awarded to small entities are below $500,000, are based on adequate price competition, or are for commercial items, and do not require submission of cost or pricing data. Therefore, an initial regulatory flexibility analysis has not been performed. Comments are invited from small businesses and other interested parties. Comments from small entities concerning the affected DFARS subpart also will be considered in accordance with 5 U.S.C. 610. Such comments should be submitted separately and should cite DFARS Case 2000-D018.

The Paperwork Reduction Act does not apply because the rule does not impose any information colelction requirements that require the approval of the Office of Management and Budget under 44 U.S.C. 3501, et seq.

Therefore, DoD proposes to amend 48 CFR Part 215 as follows:

1. The authority citation for 48 CFR Part 215 continues to read as follows:

NMFS manages fishing for groundfish by U.S. vessels in the exclusive economic zone of the Bering Sea and Aleutian Islands management area (BSAI) according to the FMP. The North Pacific Fishery Management Council (Council) prepared the FMP under authority of the Magnuson-Stevens Fishery Conservation and Management Act (Magnuson-Stevens Act). Regulations governing fishing by U.S. vessels and implementing the FMP appear at 50 CFR parts 600 and 679.

Through the CDQ program, NMFS allocates a portion of the BSAI groundfish, prohibited species, halibut, and crab total allowable catch (TAC) to 65 eligible Western Alaska communities. These communities must use the proceeds from the CDQ allocations to start or support commercial fishery activities that will result in ongoing, regionally based, commercial fishery or related businesses. The CDQ program began in 1992 with the allocation of 7.5 percent of the BSAI pollock TAC. The fixed gear halibut and sablefish CDQ allocations began in 1995, as part of the halibut and sablefish Individual Fishing Quota Program. In 1998, allocations of 7.5 percent of the remaining groundfish TACs, 7.5 percent of the prohibited species catch limits, and 7.5 percent of the crab guidelines harvest levels were added to the CDQ program. In 1999, the amount of pollock allocated to the CDQ program was increased to 10 percent of the BSAI pollock TAC as a result of the American Fisheries Act.

On June 4, 1998, NMFS published a final rule imposing catch monitoring and observer coverage requirements for all vessels and processors participating in the multispecies CDQ fisheries (63 FR 30381). On April 26, 1999, NMFS extended these requirements to vessels equal to or greater than 60 ft (18.3 m) length overall (LOA) that participate in the halibut CDQ fishery. These regulations were issued because, in the CDQ fisheries, all groundfish and prohibited species catch by vessels fishing for CDQ groups accrue against the individual allocations for each CDQ group (64 FR 20210). Because individual vessels, processors, and CDQ groups are accountable for the catch of groundfish and prohibited species, the catch monitoring standards must be more stringent than in many other fisheries. These final rules also impose experience and training requirements for observers that, in most cases, exceed the requirements in the non-CDQ fisheries.

Following completion of the first year of fishing under these regulations, NMFS reviewed the observer coverage and experience requirements and has determined that observers without gear-specific experience were able to perform their duties as well as observers with gear-specific experience on catcher vessels choosing to retain all catch and in shoreplants. Further, NMFS has determined that the data collected by the shoreplant observer were not necessary for effective program management when a CDQ observer from the vessel making a delivery was available to collect shoreside data. Thus, the observer coverage requirements can be reduced without affecting the ability of NMFS to collect the data necessary to monitor and manage the CDQ fishery.

The current CDQ catch monitoring and observer coverage requirements were imposed to provide accurate and verifiable catch estimates for all CDQ and prohibited species quota (PSQ) species. This led NMFS to issue catch accounting regulations that rely primarily on NMFS-certified CDQ observers to collect data necessary to estimate the catch of all CDQ and PSQ species, or to ensure that all catch was being retained and accounted for at a shoreside processor.

Table 1 summarizes the current observer coverage requirements for the CDQ fisheries. Table 2 summarizes the experience requirements necessary for a CDQ observer and a lead CDQ observer.

The current regulations require lead CDQ observers on all vessels and shoreside processing plants for which observer coverage is required because NMFS believed that the CDQ observers needed prior experience specific to the vessel or processor type in order to collect the data needed to manage the CDQ fisheries. However, after reviewing the first year of the multispecies CDQ fisheries, NMFS has concluded that a lead CDQ observer is not necessary on some catcher vessels while CDQ fishing or in shoreside processing plants taking CDQ deliveries.

