This final rule is issued under Marketing Agreement No. 84 and Marketing Order No. 905, both as amended (7 CFR Part 905), regulating the handling of oranges, grapefruit, tangerines, and tangelos grown in Florida, hereinafter referred to as the “order.” The marketing agreement and order are effective under the Agricultural Marketing Agreement Act of 1937, as amended (7 U.S.C. 601-674), hereinafter referred to as the “Act.”

This final rule is also issued under section 8e of the Act, which provides that whenever certain specified commodities, including grapefruit, are regulated under a Federal marketing order, imports of these commodities into the United States are prohibited unless they meet the same or comparable grade, size, quality, or maturity requirements as those in effect for the domestically produced commodities.

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

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

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

There are no administrative procedures which must be exhausted prior to any judicial challenge to the provisions of import regulations issued under section 8e of the Act.

The order for Florida citrus provides for the establishment of minimum grade and size requirements with the concurrence of the Secretary. The minimum grade and size requirements are designed to provide fresh markets with fruit of acceptable quality and size, thereby maintaining consumer confidence for fresh Florida citrus. Maintaining confidence in the commodity shipped contributes to stable marketing conditions in the interest of growers, handlers, and consumers, and helps increase returns to Florida citrus growers.

Section 905.52 of the order, in part, authorizes the Committee to recommend minimum grade and size requirements to the Secretary. Section 905.306 specifies minimum grade and size requirements for different varieties of fresh Florida citrus. Such regulations may be modified, suspended, or terminated under § 905.52. Section 905.53 specifies that whenever the handling of a variety of a type of fruit is regulated pursuant to § 905.52, each handler who handles any such type of fruit shall, prior to such handling of any lot of such variety, cause the lot to be inspected by the Federal-State Inspection Service and certified as meeting all applicable requirements of that regulation.

This final rule clarifies inspection requirements for oranges, grapefruit, tangerines, and tangelos grown in Florida and imported grapefruit. Current inspection procedures allow undersize tolerances for domestic shipments of Florida citrus failing to meet minimum size regulations under the order. These procedures also allow undersize tolerances for imported grapefruit failing to meet minimum size requirements established under the grapefruit import regulation. Specifically, these procedures allow for a 10 percent tolerance for undersize fruit in each lot and a 15 percent tolerance for undersize fruit in any individual sample. Undersize tolerances allow for variations to proper sizing and reduce handler-packing costs. This rule specifies these inspection procedures in the order's rules and regulations and in the grapefruit import regulation. The Committee unanimously recommended specifying the undersize tolerances for Florida citrus in the regulations at a meeting on April 6, 1999.

Paragraph (c) of § 905.306 currently references sections of the United States Standards for Grades of Oranges, Grapefruit, Tangerines, and Tangelos Grown in Florida with the intention of providing tolerances for undersized fruit. However, the sections specified reference grade defects, not size tolerances. Therefore, specific undersize tolerances for Florida grown oranges, grapefruit, tangerines, and tangelos are added to the text of the regulations.

Paragraph (c) of § 905.306 is revised to allow for a 10 percent tolerance for undersized fruit in each lot and a 15 percent tolerance for undersized fruit in any individual sample. Additionally, paragraph (c) of § 944.106 of the grapefruit import regulation is also revised to reference the undersize tolerances specified in paragraph (c) of § 905.306 to recognize current inspection procedures.

This rule also renumbers citations in the order to reflect the revised United States Standards for Grades of Oranges, Grapefruit, Tangerines, and Tangelos Grown in Florida. Effective August 1, 1996, the various grade standards for Florida citrus were amended. Some sections of the amended standards were renumbered. This action renumbers some section references to the U.S. grade standards in §§ 905.146 and 905.306 to bring them into conformity with the renumbered sections in the amended standards.

Similar changes are also made in paragraph (c) of § 944.106 of the grapefruit import regulation issued under section 8e of the Act. That section provides that when certain domestically produced commodities, including grapefruit, are regulated under a Federal marketing order, imports of that commodity must meet the same or comparable grade, size, quality, and maturity requirements. The grapefruit import regulation is based on the requirements issued under the marketing order for Florida citrus. Accordingly, a corresponding change to the grapefruit import regulation is made.

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

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

There are approximately 100 Florida citrus handlers subject to regulation under the marketing order, about 11,000 Florida citrus producers in the regulated area, and about 25 grapefruit importers. Small agricultural service firms, which include handlers and importers, have been defined by the Small Business Administration (13 CFR 121.201) as those whose annual receipts are less than $5,000,000, and small agricultural producers are defined as those whose annual receipts are less than $500,000.

Based on the Florida Agricultural Statistics Service and Committee data for the 1999-2000 season, the average annual f.o.b. price for fresh Florida citrus during the 1999-2000 season was $9.08 per 4/5 bushel carton for all shipments, and the total shipments for the 1999-2000 season approximated 58 million cartons of citrus. Using information provided by the Committee, about 60 percent of citrus handlers could be considered small businesses under the SBA definition, and the Department believes that the majority of Florida citrus producers and grapefruit importers may be classified as small entities.

Section 905.52 of the order, in part, authorizes the Committee to recommend minimum grade and size requirements to the Secretary. Section 905.306 specifies minimum grade and size requirements for different varieties of fresh Florida citrus. Section 905.53 specifies that whenever the handling of a variety of a type of fruit is regulated pursuant to § 905.52, each handler who handles any such type of fruit shall, prior to such handling of any lot of such variety, cause the lot to be inspected by the Federal-State Inspection Service and certified as meeting all applicable requirements of that regulation.

This rule clarifies inspection requirements for oranges, grapefruit, tangerines, and tangelos grown in Florida and imported grapefruit. Current inspection procedures allow for a 10 percent tolerance for undersize fruit in each lot and a 15 percent tolerance for undersize fruit in any individual sample for both domestic and import shipments. This action adds undersize tolerances to the order's rules and regulations and the import regulation for grapefruit. This rule also renumbers citations in the order to reflect revisions in the United States Standards for Grades of Oranges, Grapefruit, Tangerines, and Tangelos Grown in Florida made in August 1996. Similar changes are also made to the grapefruit import regulation issued under section 8e of the Act.

This rule will have a positive impact on affected entities. This action enhances the understandability of the text of the regulations. The undersize tolerances allow for variations to proper sizing and reduce handler-packing costs. Without such tolerances, more fruit would fail to meet minimum size requirements without reconditioning, and handler-packing costs would increase accordingly. Thus, the tolerances help facilitate shipments of Florida citrus. The Committee unanimously recommended specifying the undersize tolerances for Florida citrus in the regulations at a meeting on April 6, 1999.

During the period January 1, 1999, through December 31, 1999, imports of grapefruit totaled 19,400,000 pounds (approximately 456,470 cartons). Recent yearly data indicate that imports from May through November are typically negligible. Future imports should not vary significantly from the 19,400,000 pounds. The Bahamas were the principal source of imported grapefruit, accounting for 93 percent of the total. Israel, Mexico, and Turkey supplied remaining imports. Most imported grapefruit enters the United States from November through May.

With regard to alternatives, this action offers the best alternative to achieve the intended purpose of clarifying the inspection requirements.

This rule will not impose any additional reporting or recordkeeping requirements on either small or large Florida citrus handlers and importers. As with all Federal marketing order programs, reports and forms are periodically reviewed to reduce information requirements and duplication by industry and public sectors.

As noted in the initial regulatory flexibility analysis, the Department has not identified any relevant Federal rules that duplicate, overlap or conflict with this final rule. However, Florida citrus must meet the requirements specified in the U.S. standards for the various types of citrus grown in Florida issued under the Agricultural Marketing Act of 1946 (7 U.S.C. 1621 through 1627).

In addition, the Committee's meeting was widely publicized throughout the Florida citrus industry and all interested persons were invited to attend the meeting and participate in Committee deliberations. Like all Committee meetings, the April 6, 1999, meeting was a public meeting and all entities, both large and small, were able to express their views on this issue.

A proposed rule concerning this action was published in the Federal Register on October 10, 2000 (65 FR 60121). Copies of the rule were mailed or sent via facsimile to all Committee members and citrus handlers. Finally, the rule was made available through the Internet by the Office of the Federal Register. A 60-day comment period ending December 11, 2000, was provided to allow interested persons to respond to the proposed rule. No comments were received. Accordingly, no changes will be made to the rule as proposed.

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

In accordance with section 8e of the Act, the United States Trade Representative has concurred with the issuance of this final rule.

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

It is further found that good cause exists for not postponing the effective date of this rule until 30 days after publication in the Federal Register (5 U.S.C. 553) because handlers are already shipping citrus from the 2000-2001 crop. Further, handlers are aware of this rule, which was recommended at a public meeting. Also, a 60-day comment period was provided for in the proposed rule and no comments were received.

This rule is issued under Marketing Agreement and Order No. 930, both as amended (7 CFR part 930), regulating the handling of tart cherries grown in the States of Michigan, New York, Pennsylvania, Oregon, Utah, Washington, and Wisconsin, hereinafter referred to as the “order.” The marketing agreement and order are effective under the Agricultural Marketing Agreement Act of 1937, as amended (7 U.S.C. 601-674), hereinafter referred to as the “Act.”

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

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

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

The order authorizes the use of volume regulation. In years when volume regulation is implemented to stabilize supplies, a certain percentage of the cherry crop is required to be set aside as restricted tonnage, and the balance may be marketed freely as free tonnage. The restricted tonnage is required to be maintained in handler-owned inventory reserve pools. Handlers in volume regulated States may fulfill their restricted tonnage requirements with diversion credits earned by diverting cherries or cherry products. Handlers are permitted to divert (at plant or with grower-diversion certificates from growers choosing not to deliver their crop) as much of their restricted percentage (reserve pool) requirements as they deem appropriate. Handlers also may divert cherries by using cherries or cherry products for exempt purposes, including the development of export markets. Presently, these markets do not include Canada and Mexico.

Section 930.62 of the order (Exemptions) provides that cherries which are diverted in accordance with § 930.59, which are used for new product and new market development, which are used for experimental purposes, or which are used for any other purposes designated by the Board, including cherries processed into products for markets for which less than 5 percent of the preceding 5-year average production of cherries was utilized, may be exempted from the assessment, quality control, volume regulation, and reserve provisions of the order.

Handlers can receive exemptions and diversion credits to offset their restricted percentage obligation during years of volume regulation. One of the exempt uses is the export of cherries to markets other than Canada and Mexico. Cherries used for exempt uses, including export, are exempt from assessments, and handlers pay growers less for such cherries than cherries for normal commercial outlets. This lowers handlers' costs and allows them to price export cherries competitively.

The Board held a teleconference meeting on June 1, 2000, and recommended that the word “normal” be suspended from § 930.54(a) of the order. Currently, that section of the order provides that if the Board determines that the total available supplies for use in normal commercial outlets do not at least equal the amount needed to meet the demand in such outlets, the Board shall recommend to the Secretary that all or a portion of the reserve be released for such uses. Normal commercial outlets, as that term is used in the order, means the primary market which is mainly the domestic market for tart cherries. Therefore, under § 930.54(a), reserve release could not be used to fulfill exempt needs.

During the 1999-2000 crop year when no volume regulation was established, the Board found that the export market was not adequately supplied due to short supplies of tart cherries, but could not make reserve cherries from the previous season available to meet export needs because export markets were not considered normal commercial outlets. Because of this limitation, the industry was not able to maintain a presence in many export markets, or further develop others. Export sales are a function of many different factors, including the size of the crop in Europe, the size of the U.S. crop, and the strength of the U.S. dollar.

Exports need to be sustained each year, whether or not volume control is implemented. It is important for buyers of tart cherries to know that product will be available from year to year from sources in the United States. The Board believes that failure to properly supply these markets will result in lost market share. In years with no volume regulation, growers and handlers have little economic incentive to move tart cherries or tart cherry products to the lower return markets, like export. In such years, growers seek to maximize profits by selling in the higher return “free” domestic market. Consequently, market opportunities are lost in the short term and quite possibly the long term. Development of export markets is important to the long term viability of the tart cherry industry.

This rule suspends indefinitely a portion of § 930.54 of the order to allow the release of reserve cherries for exempt uses such as exports. This will encourage handlers to purchase additional cherries from growers at lower prices in years of volume regulation for placement in the reserve during harvest for future export use, rather than having the grower divert them in the orchard. Thus, additional lower-priced cherries would be available in a year of no regulation to continuously supply the export market. This will enable the industry to maintain market share in these markets in volume and non-volume regulated seasons, which is important in developing and maintaining these markets.

In non-volume regulated years, when expected supplies and primary market needs are closely aligned, lower-priced supplies are not available for export. This action will provide the industry with a means of maintaining exports by allowing lower-priced reserves from a previous season or seasons to be used for this purpose.

The Agricultural Marketing Service (AMS) has considered the economic impact of this action on small entities and has prepared this initial regulatory flexibility analysis. The Regulatory Flexibility Act (RFA) would allow AMS to certify that regulations do not have a significant economic impact on a substantial number of small entities. However, as a matter of general policy, AMS' Fruit and Vegetable Programs (Programs) no longer opt for such certification, but rather performs regulatory flexibility analyses for any rulemaking that would generate the interest of a significant number of small entities. Performing such analyses shifts the Programs' efforts from determining whether regulatory flexibility analyses are required to the consideration of regulatory options and economic or regulatory impacts.

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

There are approximately 900 producers of tart cherries in the production area and approximately 40 handlers subject to regulation under the marketing order. Small agricultural producers have been defined by the Small Business Administration (13 CFR 121.201) as those having annual receipts less than $500,000, and small agricultural service firms are defined as those whose annual receipts are less than $5,000,000. The majority of tart cherry producers and handlers may be classified as small entities.

Data from the National Agricultural Statistics Service (NASS) states that for 1999, tart cherry utilization for juice, wine, or brined uses was 34.5 million pounds for all districts covered under the order. The total processed amount for 1999 was 252.3 million pounds. Juice, wine, and brined tart cherries represented about 14 percent of the total processed crop, and about 10 percent over the last three seasons (1997 through 1999).

This rule will allow markets that have been developed and sustained by the use of the exemption and diversion provisions of the order in years of volume regulation to be sustained in years with no volume regulation. In the long run, market growth for tart cherry products will be increased, grower returns will be improved, and less fruit will be abandoned in the orchard by growers. Handlers will have an incentive to put cherries in the reserve to supply the export market in years of no regulation, and therefore, not as many growers will have to in-orchard divert.

All businesses, whether large or small, will benefit from this suspension action through increased sales during years of no regulation because they will be able to continue to supply the export markets. In years of volume regulation, handlers tend to put more cherries in reserve instead of diverting them because they expect to use those cherries during periods of short supply to assure a continuous supply of cherries. Currently, those cherries can only be released for normal commercial outlets; i.e., the domestic market. This action will allow the reserve cherries to be released for export, as well as the domestic market, when needed.

During the 1999-2000 crop year, when no volume regulation was established, the Board found that the export market was not adequately supplied, but could not make lower-valued reserve cherries from the previous season available to meet export needs because export markets were not considered normal commercial outlets. Export sales are a function of many different factors, including the size of the crop in Europe, the size of the U.S. crop and the strength of the U.S. dollar.

The industry recognizes, however, that exports need to be sustained each year, whether or not volume control is implemented. It is important for buyers of tart cherries to know that product will be available from year to year from sources in the United States. The Board believes that failure to properly supply these markets from year to year will result in lost market share, which is not conducive to further strengthening the industry.

This rule suspends indefinitely a portion of § 930.54 of the order to allow the release of reserve cherries for exempt uses such as exports. This will provide the industry with flexibility to meet market needs in domestic and export outlets from year to year which is in the interest of growers and handlers, whether small or large. Market development and expansion is important to the long-term strength of the industry.

One alternative to this action would be to continue the status quo. However, this would not be favorable to cherry growers and handlers and could delay the long-term development of export markets.

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

In compliance with Office of Management and Budget (OMB) regulations (5 CFR Part 1320) which implement the Paperwork Reduction Act of 1995 (44 U.S.C. Chapter 35), the information collection and recordkeeping requirements imposed by this order have been previously approved by OMB and assigned OMB Number 0581-0177.

The Board's telephone meeting was publicized and all Board members and alternate Board members, representing both large and small entities, were invited to attend the meeting and participate in Board deliberations. The Board itself is composed of 18 members, of which 17 members are growers and handlers and one represents the public. Also, the Board has a number of appointed committees to review certain issues and make recommendations.

Finally, interested persons are invited to submit information on the regulatory and informational impacts of this action on small businesses.

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

This rule invites comments on suspending the word “normal” in § 930.54(a) to allow the release of inventory reserve cherries into exempt use outlets such as exports. All comments received will be considered in finalizing this interim final rule.

After consideration of all relevant material presented, including the information and recommendation submitted by the Board and other available information, it is hereby found that the word “normal” in § 930.54(a) no longer tends to effectuate the declared policy of the Act and should be indefinitely suspended.

Pursuant to 5 U.S.C. 553, it is also found and determined upon good cause that it is impracticable, unnecessary, and contrary to the public interest to give preliminary notice prior to putting this rule into effect, and that good cause exists for not postponing the effective date of this rule until 30 days after publication in the Federal Register because: (1) The 2000-2001 fiscal period began July 1, 2000, and this rule needs to be effective as soon as possible in order to allow the industry to take advantage of the expanded inventory release; and (2) this interim final rule provides a 60-day comment period, and all comments timely received will be considered prior to finalization of this rule.

This rule is issued under Marketing Agreement and Order No. 930 (7 CFR part 930), regulating the handling of tart cherries grown in the States of Michigan, New York, Pennsylvania, Oregon, Utah, Washington, and Wisconsin, hereinafter referred to as the “order.” The marketing agreement and order are effective under the Agricultural Marketing Agreement Act of 1937, as amended (7 U.S.C. 601-674), hereinafter referred to as the “Act.”

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

This rule has been reviewed under Executive Order 12988, Civil Justice Reform. Under the marketing order now in effect, tart cherry handlers are subject to assessments. Funds to administer the order are derived from such assessments. It is intended that the assessment rates as issued herein will be applicable to all assessable tart cherries beginning July 1, 2000, and continue until amended, suspended, or terminated. This rule will not preempt any State or local laws, regulations, or policies, unless they present an irreconcilable conflict with this rule.

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

This rule decreases the assessment rate established for the Board for the 2000-2001 and subsequent fiscal periods for cherries that are utilized in the production of tart cherry products other than juice, juice concentrate, or puree from $0.0017 to $0.0012 per pound of cherries. The assessment rate for cherries utilized for juice, juice concentrate, or puree is decreased from $0.00085 to $0.0006 per pound.

The tart cherry marketing order provides authority for the Board, with the approval of the Department, to formulate an annual budget of expenses and collect assessments from handlers to administer the program. The members of the Board are producers and handlers of tart cherries. They are familiar with the Board's needs and with the costs for goods and services in their local area and are thus in a position to formulate an appropriate budget and assessment rates. The assessment rates are formulated and discussed in a public meeting. Thus, all directly affected persons have an opportunity to participate and provide input.

For the 2000-2001 fiscal period, the Board recommended, and the Department approved, assessment rates that would continue in effect from fiscal period to fiscal period unless modified, suspended, or terminated by the Secretary upon recommendation and information submitted by the Board or other information available to the Secretary.

The Board met on March 2, 2000, and unanimously recommended, and the Department approved, 2000-2001 expenditures of $455,000 and assessment rate decreases from $0.00225 to $0.0017 per pound for cherries that are utilized in the production of tart cherry products other than juice, juice concentrate, or puree and from $0.001125 to $0.00085 per pound for cherries utilized for juice, juice concentrate, or puree.

The Board met again on September 8, 2000, and unanimously recommended a further decrease in the assessment rates to $0.0012 per pound for cherries that are utilized in the production of tart cherry products other than juice, juice concentrate, or puree, and to $0.0006 per pound for cherries utilized for juice, juice concentrate, or puree. Further decreased assessment rates have been recommended by the Board because the cherry industry has experienced record high crops for the past two seasons and again this season. In addition, the Board wants to further reduce handler costs while maintaining a monetary reserve which is adequate to cover approximately six months' operational expenses (based on an annual operating budget of approximately $455,000). Section 930.42(a) of the order authorizes a reserve sufficient to cover one year's operating expenses. The decreased rates are expected to generate enough income to meet the Board's reduced operating expenses in 2000-2001.

The order provides that when an assessment rate based on the number of pounds of tart cherries handled is established, it should provide for differences in relative market values for various cherry products. The discussion of this provision in the order's promulgation record indicates that proponents testified that cherries utilized in high value products such as frozen, canned, or dried cherries should be assessed one rate while cherries used to make low value products such as juice concentrate or puree should be assessed at one-half that rate.

Data from the National Agricultural Statistics Service (NASS) states that for 1999, tart cherry utilization for juice, wine, or brined uses was 34.5 million pounds for all districts covered under the order. The total processed amount of tart cherries for 1999 was 252.3 million pounds. Juice, wine, and brined tart cherries represented less than 14 percent of the total processed crop, and about 10 percent over the last three seasons (1996 through 1998).

In deriving the recommended assessment rates, the Board determined assessable tart cherry production for the crop year at 280 million pounds. It further estimated that about 265 million pounds of the assessable poundage would be utilized in the production of high-valued products, like frozen, canned, or dried cherries, and that about 15 million pounds would be utilized in the production of low-valued products, like juice, juice concentrate, or puree. Potential assessment income from the high valued products would be approximately $318,000 (265 million pounds X $0.0012 per pound). The potential income from tart cherries utilized for juice, juice concentrate, or puree would be $9,000 (15 million pounds X $0.0006 per pound). Therefore, total assessment income for 2000-2001 is estimated at $327,000. This amount plus adequate funds in the reserve and interest income will be adequate to cover budgeted expenses. Funds in the reserve (approximately $374,000) will be kept within the approximately six months' operating expenses as recommended by the Board which would be consistent with the order (7 CFR 930.42(a)).

The assessment rates established in this rule will continue in effect indefinitely unless modified, suspended, or terminated by the Secretary upon recommendation and information submitted by the Board or other available information.

Although the assessment rates are effective for an indefinite period, the Board will continue to meet prior to or during each fiscal period to recommend a budget of expenses and consider recommendations for modification of the assessment rates. The dates and times of Board meetings are available from the Board or the Department. Board meetings are open to the public and interested persons may express their views at these meetings. The Department will evaluate Board recommendations and other available information to determine whether modifications of the assessment rates are needed. Further rulemaking will be undertaken as necessary. The Board's 2000-2001 budget and those for subsequent fiscal periods will be reviewed and, as appropriate, approved by the Department.

The Agricultural Marketing Service (AMS) has considered the economic impact of this action on small entities and has prepared this initial regulatory flexibility analysis. The Regulatory Flexibility Act (RFA) allows AMS to certify that regulations do not have a significant economic impact on a substantial number of small entities. However, as a matter of general policy, AMS” Fruit and Vegetable Programs (Programs) no longer opts for such certification, but rather performs regulatory flexibility analyses for any rulemaking that would generate the interest of a significant number of small entities. Performing such analyses shifts the Programs' efforts from determining whether regulatory flexibility analyses are required to the consideration of regulatory options and economic or regulatory impacts.

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

There are approximately 40 handlers of tart cherries who are subject to regulation under the order and approximately 900 producers of tart cherries in the regulated area. Small agricultural service firms have been defined by the Small Business Administration (13 CFR 121.201) as those having annual receipts less than $5,000,000, and small agricultural producers are those whose annual receipts are less than $500,000. The majority of tart cherry handlers and producers may be classified as small entities.

The Board unanimously recommended, and the Department approved, 2000-2001 expenditures of $455,000 and assessment rate decreases from $0.00225 to $0.0017 per pound for cherries that are utilized in the production of tart cherry products other than juice, juice concentrate or puree and from $0.001125 to $0.0085 per pound for cherries utilized for juice, juice concentrate, or puree.

This rule further decreases the assessment rate established for the Board and collected from handlers for the 2000-2001 and subsequent fiscal periods for cherries that are utilized in the production of tart cherry products other than juice, juice concentrate, or puree from $0.0017 to $0.0012 per pound, and the assessment rate for cherries utilized for juice, juice concentrate, or puree from $0.00125 to $0.0006 per pound. The Board unanimously recommended 2000-2001 expenditures of $455,000 and the further reduced assessment rates. The quantity of assessable tart cherries expected to be produced during the 2000-2001 crop year is estimated at 280 million pounds. Assessment income, based on this crop, along with interest income and reserves should be adequate to cover budgeted expenses.

The Executive Committee of the Board, after discussing the budget and assessment rates in executive session, recommended the continuation of the current rates. It concluded that it was prudent for the Board to have an operating reserve of approximately one year's operating expenses.

However, after considerable discussion, the Board concluded it should further reduce handlers' assessment costs and that the reserve should not exceed one-half year's budget amount. Also, the cherry industry has experienced record large crops for the past two seasons, and again this season. The Board discussed the alternative of continuing the existing assessment rates, but concluded that would cause the amount in the operating reserve to exceed what is actually needed.

After the discussion, the Board voted unanimously to further decrease the assessment rates. In deriving the recommended assessment rates, the Board estimated assessable tart cherry production for the crop year at 280 million pounds. It further estimated that about 265 million pounds of the assessable poundage would be utilized in the production of high-valued products, like frozen, canned, or dried cherries, and that about 15 million pounds would be utilized in the production of low-valued products, like juice, juice concentrate, or puree. Potential assessment income from the high valued products would be approximately $318,000 (265 million pounds X $0.0012 per pound). The potential income from the tart cherries utilized for juice, juice concentrate, or puree would be $9,000 (15 million pounds X $0.0006 per pound). Therefore, total assessment income for 2000-2001 is estimated at $327,000. This amount plus adequate supplies in the reserve and interest income should be adequate to cover budgeted expenses. Funds in the reserve (approximately $374,000) will be kept within the approximately six months' operational expenses as recommended by the Board which would be consistent with the order (7 CFR 930.42(a)).

This action further decreases the assessment obligation imposed on handlers. Assessments are applied uniformly on all handlers, and some of the costs may be passed on to producers. However, the assessment rate decreases reduce the burden on handlers, and may reduce the burden on producers. In addition, the Board's meeting was widely publicized throughout the tart cherry industry and all interested persons were invited to attend the meeting and participate in Board deliberations on all issues. Like all Board meetings, the September 8, 2000, meeting was a public meeting and all entities, both large and small, were able to express views on this issue. Finally, interested persons are invited to submit information on the regulatory and informational impacts of this action on small businesses.

This action imposes no additional reporting or recordkeeping requirements on either small or large tart cherry handlers. As with all Federal marketing order programs, reports and forms are periodically reviewed to reduce information requirements and duplication by industry and public sector agencies.

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

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

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

Pursuant to 5 U.S.C. 553, it is also found and determined upon good cause that it is impracticable, unnecessary, and contrary to the public interest to give preliminary notice prior to putting this rule into effect, and that good cause exists for not postponing the effective date of this rule until 30 days after publication in the Federal Register because: (1) The 2000-2001 fiscal period began on July 1, 2000, and the marketing order requires that the rates of assessment for each fiscal period apply to all assessable tart cherries handled during such fiscal period; (2) this action decreases the assessment rates for assessable tart cherries beginning on July 1, 2000; (3) handlers are aware of this action which was unanimously recommended by the Board at a public meeting and is similar to other assessment rate actions issued in past years; and (4) this interim final rule provides a 60-day comment period, and all comments timely received will be considered prior to finalization of this rule.

The GVWP waives the nonimmigrant visa requirement for certain aliens who apply for admission as a nonimmigrant visitor for business or pleasure for the sole purpose of visiting Guam for a period not exceeding 15 days.

The Omnibus Territories Act of 1986, Public Law 99-396, provided statutory authority to implement the GVWP. On December 18, 1987, the Immigration and Naturalization Service (Service) published a final rule in the Federal Register at 52 FR 48082, implementing the provisions of Public Law 99-396. The final rule also designated several countries including Burma to the list of countries authorized to participate in the GVWP.

For a country to participate in the GVWP:

• The Attorney General, Secretary of State, and Secretary of Interior, acting jointly, after consultation with the Governor of Guam, must designate the country for the GVWP.

• The waiver of a nonimmigrant visa must pose no threat to the welfare, safety, or security of the United States, its territories, or commonwealths.

• The country must have a nonimmigrant visa refusal rate of 16.9 percent or less or have an established pre-inspection or pre-clearance program pursuant to a bilateral agreement with the United States.

• The country must be in geographical proximity to Guam, unless the country has a substantial volume of nonimmigrant travel to Guam and extends reciprocal privileges to citizens of the United States.

• The Department of State must not have designated the country as being of special humanitarian concern.

The Commissioner shall immediately remove a country from the GVWP if she determines that the program country poses a potential threat to the welfare, safety, or security of the United States (including enforcement of the immigration laws of the United States).

• The Service has consulted with the Department of Justice, the Department of State, the Department of Interior, and the Governor of Guam and determined that Burma no longer meets the eligibility requirements for participating in the GVWP.

• Although Congress intended to limit the GVWP to short-term visitors to Guam, recently, the Agana Port-of-Entry has experienced an increasing number of Burmese GVWP applicants for admission who seek to remain permanently in the United States. Consequently, the Service has expended disproportionate resources in order to process Burmese travelers to Guam. These expenditures have created significant obstacles for the orderly enforcement of the U.S. immigration laws in Guam, including extended wait times for arriving travelers seeking to enter Guam.

• The refusal rate for Burmese applicants for visitors visas exceeded 40 percent over the last 4 years (1996-1999).

• The United States has not established a pre-inspection or pre-clearance program in Burma.

• Burma is a country in economic and political turmoil.

• Despite multiparty elections in 1990 that resulted in a decisive victory for the main opposition party, the military junta ruling Burma has refused to relinquish power.

• Burma lacks the will and ability to effectively participate in the anti-drug effort.

This interim rule is effective January 10, 2001, although the Service invites post-promulgation comments and will address any such comments in a final rule. The Service finds that good cause exists for adopting this rule without the prior notice and comment period ordinarily required by 5 U.S.C. 553. Section 212.1(e)(2) of the Service's existing regulations provides that the Commissioner will immediately remove a country from the GVWP if she determines that the country poses a potential threat to the welfare, safety, or security of the United States, its territories, or commonwealths. As stated in the supplemental portion of this rule the Commissioner has made such a determination in the case of Burma. It would be contrary to the public interest to allow such a potential threat to continue for the prior notice and comment period normally required under 5 U.S.C. 553(b)(B) and (d)(3). The United States' law enforcement and national security concerns outweigh the interests of Burma nationals in having the nonimmigrant visa requirement waived under the GVWP.

The Service adopts this rule with a 7 day delayed effective date. The delayed effective date is to provide some flexibility for nationals of Burma who have already made plans to travel to Guam.

Burma nationals who have made travel plans in advance of 7 days, will still be able to travel to Guam as nonimmigrant visitors, but they will need to obtain an appropriate visa to do so.

The Commissioner of the Immigration and Naturalization Service, in accordance with the Regulatory Flexibility Act (5 U.S.C. 605(b)), has reviewed this regulation and, by approving it, certifies that this rule will not have a significant economic impact on a substantial number of small entities. After January 10, 2001. Burmese nationals who wish to travel to Guam temporarily for legitimate business or pleasure purposes will still be permitted to visit Guam, if, prior to their journey, they acquire a nonimmigrant visa at a U.S. Embassy or consulate. This rule furthers the law enforcement and national security interests of the United States without significantly restricting legitimate travel to Guam. It does not affect small entities as that term is defined in 5 U.S.C. 601(6).

This rule is not considered by the Department of Justice, Immigration and Naturalization Service, to be a “significant regulatory action” under Executive Order 12866, section 3(f), Regulatory Planning and Review, and the Office of Management and Budget has waived its review process under section 6(a)(3)(A).

This 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. Therefore, in accordance with section 6 of Executive Order 13132, it is determined that this rule does not have sufficient federalism implications to warrant the preparation of a federalism summary impact statement.

This rule will not result in the expenditure by State, local and tribal governments, in the aggregate, or by the private sector, of $100 million or more in any one-year, and it will not significantly or uniquely affect small governments. Therefore, no actions were deemed necessary under the provisions of the Unfunded Mandates Reform Act of 1995.

This rule is not a major rule as defined by section 804 of the Small Business Regulatory Enforcement Act of 1996. This rule will not result in an annual effect on the economy of $100 million or more; a major increase in costs or prices; or significant adverse effects on competition, employment, investment, productivity, innovation, or on the ability of United States-based companies to compete with foreign-based companies in domestic and export markets.

This final rule meets the applicable standards set forth in sections 3(a) and 3(b)(2) of Executive Order 12988.

The Animal Welfare Act (AWA) (7 U.S.C. 2131 et seq. ) authorizes the Secretary of Agriculture to promulgate standards and other requirements governing the humane handling, housing, care, treatment, and transportation of certain animals by dealers and other regulated businesses. The Secretary of Agriculture has delegated the responsibility for enforcing the AWA to the Administrator of the Animal and Plant Health Inspection Service (APHIS). Regulations established under the AWA are contained in 9 CFR parts 1, 2, and 3 (referred to below as the regulations). Part 1 contains definitions for terms used in parts 2 and 3. Part 2 sets forth general requirements, and part 3 sets forth the standards for the humane handling, care, treatment, and transportation of covered animals by regulated entities.

In part 2, § 2.129 provides for the confiscation and destruction of animals. Paragraph (a) of § 2.129 provides that, if an animal being held by a dealer, exhibitor, intermediate handler, or carrier is found by APHIS to be suffering as a result of the failure of the dealer, exhibitor, intermediate handler, or carrier to comply with the regulations, APHIS will notify the dealer, exhibitor, intermediate handler, or carrier of the condition of the animal and request that the animal's suffering be alleviated or that the animal be euthanized. If the dealer, exhibitor, intermediate handler, or carrier refuses to comply with APHIS' request, an APHIS official may confiscate the animal for care, treatment, or disposal.

Prior to this final rule, § 2.129(c) provided that APHIS may place confiscated animals with a person or facility that is licensed by or registered with APHIS and that complies with the regulations and can provide proper care. Further, § 2.129(c) provided that the confiscated animals could be euthanized by APHIS or the receiving facility. Paragraph (c) also provided that the dealer, exhibitor, intermediate handler, or carrier from whom the animals were confiscated was responsible for all costs associated with the placement or euthanasia of the animals.

On May 28, 1999, we published a proposal in the Federal Register (64 FR 28940-28942, Docket No. 98-065-1) to amend § 2.129(c) to specifically allow APHIS to place confiscated animals with a person or facility that can offer a level of care equal to or exceeding that required by the regulations, even if the person or facility is not licensed by or registered with APHIS. We proposed this change to increase the options for APHIS when placing confiscated animals and, therefore, allow neglected, sick, or injured animals to be removed more quickly from situations detrimental to their health and well-being.

We solicited comments concerning our proposal for 60 days ending July 27, 1999. We received 19 comments by that date. The comments were from an association representing veterinarians, a State agriculture department, animal humane associations, an association of animal owners, and private citizens. One commenter opposed the proposal. Thirteen commenters supported the proposal as written. The remaining commenters raised issues that are discussed below.

One commenter stated that the regulations should specify how APHIS will evaluate whether a person or facility that is not licensed by or registered with APHIS can offer an acceptable level of care. Another commenter stated that we should monitor and control facilities that are not licensed by or registered with APHIS to ensure that they are able to provide a level of care equal to or exceeding that required by the regulations.

We do not believe that evaluation criteria should be included in the regulations. Prior to the placement of a confiscated animal, we will, of course, look at the ability of the person or facility to provide adequate security, containment, and care of the animal. Because the circumstances of potential confiscations are variable and unpredictable as to the kinds and numbers of animals and their condition and needs, it would not be appropriate to limit our ability to act.

As to monitoring and controlling facilities that are not licensed by or registered with APHIS, we do not have the authority to apply the requirements of the AWA to persons or facilities that are not licensed by or registered with APHIS. However, we believe that our evaluation of the suitability of a person or facility, prior to the placement of the animals, will ensure that the person or facility can provide a level of care equal to or exceeding that required by the regulations. There are a limited number of persons and facilities that are licensed by or registered with APHIS and that are willing to accept confiscated animals. This change in our regulations will benefit confiscated animals by giving us more flexibility in relocating them.

One commenter stated that persons who accept confiscated animals should be licensed by a State or local government to provide care for animals, such as wildlife rehabilitators, and that facilities should be duly incorporated humane societies, societies for the protection of animals, or other legal entities established for similar purposes. An additional commenter suggested that we remove all references to “persons” and require facilities to be duly incorporated private organizations registered as charitable humane organizations under Federal and State law or operated by local governments for animal impoundment and control purposes.

Humane societies are obviously likely choices for the placement of confiscated animals. However, we do not believe that a person or facility needs to be licensed by or registered with a State or local government to provide a level of care equal to or exceeding that required by our regulations.

One commenter stated that APHIS should maintain a record of where confiscated animals are placed and require the receiving facility (licensed/registered or not) to notify APHIS when the facility transfers the animals or has them euthanized, especially in the case of wild and exotic animals.

We will maintain a record of where the animals are placed after they are confiscated. Persons and facilities that are licensed by or registered with APHIS are required to keep records of the animals on their premises, including animals that we place with them, in accordance with § § 2.75 and 2.77.

We do not have the authority to impose requirements on persons or facilities that are not subject to the AWA, and we cannot require them to apprise us of the disposition of the animals. However, as stated in the proposal, we expect the types of unregistered or unlicensed facilities most likely to accept confiscated animals are animal shelters run by humane societies, and most animal shelters maintain records regarding the disposition of animals that were on their premises.

One commenter stated that we should stipulate that entities that accept confiscated animals may not place such animals in research situations, and, in the case of wild and exotic animals, that the entities must place them in facilities licensed by or registered with APHIS.

Most of the small number of confiscations that APHIS performs involve dog breeders, and because many of the confiscated animals are in poor health, they would not be good research subjects. However, when a person or facility accepts ownership of a confiscated animal, the person or facility is responsible for the disposition of the animal, including the future placement of the animal. If the person or facility is licensed by or registered with APHIS, future placement or disposition of the animal must be in accordance with the regulations. We believe that it is highly unlikely that any confiscated animal would eventually be used in research. The ability to place confiscated animals with humane societies and other institutions and persons not regulated under the AWA makes such a possibility even less likely.

In some cases, APHIS may place wild or exotic animals at animal sanctuaries. For instance, sanctuaries are being created for nonhuman primates and elephants because these animals are difficult to place, especially if they are in poor health or condition. The development of these sanctuaries will assist us in our efforts to place confiscated nonhuman primates and elephants.

One commenter stated that the regulations should require the dealer, exhibitor, intermediate handler, or carrier from whom the animal is confiscated to bear all of the initial medical costs and other expenses incurred by the facility that accepts the confiscated animal.

The regulations at § 2.129(d) require the dealer, exhibitor, intermediate handler, or carrier from whom the animals are confiscated to bear all costs incurred in performing the placement or euthanasia activities authorized in § 2.129. However, we have found that in most cases the neglect of the animals that we confiscate is directly due to the owner of the animals not having sufficient funds to properly care for the animals. In fact, at times, APHIS has assumed the associated costs for the care or euthanasia of confiscated animals when the dealer, exhibitor, intermediate handler, or carrier from whom the animals were confiscated was unable to pay these costs. Therefore, compensation for the initial medical costs and other expenses incurred by the person or facility that accepts the confiscated animal may not be possible in all cases. If a person or facility accepts a confiscated animal, the person or facility will be responsible for all future costs incurred for the animal that are not covered under § 2.129(d) by the person or facility from whom the animal was confiscated. APHIS will make the person or facility aware of that responsibility at the time that the person or facility agrees to accept the animal.

One commenter stated that if an animal is to be placed with an entity that is not licensed by or registered with APHIS, we should clarify who is liable for the actions of the confiscated animal, especially if the animal bites someone, so that the receiving entity is informed at the time of agreement to accept the animal.

The person or facility that accepts the confiscated animal will be liable for the actions of the animal regardless of whether the person or facility is licensed by or registered with APHIS.

One commenter stated that we should stipulate that an APHIS veterinarian will be involved in the decisionmaking process for approval of the placement of confiscated animals or euthanasia of animals that are not or cannot be placed, and if an APHIS veterinarian is not available, the State animal health official will be included in the decisionmaking process.

At least one or more APHIS veterinarians will be involved in the decisionmaking process for the placement of confiscated animals or their euthanasia, and we do not consider it necessary to add such a stipulation to the regulations.

One commenter stated that, rather than confiscate the animals, we should allow the animals to remain in their original facilities because APHIS inspectors will have access to the facilities and will, therefore, be able to monitor the progress of the animals. This commenter added that APHIS cannot ensure that a facility offers a level of care that is equal to or exceeds that required by the regulations if the facility is not licensed or inspected by APHIS.

We confiscate animals to remove them from a premises or facility when the licensee or registrant has demonstrated a lack of ability or willingness to provide adequate care. We will continue to do this when it is in the best interests of the animals.

One commenter stated that animals placed at humane societies would be cared for by personnel who are not equipped to handle the animals and that the proposal would subject animals to substandard care and/or euthanization. This commenter stated that private owners are more likely to locate suitable people for an animal that is not considered an ideal pet by the humane society.

We do not share these fears of humane societies. In fact, we have had great success in the placement of animals with humane societies in potential confiscation situations where dealers voluntarily gave up the animals.

Therefore, for the reasons given in the proposed rule and in this document, we are adopting the proposed rule as a final rule, without change.

This rule has been reviewed under Executive Order 12866. The rule has been determined to be not significant for the purposes of Executive Order 12866 and, therefore, has not been reviewed by the Office of Management and Budget.

We are amending the Animal Welfare Act regulations to allow APHIS to place animals confiscated from situations detrimental to the animals' health and well-being with a person or facility that is not licensed by or registered with APHIS. The change will increase the options for APHIS when placing confiscated animals and will, therefore, facilitate the relocation of confiscated animals and minimize the amount of time neglected, sick, or injured animals stay in unhealthy situations.

Confiscation is a complicated and expensive procedure. Prior to this final rule, the regulations allowed APHIS to place confiscated animals with a person or facility licensed by or registered with APHIS. Finding a licensee or registrant with the capacity and ability to house and care for the animals' well-being is one of the major challenges in the confiscation process.

This rule will make the task of finding an adequate facility for confiscated animals faster and simpler, which will reduce APHIS' costs associated with locating a facility and the cost of the care APHIS must provide when adequate facilities cannot be located. At times, APHIS assumes the associated costs for care or euthanasia of confiscated animals when the dealer, exhibitor, intermediate handler, or carrier from whom the animals were confiscated is unable to pay these costs and APHIS cannot find a facility at which to place the animals.

The Regulatory Flexibility Act requires that agencies consider the potential economic effects of rules on small businesses, organizations, and governmental jurisdictions. Businesses and organizations potentially affected by this rule are those that are not licensed by or registered with APHIS but that can accommodate and provide adequate care for confiscated animals.

We expect that the types of facilities most likely to accept confiscated animals under this rule are animal shelters run by humane societies. The number of humane societies that are small entities under the Small Business Administration's (SBA) standards is unknown because information as to their size in terms of gross receipts and number of employees is not available. Humane societies are not-for-profit organizations where some of the employees work on a voluntary basis, and there is no way to determine their revenue. In addition, the costs incurred by humane societies are covered by membership donations. In the United States, there are at least 121 known regional humane societies in 35 States. Most of these are in California (at least 14); Texas and Illinois (at least 7 each); Florida, Georgia, and Minnesota (at least 6 each); Oregon, Virginia, Maryland, and Wisconsin (at least 5 each); and Colorado, Alabama, Ohio, Michigan, and Pennsylvania (at least 4 each). In addition, there are a number of shelters run by other incorporated charitable organizations established for the purpose of preventing cruelty to animals.

One commenter stated that our analysis in the proposed rule of the potential economic effects of the rule contained an error. In the analysis, we stated that there are at least 121 known humane societies in 35 States. The commenter stated that there are over 3,000 incorporated, charitable organizations established for the purpose of preventing cruelty to animals and that these organizations exist in all 50 States and can have names such as humane society, society for the prevention of cruelty to animals, animal welfare league, or pet protection league. The commenter added that there are several thousand municipally operated animal shelters that are exempt from licensing requirements under the AWA and that are willing to house confiscated animals in special cases.

The number we provided in our analysis was the number of regional humane societies known to us and listed by State. We are aware that there are a number of organizations other than humane societies. We agree that if we had referred to all incorporated charitable organizations established for the purpose of preventing cruelty to animals, the number of organizations would be significantly larger than 121.

APHIS confiscates animals only once or twice a year. Adoption of this rule will expedite relocation of any confiscated animals. It is likely that the receiving facilities, as noted above, will be small entities. The regulations require that the dealer, exhibitor, intermediate handler, or carrier from whom the animals are confiscated bear all costs associated with performing the placement or euthanasia. If a facility accepts confiscated animals, that facility will be responsible for the future costs incurred for the care of those animals while at the facility. However, as noted, APHIS needs to place confiscated animals only once or twice a year, and the acceptance of confiscated animals is voluntary.

Under these circumstances, the Administrator of the Animal and Plant Health Inspection Service has determined that this action will not have a significant economic impact on a substantial number of small entities.

This program/activity is listed in the Catalog of Federal Domestic Assistance under No. 10.025 and is subject to Executive Order 12372, which requires intergovernmental consultation with State and local officials. (See 7 CFR part 3015, subpart V.)

This final rule has been reviewed under Executive Order 12988, Civil Justice Reform. It is not intended to have retroactive effect. This rule will not preempt any State or local laws, regulations, or policies, unless they present an irreconcilable conflict with this rule. The Act does not provide administrative procedures which must be exhausted prior to a judicial challenge to the provisions of this rule.

This rule contains no information collection or recordkeeping requirements under the Paperwork Reduction Act of 1995 (44 U.S.C. 3501 et seq. ).

The Animal Welfare Act (the Act) (7 U.S.C. 2131 et seq. , enacted in 1966 and amended in 1970, 1976, 1985, and 1990) authorizes the Secretary of Agriculture to promulgate standards and other requirements governing the humane handling, care, treatment, and transportation of certain animals by dealers, research facilities, exhibitors, carriers, and intermediate handlers. Regulations established under the Act are contained in 9 CFR parts 1, 2, and 3.

The Animal and Plant Health Inspection Service (APHIS) of the United States Department of Agriculture established regulations under the Act in 1979 for the humane handling, care, treatment, and transportation of marine mammals used for research or exhibition purposes. These standards, contained in 9 CFR part 3, subpart E (referred to below as the regulations), were amended in 1984. During the 14 years since the standards were amended, advances have been made, new information has been developed, and new concepts have been implemented with regard to the handling, care, treatment, and transportation of marine mammals in captivity.

On July 23, 1993, we published in the Federal Register (58 FR 39458, Docket No. 93-076-1) an advance notice of proposed rulemaking that solicited comments on appropriate revisions or additions to the standards for the humane handling, care, treatment, and transportation of marine mammals used for research or exhibition. The comments we received supported our intent to revise the regulations and suggested it would be highly desirable to involve all interested parties in developing appropriate regulations. We determined that consensus among interested parties was attainable and that we should proceed with negotiated rulemaking.

On May 22, 1995, we published in the Federal Register (60 FR 27049-27051, Docket No. 93-076-3) a notice of intent to establish an advisory committee to advise the Department on how to revise the regulations. The notice included a list of groups tentatively identified by the Department as potential participants on the advisory committee. A committee, called the Marine Mammal Negotiated Rulemaking Advisory Committee (the Committee), was subsequently established in accordance with the Federal Advisory Committee Act (5 U.S.C. App. I). It included all of the groups that were identified in the notice as potential participants, with the exception of the Society for Marine Mammology, which was unable to participate.

The following organizations were included on the Committee as voting members:

The following organizations or individuals were included on the Committee as observers or consultants. These individuals did not vote on the final consensus reached by the Committee:

The Committee conducted three sessions, on September 25 and 26, 1995, in College Park, MD; on April 1, 2, and 3, 1996, in Riverdale, MD; and on July 8, 9, and 10, 1996, in Riverdale, MD. All meetings were open to the public, with specified times during the meetings established for public participation and comment.

Under the rules governing the negotiated rulemaking process, and in accordance with the organizational protocols established by the Committee, APHIS agreed to publish as a proposed rule any consensus language developed during the meetings unless substantive changes were made as a result of authority exercised by another Federal Government entity. Committee members agreed to refrain from commenting negatively on the consensus-based language in the proposed rule. Consensus language was reached on 13 of the 18 sections that comprise the regulations and on one paragraph in a 14th section: § § 3.101, 3.104(a), 3.105, 3.107 through 3.110, and 3.112 through 3.118. Sections 3.101 and 3.104(a) contain facility and operating standards. Section 3.101 contains general requirements for facilities housing marine mammals, including construction, water and power supply, drainage, storage, waste disposal, and washroom facilities; § 3.104(a) contains general space requirements for primary enclosures. Sections 3.105 and 3.107 through 3.110 concern animal health and husbandry. Section 3.105 contains feeding requirements; § 3.107 concerns sanitation and pest control; § 3.108 sets standards for employees and attendants; § 3.109 concerns separation of marine mammals; and § 3.110 concerns veterinary care. Sections 3.112 through 3.118 concern transportation of marine mammals. Section 3.112 concerns consignment of marine mammals to carriers and intermediate handlers; § 3.113 contains standards for primary enclosures used to transport marine mammals; § 3.114 contains standards for primary conveyances used to transport marine mammals; § 3.115 contains requirements for provision of food and water during transport; § 3.116 concerns the care of marine mammals by employees or attendants during transport; § 3.117 concerns terminal facilities; and § 3.118 contains requirements for handling marine mammals during transport.

On February 23, 1999, we published a proposed rule in the Federal Register (64 FR 8735-8755, Docket No. 93-076-11) that contained the consensus language developed by the Committee for these sections of the regulations. The proposed rule also contained one provision not agreed on by consensus of the Committee: a provision in current § 3.110(d) concerning maintenance of necropsy records. The proposed rule revised this provision and placed it in § 3.110(g)(2). We included it in the proposed rule in order to complete the section.

We solicited comments concerning our proposal for 60 days ending April 26, 1999. We reopened and extended the deadline for comments until May 26, 1999, in a document published in the Federal Register on May 14, 1999 (Docket No. 93-076-14, 64 FR 26330). We received 15 comments by that date. They were from animal welfare organizations, veterinary organizations, and regulated entities that care for marine mammals. Most commenters commended the efforts of the Committee and were supportive of the proposed rule in general. However, all commenters requested changes to specific provisions of the proposal. The comments are discussed below, grouped according to the section of the regulations to which they pertain.

Proposed § 3.101 contains general requirements for indoor and outdoor facilities.

Paragraph (a)(1) of proposed § 3.101 includes the requirement that indoor and outdoor housing facilities be constructed to restrict the entrance of unwanted animals. One commenter said that this provision should apply to seagulls at public feeding exhibits because of the risk of disease transmission from seagulls to marine mammals and because the seagulls consume some of the food offered to the marine mammals, making it difficult to assess the marine mammals' nutritional intake.

We are not making any changes in response to this comment. We recognize that birds can present problems at outdoor facilities. The provision in § 3.101(a)(1) is intended to address this problem. In addition, proposed § 3.107(d) requires that a safe and effective program for the control of pests, including avian pests, be established and maintained. Measures to completely eliminate intrusions by seagulls and other birds at outdoor facilities may not always be in the marine mammals' best interests. Mesh or wire cages over outdoor pools restrict physical contact between birds and marine mammals but increase exposure to droppings by providing a roosting spot for the birds directly over pool areas. This could increase the risk of disease transmission. We believe the proposed regulations are adequate to prevent significant or widespread problems regarding seagulls and other pests at marine mammal facilities.

Proposed paragraph (a)(1) also includes the following provision: “Lagoon and similar natural seawater facilities must maintain effective barrier fences, or other appropriate measures, on all sides of the enclosure not contained by dry land, extending above the high tide water level, to fulfill the requirements of this section.” Two commenters suggested that we move the phrase “extending above the high tide water level” to follow “effective barrier fences.” The commenters said this would reinforce the Committee's intent, given our statement in the preamble that the Committee agreed that this requirement is not intended to preclude the temporary lowering or removal of part of the barrier fencing above the water line to accommodate filming or similar actions. We agree, and are revising the sentence to read: “Lagoon and similar natural seawater facilities must maintain effective barrier fences extending above the high tide water level, or other appropriate measures, on all sides of the enclosure not contained by dry land to fulfill the requirements of this section.”

Paragraph (a)(2) of proposed § 3.101 requires that marine mammals be provided protection from abuse and harassment by the public by the use of a sufficient number of uniformed or readily identifiable employees or attendants or by physical barriers (e.g., fences, walls, distance). One commenter recommended that we additionally require that the employees or attendants be appropriately trained and in permanent attendance. The commenter said that employees must be trained to educate the public about appropriate behavior and must discipline the public for inappropriate behavior, particularly at public feeding exhibitions.

We are not making any changes in response to this comment. When physical barriers are not present (such as at public feeding exhibitions), we believe it is adequate to require that a sufficient number of uniformed or readily identifiable employees or attendants be present. These employees would be charged with protecting the marine mammals on display from abuse or harassment by the public. It follows that the employees or attendants would have to be trained adequately to perform this function. In addition, if a member of the public is found to be abusing or harassing a marine mammal, we believe the proposed regulation makes it clear that that person must be prevented from continuing such behavior.

Proposed paragraph (a)(3) of § 3.101 requires that facilities implement a written protocol on cleaning primary enclosure surfaces so that the surfaces do not constitute a health hazard to the animals. One commenter asked if there is a history of problems that justifies requiring a written protocol for this activity.

We are not making any changes based on this comment. There have been a sufficient number of noncompliant citations for sanitation regarding primary enclosure surfaces to cause the Committee to agree that this requirement is necessary and reasonable. Requiring a written protocol for what should be routine maintenance will provide a means for APHIS inspectors to determine if cleaning practices are appropriate for the species and type of enclosure and will enable inspectors to monitor whether the procedures specified are being followed.

Another commenter said we should remove the proposed requirement for a written protocol on cleaning primary enclosure surfaces from § 3.101(a)(3) because the same requirement appears in proposed § 3.107. While proposed § 3.107 does concern sanitation in and around primary enclosures, it contains no provision for a written protocol on cleaning enclosure surfaces. Therefore, we are not making any change based on this comment.

A third commenter asked that we change the wording of the proposed requirement for a written protocol on cleaning primary enclosure surfaces. The last sentence of proposed paragraph (a)(3) reads: “All facilities shall implement a written protocol on cleaning so that surfaces do not constitute a health hazard to animals.” The commenter was concerned that this sentence does not make it clear that it addresses only primary enclosure surfaces. We believe that the first sentence of proposed paragraph (a)(3) makes it clear that the paragraph as a whole specifically concerns primary enclosure surfaces. Therefore, we are not making any changes based on this comment.

Paragraph (a)(4) of proposed § 3.101 exempts facilities that house marine mammals in natural water areas (tidal basins, bays, estuaries) from the drainage requirements in § 3.101(c)(1). Paragraph (c) of proposed § 3.101 concerns drainage, and paragraph (c)(1) generally requires that adequate drainage be provided for primary enclosure pools. Two commenters suggested that the exemption in paragraph (a)(4) belongs more appropriately in paragraph (c). We are not making a change based on this comment. Paragraph (a) addresses general construction requirements, and, while paragraph (a)(4) does address the issue of drainage, it is also an exemption from a basic construction requirement. Therefore, we believe it is appropriately placed.

The commenters also asked us to make the natural water area facilities described in § 3.101(a)(4) exempt from the drainage requirements in proposed § 3.101(c)(2). We are making no change based on this comment. Paragraph (c)(2) concerns areas within a primary enclosure other than the pool itself, including areas immediately surrounding the pool. It would not be appropriate to exempt natural water area facilities from this type of drainage. Excess water around a pool area and other parts of an enclosure would be a hazard for marine mammals and caretakers, regardless of whether the pool itself is a natural seawater facility or a man-made facility.

Paragraph (b) of proposed § 3.101 concerns water and power supplies. Currently, paragraph (b) includes the requirement that written contingency plans be submitted to and approved by Veterinary Services regarding emergency sources of water and electric power in the event of failure of the primary sources. We proposed that these plans be submitted to and approved by the Deputy Administrator of Animal Care. One commenter said that contingency plans have always been reviewed by on-site visits from Veterinary Services and wondered why we have assigned review of these plans to the Deputy Administrator of Animal Care.

We are making no changes based on this comment. As we explained in the preamble to the proposed rule, APHIS reorganized after the last amendments to the marine mammal regulations. Veterinary Services no longer enforces the Animal Welfare Act. That authority has been reassigned to the Deputy Administrator of Animal Care. Since the reassignment, written contingency plans have been reviewed by Animal Care at the regional office level. The Deputy Administrator may continue to delegate this authority to the appropriate administrative level.

Paragraph (b) of proposed § 3.101 also requires that contingency plans include animal evacuation plans in the event of a disaster and, if the contingency plan includes release of marine mammals, provision for recall training and retrieval. One commenter was concerned about including details of recall training and retrieval plans as part of the written contingency plan submitted to the Deputy Administrator. The commenter said that this information would then be available under the Freedom of Information Act (FOIA) and that this would not be in the best interests of the marine mammals. The commenter said it is not clear whether this information needs to be submitted as part of the contingency plan.

We are not making any change based on this comment. We believe that proposed paragraph (b) makes it clear that the entire contingency plan, including plans for recall training and retrieval, must be submitted and approved by the Deputy Administrator. Proposed paragraph (b) does not require a detailed description of recall training and retrieval plans, but requires, if release of the animals is a component of the contingency plan, that the plan provide for recall training and retrieval. The intent of this requirement is that facilities provide enough information so that APHIS inspectors can determine whether the animals have been adequately trained for recall and retreival. We would not require facilities to include information that could compromise the safety or well-being of the animals, such as details on when and where training occurs or the actual signals used for recall. We believe the requirement is appropriate and in the interests of the safety and well-being of the marine mammals.

Another commenter said that we should remove the requirement for recall training provisions in the contingency plan because recall training is not always in the best interests of the animal, specifically if the facility is working with the purpose of reintroducing marine mammals into the wild.

We are not making any change based on this comment. We are unaware of any facilities currently holding marine mammals in anticipation of releasing them into the wild. Moreover, the contingency plan only requires a provision for recall training and retrieval of animals if animals are to be released in the event of a disaster, not as part of a scientific reintroduction-into-the-wild project. In all other instances, quick and efficient retrieval of the animal is in the animal's best interests. We wish to note that any recall training, including boat following, that involves the release of the animals from their primary enclosure into the wild (meaning water outside the primary enclosure and facility) must be done under appropriate authorization from the U.S. Fish and Wildlife Service or the National Marine Fisheries Service. This issue was discussed during the negotiated rulemaking sessions, and we reiterate that our requirement regarding contingency plans does not preclude the jurisdiction of these agencies in overseeing the release of captive animals into the wild, even if it is for training purposes.

Paragraph (c) of proposed § 3.101 concerns drainage. Paragraph (c)(1) requires that adequate drainage be provided for all primary enclosure pools and be located so that all the water in the pools may be “effectively eliminated” when necessary. Paragraph (c)(2) requires that drainage be provided for primary enclosures and areas immediately surrounding pools and be located so that excess water may be “rapidly eliminated.” One commenter said that one of the phrases (“effectively eliminated” or “rapidly eliminated”) should be changed so that they are consistent.

We are making no change based on this comment. As explained in the preamble to the proposed rule, paragraph (c)(1) currently requires that drainage allow water to be “rapidly eliminated” from primary enclosure pools. We proposed to change this to read “effectively eliminated.” The Committee believed the change was necessary because rapid emptying of primary enclosure pools is not always necessary and, in some cases, can be unsafe for the marine mammals. In paragraph (c)(2), the Committee chose to retain the requirement for rapid elimination of water, because paragraph (c)(2) concerns areas in the primary enclosure other than the pool, including areas immediately surrounding the pool. For safety purposes, rapid elimination of excess water from these areas is necessary and would not harm the animals.

Paragraph (d) of proposed § 3.101 concerns storage of food, toxic substances, supplements, and medication and includes the following requirement:

Paragraph (b) of proposed § 3.107 concerns food preparation and includes the following requirement:

One commenter found these two requirements confusing, and was unsure whether cleaning agents may be kept in food preparation areas.

We agree that the wording may be somewhat confusing. The Committee's intent was that cleaning agents be stored so that they will not be in danger of contaminating food preparation surfaces or food. While cleaning agents may be stored in the area where food is prepared, they must be stored in secured cabinets away from food preparation surfaces. We are making no changes to the requirement in § 3.101(d), but are revising the requirement in § 3.107(b) to make the Committee's intent clearer. As revised, the sentence cited above from § 3.107(b) will read: “Substances such as cleansing and sanitizing agents, pesticides, and other potentially toxic agents must be stored in properly labeled containers in secured cabinets designed and located to prevent contamination of food storage preparation surfaces.”

Another commenter recommended combining these requirements into one paragraph. We are not making a change based on this comment. We believe it is appropriate to have the requirements in both paragraphs because each paragraph addresses a separate issue—one addresses storage and one addresses sanitation.

Paragraph (d) of proposed § 3.101 also requires that refrigerators and freezers be used for storing perishable food but provides that chilled and/or iced coolers may be used for under 12 hours. One commenter said that he uses buckets with ice to transfer food from the preparation area to the feeding docks. The commenter was concerned that the language in proposed paragraph (d) would not allow this practice.

We are not making any changes based on this comment. The Committee discussed this issue and determined that buckets with ice can be used to transfer food from a cooler or refrigerator to a feeding area, as long as the food is fed to the marine mammals immediately after transfer. Food safety issues are a concern when food is stored for longer periods of time in uncovered buckets with melting ice. If food is kept in buckets with ice at the feeding area for use in later feedings, it would be a violation of proposed paragraph (d). We do not believe any change is necessary to the proposed regulation to clarify this because paragraph (d) specifically concerns food storage and not transfer of food for immediate feeding.

Proposed § 3.104 concerns space requirements for primary enclosures.

Paragraph (a) of proposed § 3.104 states that an enclosure smaller than required by the regulations may be used to house marine mammals temporarily for nonmedical training, breeding, holding, and transfer purposes. However, proposed paragraph (a) requires that, if housing in a smaller than required enclosure is for longer than 2 weeks and is for the purpose of nonmedical breeding, training, or holding (not transfer), an extension must be justified in writing by the attending veterinarian on a weekly basis.

One commenter asked for whom the written justification is intended. The written justification would serve several purposes, including ensuring that the attending veterinarian is aware of the arrangements, concurs with the reason for such arrangements, and monitors the animal's response to such arrangements. Additionally, APHIS would consult the written justification records to assess compliance with the space requirements and as a basis for discussing any concerns about space with the attending veterinarian.

Another commenter said that proposed § 3.104(a) should be changed to require that, if a marine mammal is housed in a smaller than required enclosure for longer than a few hours, it must be justified in writing by the attending veterinarian on a daily basis. We are not making any changes based on this comment. It would be an unnecessary burden to require such frequent justification. Depending on the design of the facility, it can often take a few hours just to transfer a marine mammal from its primary enclosure into the smaller enclosure, making such frequent justification impractical. We are not aware of any evidence showing that it would be harmful to marine mammals to spend up to 2 weeks in an enclosure smaller than required for primary enclosures. Keeping them in such enclosures for longer periods of time must be weighed by the attending veterinarian in terms of harm versus benefits to the animals, and we believe a weekly justification is adequate to accomplish this. We believe the proposed requirements are adequate to ensure that marine mammals are not kept in enclosures smaller than required for longer than is absolutely necessary.

Another requirement in proposed paragraph (a) is that enclosures smaller than required, for example, gated side pools abutting primary enclosures, may not be used for permanent housing purposes. Proposed paragraph (a) also states that rotating animals between enclosures that do and do not meet the minimum space requirements is not acceptable. One commenter said that, within the marine mammal exhibition industry, it is common to use gated side pools for permanent housing, rotating the animals between them and the main pool regularly, and this requirement would preclude that use. The commenter suggested reevaluating the wording to clarify that the intent is to prohibit the use of medical or holding pools for permanent housing purposes.

The intent of the Committee was to make it clear that enclosures that do not meet the minimum space requirements for primary enclosures may not be used for permanent housing of marine mammals. The Committee further clarified that this holds true even if the marine mammal is being rotated between enclosures that meet the minimum space requirements and enclosures that do not. Such activity would not meet the requirements of the regulations for primary enclosures. The purpose of making this clarification is to prevent facilities from, for example, generally housing marine mammals in smaller than required enclosures supplemented by letting them into a larger enclosure every few days. Proposed paragraph (a) states that marine mammals may be housed temporarily in enclosures smaller than required for nonmedical training, breeding, holding, and transfer purposes, and proposed § 3.110(b) allows marine mammals to be housed temporarily in enclosures smaller than required for medical treatment or training purposes. Marine mammals may not be housed in enclosures smaller than required for any other purpose.

According to the Committee's intent, if gated side pools are large enough to meet the space requirements for primary enclosures, then the activity the commenter describes would be acceptable. If gated side pools do not meet the minimum space requirements for primary enclosures, then the activity the commenter describes would not be acceptable.

Based on the comment, we believe that the proposed language should be revised to make it clearer. Therefore, we are revising the last two sentences of proposed § 3.104(a). The proposed sentences read as follows:

One commenter said that animals in his facility are routinely placed in gated side pools abutting their primary enclosure for training and show purposes during certain periods of the day and for short periods for medical and other husbandry reasons. The commenter is concerned that the last sentence of proposed § 3.104(a) (revised above) concerning rotating animals between enclosures would preclude this activity.

We are not making any changes based on this comment. We believe that proposed paragraph (a) makes it clear that gated side pools smaller than the minimum space requirements for primary enclosures may be used for the purposes that the commenter describes. If the sentence concerning rotating animals between enclosures is read within the context of the rest of paragraph (a), we do not believe that there is any ambiguity.

Finally, with regard to proposed § 3.104(a), one commenter said that, in order to facilitate appropriate behavioral and medical management of a facility's population as a whole, this paragraph needs to be clarified to maintain a facility's right to have the necessary flexibility with respect to marine mammal housing; that is, a facility must be able to make appropriate use of all pools.

We are not making any changes based on this comment. The commenter does not specify how the paragraph needs to be clarified. However, we believe that the paragraph clearly allows for appropriate use of pools smaller than required for primary enclosures and prohibits inappropriate use of such pools. We believe the allowances and prohibitions give facilities adequate flexibility, while fulfilling the intent of the Act to ensure that marine mammals are housed under conditions favorable to their health and well-being.

Proposed § 3.105 contains feeding requirements, including provisions to ensure food is nutritious and safely handled.

Paragraph (a) of proposed § 3.105 includes the requirement that marine mammals be offered food at least once per day, except as directed by the attending veterinarian. One commenter said that marine mammals should be offered food more than once per day.

We are making no changes based on this comment. The Act requires that we promulgate minimum standards for the care of marine mammals. We believe that requiring feeding at least once per day is adequate as a minimum standard. Some marine mammals do not require multiple feedings per day; for example, polar bears in maternity dens. Attending veterinarians and animal handlers are free to set up feeding regimens that include multiple feedings per day when they believe it is appropriate for the animal.

Paragraph (b) of proposed § 3.105 includes the requirement that food receptacles be placed so as to minimize contamination of the food. Paragraph (d) of proposed § 3.105 includes the requirement that the maintenance of thawed food be conducted in a manner that will minimize contamination. One commenter said the wording in both these paragraphs should be changed to require that food be handled so as to eliminate contamination.

We are not making any changes based on this comment. This point was debated during the negotiated rulemaking sessions. The Committee reached consensus that, even under ideal circumstances, it may not be possible to completely eliminate contamination of food by microbes, as they are present in the air. Therefore, the term “eliminate” would create a standard impossible to attain. As for contamination by chemicals, proposed § 3.101 contains provisions regarding storage to ensure that food supplies are not contaminated by toxic substances. The Committee agreed that, for these reasons, the term “minimize” would be more appropriate.

Paragraph (c) of proposed § 3.105 includes the requirement that marine mammal feeding records noting the estimated individual daily consumption be maintained at the facility for a period of 1 year and made available to APHIS for inspection. We clarified this requirement in the preamble to the proposed rule as follows: For marine mammals that are individually fed, and not subject to public feeding, the feeding records should reflect an accurate account of food intake; for animals fed, in part, by the public, and for large, group-fed colonies of marine mammals where individual rations are not practical or feasible to maintain, the daily food consumption should be estimated as precisely as possible. The Committee believed that it would not be necessary to add this clarification to the proposed regulatory language.

However, a few commenters said that the clarification for feeding records should be added to the regulatory language in § 3.105(c). In order to make the section clear for all regulated entities, we are adding the clarification to paragraph (c).

Proposed § 3.107 concerns sanitation with regard to primary enclosures, food preparation, housekeeping, and pest control.

Paragraph (c) of proposed § 3.107 requires that buildings and grounds, as well as exhibit areas, be kept clean and in good repair and that fences be maintained in good repair. One commenter said this language is overly broad and should be revised to take into account special situations relating to natural open water facilities.

We are not making any changes based on this comment. The purpose of these requirements is to minimize risk of injury to the marine mammals from contaminants found in unclean surroundings and from hazards due to poor condition of fences, buildings, and grounds. We see no reason why exceptions need to be made for natural open water facilities. For example, it is particularly important that fencing and water barriers in open water facilities be kept in good repair to ensure containment of the animals within the enclosure as well as protection from animals outside the enclosure and sharp projections or edges on broken fencing.

Proposed § 3.108 contains standards for employees and attendants that handle marine mammals.

Paragraph (b) of proposed § 3.108 requires that facilities provide and document participation in and successful completion of a facility training course for employees. Paragraph (b) also specifies minimum components of the course, including teaching species appropriate husbandry techniques, handling techniques, and reporting protocols. One commenter said that the requirements in paragraph (b) would place an unnecessary burden on facilities that already have qualified staff and infringe on the rights of facilities to determine the aptitude of staff and training methodologies.

We are not making any changes based on this comment. In the preamble to the proposed rule, we said that APHIS had received public complaints about the lack of training and applicable experience of employees in licensed facilities. The Committee made several changes and additions to § 3.108 in order to remedy this problem. Adding the requirement for a facility training course was one of the additions. We continue to believe that a facility training course would be an effective means of ensuring that employees and attendants are equipped with the knowledge necessary to care for the marine mammals properly and meet the requirements of the regulations. The facility training course is a one time requirement for each employee, and the minimal content for training courses specified in paragraph (b) would not impose specific training methodologies. Therefore, we do not believe it imposes an undue burden on facilities.

Paragraph (d) of proposed § 3.108 requires that trainers and handlers meet professionally recognized standards for experience and training. Several commenters asked to what professionally recognized standards we are referring. Another commenter said that we should emphasize that paragraph (d) does not require the use of the standards of any particular group or organization.

We are making no changes based on these comments. We stated in the preamble to the proposed rule that, for purposes of enforcing the requirement, APHIS would use available professional organization standards as a point of reference. We may also use the experts within the marine mammal community as resources, as well as our own expertise and any professionally recognized standards.

One commenter said that we should add a sentence to paragraph (d) to require that trainers and handlers have demonstrable experience and appropriate formal training in marine mammal husbandry and care. We are not making any changes based on this comment. Paragraph (a) of proposed § 3.108 requires that employees and attendants (including trainers and handlers) be adequately trained and that supervisors have demonstrable experience in marine mammal husbandry and care.

Proposed § 3.109 concerns social housing and separation of marine mammals.

Proposed § 3.109 requires that marine mammals known to be social in the wild must be housed with at least one compatible animal of the same or biologically related species, except when the attending veterinarian, in consultation with the husbandry/training staff, determines that such housing is not in the best interests of the marine mammal's health or well-being. One commenter said that a situation in one marine park in which an orca is housed with dolphins was discussed during the negotiated rulemaking and was determined to be acceptable under this requirement. The commenter asked that we confirm this.

The commenter is correct that the Committee discussed a marine park that houses an orca with Pacific white-sided dolphins as companions. This arrangement is acceptable under the proposed regulations as long as the animals are compatible and a second compatible orca is not available.

As noted above, proposed § 3.109 includes an exception to the requirement that marine mammals known to be social in the wild must be housed with at least one compatible animal of the same or biologically related species. The exception is if the attending veterinarian in consultation with the husbandry/training staff determines that such housing is not in the best interests of the marine mammal's health or well-being. One commenter said that the attending veterinarian should also consult with facility management before making a decision to house a marine mammal separately.

We are making no changes based on this comment. The Committee discussed whether to require consultation with facility management when making a decision concerning housing a marine mammal separately. The Committee agreed not to add this requirement, in part because of potential conflicts between economic interests and the best interests of the animal. Facility management is typically involved in the activities of husbandry and training staffs and would not be without input into these decisions. Further, the proposed requirement would not prevent attending veterinarians from consulting with facility management if they choose.

Proposed § 3.109 also requires that marine mammals not be housed near other animals that cause them unreasonable stress or discomfort or interfere with their good health. One commenter asked that we remove the word “unreasonable” before “stress and discomfort.” The commenter said that the word “unreasonable” is too open to interpretation.

We are making no changes based on this comment. The Committee debated whether to include a qualifier such as “unreasonable” in this requirement. The Committee reached consensus that a qualifier was necessary because no animal, regardless of the conditions of its housing and even in the wild, is without some degree of stress or discomfort at various times. A requirement that marine mammals be maintained completely without stress or discomfort would be unattainable.

Proposed § 3.109 also requires that marine mammals that are housed separately must have a written plan that includes information on the justification for the length of time the animal will be kept separated or isolated, the type and frequency of enrichment, plans for interaction if appropriate, and provisions for periodic review of the plan by the attending veterinarian. The plan must be approved by the attending veterinarian and developed in consultation with the husbandry/training staff.

One commenter asked why the plan is needed and who the plan is for. We are making no changes based on this comment. Marine mammals are generally social animals. When marine mammals are kept in isolation without the companionship of other marine mammals, it is necessary to enrich their environment in other ways to promote their well-being. We proposed to require the plan to ensure that marine mammals kept in isolation are kept that way for valid reasons and that the animals' special enrichment needs are considered. The plan would be a valuable tool for the facility for making sure personnel caring for the marine mammals understand the special needs of the marine mammals. The plan would also be used by APHIS to determine if the animals' special needs are being considered and if the provisions of the plan are being followed.

Proposed § 3.110 contains minimum standards of veterinary care for marine mammals.

Paragraph (a) of proposed § 3.110 requires that newly acquired marine mammals be isolated from resident marine mammals. One commenter asked if marine mammals that are seasonally transported between facilities would be considered newly acquired animals for purposes of this requirement. The commenter further said that such animals should not be considered newly acquired.

We are not making any changes based on this comment. If marine mammals are moved to a facility that is not their permanent residence, they would be considered newly acquired to that facility, even if they move there every summer, for example, as a result of regular seasonal movement. However, under proposed § 3.110(a), if the newly acquired marine mammals have a known medical history, they must be isolated only until the attending veterinarian determines the animals are in good health. This may be accomplished on the day of arrival at the facility. We believe the requirement for isolation of newly acquired marine mammals is necessary to protect the health of resident marine mammals.

Paragraph (b) of proposed § 3.110 concerns holding facilities for medical treatment or medical training. Proposed paragraph (b) requires that, if a marine mammal is to be held in an enclosure that does not meet the minimum space requirements for primary enclosures for longer than 2 weeks, it must be justified in writing by the attending veterinarian on a weekly basis. One commenter said that this requirement should be changed so that if a marine mammal is to be held in an enclosure smaller than required for longer than a few hours, it must be justified in writing by the attending veterinarian on a daily basis.

We are not making any changes based on this comment. The same comment was received regarding a similar requirement under proposed § 3.104(a) regarding holding marine mammals in smaller than required enclosures for nonmedical training, breeding, or holding. In response to that comment, we said that it would be an unnecessary burden to require such frequent justification. Depending on the design of the facility, it can often take a few hours just to transfer a marine mammal from its primary enclosure into the smaller enclosure, making such frequent justification impractical. We are not aware of any evidence showing that it would be harmful to marine mammals to spend up to 2 weeks in an enclosure smaller than required for primary enclosures. Keeping them in such enclosures for longer periods of time must be weighed by the attending veterinarian in terms of harm versus benefits to the animals, and we believe a weekly justification is adequate to accomplish this. We believe the proposed requirements are adequate to ensure that marine mammals are not kept in enclosures smaller than required for longer than is necessary.

One commenter expressed concern and asked why, in proposed § 3.110(b), the space requirements for isolation of marine mammals in natural lagoons and coastal facilities are different than for closed system facilities. We are not making any changes based on this comment. Paragraph (b) begins by stating that all facilities must have holding facilities in place and available to meet the needs for isolation, separation, medical treatment, and medical training of marine mammals. The last sentence of paragraph (b) states that, in natural lagoon or coastal enclosures, separation of newly acquired marine mammals must be accomplished using separate enclosures situated within the facility, located to prevent direct contact with resident animals and to minimize the risk of potential airborne or waterborne contamination between newly acquired and resident animals. This clarification for natural lagoons and coastal facilities is necessary because water circulation cannot be controlled or isolated in such facilities. Paragraph (b) makes no distinction between natural lagoon and coastal facilities and closed system facilities with regard to space requirements.

One commenter suggested we move the last sentence of proposed paragraph (b) of § 3.110 to the end of paragraph (a). We are not making any changes based on this comment. Paragraph (a) addresses the need to isolate newly acquired marine mammals. Paragraph (b) addresses the use of isolation facilities, including the use of such facilities for newly acquired animals. We believe that the last sentence of paragraph (b) is appropriately placed.

Two commenters were concerned that the requirements for isolation in proposed § 3.110 (a) and (b) could be construed to require separate quarantine facilities with tanks, filters, and water treatment systems independent of the rest of the facility. The commenters said that, if this is the intent, it would be inappropriate and cost prohibitive. Both commenters also said that, since it is clear that this is not the intent for natural lagoons and coastal enclosures (paragraph (b) acknowledges that water circulation cannot be controlled or isolated in such systems), the requirement should be the same for other types of enclosures.

We are not making any changes based on these comments. Section 3.110 has always contained a requirement for isolation of newly acquired animals and for holding facilities adequate to accomplish isolation. These requirements, therefore, are not new. In general, our use of the word “isolation” corresponds with the common veterinary meaning of prevention of contact with other animals, directly as well as through water or air. Bacteria and disease can be transmitted through water and air. However, each facility will present unique concerns over how to effectively isolate an animal. Completely separate tanks, filters, and water filtration systems are ideal. In other cases, a single but efficient water filtration and treatment system may accomplish the same thing. Preventing the exchange of airborne pathogens presents the greatest challenge. Our intent is that facilities keep newly acquired animals and animals that need to be isolated for medical purposes as separate as possible from the known healthy animals in the facility. APHIS will work with each licensed and registered facility to address concerns and to help facilitate compliance with this requirement.

A few commenters were concerned that the Committee generally added too much detail to the veterinary care requirements in proposed § 3.110, giving APHIS inspectors opportunities to question veterinarians' protocols. In particular, one commenter cited the requirement in proposed § 3.110(f) that all cetaceans and sirenians be physically examined by the attending veterinarian at least annually and that the examinations include a hands-on physical examination, hematology and blood chemistry, and other diagnostic tests as determined by the attending veterinarian.

We are not making any changes based on these comments. APHIS has been concerned about the quality of veterinary care provided to marine mammals at certain facilities. These concerns were discussed during the negotiated rulemaking. The Committee agreed that it was necessary to provide more specific standards to clarify what is meant by providing adequate veterinary care to marine mammals. The proposed language is based on currently accepted practices and professional veterinary standards. We do not believe that the language the Committee agreed to is overly burdensome, but rather describes the minimum of what is needed in a preventive health program for marine mammals.

Paragraph (g)(1) of proposed § 3.110 concerns necropsy of marine mammals and includes the requirement that a final necropsy report include a pathological diagnosis. One commenter said that, in the past 15 years, he has received several pathology reports from the laboratory stating the cause of death cannot be determined.

We are not making any changes based on this comment. It is possible for a pathological diagnosis to be inconclusive (that is, cause of death cannot be determined), and this is an accepted diagnosis. The intent of the requirement is to ensure that histopathology is done as part of a necropsy and evaluated by an expert.

Proposed paragraph (g)(1) also requires that necropsies be conducted by or under the supervision of the attending veterinarian. One commenter asks what to do if the attending veterinarian is unavailable because he or she is out of town. We are not making any changes based on this comment. The intent of the requirement is that the necropsy be performed or supervised by a veterinarian experienced in marine mammal medicine. If an attending veterinarian is out of town for an extended period of time, alternative veterinary medical coverage should be arranged. Usually, the attending veterinarian appoints a back-up veterinarian for emergencies. It would be appropriate for the back-up veterinarian to perform the necropsy. However, if the attending veterinarian will be available within a few days, it may be preferable to cool and store the animal until the necropsy can be performed upon the attending veterinarian's return.

Paragraph (g)(2) of proposed § 3.110 concerns maintenance of necropsy reports. This paragraph was not agreed to by consensus of the Committee and was, therefore, open for all public comment, including comments from Committee members.

We proposed in paragraph (g)(2) that necropsy records must be maintained at the facility for a period of 3 years and be presented to APHIS inspectors when requested. We explained in the preamble to the proposed rule that we intend this to mean that the records must be maintained at the home facility of the marine mammal. This requirement would replace the current requirement that necropsy records be maintained at the facility where the marine mammal died. One commenter said that we should require necropsy reports to be maintained both at the home facility and at the facility where the marine mammal died. The commenter said this would be beneficial because some facilities maintain marine mammals only on a seasonal basis, and requiring them to retain necropsy records on animals that have died at their facility would make it possible to identify and compare problems resulting in deaths in successive years.

We agree with the commenter that it would be beneficial to require necropsy records to be maintained at both the home facility and the facility where the marine mammal died (if these are different facilities). Therefore, we are making the appropriate change in § 3.110(g)(2).

One commenter said that necropsy reports should be submitted to APHIS upon completion by or approval of the attending veterinarian. The commenter stated that this would allow necropsy reports to be obtained by interested persons for purposes of scientific inquiry into the causes of captive marine mammal mortality.

We are making no changes based on this comment. Although the provisions of proposed paragraph (g)(2) are not based on consensus language, the issue addressed by the commenter was discussed during the negotiated rulemaking. Several members of the Committee had strong reservations about the use and interpretation of necropsy reports by untrained individuals or individuals who do not have complete knowledge of an animal's history. We believe that there would be no enforcement benefits or benefits to the animals from requiring necropsy reports to be submitted to APHIS and that it would unnecessarily increase the reporting burden on facilities. Persons interested in pursuing scientific inquiry into captive marine mammal mortality can request information directly from facilities.

Proposed § 3.112 contains requirements for carriers and intermediate handlers involved in the transportation of marine mammals.

Paragraph (c) of proposed § 3.112 concerns temperature. It requires that carriers and intermediate handlers whose facilities fail to maintain a temperature within the range prescribed by the regulations may accept a marine mammal for transport only if the marine mammal is accompanied by a certificate executed and signed by the attending veterinarian. The certificate would have to state that the marine mammal is acclimated to an air temperature range specified on the certificate that is either lower or higher than the prescribed range. Under proposed § § 3.117 and 3.118, the prescribed temperature range is between 7.2 °C and 23.9 °C or 45 °F and 75 °F.

Two commenters were concerned about the maximum temperature in the prescribed range (75 °F) and the requirement to provide an acclimation certificate for transporters whose facilities exceed that temperature. The commenters said that the southern United States experiences temperatures over 75 °F for half of the year and that requiring an acclimation certificate for marine mammals maintained and transported in that part of the country would be onerous. One commenter said that this temperature range could induce some carriers to refuse to accept marine mammals for transport, even with an acclimation certificate, for fear of liability. The other commenter suggested setting the maximum temperature for the prescribed range at 90 °F.

We are not making any changes based on these comments. A primary problem with transporting marine mammals is heat stress. As cetaceans, pinnipeds, and sirenians are generally not transported in water, or only partially submerged, their thermoregulatory capacity is already being stressed. The Committee included the proposed requirement in paragraph (c) to help minimize heat-related stress during transport. Paragraph (a) of proposed § 3.112 requires that marine mammals consigned to transport be accompanied by a health certificate signed by the attending veterinarian. The additional requirement of obtaining an acclimation certificate from the attending veterinarian would add minimal burden.

Paragraph (d) of proposed § 3.112 requires that, following the arrival of any marine mammal at the animal holding area of the terminal cargo facility, carriers and intermediate handlers must attempt to notify the consignee who is to receive the marine mammal at least once in every 6-hour period. One commenter said that, since proposed § 3.116(a) requires that all marine mammals be accompanied during transport by a licensed veterinarian, employee, and/or attendant of the shipper or receiver, the requirement in proposed § 3.112(d) is unnecessary and should be deleted.

We are not making any changes based on this comment. We recognize that the notification requirement in proposed § 3.112(d) may not be necessary in most cases, since the marine mammal would be accompanied by an attendant at all times. However, there may be unforeseen circumstances that would make notification necessary; for example, a marine mammal shipped on a commercial flight may be inadvertently sent to the wrong location.

Proposed § 3.113 contains standards for primary enclosures used to transport marine mammals.

Paragraph (b) of proposed § 3.113 concerns straps, slings, harnesses, and other devices used to support or restrain marine mammals in their enclosures. The introductory text of paragraph (b) reads as follows:

We are making no changes based on this comment. The wording for paragraph (b) was the wording agreed to by the Committee. We do not believe that adding the word “if” changes the meaning of the sentence, since the use of straps, slings, or other such devices is clearly not required.

One commenter said we are inconsistent throughout § § 3.113, 3.114, 3.117, and 3.118 with the use of the terms “primary enclosure” and “primary transport enclosure.” The commenter said that, since all of these sections concern transportation, the term “primary transport enclosure” should be used throughout.

In the preamble to the proposed rule, we explained that throughout these sections, we would use the term “primary transport enclosure” whenever we believed the term was necessary for clarity. In other places, the proposed regulations specify “primary enclosure used to transport marine mammals,” and we believed in those places that the intent was clear. Additionally, all of these sections appear in the proposed regulations under the heading “Transportation Standards.” However, in reviewing the proposed rule, we realized that in two places we inadvertently failed to use either the term “primary transport enclosure” or “primary enclosure used to transport marine mammals.” These places are in § 3.113(c)(2) and in § 3.114(d). For consistency, we are changing “primary enclosure” to “primary transport enclosure” in these two places.

Proposed § 3.116 contains requirements for the care of marine mammals in transit.

Paragraph (a) of proposed § 3.116 includes the requirement that, if the attending veterinarian does not accompany the marine mammal during transit, communication with the attending veterinarian must be maintained in accordance with 9 CFR part 2, § 2.40(b)(3). Section 2.40 contains requirements for adequate veterinary care of any animal covered under the Act that is maintained by a dealer or exhibitor. Paragraph (b)(3) of § 2.40 requires, among other things, that there be daily observations of all animals to assess their health and well-being and that there be a mechanism of direct and frequent communication so that timely and accurate information on problems of animal health, behavior, and well-being can be conveyed to the attending veterinarian.

One commenter said that we should also reference the requirements of 9 CFR part 2, § 2.33(b)(3), in proposed § 3.116(a). The commenter pointed out that § 2.40(b)(3) concerns only marine mammals maintained by dealers and exhibitors, while § 2.33(b)(3) concerns marine mammals maintained by research facilities.

There are very few transports involving marine mammals used in research. We believe the Committee overlooked the reference to § 2.33(b)(3) for this reason. The commenter's suggestion is, however, appropriate, and we are adding the reference to § 2.33(b)(3) to paragraph (a) of proposed § 3.116.

We also received several comments that did not pertain to a particular section of the proposed regulations. They are as follows:

One commenter commended the work of the Committee but said that just because everybody agreed, it does not mean the agreement needs to be a rule; and that it is now up to APHIS to determine if all the agreements reached need to become rules.

We conducted negotiated rulemaking for this rule under the Negotiated Rulemaking Act of 1990 (5 U.S.C. 561 et seq. ) and the Federal Advisory Committee Act (5 U.S.C. App. I). Under the rules governing the negotiated rulemaking process, and in accordance with the organizational protocols established by the Committee, we agreed to publish as a proposed rule any consensus language developed during the Committee meetings unless substantive changes were made as a result of authority exercised by another Federal Government entity. APHIS was a voting member of the Committee and, therefore, was in agreement with the consensus language published in the proposed rule. In this final rule, we have exercised our oversight responsibility and have made minor changes based on concerns of commenters when we believed they were necessary, and other minor changes when deemed appropriate.

One commenter asked that the Committee work toward consensus on the remaining five sections of the marine mammal regulations. These five are § § 3.102, 3.103, 3.104 (with the exception of paragraph (a)), 3.106, and 3.111. These sections concern, respectively, indoor facilities, including temperature, ventilation, and lighting; outdoor facilities; space requirements; water quality; and swim-with-the-dolphin programs. Two other commenters were particularly concerned that the space requirements in § 3.104 (b) and (c) and the water quality requirements in § 3.106 were not revised.

The charter for the Committee (under the Federal Advisory Committee Act) has expired. In addition, during the negotiated rulemaking meetings, the Committee agreed that consensus on the remaining five sections was most likely not possible. For these reasons, we have decided to draft proposed revisions to these sections without the use of negotiated rulemaking. We plan to publish proposed changes for these sections in the near future, and these changes will be open for public comment.

One commenter asked that we prohibit physical interactions between captive marine mammals and the public, particularly in public petting and feeding displays. The commenter further stated that the proposed regulations would not significantly improve the welfare of captive cetaceans in petting and feeding displays. We are not making any changes based on this comment. On September 4, 1998, APHIS published in the Federal Register (63 FR 47128-47151, Docket No. 93-076-10) a final rule establishing standards for swim-with-the-dolphin interactive programs. APHIS is evaluating the issues surrounding these programs, and intends to publish proposed amendments to interactive program regulations in the future.

Another commenter generally opposed capture, breeding, transport, and public display of cetaceans. We are not making any changes based on this comment. It is not within our authority under the Act to prohibit captivity and display of marine mammals. We believe that the regulations finalized in this document will help to ensure the well-being of marine mammals in captivity.

One commenter recommended setting a maximum daily period during which captive marine mammals may be viewed by humans. The commenter said this is necessary to allow marine mammals time to meet their social and physical needs. The same commenter also asked that we require facilities to provide continual access to refuge areas for marine mammals on public display, where they can withdraw from both visitor attention and other activities.

We are not making any changes based on this comment. We are not aware of any scientific information that would support provisions to limit exhibition time or require designated areas where marine mammals can obtain refuge from being viewed by the public. For displays that allow the public to enter the animal's enclosure (swim-with-the-dolphin programs), the regulations provide for a sanctuary area that allows the cetaceans to avoid direct human interaction with members of the general public if they choose, and limit the amount of time such interaction can take place. In other pools, there is sufficient space to allow animals to distance themselves from the viewing public if they desire.

One commenter said that, in general, the care in the commenter's facility is consistent with the proposed rule, but the proposed rule will increase documentation requirements, imposing additional paperwork and administrative burdens. We are not making any changes based on this comment. We recognize that additional documentation can seem burdensome, especially to those facilities that maintain a high level of care for their marine mammals. However, the Committee believed that the requirements added in the proposed rule are necessary to verify and ensure that all facilities are complying with the regulations. The reporting and recordkeeping requirements in the proposed rule have been approved by the Office of Management and Budget under the Paperwork Reduction Act.

One commenter said that the proposed rule does not account for the special requirements of research institutions. Specifically, the commenter said that the proposed regulations do not address the need for research faculty, graduate students, and post-doctorate students to participate with the attending veterinarian and husbandry personnel in decisions affecting animal training and research protocols, and the proposed regulations do not offer a role for the Institutional Animal Care and Use Committee (IACUC).

We are not making any changes based on this comment. The proposed regulations do not prevent research facilities from allowing research faculty, graduate students, and post-doctorate students to participate in decisions made by the attending veterinarian and husbandry personnel. We do believe that requiring specific qualified individuals (the attending veterinarian or husbandry personnel) to be ultimately responsible for certain decisions is necessary to ensure proper care of the animals under the Act. All IACUC responsibilities are addressed in 9 CFR part 2 of the regulations. We do not believe any responsibilities given to the attending veterinarian by the proposed regulations are in conflict with IACUC responsibilities.

We are making minor editorial changes for clarity and consistency. For example, we are replacing the word “which” with the word “that” and the word “shall” with the word “must” where appropriate. None of these changes affects the meaning or intent of the regulations.

Therefore, for the reasons given in the proposed rule and in this document, we are adopting the proposed rule as a final rule, with the changes discussed in this document.

This rule has been reviewed under Executive Order 12866. The rule has been determined to be significant for the purposes of Executive Order 12866 and, therefore, has been reviewed by the Office of Management and Budget.

This rule amends the Animal Welfare Act regulations concerning the humane handling, care, treatment, and transportation of marine mammals in captivity. These regulations were developed by the Marine Mammal Negotiated Rulemaking Advisory Committee and APHIS and are necessary to ensure the minimum standards for the humane handling, care, treatment, and transportation of marine mammals in captivity are based on current general, industry, and scientific knowledge and experience.

There are 116 establishments that contain marine mammals in the United States: 40 aquariums, 70 zoos, and 6 research facilities. Of the aquariums, 28 are private, 5 belong to small cities, and 7 are owned by States. Of the zoos, 19 are private, 12 are owned by large cities, 23 are owned by small cities, 3 are owned by counties, and 13 belong to States. Of the research facilities, two are privately owned and four are owned by the public (such as State universities). The average annual revenue for an establishment is approximately $1.46 million. Nearly 95 percent of the establishments have annual revenues of less than $5 million and, thus, are considered to be small according to the Small Business Administration size standards. 1 There were 1,429 marine mammals in these establishments during FY 1997. These included 357 Group I cetaceans, 89 Group II cetaceans, 796 Group I pinnipeds, 16 Group II pinnipeds, 39 sirenians, 21 mustelidae and 111 polar bears. (Group designations for cetaceans and pinnipeds are as shown in Table III of § 3.104 of the regulations.) The Atlantic bottlenose dolphin, harbor seal, California sea lion, and polar bear are the predominant varieties of captive marine mammals, accounting for approximately 74 percent of the total number of captive marine mammals. The second largest group includes the West Indian manatee, walrus, common dolphin, Pacific bottlenose dolphin, and Atlantic white-sided dolphin. These represented 13.3 percent of the total number of captive marine mammals in FY 1997.

Arboreta and botanical or zoological gardens comprise an important subgroup of the amusement parks industry, generating more than $653 million in revenues and attracting close to 50 million visitors annually. There were 448 establishments in this subgroup in 1997, including the 116 that are regulated for marine mammals. About 27 percent of these are operated for-profit; the rest are nonprofit organizations owned publicly by States, counties, or cities, or owned privately. Ten percent of the 116 facilities regulated for marine mammals display regulated captive marine mammals exclusively; the others may exhibit a combination of marine mammals and terrestrial animals. Some facilities licensed to exhibit marine mammals host only a single variety of marine mammal (e.g., only dolphins, only harbor seals, or only polar bears). Marine mammals account for a very small fraction of all animals in captivity, which number in the hundreds of species.

Most facilities exhibiting marine mammals charge admission fees. Overall, visitor admission fees cover less than 30 percent of the annual budget of zoos and aquariums, although the fees vary substantially between facilities. A few facilities, mostly those that are city owned, do not charge visitors for admission. Fees range from $1 to $41 for adults, from $0 to $33 for children, and from $0 to $36 for seniors. Admission rates to the for-profit facilities are higher than those of nonprofit facilities, which have some of their budget covered through appropriations and donations. 2 If the provisions of this rule significantly increase the operational expenses of a facility, admission fees for that facility could be increased. However, the increases in operational expenses as a result of this rule should not have any significant effect on entrance fees in most facilities.

Other than admission charges, these facilities often generate income by renting space for large group functions such as family reunions, wedding receptions, and corporate parties. City-and State-owned facilities finance their budgets through annual appropriations, membership sales, concessions, grants, and donations. The principal sources of income for privately owned, nonprofit establishments include food service, funding drives, membership dues, gift shops, grants, and donations. Many facilities encourage membership through yearly passes that also provide members of one facility with access to other similar facilities. Some zoos offer guided excursions to other parts of the world. A portion of the generated income is often directed to conservation efforts.

This rule is intended to result in clearer, more easily understood regulatory language and enhanced levels of care for marine mammals. Alternatives to this rule were well discussed and debated during the course of the negotiated rulemaking meetings, and the consensus language reflects the best efforts of all participating parties to ensure the health and well-being of marine mammals in captivity.

Several of the amendments simplify and clarify the language of the existing requirements without requiring any substantial changes. Some of the amendments will result in some additional costs for facilities housing marine mammals if they are not already in compliance with these standards. Since approximately 90 percent of the facilities already meet the standards set by consensus and already practice sound marine mammal husbandry, costs for them should be unaffected. For the remaining facilities, increased costs as a result of this rule will likely be passed on to the public in the form of increased admission fees or will result in changes in the facility's collection size or diversity.

While it is difficult to quantify all the benefits of this rule, the conditions of captive marine mammals are expected to improve as a result of this action. As stated above, we believe that approximately 90 percent of licensed marine mammal facilities are already meeting or exceeding the requirements of this rule. Therefore, the effect of the requirements will be most apparent within the approximately 10 percent of licensed marine mammal facilities that are not already meeting or exceeding these requirements. The requirements that will likely have the most effect on these facilities are the requirements that clarify veterinary care for marine mammals. Preventive care during annual or semiannual examinations may potentially reduce emergency veterinary costs and result in fewer marine mammal deaths because of improved health of the animals. Healthier animals should also have an increased life expectancy and improved reproductive outcomes. In general, we expect that any improvements in the care and maintenance of marine mammals may be reflected in lower levels of animal distress and suffering and improved quality of life. In addition, improved conditions for captive marine mammals should result in increased satisfaction for members of the public who view these animals in zoos and aquariums.

The following provisions of this rule could generate minor cost increases in facilities that do not already meet these standards.

Section3.101 currently requires facilities to have a contingency plan addressing relocation during an emergency or natural disaster. This final rule will require that additional and more detailed contingency plans be kept.

In § 3.105, we will require that a daily record of animal feeding be kept by an employee or attendant of the facility, noting daily food consumption of the marine mammals in the facility. Individual feeding records will have to be maintained at the facility for a period of 1 year. Personnel costs to provide for planning, observation, documentation, and record maintenance may increase as a result of these requirements, depending on present staffing.

In § 3.108, we are expanding the training requirements for employees and attendants. Facilities will have to provide and document participation in, and successful completion of, a facility training course by a sufficient number of employees. (This means a number sufficient to maintain the prescribed level of husbandry set forth in the regulations.) Training will need to be done under the direct supervision of experienced trainers who meet professionally recognized standards for their own experience and training. The length of such training sessions is estimated here to be about 4 hours for each trainee. Any increase in costs as a result of this requirement will depend on the current training practice of a facility.

In § 3.109, we are requiring a written plan for any animals kept in isolation. The plan must be approved by the attending veterinarian and developed in consultation with the husbandry/training staff of the facility. The plan must include justification for the length of time an animal will be isolated, the type and frequency of enrichment used to offset the separation or isolation, the interactions planned, and provision for a periodic review by the attending veterinarian. At present, there are not more than 20 animals being housed separately throughout the country. Such record preparation and review by professionals will probably not require more than 30 minutes per animal per week.

In § 3.110, we are adding medical recordkeeping requirements for each animal. This will probably not entail more than 30 minutes for each animal twice per year. We are also adding requirements concerning examinations of marine mammals by the attending veterinarian. All marine mammals in a facility will have to be visually examined at least semiannually and physically examined when deemed necessary, except that cetaceans and sirenians will have to be physically examined at least annually. The physical examinations will have to include a hands-on physical examination, hematology and blood chemistry, and other diagnostic tests as determined by the attending veterinarian. Examinations take an average of approximately 2 hours per animal. In § 3.110 will also require that both a preliminary and final necropsy report be completed by the attending veterinarian. While most facilities currently provide preliminary and final reports, only one necropsy report is required under current regulations.

In § 3.112, we will require that a health certificate, and possibly an acclimation certificate, signed by the attending veterinarian accompany each animal that is moved to another facility. Issuance of these certificates should not take more than 15 minutes per animal, with an average of two animals moving per facility per year.

In § 3.116, we will require that any transport of a marine mammal for longer than 2 hours duration requires preparation of a transport plan. Preparing such transport plans should take about 1/2 to 2 hours, depending on the circumstances. Most facilities transport marine mammals fewer than two times per year. Facilities that transport marine mammals often have protocols already in place to address this issue. We will require that certain pregnant marine mammals, unweaned young, nursing mothers with young, and marine mammals with certain medical conditions be transported only after approval of the attending veterinarian and with a determination by the attending veterinarian as to whether a veterinarian should accompany the marine mammal during transport. We estimate that not more than five marine mammals that fit one of these categories are transported per year. We will also require that an employee or attendant travel with polar bears being transported to provide care for the animal. Nationally, not more than 10 polar bears are transported per year; an average transport by land takes about 12 hours.

Taken together, these requirements could result in total increase in expenditures of about $473,000 for all regulated facilities together (see Table A for details). This would yield an average increase in expenditures of $378 per animal per year or about $1.04 per animal per day. The table below details the potential additional expenses for marine mammal facilities as a result of the requirements in this rule.

Because this regulatory action was initiated at the request of the major stakeholders and was undertaken using negotiated rulemaking, the resulting rule is broadly supported by affected groups. Additionally, since 90 percent of licensed marine mammal facilities are already meeting or exceeding the requirements, the actual economic effect of this rule is expected to be minimal.

Under these circumstances, the Administrator of the Animal and Plant Health Inspection Service has determined that this action will not have a significant economic impact on a substantial number of small entities.

This program/activity is listed in the Catalog of Federal Domestic Assistance under No. 10.025 and is subject to Executive Order 12372, which requires intergovernmental consultation with State and local officials. (See 7 CFR part 3015, subpart V.)

This final rule has been reviewed under Executive Order 12988, Civil Justice Reform. It is not intended to have retroactive effect. This rule will not preempt any State or local laws, regulations, or policies, unless they present an irreconcilable conflict with this rule. The Act does not provide administrative procedures which must be exhausted prior to a judicial challenge to the provisions of this rule.

In accordance with the Paperwork Reduction Act of 1995 (44 U.S.C. 3501 et seq. ), the information collection or recordkeeping requirements included in this rule have been approved by the Office of Management and Budget (OMB) under OMB control number 0579-0115.

These interim rules implement section 4(k)(5) of the Bank Holding Company Act (“BHC Act”) (12 U.S.C. 1843(k)(5)), which was added to the BHC Act by section 103 of the Gramm-Leach-Bliley Act (Pub. L. 106-102, 113 Stat. 1338 (1999)) (the “GLB Act”), and section 5136A(b)(3) of the Revised Statutes (12 U.S.C. 24a(b)(3)) (“section 5136A”), as enacted by section 121(a) of the GLB Act. The GLB Act amended the BHC Act to allow bank holding companies and foreign banks that qualify as financial holding companies to engage in a broad range of activities that are defined by the GLB Act to be financial in nature or incidental to a financial activity, or that the Board, in consultation with the Secretary of the Treasury, determines to be financial in nature or incidental to a financial activity. 1 Bank holding companies that do not qualify as financial holding companies are limited to engaging in those nonbanking activities that were permissible for bank holding companies prior to the enactment of the GLB Act. The GLB Act also allowed national banks to establish “financial subsidiaries.” A financial subsidiary may engage in most, but not all, activities that are financial in nature or incidental to a financial activity for a financial holding company under section 4(k)(4) of the BHC Act (12 U.S.C. 1843(k)(4)), and may engage in additional activities that are determined by the Secretary in consultation with the Board to be financial in nature or incidental to a financial activity, as well as in activities that are permissible for national banks to engage in directly. 12 U.S.C. 24a.

The activities that were defined by the GLB Act to be financial in nature or incidental to a financial activity are generally set forth in section 4(k)(4) of the BHC Act (12 U.S.C. 1843(k)(4)). In addition, sections 4(k)(5) of the BHC Act and 5136A(b)(3) require the Board and the Secretary, respectively, to define the extent to which three other generally described activities are financial in nature or incidental to a financial activity. The Board and the Secretary may act by regulation or order. The Board must define these activities in a manner consistent with the purposes of the BHC Act, and the Secretary must apply similar standards. The three activities are:

(i) Lending, exchanging, transferring, investing for others, or safeguarding financial assets other than money or securities;

(ii) Providing any device or other instrumentality for transferring money or other financial assets; and

(iii) Arranging, effecting or facilitating financial transactions for the account of third parties.

These three categories encompass a wide range of activities. Included in these categories are some activities in which financial holding companies and national banks and their financial subsidiaries are already permitted to engage. For example, these categories include providing safe deposit services, electronic funds transfer activities, credit and stored-value card activities, securities brokerage activities, as well as finder activities. The categories were intended, however, to allow financial holding companies and financial subsidiaries to engage in activities that were not otherwise permitted for these companies.

The Board and the Secretary therefore solicit comment regarding what activities should be defined by rule to be financial in nature or incidental to a financial activity for purposes of sections 4(k)(5) and 5136A(b)(3). In addition, the Board and the Secretary solicit comment on an interim rule that creates a mechanism, described below, that would permit agency action by order on proposals to engage in specific activities pursuant to section 4(k)(5).

The Board and the Secretary are promulgating, on an interim basis, rules that create a procedure by which a financial holding company or a financial subsidiary may obtain a determination from the Board or the Secretary, respectively, that a specific proposed activity does, in fact, fall within one of the three defined types of activities.

The interim rules also provide that the Board and the Secretary will consult with each other with regard to any request for such a determination. This consultation is required by section 4(k)(2)(A) of the BHC Act (12 U.S.C. 1843(k)(2)(A)), which requires the Board to notify the Secretary of any request under section 4(k) for a determination of whether an activity is financial in nature or incidental to a financial activity, and by section 5136A(b)(1)(B) (12 U.S.C. 24a(b)(1)(B)), which requires similar notification and consultation for proposals raised before the Secretary. Following this consultation, the agency to which the request was made will promptly issue a written determination regarding whether the specific proposed activity falls within one of the three categories of activities listed in sections 4(k)(5) and 5136A(b)(3). The Board and the Secretary believe that requiring financial holding companies and financial subsidiaries that seek to engage in particular activities pursuant to section 4(k)(5) or section 5136A(b)(3) to file requests with the appropriate agency for approval of those activities is necessary at this time because of the broad scope of the statutory language.

Any request made under the interim rules for a determination that an activity falls within one of the three listed categories must be submitted in writing to the Board or the Secretary, as appropriate, and must identify and define the activity for which the determination is sought, including a precise description of what the activity would involve and how and by what entity it would be conducted. The request must also include information that supports the requested determination, and in particular information regarding how the proposed activity falls into one of the three categories and any other information required by the Board or the Secretary.

In reviewing requests to find that a specific activity falls within one of the three categories, the Board and the Secretary will take into account the same factors each must consider when determining whether any activity is financial in nature or incidental to a financial activity. These factors include, among other things, changes in marketplaces in which financial holding companies and banks compete, changes in the technology for delivering financial services, and whether the activity is necessary or appropriate to allow financial holding companies and their affiliates, or banks and their subsidiaries, to compete effectively with any company seeking to provide financial services in the United States. 2

The mechanism for reviewing specific requests under sections 4(k)(5) and 5136A(b)(3) is being adopted on an interim basis to allow interested financial holding companies and financial subsidiaries to take advantage of these authorities immediately. The agencies invite comment on this interim mechanism.

The Board and the Secretary also invite comment generally on what, if any, activities should be defined by rule to be within the authorities granted by sections (4)(k)(5) and 5136A(b)(3). In this regard, the Board's Regulation Y currently employs the term “financial asset” primarily in connection with securities and precious metals. 3 The Board and the Treasury solicit comment regarding what other types of assets should also be considered financial assets for purposes of section 4(k)(5) and section 5136A(b)(3). In this regard, the Board and the Secretary believe that it would be inconsistent with the purposes of the GLB Act and the BHC Act to treat as a financial asset any item that can be purchased or acquired in exchange for a financial instrument such as cash.

Once the appropriate agency has determined that a particular activity is financial in nature or incidental to a financial activity under sections 4(k)(5) or 5136A(b)(3), either by rule or by order, other financial holding companies and financial subsidiaries would be eligible to engage in the activity if applicable requirements are met. A financial holding company must file a notice with the Board within 30 days after commencement of the activity, in accordance with section 4(k)(6) of the BHC Act (12 U.S.C. 1843(k)(6)) and section 225.87 of the Board's Regulation Y (12 CFR 225.87). A national bank seeking to engage in the activity through a financial subsidiary must file a notice with the OCC in accordance with section 5136A and section 5.39(i) of the regulations of the OCC (12 CFR 5.39(i)). In either case, the company must conduct the activity in accordance with the relevant order or rule.

The Board and the Secretary invite comment on all aspects of the proposal and interim rules.

Section 722 of the GLB Act requires the Board to use “plain language” in all proposed and final rules published after January 1, 2000. In light of this requirement, the Board has sought to present its proposed rule in a simple and straightforward manner and has included in the rule examples of activities that would be permissible under the proposed rule. The Board invites comments on whether there are additional steps the Board could take to make the proposed rule easier to understand.

Pursuant to section 605(b) of the Regulatory Flexibility Act, the Agencies certify that the interim rules would not 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. ). The interim rules would reduce the regulatory burden on financial holding companies and financial subsidiaries of national banks by permitting them to engage in an expanded range of activities, if they choose to do so. The interim rules would apply to all financial holding companies and national bank financial subsidiaries, regardless of their size. The interim rules should enhance the ability of financial holding companies and financial subsidiaries, including small financial holding companies and financial subsidiaries, to compete with other providers of financial services in the United States and to respond to technological and other changes in the marketplace in which they compete. Accordingly, a regulatory flexibility analysis is not required.

The provisions of the rule are effective on January 2, 2001 on an interim basis. Pursuant to 5 U.S.C. 553, the Board and the Secretary find that it is impracticable to review public comments prior to the effective date of the interim rule, and that there is good cause to make the interim rule effective on January 2, 2001, due to the fact that the rule sets forth procedures to implement statutory changes that became effective on March 11, 2000. Specifically, the rule sets forth a mechanism through which the Board and the Secretary may act on requests to find particular activities to be permissible for financial holding companies or financial subsidiaries of national banks pursuant to section 4(k)(5) or 5136A(b)(3). The Board and the Secretary are seeking public comment on all aspects of the interim rule and will amend the rule as appropriate after reviewing the comments.

Board: In accordance with section 3506 of the Paperwork Reduction Act of 1995 (44 U.S.C. Ch. 35; 5 CFR 1320 Appendix A.1), the Board reviewed the interim rule under the authority delegated to the Board by the Office of Management and Budget.

The collection of information requirements in this interim rulemaking are found in 12 CFR 225.86. This information is required to evidence compliance with the requirements of Title I of the GLB Act, which amends section 4 of the Bank Holding Company Act (12 U.S.C. 1843). The respondents are current and future bank holding companies and foreign banking organizations.

The specific written request cited in 12 CFR 225.86(d)(2) provides that a financial holding company that wishes to engage in a particular activity pursuant to section 4(k)(5) of the BHC Act and 12 CFR 225.86(b)(1) must file a request with the Board that it find the proposed activity to fall under one of the three categories of activities listed in section 4(k)(5) and 12 CFR 225.86(b)(1). If the Board has previously determined that the proposed activity falls under one of those three categories, no such request need be made. The request must include information that specifically describes the proposed activity, and that articulates reasons why the activity should be considered to fall under one of the three listed activity categories. There will be no reporting form for this information collection. The agency form number for this written request is FR 4012. The Federal Reserve estimates that approximately 25 financial holding companies will file the requests for Board determination during the first year and that it will take approximately 1 hour to file such request. This would result in an estimated annual burden of 25 hours.

The OMB control number for this interim rule is 7100-0292. The Federal Reserve may not conduct or sponsor, and an organization is not required to respond to this information collection unless the Board has displayed a valid OMB control number.

A financial holding company may request confidentiality for the information contained in this information collection pursuant to sections (b)(4) and (b)(6) of the Freedom of Information Act (5 U.S.C. 552(b)(4) and (b)(6)).

Comments are invited on: (a) Whether the proposed collection of information is necessary for the proper performance of the Federal Reserve's functions, including whether the information has practical utility; (b) the accuracy of the Federal Reserve's estimate of the burden of the proposed information collection, including the cost of compliance; (c) ways to enhance the quality, utility, and clarity of the information to be collected; and (d) ways to minimize the burden of information collection on respondents, including through the use of automated collection techniques or other forms of information technology. Comments on the collection of information should be sent to the Office of Management and Budget, Paperwork Reduction Project, Washington, DC 20503, with copies of such comments to be sent to Mary M. West, Federal Reserve Board Clearance Officer, Division of Research and Statistics, Mail Stop 97, Board of Governors of the Federal Reserve System, Washington, DC 20551.

Treasury: This regulation is being issued without prior notice and public procedure pursuant to the Administrative Procedure Act (5 U.S.C. 553). For this reason, the collection of information contained in this regulation has been reviewed under the requirements of the Paperwork Reduction Act (44 U.S.C. 3507(j)) and, pending receipt and evaluation of public comments, approved by the Office of Management and Budget (OMB) under control number 1505-0179. An agency may not conduct or sponsor, and a person is not required to respond to, a collection of information unless it displays a valid control number assigned by OMB.

Comments concerning the collection of information should be directed to OMB, Attention: Desk Officer for the Department of the Treasury, Office of Information and Regulatory Affairs, Washington, D.C., 20503, with copies to Gary Sutton, Senior Banking Counsel, Office of General Counsel, 1500 Pennsylvania Avenue NW., Room 2014, Washington, DC 20220. Any such comments should be submitted not later than February 2, 2001. Comments are specifically requested concerning:

Whether the proposed collection of information is necessary for the proper performance of the functions of the Secretary, including whether the information will have practical utility; the accuracy of the estimated burden associated with the proposed collection of information (see below); how to enhance the quality, utility, and clarity of the information to be collected; how to minimize the burden of complying with the proposed collection of information, including the application of automated collection techniques or other forms of information technology; and estimates of capital or start-up costs and costs of operation, maintenance, and purchase of services to provide information.

The collection of information in this regulation is in 12 CFR section 1501.2. This information is required to request that the Secretary determine that a particular activity is included within three general categories of activities and therefore that it is financial in nature or incidental to a financial activity. This information will be used to enable the Secretary to evaluate a request for such a determination. The collection of information is required to obtain a benefit. The likely respondents are national banks.

Estimated total annual reporting burden: 100 hours.

Estimated average annual burden hours per respondent: 20 hours.

Estimated number of respondents: 5.

Estimated annual frequency of responses: once.

The Department of the Treasury has determined that this rule does not constitute a “significant regulatory action” for the purposes of Executive Order 12866.

The FAA has determined that good cause exists for making these special conditions effective upon issuance; however, interested persons are invited to submit such written data, views, or arguments, as they may desire. Communications should identify the regulatory docket number and be submitted in duplicate to the address specified above. The Administrator will consider all communications received on or before the closing date for comments. These special conditions may be changed in light of the comments received. All comments received will be available in the Rules Docket for examination by interested persons, both before and after the closing date for comments. A report summarizing each substantive public contact with FAA personnel concerning this rulemaking will be filed in the docket. Commenters wishing the FAA to acknowledge receipt of their comments submitted in response to these special conditions must include a self-addressed, stamped postcard on which the following statement is made: “Comments to Docket No. NM181.” The postcard will be date stamped and returned to the commenter.

On November 1, 2000, Garrett Aviation Services, 1200 North Airport Drive Capital Airport, Springfield, IL, applied for a Supplemental Type Certificate (STC) to modify Dassault Aviation Mystere-Falcon 50 airplanes. The Model Falcon 50 is a small transport category airplane, powered by three AlliedSignal Model TFE 731-3-1C turbofans with a maximum takeoff weight of 38,800 pounds. This airplane operates with a 2-pilot crew and can hold up to 19 passengers. The modification incorporates the installation of dual Collins AHS-3000 Attitude Heading Reference Systems. The AHS-3000 is a replacement for the existing electro-mechanical vertical and directional gyro's, while also providing additional functional capability and redundance in the system. The avionics/electronics and electrical systems installed in this airplane have the potential to be vulnerable to high-intensity radiated fields (HIRF) external to the airplane.

Under the provisions of 14 CFR 21.101, Garrett Aviation Services must show that the Dassault Aviation Mystere-Falcon 50 airplanes, as changed, continue to meet the applicable provisions of the regulations incorporated by reference in Type Certificate No. A46EU, or the applicable regulations in effect on the date of application for the change. The regulations incorporated by reference in the type certificate are commonly referred to as the “original type certification basis.” The regulations included in the certification basis for the Dassault Aviation Mystere-Falcon 50 airplanes include Title 14, Code of Federal Regulations (14 CFR) part 25, as amended by Amendments 25-1 through 25-34, plus additional requirements listed in the type certificate data sheet that are not relevant to these special conditions.

If the Administrator finds that the applicable airworthiness regulations (i.e., part 25, as amended) do not contain adequate or appropriate safety standards for an airplane because of a novel or unusual design feature, special conditions are prescribed under the provisions of § 21.16.

In addition to the applicable airworthiness regulations and special conditions, these Dassault Aviation Mystere-Falcon 50 airplanes must comply with the fuel vent and exhaust emission requirements of part 34 and the noise certification requirements of part 36.

Special conditions, as appropriate, are issued in accordance with § 11.49, after public notice, as required by §§ 11.28 and 11.29(b), and become part of the type certification basis in accordance with § 21.101(b)(2).

Special conditions are initially applicable to the model for which they are issued. Should Garrett Aviation Services apply at a later date for a supplemental type certificate to modify any other model included on the same type certificate to incorporate the same novel or unusual design feature, these special conditions would also apply to the other model under the provisions of § 21.101(a)(1).

As noted earlier, the Dassault-Aviation Mystere-Falcon airplanes modified by Garrett Aviation Services will incorporate a new attitude heading reference system that will perform critical functions. This system may be vulnerable to high-intensity radiated fields external to the airplane. The current airworthiness standards of part 25 do not contain adequate or appropriate safety standards for the protection of this equipment from the adverse effects of HIRF. Accordingly, this system is considered to be a novel or unusual design feature.

There is no specific regulation that addresses protection requirements for electrical and electronic systems from HIRF. Increased power levels from ground-based radio transmitters and the growing use of sensitive avionics/electronics and electrical systems to command and control airplanes have made it necessary to provide adequate protection.

To ensure that a level of safety is achieved that is equivalent to that intended by the regulations incorporated by reference, special conditions are needed for the Dassault Aviation Mystere Falcon 50 airplanes modified by Garrett Aviation Services. These special conditions require that new avionics/electronics and electrical systems that perform critical functions be designed and installed to preclude component damage and interruption of function due to both the direct and indirect effects of HIRF.

With the trend toward increased power levels from ground-based transmitters, plus the advent of space and satellite communications coupled with electronic command and control of the airplane, the immunity of critical avionics/electronics and electrical systems to HIRF must be established.

It is not possible to precisely define the HIRF to which the airplane will be exposed in service. There is also uncertainty concerning the effectiveness of airframe shielding for HIRF. Furthermore, coupling of electromagnetic energy to cockpit-installed equipment through the cockpit window apertures is undefined. Based on surveys and analysis of existing HIRF emitters, an adequate level of protection exists when compliance with the HIRF protection special condition is shown with either paragraph 1 or 2 below:

1. A minimum threat of 100 volts rms per meter electric field strength from 10 KHz to 18 GHz.

a. The threat must be applied to the system elements and their associated wiring harnesses without the benefit of airframe shielding.

b. Demonstration of this level of protection is established through system tests and analysis.

2. A threat external to the airframe of the following field strengths for the frequency ranges indicated. Both peak and average field strength components from the Table are to be demonstrated.

The threat levels identified above are the result of an FAA review of existing studies on the subject of HIRF, in light of the ongoing work of the Electromagnetic Effects Harmonization Working Group of the Aviation Rulemaking Advisory Committee.

As discussed above, these special conditions are applicable to Dassault Aviation Mystere-Falcon 50 airplanes modified by Garrett Aviation Services. Should Garrett Aviation Services apply at a later date for a supplemental type certificate to modify any other model included on the same type certificate to incorporate the same novel or unusual design feature, these special conditions would apply to that model as well under the provisions of § 21.101(a)(1).

This action affects only certain novel or unusual design features on the Dassault Aviation Mystere-Falcon 50 airplanes modified by Garrett Aviation Services. It is not a rule of general applicability and affects only the applicant who applied to the FAA for approval of these features on the airplane.

The substance of these special conditions has been subjected to the notice and comment period in several prior instances and has been derived without substantive change from those previously issued. It is unlikely that prior public comment would result in a significant change from the substance contained herein. For this reason, and because a delay would significantly affect the certification of the airplane, which is imminent, the FAA has determined that prior public notice and comment are unnecessary and impracticable, and good cause exists for adopting these special conditions upon issuance. The FAA is requesting comments to allow interested persons to submit views that may not have been submitted in response to the prior opportunities for comment described above.

The authority citation for these special conditions is as follows:

A proposal to amend part 39 of the Federal Aviation Regulations (14 CFR part 39) to include an airworthiness directive (AD) that is applicable to all British Aerospace Model BAe 146 and Model Avro 146-RJ series airplanes was published in the Federal Register on October 30, 2000 (65 FR 64638). That action proposed to require revising the Airworthiness Limitations Section of the Instructions for Continued Airworthiness to incorporate life limits for certain items and inspections to detect fatigue cracking in certain structures.

Interested persons have been afforded an opportunity to participate in the making of this amendment. No comments were submitted in response to the proposal or the FAA's determination of the cost to the public.

The FAA has determined that air safety and the public interest require the adoption of the rule as proposed.

The FAA estimates that 45 airplanes of U.S. registry will be affected by this AD, that it will take approximately 1 work hour per airplane to accomplish the required actions, and that the average labor rate is $60 per work hour. Based on these figures, the cost impact of the AD on U.S. operators is estimated to be $2,700, or $60 per airplane.

The cost impact figure discussed above is based on assumptions that no operator has yet accomplished any of the requirements of this AD action, and that no operator would accomplish those actions in the future if this AD were not adopted. The cost impact figures discussed in AD rulemaking actions represent only the time necessary to perform the specific actions actually required by the AD. These figures typically do not include incidental costs, such as the time required to gain access and close up, planning time, or time necessitated by other administrative actions.

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

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

A proposal to amend part 39 of the Federal Aviation Regulations (14 CFR part 39) to include an airworthiness directive (AD) that is applicable to all British Aerospace (Jetstream) Model 4101 airplanes was published in the Federal Register on October 20, 2000 (65 FR 63023). That action proposed to require revising the Airworthiness Limitations Section of the Instructions for Continued Airworthiness to incorporate life limits for certain items and inspections to detect fatigue cracking in certain structures.

Interested persons have been afforded an opportunity to participate in the making of this amendment. No comments were submitted in response to the proposal or the FAA's determination of the cost to the public.

The FAA has determined that air safety and the public interest require the adoption of the rule as proposed.

The FAA estimates that 59 airplanes of U.S. registry will be affected by this AD, that it will take approximately 1 work hour per airplane to accomplish the proposed actions, and that the average labor rate is $60 per work hour. Based on these figures, the cost impact of the AD on U.S. operators is estimated to be $3,540, or $60 per airplane.

The cost impact figure discussed above is based on assumptions that no operator has yet accomplished any of the requirements of this AD action, and that no operator would accomplish those actions in the future if this AD were not adopted. The cost impact figures discussed in AD rulemaking actions represent only the time necessary to perform the specific actions actually required by the AD. These figures typically do not include incidental costs, such as the time required to gain access and close up, planning time, or time necessitated by other administrative actions.

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

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

A proposal to amend part 39 of the Federal Aviation Regulations (14 CFR part 39) to include an airworthiness directive (AD) that is applicable to all Dornier Model 328-100 series airplanes was published in the Federal Register on October 17, 2000 (65 FR 61287). That action proposed to require revising the Airworthiness Limitations Section of the Instructions for Continued Airworthiness to incorporate life limits for certain items and inspections to detect fatigue cracking in certain structures.

Interested persons have been afforded an opportunity to participate in the making of this amendment. No comments were submitted in response to the proposal or the FAA's determination of the cost to the public.

The FAA has determined that air safety and the public interest require the adoption of the rule as proposed.

The FAA estimates that 50 Dornier Model 328-100 series airplanes of U.S. registry will be affected by this AD, that it will take approximately 1 work hour per airplane to accomplish the required actions, and that the average labor rate is $60 per work hour. Based on these figures, the cost impact of the required AD on U.S. operators is estimated to be $3,000, or $60 per airplane.

The cost impact figure discussed above is based on assumptions that no operator has yet accomplished any of the requirements of this AD action, and that no operator would accomplish those actions in the future if this AD were not adopted. The cost impact figures discussed in AD rulemaking actions represent only the time necessary to perform the specific actions actually required by the AD. These figures typically do not include incidental costs, such as the time required to gain access and close up, planning time, or time necessitated by other administrative actions.

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

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

A proposal to amend part 39 of the Federal Aviation Regulations (14 CFR part 39) to include an airworthiness directive (AD) that is applicable to all British Aerospace BAe Model ATP airplanes was published in the Federal Register on October 24, 2000 (65 FR 63556). That action proposed to require revising the Airworthiness Limitations Section of the Instructions for Continued Airworthiness to incorporate life limits for certain items and inspections to detect fatigue cracking in certain structures.

Interested persons have been afforded an opportunity to participate in the making of this amendment. No comments were submitted in response to the proposed rule or the FAA's determination of the cost to the public.

The manufacturer name in the final rule has been changed from British Aerospace to BAe Systems (Operations) Limited to reflect the recent company name change.

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

The FAA estimates that 10 airplanes of U.S. registry will be affected by this AD, that it will take approximately 1 work hour per airplane to accomplish the required actions, and that the average labor rate is $60 per work hour. Based on these figures, the cost impact of the AD on U.S. operators is estimated to be $600, or $60 per airplane.

The cost impact figure discussed above is based on assumptions that no operator has yet accomplished any of the requirements of this AD action, and that no operator would accomplish those actions in the future if this AD were not adopted. The cost impact figures discussed in AD rulemaking actions represent only the time necessary to perform the specific actions actually required by the AD. These figures typically do not include incidental costs, such as the time required to gain access and close up, planning time, or time necessitated by other administrative actions.

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

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

On May 14, 1992, a notice of proposed rulemaking (INTL-1-92, 1992-1 C.B. 1209) was published in the Federal Register (57 FR 20660), proposing amendments to the temporary Income Tax Regulations (26 CFR part 1) under section 864(e)(5) and (6) and to the Income Tax Regulations (26 CFR part 1) under section 904(d). The proposed regulations under section 864(e)(5) and (6) concern the allocation and apportionment of interest expense and certain other expenses within an affiliated group for alternative minimum tax purposes. The proposed regulations under section 904(d) provide rules for determining a taxpayer's foreign tax credit limitation.

Also on May 14, 1992, final regulations (TD 8412, 1992-1 C.B. 271) under section 904(d) of the Internal Revenue Code of 1986 (Code) were published in the Federal Register (57 FR 20639). The final regulations added provisions that were reserved in final regulations (TD 8214, 1988-2 C.B. 220) published in the Federal Register (53 FR 27006) in 1988 and also made other changes to the 1988 final regulations. Written comments were received with respect to the final and proposed regulations and a public hearing was held on September 24, 1992.

On July 8, 1996, additional proposed amendments to the Income Tax Regulations under section 904 (REG-209750-95, 1996-2 C.B. 484) were published in the Federal Register (61 FR 35696), addressing the grouping rules under § 1.904-4(c). On January 11, 1999, final regulations (TD 8805, 1999-1 C.B. 371) were published in the Federal Register (64 FR 1505) finalizing these amendments and portions of the 1992 proposed regulations, with modifications.

The significant points raised by the comments to the 1992 final and proposed regulations and at the hearing, and the changes made to the proposed, temporary, and final regulations, are discussed in the remainder of the preamble. After consideration of the comments received, the below-described amendments to the 1992 final regulations under section 904 and to the final regulations under section 864 are adopted as modified by this Treasury decision.

The proposed regulations under §§ 1.861-9, 1.861-11, and 1.861-14 are finalized substantially as proposed, and the corresponding provisions of the temporary regulations are removed. For purposes of the alternative minimum tax (AMT), for taxable years beginning after December 31, 1989, the dividends received deduction under section 243 does not apply to the portion of a dividend attributable to income that is exempt from tax under section 936 or 30A. See section 56(g)(4)(C). Therefore, the exempt portion of the dividend is, in effect, included in adjusted current earnings (ACE) for purposes of computing the dividend recipient's alternative minimum taxable income. Dividends from a corporation with respect to which an election is in effect under section 936 or 30A (a section 936 corporation) are eligible for the dividends received deduction for regular tax purposes. Section 243(b)(1)(B)(ii).

To the extent included in income, dividends from a section 936 corporation to an affiliated United States corporation do not qualify for look-through treatment under section 904(d)(3) and § 1.904-5. Under sections 904, 861(a)(2)(A), and 862(a)(2), such amounts generally are treated as foreign source passive income (except as otherwise provided in section 904(g)). For taxable years beginning after December 31, 1993, section 56(g)(4)(C)(iii)(IV), added to the Code as part of the Revenue Reconciliation Act of 1993 (Pub. L. 103-66, 107 Stat. 312)(RRA 1993), creates an AMT foreign tax credit separate limitation for dividend income attributable to income that is exempt from tax under section 936 or 30A. The separate limitation applies solely for AMT purposes.

Thus, for taxable years beginning after December 31, 1989, and before January 1, 1994, the portion of the dividends from section 936 corporations that are added back into alternative minimum taxable income as ACE adjustments are subject to the separate limitation for passive income under section 904(d)(2) for AMT foreign tax credit purposes. For taxable years beginning after December 31, 1993, dividends from section 936 corporations are subject to a separate AMT foreign tax credit limitation. In addition, for taxable years beginning after December 31, 1995, corporations eligible for a credit under section 30A are treated as section 936 corporations, under sections 30A(e) and 56(g)(4)(C)(iii)(VI).

Treasury and the IRS proposed changes to the temporary regulations in order to exclude section 936 corporations from the affiliated group solely for purposes of allocating expenses in determining the amount of the group's foreign source alternative minimum taxable income, which affects the AMT foreign tax credit. This change has the effect of increasing the amount of interest and other expenses apportioned to dividend income from a section 936 corporation. The regulations were intended to mitigate the treatment, for AMT foreign tax credit purposes, of section 936 corporation dividends as passive income and would similarly mitigate the treatment of such dividends as separate limitation income in post-1993 taxable years.

Commentators wrote and testified at the public hearing that Treasury and the IRS do not have statutory authority to issue regulations under section 864(e)(5) excluding section 936 corporations from the affiliated group solely for AMT purposes. They contended that the AMT and regular tax systems must remain parallel unless a deviation is appropriate for simplification purposes. However, the enactment of a separate limitation category for certain portions of dividends from section 936 corporations for AMT purposes, effective for taxable years beginning after 1993, demonstrates that, because of the ACE adjustment, the AMT and regular tax foreign tax credit systems cannot operate exactly alike with respect to dividend income from section 936 corporations.

The amendments were proposed to apply to taxable years beginning after December 31, 1991. In response to a comment, the applicability date of the amendments to the regulations under §§ 1.861-9, 1.861-11, and 1.861-14 has been changed to taxable years beginning after December 31, 1989, to conform to the effective date of the statutory change. The regulations also provide a definition of section 936 corporations that reflects the enactment of section 30A.

In addition, the regulations move the flush text at the end of § 1.861-11T(d)(6) to a new § 1.861-11(d)(7). The new paragraph (d)(7) provides, among other things, that the attribution rules of section 1563(e) rather than the rules of section 318 will apply to determine indirect ownership for purposes of § 1.861-11T(d)(6). The change in the regulations to refer to section 1563(e) is consistent with paragraph 7 of Notice 89-91 (1989-2 C.B. 408), which stated that the IRS intends that the reference in § 1.861-11T(d)(6) to section 318 should instead be a reference to section 1563(e), effective for all post-1986 taxable years.

Section 1.904-4(g)(3)(i) provides that distributions made by a controlled foreign corporation (CFC) from earnings and profits accumulated before the distributing corporation became a CFC are treated as dividends from a noncontrolled section 902 corporation. The final regulations reorganize the provisions of § 1.904-4(g)(3) and include a reserved paragraph at § 1.904-4(g)(3)(i)(C). The regulations are proposed to be amended in a separate document (REG-104683-00) published elsewhere in this issue of the Federal Register to address the effect of an intervening period when the corporation was not a CFC on the eligibility of the distributions for look-through treatment.

Prior to amendment by the Taxpayer Relief Act of 1997 (Public Law 105-34, 107 Stat. 312) (TRA 1997), section 904(d)(2)(E)(i) provided that a CFC would not be treated as a noncontrolled section 902 corporation with respect to distributions from earnings and profits that were accumulated while the corporation was a CFC and, except as provided in regulations, the taxpayer was a United States shareholder in such corporation. The rule limiting look-through treatment to earnings and profits accumulated while the taxpayer was a United States shareholder was repealed by TRA 1997, applicable for distributions after August 5, 1997.

With respect to distributions before August 6, 1997, § 1.904-4(g)(3)(ii) through (iv) of the proposed regulations significantly limited the circumstances under which a dividend paid to a new United States shareholder by a CFC out of earnings and profits accumulated while it was a CFC (but before the recipient became a United States shareholder) would be treated as dividends from a noncontrolled section 902 corporation. The final regulations at § 1.904-4(g)(3)(ii)(A) retain the proposed rule denying look-through treatment only to new United Sates shareholders that acquire more than 90 percent of a CFC. This rule relaxed the statutory limitation to the extent necessary to avoid the administrative burdens that would arise if more than one United States shareholder were entitled to look-through treatment on distributions of post-1986 undistributed earnings but the look-through pools for each new shareholder began in different years.

Commentators argued that the regulations should be further expanded to allow look-through on pre-acquisition earnings for all new shareholders that acquire at least 10 percent of the voting power of the stock of a CFC, that is, to all new shareholders entitled to compute a credit for deemed-paid taxes under section 902 and section 960. Treasury and the IRS declined to adopt the suggestion, because the proposed regulations already relaxed the statutory requirement to an appropriate extent.

A commentator suggested that the intra-group acquisition rule in § 1.904-4(g)(3)(ii)(C) of the proposed regulations (paragraph (g)(3)(ii)(B) of the final regulations) should be revised to apply when the new and old shareholders of a CFC are related under the attribution rules of sections 318 and 958, rather than only to transfers within an affiliated group. Other commentators requested that the exception be expanded to apply to nontaxable transfers of stock in which the new and old shareholders cease to be members of the same affiliated group. Treasury and the IRS decline to expand the scope of the intra-group exception to the 90-percent shareholder rule, which applies only for distributions prior to August 6, 1997. The final regulations clarify the rule of the proposed regulations that the dividend recipient and the immediately preceding owner (or owners) must be members of the same affiliated group both when the recipient acquires the stock of the distributing corporation from the immediately preceding owner and when the recipient receives the dividend.

In response to a comment, the regulations clarify the LIFO ordering rule in § 1.904-4(g)(3)(iii) of the proposed regulations (paragraph (g)(3)(ii)(C) of the final regulations) for determining whether a distribution from a CFC is attributable to the period after a more-than-90-percent United States shareholder became a United States shareholder. The final regulations state that such a distribution comes first from the pool of post-acquisition undistributed earnings, next from the 10/50 pool of post-1986 undistributed earnings attributable to the pre-acquisition period, if any, and finally on a LIFO basis from any pre-acquisition earnings and profits attributable to pre-1987 accumulated profits.

To reflect the amendments made to section 904(d)(2)(E)(i) by TRA 1997, the final regulations provide at § 1.904-4(g)(3)(ii)(D) that the denial of look-through treatment to new more-than-90-percent shareholders for distributions of earnings and profits accumulated before the recipient became a United States shareholder applies only to distributions made before August 6, 1997. Section 1.904-4(g)(3) has been reorganized to separate the rules under section 904(d)(2)(E) that are applicable to distributions after August 5, 1997, from the rules that are applicable only to distributions on or before that date.

Rules substantially identical to the proposed section 904 regulations were proposed in 1995 under section 902. See Prop. Reg. § 1.902-1(d)(2)(ii) through (iv) (69 FR 2049; 1995-1 C.B. 959, 970), and the reserved paragraph at § 1.902-1(d)(3)(ii)(1997). A commentator noted that the effective date included in the proposed section 902 regulations applied to taxable years beginning after December 31, 1986, while the proposed applicability date for the substantially identical regulations proposed under section 904(d) applied to taxable years beginning after December 31, 1991. Since section 904(d)(2)(E)(i) applies to all taxable years beginning after 1986, the final regulations adopt the earlier applicability date, and amend the reserved paragraph at § 1.902-1(d)(3)(ii) to add a cross reference to the final section 904 regulations.

In response to a comment, § 1.904-4(c)(6)(iv) of the proposed regulations is revised. Section 1.904-4(c)(6) provides rules for applying the high-tax kick-out from the passive limitation category when additional taxes are paid or deemed paid with respect to a distribution of previously taxed passive income that had been included in income in an earlier year under section 951(a)(1). Paragraph (c)(6)(iv) applies when a new shareholder acquires stock in a controlled foreign corporation after income has been included in the prior shareholder's income under section 951(a)(1) but before the income is distributed and subjected to additional foreign tax.

As proposed, paragraph (c)(6)(iv) provided that new shareholders entitled to look-through treatment on distributions of pre-acquisition earnings (U.S. shareholders that acquired 90 percent or less of the distributing corporation) would place the additional taxes in the general limitation category. However, new shareholders who were not entitled to look-through treatment (because the shareholder acquired more than 90 percent of the distributing corporation) would place the taxes in the general limitation or noncontrolled section 902 corporation category, depending on whether or not the associated income inclusion of the prior shareholder was high-taxed income.

A commentator argued that the latter rule's dependence on whether income was high-taxed or not in the hands of the previous shareholder, for purposes of determining the treatment of the taxes in the hands of a new 90-percent shareholder, added unnecessary complexity. In response to the comment, the regulations amend § 1.904-4(c)(6)(iv) to provide that a shareholder not entitled to look-through on pre-acquisition earnings must treat the additional taxes as allocable to the noncontrolled section 902 corporation dividend category. The revised rule applies to taxable years beginning after December 31, 1991. However, taxpayers may rely on the proposed regulations for taxable years beginning before January 1, 2001.

The final regulations adopt the proposed rule that a shareholder entitled to look-through treatment on pre-acquisition earnings treats additional taxes imposed on distributions of previously taxed passive income as allocable to the general limitation category. This rule applies to all distributions of previously taxed passive income after August 5, 1997.

Section 1.904-5(i)(3) of the proposed regulations, reducing to ten percent the common ownership threshold for dividends between CFCs to qualify for look-through treatment, is finalized as proposed, applicable to taxable years beginning after December 31, 2000. However, taxpayers may choose to apply the rule to taxable years beginning after December 31, 1991, so long as appropriate adjustments are made to eliminate any double benefit arising from the application of the rule to taxable years that are not open for assessment. Example 2 of proposed § 1.904-5(i)(4) is also finalized, with modifications described in II B.4 of this preamble, below, relating to changes to correct errors in Example 1 in the 1992 final regulations.

Section 1.904-4(b)(1)(i) is amended to clarify that, for taxable years beginning after December 31, 1992, passive income does not exclude foreign oil and gas extraction income (as defined in section 907(c)). This amendment reflects the repeal of section 904(d)(2)(A)(iii)(IV), which excluded FOGEI from the definition of passive income, by section 13235(a)(2) of RRA 1993.

Section 1.904-4(c)(4)(ii) is revised to reflect the addition of § 1.904-4(c)(3)(iv).

The 1992 final regulations, which generally look to foreign law rules for purposes of determining the year or years to which a reduction in foreign tax relates, were intended to apply LIFO default rules in order to avoid multiple redeterminations under section 905(c) in situations where a tax reduction applies to a distribution of previously taxed income that is treated under foreign law as made out of a multi-year pool of income. See § 1.905-3T(f) (requiring a redetermination of deemed paid taxes, in lieu of a pooling adjustment, when corporate tax is reduced in connection with a distribution of previously taxed income).

In response to a comment, § 1.904-4(c)(7)(ii) and § 1.904-4(c)(8) Example 9 are revised to clarify that if a foreign country's law allocates a foreign tax reduction to a pool or group containing income from more than one taxable year, and that pool or group is defined based on a characteristic of the income (for example, the rate of tax paid with respect to the income) rather than based on the taxable year in which the income is derived, then foreign law is not considered to specify a year or years to which the tax reduction applies and the last-in first-out (LIFO) default rule applies.

In response to a comment, a new paragraph (c)(5)(v) has been added to § 1.904-4 to supply a cross-reference to the rule that, pursuant to the general rule of section 904(d)(3)(E), passive income excluded from foreign personal holding company income under the subpart F high tax exception of section 954(b)(4) will be treated as general limitation income at the CFC level unless the special rule in § 1.904-4(c)(7)(iii) applies.

In response to comments, § 1.904-5(i)(4) Example 1 and Prop. § 1.904-5(i)(4) Example 2 are revised. The 1992 version of Example 1 was erroneous because, although the first-tier CFC in that example owns only 40 percent of the second-tier CFC, the second-tier CFC owns 100 percent of the third-tier CFC. Therefore, the second- and third-tier CFCs are related look-through entities and the look-through rules of § 1.904-5(i)(1) apply to interest payments between them. The section 904(d)(3)(B) look-through rule for subpart F inclusions applies to the U.S. parent's recognition of subpart F income of the second-tier CFC, attributable to the interest paid by the third-tier CFC.

Example 2 of the proposed regulations reached the correct result but applied an incorrect rationale. Just as in Example 1, on the facts of proposed Example 2, the related look-through entity rules of § 1.904-5(i)(1) would apply to distributions between the second- and third-tier CFCs even without the application of the special rule for dividends in proposed § 1.904-5(i)(3). Examples 1 and 2 are revised to illustrate the different ownership thresholds that are required in order for the look-through rules to apply to interest and dividends paid between CFCs. The regulations also add a new Example 3 to further clarify the application of § 1.904-5(i).

Paragraph (m)(4) of § 1.904-5 is amended to clarify that, for purposes of the section 904(g) re-sourcing rules, section 951(a)(1)(B) inclusions are treated as dividends sourced under the pro rata rule of section 904(g)(4) and § 1.904-5(m)(4). Section 904(g)(2) provides a rule for sourcing section 951(a) inclusions, which literally include section 956 inclusions described in section 951(a)(1)(B). Section 904(g)(2) treats an amount described in section 951(a) as U.S. source income to the extent it is attributable to items of U.S. source income of the foreign corporation. Inclusions under section 951(a)(1)(A) are measured by tracing the inclusion directly to the items of income received by a CFC. Like an actual dividend, an increase in earnings invested in U.S. property that is included in income under section 951(a)(1)(B) is treated as paid pro rata out of all of the CFC's earnings and profits. See § 1.904-5(c)(4)(i). The final regulations amend § 1.904-5(m)(4)(i) to clarify that section 904(g)(2) sources section 951(a)(1)(B) inclusions by applying the pro rata rules of section 904(g)(4).

A commentator requested that § 1.904-6(a)(1)(iv) be revised to provide that, in the case of a financial services entity, if foreign taxes are imposed on amounts that are not income under United States tax rules (a base difference), the foreign taxes will be placed in the limitation category for financial services income rather than the general limitation category. The commentator argued that financial services entities typically have no general limitation income, and that the financial services category essentially serves as the residual basket for financial services entities.

Treasury and the IRS decline to adopt the suggested change. Treasury and the IRS believe that most cases in which foreign tax is imposed in the absence of a concurrent associated income inclusion in the United States are properly analyzed as involving a timing difference rather than a base difference. A timing difference occurs when foreign tax is imposed on an item that would be income under United States tax principles if it were recognized for U.S. tax purposes in the same year. Treasury and the IRS believe that base differences (in which foreign tax is imposed on an amount that the United States would never recognize as income, such as a gift) rarely occur. Accordingly, a special rule for base differences of financial services entities is not required.

However, Treasury and the IRS are considering whether additional rules are needed to clarify the operation of § 1.904-6(a)(1)(iv). For example, Treasury and the IRS are considering whether the regulations should be revised to address explicitly situations in which a foreign country and the United States recognize different amounts of income or characterize the income differently, for example, as a result of differences in calculating basis. Other issues under consideration include the appropriate treatment of situations in which a timing difference occurs but there is more than one possible characterization of the income that might be recognized in the future for U.S. tax purposes, and situations in which the United States and another country perceive different taxpayers as realizing the same income (with or without a timing or characterization difference). Comments are requested on the appropriate scope and content of additional guidance on these types of issues.

Treasury and the IRS are also considering clarifying § 1.904-6(a)(1), which provides rules for allocating foreign taxes to separate categories. The current regulations determine the income to which the foreign taxes relate by reference to foreign law (taxes are related to income if the income is included in the tax base upon which the foreign tax is imposed). Foreign taxes are allocated and apportioned to separate categories by reference to the separate categories to which the income taxed under foreign law would be assigned under U.S. tax principles. See § 1.904-6(c) Example 5. Comments are requested on the manner in which the regulations could be made easier to understand and apply.

It has been determined that this Treasury decision is not a significant regulatory action as defined in Executive Order 12866. Therefore, a regulatory assessment is not required. It also has been determined that section 553(b) of the Administrative Procedure Act (5 U.S.C. chapter 5) does not apply to these regulations, and because the notice of proposed rulemaking preceding the regulations was issued prior to March 29, 1996, the Regulatory Flexibility Act (5 U.S.C. chapter 6) does not apply. Pursuant to section 7805(f) of the Code, the notice of proposed rulemaking preceding these regulations was submitted to the Small Business Administration for comment on its impact on small business.

The principal author of these final regulations is Rebecca I. Rosenberg of the Office of Associate Chief Counsel (International), within the Office of Chief Counsel, IRS. However, other personnel from the IRS and Treasury Department participated in their development.

This document contains final Income Tax Regulations (26 CFR part 1) under section 988 of the Internal Revenue Code (Code). On March 17, 1992, the IRS and Treasury published final regulations (57 FR 9172) relating to the taxation of section 988 transactions, including, inter alia, transactions denominated in hyperinflationary currencies. Also on March 17, 1992, proposed regulations were published (57 FR 9217) relating to the treatment of certain financial instruments denominated in hyperinflationary currencies. The proposed regulations did not separately define hyperinflationary currency. Rather, they simply made reference to the definition in the final regulations, § 1.988-1(f).

TD 8860 (65 FR 2026) (January 13, 2000) finalized the proposed regulations relating to the treatment of financial instruments denominated in hyperinflationary currencies. Also in that issue of the Federal Register was a notice of proposed rulemaking regarding a proposed change in the period of years that are considered in determining whether a currency is hyperinflationary for purposes of section 988 (base period). The notice of proposed rulemaking also provided notice of a public hearing on the proposed regulations. No requests to speak were received, and the public hearing was canceled. This Treasury decision finalizes the proposed regulations relating to the change in base period, with certain minor changes.

As set out in the notice of proposed rulemaking, the term hyperinflationary currency, as defined in § 1.988-1(f), utilizes the definition in § 1.985-1(b)(2)(ii)(D). This definition was developed in the context of the Dollar Approximate Separate Transactions Method (DASTM) regulations, § 1.985-3, and generally considers the cumulative effects of inflation over the base period in determining whether a currency is hyperinflationary. In § 1.985-1(b)(2)(ii)(D), the base period consists of the thirty-six calendar month period immediately preceding the first day of the current calendar year. Use of this base period is generally appropriate in the context of DASTM because a qualified business unit needs to know in advance if it is subject to § 1.985-3 calculations.

However, failure to take the current year's inflation into account for purposes of computing foreign currency gain or loss under section 988 may lead to distortions in income and expense because inflation may rise dramatically in single year. Accordingly, the IRS and Treasury believe that for purposes of section 988, it is more appropriate to consider the cumulative inflation rate over the thirty-six month period ending on the last day of the taxpayer's (or the qualified business unit's) current taxable year. This change in the base period, however, applies only for the purposes of section 988 and not for the purpose of determining whether a taxpayer (or QBU) is subject to the provisions of § 1.985-3.

One comment was received in connection with the proposed change in the measurement of the base period under section 988. This comment relates to the application of the rule to regulated investment companies (RICs). The commenter stated that sections 852(a) and 4982 effectively require a RIC to distribute essentially all of its income during the calendar year in which it is earned. Thus, the commenter concluded that RICs need to know before the end of their tax year whether a particular currency is hyperinflationary. The Treasury and IRS recognize that the revised definition of base period could present an administrative burden for RICs. Accordingly, the final regulation provides that RICs are not subject to the revised base period standard of these final regulations.

A similar exclusion from the revised base period standard has been made for REITs due to their similar distribution requirements. The regulation has also been amended to provide that the Service may by notice provide that the revised base period standard shall not apply to any section 988 transaction of an entity with distribution requirements similar to that of RICs and REITs.

In addition, the regulation was amended to provide that generally accepted accounting principles may not apply to alter the base period outlined in paragraph (f)(1)(ii)(A) of this section. This change is intended to clarify that the last sentence of § 1.985-1(b)(2)(ii)(D) may not be used to alter the base period for purposes of section 988.

It has been determined that this Treasury decision is not a significant regulatory action as defined in Executive Order 12866. Therefore, a regulatory assessment is not required. It has also been determined that section 553(b) of the Administrative Procedures Act (5 U.S.C. chapter 5) and the Regulatory Flexibility Act (5 U.S.C. chapter 6) do not apply to these regulations, and therefore, a Regulatory Flexibility Analysis is not required.

The principal author of these regulations is John W. Rogers III of the Office of the Associate Chief Counsel (International). However, other personnel from the IRS and Treasury Department also participated in their development.

The collections of information contained in § 1.41-8(b) of this final rule have been reviewed and approved by the Office of Management and Budget in accordance with the Paperwork Reduction Act of 1995 (44 U.S.C. 3507) under the number 1545-1625. Responses to these collections of information are mandatory.

The reporting burden contained in § 1.41-8(b)(2) (relating to the election of the alternative incremental credit) is reflected in the burden of Form 6765.

Estimated average annual burden hours per respondent under § 1.41-8(b)(3) (relating to the revocation of the election to use the alternative incremental credit) is 250 hours.

Comments concerning the accuracy of this burden estimate and suggestions for reducing this burden should be sent to the Internal Revenue Service, Attn: IRS Reports Clearance Officer, W:CAR:MP:FP:S:O, Washington, DC 20224, and to the Office of Management and Budget, Attn: Desk Officer for the Department of the Treasury, Office of Information and Regulatory Affairs, Washington, DC 20503.

The collections of information contained in § 1.41-4(d) of this final rule have been reviewed and, pending receipt and evaluation of public comments, approved by the Office of Management and Budget (OMB) under 44 U.S.C. 3507 and assigned control number 1545-1625. This information is required to assist in the examination of the research credit and to ensure that the research credit is properly targeted to serve as an incentive to engage in qualified research. This information will be used to verify that the amounts treated as qualified research expenses were paid or incurred for activities intended to discover information that exceeds, expands, or refines the common knowledge of skilled professionals in the relevant field of science or engineering. This collection of information is required to obtain a benefit. The likely recordkeepers are businesses or other for-profit institutions.

Estimated total annual recordkeeping burden for § 1.41-4(d) is 18,000 hours. The annual estimated burden per respondent varies from .5 hours to 2.5 hours, depending on the circumstances, with an estimated average of 1.5 hours.

The estimated number of recordkeepers is 12,000.

Comments on the collection of information should be sent to the Office of Management and Budget, Attn: Desk Officer for the Department of the Treasury, Office of Information and Regulatory Affairs, Washington, DC 20503, with copies to the Internal Revenue Service, Attn: IRS Reports Clearance Officer, W:CAR:MP:FP:S:O, Washington, DC 20224. Comments on the collection of information should be received by March 5, 2001. Comments are specifically requested concerning:

Whether the collection of information is necessary for the proper performance of the functions of the Internal Revenue Service, including whether the information will have practical utility;

The accuracy of the estimated burden associated with the collection of information (see below);

How the quality, utility, and clarity of the information to be collected may be enhanced;

How the burden of complying with the collection of information may be minimized, including through the application of automated collection techniques or other forms of information technology; and

Estimates of capital or start-up costs and costs of operation, maintenance, and purchase of services to provide information.

An agency may not conduct or sponsor, and a person is not required to respond to, a collection of information unless it displays a valid control number assigned by the Office of Management and Budget.

Books or records relating to a collection of information must be retained as long as their contents may become material in the administration of any internal revenue law. Generally, tax returns and tax return information are confidential, as required by 26 U.S.C. 6103.

On January 2, 1997, the IRS and Treasury published in the Federal Register (62 FR 81) a notice of proposed rulemaking (REG-209494-90, 1997-1 C.B. 723) under section 41 describing when computer software that is developed by (or for the benefit of) a taxpayer primarily for the taxpayer's internal use can qualify for the credit for increasing research activities (the 1997 proposed regulations). Comments responding to the 1997 proposed regulations were received and a public hearing was held on May 13, 1997.

On December 2, 1998, the IRS and Treasury published in the Federal Register (63 FR 66503) a notice of proposed rulemaking (REG-105170-97, 1998-50 I.R.B. 10) under section 41 relating to the credit for increasing research activities (the 1998 proposed regulations). The 1998 proposed regulations propose rules and examples relating to (1) the definition of gross receipts for purposes of computing the base amount under section 41(c), (2) the application of the consistency rule in computing the base amount, (3) the definition of qualified research under section 41(d), (4) the application of the exclusions from the definition of qualified research, (5) the application of the shrinking-back rule, and (6) the election of the alternative incremental credit. The 1998 proposed regulations also propose certain technical amendments to the existing regulations. Comments responding to the 1998 proposed regulations were received and a public hearing was held on April 29, 1999.

In the 1999 Act, Congress extended the credit for a five-year period. The Conference Report accompanying the 1999 Act included the following language addressing the proposed regulations:

After considering the comments received, the statements made at the public hearings, and the legislative history for the research credit, the proposed regulations are adopted as revised by this Treasury decision.

This document amends 26 CFR part 1 to provide additional rules under section 41. Section 41 contains the rules for the credit for increasing research activities.

A number of commentators objected to the inclusion of the basic principles statement in § 1.41-1(a) of the proposed regulations. They stated that the inclusion of a basic principles section was unusual, and that the basic principles section could be read to impose additional and unwarranted conditions for credit eligibility. In response to these comments, and because IRS and Treasury have concluded that the requisite principles are adequately reflected in the provisions of the regulations, the final regulations omit a separate statement of basic principles. The clarifications that the credit may be available where the technological advance sought is evolutionary, where the taxpayer is not the first to achieve the advance, and where the taxpayer fails to achieve the intended advance have been incorporated elsewhere in the regulations.

When Congress revised the computation of the research credit to incorporate a taxpayer's gross receipts, neither the statute nor the legislative history defined the term gross receipts, other than to provide that gross receipts for any taxable year are reduced by returns and allowances made during the tax year, and, in the case of a foreign corporation, that only gross receipts effectively connected with the conduct of a trade or business within the United States are taken into account. See section 41(c)(6).

The proposed regulations generally defined gross receipts as the total amount derived by a taxpayer from all activities and sources. However, in recognition of the fact that certain extraordinary gross receipts might not be taken into account when a business determines its research budget, the proposed regulations provided that certain extraordinary items (such as receipts from the sale or exchange of capital assets) would be excluded from the computation of gross receipts.

Several commentators objected to the definition of gross receipts in the proposed regulations. Referring to the inclusion in a House Budget Report of the term sales growth as an apparent short-hand reference to an increase in gross receipts, some commentators argued that gross receipts should be limited to income from sales. See H.R. Rep. No. 101-247, at 1200 (1989). In determining its research budget, however, a business may take into account any expected income stream, regardless of whether or not the income is derived from sales or from other active business activities. Moreover, many businesses do not generate any income in the form of sales. Accordingly, the final regulations do not adopt this suggestion.

The final regulations also do not adopt suggestions that the definition of gross receipts be narrowed to exclude those items not directly related to the conduct of the taxpayer's trade or business. As noted above, any expected income stream may be taken into account in determining a business' research budget, regardless of the source of the income. Moreover, IRS and Treasury believe that a subjective narrowing of the term gross receipts, as suggested by these commentators, could leave the definition of the term, and thus the computation of the base amount, vulnerable to manipulation.

For example, a narrower definition allowing taxpayers to exclude items not derived in the ordinary course of business might prompt a taxpayer to assert that certain royalties received in the 1980s were derived in the ordinary course of business and are includable as gross receipts (thus decreasing the taxpayer's fixed-base percentage), but that certain interest income received in the years preceding the credit year was not derived in the ordinary course of business and was not includable in gross receipts (thus decreasing the base amount). Nor would a rule of consistency be effective in preventing such manipulation. While the taxpayer described above would be characterizing the nature of its income items as derived or not derived in the ordinary course of a trade or business so as to maximize the amount of the credit, the taxpayer would not be taking inconsistent positions with respect to the same items of income.

Several commentators objected to the definition of gross receipts in the proposed regulations as it applies to start-up firms with pre-operating interest income. If pre-operating interest income is treated as a gross receipt, many start-up firms would be precluded from using the start-up rules to compute their fixed-base percentages, because the application of the start-up rules is conditioned on a taxpayer not having both gross receipts and qualified research expenses in certain taxable years during the 1980s. Moreover, because a start-up firm whose only gross receipt is pre-operating interest income likely would have significant qualified research expenses relative to gross receipts (and thus a high fixed-base percentage), such a firm likely would derive less benefit from the credit.

IRS and Treasury recognize that the start-up rules appear to contemplate that there will be years in which a taxpayer has qualified research expenses but no gross receipts. However, it would be difficult to conceive of such a year if gross receipts are defined to include pre-operating investment income. To address these concerns and pursuant to the regulatory authority of section 41(c)(3)(B)(iii), the final regulations exclude from the definition of gross receipts any income received by a taxpayer in a taxable year that precedes the first taxable year in which the taxpayer derives more than $25,000 in gross receipts other than investment income. For this purpose, investment income is defined as interest or distributions with respect to stock (other than the stock of a 20-percent owned corporation as defined in section 243(c)(2) of the Code).

Some commentators suggested that the definition of gross receipts should be clarified to exclude certain payments made by pharmaceutical manufacturers to various insurers, managed care organizations and state governments. The final regulations do not adopt any provision specifically addressing such payments.

To qualify for the research credit, section 41(d) requires that a taxpayer undertake research for the purpose of discovering information which is technological in nature, and the application of which is intended to be useful in the development of a new or improved business component of the taxpayer. Section 1.41-4(a)(3) of the proposed regulations defines the phrase discovering information as obtaining knowledge that exceeds, expands, or refines the common knowledge of skilled professionals in a particular field of science or engineering.

Commentators criticized this definition of discovering information, arguing that the definition imposes a discovery requirement that was not mandated by the statute. Commentators suggested that the phrase discovering information, as used in the statute, was not intended as an additional requirement, but was simply used as a phrase to link the term research with the types of information required as the subject of the research. Commentators argued that a taxpayer who seeks to resolve its own subjective uncertainty as to the information at issue is undertaking sufficient discovery for purposes of section 41(d).

Consistent with the legislative history and case law as described below, however, IRS and Treasury continue to believe that section 41 conditions credit eligibility on an attempt to discover information that goes beyond the common knowledge of skilled professionals in the particular field of science or engineering.

The legislative history to the 1986 Act, which narrowed the definition of the term qualified research, explained that Congress had originally enacted the research credit to encourage business firms to perform the research necessary to increase the innovative qualities and efficiency of the U.S. economy. H.R. Rep. No. 99-426, at 177-78; S. Rep. No. 99-313, at 694-95. Congress was concerned that taxpayers had applied the original definition of qualified research “too broadly,” that some taxpayers had claimed the credit for “virtually any expenses relating to product development” and that many of these taxpayers were “in industries that do not involve high technology or its application in developing technologically new and improved products or methods of production.” Id. In an illustration of the changes enacted, the legislative history explained that, under the new definition: “Research does not rely on the principles of computer science merely because a computer is employed. Research may be treated as undertaken to discover information that is technological in nature, however, if the research is intended to expand or refine existing principles of computer science .” H.R. Conf. Rep. No. 99-841, at II-71 n.3 (1986) (emphasis added).

Following the 1986 Act changes to the credit, a discovery requirement has been applied in several recent cases. See, e.g., United Stationers, Inc. v. United States, 163 F.3d 440 (7th Cir. 1998), Norwest v. Commissioner, 110 T.C. 454 (1998), and WICOR, Inc. v. United States, 116 F. Supp. 2d 1028 (E.D. Wis. 2000).

In reaffirming the scope of the term qualified research, the Conference Report to the 1998 Act noted that:

The discovery requirement as set forth in the final regulations also is consistent with the legislative history to the 1999 Act (the text of which is set forth above under Background). In that legislative history, for example, the conferees stated that:

In light of the case law and the legislative history, the final regulations retain the requirement that a taxpayer seek to discover information that exceeds, expands, or refines the common knowledge of skilled professionals in the particular field of science or engineering. However, consistent with the legislative history to the 1999 Act, IRS and Treasury have carefully considered comments relating to the “common knowledge” standard, and made a number of changes to address specific taxpayer concerns about the discovery requirement.

In response to comments regarding the application of the discovery requirement, the final regulations clarify that the phrase “common knowledge of skilled professionals in a particular field of science or engineering” means information that should be known to skilled professionals had they performed, before the research in question was undertaken, a reasonable investigation of the existing level of information in the particular field of science or engineering. Thus, in order to satisfy the discovery requirement, research must be undertaken for the purpose of discovering information that is beyond the knowledge that should be known to skilled professionals had they performed a reasonable investigation of the existing level of knowledge in the particular field of science or engineering. There is no requirement, however, that a taxpayer actually conduct such an investigation in order to claim the credit. To further clarify the application of the discovery requirement, the final regulations also state, as an example, that trade secrets generally are not within the common knowledge of skilled professionals because they are not reasonably available to skilled professionals not employed, hired, or licensed by the owner of such trade secrets.

Also, in response to comments, the discovery requirement in the final regulations has been reworded to refer to the common knowledge of skilled professionals in a particular field of science or engineering (rather than a particular field of technology or science, as in the proposed regulations). As in the proposed regulations, the common knowledge of skilled professionals is intended to serve as an objective standard for the baseline knowledge that a credit-eligible taxpayer must seek to exceed, expand, or refine. The reference to the common knowledge of skilled professionals is not intended to impose qualification requirements on the personnel that the taxpayer uses to conduct qualified research.

Several commentators raised concerns that the discovery requirement in the proposed regulations required that taxpayers must “prove a negative;” in response to these concerns about the potential burden imposed on taxpayers to demonstrate that they satisfy the discovery requirement, IRS and Treasury have added to the final regulations a rebuttable presumption. The final regulations provide that, if a taxpayer demonstrates with credible evidence that research activities were undertaken to obtain the information described in documentation prepared before or during the early stages of the research and if that documentation also sets forth the basis for the taxpayer's belief that obtaining this information would exceed, expand, or refine the common knowledge of skilled professionals in the particular field of science or engineering, then the research activities are presumed to satisfy the discovery requirement. This rebuttable presumption would arise, however, only if the taxpayer cooperates with reasonable requests by the IRS for witnesses, information, documents, meetings, and interviews.

In a case where the rebuttable presumption arises, the final regulations provide that the Commissioner may overcome this presumption by demonstrating that the information described in the taxpayer's documentation was within the common knowledge of skilled professionals in the particular field of science or engineering. That is, the Commissioner would have to demonstrate that the information would have been known to such skilled professionals had they performed (before the research was undertaken) a reasonable investigation of the existing level of information in the particular field of science or engineering.

By way of further clarification, a provision has been added and several examples have been changed or eliminated to remove any implication that the underlying principles of science or engineering used in the research must themselves be novel. IRS and Treasury recognize that virtually all research utilizes existing scientific principles and technology. The requirement that a taxpayer seek to exceed, expand, or refine the common knowledge of skilled professionals does not mean that the tools and principles used in the attempt to achieve the technological advance must themselves be beyond the common knowledge.

Also, in response to commentators' suggestions, the final regulations provide that a taxpayer is conclusively presumed to have obtained knowledge that exceeds, expands, or refines the common knowledge of skilled professionals in the relevant field of science or engineering, if that taxpayer was awarded a patent for the business component. Section 101 of title 35 of the United States Code provides that “[w]hoever invents or discovers any new and useful process, machine, manufacture, or composition of matter, or any new and useful improvement thereof, may obtain a patent therefor, subject to the conditions and requirements of [title 35].” Such an invention or discovery may be patentable if it was not previously known, used, patented, or described, as set forth in 35 U.S.C. 102, and the differences between the invention and the prior art are such that the invention would not have been obvious to a person having ordinary skill in the relevant art. See 35 U.S.C. 102.

The final regulations contain a patent safe harbor because IRS and Treasury believe that information leading to a patentable invention constitutes information that exceeds, expands, or refines the common knowledge of skilled professionals in the relevant field. Of course, qualification under the patent safe harbor does not necessarily establish that the discovery requirement is satisfied with respect to all of the research associated with the patentable invention (for example, some of the research might relate to style).

The final regulations emphasize that a patent is not a precondition for credit eligibility. Because not all research succeeds in achieving its objective and for other reasons, it is obvious that not all research intended to discover information that goes beyond the common knowledge results in a patent. Thus, the absence of a patent should have no bearing on credit eligibility. The factors underlying the denial of a patent application, on the other hand, may be relevant to the determination of whether the discovery requirement is satisfied.

Because section 41(d)(3)(B) provides that the credit is not available for research related to style, taste, cosmetic, or seasonal design factors, the patent safe harbor does not include patents for design, as defined by 35 U.S.C. 171.

In light of these changes, modifications have been made to several examples in the proposed regulations, including an example in the proposed regulations relating to research undertaken to develop a new tire. This example has been moved to the section of the final regulations that illustrates the exclusion for research conducted after the beginning of commercial production (discussed in VII. Research After Commercial Production of this Preamble).

To address concerns expressed by a number of commentators that the common knowledge standard may be difficult for taxpayers and examiners to apply, and may give rise in practice to inconsistent treatment of similarly situated taxpayers (especially where examiners have limited expertise in a particular scientific field) IRS and Treasury have initiated measures to promote fair and consistent application of the discovery requirement and the other conditions for credit eligibility. Consistent with the suggestion of one commentator, IRS has met with Revenue Canada to discuss Canada's joint industry/government initiative to improve administration of the Canadian research credit. IRS also has met with various industry associations to form joint initiatives to devise guidelines for the administration and examination of the credit in particular industries. Similar efforts with respect to other industry groups are anticipated.

Commentators objected to § 1.41-4(a)(5) of the proposed regulations, which defines a process of experimentation to include a prescribed four-step process. Commentators argued that while the four-step process may accurately have described the pure scientific method of conducting experiments, commercial and industrial practice does not always conform precisely to such requirements. Commentators also argued that the four-step process required by the proposed regulations was adapted from a description in the legislative history of the 1986 Act that was included for illustrative purposes and not as a comprehensive definition of the term process of experimentation.

In light of these comments, the final regulations provide that taxpayers conducting a process of experimentation may, but are not required to, engage in the four-step process.

Consistent with the legislative history, the final regulations provide further clarification on the manner in which a process of experimentation differs from research and development in the experimental or laboratory sense, as required by § 1.174-2(a). A process of experimentation is a process to evaluate more than one alternative designed to achieve a result where the capability or method of achieving that result is uncertain at the outset, but (in contrast to expenditures that qualify under section 174) does not include the evaluation of alternatives to establish the appropriate design of a business component when the capability and method for developing or improving the business component are not uncertain. See H.R. Conf. Rep. No. 99-841, at II-72 (“The term process of experimentation means a process involving the evaluation of more than one alternative designed to achieve a result where the means of achieving that result is uncertain at the outset.”); United Stationers, 163 F.3d at 446; Norwest, 110 T.C. at 496.

Part of the four-step process of experimentation test prescribed in § 1.41-4(a)(5) of the proposed regulations was a requirement that taxpayers record the results of their experiments. Maintaining that this requirement was particularly burdensome, commentators argued that, in the industrial or commercial setting, the recording of results is not necessarily inherent in a bona fide process of experimentation.

For these reasons, the final regulations do not contain a requirement that taxpayers record the results of their experiments. Moreover, reference to the recording of results has been eliminated from the illustrative (non-mandatory) description of a four-step process of experimentation.

To assist in the examination of claims for the credit and to ensure that the credit is properly targeted to serve as an incentive to engage in qualified research, the final regulations do include a less burdensome contemporaneous documentation requirement. Under the final regulations, taxpayers must prepare and retain written documentation before or during the early stages of the research project that describes the principal questions to be answered and the information the taxpayer seeks to obtain that exceeds, expands, or refines the common knowledge of skilled professionals in the relevant field of science or engineering. Taxpayers also must comply with the general recordkeeping requirements of section 6001.

As noted above, taxpayers may also avail themselves of a rebuttable presumption that they satisfy the discovery requirement if their contemporaneous documentation also sets forth the basis for the taxpayer's belief that obtaining this information would exceed, expand, or refine the common knowledge of skilled professionals in the particular field of science or engineering.

Under § 1.41-4(b) of the proposed regulations, and consistent with the legislative history to the 1986 Act, if the requirements of section 41(d) are not met for an entire product, then the credit may be available with respect to the next most significant subset of elements of that product. This shrinking back continues until either a subset of elements of the product that satisfies the requirements is reached, or the most basic element of the product is reached and such element fails to satisfy the test.

The final regulations clarify that this shrinking-back rule applies only if the taxpayer incurs some research expenses with respect to the overall business component that would constitute qualified research expenses with respect to that business component but for the fact that less than substantially all of the research activities with respect to that component constitute elements of a process of experimentation that relates to a new or improved function, performance, reliability or quality. In cases where the substantially-all test is satisfied with respect to the overall business component, those research expenses with respect to the overall business component that are qualified research expenses are credit eligible, and there is no need for a taxpayer to shrink back to apply the tests with respect to subsets of elements of the business component. Of course, the mere fact that taxpayers are not required to shrink back to a smaller business component does not mean that all of the research expenses with respect to the overall credit are credit eligible. Research expenses that are not qualified research expenses, for example because they relate to style, taste, cosmetic, or seasonal design factors, remain ineligible for the credit.

In response to commentators' suggestions, the final regulations also clarify that, if the original product is not eligible for the credit, the application of the shrinking-back rule may result in credit eligibility for multiple business components that are subsets of the original product. The regulations clarify that the shrinking-back rule may not itself be applied as a reason to exclude research activities from credit eligibility. Finally, an example has been added to illustrate these concepts.

Several commentators addressed the section of the proposed regulations providing that activities conducted after the beginning of commercial production of a business component are not qualified research. Under the proposed regulations, activities are conducted after the beginning of commercial production of a business component if such activities are conducted after the component is developed to the point where it is ready for commercial sale or use, or meets the basic functional and economic requirements of the taxpayer for the component's sale or use. Moreover, certain specified activities (like preproduction planning for a finished business component and trial production runs) are deemed to occur after the beginning of commercial production.

Because the provisions set forth above closely reflect the legislative history of the post-production exclusion, these tests have been retained in the final regulations. See H.R. Conf. Rep. No. 841, at II-74-75. However, several changes have been made in response to commentators' concerns.

First, a change has been made to the list of activities that are per se deemed to occur after the beginning of commercial production. In the proposed regulations, one of the items on that list was “debugging or correcting flaws in a business component.” Consistent with the legislative history, IRS and Treasury continue to believe that debugging should be conclusively presumed to occur after the beginning of commercial production. However, many activities conducted before the beginning of commercial production could be construed as the correction of flaws. Thus, the per se list contained in the final regulations has been changed to refer to debugging activities but not to the correction of flaws.

Second, an example has been added to clarify that a new research project to improve a business component is not disqualified merely because the new research project commences after the commercial production of the unimproved business component. Other examples have been changed to eliminate references to and factual assertions about specific industries.

Third, the final regulations incorporate provisions from the legislative history to the 1986 Act that clinical testing of a pharmaceutical product prior to its commercial production in the United States is not treated as occurring after the beginning of commercial production even if the product is commercially available in other countries, and that additional clinical testing of a pharmaceutical product after a product has been approved for a specific therapeutic use by the Food and Drug Administration and is ready for commercial production and sale are not treated as occurring after the beginning of commercial production if such clinical tests are undertaken to establish new functional uses, characteristics, indications, combinations, dosages, or delivery forms for the product.

Several commentators suggested alternate formulations of the adaptation exclusion. Because such formulations effectively would render the adaptation exclusion inapplicable to activities that satisfy the other requirements for qualified research, thereby reading the exclusion out of the Internal Revenue Code, the final regulations do not adopt the suggestions.

Two new examples clarify that the adaptation exclusion may also apply to contract research expenses paid by the customer to the vendor or to in-house research expenses incurred by the customer itself to adapt an existing business component to that customer's requirement or need.

As noted above, the 1997 proposed regulations describe when software that is developed by (or for the benefit of) a taxpayer primarily for the taxpayer's internal use can qualify for the credit. The final regulations incorporate these special provisions for internal-use software. A number of changes have been made to the 1997 proposed regulations to address commentator concerns, and to coordinate the internal-use provisions with the other provisions of the final regulations.

Under the proposed regulations, research with respect to software developed primarily for a taxpayer's internal use is qualified research only if it satisfies both the general requirements for credit eligibility under section 41 and an additional condition for eligibility. Except for certain software developed for use in conducting qualified research or for use in a production process, and for certain software created as part of a package of hardware and software developed concurrently, the additional condition for eligibility is a requirement that the taxpayer satisfy a three-part test (requiring that the internal-use software be innovative, that its development involve significant economic risk, and that it not be commercially available).

Most of the comments received focused on two issues—(1) the determination of when software is developed primarily for internal use, and (2) the application of the three-part test to internal-use software. On the first issue, several commentators urged that internal-use software be defined to exclude any software used to deliver a service to customers or any software that includes an interface with customers or the public. After careful analysis of the legislative history to the 1986 Act and the 1999 Act, however, IRS and Treasury concluded that such a broad exclusion would be inconsistent with the statutory mandate, because the exclusion would extend to some software that Congress clearly intended to treat as internal-use software. At the same time, IRS and Treasury share the commentators' belief that the goals of the research credit may be advanced by removing additional conditions for credit-eligibility in the case of certain internal-use software used to provide new features to services offered to customers that are not otherwise available to them. Accordingly, as described in more detail below, the final regulations retain the definition of internal-use software contained in the proposed regulations, but provide a new exception (pursuant to the regulatory authority under section 41(d)(4)(E)) under which the development of certain internal-use software used to deliver noncomputer services to customers with features that are not yet offered by a taxpayer's competitors is not subject to the three-part test.

Consistent with a statement in the Conference Report to the 1999 Act that software research undertaken to support the provision of a service should not be deemed internal-use software “solely because the business component involves the provision of a service,” the final regulations clarify that the determination of whether software is internal-use software depends on the nature of the service provided by the taxpayer. Software that is intended to be used to provide noncomputer services to customers is internal-use software, while software that is to be used to provide computer services is not developed primarily for internal use. Computer services are services offered by a taxpayer to customers who do business with the taxpayer primarily for the use of the taxpayer's computer or software technology. Noncomputer services are services offered by a taxpayer to customers who do business with the taxpayer primarily to obtain a service other than a computer service, even if such other service is enabled, supported, or facilitated by computer or software technology.

The conclusion that software used to provide noncomputer services is internal-use software is consistent with the legislative history to the 1986 Act, which defined internal-use software as software used in general administrative functions and software used in providing noncomputer services (such as accounting, consulting, or banking services). See H.R. Conf. Rep. No. 841, at II-73 (emphasis added).

As noted above, the final regulations contain a new exception under which a taxpayer is not required to establish that internal-use software used to provide noncomputer services containing features or improvements that are not yet offered by a taxpayer's competitors satisfies the three-part test. Software that is intended to be used to provide noncomputer services is described within the exception if the software is designed to provide customers a new feature with respect to a noncomputer service; the taxpayer reasonably anticipated that customers would choose to obtain the noncomputer service from the taxpayer (rather than from the taxpayer's competitors) because of those features of the service that will be provided by the software; and those features are not available (at the time the research is undertaken) from any of the taxpayer's competitors.

No inference should be drawn that software described within the foregoing exception is not internal-use software or that internal-use software not described within the exception would fail the three-part test. Rather, the exception reflects a determination by IRS and Treasury that it is appropriate to exercise the regulatory authority in section 41(d)(4)(E) to exempt certain internal-use software from having to fulfil additional conditions for credit eligibility. This exercise of regulatory authority is based on a determination that the development of software containing features or improvements that are not available from a taxpayer's competitors and that provide a demonstrable competitive advantage is more likely to increase the innovative qualities and efficiency of the U.S. economy (by generating knowledge that can be used by other service providers) than is the development of software used to provide noncomputer services containing features or improvements that are already offered by others. IRS and Treasury believe that drawing such a line is an appropriate way to administer the credit with a view to identifying and facilitating the credit availability for software with the greatest potential for benefitting the U.S. economy, an important rationale for the research credit.

The final regulations also make a number of changes with respect to the three-part high threshold of innovation test, which continues to apply to certain software not described within the new exception. For example, commentators had questioned whether the 1997 proposed regulations impose a separate high threshold of innovation requirement that serves as an additional condition for credit eligibility, even where taxpayers otherwise satisfy the three-part test. The final regulations clarify that the three-part test is the high threshold of innovation test, and not a separate requirement. Similarly, commentators had objected to a sentence in the 1997 proposed regulations that could be read to suggest that certain internal-use software could never qualify for the credit. The final regulations clarify that research with respect to internal-use software that satisfies both the general conditions for credit eligibility and the three-part test is eligible for the credit.

Consistent with the application of the discovery requirement, the final regulations adopt the suggestion of several commentators that the three-part test should be applied without regard to whether the taxpayer succeeds in achieving the results described in that test.

Commentators questioned whether the “as where” clauses used to elaborate on the three requirements of the high threshold of innovation test in the 1997 proposed regulations were intended as mandatory requirements or merely as illustrations of ways in which taxpayers could satisfy the tests. By replacing the “as where” clauses with “in that” clauses, the final regulations confirm that a taxpayer must satisfy the provisions, as elaborated. Consistent with this clarification, the final regulations provide that the innovative prong of the three-part test may be satisfied with respect to any intended improvement, not just reductions in cost or improvements in speed.

Under the final regulations, all qualified research, including research with respect to internal-use software, must satisfy the discovery requirement (that is, must be intended to exceed, expand, or refine the common knowledge of skilled professionals in the particular field of science or engineering). The final regulations clarify how the three-part high threshold of innovation test supplements the discovery requirement. Specifically, the final regulations provide that several aspects of the three-part test (the determination of whether the software is intended to result in an improvement that is substantial and economically significant and the extent of uncertainty and technical risk) also must be applied with respect to the common knowledge of skilled professionals. In essence, the common knowledge of skilled professionals rather than the knowledge base of the taxpayer's employees is treated as the baseline with respect to which the intended software must satisfy the innovative prong and other prongs of the three-part test. Stated differently, research with respect to internal-use software is credit eligible only if it is intended to exceed, expand, or refine the common knowledge of skilled professionals (as defined in § 1.41-4(a)(3)(ii)) to a degree that is substantial and economically significant. See Norwest 110 T.C. at 499-500 (stating that “* * * the extent of the improvements required by Congress with respect to internal use software is much greater than that required in other fields” and that “* * * the significant economic risk test requires a higher threshold of technological advancement in the development of internal use software than in other fields”).

Reference to the common knowledge of skilled professionals as the baseline is necessary to give proper meaning to the statutory three-part test. For example, if the innovative requirement was applied simply with respect to the prior state of the taxpayer's own business, then ordinary inventory software installed by a taxpayer who previously tracked its inventory manually could be deemed to satisfy the innovative requirement merely because the taxpayer had achieved a substantial and economically significant improvement in speed over its prior non-automated operations.

Although the final regulations related to internal use software generally are effective for taxable years beginning after December 31, 1985, the provisions relating to software developed for use in providing computer and noncomputer services to customers and the provisions clarifying the interaction of the three-part test with the discovery requirement, like other provisions concerning the discovery requirement, are effective only prospectively; however, taxpayers may rely on these rules for expenditures paid or incurred prior to January 3, 2001.

Certain commentators suggested that taxpayers be permitted to elect the alternative incremental credit on an amended return. However, IRS and Treasury believe that the intended incentive effects of the credit would not be advanced by permitting taxpayers to make retroactive elections to alter the computation of (and presumably increase) the credit for prior years. Similarly, the availability of a retroactive election would undermine the application of section 41(c)(4)(B). Thus, the final regulations retain the requirement contained in the proposed regulations that the election to apply the provisions of the alternative incremental credit must be made on the taxpayer's timely filed original return.

In general, the regulations are applicable for expenditures paid or incurred on or after January 3, 2001. However, the regulations addressing the base amount are applicable for taxable years beginning on or after January 3, 2001. The regulations addressing internal-use software are applicable for taxable years beginning after December 31, 1985. However, § 1.41-4(c)(6)(ii)(C)( 4 ), § 1.41-4(c)(6)(iv)(A) and (B), § 1.41-4(c)(6)(v), the second and third sentences of § 1.41-4(c)(6)(vii), and § 1.41-4(c)(6)(viii) Example 2 are applicable for expenditures paid or incurred on or after January 3, 2001. The special documentation requirements of § 1.41-4(d) are applicable with respect to research projects that begin on or after March 5, 2001. The regulations providing for the election and revocation of the alternative incremental credit are applicable for taxable years ending on or after January 3, 2001. No inference should be drawn from the applicability date concerning the application of section 41 to expenditures paid or incurred or the computation of the base amount before the applicability date.

It has been determined that these regulations are not a significant regulatory action as defined in Executive Order 12866. Therefore, a regulatory assessment is not required. It also has been determined that section 553(b) of the Administrative Procedure Act (5 U.S.C. chapter 5) does not apply to these regulations.

It is hereby certified that the collection of information contained in these regulations will not have a significant economic impact on a substantial number of small entities. This certification is based on the fact that the rules of this section impact only taxpayers who engage in qualified research. Moreover, in those instances where the rules of this section impact small entities, the economic impact is not likely to be significant because it merely requires taxpayers to (1) prepare (before or during the early stages of a research project) and retain written documentation describing the principal questions to be answered and the information the taxpayer seeks to obtain that satisfies the requirements of § 1.41-4(a)(3) of these regulations; (2) elect on Form 6765, “Credit for Increasing Research Activities,” to use the alternative incremental credit if the entity desires to use that method; and (3) obtain permission to revoke the alternative incremental credit election, if so desired. Further, the economic impact of electing the alternative incremental credit on Form 6765 also would not be significant because the election is made on the same form and is based on the same information that is used to claim the research credit. Accordingly, a regulatory flexibility analysis under the Regulatory Flexibility Act (5 U.S.C. chapter 6) is not required.

Pursuant to section 7805(f), the notice of proposed rulemaking preceding these regulations was submitted to the Chief Counsel for Advocacy of the Small Business Administration for comment on its impact on small business.

The principal authors of these regulations are Lisa J. Shuman and Leslie H. Finlow of the Office of the Associate Chief Counsel (Passthroughs and Special Industries), IRS. However, personnel from other offices of the IRS and the Treasury Department participated in their development.

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

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

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

2. In person . The Agency has established an official record for this action under docket control number OPP-301086. The official record consists of the documents specifically referenced in this action, and other information related to this action, including any information claimed as Confidential Business Information (CBI). This official record includes the documents that are physically located in the docket, as well as the documents that are referenced in those documents. The public version of the official record does not include any information claimed as CBI. The public version of the official record, which includes printed, paper versions of any electronic comments submitted during an applicable comment period is available for inspection in the Public Information and Records Integrity Branch (PIRIB), Rm. 119, Crystal Mall #2, 1921 Jefferson Davis Hwy., Arlington, VA, from 8:30 a.m. to 4 p.m., Monday through Friday, excluding legal holidays. The PIRIB telephone number is (703) 305-5805.

EPA issued a final rule, published in the Federal Register of March 12, 1997 (62 FR 11360) (FRL -5593-1), which announced that on its own initiative under section 408 of the Federal Food, Drug, and Cosmetic Act (FFDCA), 21 U.S.C. 346a, as amended by the Food Quality Protection Act of 1996 (FQPA) (Public Law 104-170) it established a time-limited tolerance for the residues of clopyralid in or on cranberries at 2 ppm, with an expiration date of July 31, 1998. EPA established the tolerance because section 408(l)(6) of the FFDCA requires EPA to establish a time-limited tolerance or exemption from the requirement for a tolerance for pesticide chemical residues in food that will result from the use of a pesticide under an emergency exemption granted by EPA under section 18 of FIFRA. Such tolerances can be established without providing notice or period for public comment. The tolerance was subsequently twice extended until January 31, 2000, in the Federal Register of April 29, 1998, (63 FR 23392) (FRL- 5786-9) and July 31, 2001, in the Federal Register of March 24, 1999, (64 FR 14101) (FRL-6066-2).

EPA received a request to extend the use of clopyralid on cranberries for this year's growing season due to the continued need for control of various weeds. Cancellations of the most effective registered alternatives have left growers with few tools to control weeds in a crop which cannot be cultivated. After having reviewed the submission, EPA concurs that emergency conditions exist. EPA has authorized under FIFRA section 18 the use of clopyralid on cranberries for control of lotus, Douglas aster and clover in Oregon and Washington.

EPA assessed the potential risks presented by residues of clopyralid in or on cranberries. In doing so, EPA considered the safety standard in FFDCA section 408(b)(2), and decided that the necessary tolerance under FFDCA section 408(l)(6) would be consistent with the safety standard and with FIFRA section 18. The data and other relevant material have been evaluated and discussed in the final rule of March 12, 1997 (62 FR 11360) (FRL-5593-1). Based on that data and information considered, the Agency reaffirms that extension of the time-limited tolerance will continue to meet the requirements of section 408(l)(6). Therefore, the time-limited tolerance is extended for an additional 2½-year period. EPA will publish a document in the Federal Register to remove the revoked tolerance from the Code of Federal Regulations (CFR). Although this tolerance will expire and is revoked on December 31, 2003, under FFDCA section 408(l)(5), residues of the pesticide not in excess of the amounts specified in the tolerance remaining in or on cranberries after that date will not be unlawful, provided the pesticide is applied in a manner that was lawful under FIFRA and the application occurred prior to the revocation of the tolerance. EPA will take action to revoke this tolerance earlier if any experience with, scientific data on, or other relevant information on this pesticide indicate that the residues are not safe.

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

You must file your objection or request a hearing on this regulation in accordance with the instructions provided in this unit and in 40 CFR part 178. To ensure proper receipt by EPA, you must identify docket control number OPP-301086 in the subject line on the first page of your submission. All requests must be in writing, and must be mailed or delivered to the Hearing Clerk on or before March 5, 2001.

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

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

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

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

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

3. Copies for the Docket . In addition to filing an objection or hearing request with the Hearing Clerk as described in Unit III.A., you should also send a copy of your request to the PIRIB for its inclusion in the official record that is described in Unit I.B.2. Mail your copies, identified by docket control number OPP-301086, to: Public Information and Records Integrity Branch, Information Resources and Services Division (7502C), Office of Pesticide Programs, Environmental Protection Agency, 1200 Pennsylvania Ave., NW., Washington, DC 20460. In person or by courier, bring a copy to the location of the PIRIB described in Unit I.B.2. You may also send an electronic copy of your request via e-mail to: opp-docket@epa.gov. Please use an ASCII file format and avoid the use of special characters and any form of encryption. Copies of electronic objections and hearing requests will also be accepted on disks in WordPerfect 6.1/8.0 or ASCII file format. Do not include any CBI in your electronic copy. You may also submit an electronic copy of your request at many Federal Depository Libraries.

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

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

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

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

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

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

2. In person . The Agency has established an official record for this action under docket control number OPP-301085. The official record consists of the documents specifically referenced in this action, and other information related to this action, including any information claimed as Confidential Business Information (CBI). This official record includes the documents that are physically located in the docket, as well as the documents that are referenced in those documents. The public version of the official record does not include any information claimed as CBI. The public version of the official record, which includes printed, paper versions of any electronic comments submitted during an applicable comment period is available for inspection in the Public Information and Records Integrity Branch (PIRIB), Rm. 119, Crystal Mall #2, 1921 Jefferson Davis Hwy., Arlington, VA, from 8:30 a.m. to 4 p.m., Monday through Friday, excluding legal holidays. The PIRIB telephone number is (703) 305-5805.

EPA, on its own initiative, in accordance with sections 408(e) and 408 (l)(6) of the Federal Food, Drug, and Cosmetic Act (FFDCA), 21 U.S.C. 346a, is establishing tolerances for combined residues of the fungicide myclobutanil in or on beet, sugar, roots at 0.05 part per million (ppm); beet, sugar, tops at 1.0 ppm; beet, sugar, dried pulp at 1.0 ppm; beet, sugar, molasses at 1.0 ppm; and beet, sugar, refined sugar at 0.70 ppm. These tolerances will expire and are revoked on December 31, 2002. EPA will publish a document in the Federal Register to remove the revoked tolerances from the Code of Federal Regulations.

Section 408(l)(6) of the FFDCA requires EPA to establish a time-limited tolerance or exemption from the requirement for a tolerance for pesticide chemical residues in food that will result from the use of a pesticide under an emergency exemption granted by EPA under section 18 of FIFRA. Such tolerances can be established without providing notice or period for public comment. EPA does not intend for its actions on section 18 related tolerances to set binding precedents for the application of section 408 and the new safety standard to other tolerances and exemptions. Section 408(e) of the FFDCA allows EPA to establish a tolerance or an exemption from the requirement of a tolerance on its own initiative, i.e., without having received any petition from an outside party.

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

Section 18 of the Federal Insecticide, Fungicide, and Rodenticide Act (FIFRA) authorizes EPA to exempt any Federal or State agency from any provision of FIFRA, if EPA determines that “emergency conditions exist which require such exemption.” This provision was not amended by the Food Quality Protection Act (FQPA). EPA has established regulations governing such emergency exemptions in 40 CFR part 166.

EPA has authorized under FIFRA section 18 the use of myclobutanil on sugarbeets for control of powdery mildew in Idaho. After having reviewed the submission, EPA concurs that emergency conditions exist for this State.

As part of its assessment of this emergency exemption, EPA assessed the potential risks presented by residues of myclobutanil in or on sugar beets and sugar beet byproducts. In doing so, EPA considered the safety standard in FFDCA section 408(b)(2), and EPA decided that the necessary tolerance under FFDCA section 408(l)(6) would be consistent with the safety standard and with FIFRA section 18. Consistent with the need to move quickly on the emergency exemption in order to address an urgent non-routine situation and to ensure that the resulting food is safe and lawful, EPA is issuing these tolerances without notice and opportunity for public comment as provided in section 408(l)(6). Although these tolerances will expire and are revoked on December 31, 2002, under FFDCA section 408(l)(5), residues of the pesticide not in excess of the amounts specified in the tolerances remaining in or on sugar beets and the sugar beet byproducts after that date will not be unlawful, provided the pesticide is applied in a manner that was lawful under FIFRA, and the residues do not exceed a level that was authorized by these tolerances at the time of that application. EPA will take action to revoke these tolerances earlier if any experience with, scientific data on, or other relevant information on this pesticide indicate that the residues are not safe.

Because these tolerances are being approved under emergency conditions, EPA has not made any decisions about whether myclobutanil meets EPA's registration requirements for use on sugarbeets or whether permanent tolerances for this use would be appropriate. Under these circumstances, EPA does not believe that these tolerances serve as a basis for registration of myclobutanil by a State for special local needs under FIFRA section 24(c). Nor do these tolerances serve as the basis for any State other than Idaho to use this pesticide on this crop under section 18 of FIFRA without following all provisions of EPA's regulations implementing section 18 as identified in 40 CFR part 166. For additional information regarding the emergency exemption for myclobutanil, contact the Agency's Registration Division at the address provided under FOR FURTHER INFORMATION CONTACT.

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

Consistent with section 408(b)(2)(D), EPA has reviewed the available scientific data and other relevant information in support of this action. EPA has sufficient data to assess the hazards of myclobutanil and to make a determination on aggregate exposure, consistent with section 408(b)(2), for time-limited tolerances for combined residues of myclobutanil in or on beet, sugar, roots at 0.05 ppm; beet, sugar, tops at 1.0 ppm; beet, sugar, dried pulp at 1.0 ppm; beet, sugar, molasses at 1.0 ppm; and beet, sugar, refined sugar at 0.70 ppm.

EPA's assessment of the dietary exposures and risks associated with establishing the tolerances follows.

The dose at which no adverse effects are observed (the NOAEL) from the toxicology study identified as appropriate for use in risk assessment is used to estimate the toxicological endpoint. However, the lowest dose at which adverse effects of concern are identified (the LOAEL) is sometimes used for risk assessment if no NOAEL was achieved in the toxicology study selected. An uncertainty factor (UF) is applied to reflect uncertainties inherent in the extrapolation from laboratory animal data to humans and in the variations in sensitivity among members of the human population as well as other unknowns. An UF of 100 is routinely used, 10X to account for interspecies differences and 10X for intraspecies differences.

For dietary risk assessment (other than cancer) the Agency uses the UF to calculate an acute or chronic reference dose (RfD) where the RfD is equal to the NOAEL divided by the appropriate UF (RfD = NOAEL/UF). Where an additional safety factor is retained due to concerns unique to the FQPA, this additional factor is applied to the RfD by dividing the RfD by such additional factor. The acute or chronic Population Adjusted Dose (aPAD or cPAD) is a modification of the RfD to accommodate this type of FQPA Safety Factor.

For non-dietary risk assessments (other than cancer) the UF is used to determine the level of concern (LOC). For example, when 100 is the appropriate UF (10X to account for interspecies differences and 10X for intraspecies differences) the LOC is 100. To estimate risk, a ratio of the NOAEL to exposures (margin of exposure (MOE) = NOAEL/exposure) is calculated and compared to the LOC.

The linear default risk methodology (Q*) is the primary method currently used by the Agency to quantify carcinogenic risk. The Q* approach assumes that any amount of exposure will lead to some degree of cancer risk. A Q* is calculated and used to estimate risk which represents a probability of occurrence of additional cancer cases (e.g., risk is expressed as 1x10 - 6 or one in a million). Under certain specific circumstances, MOE calculations will be used for the carcinogenic risk assessment. In this non-linear approach, a “point of departure” is identified below which carcinogenic effects are not expected. The point of departure is typically a NOAEL based on an endpoint related to cancer effects though it may be a different value derived from the dose response curve. To estimate risk, a ratio of the point of departure to exposure (MOE cancer = point of departure/exposures) is calculated. A summary of the toxicological endpoints for myclobutanil used for human risk assessment is shown in the following Table 1:

1. Dietary exposure from food and feed uses. Tolerances have been established (40 CFR 180.443) for the combined residues of myclobutanil, [α-butyl-α-(4-chlorophenyl)-1H-1,2,4-triazole-1-propanenitrile] plus its alcohol metabolite [α-(3-hydroxybutyl)-α-(4-chlorophenyl)-1H-1,2,4-triazole-1-propanenitrile] (free and bound), in or on a variety of raw agricultural commodities at levels ranging from 25.0 ppm in raisin waste to 0.02 ppm in cottonseed. Tolerances have also been established (40 CFR 180.443(b)) for the combined residues of myclobutanil plus its alcohol metabolite (free and bound) and diol metabolite [α-(4-chlorophenyl)-α-(3,4-dihydroxybutyl)-1H-1,2,4-triazole-1-propanenitrile], in meat, milk, poultry and eggs, at levels ranging from 0.02 ppm to 1.0 ppm. Risk assessments were conducted by EPA to assess dietary exposures from myclobutanil in food as follows:

i. Acute exposure. Acute dietary risk assessments are performed for a food-use pesticide if a toxicological study has indicated the possibility of an effect of concern occurring as a result of a one day or single exposure. The Dietary Exposure Evaluation Model (DEEM®) analysis evaluated the individual food consumption as reported by respondents in the USDA 1989-1992 nationwide Continuing Surveys of Food Intake by Individuals (CSFII) and accumulated exposure to the chemical for each commodity. The following assumptions were made for the acute exposure assessments: The acute analysis was performed for females 13-50 years old using published and proposed tolerance level residues and 100% CT for all commodities. Therefore, the acute risk was analyzed at the 95th percentile. The aPAD for females 13-50 years old is 0.6 mg/kg/day. For acute dietary risk, EPA's level of concern is >100% aPAD. No acute dietary exposure analysis was performed for the general U.S. population, including infants and children, because no endpoint was chosen for these population subgroups.

ii. Chronic exposure . In conducting this chronic dietary risk assessment the DEEM® analysis evaluated the individual food consumption as reported by respondents in the USDA 1989-1992 nationwide Continuing Surveys of Food Intake by Individuals (CSFII) and accumulated exposure to the chemical for each commodity. The following assumptions were made for the chronic exposure assessments: The chronic analysis was performed using published and proposed tolerance levels for all commodities. For the chronic analysis, percent CT information was used for apples, apricots, cherries, grapes, nectarines, peaches, pears, plums, and cotton and 100% CT was assumed for all other commodities.

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

The Agency used PCT information as follows: apples at 40%, apricots at 15%, cherries at 40%, grapes at 45%, nectarines at 20%, peaches at 10%, plums at 15% and cotton at 1%.

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

2. Dietary exposure from drinking water. The Agency lacks sufficient monitoring exposure data to complete a comprehensive dietary exposure analysis and risk assessment for myclobutanil in drinking water. Because the Agency does not have comprehensive monitoring data, drinking water concentration estimates are made by reliance on simulation or modeling taking into account data on the physical characteristics of myclobutanil.

The Agency uses the Generic Estimated Environmental Concentration (GENEEC) or the Pesticide Root Zone/Exposure Analysis Modeling System (PRZM/EXAMS) to estimate pesticide concentrations in surface water and SCI-GROW, which predicts pesticide concentrations in groundwater. In general, EPA will use GENEEC (a tier 1 model) before using PRZM/EXAMS (a tier 2 model) for a screening-level assessment for surface water. The GENEEC model is a subset of the PRZM/EXAMS model that uses a specific high-end runoff scenario for pesticides. GENEEC incorporates a farm pond scenario, while PRZM/EXAMS incorporate an index reservoir environment in place of the previous pond scenario. The PRZM/EXAMS model includes a percent crop area factor as an adjustment to account for the maximum percent crop coverage within a watershed or drainage basin.

None of these models include consideration of the impact processing (mixing, dilution, or treatment) of raw water for distribution as drinking water would likely have on the removal of pesticides from the source water. The primary use of these models by the Agency at this stage is to provide a coarse screen for sorting out pesticides for which it is highly unlikely that drinking water concentrations would ever exceed human health levels of concern.

Since the models used are considered to be screening tools in the risk assessment process, the Agency does not use estimated environmental concentrations (EECs) from these models to quantify drinking water exposure and risk as a %RfD or %PAD. Instead drinking water levels of comparison (DWLOCs) are calculated and used as a point of comparison against the model estimates of a pesticide's concentration in water. DWLOCs are theoretical upper limits on a pesticide's concentration in drinking water in light of total aggregate exposure to a pesticide in food, and from residential uses. Since DWLOCs address total aggregate exposure to myclobutanil they are further discussed in the aggregate risk sections below.

Based on the GENEEC and SCI-GROW models the estimated environmental concentrations (EECs) of myclobutanil for acute exposures are estimated to be 115 parts per billion (ppb) for surface water and 2 ppb for ground water. The EECs for chronic exposures are estimated to be 92 ppb for surface water and 2 ppb for ground water.

3. From non-dietary exposure . Myclobutanil is currently registered for use on the following residential non-dietary sites: Homeowner use on turf, roses, flowers, shrubs and trees. The term “residential exposure” is used in this document to refer to non- occupation, nondietary exposure resulting from pesticide uses in residential settings (e.g., pesticide uses for lawn and garden pest control, indoor pest control, termiticides, and flea and tick control on pets.) The risk assessment was conducted using the following exposure assumptions:

i. Residential handler exposure. Based on the residential use- patterns associated with myclobutanil, there is potential for exposures to handlers of myclobutanil. In order to present a high-end scenario of residential exposure, it was assumed that one person would complete all mixing, loading and application of myclobutanil. Exposure scenarios were assessed, at the maximum application rate, for mixing, loading, and application of a soluble concentrate product by trigger bottle sprayer (treating ornamental plants), and by hose-end sprayer (treating turfgrass) to represent the worst-case scenario for the proposed uses. There are no chemical specific data available to support the residential use scenarios of myclobutanil. Therefore, modeling (PHED v 1.1 surrogate table) was used to represent the highest potential for exposure from homeowner application of myclobutanil.

ii. Residential post application exposure. Potential residential exposures are expected following applications to lawns, ornamentals and home garden sites. Chemical-specific data are available to determine the potential risks from post-application activities. The registrant submitted a dislodgeable foliar residue (DFR) study on grapes for myclobutanil. Short-term post-application exposure estimates were done using the study determined DFR of 0.175 μg/cm 2 (on day 0). For intermediate-term post-application exposure, an average of DFRs from day 0 through day 14 was used. The post-application risk assessment is based on DFR data from the submitted study on grapes and generic assumptions as specified by the recently revised Residential SOPs.

Based on the use pattern, exposure to myclobutanil-treated ornamentals is expected to be incidental and short-term. Both short- and intermediate-term exposures are expected following lawn applications of myclobutanil. Short-term aggregate post-application exposure for the adult was done for dermal exposure to treated turf and ornamentals. Since there is no intermediate-term exposure for the residential handler, there is no aggregate intermediate-term exposure for the adult.

Short-term, non-dietary ingestion exposure to toddlers is not assessed since EPA did not detect an acute dietary or oral endpoint applicable to infants and children. Therefore, EPA does not expect short-term non-dietary exposure to pose a risk to infants and children. The only short-term toddler exposure that was considered consists of dermal post-application exposure. However, EPA determined that the short-term dermal exposure should not be aggregated with the short-term oral exposure because the toxic effects are different.

Additionally, intermediate-term, non-dietary ingestion exposure for toddlers is possible and was assessed using the intermediate-term dose and endpoint identified from the two generation reproduction toxicity study in rats. Intermediate-term aggregate exposure for toddlers combines non-dietary ingestion and dermal exposure from treated turf.

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

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

1. In general . FFDCA section 408 provides that EPA shall apply an additional tenfold margin of safety for infants and children in the case of threshold effects to account for prenatal and postnatal toxicity and the completeness of the data base on toxicity and exposure unless EPA determines that a different margin of safety will be safe for infants and children. Margins of safety are incorporated into EPA risk assessments either directly through use of a margin of exposure (MOE) analysis or through using uncertainty (safety) factors in calculating a dose level that poses no appreciable risk to humans.

2. Prenatal and postnatal sensitivity. There was no evidence of increased susceptibility in the developmental toxicity studies with rats and rabbits. The data from the 2-generation reproduction study in rats provided no indication of quantitative or qualitative increased susceptibility since maternal toxicity and reproductive toxicity occurred at the same dose.

3. Conclusion . There is a complete toxicity data base for myclobutanil and exposure data are complete or are estimated based on data that reasonably accounts for potential exposures.

EPA determined that the 10X safety factor to protect infants and children should be removed. The FQPA factor is removed because:

i. There are no toxicity or residential exposure data gaps in the consideration of the FQPA Safety Factor;

ii. There was no evidence of increased susceptibility in the developmental toxicity studies with rats and rabbits and the 2-generation reproduction study in rats provided no indication of quantitative or qualitative increased susceptibility since maternal toxicity and reproductive toxicity occurred at the same dose;

iii. A developmental neurotoxicity study is not required because neurotoxic compounds of similar structure were not identified and there was no evidence of neurotoxicity in the current toxicity data base; and

iv. The exposure assessments will not underestimate the potential dietary (food and drinking water) and residential (non-occupational) exposures for infants and children from the use of myclobutanil.

To estimate total aggregate exposure to a pesticide from food, drinking water, and residential uses, the Agency calculates DWLOCs which are used as a point of comparison against the model estimates of a pesticide's concentration in water (EECs). DWLOC values are not regulatory standards for drinking water. DWLOCs are theoretical upper limits on a pesticide's concentration in drinking water in light of total aggregate exposure to a pesticide in food and residential uses. In calculating a DWLOC, the Agency determines how much of the acceptable exposure (i.e., the PAD) is available for exposure through drinking water e.g., allowable chronic water exposure (mg/kg/day) = cPAD - (average food + chronic non-dietary, non-occupational exposure). This allowable exposure through drinking water is used to calculate a DWLOC.

A DWLOC will vary depending on the toxic endpoint, drinking water consumption, and body weights. Default body weights and consumption values as used by the USEPA Office of Water are used to calculate DWLOCs: 2 Liters (L)/70 kg (adult male), 2L/60 kg (adult female), and 1L/10 kg (child). Default body weights and drinking water consumption values vary on an individual basis. This variation will be taken into account in more refined screening-level and quantitative drinking water exposure assessments. Different populations will have different DWLOCs. Generally, a DWLOC is calculated for each type of risk assessment used: acute, short-term, intermediate-term, chronic, and cancer.

When EECs for surface water and groundwater are less than the calculated DWLOCs, OPP concludes with reasonable certainty that exposures to myclobutanil in drinking water (when considered along with other sources of exposure for which OPP has reliable data) would not result in unacceptable levels of aggregate human health risk at this time. Because OPP considers the aggregate risk resulting from multiple exposure pathways associated with a pesticide's uses, levels of comparison in drinking water may vary as those uses change. If new uses are added in the future, OPP will reassess the potential impacts of myclobutanil on drinking water as a part of the aggregate risk assessment process.

1. Acute risk . Using the exposure assumptions discussed in this unit for acute exposure, the acute dietary exposure from food to myclobutanil will occupy 2% of the aPAD for females 13 years and older. In addition, despite the potential for acute dietary exposure to myclobutanil in drinking water, after calculating DWLOCs and comparing them to conservative model estimated environmental concentrations of myclobutanil in surface and ground water, EPA does not expect the aggregate exposure to exceed 100% of the aPAD, as shown in the following Table 2:

2. Chronic risk . Using the exposure assumptions described in this unit for chronic exposure, EPA has concluded that exposure to myclobutanil from food will utilize 18%% of the cPAD for the U.S. population, 50%% of the cPAD for infants <1 year old and 54%% of the cPAD for children 1 to 6 years old. There are no residential uses for myclobutanil that result in chronic residential exposure to myclobutanil. In addition, despite the potential for chronic dietary exposure to myclobutanil in drinking water, after calculating DWLOCs and comparing them to conservative model estimated environmental concentrations of myclobutanil in surface and ground water, EPA does not expect the aggregate exposure to exceed 100% of the cPAD, as shown in the following Table 3:

3. Short-term risk . Short-term aggregate exposure takes into account residential exposure plus chronic exposure to food and water (considered to be a background exposure level). EPA has determined that oral and dermal exposures can not be aggregated due to differences in the toxicological endpoints via the oral (developmental study) and dermal routes. Therefore, short-term aggregate risk is captured by assessment of acute risk above.

4. Intermediate-term risk . Intermediate-term aggregate exposure takes into account non-dietary, non-occupational exposure plus chronic exposure to food and water (considered to be a background exposure level). Myclobutanil is currently registered for use(s) that could result in intermediate-term residential exposure and the Agency has determined that it is appropriate to aggregate chronic food and water and intermediate-term exposures for myclobutanil.

Using the exposure assumptions described in this unit for intermediate-term exposures, EPA has concluded that food and residential exposures aggregated result in aggregate MOEs of 650 for the U.S. population and 300 for infants and children. These aggregate MOEs do not exceed the Agency's level of concern for aggregate exposure to food and residential uses. In addition, intermediate-term DWLOCs were calculated and compared to the EECs for chronic exposure of myclobutanil in ground water and surface water. After calculating DWLOCs and comparing them to the EECs for surface and ground water, EPA does not expect intermediate-term aggregate exposure to exceed the Agency's level of concern, as shown in the following Table 4: