Interested persons are invited to participate in the making of the proposed rule by submitting such written data, views, or arguments as they may desire. Communications shall identify the Rules Docket number and be submitted in triplicate to the address specified above. All communications received on or before the closing date for comments, specified above, will be considered before taking action on the proposed rule. The proposals contained in this action may be changed in light of the comments received.

Submit comments using the following format:

• Organize comments issue-by-issue. For example, discuss a request to change the compliance time and a request to change the service bulletin reference as two separate issues.

• For each issue, state what specific change to the proposed AD is being requested.

• Include justification ( e.g. , reasons or data) for each request.

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

Commenters wishing the FAA to acknowledge receipt of their comments submitted in response to this action must submit a self-addressed, stamped postcard on which the following statement is made: “Comments to Docket Number 2001-NM-237-AD.” The postcard will be date stamped and returned to the commenter.

Any person may obtain a copy of this NPRM by submitting a request to the FAA, Transport Airplane Directorate, ANM-114, Attention: Rules Docket No. 2001-NM-237-AD, 1601 Lind Avenue, SW., Renton, Washington 98055-4056.

The FAA has received reports indicating that the original analysis of the highest sill heights for the forward and mid-cabin entry and service doors is no longer valid on certain Boeing Model 767-200 and -300 series airplanes. The original analysis showed that, in the event of a main landing gear (MLG) failure, the engine nacelle strut would shear off due to the weight of the airplane; however, the results of further testing revealed that the engine nacelle strut has a higher strength than originally calculated. This higher strength could result in higher-than-expected sill height values ocurring at the forward and mid-cabin doors with the airplane resting on one MLG and the opposite engine. In this instance, the airplane could rotate onto the aft fuselage ( i.e. , an extreme tip-back position). We have received two reported incidents of a single MLG collapsing, which resulted in a partial tip-back position due to the degree of rotation of the airplane. No injury resulted to passengers using the evacuation slides during the emergency.

This condition, if not corrected, could cause the escape slides and slide-rafts of the forward and mid-cabin entry and service doors to be too short to reach the ground in the event that the airplane rotates onto the aft fuselage, resulting in an extreme tip-back position. This tip-back position could result in injury to passengers and crewmembers during an emergency evacuation.

The FAA has reviewed and approved Boeing Service Bulletin 767-25-0266, dated September 14, 2000, which describes procedures for replacing certain door-mounted escape slides and slide-raft assemblies with new slide-raft assemblies; replacing certain door latches with new latches; and modifying or replacing certain counterbalance assemblies with new counterbalance assemblies; as applicable. Accomplishment of the actions specified in the service bulletin is intended to adequately address the identified unsafe condition.

Since an unsafe condition has been identified that is likely to exist or develop on other products of this same type design, the proposed AD would require accomplishment of the actions specified in the service bulletin described previously, except as discussed below.

Operators should note that, although Boeing Service Bulletin 767-25-0266 recommends that the affected parts be replaced at the end of the “useful service life” (approximately 15 years) of the slides and slide-rafts, the FAA has determined that the “useful service life” interval would not address the unsafe condition in a timely manner. Therefore, this proposal would require that the affected parts be replaced within five years from the effective date of this AD. In developing an appropriate compliance time for this AD, the FAA considered not only the manufacturer's recommendation, but also the degree of urgency associated with addressing the subject unsafe condition, the average utilization of the affected fleet, and the time necessary to perform the replacement. In light of all of these factors, the FAA finds a five-year compliance time for completing the required actions to be warranted, in that it represents an appropriate interval of time allowable for affected airplanes to continue to operate without compromising safety.

There are approximately 745 airplanes of the affected design in the worldwide fleet. The FAA estimates that 261 airplanes of U.S. registry would be affected by this proposed AD. The work hours and required parts per airplane vary according to the configuration group to which the affected airplane belongs.

The following table shows the estimated cost impact for airplanes of U.S. registry affected by this proposed AD:

Based on the figures in the above table, the cost impact of the proposed AD on U.S. operators is estimated to be $4,459,725.

The cost impact figure discussed above is based on assumptions that no operator has yet accomplished any of the proposed requirements of this AD action, and that no operator would accomplish those actions in the future if this proposed 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 proposed herein would 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 proposal would not have federalism implications under Executive Order 13132.

For the reasons discussed above, I certify that this proposed regulation (1) is not a “significant regulatory action” under Executive Order 12866; (2) is not a “significant rule” under the DOT Regulatory Policies and Procedures (44 FR 11034, February 26, 1979); and (3) if promulgated, 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 copy of the draft regulatory evaluation prepared for this action is contained in the Rules Docket. A copy of it may be obtained by contacting the Rules Docket at the location provided under the caption ADDRESSES.

Accordingly, pursuant to the authority delegated to me by the Administrator, the Federal Aviation Administration proposes to amend part 39 of the Federal Aviation Regulations (14 CFR part 39) as follows:

Interested persons are invited to participate in the making of the proposed rule by submitting such written data, views, or arguments as they may desire. Communications shall identify the Rules Docket number and be submitted in triplicate to the address specified above. All communications received on or before the closing date for comments, specified above, will be considered before taking action on the proposed rule. The proposals contained in this action may be changed in light of the comments received.

Submit comments using the following format:

• Organize comments issue-by-issue. For example, discuss a request to change the compliance time and a request to change the service bulletin reference as two separate issues.

• For each issue, state what specific change to the proposed AD is being requested.

• Include justification ( e.g. , reasons or data) for each request.

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

Commenters wishing the FAA to acknowledge receipt of their comments submitted in response to this action must submit a self-addressed, stamped postcard on which the following statement is made: “Comments to Docket Number 2002-NM-334-AD.” The postcard will be date stamped and returned to the commenter.

Any person may obtain a copy of this NPRM by submitting a request to the FAA, Transport Airplane Directorate, ANM-114, Attention: Rules Docket No. 2002-NM-334-AD, 1601 Lind Avenue, SW., Renton, Washington 98055-4056.

The FAA has received reports indicating that several fractured H-11 steel bolts have been found on the underwing strut attachment fitting on Boeing Model 767 series airplanes. The cause of the H-11 steel bolt fracture was due to stress corrosion. This condition, if not corrected, could result in separation of the engine from the airplane due to stress corrosion cracking and consequent fracturing of the bolts.

The H-11 steel bolts forward of the wing front spar upper chord on the overwing support fittings of the inboard and outboard nacelle struts on certain Boeing Model 707 and 720 series airplanes are identical to those on the affected Boeing Model 767 series airplanes. Therefore, all these airplanes may be subject to the same unsafe condition.

The FAA has previously issued AD 2000-10-51, amendment 39-11770 (65 FR 37011, June 13, 2000), applicable to certain Boeing Model 767 series airplanes. That AD requires an inspection of the 767 underwing strut attachment fitting to determine whether H-11 steel tension bolts are installed in the side load underwing fittings on both struts. This proposed AD would not affect the current requirements of that AD.

The FAA has reviewed and approved Boeing 707/720 Service Bulletin A3502, dated February 21, 2002, which describes procedures for performing a general visual inspection of the bolt forward of the wing front spar upper chord on the overwing support fittings of the inboard and outboard nacelle struts to verify that BACB30US type bolts are installed, and performing corrective actions if any other type bolt is found. The corrective actions consist of performing a high frequency eddy current inspection of the hole bore for corrosion and cracks; measuring the hole to verify the diameter is within the specified dimensions; contacting the manufacturer for corrective action if any crack or corrosion is found or if hole diameter is not within the specified dimensions; and replacing non-BACB30US type bolts with new BACB30US type bolts. The new BACB30US bolts are made from nickel alloy 718 material and are not subject to stress corrosion. Accomplishment of the actions specified in the service bulletin is intended to adequately address the identified unsafe condition.

Since an unsafe condition has been identified that is likely to exist or develop on other products of this same type design, the proposed AD would require accomplishment of the actions specified in the service bulletin described previously, except as discussed below.

Operators should note that, although the service bulletin specifies that reviewing records is another way to verify if a BACB30US type bolt is installed, this proposed AD would require performing a general visual inspection as the only way to verify if a BACB30US type bolt is installed. The FAA has determined that even if a BACB30US type bolt had been installed as shown on the records, the BACB30US type bolt could have been replaced at a later time with a bolt other than a BACB30US type bolt. Therefore, a general visual inspection is the only way to verify if a BACB30US type bolt is installed.

Operators should note that, although the service bulletin specifies that the manufacturer may be contacted for disposition of certain repair conditions, this proposed AD would require the repair of those conditions to be accomplished per a method approved by the FAA, or per data meeting the type certification basis of the airplane approved by a Boeing Company Designated Engineering Representative who has been authorized by the FAA to make such findings.

There are approximately 230 airplanes of the affected design in the worldwide fleet. The FAA estimates that 42 airplanes of U.S. registry would be affected by this proposed AD, that it would take approximately 1 work hour per airplane to accomplish the proposed inspection and that the average labor rate is $65 per work hour. Based on these figures, the cost impact of the proposed AD on U.S. operators is estimated to be $2,730, or $65 per airplane.

The cost impact figures discussed above are based on assumptions that no operator has yet accomplished any of the proposed requirements of this AD action, and that no operator would accomplish those actions in the future if this proposed 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 proposed herein would 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 proposal would not have federalism implications under Executive Order 13132.

For the reasons discussed above, I certify that this proposed regulation (1) is not a “significant regulatory action” under Executive Order 12866; (2) is not a “significant rule” under the DOT Regulatory Policies and Procedures (44 FR 11034, February 26, 1979); and (3) if promulgated, 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 copy of the draft regulatory evaluation prepared for this action is contained in the Rules Docket. A copy of it may be obtained by contacting the Rules Docket at the location provided under the caption ADDRESSES.

Accordingly, pursuant to the authority delegated to me by the Administrator, the Federal Aviation Administration proposes to amend part 39 of the Federal Aviation Regulations (14 CFR part 39) as follows:

Interested persons are invited to participate in the making of the proposed rule by submitting such written data, views, or arguments as they may desire. Communications shall identify the Rules Docket number and be submitted in triplicate to the address specified above. All communications received on or before the closing date for comments, specified above, will be considered before taking action on the proposed rule. The proposals contained in this action may be changed in light of the comments received.

Submit comments using the following format:

• Organize comments issue-by-issue. For example, discuss a request to change the compliance time and a request to change the service bulletin reference as two separate issues.

• For each issue, state what specific change to the proposed AD is being requested.

• Include justification ( e.g., reasons or data) for each request.

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

Commenters wishing the FAA to acknowledge receipt of their comments submitted in response to this action must submit a self-addressed, stamped postcard on which the following statement is made: “Comments to Docket Number 2003-NM-50-AD.” The postcard will be date stamped and returned to the commenter.

Any person may obtain a copy of this NPRM by submitting a request to the FAA, Transport Airplane Directorate, ANM-114, Attention: Rules Docket No. 2003-NM-50-AD, 1601 Lind Avenue, SW., Renton, Washington 98055-4056.

The FAA has received a report of a chronic occurrence of the stabilizer rate valve failure maintenance message on a Model 777 airplane. The cause of the occurrence was due to wire bundles lying on top of the galley water drain tube. The wire bundles had an intermittent conductor-to-shield short because of contact with the tube and vibration. It is likely the wire bundles were in contact with the tube because, during production, the wire bundles were not installed properly with adequate separation. This condition, if not corrected, and if followed by active fault in stabilizer command circuit, could result in undesired stabilizer motion that cannot be stopped. Stabilizer motion that cannot be stopped could lead to loss of pitch control and loss of control of the airplane.

The FAA has reviewed and approved Boeing Service Bulletin 777-27-0057, dated August 22, 2002, which describes procedures for performing a one-time general visual inspection of the wire bundles that route aft of electrical disconnect panel AC2162 to determine their installation and separation, and corrective actions, if necessary. The corrective actions include performing a detailed inspection of the wire bundles for damage, repair of the wire bundles if necessary, and securing the wire bundles as necessary. Accomplishment of the actions specified in the service bulletin is intended to adequately address the identified unsafe condition.

Since an unsafe condition has been identified that is likely to exist or develop on other products of this same type design, the proposed AD would require accomplishment of the actions specified in the service bulletin described previously, except as discussed below.

Operators should note that, although the service bulletin recommends accomplishing the inspection at the first convenient maintenance opportunity, the FAA has determined that such an imprecise compliance time would not address the identified unsafe condition in a timely manner. In developing an appropriate compliance time for this AD, the FAA considered not only the manufacturer's recommendation, but the degree of urgency associated with addressing the subject unsafe condition, the average utilization of the affected fleet, and the time necessary to perform the inspection (one hour). In light of all of these factors, the FAA finds a compliance time of within 18 months from the effective date of the AD for completing the required actions to be warranted, in that it represents an appropriate interval of time allowable for affected airplanes to continue to operate without compromising safety.

There are approximately 64 airplanes of the affected design in the worldwide fleet. The FAA estimates that 17 airplanes of U.S. registry would be affected by this proposed AD, that it would take approximately 1 work hour per airplane to accomplish the proposed general visual inspection, and that the average labor rate is $65 per work hour. Based on these figures, the cost impact of the proposed AD on U.S. operators is estimated to be $1,105, or $65 per airplane.

The cost impact figures discussed above are based on assumptions that no operator has yet accomplished any of the proposed requirements of this AD action, and that no operator would accomplish those actions in the future if this proposed 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. Manufacturer warranty remedies may be available for labor costs associated with this proposed AD. As a result, the costs attributable to the proposed AD may be less than stated above.

The regulations proposed herein would 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 proposal would not have federalism implications under Executive Order 13132.

For the reasons discussed above, I certify that this proposed regulation (1) is not a “significant regulatory action” under Executive Order 12866; (2) is not a “significant rule” under the DOT Regulatory Policies and Procedures (44 FR 11034, February 26, 1979); and (3) if promulgated, 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 copy of the draft regulatory evaluation prepared for this action is contained in the Rules Docket. A copy of it may be obtained by contacting the Rules Docket at the location provided under the caption ADDRESSES.

Accordingly, pursuant to the authority delegated to me by the Administrator, the Federal Aviation Administration proposes to amend part 39 of the Federal Aviation Regulations (14 CFR part 39) as follows:

The Commodity Futures Modernization Act of 2000 (“CFMA”), Pub. L. 106-554, created an exemption from the Commission's jurisdiction for transactions conducted on certain electronic commercial markets (“exempt commercial markets,” “ECMs” or “§ 2(h)(3) markets”). Specifically, § 2(h)(3) of the Act provides that, except to the extent provided in § 2(h)(4), nothing in the Act shall apply to a transaction in an exempt commodity  1 that is: (a) Entered into on a principal-to-principal basis solely between persons that are eligible commercial entities at the time the persons enter into the agreement, contract, or transaction; and (b) executed or traded on an electronic trading facility. Section 2(h)(4) provides that a transaction described in § 2(h)(3) shall be subject to certain specified provisions of the Act, such as the Act's antimanipulation and antifraud provisions, and furthermore, that such transactions shall be subject to price dissemination rules if the electronic trading facility serves a significant price discovery function for the underlying cash market. Section 2(h)(5) requires an electronic trading facility relying on the exemption in § 2(h)(3) to provide the Commission with certain information and to comply with information access provisions set out in § 2(h)(5)(B)(i).

Section 2(h)(5)(B)(i) of the Act requires an electronic trading facility relying on the exemption provided in § 2(h)(3) to provide the Commission with information regarding trading activity on the facility. The statute establishes two alternatives for providing that information:

Regulation 36.3(b)(1), published on August 10, 2001, was intended to implement the foregoing statutory provisions. It provides as follows:

To date, those trading facilities that have sought to comply with this regulation have generally chosen the former, the electronic access option. In applying the electronic access option, the Commission has generally accepted from ECMs electronic access to their trading protocols ( i.e. , the trading agreements and/or other terms and conditions applicable to trades on the facility, generally available on their Web sites) in addition to view-only electronic access to the data stream of trades taking place on the system. The Commission suggested, when it adopted Part 36, that such electronic access would provide information similar to that provided by large trader reports filed with the Commission with respect to trading on designated contract markets:

In practice, however, the Commission's Division of Market Oversight (“Division”) has found that the view-only information provided under the electronic access option, by those trading facilities that have filed notifications under section 2(h)(3) over the last 24 months, is neither as relevant, 3 nor as useful, 4 as anticipated.

Therefore, the Commission is proposing to amend its regulations to focus Rule 36.3(b)(1) more precisely so as to provide the Commission with access to more relevant and useful information regarding trading activity on exempt commercial markets. Under the amended rules, an electronic trading facility filing a notification with the Commission under Rule 36.3 would be required, initially and on an ongoing basis, to: (1) Provide the Commission with access to the facility's trading protocols, either electronically or in hard copy form; (2) identify those transactions conducted on the facility with respect to which it intends to rely on the exemption in section 2(h)(3); and (3) inform the Commission whether it intends to satisfy the information access requirement of section 2(h)(5)(B)(i) of the Act with respect to such transactions through the electronic access option provided in paragraph 36.3(b)(1)(ii)(B), or the reporting option provided in paragraph 36.3(b)(1)(ii)(A), as described below.

The trading facility would not be required to include among the agreements, contracts or transactions for which it is seeking an exemption those agreements, contracts or transactions that are not contracts for future delivery of a commodity, or options, and are, therefore, not subject to the Commission's exclusive jurisdiction. Thus, for example, the trading facility would not be required to identify, or provide information with respect to, agreements, contracts or transactions involving “any sale of any cash commodity for deferred shipment or delivery.” Such transactions are excluded from the Commission's exclusive jurisdiction under section 1a(19) of the Act (commonly referred to as “the forward contract exclusion”). Neither would a trading facility be required to identify, or provide information with respect to, agreements, contracts or transactions that constitute cash or spot transactions, which are contracts for present, rather than future, delivery and likewise are not subject to the Commission's exclusive jurisdiction.

In complying with amended Rule 36.3, trading facilities shall make their best effort to identify to the Commission only those agreements, contracts or transactions that are subject to the Commission's exclusive jurisdiction and with respect to which they intend to rely on the exemption provided in section 2(h)(3). Should a new agreement, contract or transaction be added, or an existing one amended, that would be traded in reliance on the exemption, the trading facility should amend its notice accordingly.

A trading facility that does not offer trading in any futures or option contracts subject to the Commission's exclusive jurisdiction—for example, a facility where only cash or forward contracts are traded—is not required to file a notification under Rule 36.3. Such a facility is not subject to the Commodity Exchange Act.

Consistent with section 2(i) of the Act, 5 the mere fact that it was identified as being traded in reliance on the section 2(h)(3) exemption would not be construed as creating a presumption that any agreement, contract or transaction is or otherwise would be subject to the Act. Thus, for example, in any enforcement action involving any such agreement, contract or transaction, the Commission would be required to prove its jurisdiction independently of an ECM's identification of that agreement, contract or transaction for purposes of information access under Rule 36.3. Also, should a trading facility seeking in good faith to comply with Rule 36.3 fail to identify for information access purposes a particular agreement, contract or transaction, which is later determined to be a futures or option contract subject to the Commission's exclusive jurisdiction, such failure would not be construed by the Commission as a violation of section 4(a) of the Act. 6 However, such transaction would still remain subject to the Commission's antifraud and antimanipulation authority.

Trading facilities electing to provide information under the reporting option would be required to file weekly reports containing information that could be useful to the Commission in enforcing its antifraud and antimanipulation authority with respect to those trading facilities. Such reports would include, in a form and manner approved by the Commission, a report for each business day, showing for each transaction executed on the facility in reliance on the exemption set forth in section 2(h)(3) the following information: the commodity, the location, 7 the maturity date, whether it is a financially settled or physically delivered instrument, the date of execution, the time of execution, the price, the quantity, and such other information as the Commission may determine, and for an option instrument, the type of option (call or put) and the strike price. Each such report would be required to be electronically transmitted weekly, within such time period as is acceptable to the Commission following the end of the week to which the data applies.

Those trading facilities wishing to provide information pursuant to the electronic access option (Rule 36.3(b)(1)(ii)(B)) would be required, initially and on an ongoing basis, to provide the Commission with electronic access to those transactions conducted on the facility in reliance on the exemption in section 2(h)(3). Such access must be structured so as to permit the Commission to capture in permanent form a continuing record of trades on the facility such that the Commission would be able to reconstruct and compile the same information regarding transactions on the trading facility that would otherwise be provided by the trading facility under the reporting option (Rule 36.3(b)(1)(ii)(A)) described above.

The Commission expects that the information that will be provided by ECMs in reports required under Rule 36.3(b)(1)(ii)(A), or compiled by the Commission through electronic access provided under Rule 36.3(b)(1)(ii)(B), will be useful in identifying aberrant price behavior, including intraday price spikes. Such price anomalies may serve as indicators of the need for further Commission investigation. In such instances, the Commission may, among other things, use the special call authority provided by section 2(h)(5)(B)(iii) to determine whether a manipulation may have occurred warranting appropriate enforcement action.

This reactive oversight differs from that applicable to Designated Contract Markets (“DCMs”) and registered Derivatives Transaction Execution Facilities (“DTFs”). Those markets are subject to a greater degree of regulatory oversight than ECMs and, accordingly, are required to provide more frequent and detailed transaction data, which enables the Commission not only to investigate and punish manipulation after-the-fact, but to detect and prevent it as well.

Proposed Rule 36.3(b)(1)(iii) would require a trading facility to maintain a record of allegations or complaints concerning instances of suspected fraud or manipulation. The record would be required to include the name of the complainant, if provided, the date of the complaint, the market instrument, the substance of the allegations, and the name of the person at the trading facility who received the complaint. The intent of this provision is to make clear that the language of section 2(h)(5)(B)(ii) of the Act, which requires a trading facility to maintain “records of activities related to its business as an electronic trading facility exempt under paragraph (3),” extends to maintaining records relating to allegations or complaints of fraud or manipulation in trading activity on the facility.

Proposed Rule 36.3(b)(1)(iv) would require a trading facility to provide to the Commission a copy of the record of each substantive complaint no later than three days after the complaint is received. The basis for this requirement is the language appearing at the end of section 2(h)(5)(B)(i)(II) (the reporting option), which states that reports regarding transactions executed on the facility are provided “to enable the Commission to satisfy its obligations under this Act.” The purpose expressed in this language seems to apply not only to the reporting subparagraph in which it appears, but also to the electronic access subparagraph that precedes it. Clearly, the two subparagraphs are intended to provide alternative methods of reaching the same objective, which is to impart information to the Commission that will enable it to perform its duties under the Act.

Given the Commission's duty to enforce the antifraud and antimanipulation provisions of the Act with respect to transactions conducted in reliance on the section 2(h)(3) exemption, the Commission believes it is crucial that ECMs report complaints of such activities. Reports to the Commission are consistent with an ECM's ongoing obligations under section 2(h)(5)(D) both to comply with paragraph 2(h)(5) itself and to require participants trading on the facility in reliance on the section 2(h)(3) exemption to “agree to comply with all applicable law.” Such reports are especially important given the after-the-fact nature of the Commission's oversight of such trading activity. It is also significant that the ECMs receiving these complaints (unlike more highly-regulated DCMs or DTFs) have no self-regulatory responsibility or authority, and thus no ability to respond to such complaints themselves beyond denying the violator future access to the trading facility. This creates an even greater need for the Commission to receive information that will enable it to take action in response to such suspected manipulation or fraud.

It should be noted that the reporting requirement is limited to “substantive” claims of manipulation or fraud. The Commission's intent in including this limitation is to allow an ECM to exercise its judgment to weed out clearly frivolous claims. 8

With respect to price dissemination rules, section 2(h)(4)(D) specifically provides that a transaction described in section 2(h)(3) shall be subject to:

On August 10, 2001, the Commission published Rule 36.3, which implements the notification, information and other provisions of the CFMA related to section 2(h)(3) exempt commercial markets. See 66 FR 42255. Subsection (c)(2) of Rule 36.3 provides that the Commission may make a determination that such a trading facility performs a significant price discovery function under section 2(h)(4)(D) by order, and that such finding shall be made after notice and an opportunity for a hearing through submission of written data, views and arguments.

To date, ten electronic commercial markets have notified the Commission of their intent to operate as ECMs in reliance on the section 2(h)(3) exemption. The Commission has issued acknowledgment letters to seven ECMs, and is considering the issuance of acknowledgment letters to the other three markets. In view of the Commission's receipt of these section 2(h)(3) notifications, the Commission now is proposing to add specificity to its price discovery rules in several ways. First, the Commission is proposing to adopt two criteria that the Commission will use to determine whether a section 2(h)(3) market performs a significant price discovery function for the underlying cash market. Second, the Commission is proposing to specify the information that must be disseminated by section 2(h)(3) markets that serve such a significant price discovery function. Third, the Commission is proposing certain amendments to its procedures for making a price discovery determination. 9

Price discovery commonly is defined as the process of determining prices through the interaction of buyers and sellers. Prices may be discovered by a single buyer and seller in a privately negotiated bilateral cash market transaction, or through the simultaneous interaction of multiple buyers and sellers in organized markets.

Organized markets, which include futures markets and certain cash markets where trading takes place in accordance with established rules, often perform an important role in facilitating price discovery in the broader cash markets. In particular, these markets facilitate price discovery in cash markets by efficiently incorporating supply and demand information for the underlying commodity into the transaction prices or bids and offers through the operation of a centralized market for the commodity. Thus, the price discovery process on organized markets may significantly enhance the efficiency of the overall cash market.

The extent to which price information is used in establishing prices for cash market transactions that occur outside of the organized markets provides a relevant factor for determining the contribution of that market to price discovery and for determining whether there is a federal interest in the dissemination of such price information. 10 Such price information may be used in varying degrees to facilitate the establishment of prices and may also serve as one of a number of sources of price information that are consulted by cash market participants in developing bids, offers, or transaction prices. In certain circumstances, such price information may be sufficiently well regarded by the industry that it serves as an important benchmark for cash market participants to consider in setting bids or offers or in negotiating cash market transaction prices. 11 In other circumstances, prices discovered on a market may be such an integral and indispensable part of the price determination process in the underlying cash market that bids, offers or cash market transaction prices have a relatively high correlation to the prices discovered on the market. This latter practice is known as price basing.

Price basing is a frequently observed practice in many futures markets and some cash markets. As indicated above, under price basing, commercial entities establish transaction prices for the underlying commodity, or a related commodity, based directly on the prices discovered on an organized market. These entities may or may not trade in the organized market. The cash market transaction prices established through price basing may be either spot or forward prices.

Prices discovered on futures or organized cash markets vary widely with regard to their influence on transaction prices established in broader cash markets. For instance, many long-established organized markets for agricultural, metal, and energy commodities appear to perform a crucial price discovery role for the broader cash markets, as reflected by the widespread practice of price basing in many of these markets. For example, for certain dairy products, the price discovery function of established organized cash markets is so significant that prices established on such markets are extensively used for price basing even though the organized market's prices may be based on a relatively small number of transactions. Similarly, prices established on actively traded futures markets for commodities like grains, oilseeds, natural gas and petroleum products are extensively used for price basing. In contrast, newly established organized markets may be less likely to perform a significant price discovery function for their associated cash markets in their early stages of development.

As indicated above, the relative significance of prices discovered on an organized market for its underlying cash market is directly related to the extent to which such prices are used in the establishment of transaction prices between commercial entities. As a result of this relationship, the use of a market's prices for price basing, either directly or indirectly, provides observable indicia that the market performs a significant price discovery function that would serve as a basis for such a determination under section 2(h)(4).

While the Act authorizes the Commission to make a determination that a section 2(h)(3) market performs a significant price discovery function, it does not define that term or contain criteria to guide that determination. Accordingly, the Commission is proposing to establish the following two alternative criteria for determining that a section 2(h)(3) market performs a significant price discovery function:

Under the proposed criteria, a section 2(h)(3) market would be deemed to be performing a significant price discovery function under section 2(h)(4)(D) when a market's prices are used for price basing on a more than occasional basis or are published in a widely distributed industry publication and consulted by the industry on a more than occasional basis for pricing purposes. 12 As discussed above, price basing as described under criterion (a) directly confirms that the prices being generated on the market have significant utility with regard to discovering prices in connection with cash market transactions. Furthermore, publication of a section 2(h)(3) market's prices in a widely distributed industry publication, and industry consulting those prices on a more than occasional basis, confirms that the prices are thought to be sufficiently reliable and acceptable to be considered to be a significant source of price discovery.

In evaluating a section 2(h)(3) market's price discovery role, assessments under criterion (a) would include an analysis of whether cash market participants are quoting bid or offer prices or entering into transactions at prices that are set, either explicitly or implicitly, at a differential to prices established on a section 2(h)(3) market. Cash market prices are set explicitly at a differential to the section 2(h)(3) market when, for instance, they are quoted in dollars and cents above or below the reference market's prices. Cash prices are set implicitly at a differential to a section 2(h)(3) market's prices when, for instance, they are arrived at after adding to, or subtracting from, the section 2(h)(3) market's price, but then quoted or reported as a flat price. 13 The Commission will also consider whether cash market entities are quoting cash prices based on a section 2(h)(3) market's prices on a more than occasional basis. 14

With regard to criterion (b), consideration would be given to whether prices established on a section 2(h)(3) market are reported in a widely distributed industry publication, such as Platts Oil Gram, Inside FERC or the Lundberg Survey. In making this determination, the Commission would consider the reputation of the publication within the industry, how frequently it is published and whether the information contained in the publication is consulted by industry participants for pricing cash market transactions on a more than occasional basis.

Under the proposal, an exempt commercial market would be required to notify the Commission when it has reason to believe that one or more of the markets that it is operating in reliance on section 2(h)(3) meet either of the specified criteria. 15 The Commission specifically asks commenters to discuss potential financial costs and legal risks created by the proposed notification requirement. Do the aforementioned factors, specifically, that prices be used on “more than an occasional basis,” and that they be “widely distributed,” provide enough specificity to enable trading facilities to make a determination regarding notification obligations. If not, what further guidance could be provided that would enable a determination?

Upon receipt of such a filing, the Commission's staff would conduct an assessment of the facility's markets operated in reliance on section 2(h)(3) to identify those markets that perform a significant price discovery function for the associated cash market. The scope of the inquiry conducted by the Commission would vary. In the course of its assessment, Commission staff might contact cash market participants to verify the extent to which they refer to the market for price basing. The assessment might also examine whether the section 2(h)(3) market, although occasionally performing a price discovery function, failed to do so on a more than occasional basis and thus does not perform a significant price discovery function.

If the available information indicates that a market is serving a significant price discovery function for the underlying cash market, the Commission would notify the section 2(h)(3) market that it appears to be performing a significant price discovery function and provide the market with an opportunity for a hearing through the submission of written data, views and arguments. The Commission, after consideration of all relevant information, would issue an order determining whether or not the section 2(h)(3) market serves a significant price discovery function. 16

The Commission has not previously addressed the nature and scope of the information that should be disclosed by a price discovery market subject to section 2(h)(4)(D), other than by incorporating in its rules the Act's requirement that the exempt commercial market disseminate publicly “price, trading volume and other trading data to the extent appropriate with respect to transactions executed in reliance on the exemption as specified in the order.” See Commission Rule 36.3(c)(2). In determining the nature and scope of the information that should be disclosed under the proposed rules, the Commission has looked to other provisions of the Act that impose public dissemination requirements on other categories of regulated and unregulated markets.

With respect to other markets, sections 5(d)(7) and (8) of the Act require designated contract markets to make available to the public: (i) Information concerning the terms and conditions of the contracts and the mechanisms for executing transactions; and (ii) daily information on settlement prices, volume, open interest, and opening and closing ranges for actively traded contracts. Sections 5a(d)(4) and (5) require registered derivatives transaction execution facilities to disclose publicly: (i) Information concerning contract terms and conditions, trading conventions, mechanisms and practices, financial integrity protections, and other information relevant to participation in trading on the facility; and (ii) if the Commission determines that the contracts perform a significant price discovery function for transactions in the cash market for the commodity underlying the contracts, daily information on settlement prices, volume, open interest, and opening and closing price ranges for contracts traded on the facility. Section 5d(d) requires exempt boards of trade (“EBOTs”) to disseminate publicly on a daily basis information on trading volume, opening and closing ranges, open interest, and other trading data appropriate to the market if the Commission determines that the EBOT is a significant source of price discovery for transactions in the cash market for the commodity underlying the contracts.

As noted, the Act only stipulates that an ECM should make available “price, trading volume and other trading data to the extent appropriate.” However, as also noted above, this requirement is unclear as to what precisely is intended to be made available to the public by ECMs, especially with regard to the term “price.” Based on the information that is required to be made available by a comparably regulated market, the EBOT, the Commission requests comment on the reasonableness of requiring similar information, including trading activity measures, price information, and certain contextual information. The Commission also requests comment on what contextual information should be made available in order to assure that the public can accurately interpret the meaning of the trading activity and price information.

Specifically, the Commission is requesting comment on a requirement that the ECMs serving a price discovery function publicly disseminate the following information on a daily basis:

Contextual information:

• Contract terms and conditions or product descriptions; and

• Trading conventions, mechanisms, and practices.

• Trading volume; and

• Open interest, if available.

Price information:

• Opening and closing prices or price ranges;

• High and low prices;

• A volume-weighted average price; or

• Any other price information approved by the Commission. 17

The types of contextual, trading activity and price information that the Commission proposes to require to be published potentially would be useful to the price basing process; i.e., this information potentially would be useful for commercial entities that do not participate directly in a market, but use the market's prices as a basis for setting prices for cash market transactions. The reasoning regarding the individual elements of the proposed market information reporting requirements is discussed below.

Contextual information: Information regarding the terms and conditions of the contracts traded on a § 2(h)(3) market and the market's trading rules is necessary to facilitate the public's accurate interpretation of the meaning of data on prices and trading activity reported by markets. This information collectively defines the items being traded on a market as well as a contract's pricing basis and therefore is critical to those who would gather information for purposes of risk management, price basing, or speculation in the market. Ill-defined products and trading conventions will not result in prices with sufficient specificity to be useful for such purposes.

Trading activity: It appears appropriate to require that exempt commercial markets that serve a significant price discovery function disseminate information related to activity in the market, such as daily trading volume data and open interest (if such information is available). In this regard, in futures and option markets, trading activity most often is measured by volume of trading or open interest. Volume of trading, which is required by statute to be provided by exempt commercial markets, is the number of contracts transacted in a commodity in a market over a specified period of time, generally defined as a day. Daily trading volume data provide an indication of the level of past interest in trading in a particular market. Markets with consistently high trading volumes are generally considered to be more liquid  18 than those with lower levels of volume. Thus, the availability of such information, which can serve as a measure of the liquidity of the market on which prices are determined, is important for the interpretation of the reliability of the prices on the market and the general availability of this market statistic is important for an exempt commercial market's continued functioning as a price discovery mechanism.

Open interest is defined as the number of open contracts observed at the close of trading each day. Like trading volume, open interest also is often regarded as an indicator of market liquidity, as higher levels of open interest indicate, in part, traders' confidence that their positions can be readily liquidated without materially affecting the price they receive for such a transaction. Moreover, as noted, imposing a requirement that exempt commercial markets publish open interest data if available, 19 as well as data on trading volume, is consistent with the Act's requirements for EBOTs that are determined by the Commission to be serving a significant price discovery function.

Price information: With regard to price information, both the Act and the logic of price basing require access to price data. Reliable price information is also critical for speculative trading. In considering price-reporting requirements, the Commission has focused on the reporting of delayed price information, rather than real-time price data. In this regard, the Commission notes that the Act does not appear to require publication of real-time price data. The Commission also notes that many exchanges charge fees for real-time market data (usually bids, offers and transaction prices), and that such fees can be an important source of exchange revenues. The exchanges also make certain market summary data freely available to the public on a delayed basis (where the delay can be as little as 10 minutes). This delayed market information generally includes opening and closing prices or price ranges, daily high and low prices, settlement prices, daily trading volume and open interest. The Commission interprets the Act as allowing exempt commercial markets to reap gains from the sale of real-time market data, but also to require these markets to publish the required market summary information noted above without charge to the marketplace on a delayed basis.

In view of the different types of exempt markets, the Commission proposes to provide flexibility in regard to the specific price information to be published by section 2(h)(3) markets. Specifically, the Commission proposes to require that markets publish opening and closing prices or price ranges, daily high and low prices, or volume weighted average prices over a period of time that is representative of trading on the market. In addition, on a case-by-case basis, the Commission proposes to permit markets to publish other price information, in lieu of the price measures enumerated above, subject to the Commission's approval.

As noted above, the Act requires that opening and closing price ranges be provided by the Act's other category of exempt market—EBOTs. However, because not all exempt markets will have such information available, as a consequence of the way trading is conducted, the Commission recommends that two alternative price measures, the day's high and low, or the day's volume weighted average price, be provided. Established exchanges commonly publish high and low prices for each trading session. In addition, high and low prices provide useful information regarding the range of daily trading activity. Volume weighted average prices provide a good estimate of the price applicable to most transactions executed on a market during daily trading sessions and, accordingly, may provide a better indication of the representative prices observed in a market on a given day than the other measures noted above. Finally, as noted, the Commission is proposing to give markets the flexibility of publishing alternative price measures, subject to Commission approval, if such measures would provide the public with an adequate indication of the market's daily price levels.

Section 15 of the Act, as amended by section 119 of the CFMA, requires the Commission to consider the costs and benefits of its action before issuing a new regulation or order under the Act. By its terms, section 15(a) does not require the Commission to quantify the costs and benefits of its action or to determine whether the benefits of the action outweigh its costs. Rather, section 15(a) simply requires the Commission to “consider the costs and benefits” of the subject rule or order.

Section 15(a) further specifies that the costs and benefits of the proposed rule or order shall be evaluated in light of five broad areas of market and public concern: (1) Protection of market participants and the public; (2) efficiency, competitiveness, and financial integrity of futures markets; (3) price discovery; (4) sound risk management practices; and (5) other public interest considerations. The Commission may, in its discretion, give greater weight to any one of the five enumerated areas of concern and may, in its discretion, determine that, notwithstanding its costs, a particular rule or order is necessary or appropriate to protect the public interest or to effectuate any of the provisions or to accomplish any of the purposes of the Act.

The proposed price dissemination rules are intended to facilitate the continued performance of an exempt market's price discovery function. As discussed above, this function involves social benefits that extend beyond the market and its users. Moreover, the information that the proposed rules require exempt markets to disseminate is virtually certain to either exist already or be a byproduct of the operation of the market, especially one performing a significant price discovery function. Finally, the Commission is proposing to accept website posting of the required information in satisfaction of the rule, as it currently does for designated contract markets and registered derivatives transaction execution facilities. Because the exempt markets subject to the proposed rule are by definition electronic markets, all of which maintain internet websites, dissemination costs should not be significant.

In formulating the proposed price dissemination rules, the Commission also has taken into consideration that organized markets must produce prices before they can disseminate them. The Commission acknowledges that price discovery, i.e. , the production of prices, is a costly activity requiring considerable investment by an organized market. Restrictions on the dissemination of prices discovered on an organized exchange can be viewed as a legitimate means of protecting the exchange's investment in the production of accurate prices. The Commission acknowledges the concerns raised in certain academic studies showing that some forms of mandated price dissemination rules can produce unintended consequences such as: (1) Less accurate prices; (2) higher trading costs; (3) wealth transfers from those who produce prices to those who consume the information contained in prices discovered elsewhere; and (4) wealth transfers from some classes of market participants to others. 20 These studies apply to rules concerning the dissemination of highly valuable real-time prices. Since the proposed rule applies only to the dissemination of less valuable delayed prices, the possibilities of this rule producing significant unintended consequences appear to be low.

The Commission also has considered the costs and benefits of the proposed amendments to regulation 36.3(b)(1), regarding information access, in light of the above-noted specific areas of concern identified in section 15. The Commission intends that the amended rules would impose the minimum requirements necessary to enable it to perform its oversight functions and to carry out its mandate to protect the public interest in markets that are free of fraud, abuse and manipulation.

After considering these factors, the Commission has determined to propose the rules and rule amendments set forth below.

The Commission specifically invites public comment on its application of the criteria contained in the Act for consideration. Commenters are also invited to submit any quantifiable data that they may have concerning the costs and benefits of the proposed rules with their comment letter.

The Regulatory Flexibility Act (RFA), 5 U.S.C. 601 et seq. , requires federal agencies, in promulgating rules, to consider the impact of those rules on small entities. The rules proposed herein would affect exempt commercial markets. The Commission has previously determined that exempt commercial markets are not small entities for purposes of the RFA. 21 Accordingly, the Chairman, on behalf of the Commission, hereby certifies pursuant to 5 U.S.C. 605(b) that the proposed rules will not have a significant economic impact on a substantial number of small entities.

The Paperwork Reduction Act of 1995 (44 U.S.C. 3507(d)), which imposes certain requirements on federal agencies (including the Commission) in connection with their conducting or sponsoring any collection of information as defined by the PRA, does not apply to this rule. The proposed rules do not appear to contain information collection requirements that require the approval of the Office of Management and Budget.

In consideration of the foregoing, and pursuant to the authority in the Commodity Exchange Act and, in particular, sections 2(h)(3)-(5) of the Act, the Commission hereby proposes to amend Chapter I of Title 17 of the Code of Federal Regulations as follows:

The Nutrition Labeling and Education Act of 1990 (NLEA) (Public Law 101-535) 1 directed FDA to issue regulations authorizing health claims (i.e., labeling claims that characterize the relationship of a substance to a disease or health-related condition) only if the agency determines, based upon the totality of publicly available scientific evidence (including evidence from well designed studies conducted in a manner which is consistent with generally recognized scientific procedures and principles), that there is significant scientific agreement (SSA), among experts qualified by scientific training and experience to evaluate such claims, that the claim is supported by such evidence (21 U.S.C. 343(r)(3)(B)(i)). Congress delegated to FDA the authority to establish the procedure and standard for health claims for dietary supplements (21 U.S.C. 343(r)(5)(D)). In accordance with the NLEA, FDA issued regulations establishing general requirements for health claims in labeling for conventional foods (58 FR 2478, January 6, 1993). By regulation (59 FR 395, January 4, 1994), and under Congressional authority 2 , FDA adopted the same general requirements, including the procedure and standard, for health claims in dietary supplement labeling that Congress had prescribed in the NLEA for health claims in the labeling of conventional foods. (See 21 U.S.C. 343(r)(3) and (r)(4).)

The procedure requires the evidence supporting a health claim to be presented to FDA for review before the claim may appear in labeling (§ 101.14(d) and (e) and 101.70) (21 CFR 101.14(d) and (e), 101.70)). The standard requires a finding of “significant scientific agreement” (SSA) before FDA may authorize a health claim by regulation (§ 101.14(c)). FDA's current regulations, which mirror the statutory language in 21 U.S.C. 343(r)(3)(B)(i), provide that this standard is met only if FDA determines that there is SSA, among experts qualified by scientific training and experience to evaluate such claims, that the claim is supported by the totality of publicly available scientific evidence, including evidence from well-designed studies conducted in a manner that is consistent with generally recognized scientific procedures and principles (§§ 101.14(c) and 101.70(f)).

Among its provisions regulating claims, the NLEA required FDA to determine whether claims respecting 10 specific substance/disease relationships met the requirements for a health claim (NLEA section 3(b)(1)(A)(vi) and (x), Pub. L. 101-535). FDA conducted these statutorily required analyses. Not all relationships that Congress required the agency to consider were found to meet the standard of SSA, and, so, not all were authorized by FDA. Some of the substance/disease relationships that were found to lack SSA became the subject of a lawsuit, Pearson v. Shalala ( Pearson ), brought by dietary supplement marketers and health advocacy organizations.

In Pearson , the plaintiffs challenged FDA's general health claims regulations for dietary supplements and FDA's decision not to authorize health claims for four specific substance/disease relationships. Although the U.S. District Court for the District of Columbia initially ruled in favor of FDA (14 F. Supp. 2d 10 (D.D.C. 1998)), the U.S. Court of Appeals for the D.C. Circuit reversed the lower court's decision ( Pearson v. Shalala , 164 F.3d 650 (D.C. Cir. 1999)). 3 The appeals court held that, on the administrative record compiled in the challenged rulemakings, the first amendment does not permit FDA to reject health claims that the agency determines to be potentially misleading unless the agency also reasonably concludes that a disclaimer would not eliminate the potential deception.

The Appeals Court further stated that it did not “rule out the possibility that where evidence in support of a claim is outweighed by evidence against the claim, the FDA could deem it incurable by a disclaimer and ban it outright.” (164 F. 3d at 659.) Also, the court saw “no problem with the FDA imposing an outright ban on a claim where evidence in support of the claim is qualitatively weaker than the evidence against the claim.” Id. at 659 n.10. This language was the genesis of the “weight of the evidence” criterion discussed in this ANPRM.

In the Federal Register of October 6, 2000 (65 FR 59855), following the Appeals Court ruling in Pearson , FDA published a notice announcing its intention to exercise its enforcement discretion with regard to certain categories of dietary supplement health claims that may not meet the SSA standard currently endorsed in § 101.14(c). 4 The October 6, 2000, notice identified circumstances in which the agency intended to consider exercising enforcement discretion for a qualified health claim in dietary supplement labeling. Included in the agency's consideration was whether the scientific evidence in support of a given health claim outweighed the scientific evidence against it. In the Federal Register of December 20, 2002 (67 FR 78002), FDA published a notice of availability announcing that the agency was identifying qualified health claim enforcement discretion factors in the form of guidance and expanding its consideration of enforcement discretion to include health claims in the labeling of conventional foods as well as dietary supplements. 5

Six days after publication of the December 20, 2002, notice and the guidance, the U.S. District Court for the District of Columbia issued its decision in Whitaker v. Thompson , 248 F. Supp. 2d 1 (D.D.C. 2002) ( Whitaker ). In Whitaker , the district court, interpreting Pearson , found that “credible evidence,” rather than “weight of the evidence,” is the appropriate standard for FDA to apply in evaluating qualified health claims. Whitaker , 248 F.Supp. 2d at 10. In light of Whitaker , FDA believes that the weight of the evidence standard in the October 6, 2000, Federal Register notice and the December 20, 2002, guidance must be tempered by the test of credible evidence (68 FR 41387 at 41388-41389).

Also in December 2002, FDA announced a major new initiative, the Consumer Health Information for Better Nutrition Initiative, to make available more and better information about conventional foods and dietary supplements to help consumers improve their health and decrease the risk of contracting diseases by making sound dietary decisions. Under this initiative, the agency established the Task Force on Consumer Health Information for Better Nutrition (the Task Force). The Task Force was charged with, among other things, reporting on how the agency can improve consumer understanding of the health consequences of dietary choices and increase competition by product developers in support of healthier diets. This charge includes how the agency should evaluate scientific evidence for qualified health claims, as well as developing a framework for regulations that will give these principles the force and effect of law.

FDA announced the availability of the Task Force report (Ref. 1), in a notice published in the Federal Register of July 11, 2003 (68 FR 41387). The notice also announced the availability of two guidances entitled “Guidance for Industry and FDA: Interim Evidence-Based Ranking System for Scientific Data” (Ref. 2) and “Guidance for Industry and FDA: Interim Procedures for Qualified Health Claims in the Labeling of Conventional Human Food and Human Dietary Supplements” (Ref. 3) that further updated the agency's approach on how it intends to implement the Pearson decision. Further, the notice stated that FDA intended to publish an ANPRM to solicit comments on the regulatory approaches and topics addressed in the Task Force report. This ANPRM is that document.

As of September 1, 2003, the agency has implemented the evidence-based ranking system and the procedures for qualified health claims 6 on an interim basis. However, FDA recognizes the need for transparent, long-term procedures that have the force and effect of law. 7 Such procedures would benefit both the industry and the consumer, provided they result in well-reasoned, science-based decisions that facilitate the communication of truthful and non-misleading information to the consumer. To this end, the agency is issuing this ANPRM to solicit comment on various approaches the agency might adopt to regulate qualified health claims in the labeling of conventional foods and dietary supplements. 8

Although the Task Force focused primarily on the issue of qualified health claims, its discussions were enriched by considerations related to promoting partnerships with sister public health agencies and others, with the goal of increasing the quantity and improving the impact of health messages 9 on conventional human foods and human dietary supplements. 10 In light of the need for improved health messages and science-based competition among food (including dietary supplement) producers to promote better health, and given the broader goals of the Consumer Health Information for Better Nutrition Initiative, FDA believes that it would be prudent to expand the scope of this ANPRM to request comments on the appropriateness and nature of dietary guidance statements on food labels.

FDA is considering three alternatives (i.e., options) identified in the Task Force report (Ref. 4) for regulating health claims that do not meet the SSA standard of evidence (i.e., qualified health claims) required in 21 U.S.C. 343(r)(3)(B)(i) and § 101.14(c) to evaluate the scientific validity of health claims. The options identified by the Task Force are: Option 1—incorporate the interim procedures and evidence-based ranking system into a regulation under notice-and-comment rulemaking; option 2—reinterpret the SSA standard to apply to the accuracy of the characterization of the evidence supporting the claim, instead of the underlying substance-disease relationship, and subject qualified health claims to notice-and-comment rulemaking; and option 3—treat qualified health claims as wholly outside the NLEA and regulate them solely on a postmarket basis, if they are false or misleading. FDA is seeking comment on each of the options described, including comments about the strengths and weaknesses of each option from the perspective of public health, policy, law, and practicality; and which is the best option and why. The agency also is requesting comments that suggest additional options for regulating qualified health claims, together with an analysis of the strengths and weaknesses of each suggested alternative from the perspective of public health, policy, law, and practicality.

The first option would be to codify the current interim procedures and evidence-based ranking system into a regulation, or codify a variation of these. This approach addresses both procedural and substantive concerns about qualified health claims, and also allows such claims to be made in labeling in a more timely manner than under option 2. With respect to the procedural issues, this approach is consistent with the spirit of the NLEA because it maintains the premarket clearance system that provides for FDA review of qualified health claims and the supporting data, and an opportunity for public participation. This option is similar in approach to the suggestions made in comments on the December 20, 2002, guidance on qualified health claims. Even though the process would not include notice-and-comment rulemaking for the agency's decision on a qualified health claim, the petition with the requested qualified health claim and the supporting data would be made available to the public for comment.

Second, this approach responds to the first amendment concerns identified in Pearson by providing for the use of disclaimers to communicate to consumers the level of scientific evidence in support of health claims and to cure potentially misleading health claims. The addition of a clarifying disclaimer to a potentially misleading claim would provide consumers with truthful and nonmisleading information. (See Pearson , 164 F.3d at 658-59.)

Finally, this approach allows for faster review and, if necessary, revision of qualified health claims. Under this option, the agency's review of a petition for a qualified health claim would usually be completed within 270 days after receipt of the petition. In addition, the agency's decision on a qualified health claim would remain in the form of an enforcement discretion letter and not, as some comments to the December 20, 2002, guidance requested, in the form of a regulation. Thus, FDA could more readily revise its decision about a qualified health claim if subsequent data were to indicate the need to do so. The data underlying qualified health claims are, by definition, preliminary and subject to change as more studies are conducted. If the qualified health claim were established in a regulation, FDA could amend it only through notice-and-comment rulemaking. Thus, a claim that becomes inaccurate or misleading because of new scientific developments would remain in labeling until the regulation was revised.

The second option would be to require each qualified health claim to undergo notice-and-comment rulemaking, which is the statutorily prescribed process for health claims for conventional foods. Requiring rulemaking before a qualified health claim is allowed on food labels is consistent with suggestions made in a comment on the December 20, 2002, guidance.

This approach would require FDA to reinterpret the SSA standard to apply to the claim (including the disclaimer, if any) instead of the underlying substance-disease relationship. Thus, the agency's focus would be on whether the words of the claim accurately reflect the data supporting it (e.g., “limited and preliminary scientific research suggests * * *.”), rather than whether there is SSA supporting the substance-disease relationship.

Because the SSA requirement in FDA's health claim regulations (§ 101.14(c)) tracks the language of the statute (21 U.S.C. 343(r)(3)(B)(i)), and both require FDA to evaluate whether there is SSA that the claim is supported by the totality of publicly available scientific evidence, it would not be necessary to amend § 101.14(c) to implement this option. However, FDA would have to revoke its contrary interpretation of the statute and § 101.14(c) in the preambles to the general health claim regulations. In those preambles, FDA stated that SSA was about the substance-disease relationship instead of the words of the claim.

Mandatory rulemaking for each qualified health claim may not provide sufficient flexibility to implement changes in the claims necessitated by rapid developments in science. Moreover, this process could be quite burdensome without any apparent corresponding public health benefit if the claim is based on weak scientific evidence. In addition, the reinterpretation of the SSA standard to apply to the claim rather than the underlying substance-disease relationship could eliminate the value of the standard because claims about any substance-disease relationship, no matter how weak or preliminary the evidence, would meet SSA as long as the claim accurately described the level of the evidence.

This approach may be vulnerable to a first amendment challenge because it applies the statutorily prescribed process for reviewing unqualified health claims to qualified health claims. The statutory process requires notice-and-comment rulemaking and permits FDA up to 540 days to complete its review of a health claim petition (see 21 U.S.C. 343(r)(4)(A)(i)). Although the United States Court of Appeals for the Second Circuit has held that a period of 540 days is not an unconstitutional prior restraint for unqualified health claims (see Nutritional Health Alliance v. Shalala , 144 F.3d 220 (1998), cert. denied, 525 U.S. 1040 (1998)), it is unclear whether it is too long to restrain qualified health claims in which the SSA standard is applied to the claim itself rather than the substance/disease relationship. FDA is concerned that this approach may be found to be unconstitutional because the value of commercial speech often depends upon its timeliness.

A third option would be to treat qualified health claims as wholly outside the NLEA and regulate them on a postmarket basis under section 403(a)(1) of the act, which provides that food is misbranded if its labeling is false or misleading. Consistent with FDA's past practice, “false or misleading” would be defined to include lacking substantiation.

Under this approach, FDA could only evaluate and, where necessary, prohibit a claim after it appears on a product label (or in other product labeling). This is similar to the Federal Trade Commission's (FTC) approach, but with one significant difference: FTC has administrative subpoena power, allowing FTC to obtain a company's substantiating data, evaluate the data, and, where appropriate, take enforcement action with relative speed. In contrast, while FDA holds administrative subpoena power in some circumstances, the agency is not vested with such power for the investigation and enforcement of health claims in the labeling of conventional foods and dietary supplements.

As a result, the agency would have to build enforcement cases by first searching the literature and consulting with experts. Depending on the nature of the matter, FDA might also have to test how consumers would interpret the claim (where, for example, there was a serious question about the existence of an implied claim). There is also a concern that this option would not afford FDA any role in reviewing or clearing claims before they appeared in labeling and would not provide any opportunity for public participation. Finally, this option could be inefficient and too resource intensive for FDA to be able to protect consumers from misleading claims that would already be in the labeling of products in the marketplace.

In its report, the Task Force recommended that FDA seek comment on several additional topics: (1) Data and research on a substance/disease relationship, including incentives for SSA; (2) revised claim language for unqualified health claims; (3) interim final rules for unqualified health claims; (4) use of phrases such as “FDA authorized” in qualified and unqualified health claims; (5) consumer education; (6) evaluations of outside groups; and (7) competent and reliable evidence.

Although FDA intends to provide for the use of qualified health claims, the agency remains interested in authorizing unqualified health claims by regulation under the SSA standard. Based on the July 2003 interim evidence-based ranking guidance (Ref. 2), the level of scientific evidence to support the substance/disease relationship for an unqualified health claim would continue to be based on relevant, high quality studies, such as randomized, controlled intervention trials and prospective observational cohort studies, which minimize bias. FDA is requesting comments on how to provide incentives for manufacturers to develop the data needed to obtain SSA for an unqualified health claim. In addition, FDA is requesting comments on how to more effectively develop public-sponsored research on substance/disease relationships.

The health claim regulations require unqualified health claims to state that the substance “may” reduce the risk of the specified disease (e.g., “calcium may reduce the risk of osteoporosis”) (§ 101.14(d)(2)(ii)). In the final rule on general requirements for health claims for conventional foods (58 FR 2478 at 2505), FDA explained that the agency's use of the term “may” relates to the potential to reduce the risk of disease. The agency intended the use of the word “may” to convey to consumers that there is no guarantee that any one dietary practice will, in fact, reduce an individual's risk of a disease. FDA noted that absolute claims about diseases affected by diet generally are not possible because such diseases are almost always multifactorial, and that diet is only one factor that influences whether a person will get such a disease (58 FR 2478 at 2505). For example, in the case of calcium and osteoporosis, genetic predisposition (e.g., where there is a family history of fragile bones with aging) can play a major role in whether an individual will develop the disease. Id. Because of factors other than diet, some individuals may develop the disease regardless of how they change their dietary patterns to avoid the disease. Id. Thus, FDA intended the word “may” to alert consumers that there is no certainty that risk of disease will be reduced for each individual. However, it seems to the agency that in common practice the word “may” could be, and perhaps often is, interpreted as a reflection of the science supporting the claim rather than the certainty about the ability of a dietary practice to affect any one consumer. Thus, the word “may” leads to uncertainty about the science behind the claim, which was not FDA's intention.

The Task Force suggested that FDA consider removing the requirement for the word “may” from unqualified health claims to eliminate the uncertainty about the science underlying claims that meet SSA. FDA is requesting comments on whether the agency should make this change, whether there are alternatives to this change, and whether such a change would assist consumers in identifying the level of science supporting such health claims.

The Task Force recommended that FDA solicit comment on whether FDA should authorize unqualified health claims through interim final rules (IFRs) to expedite the availability of the health claim in food labeling. Before Pearson , the agency's general practice was to provide for the unqualified health claim through full notice-and-comment rulemaking, i.e., by issuing a proposed rule with a comment period, followed by a final rule authorizing the health claim (see section 403(r)(4)(A)(i) and § 101.70(j)). Although this practice has made for a relatively slow process, the comments received have proved useful to the agency (e.g., to more accurately articulate the science and to better define the substance that is the subject of the claim). However, as a general matter, comments have not persuaded the agency that any particular proposed health claim should not be allowed.

In light of this consideration, after Pearson , FDA began using authority given to the agency by the Food and Drug Administration Modernization Act of 1997 (FDAMA) (Pub. L. 105-115) amendments to the act to authorize some unqualified health claims faster (see 65 FR 59855 at 59856). FDA has authorized three health claims, based on a finding of SSA, through the IFR process under section 403(r)(7) of the act. 11 First, in the Federal Register of September 8, 2000 (65 FR 54686), FDA issued an IFR that authorized a health claim for plant sterol/stanol esters and reduced risk of coronary heart disease (CHD) ((§ 101.83) (21 CFR 101.83)). The agency intends to issue a final rule on this claim, that includes consideration of public comment. Second, in the Federal Register of October 2, 2002 (67 FR 61773), FDA issued an IFR that amended the health claim regulation in 21 CFR 101.81 authorizing a health claim about the relationship between beta-glucan soluble fiber from whole oat sources and reduced risk of CHD to include an additional eligible source of whole oat beta-glucan soluble fiber (the oatrim IFR). After consideration of comments, the agency adopted as a final rule, without change, the provisions of the oatrim IFR (68 FR 44207, July 28, 2003). Third, in the Federal Register of December 2, 2002 (67 FR 71461), FDA issued an IFR that amended the health claim regulation in 21 CFR 101.80 authorizing a health claim about the relationship between dietary sugar alcohols and dental carries to include the sugar D-tagatose (the D-tagatose IFR). After consideration of comments, the agency adopted as a final rule, without change, the provisions of the D-tagatose IFR (68 FR 39831, July 3, 2003).

FDA recognizes that the general rulemaking process (i.e., non-IFR process) for unqualified health claims may be lengthy; however, this process may help ensure the validity of the scientific evidence under the SSA standard before such a claim is authorized, and may help prevent the unfair market advantage that could arise if FDA were to inappropriately characterize a substance or misinterpret the publicly available scientific evidence. The agency is interested in comments on the balance between the priorities of timeliness and comprehensiveness in the agency's review of an unqualified health claim. FDA is requesting comments on whether the agency should continue to use the IFR process for some or all unqualified health claims as a means of expediting the agency's processing of these petitions. Are there specific circumstances when IFRs should or should not be considered appropriate for health claims that meet the SSA standard?

The agency has for decades discouraged or prohibited use of such phrases as “FDA authorized” or “FDA approved” in labeling. The agency's policy on such statements was generally based on one of two reasons: (1) All products of the type were FDA approved, so that a label statement regarding one product implied a difference that did not exist; or (2) “approval” terminology was not appropriate because FDA did not approve any individual (or specific) product. FDA is requesting data or other information on whether a phrase indicating FDA authorization (e.g., “FDA says * * *”) would encourage consumers to have more confidence in a claim it accompanied than in a claim without the phrase. FDA is interested in receiving evidence of data concerning any confusion or potential confusion. Should such a phrase be encouraged at all, even if it were to give the consumer confidence in the claim? Would such a phrase, when used with claims supported by different levels of science, confuse or potentially confuse consumers?

The Task Force report noted growing evidence of a public health gap in knowledge and behavior with respect to substance/disease relationships. Even when the scientific evidence for substance/disease relationship does not meet the standard of SSA, there may be considerable evidence of a relationship between the substance and the disease, and consumers may find this information useful in planning their diets. FDA is requesting comments on how the agency could best educate consumers about the role of qualified health claims on food labeling, and how such claims may be used by consumers to advance their own understanding of diet and health matters.

FDA has been requested on several occasions to consider accepting the evaluations of outside scientific groups as representing scientific consensus that could justify health claims. Some wanted to be able to convene their own groups of experts. Others wanted FDA to rely on such organizations as the American Heart Association or the American Dietetic Association, which evaluate scientific information and provide advice to their constituents on diet and health. In its report, the Task Force asked FDA to consider the recommendations of such groups as evidence of the strength of the science underlying a health claim. However, to make such a system work fairly to the benefit of all, including consumers, FDA would need to have confidence in the scientific validity of the group's conclusions about the particular claim in question. Some groups would have more expertise than others, and FDA is not aware of a mechanism for evaluating them fairly and accurately. FDA is requesting comment on whether the evaluations of non-governmental groups should be given weight in evaluating the strength of the science supporting a health claim. If the agency should give weight to the evaluations of these groups, how should this weight be determined?

FDA's Food Advisory Committee (FAC) is a body of experts chartered to advise the agency on scientific issues upon request; however, FDA does not believe that the FAC is an appropriate body to conduct the initial evaluation of the data supporting a proposed health claim. Because of the limited number of meetings in the FAC's charter and other issues that may be brought before the FAC, FDA does not believe that the FAC could conduct a timely evaluation of such data. On an interim basis, FDA has chosen to use experts identified by another Federal agency (i.e., Agency for Healthcare Research and Quality (AHRQ)) whose mission includes retaining large numbers of such experts under contract. Both FDA and AHRQ are agencies within the Department of Health and Human Services. This process should provide the scientific expertise and additional resources that FDA needs to conduct its scientific reviews within acceptable timeframes.

FDA's July 2003 interim evidence-based ranking guidance (Ref. 2) describes a process for systematically evaluating the scientific evidence relevant to a substance/disease relationship that is the subject of a health claim petition. The scientific rating system provides a means by which the totality of the publicly available scientific evidence relevant to a substance/disease relationship can be assigned to one of four ranked levels.

The interim evidence-based ranking system presupposes that FTC's requirement of “competent and reliable scientific evidence” to substantiate a claim related to health or safety has been met. For purposes of FDA's evaluation of qualified health claims based upon credible evidence under Pearson , the Task Force recommended that FDA consider scientific evidence only if it is competent and reliable. FTC defines “competent and reliable scientific evidence” as “tests, analyses, research, studies, or other evidence” based upon the expertise of professionals in the relevant area, that has been “conducted and evaluated in an objective manner by persons qualified to do so, using procedures generally accepted” in the profession to “yield accurate and reliable results.” In Re: Great Earth International, Inc. , 110 F.T.C. 188 (1988).

FDA is requesting comments on the meaning and/or relevance of “competent and reliable scientific evidence” for the purposes of supporting a qualified health claim. FDA seeks these comments within the specific context of qualified health claims only. Any agency interpretation of “credible evidence” in the context of qualified health claims would not apply to the meaning of that term in other regulatory contexts within FDA's purview.

Although the regulatory alternatives discussed previously focus primarily on assessing scientific data as a basis for qualified health claims, the Task Force recognized that there may be merit in developing greater flexibility in other areas of health claim regulation. The Task Force believed that more flexibility in regulating the use of health claims would further advance the use of reliable diet and health information to consumers via food labels. With respect to increased flexibility, the Task Force recommended that FDA solicit comments on two issues, in particular: (1) Disqualifying nutrient levels, and (2) minimum nutrient content requirements (referred to in the Task Force report as “minimal nutrient limits”).

Disqualifying nutrient levels —Under existing regulations in § 101.14(a)(4), a health claim generally is not allowed on a food label or in food labeling when the food contains more than a specified level of total fat, saturated fat, cholesterol, or sodium. 12 However, when there is a public health benefit, FDA has made exceptions to these disqualifying nutrient levels. For example, FDA authorized a health claim in § 101.83 for plant sterol/stanol esters and reduced risk of CHD in labeling for dressings for salad and spreads even though these products exceed the disqualifying level for total fat because they contain more than 13 grams of fat per reference amount customarily consumed (RACC) (see § 101.83(c)(1)).

Minimum nutrient content requirement —Under § 101.14(e)(6) of FDA's general health claim regulations, a food may not bear a health claim unless the food contains 10 percent or more of the Reference Daily Intake or Daily Reference Value for vitamin A, vitamin C, iron, calcium, protein, or fiber per RACC prior to any nutrient addition. FDA has provided for some flexibility in this requirement in that nutrients that traditionally have been added through fortification in accordance with FDA's fortification policy may be considered to meet the 10-percent requirement (see, e.g., 58 FR 44036 at 44037; August 18, 1993). In addition, FDA has excepted some unqualified health claims from this general requirement (see, e.g., § 101.83(c)(1) (health claim about plant sterol/stanol esters and reduced risk of CHD on dressings for salad)). Here again, additional flexibility may be appropriate for considering health claims for foods that may not meet the minimum nutrient content requirement.

As the Task Force report noted, FDA received a petition from the National Food Processors Association (NFPA) on these two issues, among others. In response to the NFPA petition and a separate petition from the American Bakers Association, in the Federal Register of December 21, 1995 (60 FR 66206 (the 1995 proposed rule)), FDA proposed to amend its regulations on nutrient content claims and health claims to provide additional flexibility in the use of these claims on food products. The 1995 proposed rule proposed refinements to the agency's current regulations to allow additional synonyms for nutrient content claims without specific preclearance by the agency, to permit health claims on certain foods that do not currently qualify because they do not meet the minimum nutrient content requirement, to permit the use of shortened versions of authorized health claims under certain circumstances, to eliminate some of the required elements for health claims, and to specify the criteria that FDA will consider in evaluating petitions seeking exemption from the disqualifying nutrient levels.

FDA is identifying these two issues (i.e., disqualifying nutrient levels and minimum nutrient content requirement) in this ANPRM to acknowledge the Task Force report's recommendation that FDA solicit comment on them. However, because these issues were raised in the 1995 proposed rule, FDA intends, in the near future, to re-open the comment period on the 1995 proposed rule to solicit additional comments on these issues. Thus, to avoid duplication and confusion, FDA is not requesting comments on disqualifying nutrient levels and minimum nutrient content requirements for health claims in this ANPRM.

Through the years, the Federal Government has worked to provide consistent and scientifically sound recommendations to consumers about healthy eating patterns and wise food choices. Such advice originated with the “Basic Four” and has progressed through today's “Dietary Guidelines for Americans” (developed jointly by U.S. Department of Health and Human Services and U.S. Department of Agriculture (USDA)) and USDA's “Food Guide Pyramid.” The agency believes that encouraging the use of dietary guidance statements on food labels is an important component of the Consumer Health Information for Better Nutrition Initiative.

The Task Force recommended that FDA not only seek opportunities to exercise flexibility in its evaluation of health claims in the areas discussed previously, but also to seek opportunities to promote the development and use of more dietary guidance statements on foods. The purpose of such dietary guidance statements is to assist and encourage individuals in making better food choices and establishing healthier eating patterns. If FDA's mission is properly understood to include a role in assisting the public in making wise dietary choices that benefit long-term health, a number of possible strategies become evident. Those strategies include, for example, challenging industry to channel competitive energies into disseminating health information in food labeling and promoting food products on the basis of nutritional value, as well as taste, price, amount, and convenience. Importantly, as mentioned previously, there is also the possibility to pursue a range of consumer information options in collaboration with other Federal agencies, health researchers, and stakeholders as more information about diet/health relationships becomes available.

As previously stated, section 403(r) of the act contains statutory provisions for the regulation of health claims, among other types of label statements. Under §§ 101.14 and 101.70, a “health claim” has a specific definition and is regulated differently from other types of statements on labels of conventional foods and dietary supplements. Health claims are specifically about the relationship between a substance and a disease; they are required to be reviewed and authorized by FDA prior to use. Health claims are limited to claims about disease risk reduction, and cannot be claims about the cure, mitigation, or treatment of disease. The latter claims are currently regarded as constituting drug claims under section 201(g) of the act (21 U.S.C. 321(g)) (see Whitaker v. Thompson , 239 F.Supp. 2d 43, 52-53 (D.D.C. 2003)). The following is an example of a health claim about the relationship between calcium (a substance) and osteoporosis (a disease): “Calcium may reduce the risk of osteoporosis.” In comparison, the following is an example of a drug claim: “Consumption of 320 mg daily of Saw Palmetto extract may cure cancer.”

Unlike health claims, which target a specific substance and a specific disease or health-related condition, dietary guidance statements focus instead on general dietary patterns, practices, and recommendations that promote health. In addition, such statements can be made on conventional food and dietary supplement labels without FDA review or authorization before use. Like all statements in food labeling, dietary guidance statements must be truthful and nonmisleading as required under sections 201(n) and 403(a)(1) of the act. An example of a dietary guidance statement is: “Diets rich in fruits and vegetables may reduce the risk of some types of cancer and other chronic diseases.” As part of a cooperative effort with the National Cancer Institute (NCI), FDA recently encouraged the produce industry and food manufacturers to use this statement in the labeling of fruits, vegetables, and foods that meet the criteria for NCI's 5 A Day for Better Health Program (Ref. 5).

FDA addressed the issue of dietary guidance during the development of health claim regulations (58 FR 2478, January 6, 1993 (for conventional foods); 59 FR 395; (for dietary supplements)). In the preambles to the final rules, the agency stated that a health claim contains two basic elements: A substance and a disease or health-related condition. To clarify the difference between dietary guidance statements and health claims, FDA stated that it would use the term “dietary guidance” to refer to statements that do not contain both basic elements of a health claim 13 (58 FR 2478 at 2487 and 59 FR 395 at 418). Thus, dietary guidance statements may make reference to a disease or substance, but not both. For example, dietary guidance statements might focus on general dietary patterns or practices and broad categories of foods, rather than a specific substance. Alternatively, they may link a specific substance to a nondisease endpoint such as building bones, a healthy lifestyle, or promoting health. In this case, the substance element is present in the statement but not the disease element.

A health claim expressly or by implication characterizes the relationship of certain substances to a disease or health-related condition (21 U.S.C. 343(r)(1)(B)). Hence, the elements (i.e., the substance element, and the disease or health-related condition element) of a health claim may be either express or implied.

The term “substance” means a specific food or component of food, regardless of whether the food is in conventional food or dietary supplement form (§ 101.14(a)(2)). In discussing the definition of “substance” in the preamble to the final rule on general requirements for health claims for conventional foods (58 FR 2478 at 2479-2480), FDA noted that it agreed with comments that its proposed definition for substance interpreted the NLEA too narrowly with respect to the regulation of health claims about foods, and that Congress intended that foods (in addition to food components) could be the subject of health claims regulated under section 403(r) of the act. (As proposed, § 101.14(a)(2) stated: “Substance means a component of a conventional food or of a dietary supplement of vitamins, minerals, herbs, or other nutritional substances” (56 FR 60537 at 60563, November 27, 1991)). However, based upon the legislative history of the NLEA, 14 the agency noted that to be a health claim, a claim about a food must be, at least by implication, a claim about a substance in the food (58 FR 2478 at 2480). FDA further explained that when a consumer could reasonably interpret a claim about the relationship of a food to a disease or health-related condition to be an implied claim about a substance in that food, that claim would satisfy the first element of a health claim (i.e., the substance element). Id.

In addition, FDA concluded that a claim about the benefits of a broad class of foods (e.g., fruits or vegetables) that does not make an express or implied connection to a substance found in that class of foods would not constitute an implied claim, and that such a claim is not a health claim. Rather, such a statement would be dietary guidance because it is not expressly or impliedly about a substance. If a substance in a broad class of foods cannot be expressly identified, it may be possible to find that it is implied. For example, in the preamble to the final rule concerning a specific health claim about an association between antioxidant vitamins and cancer (58 FR 2622, January 6, 1993), FDA introduced the concept of a marker for the substance element of an implied health claim. In that final rule, FDA decided not to authorize a health claim about a relationship between antioxidant vitamins and cancer, and instead authorized a health claim relating substances in diets low in fat and high in fruits and vegetables to a reduced risk of cancer. In short, the agency authorized a health claim in which the subject was fruits and vegetables that were low in fat and were good sources of certain substances (e.g., fiber, vitamin A, or vitamin C). It was not clear whether the marker substances were actually the active substances or merely served as markers for other unidentified substances. The purpose of identifying the marker substances was to distinguish certain fruits and vegetables that were characterized by compositions known to help reduce cancer risk from other fruits and vegetables that might not provide the same benefit.

FDA recognizes the importance of dietary guidance in assisting and encouraging the U.S. population to make better food choices and establish healthier eating patterns. Although these types of statements are not health claims, consistent and scientifically sound dietary guidance statements can be useful to consumers when they are truthful and nonmisleading. As previously mentioned, FDA has no regulatory authority to review or authorize dietary guidance statements before use. When used in labeling for foods, however, such statements must be truthful and not misleading under sections 201(n) and 403(a)(1) of the act. The agency generally has viewed most dietary guidance for the general U.S. population as originating from Federal agencies with public health missions related to diet and disease. For example, major Federal documents such as the Dietary Guidelines for Americans issued by USDA and U.S. Department of Health and Human Services exemplify government consensus about dietary recommendations. Given the important role that information on food labels can play in affecting consumers' health and dietary decisions, FDA sees a need to foster enhanced federal cooperative efforts to identify and agree upon dietary guidance that is appropriate for food labels and how such guidance may be used.

Dietary guidance —FDA requests comments on an appropriate definition of “dietary guidance” for labeling purposes, as well as the current approach, outlined previously, to distinguish between health claims and dietary guidance statements.

Substance —Since the distinction between dietary guidance statements and health claims often focuses on whether the “substance” element is present in the claim (whether express or implied), FDA requests comments on ways in which the definition of “substance” in § 101.14(a)(2) can or should be clarified. Additionally, in regard to the appropriate definition of “substance” for purposes of a health claim, FDA is interested in comments on whether a specific authorized health claim about whole grain foods (described later) properly refers to a substance as compared to a broad category of food. This health claim is authorized based on a statement from an authoritative body under section 403(r)(3)(C) of the act. 15

On March 10, 1999, General Mills, Inc., submitted to the agency a notification containing a prospective claim about the relationship of whole grain foods and heart disease and certain cancers. The notification cited the following statement from the Executive Summary of the National Academy of Sciences report, “Diet and Health: Implications for Reducing Chronic Disease Risk” (page 8), as an authoritative statement: “Diets high in plant foods—i.e., fruits, vegetables, legumes, and whole-grain cereals--are associated with a lower occurrence of coronary heart disease and cancers of the lung, colon, esophagus, and stomach.” For purposes of eligibility to bear the prospective claim, the notification defined “whole grain foods” as foods that contain 51 percent or more whole grain ingredient(s) by weight per RACC. It suggested that compliance with this definition could be assessed by measuring the dietary fiber level of whole wheat, the predominant grain in the U.S. diet. The level of fiber was intended for compliance purposes only and was not defined as the substance that was the subject of the health claim or as a marker for that substance.

FDA's decision not to prohibit or modify the claim means that, as of July 8, 1999, manufacturers may use the following claim on the label and in labeling of any product that meets the eligibility criteria described in the notification: “Diets rich in whole grain foods and other plant foods and low in total fat, saturated fat, and cholesterol, may help reduce the risk of heart disease and certain cancers.” FDA seeks comments on whether this claim properly refers to a substance as compared to a broad category of food. The notification and additional materials regarding the claim are publicly available from the Division of Dockets Management (Docket No. 99P-2209) (see ADDRESSES ).

FDA's experience demonstrates that most substances that are the subject of an authorized health claim are substances that can be found in a number of foods (e.g., calcium) or spread throughout the food supply (e.g., saturated fat). FDA has provided for health claims that include reference to the common substance to assist consumers in their understanding of the nature of the diet/health relationship, and more importantly so that consumers recognize that they can construct healthy diets by using a variety of foods and nutrient sources rather than just one. For instance, in the example of the calcium/osteoporosis claim, FDA requires that the substance that is the basis of the claim (i.e., calcium) be included in the wording of the claim (21 CFR 101.72). FDA requests comments on the usefulness of statements that expressly include the substance that is the basis for the claim (e.g., “Calcium-rich foods, such as yogurt, may reduce the risk of osteoporosis”) versus “food-specific” claims such as: “Yogurt may reduce the risk of osteoporosis.”

FDA views food substitution/replacement recommendations as potentially helpful to consumers, but also potentially problematic because they might be misleading or confusing to consumers. For example, the message to substitute mono- and polyunsaturated fats for saturated fats to promote heart health is intended to help consumers reduce their intake of saturated fat and cholesterol within the dietary context of moderate fat intakes. A message to choose fish, shellfish, lean poultry and other lean meats, beans, or nuts daily while limiting intakes of high-fat processed meats has a similar intention. However, the likelihood that these messages will positively affect the ability of consumers to choose healthful diets depends on an understanding of the total dietary context of the message, which may prove confusing or difficult to effectively communicate to consumers. FDA is requesting comments on whether dietary guidance statements should include recommendations for making food or substance “substitutions” or “replacements.” If these types of dietary guidance statements are encouraged, how can FDA ensure that they are made in clear and nonmisleading ways that will enhance and benefit public health?

Gamma-hydroxybutyric acid (GHB) is a central nervous system depressant drug. In recent years, the abuse of GHB has increased substantially. GHB is abused to produce euphoric and hallucinogenic states, and for its alleged role as an agent to stimulate muscle growth. GHB can produce drowsiness, dizziness, nausea, visual disturbances, unconsciousness, seizures, severe respiratory depression, and coma.

GHB can be produced in clandestine laboratories using a relatively simple synthesis with readily available and inexpensive source materials. Gamma-butyrolactone (GBL), a List I chemical, is an industrial solvent that is used in the illicit manufacture of GHB. GBL and 1,4-butanediol are also abused for their GHB-like effects. Due to their structural and pharmacological similarities to GHB, GBL and 1,4-butanediol may be considered controlled substance analogs and treated as Schedule I substances if they are intended for human consumption. GHB is usually manufactured in a clear solution that can be disguised by adding food coloring, flavorings, and/or storing it in different kinds of bottles and containers.

On February 18, 2000, Public Law 106-172 (114 Stat. 7) the “Hillory J. Farias and Samantha Reid Date-Rape Drug Prohibition Act of 2000” was enacted. Pub. L. 106-172 declared GHB an imminent hazard to public safety that requires immediate regulatory action under the Controlled Substances Act. Pub. L. 106-172 requires the Attorney General to list GHB as a Schedule I controlled substance and designates GBL as a List I chemical. As a result of Pub. L. 106-172, DEA issued two final rules: Schedules of Controlled Substances: Addition of Gamma-Hydroxybutyric Acid to Schedule I (65 FR 13235, March 13, 2000) (corrected at 65 FR 17440, April 3, 2000) and Placement of Gamma-Butyrolactone in List I of the Controlled Substances Act (21 U.S.C. 802(34)) (65 FR 21645, April 24, 2000).

Under the March 13, 2000 final rule, GHB and its salts, isomers, and salts of isomers were placed in Schedule I and GHB became subject to the regulatory controls and administrative, civil, and criminal sanctions applicable to the manufacture, distribution, dispensing, importing, and exporting of a Schedule I controlled substance. As required by Pub. L. 106-172, the March 13, 2000 final rule created an exception for drug products containing GHB, including its salts, isomers, and salts of isomers, for which an application is approved under section 505 of the Federal Food, Drug, and Cosmetic Act (FFDCA). The exception placed these substances in Schedule III. Therefore, registered manufacturers and distributors of FDA-approved Drugs containing GHB are subject to Schedule III requirements.

On July 17, 2002, the Food and Drug Administration (FDA) approved Xyrem”, a drug containing gamma-hydroxybutyric acid, as a Schedule III controlled substance for the treatment of cataplexy associated with narcolepsy.

The March 13, 2000 final rule did not address the recordkeeping and reporting requirements recommended by Public Law 106-172 for drug products containing GHB, for which an application is approved under section 505 of the FFDCA. The additional requirements are necessary to prevent the diversion of Schedule III GHB drug products for illicit purposes and were intended by Congress to be part of the regulatory scheme for these products. Representative Thomas Bliley explained Congress' intent in legislating these requirements as follows:

In response to Public Law 106-172, Section 4, this rule proposes recordkeeping requirements for practitioners dispensing Schedule III GHB drug products and reporting requirements for manufacturers and distributors of Schedule III GHB drug products. Under current 21 CFR 1304.22(c) dispensers of GHB, including pharmacies, are required to maintain the name and address of the person to whom it was dispensed, the date of dispensing, the number of units or volume dispensed, and the written or typewritten name or initials of the individual who dispensed or administered the substance on behalf of the dispenser. In addition to these requirements, proposed 21 CFR 1304.26 would require pharmacies and practitioners dispensing GHB to maintain and make available for inspection the name of the prescribing practitioner, the prescribing practitioner's Federal and State registration numbers with expiration dates, verification that the prescribing practitioner possesses appropriate registration, and the patient's insurance provider, if available. Pub. L. 106-172, Section 4 also recommended that DEA establish a recordkeeping requirement for “documentation by a medical practitioner licensed and registered to prescribe the drug of the patient's medical need for the drug.” Part of this recommendation is currently satisfied by existing DEA requirements in 21 CFR 1306.04 which state that prescriptions “must be issued for a legitimate medical purpose.” To further satisfy this requirement, DEA is proposing the amendment of 21 CFR 1306.05 to require that the medical need be written on the prescription.

This rule also proposes to amend 21 CFR 1304.33 to include Schedule III GHB drug products as controlled substances that must be reported under the Automation of Reports and Consolidated Orders System (ARCOS). ARCOS is an automated, comprehensive drug reporting system, which monitors the flow of DEA controlled substances from their point of manufacture through commercial distribution channels to point of sale or distribution at the dispensing/retail level, e.g. , hospitals, retail pharmacies, practitioners, mid-level practitioners, and teaching institutions. Included in the list of controlled substance transactions tracked by ARCOS are the following: All Schedules I and II materials (manufacturers and distributors); Schedule III narcotic materials (manufacturers and distributors); and selected Schedules III and IV psychotropic controlled substances (manufacturers only). This proposal would add Schedule III GHB drug products to this list.

In addition, Public Law 106-172, Section 4 (amending 21 U.S.C. 827(h)(6)) recommended that DEA apply the mail order reporting requirements of 21 U.S.C. 830(b)(3) to “gamma hydroxybutyric acid to the same extent and in the same manner as such section applies with respect to the chemicals and drug products specified in subparagraph (A)(i) of such section.” While DEA is proposing the amendment of its regulations to include these provisions, Congress also passed Pub. L. 106-310, the “Children's Health Act of 2000”, Title XXXVI of which is the Methamphetamine Anti-Proliferation Act of 2000 (MAPA). One of the consequences of MAPA was to redesignate 21 U.S.C. 830(b)(3)(A)(i) as 21 U.S.C. 830(b)(3)(B)(i). Further, MAPA required mail order reporting requirements for export transactions involving ephedrine, pseudoephedrine, or phenylpropanolamine. These reporting requirements would not apply to distributions of drug products, including GHB, pursuant to a valid prescription, which were excluded under MAPA (21 U.S.C. 830(b)(3)(D)). Regulations implementing the Methamphetamine Anti-Proliferation Act of 2000 were published October 7, 2003 (68 FR 57799). Thus, the net effect is that all export transactions involving GHB be reported to DEA. Transactions involving prescriptions of GHB are not required to be reported to DEA.

The Deputy Assistant Administrator hereby certifies that this rulemaking has been drafted in accordance with the Regulatory Flexibility Act (5 U.S.C. 605(b)), has reviewed this regulation, and by approving it certifies that it will not have a significant economic impact upon a substantial number of small entities. This rulemaking creates new recordkeeping and reporting requirements which will have an extremely limited impact on a small number of registrants due to the restricted use of GHB for legitimate medical purposes. As a condition of Xyrem's® (the FDA-approved product containing GHB) approval, a risk management program was designed to limit its distribution. Under this program, Xyrem® will only be available to physicians and patients through a single centralized pharmacy. As a result of this program, at this time, controlled substances distributors and retail pharmacies will not be handling Xyrem® and, thus, will not be affected by these requirements. For those few persons affected by these proposed regulations, the information requested by these added records is readily and commonly available, and due to the limited distribution of GHB the impact on reporting requirements should be minimal.

The Deputy Assistant Administrator further certifies that this regulation has been drafted in accordance with the principles of Executive Order 12866, Section 1(b). This action has been determined to be a “significant regulatory action” under Executive Order 12866, and accordingly this proposed rule has been reviewed by the Office of Management and Budget.

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

This rulemaking does not preempt or modify any provision of state law; nor does it impose enforcement responsibilities on any state; nor does it diminish the power of any state to enforce its own laws. Accordingly, this rulemaking does not have federalism implications warranting the application of Executive Order 13132.

This rulemaking 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 would not significantly or uniquely affect small governments. Therefore, no actions were deemed necessary under the provisions of the Unfunded Mandates Reform Act of 1995.

While, technically, this rule requires new, minimal recordkeeping and reporting requirements for drug products containing GHB, DEA does not believe that these recordkeeping and reporting requirements create any greater hour or cost burden for respondents than what already exists. Records required to be maintained by practitioners under proposed 21 CFR 1304.26, including the practitioner's name, address, state license and federal registration numbers, and the patient's insurance provider (if available) are all records which are maintained as a usual course of professional practice by a practitioner. The reporting requirements proposed under 21 CFR 1304.33 are part of an already-approved collection of information (OMB 1117-0003: ARCOS Transaction Reporting—DEA Form 333). DEA believes that the additional reporting requirements will have no impact on the hour or cost burden for respondents as reports are generated and submitted electronically. As has been stated previously, due to the risk management plan established for Xyrem” (the FDA-approved product containing GHB) this product has an extremely limited distribution potential. Because of the nature of this product's distribution, DEA anticipates that fewer than five persons will be impacted by the requirement to report handling Schedule III GHB products to ARCOS, and those persons are already filing reports with DEA for other controlled substances handled. The system modifications necessary to generate this report will occur as a normal part of a registrant's handling of this product. Therefore, DEA is not submitting any changes or amendments to its active information collections under the Paperwork reduction Act of 1995.

This rulemaking is not a major rule as defined by Section 804 of the Small Business Regulatory Enforcement Fairness 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 U.S.-based companies to compete with foreign-based companies in domestic and export markets.

For the reasons set out above, 21 CFR Parts 1304, 1306 and 1310 are proposed to be amended as follows:

Due to concerns regarding possible harmful side effects, the Food and Drug Administration (FDA) initiated action in November, 2000, to remove phenylpropanolamine from the market. As a result, many firms voluntarily discontinued marketing products containing phenylpropanolamine and removed them from the shelves for disposal. However, since some products containing phenylpropanolamine are still available, DEA has written these proposed regulations to include drug products containing phenylpropanolamine, where appropriate, as well as drug products containing pseudoephedrine.

The Domestic Chemical Diversion Control Act of 1993 (DCDCA) established that persons distributing, importing, or exporting List I chemicals must register with DEA. In addition, it removed the exemption of single-entity ephedrine drug products from the chemical regulations. The Comprehensive Methamphetamine Control Act of 1996 (MCA) expanded on the registration requirement of the DCDCA by removing the exemption for pseudoephedrine, phenylpropanolamine and combination ephedrine drug products. Persons distributing, importing or exporting these drug products must register with DEA (21 U.S.C. 822, 957).

The registration requirement is not absolute. Section 302(c) of the CSA (21 U.S.C. 822(c)) provides that certain persons, including common or contract carriers and warehousemen, are not subject to the registration requirement. Further, section 302(d) of the CSA (21 U.S.C. 822(d)) provides that the Attorney General may waive the registration requirement for certain persons if it is consistent with the public health and safety.

As DEA has worked to implement the DCDCA and MCA, a number of issues have been raised regarding waiving the requirement of registration for persons engaged in certain activities under the regulations. In some cases there are parallels between identified activities and activities previously exempted from the registration requirement. DEA has reviewed the requests received from industry and has determined that the requirement of registration is not necessary for contract processors, medical/first aid kit providers, distributors of sample packages, and distributors of research/reference standards as discussed below. Further, DEA has determined that charitable organizations and governmental entities should be exempted from payment of the application fee for registration and reregistration, but that the requirement of registration itself must remain in effect for effective diversion control. These proposed fee exemptions are also discussed below.

Current DEA regulations require that any person who manufactures, distributes, imports, or exports a List I chemical must first register with DEA annually as a List I chemicals handler and pay a registration fee. DEA has recognized that, for certain industries, registration is unnecessary for effective enforcement of the law, and has accommodated the waiver of registration through Memoranda of Understanding (MOUs) between DEA and affected persons. In this rulemaking, DEA is proposing to waive the requirement of registration for contract processors, medical/first aid kit providers, distributors of sample packages, and distributors of research/reference standards. Were DEA not to propose these regulations, thereby codifying present Administration policy, each affected person would be required to register with DEA annually and pay an initial registration fee of $595 and annual reregistration fees of $477. If finalized, these proposed regulations will require exempt persons to notify DEA only once of their activities, at a cost of mailing one letter, as opposed to an annual registration fee. Industry would benefit from a significant cost savings as no fee would be charged for the one-time notification. Further, in this rulemaking DEA is proposing to exempt charitable organizations and governmental entities from payment of the application fee for registration and reregistration as List I chemical handlers. These exemptions will reduce regulatory requirements for the applicable industry, creating a cost savings for affected persons.

The proposed waiver of the requirement of registration or reregistration for contract processors will affect all List I chemicals. List I chemicals have legitimate uses within commercial industry, being used for research and manufacturing purposes. List I chemicals include, but are not limited to, ephedrine, pseudoephedrine and phenylpropanolamine (used in the manufacture of pharmaceutical products), benzaldehyde (used in the manufacture of perfumes and dyes), hydriodic acid (a disinfectant and chemical reagent), nitroethane (a solvent), and white phosphorus (used in the production of other phosphoric compounds). As a rule, with the exception of pseudoephedrine, phenylpropanolamine, and ephedrine, which are distributed to the public in regulated form as over-the-counter medications, List I chemicals in regulated form are usually distributed in commercial transactions between businesses and only rarely to the public in retail transactions. It is within this commercial arena that contract processors operate; they do not distribute at retail to the public.

The proposed waiver of the requirement of registration or reregistration for distributors of research/reference standards would affect the List I chemicals ephedrine, pseudoephedrine and phenylpropanolamine. The proposed waiver of the requirement of registration or reregistration for medical/first aid kit providers and distributors of sample packages would affect the List I chemical pseudoephedrine. Pseudoephedrine, a chemical widely used in over-the-counter medications, is a decongestant used for the temporary relief of nasal congestion due to the common cold, hay fever or other upper respiratory allergies. Products containing pseudoephedrine are widely available in a variety of dosage forms as a single entity or in combination with antihistamines, antitussives, analgesics, expectorants, and/or vitamins. Ephedrine is used for the temporary relief of shortness of breath, tightness of chest, and wheezing due to bronchial asthma.

The majority of the products purchased by the public containing pseudoephedrine are commonly used medications and are easily accessible at pharmacies, grocery stores, discounted department stores, and a variety of other retail stores. These products are available to the public without a prescription. A few products containing pseudoephedrine or ephedrine are prescription products and require a prescription issued by a practitioner prior to being dispensed to a patient. This proposed regulation will not adversely impact the public's ability to easily access these products.

Contract processors, sometimes referred to within the industry as “tollers”, are those persons who, through a legally binding agreement with a registrant, take physical possession of a listed chemical for the purpose of providing a processing service to the registrant. Such processes may include, but are not limited to, packaging a product and adding chemicals to a mixture. The contract processor never has legal ownership or control of the chemicals; legal title remains with the registrant. Following processing, the contract processor either returns all of the chemicals received to the registrant, or distributes them as required by the registrant.

In reviewing this situation, DEA has noted that activities of certain contract processors parallel those of a warehouse at which chemicals are stored, for which an exemption from registration has been provided under 21 U.S.C. 822(c) (21 CFR 1309.23(b)(1)). As with the warehouseman, the contract processor merely carries out the processing requirements of the registrant; the contract processor does not have, at any time, legal title to or legal control of the chemicals. The registrant provides the material to the contract processor for a specific function, after which the material is returned to the registrant, thus maintaining a closed-loop system. DEA has determined that, under such circumstances, the requirement of registration is not necessary for effective chemical control. Therefore, DEA is proposing to amend the regulations to waive the requirement of registration for contract processors provided that chemicals are distributed only back to the registrant. As with warehousemen, a registrant utilizing a contract processor's services would be responsible for exercising due care in selection of the processor (21 CFR 1309.71, 21 CFR 1309.72). The registrant would have to ensure that the contract processor has in place appropriate procedures and safeguards to protect chemicals from diversion.

Contract processors do not always operate within a closed-loop system. In some cases, a contract processor may receive chemicals from an outside source, process them, and distribute the chemicals to the registrant. In other cases, a registrant may provide the chemicals to the contract processor which processes them and, per the registrant's instructions, distributes the chemicals to other persons. These activities deviate from the closed-loop system between the registrant and contract processor and involve distributions to or from other registrants. Therefore, these types of activities will remain subject to the registration requirements under the law. DEA is proposing that, as with the existing provisions for warehouses, the waiver will apply only to those circumstances in which a registrant distributes directly to a contract processor which, in turn, will distribute only back to the registrant from which it received the chemicals.

Medical/first aid kit providers distribute small amounts of pseudoephedrine drug products, in individual transactions, to medical/first aid kits maintained by businesses for the personal medical use of employees in the workplace. The distributions are usually conducted in face-to-face transactions (an agent or employee of the distributor delivers the products directly to the customer), the products are distributed for the personal medical use of the employees of the customer, and are less than the retail threshold per transaction. [As used in this document and referenced in the Methamphetamine Anti-Proliferation Act of 2000 (Section XXXVI of Pub.L. 106-310), the term “transaction” is defined to mean the provision of regulated drug products to a specific location, not the provision of regulated drug products to a specific medical/first aid kit within a location. Thus, under the terms of this proposed waiver, if a location had multiple medical/first aid kits, the medical/first aid kit provider would be permitted to supply the location with a quantity of product below the retail per-transaction limit during each visit to that specific location. Product may be allocated to multiple medical/first aid kits throughout a specific location, without the medical/first aid kit provider being required to register with DEA, so long as the amount of product distributed does not exceed the retail per-transaction threshold.]

Medical/first aid kit provider activities closely parallel those of retail distributors; sales involve retail below-threshold amounts of the products, are made in face-to-face transactions, and are intended for the personal medical use of the employees of the business. DEA has determined that, where a medical/first aid provider's activities are restricted to retail below-threshold, face-to-face transactions to supply/replenish medical or first aid kits maintained for the personal medical use of employees in the workplace, application of the registration requirement is not necessary for effective enforcement of the chemical control program. Instead, the providers must submit written notice to DEA certifying that their activities will be limited to distribution of retail below-threshold quantities of a drug product containing pseudoephedrine that is regulated pursuant to § 1300.02(b)(28)(i)(D) for purposes of supplying/replenishing medical or first aid kits maintained by businesses for the use of their employees. (A model of the notice to be used may be found in proposed 1309.24(i).) Notice must be provided on official company letterhead to the Drug Enforcement Administration, Chemical Control Section, Washington, D.C. 20537.

Those medical/first aid kit providers currently operating pursuant to Memoranda of Understanding (MOU) with DEA will be required to request a waiver of the requirement of registration once the Final Rule implementing these regulations is published in the Federal Register .

Although medical/first aid kit providers conduct individual transactions in retail below-threshold quantities, they may store large quantities of drug products containing list I chemicals that are regulated pursuant to § 1300.02(b)(28)(i)(D) at any one time. Because of this, the issue of theft or loss of these drug products is of concern to DEA. It is extremely important that persons supplying/replenishing medical or first aid kits maintained by businesses for the use of their employees take adequate and appropriate measures to ensure the security of these drug products in their possession (21 CFR 1309.71-1309.73). Persons receiving a waiver of the requirement of registration should pay special attention to the storage and security of the regulated drug products. Further, waiver of the registration requirement does not obviate the need for complete and accurate recordkeeping and reporting to DEA (21 CFR 1310, 1313). The waiver of the requirement of registration may be revoked or suspended under the terms discussed in Section II.E. of this preamble and the proposed regulations.

It is not unusual for manufacturers of drug products containing retail below-threshold amounts of pseudoephedrine that are regulated pursuant to § 1300.02(b)(28)(i)(D) to distribute free samples of their products directly to the public as part of marketing campaigns. The samples may be distributed through mass distributions in newspapers, magazines, or through the mail. A sample package contains not more than two solid dosage units of the product, or the equivalent of two dosage units in liquid form, not to exceed 10 milliliters of liquid per package. DEA has determined that application of the specific registration requirement is not necessary for effective enforcement of chemical controls, provided that the sampler does not distribute more than one sample package of a drug product containing retail below-threshold amounts of pseudoephedrine that is regulated pursuant to § 1300.02(b)(28)(i)(D) to an individual or residential address in any 30-day time period. Instead, DEA will require that the sampler must submit written notice to DEA certifying that their activities will be limited to individual distributions of sample packages containing not more than two solid dosage units of the product, or the equivalent of two dosage units in liquid form, not to exceed 10 milliliters of liquid per package, and that distributions will not exceed one per individual or residential address per 30-day time period. Notice must be provided on official company letterhead to the local field office of the Drug Enforcement Administration. Contact information for local DEA field offices may be obtained from the Drug Enforcement Administration Web site at http://www.dea.gov . Once notification has been received, the local field office will provide instruction on handling the product.

Those persons distributing sample packages currently operating pursuant to Memoranda of Understanding (MOU) with DEA will be required to request a waiver of the requirement of registration once the final rule implementing these regulations is published in the Federal Register .

Although distributors of sample packages may distribute only one sample package to an individual or residential address in a 30-day time period, they may store very large quantities of regulated drug products. The issue of theft or loss of these drug products is of concern to DEA. It is extremely important that persons making distributions of these sample packages take adequate and appropriate measures to ensure the security of these drug products in their possession (21 CFR 1309.71-1309.73). Persons receiving a waiver of the requirement of registration should pay special attention to the storage and security of the sample packages. Further, waiver of the requirement of registration does not obviate the need for accurate recordkeeping and reporting to DEA (21 CFR 1310, 1313). The waiver of the requirement of registration may be revoked or suspended under the terms discussed in Section II.E. of this preamble and the proposed regulations.

DEA registered manufacturers of regulated drug products sometimes maintain separate locations at which ephedrine, pseudoephedrine, and phenylpropanolamine research/reference standards are manufactured and distributed to other locations operated by the registrant for use in manufacturing processes. DEA has determined that requiring registration for such distributions is not necessary for effective enforcement of the chemical control program provided that the distributions are less than five (5) grams per transaction, not to exceed fifty (50) grams cumulatively per calendar month, and are made solely between locations operated by the same regulated person. The small amounts of material involved and the closed system within which the material is distributed do not present significant potential for diversion. Further, because these samples are used for research purposes, the controls surrounding these chemicals, as well as their chain of custody, are very strict. These added safeguards lessen the potential for diversion. Therefore, DEA is proposing the amendment of 21 CFR 1309.24 to waive the requirement of registration for the distribution of research/reference standards. The waiver of the requirement of registration may be revoked or suspended under the terms discussed in Section II.E. of this preamble and the proposed regulations.

Any waiver granted to any medical/first aid kit provider, distributor of sample packages, or distributor of research/reference standards under the provisions of this Notice of Proposed Rulemaking may be revoked or suspended. If the Administrator of DEA finds that continuation of the waiver of the requirement of registration for any person granted a waiver pursuant to these regulations would not be in the public interest, or would be subject to suspension or revocation pursuant to any other ground under Section 304 of the Act (21 U.S.C. 824), the Administrator shall serve upon the person an order to show cause why the waiver of registration should not be revoked or suspended as set forth in 21 CFR 1309.46(b), and, if applicable, why any pending applications for List I chemical registration should not be denied as set forth in 21 CFR 1309.46(a).

It is not unusual for charitable organizations to receive donations of drug products containing a List I chemical that are regulated pursuant to § 1300.02(b)(28)(i)(D) as part of their normal course of business. These donations may be received from a variety of sources including retail distributors, wholesale distributors and manufacturers. The charitable organizations distribute the products either directly to the ultimate users or to other foreign or domestic charitable organizations.

For purposes of these proposed regulations, DEA is defining a charitable organization as one meeting the requirements of the Internal Revenue Service Code (26 U.S.C. 501(c)(3)). When seeking an exemption from payment of application fees for registration or reregistration, such charitable organizations must present to DEA, along with their application for registration or reregistration, a copy of their advance determination letter or determination letter issued by the Internal Revenue Service as proof of their tax-exempt status under the provisions of 26 U.S.C. 508 and its implementing regulations.

Distributions made by charitable organizations directly to ultimate users are retail distributions; products are distributed in face-to-face transactions for personal medical use, and involve below-threshold amounts of listed chemicals. As retail transactions, they are not subject to the registration requirement.

However, distributions to other charitable organizations, whether domestic distribution or exportation, are subject to the registration requirement. Because the volume of drug products containing a List I chemical that are regulated pursuant to § 1300.02(b)(28)(i)(D) being distributed by these organizations can be significant, registration with DEA remains necessary, as well as the recordkeeping and reporting requirements. However, it is not DEA's intent that these organizations be financially penalized for their activities. Therefore, DEA is proposing amendments to the regulations exempting charitable organizations from registration fees.

It has been general practice and tradition that DEA does not assess other governmental entities—Federal, state or local—the fees required for registration or reregistration. This provision, which does exist for controlled substances registrants, was inadvertently not included in the chemical regulations. Therefore, to provide consistent registration fee requirements, DEA is proposing the amendment of the chemical regulations to exempt governmental entities from fees.

Title 21 CFR 1309.24 provides that persons registered with DEA to distribute or dispense controlled substances are not required to obtain a separate chemical registration to distribute drug products containing a List I chemical that are regulated pursuant to § 1300.02(b)(28)(i)(D).

This provision is intended to allow controlled substances manufacturers, distributors, and dispensers to engage in activities with regulated drug products that are similar or equivalent to their activities with controlled substances, i.e. , manufacturers and distributors may engage in wholesale transactions and dispensers, such as retail pharmacies, may engage in retail transactions.

However, DEA has become aware of instances in which controlled substances dispensers, in particular retail pharmacies, have been engaging in listed chemical activities inconsistent with their controlled substances activities. DEA intended that the waiver for dispensers would apply to retail type transactions, i.e. , distributions of below-threshold amounts to individual customers for personal medical use, and not to distributions of above-threshold quantities or distributions not intended for the personal medical use of the customer. For example, a retail pharmacy may distribute retail quantities of drug products containing a List I chemical that are regulated pursuant to 21 CFR 1300.02(b)(28) under the chemical registration waiver, but must obtain a separate chemical registration for distributions above the retail threshold or distributions not intended for the personal medical use of the customer. Similarly, a controlled substances distributor would be exempt from obtaining a registration for distributing, but not manufacturing, regulated drug products. It was not DEA's intent to permit controlled substances registrants to use the waiver of the requirement of chemical registration to conduct activities inconsistent with their controlled substances activities. Therefore, DEA proposes to amend its regulations to clarify that controlled substances manufacturers, distributors, and dispensers may conduct similar or equivalent activities involving drug products containing a List I chemical that are regulated pursuant to § 1300.02(b)(28)(i)(D) without having to obtain a chemical registration.

While preparing this notice, DEA noted inaccurate citations for the definition of “regulated transaction” in 21 CFR Part 1310. Therefore, DEA is proposing the correction of these inaccurate citations.

Further, it was noted that Sections 1310.14 and 1310.15 have been superceded by the Comprehensive Methamphetamine Control Act of 1996 (MCA) which regulates all products containing ephedrine, whether single entity or combination ephedrine. Therefore, DEA is proposing the removal of Sections 1310.14 and 1310.15.

DEA is proposing two new collections of information: Report of Medical/First Aid Kit Provider Business Activities and Report of Distribution of Sample Packages under the Paperwork Reduction Act of 1995. This process is conducted in accordance with 5 CFR 1320.11.

These proposed information collections are published to obtain comments from the public and affected agencies. Comments are encouraged and will be accepted until January 26, 2004. Written comments and suggestions are requested from the public and affected agencies concerning the proposed collections of information.

Comments should address one or more of the following four points:

1. Evaluate whether the proposed collection of information is necessary for the proper performance of the functions of the agency, including whether the information will have practical utility;

2. Evaluate the accuracy of the agency's estimate of the burden of the proposed collection of information, including the validity of the methodology and assumptions used;

3. Enhance the quality, utility, and clarity of the information to be collected; and

4. Minimize the burden of the collection of information on those who are to respond, including through the use of appropriate automated, electronic, mechanical, or other technological collection techniques or other forms of information technology, e.g. , permitting electronic submission of responses.

If you have comments, especially on the estimated public burden or associated response time, suggestions, or need a copy of the proposed information collection instrument(s) with instructions, if applicable, or additional information, please contact Patricia M. Good, Chief, Liaison and Policy Section, Office of Diversion Control, Drug Enforcement Administration, Washington, DC 20537, Telephone (202) 307-7297.

Overview of Report of Medical/First Aid Kit Provider Business Activities Information Collection:

(1) Type of information collection: new collection.

(2) The title of the form/collection: Report of Medical/First Aid Kit Provider Business Activities.

(3) The agency form number, if any, and the applicable component of the Department sponsoring the collection:

Form No.: None.

Applicable component of the Department sponsoring the collection: Office of Diversion Control, Drug Enforcement Administration, U.S. Department of Justice.

(4) Affected public who will be asked or required to respond, as well as a brief abstract:

Primary: Business or other for-profit.

Other: None.

Abstract: The collection of this information is necessary to maintain appropriate oversight of the distribution of regulated drug products containing List I chemicals by requiring notification from businesses of their intent to distribute retail subthreshold quantities of pseudoephedrine drug products for the purpose of supplying/replenishing medical/first aid kits.

(5) An estimate of the total number of respondents and the amount of time estimated for an average respondent to respond/reply: 600 Respondents. 600 responses per year × 1 hour per response = 600 hrs.

(6) An estimate of the total public burden (in hours) associated with the collection: 600 annual burden hours. 600 respondents × 1 hour per respondent per year.

Overview of Report of Distribution of Sample Packages Information Collection:

(1) Type of information collection: new collection.

(2) The title of the form/collection: Report of Distribution of Sample Packages.

(3) The agency form number, if any, and the applicable component of the Department sponsoring the collection:

Form No.: None.

Applicable component of the Department sponsoring the collection: Office of Diversion Control, Drug Enforcement Administration, U.S. Department of Justice.

(4) Affected public who will be asked or required to respond, as well as a brief abstract:

Primary: Business or other for-profit.

Other: None.

Abstract: The collection of this information is necessary to maintain appropriate oversight of the distribution of regulated drug products containing retail below-threshold amounts of pseudoephedrine. By requiring notification from businesses of their intent to distribute sample packages containing not more than two solid dosage units, or the equivalent of two dosage units in liquid form, not to exceed 10 milliliters of liquid per package, to the general public. Distributions are limited to not more than one package distributed to an individual or residential address in any 30-day time period. Notice provides the business name and address and acknowledges distribution restrictions, compliance with the requirements of Title 21, Code of Federal Regulations (CFR), part 1310, the reporting and recordkeeping requirements, and the fact that exemption from the registration requirement applies to this activity only.

(5) An estimate of the total number of respondents and the amount of time estimated for an average respondent to respond/reply: 1,000 respondents. 1,000 responses per year × 1 hour per response = 1,000 hours.

(6) An estimate of the total public burden (in hours) associated with the collection: 1,000 annual burden hours. 1,000 respondents × 1 hour per respondent per year.

If additional information is required regarding these collections of information, contact: Brenda E. Dyer, Deputy Clearance Officer, Policy and Planning Staff, Justice Management Division, United States Department of Justice, Patrick Henry Building, Suite 1600, 601 D Street NW., Washington, DC 20530.

The Deputy Assistant Administrator hereby certifies that this rulemaking has been drafted in accordance with the Regulatory Flexibility Act (5 U.S.C. 605(b)), and by approving it certifies that this regulation will not have a significant economic impact on a substantial number of small business entities. These proposed regulations would ease registrants’, primarily small businesses, regulatory burdens including waiving the requirement of registration and exempting certain regulated persons from the imposition of registration fees.

The Deputy Assistant Administrator further certifies that this rulemaking has been drafted in accordance with the principles in Executive Order 12866, Section 1(b). DEA has determined that this is a significant regulatory action. Therefore, this action has been reviewed by the Office of Management and Budget. Further, the proposed information collections, “Report of Medical/First Aid Kit Provider Business Activities” and “Report of Distributions of Sample Packages”, have been submitted for review. This rulemaking eases the regulatory burden for registrants by waiving the requirement of registration for certain activities, as well as exempting certain regulated persons from the registration fees. Were DEA not to propose these regulations, thereby codifying present Administration policy, each affected person would be required to register with DEA annually and pay an initial registration fee of $595 and annual reregistration fees of $477. If finalized, these proposed regulations will require exempt persons to notify DEA only once of their activities, at a cost of mailing one letter, as opposed to an annual registration fee. Industry would benefit from a significant cost savings as no fee would be charged for the one-time notification.

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

This rulemaking does not preempt or modify any provision of state law; nor does it impose enforcement responsibilities on any state; nor does it diminish the power of any state to enforce its own laws. Accordingly, this rulemaking does not have federalism implications warranting the application of Executive Order 13132.

This rule will not result in the expenditure by state, local, and tribal governments, in the aggregate, or by the private sector, of $100,000,000 or more in any one year, and 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 Fairness Act of 1996. This rule will not result in an annual effect on the economy of $100,000,000 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.

For the reasons set out above, 21 CFR parts 1309 and 1310 are proposed to be amended as follows:

A notice of proposed rulemaking and notice of public hearing that appeared in the Federal Register on Monday, July 21, 2003, (68 FR 43047), announced that a public hearing was scheduled for Wednesday, December 3, 2003, at 10 a.m., in room 4718, Internal Revenue Service Building, 1111 Constitution Avenue, NW., Washington, DC. The subject of the public hearing is proposed regulations under section 168 of the Internal Revenue Code. The public comment period for these proposed regulations expired on Monday, October 20, 2003. Outlines of oral comments were due on Wednesday, November 12, 2003.

The notice of proposed rulemaking and notice of public hearing, instructed those interested in testifying at the public hearing to submit an outline of the topics to be addressed. As of Wednesday, November 19, 2003, no one has requested to speak. Therefore, the public hearing scheduled for Wednesday, December 3, 2003, is cancelled.

We encourage you to participate in this rulemaking by submitting comments and related material. If you do so, please include your name and address, identify the docket number for this rulemaking [CGD11-03-006], indicate the specific section of this document to which each comment applies, and give the reason for each comment. Please submit all comments and related material in an unbound format, no larger than 8 1/2 by 11 inches, suitable for copying. If you would like to know they reached us, please enclose a stamped, self-addressed postcard or envelope. We will consider all comments and material received during the comment period. We may change this proposed rule in view of them.

We do not now plan to hold a public Meeting. You may submit a request for a meeting by writing to the Bridge Section, Eleventh Coast Guard District, at the address under ADDRESSES explaining why one would be beneficial. If we determine one would aid this rulemaking, we will hold one at a time and place announced by a later notice in the Federal Register .

The Mare Island Drawbridge crosses the Napa River between the City of Vallejo (“Vallejo”) and Mare Island, CA. The existing regulation governing the operation of the drawbridge, found at 33 CFR § 117.169, requires the drawbridge to open on signal from 7:30 a.m. to 3:45 p.m. and 4:45 p.m. to 10 p.m. Monday through Friday except Federal holidays, and from 6:30 a.m. to 10 p.m. on Saturdays, Sundays and holidays. The drawbridge need not open for the passage of vessels other than public vessels of the United States from 6:30 a.m. to 7:30 a.m. and 3:45 p.m to 4:45 p.m. except Saturdays, Sundays, and Federal holidays; and must be opened on signal from 10 p.m. to 6:30 a.m. daily, if at least two hours notice is given, and as soon as possible during this period for public vessels of the United States.

For the purpose of reducing the drawbridge operating costs, Vallejo has requested to increase the rush-hour closure periods and to increase the hours when vessels provide advance notice for drawspan operation. Drawbridge operation logs support increasing the hours of advance notice to include periods when vessels historically have not called for an opening.

However, the present morning and afternoon land traffic flows no longer justify rush-hour closure periods when the bridge need not open for passage of vessels. The current regulation was promulgated when the U.S. Navy was still based at Mare Island. Following the departure of the Navy from Mare Island, traffic across the Mare Island Drawbridge diminished significantly and the morning and evening rush-hour closure periods no longer are needed.

The proposed changes would increase the number of hours vessels provide advance notice for drawspan operation and eliminate the rush-hour closure periods. The proposed changes are expected to reduce bridge operating costs while continuing to meet the reasonable needs of waterway traffic.

The proposed changes are expected to simplify the regulation and reduce drawbridge operating costs, while continuing to meet the reasonable needs of waterway traffic.

Vessel counts derived from drawbridge operating logs and land traffic counts show little demand for bridge openings during the evening hours and a significant decrease in rush-hour land traffic since the Navy departed from Mare Island.

The proposed operating schedule would require the Mare Island Drawbridge to open on signal between the hours of 9 a.m. and 7 p.m. daily, and upon two hours advance notice all other times. During advance notice periods, the bridge would be required to open as soon as possible for emergency vessel operation. Mariners presently contact the City of Vallejo Police Department Dispatch Office to provide two-hour advance notice or for emergency operation of the drawspan. This practice would be codified in the proposed regulation. Also, the rush-hour closure periods would be deleted and references to “public vessels” would be deleted.

Navigational charts show the affected waterway to be a combination of the Mare Island Strait and the Napa River with no drawbridges on any of the tributaries. The Mare Island crossing is a drawbridge and does not meet the definition of a “causeway”. The existing drawbridge is no longer owned or operated by the Navy. Therefore references to “tributaries”, “causeway” and “U.S. Navy” will be deleted and it will be referred to in the regulation as the Mare Island Drawbridge, Mare Island Strait and Napa River, mile 2.8, at Vallejo.

The Coast Guard is requesting comments from the mariners through individual correspondence, Local Notice to Mariners, and transmittal of this Notice of Proposed Rulemaking to established waterway representatives and known operators on the waterway.

This proposed rule is not a “significant regulatory action” under section 3(f) of Executive Order 12866, Regulatory Planning and Review, and does not require an assessment of potential costs and benefits under section 6(a)(3) of that Order. The Office of Management and Budget has not reviewed it under that Order. It is not “significant” under the regulatory policies and procedures of the Department of Homeland Security.

We expect the economic impact of this proposed rule to be so minimal that a full Regulatory Evaluation under the regulatory policies and procedures of DHS is unnecessary. The proposed rule is not expected to result in significant negative impacts to the waterway users while providing relief to the bridge owner in the form of bridge operating costs. Impacts to the public waterway users are expected to be minimal based upon data provided by the bridge owner in the form of drawbridge operating logs and vessel traffic counts. This data indicates there is little or no requirement for keeping an operator on the drawbridge during the proposed periods of advance notice.

Under the Regulatory Flexibility Act (5 U.S.C. 601-612), we have considered whether this proposed rule would have a significant economic impact on a substantial number of small entities. The term “small entities” comprises small businesses, not-for-profit organizations that are independently owned and operated and are not dominant in their fields, and governmental jurisdictions with populations of less than 50,000.

The Coast Guard certifies under 5 U.S.C. 605(b) that this proposed rule would not have a significant economic impact on a substantial number of small entities, as none were identified that will be affected by the proposed changes.

Vessel traffic counts indicate the waterway users would continue to receive the same level of service at the bridge. The proposal is to decrease unnecessary manning of the bridge during times when the bridge historically has not been called for an opening. Eliminating the rush-hour closure periods would improve vessel access during periods when the bridge normally receives calls for openings.

If you think your business, organization, or governmental jurisdiction qualifies as a small entity and this rule would have a significant economic impact on it, please submit a comment (see ADDRESSES ) explaining why you think it qualifies and how and to what degree this rule would economically affect it.

Under section 213(a) of the Small Business Regulatory Enforcement Fairness Act of 1996 (Pub. L. 104-121), we want to assist small entities in understanding this proposed rule so they can better evaluate its effects on them and participate in the rulemaking. If the rule would affect your small business, organization, or governmental jurisdiction and you have questions concerning its provisions or options for compliance, please contact the Eleventh Coast Guard District Bridge Office in writing at the address under ADDRESSES.

This proposed rule would call for no new collection of information under the Paperwork Reduction Act of 1995 (44 U.S.C. 3501-3520.).

A rule has implications for federalism under Executive Order 13132, Federalism, if it has a substantial direct effect on State or local governments and would either preempt State law or impose a substantial direct cost of compliance on them. We have analyzed this proposed rule under that Order and have determined it does not have implications for federalism.

The Unfunded Mandates Reform Act of 1995 (2 U.S.C. 1531-1538) requires Federal agencies to assess the effects of their discretionary regulatory actions. In particular, the Act addresses actions that may result in the expenditure by a State, local, or tribal government, in the aggregate, or by the private sector of $100,000,000 or more in any one year. Though this proposed rule will not result in such an expenditure, we do discuss the effects of this rule elsewhere in this preamble.

This proposed rule would not affect a taking of private property or otherwise have taking implications under Executive Order 12630, Governmental Actions and Interference with Constitutionally Protected Property Rights.

This proposed rule meets applicable standards in sections 3(a) and 3(b)(2) of Executive Order 12988, Civil Justice Reform, to minimize litigation, eliminate ambiguity, and reduce burden.

We have analyzed this proposed rule under Executive Order 13045, Protection of Children from Environmental Health Risks and Safety Risks. This rule is not an economically significant rule and would not create an environmental risk to health or risk to safety that might disproportionately affect children.

This proposed rule does not have tribal implications under Executive Order 13175, Consultation and Coordination with Indian Tribal Governments, because it would not have a substantial direct effect on one or more Indian tribes, on the relationship between the Federal Government and Indian tribes, or on the distribution of power and responsibilities between the Federal Government and Indian tribes.

We have analyzed this proposed rule under Executive Order 13211, Actions Concerning Regulations That Significantly Affect Energy Supply, Distribution, or Use. We have determined it is not a “significant energy action” under that order because it is not a “significant regulatory action” under Executive Order 12866 and is not likely to have a significant adverse effect on the supply, distribution, or use of energy. It has not been designated by the Administrator of the Office of Information and Regulatory Affairs as a significant energy action. Therefore, it does not require a Statement of Energy Effects under Executive Order 13211.

We have analyzed this rule under Commandant Instruction M16475.lD, which guides the Coast Guard in complying with the National Environmental Policy Act of 1969 (NEPA)(42 U.S.C. 4321-4370f), and have concluded there are no factors in this case that would limit the use of a categorical exclusion under section 2.B.2 of the Instruction. Therefore, this rule is categorically excluded, under figure 2-1, paragraph (32)(e) of the Instruction, from further environmental documentation, since promulgation of drawbridge regulations has been determined not to have any affect on the environment. A “Categorical Exclusion Determination” is available in the docket where indicated under ADDRESSES.

For the reasons discussed in the preamble, the Coast Guard proposes to amend 33 CFR part 117 as follows:

We encourage you to participate in this rulemaking by submitting comments and related material. If you do so, please include your name and address, identify the docket number for this rulemaking (CGD05-03-121), indicate the specific section of this document to which each comment applies, and give the reason for each comment. Please submit all comments and related material in an unbound format, no larger than 8 1/2 by 11 inches, suitable for copying. If you would like to know they reached us, please enclose a stamped, self-addressed postcard or envelope. We will consider all comments and material received during the comment period. We may change this proposed rule in view of them.

We do not now plan to hold a public meeting. But you may submit a request for a meeting by writing to the Commander, Fifth Coast Guard District at the address under ADDRESSES explaining why one would be beneficial. If we determine that one would aid this rulemaking, we will hold one at a time and place announced by a later notice in the Federal Register .

CONRAIL, who owns and operates this movable (swing-type) bridge, requested changes to the operating procedure for the drawbridge located at mile 1.4 across Mantua Creek, in Paulsboro, New Jersey. Currently, 33 CFR 117.729(a) requires the bridge to open on signal except, that from December 1 through March 1 the draw must open on signal at all times upon four hours notice.

In late spring of 2003, CONRAIL installed a Programmable Logic Controller and associated mechanical, electrical and signal apparatus on the CONRAIL Railroad Bridge over Mantua Creek in Paulsboro, New Jersey. The new equipment allows a radio-controlled system controlled from the cab of the locomotive to operate the opening and closing of the swing span to vessels. This rule proposes to change the operating schedule by allowing the bridge to remain in the open position to vessels for nine months (March through November) and requiring four hours notice for vessel openings during December through February.

This change is being requested to make the closure process of the CONRAIL Railroad Bridge more efficient during train crossings and periodic maintenance. Additionally, it will save operational costs by eliminating bridge tenders while providing greater bridge operating capabilities.

The Coast Guard proposes to revise 33 CFR 117.729(a), which governs the CONRAIL Railroad bridge at mile 1.4 across Mantua Creek in Paulsboro, New Jersey. Currently, the draw opens on signal except that from December 1 through March 1 the draw shall open on signal at all times upon four hours notice.

Paragraph (a) would contain the proposed rule for the CONRAIL Railroad Bridge, mile 1.4, at Paulsboro. The rule would allow the draw of the CONRAIL Railroad Bridge, mile 1.4, at Paulsboro, to be operated by a train crewmember. From March through November, the bridge would be left in the open position to vessels and would only close for the passage of trains and to perform periodic maintenance authorized in accordance with subpart A of this part.

At all other times, the draw of the CONRAIL Railroad Bridge need only open on signal to vessels if at least four hours notice is given by calling (856) 231-2393.

From March through November and before the CONRAIL Railroad Bridge closes for any reason, an on-site train crewmember will assist in observing the waterway for approaching craft, which will be allowed to pass. The on-site train crewmember will then operate the bridge by control radiophone.

The CONRAIL Railroad Bridge would only be closed if the on-site train crewmember's visual inspection shows that the channel is clear and there are no vessels transiting in the area.

While the CONRAIL Railroad Bridge is moving from the full open position to the full closed position, the train crewmember will maintain constant surveillance of the navigation channel to ensure that no conflict with maritime traffic exists. In the event of failure or obstruction, the train crewmember will stop and return the bridge to the full open position to vessels.

During span movement, the channel traffic lights would change from flashing green to flashing red, the horn will sound twice, and an audio voice warning device will announce bridge movement, then two repeat blasts of the horn until the bridge is seated and locked down. When the bridge is seated and locked down to vessels, the channel traffic lights will extinguish.

When the rail traffic has cleared, the horn will automatically sound five times to indicate that the draw of the CONRAIL Railroad Bridge is about to return to its full open position to vessels. During the open span movement, the channel traffic lights would flash red, the horn will sound twice, followed by a pause, and then an audio warning device will announce bridge movement, then five repeat blasts of the horn until the bridge is in the full open position to vessels. In the full open position to vessels, the bridge channel traffic lights will turn from flashing red to flashing green. After the train has cleared the bridge by leaving the track circuit, any delay in opening of the draw to vessels shall not exceed ten minutes except as provided in 33 CFR 117.31(b).

This rule is not a “significant regulatory action” under section 3(f) of Executive Order 12866, Regulatory Planning and Review, and does not require an assessment of potential costs and benefits under section 6(a)(3) of that Order. The Office of Management and Budget has not reviewed it under that Order. It is not “significant” under the regulatory policies and procedures of the Department of Homeland Security.

We expect the economic impact of this proposed rule to be so minimal that a full Regulatory Evaluation under the regulatory policies and procedures of DHS is unnecessary. We reached this conclusion based on the fact that the proposed changes for the CONRAIL Railroad Bridge regulation will provide for greater flow of vessel traffic than the current regulations of the drawbridge.

Under the current regulations, the CONRAIL Railroad Bridge remains closed and opens only on signal to vessels. The proposed regulation will require the bridge to remain in the open position for nine months of the year permitting vessels to pass freely. The bridge will close only for train crossings and bridge maintenance. From December through February, the draw shall open on signal if at least four hours advance notice is given by telephone at (856) 231-2393. This proposed regulation will provide for the reasonable needs of navigation.

Under the Regulatory Flexibility Act (5 U.S.C. 601-612), we have considered whether this proposed rule would have a significant economic impact on a substantial number of small entities. The term “small entities” comprises small businesses, not-for-profit organizations that are independently owned and operated and are not dominant in their fields, and governmental jurisdictions with populations of less than 50,000.

The Coast Guard certifies under 5 U.S.C. 605(b) that this proposed rule would not have a significant economic impact on a substantial number of small entities.

This rule would not have a significant economic impact on a substantial number of small entities for the following reasons. The rule will provide for the CONRAIL Railroad Bridge to remain in the open position from March through November, allowing for the free flow of vessel traffic. The bridge would only close for the passage of trains and maintenance. From December through February, the draw shall open on signal to vessels if at least four hours notice is given by telephone at (856) 231-2393.

If you think that your business, organization, or governmental jurisdiction qualifies as a small entity and that this rule would have a significant economic impact on it, please submit a comment ( see ADDRESSES ) explaining why you think it qualifies and how and to what degree this rule would economically affect it.

Under section 213(a) of the Small Business Regulatory Enforcement Fairness Act of 1996 (Pub. L. 104-121), we want to assist small entities in understanding this proposed rule so that they can better evaluate its effects on them and participate in the rulemaking process. If the rule would affect your small business, organization, or governmental jurisdiction and you have questions concerning its provisions or options for compliance, please contact Waverly W. Gregory, Jr., Bridge Administrator, Fifth Coast Guard District, (757) 398-6222.

This proposed rule would call for no new collection of information under the Paperwork Reduction Act of 1995 (44 U.S.C. 3501-3520.).

A rule has implications for federalism under Executive Order 13132, Federalism, if it has a substantial direct effect on State or local governments and would either preempt State law or impose a substantial direct cost of compliance on them. We have analyzed this rule under that Order and have determined that it does not have implications for federalism.

The Unfunded Mandates Reform Act of 1995 (2 U.S.C. 1531-1538) requires Federal agencies to assess the effects of their discretionary regulatory actions. In particular, the Act addresses actions that may result in the expenditure by a State, local, or tribal government, in the aggregate, or by the private sector of $100,000,000 or more in any one year. Though this proposed rule would not result in such an expenditure, we do discuss the effects of this rule elsewhere in this preamble.

This proposed rule would not affect a taking of private property or otherwise have taking implications under Executive Order 12630, Governmental Actions and Interference with Constitutionally Protected Property Rights.

This proposed rule meets applicable standards in sections 3(a) and 3(b)(2) of Executive Order 12988, Civil Justice Reform, to minimize litigation, eliminate ambiguity, and reduce burden.

We have analyzed this proposed rule under Executive Order 13045, Protection of Children from Environmental Health Risks and Safety Risks. This rule is not an economically significant rule and would not create an environmental risk to health or risk to security that might disproportionately affect children.

This proposed rule does not have tribal implications under Executive Order 13175, Consultation and Coordination with Indian Tribal Governments, because it would not have a substantial direct effect on one or more Indian tribes, on the relationship between the Federal Government and Indian tribes, or on the distribution of power and responsibilities between the Federal Government and Indian tribes. We invite your comments on how this rule might impact tribal governments, even if that input may not constitute a “tribal implication” under the Order.

We have analyzed this proposed rule under Executive Order 13211, Actions Concerning Regulations That Significantly Affect Energy Supply, Distribution, or Use. We have determined that it is not a “significant energy action” under that order because it is not a “significant regulatory action” under Executive Order 12866 and is not likely to have a significant adverse effect on the supply, distribution, or use of energy. It has not been designated by the Administrator of the Office of Information and Regulatory Affairs as a significant energy action. Therefore, it does not require a Statement of Energy Effects under Executive Order 13211.

We have analyzed this rule under Commandant Instruction M16475.1D, which guides the Coast Guard in complying with the National Environmental Policy Act of 1969 (NEPA)(42 U.S.C. 4321-4370f), and have concluded that there are no factors in this case that would limit the use of a categorical exclusion under section 2.B.2 of the Instruction. Therefore, this rule is categorically excluded, under figure 2-1, paragraph (32)(e) of the Instruction, from further environmental documentation.

For the reasons discussed in the preamble, the Coast Guard proposes to amend 33 CFR part 117 as follows:

Request for Comments

We encourage you to participate in this rulemaking by submitting comments and related material. If you do so, please include your name and address, identify the docket number for this rulemaking (COTP San Francisco Bay 03-029), indicate the specific section of this document to which each comment applies, and give the reason for each comment. Please submit all comments and related material in an unbound format, no larger than 8 1/2 by 11 inches, suitable for copying. If you would like to know that your submission reached us, please enclose a stamped, self-addressed postcard or envelope. We will consider all comments and material received during the comment period. We may change this proposed rule in view of them.

We do not now plan to hold a public meeting. But you may submit a request for a meeting by writing to the Waterways Management Branch at the address under ADDRESSES explaining why one would be beneficial. If we determine that one would aid this rulemaking, we will hold one at a time and place announced by a separate notice in the Federal Register .

Since the September 11, 2001 terrorist attacks on the World Trade Center in New York, the Pentagon in Arlington, Virginia and Flight 93, the Federal Bureau of Investigation (FBI) has issued several warnings concerning the potential for additional terrorist attacks within the United States. In addition, the ongoing hostilities in Afghanistan and Iraq have made it prudent for U.S. ports to be on a higher state of alert because Al-Qaeda and other organizations have declared an ongoing intention to conduct armed attacks on U.S. interests worldwide.

In its effort to thwart terrorist activity, the Coast Guard has increased safety and security measures on U.S. ports and waterways. As part of the Diplomatic Security and Antiterrorism Act of 1986 (Pub. L. 99-399), Congress amended section 7 of the Ports and Waterways Safety Act (PWSA), 33 U.S.C. 1226, to allow the Coast Guard to take actions, including the establishment of security and safety zones, to prevent or respond to acts of terrorism against individuals, vessels, or public or commercial structures.

The Coast Guard also has authority to establish security zones pursuant to the Act of June 15, 1917, as amended by the Magnuson Act of August 9, 1950 (50 U.S.C. 191 et seq. ), and implementing regulations promulgated by the President in subparts 6.01 and 6.04 of part 6 of title 33 of the Code of Federal Regulations.

In this particular proposed rulemaking, to address the aforementioned security concerns and to take steps to prevent the catastrophic impact that a terrorist attack against the Golden Gate or San Francisco-Oakland Bay bridge would have on the public, the Coast Guard is proposing to establish fixed security zones extending 25 yards in the U.S. navigable waters around all piers, abutments, fenders and pilings. Theses security zones would help the Coast Guard to prevent vessels or persons from engaging in terrorist actions against these two bridges. Due to these heightened security concerns, and the catastrophic impact a terrorist attack on one of these bridges would have on the public, the transportation system, and surrounding areas and communities, security zones are prudent for these structures.

On February 13, 2003, we issued a rule under docket COTP San Francisco Bay 03-003 and published that rule in the Federal Register (68 FR 13228, March 19, 2003) creating temporary § 165.T11-078 of Title 33 of the Code of Federal Regulations (CFR). Under temporary § 165.T11-078, which expired at 11:59 p.m. PDT on September 30, 2003, the Coast Guard established 25-yard fixed security zones around all piers, abutments, fenders and pilings of the Golden Gate Bridge and the San Francisco-Oakland Bay Bridge, San Francisco Bay, California.

On September 8, 2003, a change in effective period temporary rule was issued, under docket COTP San Francisco Bay 03-003 and was published in the Federal Register (68 FR 55312, September 25, 2003), under the same previous temporary section 165.T11-078, extending the rule to 11:59 p.m. PST on March 31, 2004. The Captain of the Port has determined there is a need for continued security regulations.

We propose to create permanent security zones in the same areas currently protected by temporary security zones under § 165.T11-078. Our proposed rule would add § 165.1185, Security Zones; Golden Gate Bridge and the San Francisco-Oakland Bay Bridge, San Francisco Bay, California. The Coast Guard will utilize the extended effective period of the § 165.T11-078 to engage in notice and comment rulemaking to develop permanent regulations tailored to the present and foreseeable security environment with the Captain of the Port (COTP) San Francisco Bay.

The Coast Guard proposes to establish fixed security zones extending 25 yards in the U.S. navigable waters around all piers, abutments, fenders and pilings of the Golden Gate and San Francisco-Oakland Bay bridges. In addition to restricting access to critical parts of bridge structures, these security zones would provide necessary standoff distance for blast and collision, a surveillance and detection perimeter, and a margin of response time for security personnel. This proposed rule, for security reasons, would prohibit entry of any vessel or person inside the security zone without specific authorization from the Captain of the Port or his designated representative.

Vessels or persons violating this section would be subject to the penalties set forth in 33 U.S.C. 1232 and 50 U.S.C. 192. Pursuant to 33 U.S.C. 1232, any violation of the security zone described herein, is punishable by civil penalties (not to exceed $27,500 per violation, where each day of a continuing violation is a separate violation), criminal penalties (imprisonment up to 6 years and a maximum fine of $250,000) and in rem liability against the offending vessel. Any person who violates this section using a dangerous weapon, or who engages in conduct that causes bodily injury or fear of imminent bodily injury to any officer authorized to enforce this regulation also faces imprisonment up to 12 years. Vessels or persons violating this section are also subject to the penalties set forth in 50 U.S.C. 192: Seizure and forfeiture of the vessel to the United States, a maximum criminal fine of $10,000, and imprisonment up to 10 years.

The Captain of the Port would enforce these zones and may enlist the aid and cooperation of any Federal, State, county, municipal, and private agency to assist in the enforcement of the regulation. This regulation is proposed under the authority of 33 U.S.C. 1226 in addition to the authority contained in 50 U.S.C. 191 and 33 U.S.C. 1231.

This proposed rule is not a “significant regulatory action” under section 3(f) of Executive Order 12866, Regulatory Planning and Review, and does not require an assessment of potential costs and benefits under section 6(a)(3) of that Order. The Office of Management and Budget has not reviewed it under that Order. It is not “significant” under the regulatory policies and procedures of the Department of Homeland Security (DHS).

We expect the economic impact of this proposed rule to be so minimal that a full Regulatory Evaluation under the regulatory policies and procedures of DHS is unnecessary. Although this proposed rule restricts access to the waters encompassed by the security zones, the effect of this proposed rule would not be significant because: (i) The zones would encompass only a small portion of the waterway; (ii) vessels would be able to pass safely around the zones; and (iii) vessels may be allowed to enter these zones on a case-by-case basis with permission of the Captain of the Port or his designated representative.

The size of the proposed zones is the minimum necessary to provide adequate protection for the bridges. The entities most likely to be affected are commercial vessels transiting the main ship channel en route to the San Francisco Bay and Delta ports and pleasure craft engaged in recreational activities and sightseeing.

Under the Regulatory Flexibility Act (5 U.S.C. 601-612), we have considered whether this proposed rule would have a significant economic impact on a substantial number of small entities. The term “small entities” comprises small businesses, not-for-profit organizations that are independently owned and operated and are not dominant in their fields, and governmental jurisdictions with populations of less than 50,000.

The Coast Guard certifies under 5 U.S.C. 605(b) that this proposed rule would not have a significant economic impact on a substantial number of small entities. We expect this proposed rule may affect owners and operators of private vessels, some of which may be small entities, intending to fish or sightsee near bridge pilings or abutments affected by these security zones. The proposed security zones would not have a significant economic impact on a substantial number of small entities for several reasons: small vessel traffic would be able to pass safely around the area and vessels engaged in recreational activities, sightseeing and commercial fishing would have ample space outside of the security zones to engage in these activities. Small entities and the maritime public would be advised of these security zones via public notice to mariners.

If you think that your business, organization, or governmental jurisdiction qualifies as a small entity and that this rule would have a significant economic impact on it, please submit a comment (see ADDRESSES ) explaining why you think it qualifies and how and to what degree this rule would economically affect it.

Under section 213(a) of the Small Business Regulatory Enforcement Fairness Act of 1996 (Public Law 104-121), we want to assist small entities in understanding this proposed rule so that they can better evaluate its effects on them and participate in the rulemaking. If the proposed rule would affect your small business, organization, or governmental jurisdiction and you have questions concerning its provisions or options for compliance, please contact Lieutenant Doug Ebbers, Waterways Management Branch, U.S. Coast Guard Marine Safety Office San Francisco Bay, at (510) 437-3073.

This proposed rule calls for no new collection of information under the Paperwork Reduction Act of 1995 (44 U.S.C. 3501-3520).

A rule has implications for federalism under Executive Order 13132, Federalism, if it has a substantial direct effect on State or local governments and would either preempt State law or impose a substantial direct cost of compliance on them. We have analyzed this proposed rule under that Order and have determined that it does not have implications for federalism.

The Unfunded Mandates Reform Act of 1995 (2 U.S.C. 1531-1538) requires Federal agencies to assess the effects of their discretionary regulatory actions. In particular, the Act addresses actions that may result in the expenditure by a State, local, or tribal government, in the aggregate, or by the private sector of $100,000,000 or more in any one year. Though this proposed rule would not result in such an expenditure, we do discuss the effects of this proposed rule elsewhere in this preamble.

This proposed rule would not effect a taking of private property or otherwise have taking implications under Executive Order 12630, Governmental Actions and Interference with Constitutionally Protected Property Rights.

This proposed rule meets applicable standards in sections 3(a) and 3(b)(2) of Executive Order 12988, Civil Justice Reform, to minimize litigation, eliminate ambiguity, and reduce burden.

We have analyzed this proposed rule under Executive Order 13045, Protection of Children from Environmental Health Risks and Safety Risks. This rule is not an economically significant rule and would not create an environmental risk to health or risk to safety that might disproportionately affect children.

This proposed rule does not have tribal implications under Executive Order 13175, Consultation and Coordination with Indian Tribal Governments, because it would not have a substantial direct effect on one or more Indian tribes, on the relationship between the Federal Government and Indian tribes, or on the distribution of power and responsibilities between the Federal Government and Indian tribes.

We have analyzed this proposed rule under Executive Order 13211, Actions Concerning Regulations That Significantly Affect Energy Supply, Distribution, or Use. We have determined that it is not a “significant energy action” under that order because it is not a “significant regulatory action” under Executive Order 12866 and is not likely to have a significant adverse effect on the supply, distribution, or use of energy. The Administrator of the Office of Information and Regulatory Affairs has not designated it as a significant energy action. Therefore, it does not require a Statement of Energy Effects under Executive Order 13211.

We have analyzed this proposed rule under Commandant Instruction M16475.lD, which guides the Coast Guard in complying with the National Environmental Policy Act of 1969 (NEPA) (42 U.S.C. 4321-4370f), and have concluded that there are no factors in this case that would limit the use of a categorical exclusion under section 2.B.2 of the Instruction. Therefore, this rule is categorically excluded, under figure 2-1, paragraph (34)(g), of the Instruction, from further environmental documentation because we are establishing a security zone.

A draft “Environmental Analysis Check List” and a draft “Categorical Exclusion Determination” (CED) are available in the docket where indicated under ADDRESSES. Comments on this section will be considered before we make the final decision on whether the rule should be categorically excluded from further environmental review.

For the reasons discussed in the preamble, the Coast Guard proposes to amend 33 CFR part 165 as follows:

FEMA proposes to make determinations of BFEs and modified BFEs for each community listed below, in accordance with section 110 of the Flood Disaster Protection Act of 1973, 42 U.S.C. 4104, and 44 CFR 67.4(a).

These proposed BFEs and modified BFEs, together with the floodplain management criteria required by 44 CFR 60.3, are the minimum that are required. They should not be construed to mean that the community must change any existing ordinances that are more stringent in their floodplain management requirements. The community may at any time enact stricter requirements of its own, or pursuant to policies established by other Federal, State, or regional entities. These proposed elevations are used to meet the floodplain management requirements of the NFIP and are also used to calculate the appropriate flood insurance premium rates for new buildings built after these elevations are made final, and for the contents in these buildings.

National Environmental Policy Act . This proposed rule is categorically excluded from the requirements of 44 CFR part 10, Environmental Consideration. No environmental impact assessment has been prepared.

Regulatory Flexibility Act. The Mitigation Division Director of the Emergency Preparedness and Response Directorate certifies that this proposed rule is exempt from the requirements of the Regulatory Flexibility Act because proposed or modified BFEs are required by the Flood Disaster Protection Act of 1973, 42 U.S.C. 4104, and are required to establish and maintain community eligibility in the NFIP. No regulatory flexibility analysis has been prepared.

Regulatory Classification. This proposed rule is not a significant regulatory action under the criteria of Section 3(f) of Executive Order 12866 of September 30, 1993, Regulatory Planning and Review, 58 FR 51735.

Executive Order 12612, Federalism. This proposed rule involves no policies that have federalism implications under Executive Order 12612, Federalism, dated October 26, 1987.

Executive Order 12778, Civil Justice Reform. This proposed rule meets the applicable standards of Section 2(b)(2) of Executive Order 12778.

Accordingly, 44 CFR part 67 is proposed to be amended as follows:

The snapper-grouper fishery off the southern Atlantic states is managed under the FMP. The FMP was prepared by the South Atlantic Fishery Management Council (Council) and is implemented under the authority of the Magnuson-Stevens Fishery Conservation and Management Act (Magnuson-Stevens Act) by regulations at 50 CFR part 622.

In Amendment 6 to the FMP the Council proposed prohibitions on fishing for South Atlantic snapper-grouper in what is currently known as the experimental closed area and on retaining such species in or from the area. NMFS approved these prohibitions, and they became effective June 27, 1994 (59 FR27242, May 26, 1994). In the experimental closed area, any South Atlantic snapper-grouper taken incidentally by hook-and-line gear must be released immediately by cutting the line without removing the fish from the water.

The experimental closed area is slightly less than 92 square nautical miles in the EEZ offshore from Ft. Pierce to Sebastian Inlet, FL. The geographical coordinates are specified at 50 CFR 622.35(c)(2). The experimental closed area constitutes a portion of the southern part of the Oculina Bank HAPC. In the entire HAPC no person may: (1) Use a bottom longline, bottom trawl, dredge, pot, or trap; (2) if aboard a fishing vessel, anchor, use an anchor and chain, or use a grapple and chain; or (3) fish for rock shrimp or possess rock shrimp in or from the area on board a fishing vessel.

Both the proposed and final rules for Amendment 6 stated that the measures applicable to the experimental closed area ”... will “sunset” after 10 years if not reauthorized by the Council.”(59 FR 9721, March 1, 1994 and 59 FR 27242, May 26, 1994, respectively).

As stated above, measures applicable to the experimental closed area were intended to enhance stock stability and increase recruitment of South Atlantic snapper-grouper by providing an area where deepwater snapper-grouper species could grow and reproduce without being subjected to fishing mortality.They were based on the Council's concern that traditional fishery management measures, such as minimum size limits and quotas, might not be sufficient to protect fully the snapper-grouper resources. The Council believed the measures would provide protection for overfished species in the management unit while minimizing adverse impacts upon user groups.

Based on limited information, there appear to be some encouraging signs of positive biological impacts from the initial 9-year prohibition of fishing for snapper grouper species within the experimental closed area since it was established in 1994. A study conducted in 2001 found that, in the few areas where habitat remained intact, there were more and larger groupers than observed in a 1995 study, and male gag and scamp were also common. The observation of male gag and scamp is particularly of interest because size, age, and proportion of males of these species have declined both in the Gulf of Mexico and South Atlantic regions. Other encouraging signs include the observation of juvenile speckled hind, which is a candidate species for listing under the Endangered Species Act. However, species in the management unit remain overfished and continued protection is required.

Amendment 13A proposes to continue the current measures applicable to the experimental closed area indefinitely. Those measures at 50 CFR 622(c)(2) read as follows:

The Council would review the configuration and size of the experimental closed area within 3 years of the publication date of the final rule that would implement Amendment 13A and would re-evaluate all measures applicable to the area after 10 years. The Council believes these actions provide the most biological, social, and economic benefits while allowing for adaptive management. Extending the prohibition on fishing for snapper-grouper species in the experimental closed area for an indefinite period will continue to protect snapper-grouper populations and protect Oculina coral and associated habitat. Such extension will also provide a hedge against the high degree of scientific uncertainty associated with the status of snapper-grouper species and reduce the possibility that these populations may fall below sustainable levels. Economically it is expected that the long-term benefits, such as “insurance” against the uncertainty of stock assessments and the non-use benefits of extending the prohibitions on snapper-grouper fishing in the closed area, outweigh the short-term benefits of opening the area to harvest. These measures are also expected to provide the most long-term positive social impacts because they allow for adaptive management which can be seen as an assurance to the public that the area will be monitored and reviewed. Should the Council find after the 3-year review on size and configuration that the boundaries of the area are not appropriate, they can be changed at that time. In addition, the 10-year re-evaluation period will assure the public that the area will not be closed and forgotten.

Additional background and rationale for the measures discussed above are contained in Amendment 13A. The availability of Amendment 13A was announced in the Federal Register on November 4, 2003, (68 FR 62422). Written comments on Amendment 13A must be received by January 5, 2004. All comments received on Amendment 13A or on this proposed rule during their respective comment periods will be addressed in the preamble to the final rule.

At this time, NMFS has not determined that Amendment 13A is consistent with the national standards of the Magnuson-Stevens Act and other applicable laws. NMFS, in making that determination, will take into account the data, views, and comments received during the comment period on Amendment 13A.

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

The Council prepared, and NMFS supplemented, an IRFA, based on the RIR, that describes the economic impacts that this proposed rule, if adopted, would have on small business entities. A summary of the IRFA follows:

Amendment 6 to the Snapper-Grouper Fishery Management Plan, implemented in May 1994, established a harvest prohibition for snapper-grouper species in the Oculina Experimental Closed Area. This prohibition is scheduled to sunset in June 2004. The proposed rule would extend the prohibition for an indefinite period of time for the purpose of providing continued protection of snapper-grouper species, thereby reducing the possibility that these populations may fall below sustainable levels. Further, by restricting the ability to harvest fish from the area, the proposed rule is also expected to provide protection to the Oculina coral in the area. The Magnuson-Stevens Act, as amended, provides the statutory basis for the proposed rule.

No duplicative, overlapping, or conflicting Federal rules have been identified. The proposed rule does not impose any reporting or record keeping requirements.

There are two general classes of small entities that would be directly affected by the proposed rule, commercial fishing vessels and for-hire fishing vessels. The Small Business Administration defines a small business that engages in commercial fishing as a firm that is independently owned and operated, is not dominant in its field of operation, and has annual receipts up to $3.5 million per year. The revenue benchmark for a small business that engages in for-hire fishing is a firm that has annual receipts up to $6.0 million per year. There were 1,174 commercial vessels that participated in the snapper-grouper fishery in the South Atlantic during 2002.Of these vessels, 120 were homeported in the area of interest, where the “area of interest” is defined as those home port locations on the Florida Atlantic coast from Cape Canaveral south to West Palm Beach and are in the closest geographic proximity to the area covered by the proposed rule. Commercial vessels operating in the snapper-grouper fishery in this area are estimated to have average annual gross and net incomes of approximately $39,745 and $12,388, respectively. Based on this income profile, it is assumed that all commercial fishing entities that would be affected by the proposed rule are small entities.

For the for-hire sector, 1,221 snapper-grouper for-hire permits were issued to vessels in the southern Atlantic states in 2002. Of this total, 94 permits were issued to for-hire vessels in the area of interest. These vessels comprise two types of business operations, charterboats, which are smaller vessels (6 or fewer passengers) that book trips on a vessel basis, and headboats, which are larger vessels that book passage on an individual angler basis. The average gross and net revenues in 1997 for charterboats operating off the Atlantic coast of Florida are estimated at $57,000 and $15,000 (2001 dollars), while that of headboats are estimated at $155,000 and $69,000 (2001 dollars). Based on these gross revenue profiles, all for-hire vessels that would be affected by the proposed rule are assumed to be small entities.

The number of commercial and for-hire vessels that would fish in the closed area should the area reopen after sunset of the current rule is not known. However, all entities in the area of interest have the potential to enter the area. Since all such entities would be covered by the proposed rule and all said entities are small entities, it is concluded that a substantial number of small entities would be affected by the proposed rule. An IRFA was prepared to analyze the expected impacts on small entities. The proposed rule extending harvest prohibition for an indefinite period would not alter present fishing practices. Therefore, it would not affect the profitability of identified vessels. However, if there are any speculative decisions about the sunset of the existing rule in June 2004, there could be some reduction in future speculative earnings. The public is invited to comment and to provide any information that would enable NMFS to identify and assess any future potential economic impacts that could result from the proposed rule.

Five alternatives to the proposed rule were considered. One alternative differs from the proposed rule only in that it lacks a specific schedule for re-evaluation of the rule. Three alternatives also lack a re-evaluation schedule and differ from the proposed rule in the duration of the prohibition. No impacts have been identified associated with the presence or absence of a prescribed re-evaluation schedule. These four alternatives, therefore, are expected to have the same effect on the affected entities as the proposed rule, and none would adversely affect current profitability but would, instead, eliminate potential increased short-term profits that might be derived from fishing activity directed into the Oculina area, should sunset occur. The fifth alternative, the no-action alternative, would allow for sunset of the prohibition and fishing in the area to occur. This alternative would, therefore, allow these potential short-term increases in profits to occur. However, if snapper-grouper populations become depleted as a result of directed effort insidethe area, the short-term gains would dissipate. Further, these potential short-term profits are not believed to be greater than the benefits that would accrue to continued protection of the resource and area. These benefits are expected to exceed potential short-term profits no matter how long the prohibition continues. The proposed rule, therefore, would best suit management needs and meet the Council's intent.

If approved, the measures in Amendment 13A would continue in effect in the current regulations. Accordingly, this proposed rule contains no changes to regulatory text. If Amendment 13A is disapproved, the regulatory text at 50 CFR 622.35(c)(2) would be removed effective June 27, 2004.