NMFS proposes the following reductions in observer coverage and experience requirements:

1. Eliminate the requirement for a lead CDQ observer on all catcher vessels greater than or equal to 60 ft (18.3 m) LOA using trawl gear. A CDQ observer would still be required. This reduction is justified because the vessel must retain all groundfish CDQ and salmon PSQ and deliver it to a shoreside processor, where it is sorted by species, weighed, and reported to NMFS. The lead CDQ observer on the vessel estimates the at-sea discards of halibut PSQ and crab PSQ and monitors compliance with retention requirements. NMFS believes that these duties can be performed adequately by a CDQ observer who has prior experience as an observer, but not necessarily vessel-specific experience.

2. Eliminate the requirement for a lead CDQ observer on a catcher vessel greater than or equal to 60 ft (18.3 m) LOA using nontrawl gear that chooses to retain all groundfish CDQ species (option 1 defined at 50 CFR 679.32(c)(2)(ii)(A)). A CDQ observer would still be required. Under current regulations, catcher vessels greater than or equal to 60 ft (18.3 m) LOA using nontrawl gear must select one of two options as the basis for CDQ catch accounting. Option 1 requires the vessel operator to retain all groundfish CDQ and salmon PSQ and deliver them to a processor to be sorted by species, weighed, and reported to NMFS. Under this option, CDQ catch accounting is based on the processor's reports for groundfish CDQ and salmon PSQ and on the observer data for halibut PSQ. NMFS believes the gear-specific experience of a lead CDQ observer is unnecessary for vessels choosing catch accounting option 1. NMFS would continue to require a lead CDQ observer on catcher vessels using nontrawl gear that select option 2, which is to use observer data as the basis for all CDQ catch accounting. Option 2, which is set forth at 50 CFR 679.32(c)(2)(ii)(B), allows the vessel operator to discard groundfish CDQ species at sea and to use data collected by the observer to estimate the catch of all groundfish CDQ species and halibut PSQ.

3. Eliminate the requirement that a shoreside processing plant provide a CDQ observer to monitor deliveries from catcher vessels that use nontrawl gear and select option 2. Under option 2, only data collected by the observer on the catcher vessel is used for CDQ catch accounting. Therefore, neither a lead CDQ observer nor a CDQ observer would be necessary at the plant. To date, no catcher vessel has selected option 2 for CDQ catch accounting, so this reduction would not have affected any shoreside processors that participated in the 1999 CDQ fisheries.

4. Eliminate the requirement that shoreside processors required to provide CDQ observers provide a lead CDQ observer when taking CDQ deliveries. A CDQ observer would still be required. NMFS has determined that experience in a shoreside plant would not be necessary for the observer to adequately monitor the sorting and weighing of CDQ deliveries.

5. Reduce the observer coverage requirements for shoreside processors taking CDQ deliveries from catcher vessels equal to or greater than 60 ft (18.3 m) LOA using nontrawl gear and using option 1 (full retention) for CDQ catch accounting to allow the vessel observer to monitor the CDQ delivery in the processing plant. A separate CDQ observer for the shoreside processor is not necessary if the vessel observer can monitor the sorting and weighing of catch at the shoreside processor without exceeding the regulatory working hour limits. Under this revision, the shoreside processor could still choose to provide an additional observer at the processing plant if the shoreside processor did not want its activities to be limited by the working hour limits for the vessel observer.

This proposed rule would also make a minor revision to the introductory paragraph of 50 CFR 679.50(c)(4). The current paragraph requires the owner or operator of a vessel engaged in CDQ fishing to comply with CDQ observer coverage requirements for each day the vessel is used to harvest, transport, process, deliver, or take deliveries of CDQ or PSQ species. NMFS proposes to remove the requirement that CDQ observers be onboard catcher/processors or motherships when they are being used only to transport CDQ catch. The regulations would continue to require an observer on a catcher vessel while CDQ species are being transported. In some cases, catcher/processors continue to process CDQ catch onboard long after catching and processing of the CDQ catch has been completed. There is no need for a CDQ observer to be onboard solely to monitor the transport of processed product.

The Chief Counsel for Regulation of the Department of Commerce certified to the Chief Counsel for Advocacy of the Small Business Administration that this proposed rule, if adopted, would not have a significant impact on a substantial number of small entities as follows:

Because of the absence of negative impacts, and because positive impacts are not deemed to have a “significant” impact on small entities, an Interim Regulatory Flexibility Analysis was not prepared.

A copy of the RIR can be obtained from NMFS (see ADDRESSES ).

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

The President has directed Federal agencies to use plain language in their communications with the public, including regulations. To comply with that directive, we seek public comment on any ambiguity or unnecessary complexity arising from the language used in this proposed rule.

For the reasons set forth in the preamble, 50 CFR part 679 is proposed to be amended as follows: