On December 21, 2000, the Secretary established within the NOP [7 CFR part 205] the National List regulations §§ 205.600 through 205.607. The National List identifies synthetic substances that may be used and the nonsynthetic (natural) substances that may not be used in organic production. The National List also identifies nonagricultural synthetic, nonsynthetic nonagricultural and nonorganic agricultural substances that may be used in organic handling. The Organic Foods Production Act of 1990 (OFPA), as amended (7 U.S.C. 6501 et seq. ), and NOP regulations, in § 205.105, specifically prohibit the use of any synthetic substance in organic production and handling unless the synthetic substance is on the National List. Section 205.105 also requires that any nonorganic agricultural and any nonsynthetic, nonagricultural substance used in organic handling must also be on the National List.

Under the authority of the OFPA, the National List can be amended by the Secretary based on proposed amendments developed by the NOSB. Since established, the NOP has published multiple amendments to the National List: October 31, 2003 (68 FR 61987); November 3, 2003 (68 FR 62215); October 21, 2005 (70 FR 61217); June 7, 2006 (71 FR 32803); September 11, 2006 (71 FR 53299); June 27, 2007 (72 FR 35137); October 16, 2007 (72 FR 58469); December 10, 2007 (72 FR 69569); December 12, 2007 (72 FR 70479); September 18, 2008 (73 FR 54057); October 9, 2008 (73 FR 59479); July 6, 2010 (75 FR 38693); August 24, 2010 (75 FR 51919); December 13, 2010 (75 FR 77521) and March 14, 2011 (76 FR 13501). Additionally, a proposed amendment to the National List was published on May 5, 2011 (76 FR 25612).

This final rule amends the National list to enact six recommendations submitted to the Secretary by the NOSB on May 22, 2008, November 19, 2008, and May 6, 2009.

The following provides an overview of the amendments made to designated sections of the National List regulations:

This final rule amends § 205.601 of the National List regulations by adding new paragraph (o) for the addition of one substance as follows: As production aids. Microcrystalline cheesewax (CAS #s 64742- 42-3, 8009-03-08, and 8002-74-2)—for use in log grown mushroom production. Must be made without either ethylene-propylene co-polymer or synthetic colors.

The proposed rule to add microcrystalline cheesewax included an annotation specifying that the substance be “for use in log grown mushroom culture.” The NOP determined that the substance's use annotation should be modified “for use in log grown mushroom production” (emphasis added) in this final rule. This language change is consistent with terminology that will be utilized in a forthcoming proposed rule on organic mushroom standards.

This final rule amends § 205.605(b) of the National List regulations by removing Lecithin—bleached, and adding acidified sodium chlorite in alphabetical order as follows: Acidified sodium chlorite—Secondary direct antimicrobial food treatment and indirect food contact surface sanitizing. Acidified with citric acid only.

This final rule amends § 205.606 of the National List regulations by revising paragraph (p) to read as follows: (p) Lecithin—de-oiled. Further, this final rule redesignates paragraphs (r) through (t) and paragraphs (u) through (y) as paragraphs (s) through (u) and (w) through (aa) respectively; and adds new paragraphs (r) and (v) for the addition of two substances as follows: (r) Orange pulp, dried, and (v) Seaweed, Pacific kombu.

Three notices were published regarding the meetings of the NOSB and its deliberations on recommendations and substances petitioned for amending the National List. Substances and recommendations included in this proposed rule were announced for NOSB deliberation in the following Federal Register notices: (1) 74 FR 11904, March 20, 2009 (bleached lecithin, acidified sodium chlorite, unbleached fluid lecithin); (2) 73 FR 54781, September 23, 2008 (dried orange pulp, acidified sodium chlorite); and (3) 73 FR 18491, April 4, 2008 (microcrystalline cheesewax, acidified sodium chlorite, Pacific kombu seaweed). The proposal to allow the use of the four substances in this final rule, along with the deletion of one substance and the revised annotation of one substance, was published as a proposed rule on November 8, 2010 (75 FR 68505).

The OFPA, as amended (7 U.S.C. 6501-6522), authorizes the Secretary to make amendments to the National List based on proposed amendments developed by the NOSB. Sections 6518(k)(2) and 6518(n) of the OFPA authorize the NOSB to develop proposed amendments to the National List for submission to the Secretary and establish a petition process by which persons may petition the NOSB for the purpose of having substances evaluated for inclusion or deletion from the National List. The National List petition process is implemented under § 205.607 of the NOP regulations. The current petition process (72 FR 2167, January 18, 2007) can be accessed through the NOP Web site at http://www.ams.usda.gov/nop.

This action has been determined not significant for purposes of Executive Order 12866, and therefore, has not been reviewed by the Office of Management and Budget (OMB).

Executive Order 12988 instructs each executive agency to adhere to certain requirements in the development of new and revised regulations in order to avoid unduly burdening the court system. This final rule is not intended to have a retroactive effect.

States and local jurisdictions are preempted under the OFPA from creating programs of accreditation for private persons or State officials who want to become certifying agents of organic farms or handling operations. A governing State official would have to apply to USDA to be accredited as a certifying agent, as described in § 2115(b) of the OFPA (7 U.S.C. 6514(b)). States are also preempted under §§ 2104 through 2108 of the OFPA (7 U.S.C. 6503 through 6507) from creating certification programs to certify organic farms or handling operations unless the State programs have been submitted to, and approved by, the Secretary as meeting the requirements of the OFPA.

Pursuant to § 2108(b)(2) of the OFPA (7 U.S.C. 6507(b)(2)), a State organic certification program may contain additional requirements for the production and handling of organically produced agricultural products that are produced in the State and for the certification of organic farm and handling operations located within the State under certain circumstances. Such additional requirements must: (a) Further the purposes of the OFPA, (b) not be inconsistent with the OFPA, (c) not be discriminatory toward agricultural commodities organically produced in other States, and (d) not be effective until approved by the Secretary.

Pursuant to § 2120(f) of the OFPA (7 U.S.C. 6519(f)), this final rule would not alter the authority of the Secretary under the Federal Meat Inspection Act (21 U.S.C. 601-624), the Poultry Products Inspection Act (21 U.S.C. 451-471), or the Egg Products Inspection Act (21 U.S.C. 1031-1056), concerning meat, poultry, and egg products, nor any of the authorities of the Secretary of Health and Human Services under the Federal Food, Drug and Cosmetic Act (21 U.S.C. 301 et seq. ), nor the authority of the Administrator of the Environmental Protection Agency under the Federal Insecticide, Fungicide and Rodenticide Act (7 U.S.C. 136 et seq. ).

Section 2121 of the OFPA (7 U.S.C. 6520) provides for the Secretary to establish an expedited administrative appeals procedure under which persons may appeal an action of the Secretary, the applicable governing State official, or a certifying agent under this title that adversely affects such person or is inconsistent with the organic certification program established under this title. The OFPA also provides that the U.S. District Court for the district in which a person is located has jurisdiction to review the Secretary's decision.

The Regulatory Flexibility Act (RFA) (5 U.S.C. 601-612) requires agencies to consider the economic impact of each rule on small entities and evaluate alternatives that would accomplish the objectives of the rule without unduly burdening small entities or erecting barriers that would restrict their ability to compete in the market. The purpose is to fit regulatory actions to the scale of businesses subject to the action. Section 605 of the RFA allows an agency to certify a rule, in lieu of preparing an analysis, if the rulemaking is not expected to have a significant economic impact on a substantial number of small entities.

Pursuant to the requirements set forth in the RFA, AMS performed an economic impact analysis on small entities in the final rule published in the Federal Register on December 21, 2000 (65 FR 80548). AMS has also considered the economic impact of this action on small entities. The impact on entities affected by this final rule would not be significant. The effect of this final rule would be to allow the use of additional substances and clarify the use of one substance in agricultural production and handling. This action will modify the regulations published in the final rule and will provide small entities with more tools to use in day-to-day farming and handling operations. AMS concludes that the economic impact of this addition of allowed substances, if any, will be minimal and beneficial to small agricultural service firms. Accordingly, USDA certifies that this rule will not have a significant impact on a substantial number of small entities.

Small agricultural service firms, which include producers, handlers, and accredited certifying agents, have been defined by the Small Business Administration (SBA) (13 CFR 121.201) as those having annual receipts of less than $7,000,000, and small agricultural producers are defined as those having annual receipts of less than $750,000.

According to USDA Economic Research Service (ERS) data based upon information from USDA-accredited certifying agents, the number of certified U.S. organic crop and livestock operations totaled nearly 13,000 and certified organic acreage exceeded 4.8 million acres in 2008. 1 ERS, based upon the list of certified operations maintained by the National Organic Program, estimated the number of certified handling operations was 3,225 in 2007. 2 The AMS believes that most of these entities would be considered to be small entities under the criteria established by the SBA.

The U.S. sales of organic food and beverages grew from $3.6 billion in 1997 to nearly $21.1 billion in 2008. 3 Between 1990 and 2008, organic food sales demonstrated an historic growth rate between 15 to 24 percent each year. In 2010, organic food sales grew 7.7%. 4

In addition, USDA has 93 accredited certifying agents (ACA) who provide certification services to producers and handlers under the NOP. A complete list of names and addresses of ACAs may be found on the AMS NOP Web site, at http://www.ams.usda.gov/nop. The AMS believes that most of these accredited certifying agents would be considered small entities under the criteria established by the SBA.

No additional collection or recordkeeping requirements are imposed on the public by this final rule. Accordingly, OMB clearance is not required by the Paperwork Reduction Act of 1995, 44 U.S.C. 3501, Chapter 35.

This final rule has been reviewed in accordance with the requirements of Executive Order 13175, Consultation and Coordination with Indian Tribal Governments. The review reveals that this regulation will not have substantial and direct effects on Tribal governments and will not have significant Tribal implications.

AMS received 11 comments on the proposed rule AMS-NOP-10-0079; NOP-09-02PR. Comments were received from specialty food ingredient processors and distributors, specialty food products manufacturers, an industrial sanitation supply firm, an organic consultant, a coalition of foreign governments and a private citizen. Comments were submitted in support of the proposed additions to the National List for all four of the proposed new use exemptions and the deletion of one substance. Comments in favor of the addition of acidified sodium chlorite to § 205.605(b) stated that it will increase the intervention options available for maintaining high sanitation standards in organic food processing and thereby further improve food safety for consumers of organic processed foods. While one comment expressed concern about the proposed exemption for the secondary direct antimicrobial food treatment use of acidified sodium chlorite, the commenter did not take a position for or against the specific proposal. A comment endorsing the addition of dried orange pulp to § 205.606 stated that its use is consistent with organic principles, since an insufficient volume of organic oranges are grown and processed to produce organic orange pulp, which is a byproduct of extraction orange juice processing.

Many comments addressed the proposed change in the lecithin annotation from unbleached to de-oiled on § 205.606. Nonorganic forms of the substances listed under § 205.606 are allowed as ingredients in or on processed products labeled as organic only when the nonorganic substance is not commercially available in organic form and only in accordance with any specified restrictions. Most comments submitted in support of the lecithin annotation change stated that the listing of de-oiled lecithin on § 205.606 would prevent disruption in the availability or quality of a broad range of organic food products such as ice cream, pasta, bakery goods, cereals, sauces, soups and frozen desserts. They indicated that de-oiled is the appropriate annotation because this form of lecithin has a unique function and blander flavor in comparison to fluid or dry lecithin. The comments mentioned de-oiled lecithin's superiority in maintaining stability of water and oil emulsions. Furthermore, the comments informed that de-oiled lecithin is not available as organic.

Comments in support of removing bleached lecithin from § 205.605(b) indicated that this action will encourage the increased production and use of organic ingredients needed for organic food processing. They also argued that unbleached lecithin is now commercially available in organic forms, so the exemption for these substances is no longer crucial. Commenters stated that the use of nonorganic de-oiled lecithin on § 205.606, instead of the nonorganic unbleached form previously allowed, would be subject to the determination of commercial availability of any organic form—once developed—in the processor's organic system plan and other specific restrictions. Commenters in favor of the amendment expressed frustration with discrepant use of organic unbleached lecithin and less expensive conventional unbleached lecithin in comparably priced multiple brands of the same processed organic products on retail shelves. These commenters conveyed expectations that this rule change will result in the replacement of nonorganic bleached lecithin with the organic form and thus encourage increased use and availability of organic ingredients.

A few comments opposing the change in the unbleached lecithin annotation at § 205.606 explained that the only current source of organic lecithin is soy, which is a food allergen. They cited a lack of availability of organic forms of lecithin from sunflower or canola and predicted that consumers with a soy allergy would not be able to eat organic products containing soy lecithin. These commenters noted that soy is identified in the U.S. Food Allergen Labeling and Consumer Protection Act of 2004 (Pub. L. 108-282, Title II) (21 U.S.C. 301) as one of 8 major food groups which account for 90 percent of life-threatening food allergies. This legislation established mandatory disclosure requirements on labels for processed food containing any amounts of the eight named foods (milk, eggs, fish, shellfish, tree nuts, peanuts, wheat, and soybeans) listed in the 2004 Act. Food processors have become more aware of soy's allergenic potential and the federal labeling requirements when soy-based ingredients are used since passage of the 2004 Act. The opposing comments expressed concern that the annotation change would result in higher levels of soy lecithin being used in processed organic foods because it is more commonly available in organic form, but did not provide specific evidence to support this statement. Nonorganic lecithin from sunflower, rapeseed and canola is widely available commercially, and NOP believes that there is potential that any increased demand for non-soy lecithin will stimulate increased production of organic forms of bleached and unbleached lecithin from these alternative sources.

A comment criticized the NOSB for omitting food allergies from the discussion in considering the lecithin petition. The NOSB did address this issue several times during its deliberation, as captured in the May 2009 NOSB meeting transcripts. The Board concluded that its recommended change to unbleached lecithin would still avail manufacturers with the option to use nonorganic, non-soy forms of de-oiled lecithin. Commenters conveyed a preference to have non-allergenic, nonorganic forms of lecithin available under § 205.606. The change in annotation does not specify the plant source of lecithin and, therefore, nonorganic de-oiled lecithin from non-soy and nonorganic sources may be used when organic equivalents are not available. A substance is considered commercially available if it is available in an appropriate form, quality, or quantity to fulfill an essential function in a system of organic production or handling, as determined by the certifying agent in the course of reviewing the organic plan. In summary, this annotation change would not limit the use of lecithin to organic de-oiled soy lecithin. Non-soy sources that are non-GMO and nonorganic would remain acceptable under § 205.606, and accredited certifying agents would continue to require any nonorganic de-oiled lecithin to be sourced from non-GMO sources as long as de-oiled lecithin is not commercially available in organic form.

Commenters requested that the proposed action be amended for § 205.606 to allow the use of non-GMO, non-allergenic lecithin. We have not made that change because we believe this request is mostly accommodated by the proposed action. Nonorganic forms of de-oiled lecithin can be used when the organic version is not commercially available. The NOP regulations define commercially available as a production input in an appropriate form, quality, or quantity to fulfill an essential function in a system of organic production or handling, as determined by the certifying agent in the course of reviewing the organic plan. Therefore, if a processor intends to make a soy-free product containing lecithin, in which de-oiled is the appropriate form, the processor may use nonorganic de-oiled lecithin from sunflower, canola or other sources if lecithin from the preferred sources is not available in organic form. If a product requires a form of lecithin other than de-oiled, such as fluid or powered, the lecithin must be sourced organically. The NOSB recommendation was finalized in May 2009. We believe that processors have had adequate notice to pursue the procurement of non-soy forms of organic lecithin if their products are intended to be soy free.

For the reasons set forth in the preamble, 7 CFR part 205, subpart G is amended as follows:

Discussion

We issued a notice of proposed rulemaking (NPRM) to amend 14 CFR part 39 to supersede AD 2010-03-06, Amendment 39-16189 (75 FR 5689, February 4, 2010). That AD applies to the specified products. The NPRM published in the Federal Register on November 7, 2011 (76 FR 68661). That NPRM proposed to require inspection and possible replacement of the HMU.

We gave the public the opportunity to participate in developing this AD. The following presents the comment received on the proposal and the FAA's response to that comment.

One commenter, Advanced Helicopter Services, claimed that our shop rate in the proposed AD was too low.

We do not agree. We used the hourly labor rate determined by the Office of Management and Budget. We did not change the AD.

Since we issued the NPRM (76 FR 68661, November 7, 2011), we determined that paragraph (e)(1)(ii) was unclear and made changes to clarify the population affected. We also reformatted the compliance instruction in this paragraph for clarity.

We reviewed the relevant data, considered the comment received, and determined that air safety and the public interest require adopting the AD with the change described previously.

Based on the service information, we estimate that this AD will affect about 540 engines installed on helicopters of U.S. registry. We also estimate that it will take about 2.5 work-hours per engine to comply with this AD. The average labor rate is $85 per work-hour. Replacement HMUs will cost about $12,000 per engine. Based on these figures, if all of the HMUs were to fail the check, we estimate the cost of the AD on U.S. operators to be $6,594,750.

Title 49 of the United States Code specifies the FAA's authority to issue rules on aviation safety. Subtitle I, Section 106, describes the authority of the FAA Administrator. Subtitle VII, Aviation Programs, describes in more detail the scope of the Agency's authority.

We are issuing this rulemaking under the authority described in Subtitle VII, Part A, Subpart III, Section 44701, “General requirements.” Under that section, Congress charges the FAA with promoting safe flight of civil aircraft in air commerce by prescribing regulations for practices, methods, and procedures the Administrator finds necessary for safety in air commerce. This regulation is within the scope of that authority because it addresses an unsafe condition that is likely to exist or develop on products identified in this rulemaking action.

We have determined that this AD will not have federalism implications under Executive Order 13132. This AD will not have a substantial direct effect on the States, on the relationship between the national government and the States, or on the distribution of power and responsibilities among the various levels of government.

For the reasons discussed above, I certify that this AD:

(1) Is not a “significant regulatory action” under Executive Order 12866,

(2) Is not a “significant rule” under DOT Regulatory Policies and Procedures (44 FR 11034, February 26, 1979),

(3) Will not affect intrastate aviation in Alaska, and

(4) 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.

Accordingly, under the authority delegated to me by the Administrator, the FAA amends 14 CFR part 39 as follows:

Section 8G(d)(1) of the Inspector General Act of 1978 (“IG Act”)  1 provides: “Each Inspector General shall report to and be under the general supervision of the head of the designated Federal entity, but shall not report to, or be subject to supervision by, any other officer or employee of such designated Federal entity.” Prior to the Dodd-Frank Wall Street Reform and Consumer Protection Act (“Dodd-Frank Act”), 2 section 8G(a)(4) of the IG Act defined the “head of the designated Federal entity” to mean, unless specifically designated by statute, the chief policymaking officer or board of the designated Federal entity as identified in a list published annually by the Director of the Office of Management and Budget (“OMB”). OMB's annual lists identified the “Chairperson” as the head of the SEC. Section 989B of the Dodd-Frank Act amended the IG Act to provide that the “head of the designated Federal entity” with a board or commission (such as the SEC) means “the board or commission of the designated Federal entity * * * .” Accordingly, the Inspector General must now report to, and be under the general supervision of, the full Commission.

These amendments conform the Commission's rules that address the reporting line of the Commission's Inspector General to the amendments made by the Dodd-Frank Act to the IG Act by replacing references to the “Chairman” in these rules with references to the “Commission”.

The Commission has determined that these amendments to its rules relate solely to the agency's organization, procedure, or practice. Accordingly, the provisions of the Administrative Procedure Act regarding notice of proposed rulemaking and opportunity for public participation are not applicable. 3 The Regulatory Flexibility Act, therefore, does not apply. 4 Because these rules relate solely to the agency's organization, procedure, or practice and do not substantially affect the rights or obligations of non-agency parties, they are not subject to the Small Business Regulatory Enforcement Fairness Act. 5 Finally, these amendments do not contain any collection of information requirements as defined by the Paperwork Reduction Act of 1995, as amended. 6

The Commission is sensitive to the costs and benefits imposed by its rules. The amendments adopted today are procedural in nature and will produce the benefit of conforming the Commission's rules to amendments made to the IG Act that require the Commission's Inspector General to report to and be under the general supervision of the full Commission. The Commission also believes that these amendments will not impose any costs on non-agency parties, or that if there are any such costs, they are negligible.

Section 23(a)(2) of the Exchange Act requires the Commission, in making rules pursuant to any provision of the Exchange Act, to consider among other matters the impact any such rule would have on competition. The Commission does not believe that the amendments that the Commission is adopting today will have any impact on competition.

In accordance with the preamble, the Commission hereby amends Title 17, Chapter II of the Code of Federal Regulations as follows:

This document corrects a document published in the Federal Register on February 1, 2012 (77 FR 4891), in which sections that were inadvertently removed.

Therefore, 18 CFR part 2 is amended by the following correcting amendments:

Notice of proposed rulemaking was published in the Federal Register on July 13, 2011; the New York Register on July 27, 2011; the Pennsylvania Bulletin on July 23, 2011; and the Maryland Register on July 29, 2011. The Commission convened public hearings on August 2, 2011, in Harrisburg, Pennsylvania and on August 4, 2011, in Binghamton, New York. Public information meetings were also held on October 25, 2011 in Williamsport, Pennsylvania, and on October 27, 2011, in Camp Hill, Pennsylvania. The original 60-day comment period first established on June 23, 2011, was extended until November 10, 2011, pursuant to an action taken by the Commission on September 15, 2011. Comments on the proposed rulemaking were received at both the hearings and during the comment period. The comments can be divided into two categories: (1) General Comments—These comments are not directed to specific language of the proposed rulemaking, but rather address perceived environmental and policy impacts; and (2) Comments by Section—These comments are directed at the specific language of the proposed rulemaking, often offering further revisions to this language. A summary of both categories of comments and the Commission's responses thereto follows.

Comment: The Commission should more clearly explain the scientific basis for the proposed rulemaking. Also, the Commission should conduct a full life cycle cumulative impact study of the basinwide impacts of unconventional natural gas extraction prior to issuing this rulemaking.

Response: The proposed rulemaking is administrative in nature and involves no substantive change in the review standards applied to projects. Therefore, the basis of the rulemaking does not involve the analysis, evaluation or re-evaluation of scientific principals. On the whole, it is an attempt to codify within the rules certain definitions, existing practices and policies, and to establish certain procedures related to implementation of the Commission's regulatory authority.

Comment: The more extensive use of the Approval by Rule (ABR) process in this proposed rulemaking will weaken the Commission's regulatory oversight and will simply make it easier for gas well developers using hydrofracture stimulation methods to withdraw the waters of the basin.

Response: The Commission believes that this comment indicates a basic misunderstanding of the scope of the ABR process and the fact that all withdrawal projects will continue to be docketed and acted on by the full Commission. Through the docketing process, the Commission actively manages the use of the basin's waters and mitigates impacts on surface and ground waters through appropriate conditions limiting use. The ABR process then provides an efficient monitoring system for waters that are consumptively used. The Commission applies the same approval standards to all approvals, no matter the form they take. It exercises continuing jurisdiction and oversight to ensure compliance, and can reopen approvals and issue new orders or conditions if warranted.

Comment: Use of the ABR process to oversee the interbasin transfer of flowback and produced fluids and for the out of basin diversion of such fluids for treatment poses a danger to the waters of the basin due to its toxic content and the potential for spillage. The ABR process also bypasses the usual analysis given to proposed diversions of water.

Response: The proposed rules simply formalize practices that are already in place for the transfer of such fluids. These procedures will provide a net benefit to the basin by encouraging the use and reuse of lesser quality water instead of unimpaired water from streams or ground water sources. Furthermore, unlike the typical diversion of water out of the basin where the consumptive loss occurs and is evaluated in the context of the proposed diversion activity, the consumptive loss in this situation is considered to have occurred at the time of the initial withdrawal from the system, before its first use within the basin and prior to being diverted out of the basin. For into-basin diversions, the existing standards are focused on limiting any introduction of contaminated sources into the waters of the basin. The final rulemaking, as structured, provides that same standard. What it changes is the form of the approval, not the standard that should be applied.

Comment: The Commission places too much reliance on allegedly inadequate state water quality laws relating to wastewater disposal and residual waste. For example, the Commission cannot rely on such state laws and regulations to isolate from the waters of the basin the flowback and production fluids whose interbasin transfer the Commission proposes to approve administratively. Therefore, it is incumbent on the Commission to invoke its own water quality regulatory authority and ensure that wastewater is indeed handled in a manner that isolates it from the waters of the basin.

Response: The Susquehanna River Basin Compact, Public Law 91-575, Section 5.2(b) gives specific emphasis to the primary role of the states in water quality management and control. Member states are already exercising or preparing to exercise their water quality authority with respect to gas drilling activity and are also strengthening their laws and regulations. At this stage, there appears to be no justification for the Commission to assume water quality jurisdiction. As noted in response to a comment below, the Commission is taking steps to replace the term “isolate from the waters of the basin” with language that references the standards and requirements of member jurisdictions.

Comment: The Commission's refusal to promulgate water quality regulations relating to gas well development will allow the non-uniform treatment of water users throughout the basin and therefore not conform to the purposes of the Susquehanna River Basin Compact.

Response: The compact purpose of “uniform treatment of water users” does not require that the Commission exclusively regulate all aspects of water resources in the basin. If state regulations and standards are compatible with the Commission's Comprehensive Plan and do an adequate job of fulfilling the purposes of the plan, the Commission will not attempt to duplicate those regulations and standards. Where it does act, it does so in a manner that provides for uniform treatment of all water users.

Comment: The expanded use of the ABR process lessens the opportunity for public input and scrutiny on project approvals.

Response: The Commission disagrees. The ABR applications must be noticed by applicants and there is an opportunity for interested citizens to comment on these applications before an approval is issued. ABRs are also subject to the same approval standards as docketed approvals, and may be reopened and modified by the Executive Director should unforeseen problems arise. Furthermore, notice of issuance of an ABR is published in the Federal Register and any such approval is subject to appeal pursuant to § 808.2.

Comment: The Commission should not be extending the scope of the ABR program to include other forms of hydrocarbon development without first determining if the ABR program is suitable for these other forms of development.

Response: The ABR process has proven to be a valuable tool for monitoring consumptive use related activity on pad sites. This rulemaking, which as noted above is administrative in nature, would extend the use of this valuable tracking tool to other forms of hydrocarbon development. Water withdrawals by any water user, including that undertaken for use in other forms of hydrocarbon development, will still undergo the full docket approval process, and be subject to all applicable Commission standards and requirements.

Comment: The Commission is a federal agency under the Susquehanna River Basin Compact and is subject to the National Environmental Policy Act (NEPA). It must therefore complete all NEPA requirements in connection with this proposed rulemaking action.

Response: The Commission categorically rejects any suggestion that it is subject to NEPA. This is consistent with the position the Commission has taken on NEPA since the 1980s. Instead of a federal agency, the Commission is a federal-interstate compact agency representing all four of its member jurisdictions. The federal government is only one voting member of the Commission and any action of the Commission requires the vote of a majority of the members. Therefore, the actions of the Commission are not the actions of the federal government, but the joint actions of the member jurisdictions. Also, Congress has specifically exempted the Commission from the provisions of the federal Administrative Procedures Act (APA). Federal court decisions have taken a consistent view, namely that agencies not subject to the APA are not federal agencies in the conventional sense and are therefore not subject to NEPA or similar laws imposing requirements on “federal agencies.”

Comment: The 30-day rule in the proposed definition of flowback means that fluid produced from the well bore from the 31st day until the well is placed in production is neither flowback or production fluid within the definition (unless the well is placed into production during the initial 30-day period).

Response: Agreed. The proposed definition is modified to remove the 30-day reference and to make clear that return flow recovered post-hydrofracture and pre-production is defined as flowback.

Comment: The word “siting” in the definitions of “hydrocarbon development” and “unconventional natural gas development” is inconsistent with the “initiation of construction” standard in the Commission's project review regulations. The regulations specify the “spudding of the well” to be the initiation of a well project.

Response: Agreed. The word “siting” is deleted from this definition to avoid the inconsistency.

Comment: The definition of “project” does not make clear that “unconventional natural gas development” is a subset of “hydrocarbon development activity.”

Response: Language is inserted in the definition to clarify that the term is a sub-category of hydrocarbon development.

Comment: Several comments expressed disagreement with the proposed definition of “tophole water,” with one suggesting use of Pennsylvania's definition instead and another claiming that the definition is too vague.

Response: The tophole water definition is replaced with a modified version of the Pennsylvania definition. The modification, notably removing the reference to surface water, makes it generally consistent with New York's interpretation of the term and allows for more basinwide consistency.

Comment: The phrase “in such manner as to isolate it from the waters of the basin” is too vague and should be replaced with a reference to the actual controls exercised by the member states. Also, because the industry may mix the waters of the basin withdrawn from surface and ground water sources with flowback or production fluids in preparation for hydrofracture use, it is not possible to isolate it from the waters of the basin if read strictly.

Response: The “isolate” terminology is replaced with “provided it is handled, transported and stored in compliance with all standards and requirements of the applicable member jurisdictions.” The same language has also been inserted in Paragraph 806.4(a)(3)(vi), which similarly addresses diversions of flowback or production fluids, and is substituted in Paragraph 806.22(f)(11)(iii) for the same reason.

Comment: There is no clear requirement that project sponsors keep track of interbasin transfers of flowback and production fluids.

Response: Language is added to paragraphs 806.4(a)(3)(v) and (vi) reinforcing the requirement that all monitoring and reporting requirements applicable to the pad site ABR must be met. Similar language is added to paragraph 806.22(f)(11) to meet the same concerns about tracking.

Comment: The use of the phrase “the same” implies that each tank load of flowback or production fluid would require separate approval.

Response: The language is replaced with “flowback or production fluids” to remove any uncertainty.

Comment: The phrase “Project sponsors of projects subject to review and approval” should properly be changed to read “Sponsors of projects subject to review and approval.”

Response: Agreed. The suggested change is incorporated into the final rulemaking.

Comment: With respect to renewal applications, there is no clear indication that they will be made subject to any approval standards.

Response: To remove any ambiguity, and to further clarify the original intent concerning renewal standards, the phrase “shall be subject to the standards set forth in Subpart C—Standards for Review and Approval of this Part” is added to this paragraph.

Comment: The requirement for a newspaper notice in areas where a wastewater discharge source is to be used is unworkable where such water is mixed with other water sources at the initial destination and is then redistributed, oftentimes to other locations not contemplated at the time notice is given.

Response: The word “initially” is added before the phrase “used for natural gas development” to limit this requirement to the initial location(s) where this water is contemplated for use at the time of application.

Comment: Extension of ABR approval terms to 15 years will essentially lessen or weaken the oversight that the Commission exercises over gas drilling activities.

Response: Though the Commission feels that there is a fundamental misunderstanding by some who commented about the ongoing oversight that it exercises over approved projects, and the ability of the Commission to reopen approvals, it is willing to retain the current approval term with the addition of procedures for renewal of ABRs. Therefore, the proposed change is removed from the final rulemaking.

Comment: Need to make clear that this paragraph applies to the use of sources in addition to those sources approved for use by the project sponsor pursuant to § 806.4.

Response: Wording is added to the beginning of this paragraph to make the suggested clarification.

Comment: Tophole water, precipitation and storm water collected on the pad site or water obtained from a hydrocarbon storage facility can be contaminated, so there is a need to appropriately limit its use.

Response: Language is added limiting the use of this water to drilling or hydrofracture stimulation only, or in the case of paragraph 806.22(f)(11)(iv), limiting the use to that provided for in the approval.

Comment: As defined, flowback and production fluids do not cover all fluids encountered in the drilling process that serve as a water source under current practice. For example, water can be recovered from drilling muds. Also, such fluids can be recovered from production well sites, in addition to drilling pad sites or hydrocarbon water storage facilities. Current Commission policy allows for the reuse of such fluids.

Response: Drilling fluids and formation fluids are added to this paragraph to cover all fluids recovered during the drilling process and used under current practice for hydrofracture stimulation. The term “production well site” is also added to clarify the sites from which such fluids can be recovered. The word “only” is also added to this paragraph to make clear that these fluids may only be used for hydrofracture stimulation. Language is also added clarifying that all such fluids must be handled, transported and stored in compliance with all standards and requirements of the applicable member jurisdiction.

Comment: The provisions of the proposed paragraph 806.22(f)(13) pertaining to hydrocarbon water storage facilities need to be separated from provisions relating to public water supply and wastewater sources because of the possible application of the terms to third party water purveyors building hydrocarbon water storage facilities that may not be associated with ABRs.

Response: The changes incorporated into the final rule break out a separate paragraph 806.22(f)(14), clarifying the scope and intent, but make no substantive changes to the provisions contained in the proposed rulemaking. The rule is intended to provide for the approval of such facilities (not otherwise associated with an ABR) to provide a mechanism for monitoring, reporting and tracking associated with such facilities, and to allow for the industry to efficiently register such sources for use.

Comment: The language in paragraphs 806.22(f)(12)(i) and (ii) relating to providing a copy of any registration or source approval to the appropriate agency of a member state, etc., is repetitive.

Response: Language related to registrations and source approvals that is repetitive is removed and restated once in new paragraph 806.22(f)(15).

Accordingly, for the reasons set forth in the preamble, the Susquehanna River Basin Commission amends 18 CFR part 806 as follows:

In antidumping duty proceedings, the Department determines margins of dumping by comparing normal value with the export price  1 of comparable merchandise. Prior to this Final Rule and Final Modification for Reviews, the Department typically has compared normal value and export price using the average-to-transaction (“A-T”) method, which involved a comparison of the weighted-average normal value  2 to the export price of individual transactions for comparable merchandise. When aggregating the results of these comparisons to determine the weighted-average margin of dumping in a review, the Department did not offset the results of the comparisons for which export price was less than normal value by the results of comparisons for which export price exceeded normal value. 3 When determining importer-specific assessment rates in a review, the Department similarly aggregated the results of importer-specific comparison results and did not offset the comparison results for which export price was less than normal value by the comparison results for which export price exceeded normal value.

This methodology was challenged as being inconsistent with the WTO General Agreement on Tariffs and Trade 1994 (“GATT 1994”) and the Agreement on Implementation of Article VI of the GATT 1994 (“Antidumping Agreement”) in several disputes. 4 The WTO Appellate Body in US—Zeroing (EC), US—Zeroing (Japan), US—Stainless Steel (Mexico), and US—Continued Zeroing (EC) found the denial of offsets for non-dumped comparisons in antidumping duty reviews to be inconsistent with Article 9.3 of the Antidumping Agreement and Article VI:2 of the GATT 1994, either “as such,” or “as applied” in certain reviews, or both. 5 The WTO Dispute Settlement Body has adopted the dispute settlement panel reports, as modified by the WTO Appellate Body, which found the denial of offsets for non-dumped comparisons in reviews to be inconsistent with the United States' WTO obligations.

Additionally, in US—Zeroing (EC), US—Zeroing (Japan), and US—Continued Zeroing (EC), the WTO Appellate Body found that the reliance on weighted-average margins of dumping calculated without granting offsets for non-dumped comparisons as the basis for determinations made in certain sunset reviews was inconsistent with Article 11.3 of the Antidumping Agreement. 6 In US—Zeroing (Japan), the WTO Appellate Body also found that the denial of offsets for non-dumped comparisons in original antidumping duty investigations using transaction-to-transaction (“T-T”) comparisons  7 was inconsistent with Articles 2.4 and 2.4.2 of the Antidumping Agreement. 8 The WTO Appellate Body, in US—Zeroing (Japan), further found that the denial of offsets for non-dumped comparisons in antidumping duty new shipper reviews was inconsistent with Articles 2.4 and 9.5 of the Antidumping Agreement. 9

Following these adverse findings, the United States Trade Representative (“USTR”), informed the WTO Dispute Settlement Body (DSB), that the United States intended to comply with its WTO obligations in these disputes. 10 Pursuant to section 123(f) of the Uruguay Round Agreements Act (“URAA”), the USTR notified the House Ways and Means and Senate Finance Committees of the adverse findings, and further consulted with these committees concerning implementation.

Pursuant to section 123(g)(1) of the URAA, on December 28, 2010, the Department published a notice in the Federal Register proposing to modify its methodology for calculating weighted-average margins of dumping and antidumping duty assessment rates to provide offsets for non-dumped comparisons while using monthly A-A comparisons in reviews, in a manner that parallels the WTO-consistent methodology the Department currently applies in original antidumping duty investigations. Antidumping Proceedings: Calculation of the Weighted Average Dumping Margin and Assessment Rate in Certain Antidumping Duty Proceedings, 75 FR 81533 (December 28, 2010) (“ Proposed Modification for Reviews ”). In that notice, the Department solicited comments on its proposal. On February 1, 2011, the Department extended the period of time for the submission of comments. Antidumping Proceedings: Calculation of the Weighted Average Dumping Margin and Assessment Rate in Certain Antidumping Duty Proceedings, 76 FR 5518 (Feb. 1, 2011).

In September, 2011, pursuant to section 123(g)(1)(D) of the URAA, the USTR submitted a report to the House Ways and Means and Senate Finance Committees describing the proposed modification, the reasons for the modification, and a summary of the advice USTR had sought and obtained from relevant private sector advisory committees pursuant to section 123(g)(1)(B) of the URAA. Also in September, 2011, pursuant to section 123(g)(1)(E) of URAA, the USTR, working with the Department of Commerce, began consultations with both congressional committees concerning the proposed contents of the final rule and final modification. This notice is published pursuant to section 123(g)(1)(F) of the URAA.

After considering all of the comments submitted, the Department is adopting the proposed changes to its methodology for calculating weighted-average margins of dumping and antidumping duty assessment rates to provide offsets for non-dumped comparisons when using monthly A-A comparisons in reviews, in a manner that parallels the WTO-consistent methodology the Department currently applies in original antidumping duty investigations. In reviews, except where the Department determines that application of a different comparison method is more appropriate, the Department will compare monthly weighted-average export prices with monthly weighted-average normal values, and will grant an offset for all such comparisons that show export price exceeds normal value in the calculation of the weighted-average margin of dumping and antidumping duty assessment rate. Where the weighted-average margin of dumping for the exporter is determined to be zero or de minimis, no antidumping duties will be assessed.

In adopting this Final Modification for Reviews, the Department's intention is to apply a comparison methodology in reviews that parallels the WTO-consistent methodology the Department currently applies in original investigations, 11 which will necessarily include any exceptional or alternative comparison methods that are determined appropriate to address case-specific circumstances. Accordingly, similar to the conduct of original investigations, when conducting reviews under the modified methodology, the Department will determine on a case-by-case basis whether it is appropriate to use an alternative comparison methodology by examining the same criteria that the Department examines in original investigations pursuant to section 777A(d)(1)(A) and (B) of the Act.

The Department has rarely applied the transaction-to-transaction method in original antidumping duty investigations. In the most recent original investigation in which the Department calculated the weighted-average margins of dumping using T-T comparisons, the Department did not grant offsets for non-dumped comparisons. 12 The WTO Appellate Body has found the denial of offsets for non-dumped comparisons in original investigations using T-T comparisons to be inconsistent with the WTO obligations of the United States. To the extent that any prior original antidumping duty investigations using T-T comparisons could be construed as establishing a practice of the Department with respect to the granting or denial of offsets for non-dumped comparisons when calculating the weighted-average margin of dumping, the Department hereby withdraws any such practice. Specifically, if the Department applies the T-T comparison methodology in a future antidumping duty proceeding, it will do so without reference to, or reliance on, any prior practice with regard to the issue of offsets because any such practice has been withdrawn.

In order to implement the revised methodology, it is necessary to modify certain provisions of the Department's regulations. In particular, 19 CFR 351.414(a) and (c) indicate a preference for making A-T comparisons in reviews. These provisions will be modified to permit application of A-A comparisons in reviews in a manner that parallels the comparison methods used in original investigations. In addition, sections 351.414(d)(3) and (e) of the Department's regulations set forth the time periods over which weighted averages are calculated. Section 351.414(d)(3) provides that when applying the A-A method, the weighted averages will normally be calculated over the entire period of investigation or review, unless another averaging period is deemed appropriate. Section 351.414 (e) provides that when applying the A-T method in a review, the Department will calculate weighted-average normal values on a monthly basis. 13 The Department currently relies on monthly weighted-average normal values when calculating dumping margins in reviews, and departing from monthly averaging is not necessary to comply with the WTO findings. Accordingly, the Department is modifying section 351.414(d)(3) to permit weighted averages normally to be calculated on a monthly basis in reviews, regardless of the comparison method used. Conforming changes to section 351.414(e) will ensure sections 351.414(d)(3) and (e) do not contain redundant language. The language for the modified provisions is set forth at the end of this notice.

With respect to the findings of inconsistency in certain of the Department's sunset reviews, 14 the Department notes that the underlying issue is the methodology for calculating weighted-average dumping margins in original investigations and reviews, which is addressed by the modifications the Department has made with respect to investigations and is making herein with respect to reviews. When making a sunset determination, the statute requires administrative review margins to be “considered” but does not require that the Department rely on such margins exclusively or in a particular manner in making its determination whether dumping will continue or recur if the antidumping order were to be revoked. 15 Notwithstanding the Department's prior practice of relying on margins determined in the original investigation and subsequent reviews when determining whether dumping is likely to continue in the absence of an antidumping order, 16 the Department will modify its practice in five-year sunset reviews, such that it will not rely on weighted-average dumping margins that were calculated using the methodology determined by the Appellate Body to be WTO-inconsistent in US—Zeroing (EC), US—Zeroing (Japan), and US—Continued Zeroing (EC). However, only in the most extraordinary circumstances will the Department rely on margins other than those calculated and published in prior determinations, pursuant to 19 CFR 351.218(e)(2).

The Department does not anticipate that it will need to recalculate the dumping margins in the vast majority of future sunset determinations to avoid WTO inconsistency, apart from the “most extraordinary circumstances” provided for in its regulations. Instead, the Department will limit its reliance to margins determined or applied during the five-year sunset period that were not determined in a manner found to be WTO-inconsistent in these disputes. Future dumping margins in reviews will be determined in accordance with this Final Modification for Reviews. The Department may also rely on past dumping margins that were not affected by the WTO-inconsistent methodology, such as dumping margins recalculated pursuant to Section 129 proceedings, dumping margins determined based on the use of adverse facts available, and dumping margins where no offsets were denied because all comparison results were positive. If the dumping margins determined in a manner not found to be WTO-inconsistent in these disputes indicate that dumping continued with the discipline of the order in place, those dumping margins alone can form the basis for a determination that dumping will continue or recur if the order were to be revoked. Additionally, if dumping margins decline over the five-year sunset period, or if there are no dumping margins during the five-year sunset period, decreased volumes may provide another basis to determine that dumping is likely to continue or recur if the discipline of the order is removed.

Pursuant to section 751(a)(2)(A) of the Act, and 19 CFR 351.212(b), the Department will determine, and U.S. Customs and Border Protection (CBP) will assess, antidumping duties on all appropriate entries. When an administrative review is conducted, and where the weighted-average margin of dumping for the exporter or producer is determined to be greater than de minimis, the Department will calculate an importer-specific ad valorem assessment rate for each importer of subject merchandise covered by the review. 19 CFR 351.212(b)(1). Importer-specific assessment rates will be calculated in the same manner as the exporter's dumping margin, on the basis of average-to-average comparisons using only the transactions associated with that importer with offsets being provided for non-dumped comparisons. Where the weighted-average margin of dumping for the exporter or producer is determined to be zero or de minimis, no assessment rates will be calculated and the Department will instruct CBP to liquidate all imports from the exporter or producer without regard to antidumping duties.

Numerous comments and rebuttal comments were submitted in response to the Proposed Modification for Reviews. The Department has carefully considered each of the comments submitted. It has grouped and summarized the comments according to common themes and has responded accordingly.

Several commentators argue that the proposal to move to an A-A comparison methodology in reviews is unnecessarily complex. These commentators suggest that compliance can be achieved by simply eliminating the use of zeroing in the A-T comparison methodology. They note that this would only require the elimination of one line of programming.

One commentator is concerned that the Department has not adequately explained why it is necessary to alter its current dumping calculation methodology in reviews from an A-T methodology to one using monthly weighted averages in both markets. Some request that the Department clarify whether it will grant offsets for negative dumping margins only against positive dumping margins found in the same month or apply negative dumping margins to offset positive dumping margins across the entire period of review (POR). Some argue that only a complete POR-wide offset will be consistent with the Department's current offset methodology applied in original antidumping duty investigations and with WTO obligations.

Many are not in favor of relying on the A-A comparison methodology as the preferred method for reviews because of its potential to mask dumping. Some commentators argue that using the A-A methodology in reviews would not be in compliance with the statute and the SAA, and thus would not withstand judicial scrutiny. Eliminating entry-specific antidumping duty assessments would violate sections 751(a)(2)(A) and (C) of the Act, which require the Department to make entry-specific assessments. The preference for a transaction-specific approach is confirmed by the SAA, and is supported by the statutory language, which indicates the Department will determine normal value and export price for “each entry.”

A few argue that nothing in the statute provides discretion for the Department to use either A-A or T-T in reviews, and that the statutory construction would make no sense if Congress intended for any of the three methods to be used in both investigations and reviews. Congress envisioned and required the Department to determine an individual margin of dumping for each U.S. entry, and nowhere indicated that margins should be calculated for averaging groups.

Several commentators note that nothing in the WTO Appellate Body (AB) rulings or the WTO Antidumping Agreement requires the Department to adopt an A-A approach in reviews. They argue that the Department should not confine itself to a single “one size-fits all” approach, but instead, leave open the option of selecting the comparison method (A-A, T-T, or A-T) on a case-specific basis to capture the maximum amount of dumping. Some commentators argue that given that the preferred method as cited in the SAA is A-T, the Department should keep this option open. Some commentators also argue that the T-T method would be a good option in many instances, asserting that advancements in computer technology have eliminated much of the administrative burden associated with the use of the T-T method.

Department Position: As previously indicated, the Department is adopting a methodology that parallels the WTO-consistent methodology it adopted earlier in connection with original antidumping duty investigations. The Department disagrees that adopting a methodology with which it is already familiar and experienced in administering is an unnecessarily complex approach. In addition, while the Department has previously adopted an interpretation of section 771(35) of the Act such that non-dumped A-A comparison results offset the aggregate amount of dumping in the numerator of the weighted-average dumping margin, the Department has not adopted such an interpretation for the results of A-T comparisons. The Department finds that this approach preserves the A-T comparison methodology as a distinct comparison method that is an alternative to the A-A comparison method.

Previous to this modification, the Department has generally used A-T comparisons in reviews, with monthly average normal values as required by section 777A(d)(2) of the Act. The Department did not find that it was necessary to depart from the use of monthly average normal values to adopt the A-A comparison method in reviews. To facilitate contemporaneous comparisons, the Department will utilize monthly average export prices in making A-A comparisons in reviews. The monthly averages will be compared to monthly average normal values and the results will be aggregated with offsets being provided for non-dumped comparisons. Those offsets will be provided regardless of the month, model, level of trade, etc. for the other comparison(s) found to have been dumped.

With respect to the potential for masked dumping as a reason not to prefer the use of A-A comparisons in reviews, the Department does not agree that the potential for masked dumping means that A-A comparisons are unsuitable as the default basis for determining the weighted-average dumping margins and antidumping duty assessment rates in reviews. Similar to the conduct of original investigations, when conducting reviews under the modified methodology, the Department will determine, on a case-by-case basis, whether it is appropriate to use an alternative comparison methodology by examining the same criteria the Department examines in original investigations pursuant to sections 777A(d)(1)(A) and (B) of the Act.

With respect to the question of consistency with existing U.S. law, the Department does not interpret the Act to prohibit A-A comparisons from being utilized as a basis to determine weighted-average dumping margins and assessment rates in reviews. Nor does any provision of the Act articulate a mandate to use A-T comparisons in reviews. Section 777A(d)(2) simply directs how A-T comparisons should be made when such comparisons are used. This provision differs markedly from section 777A(d)(1), which specifically provides criteria for selecting a comparison methodology in original antidumping duty investigations. The Department interprets this statutory structure as mandating certain criteria for selecting a comparison methodology in original antidumping duty investigations, but leaving the Department considerable discretion in selecting an appropriate comparison methodology in reviews. It is, therefore, within the Department's discretion to establish criteria for the selection of an appropriate comparison methodology in reviews, including criteria that differ from, or are similar to, the criteria mandated for use in original antidumping duty investigations.

The Department disagrees with comments suggesting that sections 751(a)(2)(A) and (C) of the Act preclude the use of A-A comparisons in reviews. Section 777A(d) of the Act provides for three distinct comparison methodologies by which dumping margins may be determined. Section 751(a)(2), in contrast, does not make reference to any specific comparison methodology to be used in reviews. Accordingly, the Department considers that any of the three comparison methodologies satisfies the requirements of section 751(a)(2). Moreover, section 751(a)(2) does not make reference to either the weighted-average dumping margin or the importer-specific antidumping duty assessment rate that is the specific subject of this modification. These particular results of reviews are not specifically mandated by section 751(a)(2), but are instead features of the Department's long-standing practice in reviews. Both the weighted-average dumping margin and the importer-specific antidumping duty assessment rate are the product of aggregating comparison results obtained using one of the three comparison methodologies. While calculation of these rates depends on transaction-specific data, and these rates are applied to entries at the time of entry or upon liquidation, they do not involve entry-by-entry determinations of dumping or antidumping duty assessment. The courts have affirmed these features of the Department's practice, confirming that section 751(a)(2) does not mandate an entry-by-entry determination of dumping and antidumping duties. 17

With respect to the language of the SAA  18 , this language does not clarify the meaning of any statutory provision to the effect that A-T comparisons are mandatory or that A-A comparisons are prohibited in reviews. Instead, the SAA makes the point that, in contrast to the situation with regard to original antidumping duty investigations, a preference for A-T comparisons is not inconsistent with Article 2.4.2 of the AD Agreement. Whereas it has been the Department's long-standing practice to prefer A-T comparisons in reviews, this practice has not been codified in the statute and it remains within the Department's discretion to alter this practice upon providing a reasoned explanation. The Department finds adopting a methodology that parallels the WTO-consistent methodology it adopted earlier in original investigations using A-A comparisons will facilitate the administration of a change to comply with WTO dispute settlement findings on zeroing.

Several commentators argue that allowing offsets for non-dumped comparisons will reduce the effectiveness of U.S. trade laws because it would reduce or eliminate the amount of dumping that would otherwise be fully captured in the absence of any offsets. In so doing, the proposal would go against the current law's mandate that 100 percent of the dumping be fully captured. To illustrate this point, some draw on the “speeding ticket” analogy, whereby a driver caught exceeding the speed limit could nevertheless avoid the fine by submitting evidence that he or she drove below the speed limit on another occasion. One commentator noted that the EU and Japan have acknowledged that dumping can be masked completely through the provision of offsets by asserting that dumping would not exist but for the denial of offsets. These commentators also argue that, if the Department decides to provide offsets, it should allow itself the greatest flexibility to account for the maximum amount of dumping.

Several commentators suggest that the Department should consider all three possible comparison methodologies when conducting reviews, and select whichever method captures the maximum amount of dumping. Some argue that the T-T method would capture the greatest amount of dumping, and that recent technology permits greater use of this comparison methodology. Several further suggest that the Department should indicate a willingness to use averaging for whichever time period captures the most dumping (e.g., daily, weekly, monthly, or period-wide). One commentator notes that because many agricultural products are perishable, and domestic producers can be harmed via short-term (i.e., daily or weekly) price suppression, maximum flexibility should be maintained.

Some commentators suggest that, in addition to maintaining flexibility in comparison methodologies, the Department should also implement additional changes unrelated to the revised comparison methodology on zeroing, to antidumping policies and practices that preserve the full effectiveness of the antidumping laws. One commentator suggests the Department should give renewed focus to the use of provisions addressing fictitious markets and sales that are outside the ordinary course of trade, should consider shortening the range of months from which the contemporaneous month may be selected, and should revise its model match criteria. These commentators argue that despite their suggested alternatives, there is no way to come into compliance with the WTO findings without seriously compromising the effectiveness of the trade remedy laws.

One commentator argues that while it may be appropriate to invoke section 123(g) of the URAA for purposes of modifying the Department's regulations, the use of zeroing can be abandoned without the Department invoking its authority under section 123 because the Department can choose not to apply the zeroing method on a case-by-case basis. This party argues that Congress has purposefully imposed section 123 procedures only on amendments or modifications of regulations and written policy guidance. Because application of the zeroing method is not pursuant to written policy guidance, U.S. obligations with respect to adopted WTO reports, and changes pursuant thereto, have no bearing on domestic procedures. Because section 123 imposes certain procedural obligations that are not required in order for the Department to abandon zeroing, this party urges the Department to clarify that any changes undertaken are made pursuant to the agency's general legal authority to administer the antidumping laws, and that the Department did not rely upon or invoke the procedures called for under section 123.

Department Position: The Department has carefully considered all of the comments provided in this section 123 proceeding, particularly those comments addressing the need to maintain the effectiveness of the antidumping remedy, and has determined to adopt this Final Modification for Reviews. The Department is not taking this step lightly, and it stands to reason that the adoption of this Final Modification for Reviews will have some impact on the weighted-average dumping margins determined in reviews. Nevertheless, the Department, after fully considering the issue, and consulting with USTR and the relevant congressional committees, has determined to adopt this Final Modification for Reviews in order to address the findings of several WTO dispute settlement reports and to bring its practice into conformity with the WTO obligations of the United States as determined in those reports. The Department considers, moreover, that it has adopted a reasoned and balanced approach to implementation that is consistent with existing U.S. law and administrable by the agency.

With respect to the Final Modification for Reviews being a reasoned and balanced approach, the Department is adopting a methodology that parallels the WTO-consistent methodology the Department previously adopted in response to WTO dispute settlement reports relating to investigations. This new methodology for reviews will be the default methodology in all reviews for which this Final Modification for Reviews is effective; however, the Department does retain the discretion, on a case-by-case basis, to apply an alternative methodology, when appropriate. The Department retained similar discretion in investigations and has only needed to exercise it in a limited number of investigations since the adoption of the Final Modification for Investigations. 19

With respect to this Final Modification for Reviews being consistent with existing U.S. law, the courts have held, in more than thirty cases, that while zeroing is a reasonable interpretation of the statute, it is a reasonable interpretation of an ambiguous provision of the statute. The ambiguity recognized by the Court of Appeals for the Federal Circuit means that it is within the Department's discretion to alter or abandon its zeroing methodology upon providing a reasoned explanation. 20 The Department is hereby altering that methodology, by adopting an A-A comparison methodology in reviews that parallels the WTO-consistent methodology adopted in investigations, and providing offsets when it aggregates the results of those comparisons. Consistent with this interpretation of the statute and application of this methodology, the Department disagrees with those comments that suggest it is not capturing 100 percent of the dumping. The Department will capture 100 percent of the dumping that is determined to exist pursuant to this methodology. Moreover, alternative methodologies will remain available when determined to be appropriate on a case-by-case basis.

With respect to this Final Modification for Reviews being administrable by the Department, as previously indicated, the Department is adopting a methodology that parallels the WTO-consistent methodology it adopted earlier in original antidumping duty investigations using A-A comparisons. In so doing, the Department has adopted a methodology with which it is already familiar and experienced in administering. This will facilitate the administration of a change impacting the 188 reviews the Department conducts in an average year. The Department is not adopting the comments suggesting that it calculate dumping margins on the basis of A-A, T-T, and A-T comparison methodologies, and rely on the methodology providing the highest weighted-average margin of dumping. Such a proposal would entail substantial additional work in every case which is not administratively feasible given the statutory time constraints present in every proceeding and the Department's limited resources. Moreover, while such alternative methodologies remain available to the Department on a case-by-case basis, the Department expects to use the A-A comparison methodology, with offsets, in most reviews.

With regard to comments suggesting that the Department alter other aspects of its methodology having nothing to do with the issue of zeroing, the Department notes that the purpose of this proposal is to bring the United States into conformity with its WTO obligations as articulated in the dispute settlement reports cited above. These suggestions are beyond the scope of this section 123 proceeding. When these issues arise in a particular review, parties are free to suggest that the Department reconsider them in the context of that particular proceeding, as appropriate.

With regard to comments suggesting that the Department need not utilize a section 123 proceeding in order to adopt changes to its methodologies to address the findings in the above-cited WTO dispute settlement reports, these comments are inapposite. As is clear from the on-going proceeding in which the comments were submitted, the Department has determined to utilize the procedures of section 123 to adopt these changes. Whether the Department could have made these changes outside of section 123 is irrelevant. The Department has determined that, in this case, it was appropriate to undertake a section 123 proceeding, with all of its attendant comment and consultation processes, in order to complete the adoption of these significant changes in its practice.

A number of commentators argue that the Department should state explicitly that it will grant offsets when the export price exceeds the normal value, and specifically eliminate the zeroing methodology. Some of these commentators suggest that the Department should clearly state that it will grant offsets equal to the full difference between normal value and export price when calculating dumping margins using the A-A comparison methodology in reviews. These commentators note that the proposed regulations do not explicitly state that the Department will provide offsets when calculating the dumping margin. Some commentators suggest that the Department include explicit text in the Final Modification for Reviews, the regulations, or both, that unequivocally eliminates zeroing regardless of the comparison methodology employed, and regardless of any case-specific circumstances. Some assert that any elimination of a subset of comparisons (i.e., denial of offsets) is a violation of the United States' WTO obligations. In their view, an explicit prohibition of zeroing in all instances is necessary to ensure full compliance with WTO rulings and encourage other countries to comply with their commitments.

Department Position: With this Final Modification for Reviews, the Department is taking all steps necessary to address the findings of the WTO dispute settlement reports at issue and to come into compliance with its WTO obligations. As a result of this modification, the new, normal comparison methodology to be used in reviews will be the A-A comparison methodology (on a monthly basis) and offsets will be provided when the results of those comparisons are aggregated for purposes of determining the weighted-average dumping margin. This new methodology will parallel the WTO-consistent methodology the Department currently uses in original investigations.

It is not necessary, appropriate or desirable for the Department, in this Final Modification for Reviews, to go beyond the findings made in the WTO dispute settlement reports at issue by adopting a total prohibition of zeroing regardless of comparison method or case-specific circumstance. The dispute settlement reports at issue address only certain types of comparisons in particular circumstances, such that a total prohibition of zeroing is not necessary to come into compliance. With respect to the findings regarding the calculation of weighted-average dumping margins and antidumping duty assessment rates in reviews, the Final Modification for Reviews achieves compliance with the dispute settlement findings in that it adopts a methodology for these reviews that parallels the WTO-consistent methodology that is currently being applied in original investigations. The methodologies and interpretations set forth and adopted in the Final Modification for Reviews fully address the findings of WTO inconsistency.

Several parties request clarification as to which circumstances would trigger the use of an alternative comparison methodology, and whether zeroing would be used in the alternative calculation methodology. These commentators also encourage the Department to narrowly tailor the circumstances under which an alternative comparison methodology is used. One commentator notes its concern that the reference to an alternative methodology in the Proposed Modification for Reviews is ambiguous, and will lead to parties manipulating the system for a certain preferred comparison methodology.

Some commentators remind the Department that if it is considering the use of the targeted dumping methodology as an alternative methodology, this methodology is to be employed as an exception, in very limited circumstances. One commentator suggests the Department should develop an overall final rule with regard to targeted dumping that is explicitly consistent with Article 2.4.2 of the Antidumping Agreement.

Some commentators state that the targeted dumping methodology was not intended to apply to reviews, and request that the Department explicitly state that it will not employ targeted dumping in this context.

Department Position: In its Final Modification for Reviews, the Department provides additional clarification of the circumstances that could trigger the use of an alternative comparison methodology. The Proposed Modification for Reviews indicated that the Department would use monthly A-A comparisons, except where it determines that application of an alternative comparison method is more appropriate. The Department also indicated its intent to apply the methodology in a manner that parallels the WTO-consistent methodology the Department currently applies in investigations. 21

In this Final Modification for Reviews, the Department clarifies that because the methodology being applied will parallel the WTO-consistent methodology that the Department currently applies in original investigations, it will necessarily include any exceptional or alternative comparison methods determined appropriate to address case-specific circumstances. The Department's regulations specifically describe three types of comparison methodologies that might be used to determine margins of dumping and antidumping duty assessment rates. Although the Final Modification for Reviews adopts the A-A method as the default method in reviews, the Department may determine to use any of the alternative comparison methodologies when deemed appropriate in a particular case.

The Department determines that it would be inappropriate to further speculate as to either the case-specific circumstances that would warrant the use of an alternative methodology in future reviews, or what type of alternative methodology might be employed. These determinations would be highly dependent on the facts of the individual proceeding. However, as is the case with all administrative proceedings, interested parties will have the opportunity to comment on whether an alternative comparison method is warranted during the normal course of the review.

Some commentators request clarification as to how the Department intends to calculate antidumping duty assessment rates. A few request that the Department specifically clarify that it will continue to calculate importer-specific antidumping duty assessment rates. Some commentators argue the Proposed Modification for Reviews raises the possibility that antidumping duty assessment rates could be impacted by the level of dumping on other importers' entries, which contravenes the current statutory and regulatory requirements that the Department determine the level of dumping required for each entry during the review period and that it determine the assessment rate on an importer-specific basis. Some commentators suggest that the Department state that it will calculate antidumping duty assessment rates for individual importers without the zeroing method.

A few commentators suggest that before issuing a final section 123 determination, the Department should consider issuing a separate notice identifying any proposed changes in its calculation of importer-specific assessment rates necessitated by the proposed change in the Department's methodology to permit additional public comments. It is further suggested that the Department release for public comment the standard calculation program that it intends to use in reviews.

Department position: For purposes of this Final Modification for Reviews, the Department is providing additional explanation about the antidumping duty assessment methodology being adopted. The Department has determined that a further or separate comment period is not justified. The calculation program language, including any antidumping duty assessment determinations, particular to any specific review, will be available to parties through the Department's usual disclosure process and parties are free to comment on it during the course of the individual review.

With respect to the issue of assessment rates, when a review is conducted applying the A-A comparison methodology, and the weighted-average margin of dumping for the exporter or producer is determined to be zero or de minimis, no assessment rates will be calculated and the Department will instruct CBP to liquidate all imports from the exporter or producer without regard to antidumping duties, regardless of importer.

When the weighted-average margin of dumping for the exporter or producer is determined to be greater than de minimis, based on the A-A comparison methodology, the Department will perform an additional calculation to determine the assessment rate for each individual importer that purchases from the exporter or producer in question. This additional calculation will effectively repeat the first calculation performed at the exporter or producer level; however, in this case, the export transactions involved in the calculation will be limited to those involving merchandise imported by the individual importer. The monthly, weighted-average export prices of those transactions will be compared to monthly normal values, and the results will be aggregated with offsets being provided for non-dumped comparisons. Those offsets will be provided on an importer-specific basis in the aggregation, regardless of the month, model, level of trade, etc. for the other comparison(s) found to have been dumped.

Several commentators note that the proposed rule at § 351.414(c)(1) does not provide sufficient clarification of what constitutes “ a particular case .” The commentators argue that without further clarification of the term, the investigating authority would have excessive discretion in interpreting and implementing the regulation. Therefore, the commentators request the Department to specify, in the final regulations, the exceptional circumstances that would allow the use of an alternative comparison methodology. These commentators suggest that the language of § 351.414(c)(1) regarding choice of method should be clarified to indicate when and how the Secretary might choose an alternative comparison methodology by making clear the circumstances in which it may find it “more appropriate” to deviate from its proposed methodology and use a “different comparison method” to calculate dumping margins and antidumping duty assessment rates in a review. One commentator goes further and suggests that the Department specify not only the specific circumstances that make it appropriate to deviate from the preferred methodology, but also which alternative comparison methodology would be used in particular circumstances.

Several commentators note that the proposed rules do not specify that zeroing will not be used. Therefore, these commentators request that the final rule specifically include a provision for granting offsets for non-dumped sales in all comparison methodologies. One commentator suggests clarification of the language of § 351.414(d)(3), with respect to the comparison of weighted-average monthly export price or constructed export price to the weighted-average normal value for the contemporaneous month. Specifically, the commentator suggests that it be made clear that while aggregating the comparisons of different months covered in a review, the Secretary will provide offsets for those comparisons which result in negative dumping margins.

Department Position: The Department disagrees that additional clarification of the regulations is necessary or appropriate. The revised regulations describe three types of comparison methodologies that might be used to determine margins of dumping and antidumping duty assessment rates. The overarching purpose of 19 CFR 351.414 is to implement section 777A(d) of the Act and to set forth the three statutory methodologies for establishing and measuring dumping margins. 22 Section 351.414(c), as revised by this Final Rule and Final Modification for Reviews, sets forth the default comparison methodology to be used in different contexts, and § 351.414(d) describes generally how the A-A method will be applied. The revised regulation makes clear that the A-A comparison methodology will be the default methodology in all reviews for which the Final Rule and Final Modification for Reviews applies. The Department has also explained that because the methodology being adopted will parallel the WTO-consistent methodology the Department currently applies in original investigations, it will necessarily include any exceptional or alternative comparison methodologies determined appropriate to address case-specific circumstances. The Final Rule allows sufficient flexibility for the Department to apply alternative comparison methodologies when necessary.

The Department has always retained discretion under its regulations to apply any of the three comparison methodologies in any context, and has exercised this discretion only in a limited number of circumstances. It would be inappropriate to further speculate as to which case-specific circumstances might warrant the use of an alternative comparison methodology in future reviews as this determination would be highly dependent on the facts of the individual proceeding. Because any description of such circumstances would be speculative, at best, the revised regulations do not specify the exceptional circumstances that might trigger the use of an alternative comparison methodology. Such questions are best addressed in the context of individual proceedings. As is the case with all proceedings, interested parties would have the opportunity to comment on whether an alternative comparison methodology is warranted during the normal course of the proceeding.

The Department further disagrees that the revised regulations must specifically indicate that offsets will be provided. The purpose of the regulation is to describe in general terms the comparison methodologies available, and the default methodology to be employed in different contexts. Greater specificity as to when offsets will be provided under each comparison methodology is beyond the intended purpose of the regulation, and is unnecessary for purposes of adopting a methodology that is WTO-consistent. The Department has already made clear that its revised methodology for reviews will parallel the WTO-consistent methodology the Department currently applies in original investigations, and that offsets will be provided when using this methodology. The Department has been granting offsets in original investigations since 2007 without specific regulatory language directing it to do so. The Department has further explained, above, how assessment rates will be determined for individual importers. The revised regulations coupled with the descriptions contained in this Final Modification for Reviews and the Department's responses to comments are sufficient. The Department does not consider that the revised regulations require further elaboration. Furthermore, as more fully explained in the Explicit Total Prohibition of Zeroing section of this notice, above, the Department disagrees that it is either necessary or appropriate to adopt a total prohibition—either explicit or implicit—of zeroing, regardless of the comparison methodology or case-specific circumstance. The methodologies and preferences set forth in this Final Modification for Reviews and the revised regulations, fully address the findings of WTO inconsistency.

Many commentators welcome the United States' recognition that it should not rely on dumping margins based on the zeroing methodology when conducting sunset reviews. These commentators agree that international obligations prohibit the use of dumping margins calculated with zeroing for purposes of sunset determinations. One commentator argues that the Supreme Court's decision in Murray v. Charming Betsy, 6 U.S. (2 Cranch.) 64, 118 (1804) ( Charming Betsy ), compels the Department to terminate its use of zeroing in sunset reviews immediately in order to avoid violating the United States' international obligations. See Fed.-Mogul Corp. v. United States, 63 F.3d 1572, 1581 (Fed. Cir. 1995) (citing Charming Betsy, 6 U.S. (2 Cranch.) at 118). Several commentators argue that failure to recalculate dumping margins would result in costly and unnecessary litigation in light of the ruling in US—Zeroing (Japan), in which the Appellate Body found that reliance on dumping margins based on the zeroing methodology in sunset reviews is inconsistent with U.S. WTO obligations.

Some commentators argue that the Proposed Modification for Reviews does not sufficiently account for the many sunset reviews currently pending where past dumping margins were based on zeroing. Many suggest that the Department should recalculate all dumping margins relied upon in sunset reviews using the new WTO-consistent methodology. These commentators point out that dumping margin calculations and, hence, zeroing are relevant to determining both whether revocation of an order would be likely to lead to a continuation or recurrence of dumping and the magnitude of the dumping margin likely to prevail if the antidumping order were revoked. Another commentator goes on to observe that the Department must evaluate the change in dumping margins over time to ascertain changes in the exporters' pricing behavior as part of its sunset determinations. To conduct a trends analysis of this sort, it is necessary that the dumping margins be calculated in a consistent manner over time, which can only be done by eliminating the zeroing methodology from all calculations.

Certain commentators argue that the Department correctly recognized in the Proposed Modification for Reviews that it is not precluded from recalculating dumping margins from prior proceedings to eliminate zeroing for sunset reviews. One commentator points out that sections 752(c)(1) & (3) of the Act direct the Department to consider the prior rates it has calculated, not simply to adopt them wholesale, and that the Department may consider such other price, cost, market, or economic factors it deems relevant ( See § 752(c)(2) of the Act). Another commentator argues that, regardless of whether certain dumping margins form the basis for the sunset determination, the statute (section 751(c) of the Act) requires the Department to consider all dumping margins determined during the five-year period, and therefore, recalculation cannot be avoided. A few other commentators request that the Department add clarifying language to 19 CFR 351.414 to clearly state that it will not rely on dumping margins that contain zeroing in future sunset reviews, that it will recalculate dumping margins that contain zeroing in future sunset reviews, or both.

Several commentators urge that the Department should stop relying on dumping margins that contain zeroing in sunset reviews immediately. One commentator argues that, for sunset reviews, there is no reason to delay implementation until 60 business days after the date of publication of the Final Modification for Reviews because the proposed change is only to the Department's practice, and no change is proposed to its regulation.

Other commentators make more specific proposals for implementing the new practice in sunset reviews. One such proposal is for the Department to recalculate dumping margins without zeroing upon a showing by a respondent company that its individual dumping margin or the “all others” dumping margin would be zero or de minimis. Another commentator proposes that the Department conduct a changed circumstances review to determine whether dumping would be likely to continue or recur if the order were revoked upon a showing that the dumping margins without zeroing in three reviews completed after January 23, 2007, are zero or de minimis . One other commentator requests that the Department both recalculate dumping margins in a sunset review to eliminate zeroing, effective immediately, and then transmit to the ITC the non-zeroed dumping margins that are likely to exist if an order were revoked effective for sunset reviews initiated after the publication of the proposed rules. One commentator concerned about sunset reviews contends that the Department only suggests it will use section 129 to implement the DSB's recommendations and rulings in US—Continued Zeroing (EC), WT/DS350/R, para. 8.1(f), WT/DS350/AB/R (DS 350), but does not commit to do so. This commentator asks the Department to state clearly that it will implement DS 350 under section 129 when making its determination. This commentator also contends that there is no impediment to reopening prior sunset determinations under section 129.

Department Position: In response to comments from several parties, in the Final Modification for Reviews, the Department clarified that when making sunset determinations, it will modify its practice such that it will not rely on dumping margins determined in a manner found to be WTO-inconsistent in US—Zeroing (EC), US—Zeroing (Japan), US—Stainless Steel (Mexico), and in US—Continued Zeroing (EC) . While it is possible that in some instances, dumping margins will need to be recalculated to avoid reliance on such dumping margins, the Department finds that those situations can be addressed on a case-specific basis.

When determining whether revocation of an antidumping order would be likely to lead to continuation or recurrence of dumping, section 752(c)(1) of the Act directs the Department to consider dumping margins determined during the original investigation and in subsequent reviews, and import volumes of the subject merchandise. The Department's regulations further provide that only in the most extraordinary circumstances will the Department rely on dumping margins other than those calculated and published during prior determinations. 19 CFR 351.218(e)(2)(i). The Department expects that in the vast majority of cases, it will have a sufficient number of dumping margins, determined in a manner not found to be WTO-inconsistent in these disputes, and sufficient information pertaining to import volumes, upon which to base its sunset determinations. Future dumping margins in reviews will be calculated in accordance with this Final Modification for Reviews . Furthermore, the Department may also rely on past dumping margins determined in a manner not found to be WTO-inconsistent in these disputes, such as dumping margins recalculated pursuant to section 129 proceedings, dumping margins determined on the basis of adverse facts available and dumping margins where no offsets were denied because all comparison results were positive. Additionally, if dumping margins declined over the five-year period, or if there are no dumping margins, decreased volumes provide another basis that indicates whether dumping is likely to continue or recur if the discipline of the order is removed.

Although the Department will evaluate each sunset determination on a case-by-case basis to determine whether recalculations are needed, the Department does not anticipate that, apart from the “most extraordinary circumstances” already provided for in its regulations, it will need to rely on dumping margins other than those published in prior determinations in order to avoid reliance on margins determined in a manner found to be WTO-inconsistent in these disputes. For these reasons, the Department disagrees that it is necessary to adopt a practice or methodology which assumes that previously determined dumping margins will always need to be recalculated in the context of sunset reviews.

The Department disagrees that it is required to recalculate dumping margins determined in a manner found to be WTO-inconsistent in these disputes that were calculated during the five-year period so that it may examine dumping margin trends over time. When determining whether dumping is likely to continue in the absence of an antidumping duty order during a five-year sunset review, the Department looks to whether dumping continued at any level after the issuance of the order. 23 While section 752(c)(1) of the Act directs the Department to “consider” previously determined dumping margins as the basis for its likelihood determination, there is no requirement that all dumping margins determined during that period form the basis for deciding whether the order should be continued. Accordingly, the Department does not agree that all dumping margins calculated during the five-year sunset period must be recalculated as a matter of course in order for the U.S. to be compliant with the statute.

The Department further disagrees with the suggestion that it should modify section 351.414(d) of its regulations to indicate that the Department will recalculate dumping margins in sunset determinations using the A-A comparison methodology. The Department has already indicated that it does not anticipate that it will need to recalculate dumping margins other than in the most extraordinary circumstances, and such circumstances are already provided for in its regulations. See 19 CFR 351.218(e)(2)(i). Accordingly, those instances where the Department may need to rely on dumping margins other than those previously determined can be addressed pursuant to 19 CFR 351.218(e)(2)(i) on a case-specific basis.

The Department has further clarified that this Final Modification for Reviews will apply to all sunset reviews pending before the Department for which either preliminary results of sunset review, or expedited final results of sunset review are issued more than 60 days after the date of publication of the Department's Final Modification for Reviews . The 60-day period will allow sufficient time prior to issuance of a preliminary sunset determination, or a final expedited sunset determination, for parties to provide comments within the context of each individual proceeding. For reasons fully set forth in response to comments on the Effective Date of Implementation section of this notice, the Department finds this to be an adequate amount of time to permit parties and the Department to respond to novel and complex issues that arise as a result of implementing the modified regulations. The Department does not find that a separate notice and comment period is necessary.

The Department finds the commentator's request that it commit to implementing “as applied” findings of inconsistency through a section 129 proceeding in certain sunset reviews to be beyond the scope of this section 123 determination. See Implementation through Section 129 Proceedings and Application to Completed Reviews section of this notice. The purpose of this Final Modification for Reviews is not to address or fix how the Final Modification for Reviews is to be applied in the specific proceedings that were challenged, but rather is to address the broad elements of the prior practice that were found WTO-inconsistent. The Department has addressed the inconsistencies found with respect to sunset reviews by including a modification of the methodology that will be applied in future sunset reviews. Whether any particular section 129 proceeding will be requested by the Office of the USTR for certain sunset reviews is beyond the scope of this Final Modification for Reviews .

A few commentators requested clarification concerning the Department's use of the T-T comparison methodology in original antidumping duty investigations. One commentator interpreted the Department's statement to signify that the Department would provide offsets for non-dumped transactions when applying the T-T methodology. Others requested confirmation that it will provide offsets for non-dumped sales when using this comparison methodology.

Department Position: In its Proposed Modification for Reviews, the Department stated that “to the extent that any prior original antidumping duty investigations using T-T comparisons could be considered as establishing a practice of the Department with respect to the granting or denial of offsets for non-dumped comparisons when calculating the weighted average margin of dumping * * *, the Department proposes to withdraw any such practice.” 76 FR 81534. In its Final Modification for Reviews, the Department has now clarified that to the extent that any prior original antidumping duty investigations using T-T comparisons could be considered an established practice of the Department with respect to the denial of offsets for non-dumped comparisons when calculating the weighted average margin of dumping, the Department withdraws any such practice. Specifically, when the Department applies the T-T comparison methodology in a future proceeding—regardless of whether offsets are provided—it will do so without reference to or reliance on any prior practice because, such practice has been withdrawn.

A number of commentators propose that the Department implement the new methodology in reviews initiated 60 days or later after the date of the publication of the Final Modification for Reviews. Some of these parties explain that applying the new method to reviews that are pending as of the effective date would confuse interested parties in several different ways. These parties argue that, due to the complicated nature of this new policy, the Department is likely to face many complex and novel issues concerning its case-specific application.

Some commentators claim that implementing the new methodology in reviews that have already been initiated would be unfair to all parties who base decisions on whether to request and/or participate in reviews on the application of certain standard methodologies. Some commentators argue that because the date of the preliminary results of review for a proceeding can be subject to circumstances in the individual proceeding, the methodology applied could differ among proceedings that were initiated on the same day, which they claim would result in arbitrary treatment. One party argues that the arbitrariness of the effective date would provide an incentive for respondents to create complexity to slow the process or for domestic parties to neglect inadequacies to expedite the process. They contend that the statute intends for neither scenario and many of these concerns can be mitigated by applying the final rules to newly initiated reviews.

Other commentators argue that the Department's proposed effective date is too long and takes unnecessary time to implement the new policy. Some commentators cite to the Final Modification for Investigations (71 FR 77722), as precedent, and note that in that instance, the Department applied the new methodology to all investigations that were pending before the Department. Other commentators suggest that the Department apply the new method to all reviews where the final results are scheduled to be issued more than 60 days after the date of publication.

Some commentators argue that, because it only takes a simple programming modification to implement the final rule, the 60-day implementation period is too long even for a review for which the preliminary results have been issued. Several of these commentators argue that faster implementation will pose less litigation risk to the United States and result in a reduced litigation burden for all parties. Some parties argue that because the provision of offsets is an entirely administrative practice, the modification can be applied immediately, and there is no need for further delay.

Several commentators suggest that the effective date should be the date of the publication of the notice of the final rule. Some commentators suggest that the Department implement the final rule and modification for all reviews where the final results are expected to be issued 30 business days or later after the publication date. Some other commentators contend that, in accordance with section 123(g)(2) of the URAA, the 60-day period should begin when the Department begins its consultation with Congress unless the President determines an earlier effective date. One commentator argues that the effective date should be either the date of the publication of the final rules or 60 days after the Department begins its consultation, whichever is later. Some other commentators request that the Department implement this new policy immediately but do not suggest any specific date as the effective date.

Some commentators in favor of an earlier effective date argue that an earlier date would not impose a greater administrative burden because applying the necessary changes would not require new factual information. These parties further argue that the Department's Proposed Modification for Reviews methodology has afforded adequate notice to the public that the methodology might change.

One commentator requests that the Department conduct all sunset reviews using dumping margins calculated without zeroing no later than the by the effective date adopted for reviews.

Department Position: After careful consideration of the arguments presented by the commentators and of the information needed to implement this change, and weighing the administrative burdens, the Department determines that it will apply the Final Modification for Reviews in reviews pending before the Department for which the preliminary results are issued more than 60 days after the date of publication of the Department's Final Rule and Final Modification for Reviews. Additionally, the Final Modification for Reviews will apply in all sunset reviews pending before the Department for which either the preliminary results of sunset review, or expedited final results of sunset review, are issued more than 60 days after the date of publication of the Department's Final Rule and Final Modification for Reviews. In the Proposed Modification for Reviews, the Department indicated that the new methodology would be effective in reviews pending before the Department for which the preliminary results are issued more than 60 business days after the date of publication of the Department's final rule and modification. As further explained below, the Department finds 60 days to be an adequate amount of time for implementation. Therefore, in this Final Modification for Reviews, the Department has eliminated the requirement that preliminary results be issued more than 60 business days after the Final Modification for Reviews in order for the new method to apply.

This timetable for applying the new methodology is legally permissible and appropriate. The Department is adopting this Final Modification for Reviews in response to several WTO dispute settlement findings, pursuant to section 123(g)(1) of the URAA. Section 123(g)(2) of the URAA provides that a final rule or modification may not go into effect before the end of the 60-day period after the consultations described in section 123(g)(1)(E) begin, unless the President determines that an earlier effective date is in the national interest. While the statute establishes the manner of determining the effective date of any final rule or modification adopted pursuant to section 123, the statute does not specify whether the final rule or modification must apply only to new segments of proceedings initiated after the effective date, or may apply to any segments pending as of the effective date.

Similarly, the SAA provides no more specific guidance regarding the application of any final rule or modification adopted pursuant to section 123. The SAA states that section 129 determinations will apply only with respect to entries occurring on or after the effective date. 24 However, the SAA makes no such statement with respect to section 123 modifications. The SAA merely states, “A final rule may not go into effect before the end of the 60-day consultation period unless the President determines that an earlier date is in the national interest.”  25

The applicable date for previous section 123 determinations has been determined by the Department on a case-by-case basis. In four prior section 123 proceedings, the Department has applied the final modification or final rule to segments initiated after the effective date. 26 On other occasions, the Department has adopted and applied a change in policy involving a statutory interpretation to all segments pending as of the date of the change. 27

The Department disagrees with commentators that it is in a position to adopt a more expedient implementation date because this Final Modification for Reviews does not entail a statutory change. When considering changes or modifications to a longstanding methodology in an individual determination, the Department is required, at a minimum, to provide parties with adequate notice and opportunity to comment within the context of each proceeding, prior to making its final determination. Section 782(g) of the Tariff Act of 1930; see also Koyo Seiko Co., Ltd v. United States, 516 F. Supp. 2d 1323, 1333-34 (CIT 2007), aff'd 551 F.3d 1286 (Fed. Cir. 2008).

This Final Modification for Reviews entails a modification to the averaging methodology applied in reviews that was longstanding. Therefore, in transitioning to the new methodology, the Department will need to ensure that sufficient time is provided within the context of individual proceedings to allow parties to submit any new data that may be necessary, if desired. The Department will then need time to examine and analyze any additional data, and will need to permit parties to provide comments on any new data that is submitted. Additionally, applying the new methodology prior to issuance of the preliminary results is appropriate because the Department will need to allow sufficient time for parties to comment on the application of the new methodology as it applies in the context of individual proceedings.

The Department is not persuaded that it should adopt a shorter timetable simply because it was able to do so when it modified its methodology to provide offsets in investigations. In that instance, the Department found it appropriate to apply the modification to all pending proceedings at the time of the effective date, but only after ensuring the feasibility of such an expedited implementation, and concluding that such a timeframe would not unfairly prejudice any of the parties to those proceedings. 28 With respect to this Final Modification for Reviews, the Department determines that the modified methodology must apply only in proceedings where the preliminary results have not yet been issued in order to ensure that all parties have ample time to submit any new data and provide comment, and that the Department has adequate time to consider any new data and comments. For all of these reasons, the Department is not persuaded by arguments that it could apply the new method more expeditiously without compromising principles of accuracy, fairness, and due process.

Conversely, the Department also disagrees with commentators who argue that a longer timetable is necessary. The Department agrees that the new policy represents a substantive shift in methodology, and the Department expects to encounter novel issues as it begins to apply this methodology. The timetable already allows parties the opportunity to submit any new data, and to provide comment prior to the preliminary results. Parties will then have an additional opportunity to comment on the methodology prior to the final results, after it is applied. The Department finds this to be an adequate amount of time that will permit parties and the Department to respond to any novel or complex issues that arise in any particular case as a result of the new method.

The Department does not agree that to maintain fairness and non-arbitrary application of methodology, it must only apply the new methodology to reviews initiated after the effective date. Uncertainty of methodology is an insufficient justification for prolonging the application of a new methodology. The United States uses a “retrospective” assessment system under which final liability for antidumping duties is determined after the merchandise is imported. 19 CFR 351.212(a). While the Department must abide by notice provisions of the statute, changes in methodology like all other antidumping review determinations, permissibly involve retroactive effect. SKF USA Inc. v. United States, 537 F.3d 1373, 1381 (Fed. Cir. 2008). Requiring changes to be applied only to future entries would hinder the Department's ability to give timely effect to any changes in its own practices. Koyo Seiko Co., 516 F. Supp. 2d at 1334, aff'd 551 F.3d at 1286. Moreover, the public has now been on notice of an impending change in methodology because the Proposed Modification for Reviews has been in the public realm since December 28, 2010, providing more than ample time for parties to consider their options with respect to upcoming review periods.

Many commentators agree that implementation of the adverse WTO dispute settlement findings listed in the Proposed Modification for Reviews should occur pursuant to section 129 of the URAA and many further agree that pursuant to section 129, any changes must be prospective only. Relying on section 129(c)(1), these commentators further argue that the changes should apply only to entries that remain unliquidated on or after the date USTR directs the Department to implement. Several commentators claim that the Department has consistently applied section 129 in this manner.

Numerous other commentators argue that the calculation and assessment of antidumping duties using zeroing should have ceased when the reasonable period of time (“RPT”) for compliance ended for the various WTO rulings. These commentators claim that dumping margins should be recalculated for the reviews involved in each of the WTO proceedings as well as any determinations or antidumping duty assessments arrived at using zeroing after the end of the applicable RPT. According to some other commentators, this means that the United States must immediately cease to apply cash deposit or antidumping duty assessment rates calculated using zeroing and replace them with non-zeroed rates, must reliquidate any entries that were liquidated after the end of the RPT at assessment rates calculated with zeroing, must recalculate cash deposit rates relying on zeroing and release excess cash deposits made after the RPT, and must not use zeroing in any ongoing reviews. One commentator emphasizes that this must occur regardless of the dates of entry. Other commentators argue that any excess duties collected should be refunded with interest.

Some commentators urge the Department not to interpret section 129(c)(1) as precluding the agency from taking action that affects imports that entered before the date on which USTR directs the Department to implement. Instead, consistent with past representations to the WTO, the Department should find that section 129(c)(1) is ambiguous with respect to the treatment of such entries.

Some commentators argue that Commerce might use one or more of several alternatives to come into compliance with respect to past entries, including the use of a changed circumstances review, voluntary remands for any reviews subject to litigation, use of the Department's broad authority under 19 U.S.C. 1617 to settle antidumping claims, or legislation requiring CBP to reliquidate entries that were liquidated after the end of the RPT at assessment rates using zeroing.

Other commentators urge the Department to apply the final rule to unliquidated entries in all pending reviews, i.e., not just those subject to section 129 proceedings. They contend that treating imports from different countries and under different orders differently will prompt new and unnecessary litigation in the WTO. Other commentators argue that the final rule should be effective retrospectively to any entries in a completed review that remain unliquidated as of 60 days after the publication of the Final Modification for Reviews. Some commentators claim that the Department should apply the new methodology to entries that have not been liquidated due to pending litigation. One commentator contends implementing in this manner would be prospective to the future liquidation, and would not constitute retroactive implementation. Some other commentators argue that any dumping margins with present effects should be revised and applied prospectively from the effective date.

Another commentator points out that when the Proposed Modification for Reviews speaks of applying the new methodology pursuant to section 129, it only references disputes brought by the European Union, Japan and Mexico. This commentator contends, however, the Appellate Body's finding in US-Zeroing (EC) makes clear that the United States' obligations to remedy zeroing extend to reviews even though a Member may only have challenged the Department's use of zeroing in the antidumping investigation. Thus, the Department must recalculate dumping margins and antidumping duty assessment rates for subsequent reviews of those orders. Other commentators urge the Department to apply the new methodology to reviews subject to all ongoing and future WTO proceedings in which zeroing is an issue before a panel or the Appellate Body.

Other commentators argue that the statute prohibits the Department from implementing this new policy on entries covered by completed reviews because they all entered the United States before the effective date. The statute only permits the Department to abandon zeroing with respect to entries occurring on or after the date that USTR directs implementation, and which remain unliquidated at the time the Department implements its determination. Because entries covered by completed reviews entered prior to the effective date, the Department is prohibited from recalculating dumping margins for entries covered by those reviews. This commentator argues the Department should clarify that it will not recalculate dumping margins for completed reviews.

Department Position: The Department is adopting this Final Modification for Reviews pursuant to section 123 of the URAA to put in place for future reviews and certain pending reviews a methodology that responds to the WTO findings of inconsistency. The Department finds that comments addressing how the new methodology should apply to specific “as applied” findings of inconsistency are beyond the scope of this section 123 determination because section 129 determinations are separate from section 123 determinations under the URAA. The purpose of this Final Modification for Reviews is to address the broad elements of the prior practice that was found to be WTO-inconsistent. It is not intended to address how that practice was applied in the specific proceedings that were challenged. The Final Modification for Reviews makes clear that the new WTO-consistent methodology will be applicable to any determinations made pursuant to section 129 of the URAA in connection with the relevant WTO disputes. Whether any particular section 129 proceeding will be requested by USTR is beyond the scope of this Final Modification for Reviews. Accordingly, the Final Modification for Reviews does not further specify the particular proceedings to which the new methodology will apply.

With regard to the various arguments that suggest the new methodology should apply prior to the announced effective date, such as to entries subject to reviews that were completed or ongoing prior to the effective date, for reasons fully set forth in the Effective Date of Implementation section of this notice, the Department disagrees. The WTO-consistent methodology adopted will be applied in all reviews that are pending before the Department for which the preliminary results are issued 60 days after the publication of the Final Modification for Reviews.

Some commentators suggest that the Department should delay this Final Modification for Reviews until the United States resolves this issue at the WTO through the Doha Development Agenda (Doha) negotiations. These commentators question whether these implementation efforts will weaken the U.S. negotiating position in the Doha Rules negotiations. They suggest the Department should hold off until the Doha negotiations are concluded, as this may obviate the need to implement at all. Nonetheless, if the Department chooses to implement, these commentators support U.S. efforts to seek correction, through the Doha Rules negotiations, of the Appellate Body decisions, which they view as “extraordinarily flawed.”

Department Position: The Department disagrees with commentators that it should wait until the Doha negotiations are concluded before adopting the Final Modification for Reviews. The Department is conducting this exercise pursuant to the procedures provided for in section 123 of the URAA. This modification is necessary to implement the DSB's rulings and recommendations in the four, previously identified disputes—all of which necessarily dealt with the interpretation and application of existing WTO rules. Notwithstanding this Final Modification for Reviews, the Department will continue to work closely and actively with USTR with a view towards clarifying that the AD Agreement should not be read to require WTO Members to provide offsets for non-dumped comparisons.

Two commentators representing interests or products from the Russian Federation note that Russia is in the process of joining the WTO, but is not yet a Member. These commentators argue that notwithstanding Russia's non-Member status, the Department's new methodology adopted in the Final Modification for Reviews should apply equally to subject merchandise from Russia.

Department Position: As the Department has stated in its Final Modification for Reviews, the revised methodology will apply in reviews pending before the Department for which a preliminary results are issued more than 60 days after the date of publication of the Department's Final Rule and Final Modification for Reviews. This includes reviews of antidumping orders without regard to whether the subject merchandise is from a WTO Member.

One commentator argues that the 2008 rescission of the targeted dumping regulation violates the Administrative Procedures Act (“APA”) because it was repealed without notice and comment. The commentator requests that the targeted dumping regulation be restored in the final rule. Another commentator suggests that the Department should take this opportunity to address and clarify several aspects of the targeted dumping methodology it claims are deficient.

A few commentators request that the Department clarify that the new averaging groups will still be based on CONNUMs. One commentator points out that in stating that “an averaging group will consist of subject merchandise that is identical or virtually identical in all physical characteristics and that is sold to the US at the same level of trade,” the Department does not define the term “identical or virtually identical in all physical characteristics.” Based on this, the commenter argues, it is unclear whether the proposal refers to merchandise that comprises individual CONNUMs. Other commentators note that the Proposed Modification for Reviews does not state how the Department will distinguish price averaging groups (e.g., by importer, manufacturer, level of trade, sale type, or CONNUM). A few commentators also seek clarification that the Department is not proposing to change how it identifies merchandise for the purposes of model match methodology.

Department Position: These comments are beyond the scope of this action. The Department reiterates that the purpose of this exercise is to bring the United States into conformity with its WTO obligations as articulated in the dispute settlement reports cited above. The Department has proposed no changes to these other aspects of its dumping calculations, and thus finds these suggestions to be beyond the scope of this section 123 proceeding. Parties are free to suggest that the Department consider these comments in the context of a particular proceeding, as appropriate.

The Final Rule and Final Modification for Reviews will be effective and applicable to all reviews pending before the Department for which the preliminary results are issued after April 16, 2012. The Department will further apply the Final Rule and Final Modification of Reviews to all sunset reviews pending before the Department for which either the preliminary results or expedited final results of sunset review are issued after April 16, 2012. This methodology will be used in implementing the findings of the WTO panels in US-Zeroing (EC), US-Zeroing (Japan), US-Stainless Steel (Mexico), and US-Continued Zeroing (EC), with respect to any antidumping duty proceedings conducted pursuant to section 129 of the URAA. This methodology will also be applicable to any reviews currently discontinued by the Department if such reviews are continued after April 16, 2012 by reason of a final and conclusive judgment of a U.S. Court.

The Final Rule has been determined to be not significant for purposes of Executive Order 12866.

The Chief Counsel for Regulation has certified to the Chief Counsel for Advocacy of the Small Business Administration (”SBA”), under the provisions of the Regulatory Flexibility Act, 5 U.S.C. 605(b), that this action would not have a significant economic impact on a substantial number of small entities. Parties for whom the Department determines a weighted-average margin of dumping or antidumping duty assessment rate include foreign exporters and manufacturers, some of whom are affiliated with U.S. companies and U.S. importers. Some of these entities affected by the rule may be considered small entities under the SBA standard. The Department has determined that this action will not have a substantial economic impact on a significant number of small entities because the costs associated with antidumping duty liability generally will not increase as a result of the proposed rule. No comments were received regarding the economic impact of this rule. As a result, a final regulatory flexibility analysis is not required and one was not prepared.

This action does not contain a collection of information for purposes of the Paperwork Reduction Act of 1980, as amended (44 U.S.C. 3501 et seq. ).

For the reasons stated, 19 CFR part 351 is amended as follows:

Executive Order 13579 of July 11, 2011, calls on each independent regulatory agency to develop and release to the public, within 120 days of the date of the Executive Order, a plan under which the agency will periodically review its significant regulations to determine whether any such regulations should be modified, streamlined, expanded, or repealed so as to make the agency's regulatory program more effective or less burdensome in achieving regulatory objectives.

The Commission sought public comments on its Preliminary Plan for Retrospective Analysis of Existing Rules. 76 FR 66004 (Oct. 25, 2011). It received one comment on the preliminary plan from the law firm of Hughes Hubbard & Reed. Hughes Hubbard & Reed endorsed the preliminary plan and urged the Commission in particular to review 19 CFR Part 201. It stated its belief that certain modifications should be made to this regulation to render the Commission's investigations more effective. For example, Hughes Hubbard & Reed advocated broadening the language of 19 CFR 201.12 to clarify that the Commission will accept requests from parties to take action between an investigation's enumerated briefing periods. The Commission will take these comments into account when conducting its retrospective review of its rules.

The Commission has decided to adopt the Plan for Retrospective Analysis of Existing Rules without significant changes from the version that was preliminarily proposed. Accordingly, the Commission adopts the following Plan for Retrospective Analysis of Existing Rules.

Executive Orders 13579 and 13563 recognize the importance of maintaining a consistent culture of retrospective review and analysis throughout the federal government. Executive Order 13579 calls on each independent regulatory agency to develop and release to the public a plan, consistent with law and reflecting the agency's resources and regulatory priorities and processes, under which the agency will periodically review its significant regulations to determine whether any such regulations should be modified, streamlined, expanded, or repealed so as to make the agency's regulatory program more effective or less burdensome in achieving the regulatory objectives.

Pursuant to Executive Order 13579, the U.S. International Trade Commission developed this plan for retrospective analysis of its regulations. The plan is designed to create a defined method and schedule for identifying and reconsidering certain significant rules that are obsolete, unnecessary, unjustified, excessively burdensome, or counterproductive. Its review processes are intended to facilitate the identification of rules that warrant repeal or modification, or the strengthening, complementing, or modernizing of rules where necessary or appropriate.

The Commission is an independent, quasi-judicial federal agency with broad investigative responsibilities on matters of trade. It investigates the effects of dumped and subsidized imports on domestic industries, conducts global safeguard investigations, and adjudicates cases involving imports that allegedly infringe intellectual property rights. The Commission also serves as a federal resource where trade data and other trade policy-related information are gathered and analyzed. The information and analysis are provided to the President, the Office of the United States Trade Representative (USTR), and Congress to facilitate the development of sound and informed U.S. trade policy. The Commission makes most of its information and analysis available to the public to promote understanding of international trade issues. The Commission also maintains the Harmonized Tariff Schedule of the United States (HTS).

Thus, the Commission is not primarily a regulatory agency, and its regulations generally serve to govern the process of its statutory investigative responsibilities. In carrying out its mission, the Commission issues rules of practice and procedure relating to the conduct of its investigations. The Commission's rules are codified in Title 19 of the Code of Federal Regulations.

• Part 201 of the Commission's rules are rules of general application relating to the functions and activities of the Commission.

• Part 202 sets out rules pertaining to investigations of costs of production under section 336 of the Tariff Act of 1930, as amended (19 U.S.C. 1336).

• Part 204 contains rules pertaining to investigations of effects of imports on agricultural programs under section 22 of the Agricultural Adjustment Act, as amended (7 U.S.C. 624).

• Part 205 covers rules pertaining to investigations to determine the probable economic effect on the economy of the United States of proposed modifications of duties or any other barrier to (or other distortion of) international trade or of taking retaliatory actions to obtain the elimination of unjustifiable or unreasonable foreign acts or policies which restrict U.S. commerce.

• Part 206 pertains to investigations relating to global and bilateral safeguard actions, market disruption, trade diversion, and review of relief actions.

• Part 207 sets out rules for the conduct of antidumping and countervailing duty investigations conducted under title VII of the Tariff Act of 1930, as amended (19 U.S.C. 1671 et seq.).

• Part 208 contains rules pertaining to investigations with respect to the commercial availability of textile fabric and yarn in Sub-Saharan African countries.

• Part 210 sets out rules for the conduct of investigations of unfair practices in import trade under section 337 of the Tariff Act of 1930, as amended (19 U.S.C. 337).

• Part 212 establishes rules for the implementation of the Equal Access to Justice Act (5 U.S.C. 504).

In the course of its investigations, the Commission generally issues questionnaires seeking business and financial information from domestic and foreign firms. These questionnaires are frequently revised and adapted, with the input of affected parties wherever possible.

The Commission also maintains several documents that provide guidance to parties involved in its investigations, including its “Antidumping and Countervailing Duty Handbook,” “An Introduction to Administrative Protective Order Practice in Import Injury Investigations,” and the “Handbook on Electronic Filing Procedures.” These documents are maintained in electronic form on the Commission's Web site and are reviewed and updated periodically.

This plan covers existing regulations, existing information collections, and significant guidance documents.

Fostering a Culture of Retrospective Analysis. The Commission intends to strengthen its culture of retrospective analysis by informing all of its employees of the plan and periodically seeking input from them.

Prioritization. The Commission has identified selection criteria for the rules it will review retrospectively. It will endeavor to review rules that:

• Have been affected by subsequent legal developments;

• Overlap, duplicate, or conflict with other federal rules;

• Are the subject of public comments, from individuals and entities that appear before the Commission, and from Congressional and Executive Branch sources;

• Require outdated reporting practices; or

• Have been in place for a long time, so that updating may be appropriate.

Structure and Staffing. The following Commission official will be responsible for overseeing the retrospective review of existing rules: James R. Holbein, Secretary, email: secretary@usitc.gov .

Process for Retrospective Review. Every two years, the Commission's General Counsel will send a memorandum to the Commission's Secretary, office directors, and administrative law judges asking them for input on rules suitable for modification or elimination. The Commission will also seek input from the public at that time. Based on responses to this memorandum and comments from the public, and in consultation with Commissioners, the General Counsel's office will make recommendations to the Commission regarding the possible modification or elimination of existing regulations. Once an appropriate rule change has been identified, the Commission will publish a notice of proposed rulemaking and solicit public comment on the proposed change.

On October 25, 2011, the Commission published a notice in the Federal Register and posted it on the homepage of its Web site seeking public comment on the design of this plan and the identification of specific rules to be included in the plan. 76 FR 66004 (Oct. 25, 2011) and http://www.usitc.gov/secretary/fed_reg_notices/rules/eRuling_notice10182011sgl.pdf .

The Commission received one comment on the preliminary plan from a law firm. This firm endorsed the preliminary plan and urged the Commission to review 19 CFR part 201, and in particular 19 CFR 201.12, to clarify that the Commission will accept requests from parties to take action between an investigation's enumerated briefing periods. The Commission will take these comments into account when conducting its retrospective review of its rules.

Even before the issuance of Executive Order 13579, Commission staff periodically reviewed existing regulations with a view to updating and improving them, and eliminating redundant or unnecessary regulations. For example, in October 2011, after notice and comment, the Commission amended its rules to provide that most documents filed with the agency will be filed by electronic means. See 76 FR 61937 (Oct. 6, 2011). The Commission also amended its rules to gather more information on public interest issues arising out of section 337 complaints. See 76 FR 64803 (Oct. 19, 2011). The Commission's 337 practice has an active and independent bar association that promotes an ongoing exchange of ideas on rules updates and improvements. In addition, the Commission staff constantly adapts the questionnaires that it issues in Title VII investigations to reflect the specific circumstances of each investigation. Wherever possible, the staff seek preliminary input from firms that will be asked to complete these questionnaires. In light of these efforts, the Commission is well-positioned to implement a more systematic plan for retrospective review of its regulations.

The Commission has preliminarily identified the following aspects of its existing rules for review over the next two years:

1. General review of existing regulations in 19 CFR parts 201, 207, and 210. The Commission will seek to determine whether any such regulations shall be modified, streamlined, expanded or repealed so as to make the agency's regulations more effective or less burdensome.

2. Employee Responsibilities and Conduct, 19 CFR part 200. The Commission intends to review its regulations addressing employee responsibilities and conduct, to assess whether these regulations can be modified or repealed, in light of the issuance of similar regulations by the Office of Government Ethics.

3. National Security Information, 19 CFR part 201, Subpart F. The Commission intends to review its regulations addressing national security information, to assess whether these regulations should be modified, in light of Executive Order 13526 (Dec. 29, 2009).

4. Investigations With Respect to Commercial Availability of Textile Fabric and Yarn in Sub-Saharan African Countries, 19 CFR part 208. The Commission intends to review its regulations addressing investigations with respect to the commercial availability of textile fabric and yarn in Sub-Saharan African countries, to assess whether these regulations can be repealed, in light of the repeal of section 112(c)(2) of the African Growth and Opportunity Act (AGOA), which required the Commission to make determinations with respect to the commercial availability and use of regional textile fabric or yarn in lesser developed beneficiary sub-Saharan African countries in the production of apparel articles receiving U.S. preferential treatment under AGOA (see section 3(a)(2)(B) of Pub. L. 110-436, October 16, 2008, 122 Stat. 4980).

The Commission will publish this plan in the Federal Register and on the agency's Web site, at www.usitc.gov. The Web site includes a page on the Commission's Rules of Practice and Procedure, at http://www.usitc.gov/secretary/fed_reg_notices/rules/ . This Rules page will include a link to the plan. Members of the public will be able to post comments about the plan via a link on the page. Commenters may also choose to file comments in paper form to the Secretary to the Commission, Room 112, 500 E Street SW., Washington, DC 20436.

In accordance with section 513(f)(1) of the Federal Food, Drug, and Cosmetic Act (FD&C Act) (21 U.S.C. 360c(f)(1)), devices that were not in commercial distribution before May 28, 1976 (the date of enactment of the Medical Device Amendments of 1976), generally referred to as postamendments devices, are classified automatically by statute into class III without any FDA rulemaking process. These devices remain in class III and require premarket approval, unless and until the device is classified or reclassified into class I or II, or FDA issues an order finding the device to be substantially equivalent, in accordance with section 513(i) of the FD&C Act (21 U.S.C. 360c(i)), to a predicate device that does not require premarket approval. The Agency determines whether new devices are substantially equivalent to predicate devices by means of premarket notification procedures in section 510(k) of the FD&C Act (21 U.S.C. 360(k)) and part 807 of the regulations (21 CFR part 807).

Section 513(f)(2) of the FD&C Act provides that any person who submits a premarket notification under section 510(k) of the FD&C Act for a device that has not previously been classified may, within 30 days after receiving an order classifying the device into class III under section 513(f)(1) of the FD&C Act, request FDA to classify the device under the criteria set forth in section 513(a)(1) of the FD&C Act. FDA will, within 60 days of receiving this request, classify the device by written order. This classification will be the initial classification of the device. Within 30 days after the issuance of an order classifying the device, FDA must publish a notice in the Federal Register announcing this classification.

In accordance with section 513(f)(1) of the FD&C Act, FDA issued an order on November 12, 2010, classifying the EndoStapling System into class III, because it was not substantially equivalent to a device that was introduced or delivered for introduction into interstate commerce for commercial distribution before May 28, 1976, or a device which was subsequently reclassified into class I or class II. On December 10, 2010, Aptus Endosystems, Inc. submitted a petition requesting classification of the EndoStapling System under section 513(f)(2) of the FD&C Act. The manufacturer recommended that the device be classified into class II (Ref. 1).

In accordance with section 513(f)(2) of the FD&C Act, FDA reviewed the petition in order to classify the device under the criteria for classification set forth in section 513(a)(1) of the FD&C Act. FDA classifies devices into class II if general controls by themselves are insufficient to provide reasonable assurance of safety and effectiveness, but there is sufficient information to establish special controls to provide reasonable assurance of the safety and effectiveness of the device for its intended use. After review of the information submitted in the petition, FDA determined that the device can be classified into class II with the establishment of special controls. FDA believes these special controls will provide reasonable assurance of the safety and effectiveness of the device.

The device is assigned the generic name endovascular suturing system, and it is identified as a medical device intended to provide fixation and sealing between an endovascular graft and the native artery. The system is comprised of the implant device and an endovascular delivery device used to implant the endovascular suture.

FDA has identified the following risks to health associated with this type of device and the measures required to mitigate these risks:

Why is the department promulgating this rule?

Current Department regulations require that L visa duration be limited to the validity period of the petition, which, under Department of Homeland Security (DHS) regulations, cannot exceed three years. Petitioners may apply to U.S. Citizenship and Immigration Services (USCIS) for extension of petition validity in increments of up to two years, but the total period of stay may not exceed five years for aliens employed in a specialized knowledge capacity, or seven years for aliens employed in a managerial or executive capacity. The Department is changing this regulation to delink visa and petition validity periods, as currently required by 22 CFR 41.54(c), “Validity of visa”. As a result, L visa validity will be governed by 22 CFR 41.112, which provides that, except as provided in paragraphs (c) and (d) of that section, a nonimmigrant visa shall have the validity prescribed in schedules provided to consular officers by the Department, which reflect the reciprocal treatment the applicant's country accords U.S. nationals, U.S. permanent residents, or aliens granted refugee status in the United States. The change would assist beneficiaries of petitions for L status who are nationals of countries for which the reciprocity schedule prescribes visa validity for a longer period of time than the initial validity indicated in the petition approved by DHS and who have extended their L stay while in the United States. Subject to 22 CFR 41.112(c), such individuals generally would not need to apply again for an L visa at a U.S. Embassy or Consulate overseas if they were to travel outside the United States during the period indicated in the applicable reciprocity schedule, as is currently required when petition validity has been extended. Under 8 CFR 214.2(l)(11), an alien may apply for admission in L status only while the individual or blanket petition is valid.

This regulation involves a foreign affairs function of the United States and, therefore, in accordance with 5 U.S.C. 553(a)(1), is not subject to the rule making procedures set forth at 5 U.S.C. 553.

Because this final rule is exempt from notice and comment rulemaking under 5 U.S.C. 553, it is exempt from the regulatory flexibility analysis requirements set forth at sections 603 and 604 of the Regulatory Flexibility Act (5 U.S.C. 603 and 604). Nonetheless, consistent with section 605(b) of the Regulatory Flexibility Act (5 U.S.C. 605(b)), the Department certifies that this rule will not have a significant economic impact on a substantial number of small entities. This regulates individual aliens applying for visas under INA § 101(A)(15)(L) and does not affect any small entities, as defined in 5 U.S.C. 601(6).

Section 202 of the Unfunded Mandates Reform Act of 1995, Public Law 104-4, 109 Stat. 48, 2 U.S.C. 1532, generally requires agencies to prepare a statement before proposing any rule that may result in an annual expenditure of $100 million or more by State, local, or tribal governments, or by the private sector. This rule will not result in any such expenditure, nor will it significantly or uniquely affect small governments.

This rule is not a major rule as defined by 5 U.S.C. 804, for purposes of congressional review of agency rulemaking under the Small Business Regulatory Enforcement Fairness Act of 1996, Public Law 104-121. 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 adverse effects on competition, employment, investment, productivity, innovation, or the ability of United States-based companies to compete with foreign-based companies in domestic and import markets.

The Department of State has reviewed this proposed rule to ensure its consistency with the regulatory philosophy and principles set forth in Executive Order 12866 and has determined that the benefits of this final regulation justify its costs. The Department does not consider this final rule to be an economically significant action within the scope of section 3(f)(1) of the Executive Order since it is not likely to have an annual effect on the economy of $100 million or more or to adversely affect in a material way the economy, a sector of the economy, competition, jobs, the environment, public health or safety, or State, local or tribal governments or communities.

This regulation will not have substantial direct effects on the States, on the relationship between the national government and the States, or the distribution of power and responsibilities among the various levels of government. Nor will the rule have federalism implications warranting the application of Executive Orders No. 12372 and No. 13132.

The Department has reviewed the regulations in light of sections 3(a) and 3(b)(2) of Executive Order No. 12988 to eliminate ambiguity, minimize litigation, establish clear legal standards, and reduce burden.

The Department has considered this rule in light of Executive Order 13563, dated January 18, 2011, and affirms that this regulation is consistent with the guidance therein.

This rule does not impose information collection requirements under the provisions of the Paperwork Reduction Act, 44 U.S.C. Chapter 35.

For the reasons stated in the preamble, the Department of State amends 22 CFR part 41 to read as follows:

Background I. Section 901 Regulations

On August 4, 2006, the Federal Register published proposed regulations (71 FR 44240) under section 901 of the Internal Revenue Code concerning the determination of the person who paid a foreign income tax for foreign tax credit purposes (2006 proposed regulations). The 2006 proposed regulations would address the inappropriate separation of foreign income taxes from the income on which the tax was imposed in certain circumstances. In particular, the 2006 proposed regulations would provide guidance under § 1.901-2(f) relating to the person on whom foreign law imposes legal liability for tax, including in the case of taxes imposed on the income of foreign consolidated groups and entities that have different classifications for U.S. and foreign tax law purposes.

The Treasury Department and the IRS received written comments on the 2006 proposed regulations and held a public hearing on October 13, 2006. All comments are available at www.regulations.gov or upon request. In Notice 2007-95 (2007-2 CB 1091 (December 3, 2007)), the Treasury Department and the IRS announced that when issued, the final regulations will be effective for taxable years beginning after the final regulations are published in the Federal Register . This Treasury decision adopts, in part, the 2006 proposed regulations with the changes discussed in this preamble.

Section 909 was enacted as part of legislation commonly referred to as the Education Jobs and Medicaid Assistance Act (EJMAA) on August 10, 2010 (Pub. L. 111-226, 124 Stat. 2389 (2010)). Section 909 was enacted to address concerns about the inappropriate separation of foreign income taxes and related income.

Section 909 provides that there is a foreign tax credit splitting event if a foreign income tax is paid or accrued by a taxpayer or section 902 corporation and the related income is, or will be, taken into account by a covered person with respect to such taxpayer or section 902 corporation. In such a case, the tax is suspended until the taxable year in which the related income is taken into account by the payor of the tax or, if the payor is a section 902 corporation, by a section 902 shareholder of the section 902 corporation.

On December 6, 2010, the Treasury Department and the IRS issued Notice 2010-92 (2010-2 CB 916 (December 6, 2010)), which primarily addresses the application of section 909 to foreign income taxes paid or accrued by a section 902 corporation in taxable years beginning on or before December 31, 2010 (pre-2011 taxable years). The notice provides rules for determining whether foreign income taxes paid or accrued by a section 902 corporation in pre-2011 taxable years (pre-2011 taxes) are suspended under section 909 in taxable years beginning after December 31, 2010 (post-2010 taxable years) of a section 902 corporation. It also identifies an exclusive list of arrangements that will be treated as giving rise to foreign tax credit splitting events in pre-2011 taxable years (pre-2011 splitter arrangements) and provides guidance on determining the amount of related income and pre-2011 taxes paid or accrued with respect to pre-2011 splitter arrangements. The pre-2011 splitter arrangements are reverse hybrid structures, certain foreign consolidated groups, disregarded debt structures in the context of group relief and other loss-sharing regimes, and two classes of hybrid instruments. The notice states that future guidance will provide that foreign tax credit splitting events in post-2010 taxable years will at least include all of the pre-2011 splitter arrangements. The notice also states that the Treasury Department and the IRS do not intend to finalize the portion of the 2006 proposed regulations relating to the determination of the person who paid a foreign income tax with respect to the income of a reverse hybrid. See Prop. § 1.901-2(f)(2)(iii). Temporary regulations under section 909 are published elsewhere in this issue of the Federal Register .

In response to written comments on the 2006 proposed regulations and in light of the enactment of section 909, the Treasury Department and the IRS have determined that it is appropriate to finalize certain portions of the 2006 proposed regulations. These final regulations revise several of the proposed rules to take into account comments received. Other portions of those regulations are adopted without amendment. The Treasury Department and the IRS have also determined that the remaining portions of the 2006 proposed regulations should be withdrawn. The Treasury Department and the IRS, however, are continuing to consider whether and to what extent to revise or clarify the general rule that tax is considered paid by the person who has legal liability under foreign law for the tax. For example, the Treasury Department and the IRS are continuing to study whether it is appropriate to provide a special rule for determining who has legal liability in the case of a withholding tax imposed on an amount of income that is considered received by different persons for U.S. and foreign tax purposes, as in the case of certain sale-repurchase transactions.

Section 1.901-2(f)(2) of the 2006 proposed regulations addresses the application of the legal liability rule to foreign consolidated groups and other combined income regimes, including those in which the regime imposes joint and several liability in the U.S. sense, those in which the regime treats subsidiaries as branches of the parent corporation (or otherwise attributes income of subsidiaries to the parent corporation), and those in which some of the group members have limited obligations, or even no obligation, to pay the consolidated tax. Section 1.901-2(f)(2)(i) of the 2006 proposed regulations provides that the foreign tax must be apportioned among the persons whose income is included in the combined base pro rata based on each person's portion of the combined income, as computed under foreign law. Because failure to allocate appropriately the consolidated tax among the members of the group may result in the separation of foreign income tax from the related income as described in section 909, comments recommended that the proposed rules be finalized in lieu of treating these arrangements as foreign tax credit splitting events under section 909, which would require suspension of split tax until the related income is taken into account. The Treasury Department and the IRS agree with the comments, and accordingly, § 1.901-2(f)(3)(i) of the final regulations adopts with minor modifications Prop. § 1.901-2(f)(2)(i). As these regulations are generally effective for foreign taxes paid or accrued during taxable years beginning after February 14, 2012, a foreign tax credit splitting event will not occur with respect to foreign taxes paid or accrued on combined income in such years. However, with respect to foreign income taxes paid or accrued on combined income during taxable years beginning after December 31, 2010, and on or before February 14, 2012, temporary regulations under section 909 provide that a foreign tax credit splitting event occurs to the extent that a taxpayer does not allocate the foreign consolidated tax liability among the members of the foreign consolidated group based on each member's share of the consolidated taxable income included in the foreign tax base under the principles of § 1.901-2(f)(3) prior to its amendment by this Treasury decision.

One comment recommended that combined income subject to preferential tax rates should be allocated only to group members with that type of income, in order to more closely match the tax with the related income. The Treasury Department and the IRS agree with this comment, and § 1.901-2(f)(3)(i) of the final regulations provides that combined income with respect to each foreign tax that is imposed on a combined basis, and combined income subject to tax exemption or preferential tax rates, is computed separately, and the tax on that combined income base is allocated separately.

Section 1.901-2(f)(2)(ii) of the 2006 proposed regulations provides that for purposes of § 1.901-2(f)(2) of the 2006 proposed regulations, foreign tax is imposed on the combined income of two or more persons if such persons compute their taxable income on a combined basis under foreign law. Foreign tax is considered to be imposed on the combined income of two or more persons even if the combined income is computed under foreign law by attributing to one such person (for example, the foreign parent of a foreign consolidated group) the income of other such persons. However, foreign tax is not considered to be imposed on the combined income of two or more persons solely because foreign law: (1) Permits one person to surrender a net loss to another person pursuant to a group relief or similar regime; (2) requires a shareholder of a corporation to include in income amounts attributable to taxes imposed on the corporation with respect to distributed earnings, pursuant to an integrated tax system that allows the shareholder a credit for such taxes; or (3) requires a shareholder to include, pursuant to an anti-deferral regime (similar to subpart F of the Internal Revenue Code (sections 951 through 965)), income attributable to the shareholder's interest in the corporation.

The final regulations adopt § 1.901-2(f)(2)(ii) of the 2006 proposed regulations with several modifications in response to comments. Section 1.901-2(f)(3)(ii) of the final regulations provides that tax is considered to be computed on a combined basis if two or more persons that would otherwise be subject to foreign tax on their separate taxable incomes add their items of income, gain, deduction, and loss to compute a single consolidated taxable income amount for foreign tax purposes. In addition, foreign tax is not considered to be imposed on the combined income of two or more persons if, because one or more of such persons is a fiscally transparent entity under foreign law, only one of such persons is subject to tax under foreign law (even if two or more of such persons are corporations for U.S. tax purposes). The regulations include additional illustrations clarifying that foreign tax is not considered to be imposed on combined income solely because foreign law: (1) Reallocates income from one person to a related person under foreign transfer pricing provisions; (2) requires a person to take into account a distributive share of taxable income of an entity that is a partnership or other fiscally transparent entity for foreign tax law purposes; or (3) requires a person to take all or part of the income of an entity that is a corporation for U.S. tax purposes into account because foreign law treats the entity as a branch or fiscally transparent entity (a reverse hybrid). A reverse hybrid does not include an entity that is treated under foreign law as a branch or fiscally transparent entity solely for purposes of calculating combined income of a foreign consolidated group.

One comment requested clarification that the exclusions from the definition of a combined income base (for example, foreign integration and anti-deferral regimes) apply solely for purposes of determining whether a foreign income tax is imposed on combined income, and do not apply for purposes of determining each person's ratable share of the combined income base. The Treasury Department and the IRS agree that these exclusions from the definition of a combined income base do not exclude any amount of income otherwise subject to tax on a combined basis from the operation of the combined income rule. However, since nothing in the list of exclusions affects the amount of income in the combined income base, which is computed under foreign law, the Treasury Department and the IRS believe a change is unnecessary.

Section 1.901-2(f)(2)(iii) of the 2006 proposed regulations provides that a reverse hybrid is considered to have legal liability under foreign law for foreign taxes imposed on the owners of the reverse hybrid in respect of each owner's share of the reverse hybrid's income. As stated in Notice 2010-92, the Treasury Department and the IRS will not finalize the portion of the 2006 proposed regulations relating to the determination of the person who paid a foreign income tax with respect to the income of a reverse hybrid. Notice 2010-92 identifies reverse hybrids as pre-2011 splitter arrangements, and the temporary regulations under section 909 also identify reverse hybrids as splitter arrangements.

Section 1.901-2(f)(2)(iv) of the 2006 proposed regulations provides rules for determining each person's share of the combined income tax base, generally relying on foreign tax reporting of separate taxable income or books maintained for that purpose. The 2006 proposed regulations provide that payments between group members that result in a deduction under both U.S. and foreign tax law will be given effect in determining each person's share of the combined income. The 2006 proposed regulations, however, explicitly reserve with respect to the effect of hybrid instruments and disregarded payments between related parties, which the preamble to the proposed regulations describes as a matter to be addressed in subsequent published guidance. Section 1.901-2(f)(2)(iv) of the 2006 proposed regulations also provides special rules addressing the effect of dividends (and deemed dividends) and net losses of group members on the determination of separate taxable income.

Section 1.901-2(f)(3)(iii) of the final regulations adopts Prop. § 1.901-2(f)(2)(iv) with modifications reflecting that certain hybrid instruments and certain disregarded payments are treated as splitter arrangements subject to section 909. In particular, the final regulations provide that in determining separate taxable income of members of a combined income group, effect will be given to intercompany payments that are deductible under foreign law, even if such payments are not deductible (or are disregarded) for purposes of U.S. tax law. Thus, for example, interest accrued by one group member with respect to an instrument held by another member that is treated as debt for foreign tax purposes but as equity for U.S. tax purposes would be considered income of the holder and would reduce the taxable income of the issuer. The final regulations, however, include a cross- reference to § 1.909-2T(b)(3)(i) for rules requiring suspension of foreign income taxes paid or accrued by the owner of a U.S. equity hybrid instrument.

Section 1.901-2(f)(2)(v) of the 2006 proposed regulations provides that U.S. tax principles apply to determine the tax consequences if one person remits a tax that is the legal liability of another person. For example, a payment of tax for which a corporation has legal liability by a shareholder of that corporation (including an owner of a reverse hybrid), will ordinarily result in a deemed capital contribution and deemed payment of tax by the corporation. Prop. § 1.901-2(f)(2)(v) also provides that if the corporation reimburses the shareholder for the tax payment, such reimbursement would ordinarily be treated as a distribution for U.S. tax purposes. The Treasury Department and the IRS received several comments regarding Prop. § 1.901-2(f)(2)(v) noting that a shareholder's payment of a corporation's tax and a corporation's reimbursement of a shareholder for paying its tax liability will not result in deemed capital contribution and deemed dividend treatment if arrangements are in place that treat the shareholder's payment of the tax as pursuant to a lending or agency arrangement. In response to these comments, the second and third sentences of § 1.901-2(f)(2)(v) of the 2006 proposed regulations are not included in § 1.901-2(f)(3)(iv) of the final regulations, and the final regulations simply provide that U.S. tax principles apply to determine the tax consequences if one person remits a tax that is the legal liability of another person.

Section 1.901-2(f)(3) of the 2006 proposed regulations provides rules regarding the treatment of two types of hybrid entities. First, in the case of an entity that is treated as a partnership for U.S. income tax purposes but is taxable at the entity level under foreign law (which the 2006 proposed regulations define as a hybrid partnership), such entity is considered to have legal liability under foreign law for foreign income tax imposed on the income of the entity. The 2006 proposed regulations also provide rules for allocating foreign tax paid or accrued by a hybrid partnership if the partnership's U.S. taxable year closes with respect to one or more (or all) partners or if there is a change in ownership of the hybrid partnership. See Prop. § 1.901-2(f)(3)(i).

Second, in the case of an entity that is disregarded as separate from its owner for U.S. federal income tax purposes, the person that is treated as owning the assets of such entity for U.S. tax purposes is considered to have legal liability under foreign law for tax imposed on the income of the entity. The 2006 proposed regulations provide rules for allocating foreign tax between the old owner and the new owner of a disregarded entity if there is a change in the ownership of the disregarded entity during the entity's foreign taxable year and such change does not result in a closing of the entity's foreign taxable year. See Prop. § 1.901-2(f)(3)(ii). The 2006 proposed regulations generally provide that for hybrid partnerships and disregarded entities, allocations of tax will be made under the principles of § 1.1502-76(b) based on the respective portions of the taxable income of the hybrid entity (as determined under foreign law) for the foreign taxable year that are attributable to the period ending on the date of the ownership change (or the last day of the terminating partnership's U.S. taxable year) and the period ending after such date. This approach is consistent with the rule provided in § 1.338-9(d) for apportioning foreign tax paid by a target corporation that is acquired in a transaction that is treated as an asset acquisition pursuant to an election under section 338, if the foreign taxable year of the target does not close at the end of the acquisition date.

A change in the ownership of a hybrid partnership or disregarded entity during the entity's foreign taxable year that does not result in the closing of the hybrid entity's foreign taxable year may result in the separation of income from the associated foreign income taxes. A change in the ownership occurs if there is a disposition of all or a portion of the owner's interest. A separation of income from the associated foreign income taxes could occur if the foreign tax paid or accrued with respect to such foreign taxable year has not been allocated appropriately between the old owner and the new owner. Certain changes of ownership involving related parties could be treated as a foreign tax credit splitting event under section 909. Comments recommended that the proposed legal liability rules addressing the treatment of hybrid entities be finalized in lieu of treating the above-described case of a change in the ownership of a hybrid entity as a foreign tax credit splitting event under section 909. The Treasury Department and the IRS agree, and accordingly, the final regulations adopt the proposed rules with modifications in response to comments.

One comment recommended that, if a termination under section 708(b)(1)(B) requires a closing of the books to allocate U.S. taxable income between the old partnership and new partnership but the foreign taxable year does not close, or if a change in a partner's interest results in a closing of the partnership's taxable year with respect to the partner and an allocation of partnership items based on a closing of the books under section 706, foreign tax for the year of change should similarly be allocated under the principles of sections 706 and 708 and the regulations under those sections based on a closing of the books, rather than under the principles of § 1.1502-76(b), which permits ratable allocation of the foreign tax with an exception for extraordinary items. The comment noted that apportioning the foreign tax using the same methodology as is used to apportion U.S. taxable income between the terminating partnership and the new partnership, or between the partner whose interest changes and the other partners, would lead to better matching of foreign tax and the associated income. The Treasury Department and the IRS are concerned about the increased administrative and compliance burdens associated with requiring a closing of the foreign tax books in order to apportion foreign tax for the year of change. Accordingly, this comment was not adopted.

In response to a comment, the final regulations apply the same foreign tax allocation rules to section 708 terminations that arise under section 708(b)(1)(A) in the case of a partnership that has ceased its operations, including a change in ownership in which a partnership becomes a disregarded entity. The final regulations also apply the same allocation rules if there are multiple ownership changes within a single foreign taxable year.

Finally, § 1.901-2(f)(3)(i) of the 2006 proposed regulations defines a hybrid partnership as an entity that is treated as a partnership for U.S. income tax purposes but is taxable at the entity level under foreign law. Because the Treasury Department and the IRS believe that a special definition of the term hybrid partnership is unnecessary and could cause confusion, references to the term hybrid partnership are replaced in the final regulations with references to the term partnership. No substantive change is intended by this revision.

The 2006 proposed regulations would generally apply to foreign taxes paid or accrued during taxable years beginning on or after January 1, 2007. However, consistent with Notice 2007-95, § 1.901-2(h)(4) provides that these final regulations are generally effective for foreign taxes paid or accrued in taxable years beginning after February 14, 2012.

A comment raised several transition-related questions arising in situations where applying the final regulations changes the person who is considered the taxpayer with respect to a particular foreign income tax. First, the comment stated it is unclear what happens to the carryover under section 904(c) of foreign taxes paid or accrued in a taxable year beginning before the effective date of the final regulations (pre-effective date year) to a taxable year beginning on or after the effective date of the final regulations (post-effective date year). The comment recommended that the regulations clarify the treatment of foreign tax credit carryovers from pre-effective date years and foreign tax credit carrybacks from post-effective date years, and that the regulations provide that taxes paid or accrued in a pre-effective date year that are carried forward to a post-effective date year be assigned to the taxpayer that paid or accrued the foreign taxes in the pre-effective date year. Similarly, the comment recommended that taxes paid or accrued in a post-effective date year that are carried back to the last pre-effective date year should be treated in the carryback year as paid or accrued by the taxpayer that paid or accrued the taxes in the post-effective date year.

The Treasury Department and the IRS believe it is clear under current law that the person who paid or accrued foreign income taxes in a pre-effective date year is the person who is eligible under section 904(c) to carry forward such taxes to a post-effective date year, notwithstanding that such person may not be considered the taxpayer under these final regulations had the taxes been paid or accrued in the post-effective date carryover year. Similarly, the Treasury Department and the IRS believe it is clear that the person who paid or accrued foreign income taxes in a post-effective date year is the person who is eligible under section 904(c) to carry back such taxes to the last pre-effective date year. Therefore, the Treasury Department and the IRS believe that revision of the final regulations to reflect this comment is unnecessary.

The comment also recommended that taxpayers be permitted to apply the final regulations retroactively, but that taxpayers should not be permitted to take inconsistent positions with respect to the incidence of the foreign tax. The comment recommended that a duty of consistency be imposed on related parties, or parties that were related at the time the foreign tax was imposed. If parties that were related but are now unrelated do not agree on an election to apply the regulations retroactively, the comment stated no election should be permitted.

In response to the comment, the final regulations permit taxpayers to apply the combined income rules of § 1.901-2(f)(3) of the final regulations to taxable years beginning after December 31, 2010, and on or before February 14, 2012. This provision will permit taxpayers to avoid uncertainty regarding the application of section 909 to foreign taxes paid or accrued by foreign consolidated groups in pre-effective date taxable years beginning in 2011 and 2012. No inference is intended as to the determination of the person who paid the foreign tax under the rules in effect prior to the amendment of the regulations by this Treasury decision. To the extent that a taxpayer did not allocate foreign consolidated tax liability among the members of a foreign consolidated group based on each member's share of the consolidated taxable income included in the foreign tax base under the principles of § 1.901-2(f)(3), the foreign consolidated group is a foreign tax credit splitting event under section 909. See Section 4.03 of Notice 2010-92 and § 1.909-5T.

The Treasury Department and the IRS have concerns about the administrative complexity and burden on taxpayers associated with requirements to elect to apply § 1.901-2(f)(4) retroactively that would be necessary to prevent potential whipsaws from two unrelated persons claiming a foreign tax credit for a single payment of foreign income tax, in cases where different persons are considered to pay the tax under the final regulations and under prior law. Although taxpayers may not elect to apply § 1.901-2(f)(4) retroactively, certain portions of that provision, specifically with respect to the person that has legal liability for a foreign tax paid by a disregarded entity or a partnership in the absence of a change in ownership, were consistent with the rules in effect under the final regulations prior to amendment by this Treasury decision. In addition, to prevent treating more than one person as paying a single amount of tax, § 1.901-2(f)(4) of the final regulations will not apply to any amount of tax paid or accrued in a post-effective date year of any person, if such tax would be treated as paid or accrued by a different person in a pre-effective date year under the prior regulations.

IRS notices cited in this preamble are made available by the Superintendent of Documents, U.S. Government Printing Office, Washington, DC 20402.

The following publication is obsolete in part as of February 14, 2012.

Notice 2007-95 (2007-2 CB 1091).

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

The principal author of these regulations is Suzanne M. Walsh of the Office of Associate Chief Counsel (International). However, other personnel from the IRS and Treasury Department participated in their development.

Accordingly, 26 CFR part 1 is amended as follows:

Background

The final regulations that is the subject of these corrections are under section 482 of the Internal Revenue Code.

As published, final regulations (TD 9568), contains errors which may prove to be misleading and are in need of clarification.

Accordingly, the final regulations (TD 9568) that was the subject of FR Doc. 2012-895 is corrected to read as follows:

The final regulations that are the subject of these corrections are under section 482 of the Internal Revenue Code.

As published, the correcting amendments to final regulations (TD 9568), contains errors which may prove to be misleading and are in need of clarification.

Accordingly, the publication of the correcting amendments to final regulations, (TD 9568), which were the subject of FR Doc. 2012-895, is corrected as follows:

1. On page 3606, second column, instructional paragraph 3., item 4. the language “4. Revising paragraph (k)(2)(ii)(3) is corrected to read “5. Revising paragraph (k)(2)(ii)(A)( 3 ).

2. On page 3606, second column, under the instructional paragraph 3., the language “4. Revising the fourth sentence of paragraph (g)(4)(viii), Example 3.” is added.

Section 503(a) of the Act permits a State to assume primacy for the regulation of surface coal mining and reclamation operations on non-Federal and non-Indian lands within its borders by demonstrating that its program includes, among other things, “a State law which provides for the regulation of surface coal mining and reclamation operations in accordance with the requirements of this Act * * *; and rules and regulations consistent with regulations issued by the Secretary pursuant to this Act.” See 30 U.S.C. 1253(a)(1) and (7). On the basis of these criteria, the Secretary of the Interior conditionally approved the Texas program effective February 16, 1980. You can find background information on the Texas program, including the Secretary's findings, the disposition of comments, and the conditions of approval of the Texas program in the February 27, 1980, Federal Register (45 FR 12998). You can also find later actions concerning the Texas program and program amendments at 30 CFR 943.10, 943.15, and 943.16.

By letter dated May 18, 2011, (Administrative Record No. TX-667) Texas sent us an amendment to its Program under SMCRA (30 U.S.C. 1201 et seq. ) at its own initiative. This amendment added language to no longer require an operation with only reclamation activities ongoing to renew their mining permit, to clarify the requirement to maintain public liability insurance for sites where the permit is not renewed because the only activities ongoing are reclamation, and to clarify midterm review times for sites where the permit is not renewed because the only ongoing activities are reclamation.

By letter dated May 26, 2011, (Administrative Record No. TX-668) Texas sent us an amendment to its Program under SMCRA (30 U.S.C. 1201 et seq. ) at its own initiative. This amendment added a new definition for “Previously mined land,” added new language on the effects of previous mining violations from operations on previously mined lands in relation to permit application denials, and added new language explaining performance standards for revegetation liability timeframes for coal mining and reclamation operations.

By letter dated June 3, 2011, (Administrative Record No. TX-669) Texas sent us an amendment to its Program under SMCRA (30 U.S.C. 1201 et seq. ) at its own initiative. This amendment added a new definition for “Director;” deleted old language, and added new language clarifying the review periods for new permits, renewals, and significant revisions.

Texas revised its program with these three amendments to improve operational efficiency.

We announced receipt of the proposed amendments in the August 16, 2011, Federal Register (75 FR 50708). In the same document, we opened the public comment period and provided an opportunity for a public hearing or meeting on the adequacy of the amendments. We did not hold a public hearing or meeting because no one requested one. The public comment period ended on September 15, 2011. We did not receive any public comments.

We are approving the amendments as described below. The following are the findings we made concerning the amendments under SMCRA and the Federal regulations at 30 CFR 732.15 and 732.17. The full text of the changes made can be found in the administrative record or online at Regulations.gov.

Texas added new language allowing a permittee to not renew their mining permit if the activities on the site are solely for reclamation purposes.

We find that Texas' new language is substantively the same as the language of the counterpart Federal regulations at 30 CFR 773.4(a) and will not make Texas' regulations less effective than the Federal counterpart. Therefore, we are approving it.

Texas added a new paragraph (a)(3) to clarify that midterm permit reviews will continue to be conducted when an existing permit is not renewed because the only ongoing activities within the permit area are for reclamation.

We find that this new paragraph is comparable to its Federal counterpart at 30 CFR 774.10(a)(2) and (3) and its addition does not make Texas' regulations less effective than the Federal regulation. Therefore, we are approving it.

Texas revised this section with minor language changes to paragraph (b).

We find that Texas' changes make this paragraph substantively the same as the counterpart Federal regulation 30 CFR 800.60(b). Therefore, we are approving them.

Texas added a new definition for “previously mined land” in lieu of the definition of “lands eligible for remining” contained in SMCRA at § 701(34).

We find that Texas' new definition coincides with definitions found in the Federal regulations dealing with remining and is a suitable counterpart to the definition contained in SMCRA because it addresses all aspects of the SMCRA definition. Therefore, the addition of this new definition will make Texas' statutes no less stringent than SMCRA and we are approving it.

Texas added a new paragraph (c) to incorporate equivalent statutory language found at SMCRA § 510(e) with regard to the criteria for denial of a permit application due to permit violations during mining on previously mined land. Although Texas' language is not identical to the Federal language, it is similar. SMCRA § 510(e) is specific that the unanticipated event or condition is “at” a surface coal mine while Texas' § 134.069 uses the phrase “in connection with.”

We find that this difference in wording is allowable as long as Texas implements it with the same intent of SMCRA § 510(e) and the Federal regulations at 30 CFR 773.13. Based on this, we find that the addition of the new paragraph will make Texas' statutes no less stringent than the requirements of SMCRA. Therefore, we are approving it.

Texas added new language to (a)(20) to incorporate equivalent statutory language found at SMCRA § 515(b)(20) with regard to the term of the extended responsibility period for mining of previously mined lands.

This new language creates a separate paragraph, (a)(20)(B), for lands that meet the new definition of “previously mined lands” which we have already found to be no less stringent than SMCRA. Texas' new provision requiring an operator to assume responsibility for 2 years on previously mined land is substantively the same as the Federal requirements at 515(b)(20)(B). However, this section does not address the period of responsibility for areas that receive an annual precipitation amount of 26 inches or less. This responsibility requirement is addressed in section 134.104 and is discussed below.

We find that this new language makes Texas' statutes no less stringent than the requirements of SMCRA. Therefore, we are approving it.

Texas added new language to this section to incorporate equivalent statutory language found at SMCRA § 515(b)(20) with regard to the term of the extended responsibility period for mining of previously mined lands. The new language clarifies the liability periods for areas that receive an annual average precipitation amount of 26 inches or less as five years on previously mined lands and 10 years on lands not previously mined.

We find that this new language makes Texas' statutes no less stringent than the requirements of SMCRA. Therefore, we are approving it.

Texas deleted language in this section referring to the “five year or 10 year” period of responsibility. This deletion was made so the section coincides with other changes made to the statutes that were discussed above. This change allows the modified sentence to refer to whichever “applicable period” applies.

We find that this deletion makes Texas' statutes no less stringent than the requirements of SMCRA. Therefore, we are approving it.

Texas added a definition for “Director,” defining it as the director of the Surface Mining and Reclamation Division of the Railroad Commission of Texas or the director's representative.

We find that there is no Federal counterpart for the new definition and it does not make Texas' statutes less stringent than the requirements of SMCRA. However, Texas' current regulations at § 12.3(54) currently define “director” as “the Director of the Office of Surface Mining Reclamation and Enforcement (OSM).” Once we approve this change to Texas' statute, Texas will amend its approved program regulations. We are approving this change to Texas' statutes.

Texas modified the section's title and deleted paragraph (b), which required the Commission to approve or disapprove a permit revision within 90 days. Texas added a new section 134.085 that describes, in detail, the Commission's requirements for processing new permits, renewals, and revisions, including processing and notification timeframes. SMCRA § 511(a)(2) requires that revisions be approved or disapproved “within a period of time established by the State or Federal Program.”

We find that these changes make Texas' statutes no less stringent than the requirements of SMCRA. Therefore, we are approving them.

Texas added this new section to codify application processing timeframes that have previously been in effect and to comply with SMCRA § 511(a)(2) which requires States to establish such timeframes. Texas established a seven day application review period to determine application completeness followed by a 120 day review period for new permits, renewals, or significant revisions and a 90 day review period for applications considered to be non-significant departures.

We find that the addition of this new section makes Texas' statutes no less stringent than the requirements of SMCRA. Therefore, we are approving it.

We asked for public comments on the amendments, but did not receive any.

On June 27, 2011, under 30 CFR 732.17(h)(11)(i) and section 503(b) of SMCRA, we requested comments on the amendments from various Federal agencies with an actual or potential interest in the Texas program (Administrative Record Nos. TX-667.02, TX-668.02, and TX-669.02). We did not receive any comments.

Under 30 CFR 732.17(h)(11)(ii), we are required to get a written concurrence from EPA for those provisions of the program amendments that relate to air or water quality standards issued under the authority of the Clean Water Act (33 U.S.C. 1251 et seq. ) or the Clean Air Act (42 U.S.C. 7401 et seq. ). None of the revisions that Texas proposed to make in these amendments pertained to air or water quality standards. Therefore, we did not ask EPA to concur on the amendments. However, on June 27, 2011, under 30 CFR 732.17(h)(11)(i), we requested comments on the amendments from the EPA (Administrative Record Nos. TX-667.02, TX-668.02, and TX-669.02). The EPA did not respond to our request.

Under 30 CFR 732.17(h)(4), we are required to request comments from the SHPO and ACHP on amendments that may have an effect on historic properties. On June 27, 2011, we requested comments on Texas' amendments (Administrative Record Nos. TX-667.02, TX-668.02, and TX-669.02), but neither responded to our request.

Based on the above findings, we approve the amendments Texas sent us on May 18, 2011, May 26, 2011, and June 3, 2011.

To implement this decision, we are amending the Federal regulations at 30 CFR part 943, which codify decisions concerning the Texas program. We find that good cause exists under 5 U.S.C. 553(d)(3) to make this final rule effective immediately. Section 503(a) of SMCRA requires that the State's program demonstrate that the State has the capability of carrying out the provisions of the Act and meeting its purposes. Making this rule effective immediately will expedite that process. SMCRA requires consistency of State and Federal standards.

This rule does not have takings implications. This determination is based on the analysis performed for the counterpart Federal regulation.

This rule is exempted from review by the Office of Management and Budget (OMB) under Executive Order 12866.

The Department of the Interior has conducted the reviews required by section 3 of Executive Order 12988 and has determined that this rule meets the applicable standards of subsections (a) and (b) of that section. However, these standards are not applicable to the actual language of State regulatory programs and program amendments because each program is drafted and promulgated by a specific State, not by OSM. Under sections 503 and 505 of SMCRA (30 U.S.C. 1253 and 1255) and the Federal regulations at 30 CFR 730.11, 732.15, and 732.17(h)(10) decisions on proposed State regulatory programs and program amendments submitted by the States must be based solely on a determination of whether the submittal is consistent with SMCRA and its implementing Federal regulations and whether the other requirements of 30 CFR parts 730, 731, and 732 have been met.

This rule does not have Federalism implications. SMCRA delineates the roles of the Federal and State governments with regard to the regulation of surface coal mining and reclamation operations. One of the purposes of SMCRA is to “establish a nationwide program to protect society and the environment from the adverse effects of surface coal mining operations.” Section 503(a)(1) of SMCRA requires that State laws regulating surface coal mining and reclamation operations be “in accordance with” the requirements of SMCRA, and section 503(a)(7) requires that State programs contain rules and regulations “consistent with” regulations issued by the Secretary pursuant to SMCRA.

In accordance with Executive Order 13175, we have evaluated the potential effects of this rule on Federally-recognized Indian tribes and have determined that the rule does not have substantial direct effects 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. This determination is based on the fact that the Texas program does not regulate coal exploration and surface coal mining and reclamation operations on Indian lands. Therefore, the Texas program has no effect on Federally-recognized Indian tribes.

On May 18, 2001, the President issued Executive Order 13211 which requires agencies to prepare a Statement of Energy Effects for a rule that is (1) considered significant under Executive Order 12866, and (2) likely to have a significant adverse effect on the supply, distribution, or use of energy. Because this rule is exempt from review under Executive Order 12866 and is not expected to have a significant adverse effect on the supply, distribution, or use of energy, a Statement of Energy Effects is not required.

This rule does not require an environmental impact statement because section 702(d) of SMCRA (30 U.S.C. 1292(d)) provides that agency decisions on proposed State regulatory program provisions do not constitute major Federal actions within the meaning of section 102(2)(C) of the National Environmental Policy Act (42 U.S.C. 4332(2)(C)).

This rule does not contain information collection requirements that require approval by OMB under the Paperwork Reduction Act (44 U.S.C. 3507 et seq. ).

The Department of the Interior certifies that this rule will not have a significant economic impact on a substantial number of small entities under the Regulatory Flexibility Act (5 U.S.C. 601 et seq. ). The State submittal, which is the subject of this rule, is based upon counterpart Federal regulations for which an economic analysis was prepared and certification made that such regulations would not have a significant economic effect upon a substantial number of small entities. In making the determination as to whether this rule would have a significant economic impact, the Department relied upon the data and assumptions for the counterpart Federal regulations.

This rule is not a major rule under 5 U.S.C. 804(2), the Small Business Regulatory Enforcement Fairness Act. This rule: (a) Does not have an annual effect on the economy of $100 million; (b) Will not cause a major increase in costs or prices for consumers, individual industries, Federal, State, or local government agencies, or geographic regions; and (c) Does not have significant adverse effects on competition, employment, investment, productivity, innovation, or the ability of U.S.-based enterprises to compete with foreign-based enterprises. This determination is based upon the fact that the State submittal, which is the subject of this rule, is based upon counterpart Federal regulations for which an analysis was prepared and a determination made that the Federal regulation was not considered a major rule.

This rule will not impose an unfunded mandate on State, local, or tribal governments or the private sector of $100 million or more in any given year. This determination is based upon the fact that the State submittal, which is the subject of this rule, is based upon counterpart Federal regulations for which an analysis was prepared and a determination made that the Federal regulation did not impose an unfunded mandate.

For the reasons set out in the preamble, 30 CFR part 943 is amended as set forth below:

The Bank Secrecy Act (“BSA”)  1 authorizes the Secretary of the Treasury (the “Secretary”) to issue regulations requiring financial institutions to keep records and file reports that the Secretary determines “have a high degree of usefulness in criminal, tax, or regulatory investigations or proceedings, or in the conduct of intelligence or counterintelligence activities, including analysis, to protect against international terrorism.”  2 In addition, the Secretary is authorized to impose anti-money laundering (“AML”) program requirements on financial institutions. 3 The authority of the Secretary to administer the BSA has been delegated to the Director of FinCEN. 4

Financial institutions are required to establish AML programs that include, at a minimum: (1) The development of internal policies, procedures, and controls; (2) the designation of a compliance officer; (3) an ongoing employee training program; and (4) an independent audit function to test programs. When prescribing minimum standards for AML programs, FinCEN must “consider the extent to which the requirements imposed under [the AML program requirement] are commensurate with the size, location, and activities of the financial institutions to which such regulations apply.”  5 The BSA also requires financial institutions to file suspicious activity reports (“SARs”). 6

The BSA defines the term “financial institution” to include, in part, a loan or finance company. 7 The term “loan or finance company” is not defined in any FinCEN regulation, and there is no legislative history on the term. The term, however, can reasonably be construed to extend to any business entity that makes loans to or finances purchases on behalf of consumers and businesses. Some loan and finance companies extend personal loans and loans secured by real estate mortgages and deeds of trust, including home equity loans. Non-bank residential mortgage lenders and originators (“RMLOs”—generally known as “mortgage companies” and “mortgage brokers” in the residential mortgage business sector) are a significant subset of the “loan or finance company” category, in terms of the number of businesses and the aggregate volume and value of transactions they facilitate. 8

In 2002, FinCEN issued a regulation that temporarily exempted loan and finance companies and other categories of BSA-defined financial institutions from the obligation to establish AML programs. 9 The purpose of the exemption was to enable Treasury and FinCEN to study these categories of institutions and to consider the extent to which BSA requirements should be applied to them, taking into account their specific characteristics and money laundering vulnerabilities. 10 As a result, RMLOs did not have to comply with AML or SAR regulations or other BSA reporting and recordkeeping requirements intended to help prevent money laundering and fraud, and support law enforcement efforts. Subsequently, FinCEN analyses and law enforcement investigations identified this exemption as a regulatory gap that can be exploited by criminals, particularly in the conduct of mortgage fraud.

On July 21, 2009, FinCEN issued an Advance Notice of Proposed Rulemaking (“ANPRM”)  11 soliciting general comments on whether FinCEN should issue AML and SAR program regulations for RMLOs. Most of the comments received in response to the ANPRM generally supported AML and SAR regulations for RMLOs. On December 9, 2010, FinCEN issued a Notice of Proposed Rulemaking (“NPRM”)  12 to solicit comments on specific proposed regulations for RMLOs. The NPRM proposed AML and SAR regulations with standards and requirements that are substantially identical to those in AML and SAR regulations for banks and other financial institutions that offer retail consumer banking services and originate mortgage loans.

Both the ANPRM and the NPRM suggested that the AML program and SAR filing regulations for RMLOs would be issued as the first step in an incremental approach to implementation of regulations for the broad loan or finance company category of financial institutions. Thus, the definition of “loan or finance company” would initially include only RMLOs, but would be structured to permit the addition of other types of loan and finance related businesses and professions in future amendments.

Since 2006, FinCEN has issued numerous studies analyzing SARs reporting suspected mortgage fraud and money laundering that involved both banks and RMLOs, the latter typically brokering or selling purchase money and refinance loans to lending institutions. 13 The reports underscore the potential benefits of AML and SAR regulations for a variety of businesses in the primary and secondary residential mortgage markets, including RMLOs. As noted in the NPRM and emphasized in several related public comments, RMLOs are primary providers of mortgage finance—in most cases dealing directly with the consumer—and are in a unique position to assess and identify money laundering risks and fraud while directly assisting consumers with their financial needs and protecting the sector from the abuses of financial crime. Comments on the ANPRM and NPRM emphasized that the risks of fraud and other financial crimes, including money laundering, are substantial in the RMLO sector and are growing. Some comments stated that the financial crime risks in the sector are “no less significant” than those faced by banks providing mortgage loan services. 14

Most of the comments on the NPRM generally supported the issuance of AML program and SAR filing regulations for RMLOs. The Final Rule is based on the NPRM and adopts all of the regulatory provisions proposed with a few exceptions, noted below. The AML regulation promulgates the four minimum requirements noted earlier. The SAR regulation requires reporting of suspicious activity, including but not limited to fraudulent attempts to obtain a mortgage or launder money by use of the proceeds of other crimes to purchase residential real estate. The Final Rule does not require RMLOs to comply with any other BSA reporting or recordkeeping regulations, such as currency transaction reports (CTRs). 15 The few large currency transactions expected to be conducted in the sector will continue to be subject to reporting on FinCEN Form 8300. 16

FinCEN believes that much of the effort necessary to meet these regulatory obligations, including information gathering, will be accomplished through business operations already undertaken as part of normal transaction negotiation, completion of required Federal forms and disclosures, and due diligence and review of property and collateral. With this Final Rule, FinCEN believes RMLOs will assume a crucial role in government and industry efforts to protect consumers, mortgage finance businesses, and the U.S. financial system from mortgage fraud, money laundering, and other financial crimes.

The comment period on the NPRM ended on February 7, 2011. FinCEN received 15 comment letters from individuals, businesses, and representatives of various groups whose members had an interest in the proposed AML and SAR program requirements. The comments offered a range of views on the appropriate scope of any new regulations, and on various implementation- and compliance-related matters of concern to industry, regulators and law enforcement.

The NPRM proposed specific AML program and SAR filing requirements for RMLOs as the first step in an incremental approach to implementation of regulations for loan and finance companies. In order to limit the scope of the Final Rule to RMLOs, the NPRM proposed a definition of the term “loan or finance company” that includes business entities or sole proprietorships (not individuals) acting within the bounds of specified definitions for the terms residential mortgage lender and residential mortgage originator.

Seven comments on the NPRM addressed aspects of the incremental approach FinCEN has chosen, mostly supportive. Many commenters also urged that the Final Rule cover other types of businesses and professions in the primary and secondary residential real estate markets, as well as other types of consumer and commercial loan and finance companies, not just residential mortgage lenders and originators.

Two commenters argued that FinCEN should not delay implementation of BSA requirements for other loan or finance companies. One argued that an uneven playing field would be to the advantage of fraudsters and criminals, who will take advantage of financial industry sectors that have less stringent BSA requirements. The other commenter argued that such an incremental approach misses the opportunity to provide law enforcement with critical information about high-risk real estate transactions and needlessly continues the exemption of U.S. real estate and escrow agents. A number of comments suggested that FinCEN issue final rules for commercial lenders, as well as RMLOs, in connection with this rulemaking.

Comments of this nature were anticipated from industry as well as regulators and law enforcement, due to heightened concern about criminals potentially shifting the focus of their fraud and other illegal financial transactions and money laundering to uncovered businesses and professions. Arguably, the absence of rules for other types of loan or finance companies might be exploited by criminals insofar as they may shift the focus of their criminal enterprises from residential real estate to other consumer and commercial finance businesses. FinCEN reports note that SARs involving commercial real estate, in particular, have increased in recent periods. 17

Some comments urged simultaneous—or very prompt—issuance of AML and SAR rules for businesses in a separate, but related, category of BSA-defined financial institution—“persons involved in real estate closings and settlements.”  18 FinCEN regulations in this category could include persons as varied as real estate agents and real estate brokers, closing attorneys and agents, title search and title insurance companies, appraisers, escrow companies, and other firms involved in initial purchase money transactions as well as subsequent refinancing in the form of, for example, home equity loans, reverse mortgages, and real estate-secured consumer loans. Three commenters suggested that FinCEN should propose rules for real estate agents and other persons involved in real estate closings and settlements. One commenter advocated for the Final Rule to include two types of businesses that logically belong in the “persons involved * * *” category—real estate agents and escrow companies. The comment emphasized the critical role a few of these companies played in recent high-profile money laundering cases. One comment specifically opposed such a proposal, arguing that in nearly all real estate finance transactions in which real estate agents participate funds are transferred using the services of different businesses that already are required to comply with AML and SAR regulations.

In sum, several comments on the NPRM expressed support for expanding the scope of the Final Rule to cover businesses and professions involved in a broad range of consumer and commercial real estate and non-real estate related finance. Upon consideration of the comments, FinCEN is not inclined at this time to propose a definition of “loan or finance company” that would encompass other types of consumer or commercial finance companies, or real estate agents and other “persons involved in real estate closings and settlements.”

FinCEN intends to defer regulations for these other businesses and professions until further research and analysis can be conducted to enhance our understanding of the operations and money laundering vulnerabilities of these businesses. Accordingly, as the NPRM suggested, the definition of “loan or finance company” in the Final Rule has been structured to permit the addition of other types of loan and finance companies in future rulemakings.

The NPRM suggested that FinCEN would not propose any additional BSA regulations for the sector at this time, including CTR requirements. 19 One commenter addressed this issue specifically, supporting FinCEN's view that CTR filing requirements are unnecessary for loan or finance companies. FinCEN agrees, and therefore, the Final Rule does not adopt any CTR requirements or any other BSA regulations. 20

FinCEN sought comment on any particular aspects of the loan or finance company sector that should be considered when making a decision about whether, to whom, and how to delegate examination authority. Under 31 CFR 1010.810(a), “[O]verall authority for enforcement and compliance, including coordination and direction of procedures and activities of all other agencies exercising delegated authority under this chapter, is delegated [by the Secretary of the Treasury] to the Director, FinCEN.” In turn, Federal functional regulators have been delegated authority to examine certain financial institutions they oversee for compliance with FinCEN's regulations. As noted in the NPRM, the Internal Revenue Service (“IRS”) has been delegated the authority, under this regulation, 21 to examine for compliance with FinCEN's regulations those financial institutions that are not examined by a Federal functional regulator.

Commenters suggested options for FinCEN to delegate complete or partial examination authority over RMLOs for compliance with the Final Rule. The options noted in the public comments included, in addition to the IRS, state regulatory agencies, the Consumer Financial Protection Bureau, and the Federal banking agencies (particularly with respect to RMLOs affiliated with banks or insured depository institutions and their holding companies). Upon consideration of all the comments, FinCEN will work with other relevant regulatory agencies in the development of consistent compliance examination procedures, and in the future will provide public notice of other agencies that will exercise delegated compliance examination authority with respect to certain classes of RMLOs and other loan or finance companies.

Three commenters suggested that FinCEN establish a separate SAR filing system and form for the exclusive use of residential mortgage lenders and originators. Another commenter requested that FinCEN continue to accommodate manual paper SAR filings, as many covered entities do not have automated systems.

FinCEN considered requiring RMLOs to use Treasury SAR Form TD F 90-22.47, presently used by banks and other insured depository institutions. The information required for a SAR from an RMLO would be substantially the same as that required of banks and other depository institutions that make mortgage loans and use Form TD F 90-22.47. However, FinCEN is modernizing its SAR filing system and intends to establish a uniform electronic form for use by all financial institutions with a SAR filing obligation. 22 Accordingly, the Final Rule has a delayed compliance date to allow time for industry to implement programs and systems and for FinCEN to implement the new SAR filing system. In addition, FinCEN intends to phase out the manual filing of paper SAR forms. 23 RMLOs will, therefore, be required to use FinCEN's electronic, web-based E-Filing system under development for the filing of the uniform SAR form. This electronic filing system will not require use of commercial automated systems, but will be usable by anyone with access to the Internet. 24

The NPRM suggested exceptions or exclusions for: banks and insured depository institutions; persons registered with and functionally regulated or examined by the U. S. Securities and Exchange Commission or the Commodity Futures Trading Commission; individuals employed by covered loan or finance companies and affiliated financial institutions; and individuals who finance the sale of their own property ( i.e., seller-financed sales). The NPRM expressed the long-held view that exceptions are appropriate for individuals and entities already subject to AML and SAR regulations to avoid overlapping or duplicative requirements, and that seller-financed transactions do not present the same risks as most transactions conducted at arm's-length.

In response to FinCEN's request for comments on the matter of appropriate exclusions and exceptions, some commenters opposed any additional exemptions or exceptions beyond those suggested in the NPRM, while others urged FinCEN to consider one or more additional exceptions. One commenter stated that the registration and training requirements mandated by the Secure and Fair Enforcement for Mortgage Licensing Act of 2008 (“SAFE Act”)  25 are sufficient to address anti-money laundering and terrorist financing risks encountered by RMLOs. Another commenter argued that small businesses with fewer than five employees should be exempt.

FinCEN does not agree that the registration and training requirements under the SAFE Act are sufficient to address all of the concerns and accomplish all of the goals related to AML and SAR programs. However, FinCEN intends to continue its dialogue with the CSBS to coordinate the identification and examination of mortgage originators subject to the Final Rule. SARs filed pursuant to FinCEN's regulations go into a database that is accessible to regulatory agencies and law enforcement on the Federal, state and local levels. The information in FinCEN's database, and FinCEN's complementary analysis, is crucial to the successful investigation and prosecution of money laundering, fraud, and other financial crimes—a point emphasized in several comments on the NPRM.

FinCEN does not agree that RMLOs with less than a certain arbitrary number of employees or net worth should be excepted from the Final Rule. Such an exception would leave a large gap in coverage of RMLO businesses. Comments on the NPRM confirm that the absence of SAR rules for RMLOs has resulted in a substantial gap in mortgage fraud related SAR reporting. FinCEN believes that a “small business” exclusion or exception for businesses with fewer than five employees, or for businesses that satisfy some other arbitrary size, net worth or similar criteria, would perpetuate the present substantial gap in SAR reporting. The widespread knowledge that all banks and other insured depository institutions have well-established AML and SAR programs likely has deterred some criminals and caused them to consider other options for integrating illicit funds into the financial system. The inclusion of arbitrary, size-related exceptions from the Final Rule may result in unintended consequences that undermine the effectiveness of a comprehensive, risk-based AML and SAR program regime. Such exceptions could, for example, encourage a shift of a substantial portion of mortgage transactions to small lenders and brokers, however “small” is defined.

A similar comment suggested a de minimis exception for businesses that lend or broker loans under a relatively low value, or low aggregate volume of transactions within a set time period. For the reasons stated above, we see no compelling reason to except any businesses or transactions based on an arbitrary, de minimis dollar amount or volume of transactions.

Commenters both supported and opposed the NPRM's proposed coverage of sole proprietorships. Consistent with the NPRM, the Final Rule explicitly covers sole proprietorships. For the same reasons that support the rejection of an exception for small businesses, the Final Rule does not recognize an exception based on a business's status as a sole proprietorship or other kind of business entity under Federal or state incorporation or tax laws. An exception for sole proprietorships likely would perpetuate, to some degree, the SAR filing gap and risk adverse impacts on the mortgage markets. Thus, the Final Rule does not incorporate any such exceptions for businesses based on their form of organization.

Section 1010.100(lll) defines the key terms used in the Final Rule. The definitions reflect FinCEN's determination that the term “loan or finance company” should be limited, at this time, to RMLOs, and that AML program and SAR requirements should be applied first to these businesses, and later—as part of a phased approach—applied to other consumer and commercial loan and finance companies. With the exception of the addition of explicit exclusions for government-sponsored enterprises and certain government programs and a slight change to the definition of residential mortgage originator, discussed below, the Final Rule adopts the definitions as proposed.

In the NPRM, “residential mortgage originator” was defined as a person who “takes a residential mortgage loan application and offers or negotiates terms of a residential mortgage loan for compensation or gain.” One commenter suggested that the proposed language “takes a residential mortgage loan application” was ambiguous as to who would be subject to the requirements. FinCEN intends the Final Rule to be broad in scope and cover most non-bank residential mortgage originators, with the few exceptions recognized in the Final Rule and described in this notice. FinCEN intends the Final Rule to cover any business that, on behalf of one or more lenders, accepts a completed mortgage loan application, even if the business does not in any manner engage in negotiating the terms of a loan. FinCEN also intends the Final Rules to cover businesses that offer or negotiate specific loan terms on behalf of either a lender or borrower, regardless of whether they also accept a mortgage loan application. Accordingly, the Final Rule modifies the proposed definition of “residential mortgage originator” slightly to include “persons” who accept a residential mortgage loan application or that offer or negotiate terms of a residential mortgage loan.” The change made from the NPRM of replacing the term “take” with “accept” is intended to differentiate the Final Rule from the SAFE Act. The change from “and” to “or” is intended to ensure that persons who either accept an application or offer or negotiate the terms of a loan are covered. In addition, FinCEN intends the Final Rule to apply to residential mortgage originators, regardless of whether they receive compensation or gain for acting in that capacity. Accordingly, the phrase “for compensation or gain” in the proposed definition is removed from the definition in the Final Rule. These changes create greater differences between the definitions in this Final Rule and those used in the SAFE Act and other federal mortgage-related statutes. This was done intentionally to differentiate this Final Rule from those statutes so that the interpretation of this Final Rule is not based on the interpretation of those statutes. FinCEN intends the definitions in the Final Rule and subsequent amendments thereto to be consistent with definitions in the SAFE Act and other federal mortgage-related statutes, only to the extent deemed appropriate to advance FinCEN's mission, strategic goals, and policies. As discussed in the NPRM, the Final Rule does not contemplate coverage of an individual employed by a loan or finance company or financial institution, and provides an exception for individuals financing the sale of their own real estate. 26 For example, individuals employed by a loan or finance company that would be not be subject to the rule include administrative assistants and office clerks who gather documents, review land records and complete forms on behalf of a lender or originator.

One commenter inquired whether the Final Rule (or any aspects thereof) would apply to the housing government sponsored enterprises (“GSEs”) and their employees involved in “loss mitigation” activities. FinCEN would like to clarify that no provision of the Final Rule applies to the housing GSEs or any of their employees, regardless of whether they are involved in loss mitigation or any other housing GSE activity or program. FinCEN has revised the proposed definition of “loan or finance company” to exclude “any government sponsored enterprise regulated by the Federal Housing Finance Agency.” Where fraud is suspected by a housing GSE, there is an established procedure, currently set forth in a Memorandum of Understanding between FinCEN and the Federal Housing Finance Agency (“FHFA”) for the GSE to report to the FHFA, which then reports the suspicious activity to FinCEN. 27

The Final Rule generally is intended to cover initial purchase money loans and traditional refinancing transactions facilitated by RMLOs. Another commenter asked FinCEN to clarify whether the Final Rule would apply to transactions involving funds or programs under the Troubled Asset Relief Program and similar Federal programs, 28 or any similar state housing authority or housing assistance program. These programs are intended to prevent loan default and foreclosure. Most of these programs apply to existing loans in default or at risk of default. While these programs are administered by government agencies that have developed standards, procedures, and qualifications to prevent fraud and abuse, the programs nonetheless are vulnerable to fraud and money laundering—a risk acknowledged by the commenter.

Since 2009 FinCEN has warned financial institutions and consumers about the fraud and money laundering risks associated with foreclosure prevention and loan modification programs, 29 and FinCEN agrees with the commenter's assessment of the risks associated with the programs identified in the comment. Accordingly, FinCEN expects that RMLOs participating in such programs to comply with the Final Rule to the extent any transactions conducted by the RMLO could reasonably be considered to be extending a residential mortgage loan or offering or negotiating the terms of a residential mortgage loan, within the meaning of the definitions of “residential mortgage lender” and “residential mortgage originator” in the Final Rule. The Final Rules, however, do not apply to the Federal or state housing authorities and agencies administering such programs. The proposed definition of “loan or finance company” has been revised to exclude “any Federal or state agency or authority administering mortgage or housing assistance, fraud prevention or foreclosure prevention programs.”

The commenter also requested clarification whether the Final Rule would apply to foreclosure prevention actions and counseling services performed by legitimate, non-profit organizations—some of which may receive minimal compensation to assist in the preparation of a mortgage application, or provide short-term loans to facilitate foreclosure prevention actions. Consistent with our views regarding RMLOs that participate in Federal and state foreclosure prevention programs, FinCEN also expects non-profit housing organizations to comply with the Final Rule, to the extent any such organization may reasonably be deemed to be extending a residential mortgage loan (including a short-term mortgage loan), or offering or negotiating the terms of a residential mortgage loan. However, FinCEN would not expect legitimate, non-profit organizations that limit their activities to assisting with the preparation of loan applications or referral of prospective borrowers to qualified lenders, for free or for a fee; that provide short-term, non-mortgage loans to qualified borrowers or homeowners; or that otherwise facilitate the extension of a residential mortgage loan (but do not make the loan or offer or negotiate the terms of the loan), to fall within the scope of the Final Rule.

One commenter requested that FinCEN exclude mortgage servicers from the definition of residential mortgage loan originator. FinCEN generally views loan servicers as businesses that support post-origination principal and interest collection and taxation, and not as a business or activity that “offers or negotiates” the terms of a mortgage loan. FinCEN agrees that the typical activities of mortgage servicing companies do not fall within the definition of residential mortgage originator in this Final Rule. We will not, however, make a blanket exclusion or exception for mortgage servicers. The definition is based on the activity in which an entity is engaged. Thus, as long as a mortgage servicer does not extend residential mortgage loans or offer or negotiate the terms of a residential mortgage loan application, it will not fall under of the definition of residential mortgage loan originator. The commenter also requested that FinCEN exclude servicers working with loan modification programs, such as the Home Affordable Modification Program, or “HAMP,” from the definition of residential mortgage loan originator. FinCEN agrees that loan modifications under such programs are not covered by this Final Rule to the extent that the modifications do not involve extending new residential mortgage loans or offering or negotiating the terms of a residential mortgage loan application.

Section 1029.210 requires that each loan or finance company develop and implement an anti-money laundering program reasonably designed to prevent the loan or finance company from being used to facilitate money laundering or the financing of terrorist activities. Two commenters argued that RMLOs should not be required to maintain AML programs, but only be required to file SARs. One commenter, a mortgage company, argued that mortgage fraud was the primary issue and not money laundering, so an AML program is unnecessary. The other commenter, a trade association, argued that SAR filings are the primary means of conveying valuable information to law enforcement, as contemplated under the BSA, and that requiring a full AML program imposes unnecessary complexity, paperwork, and regulatory burdens that outweigh the potential benefits to law enforcement. The commenter argued simply that maintaining an AML program would create an unnecessary regulatory burden, and the costs would far outweigh the benefits to law enforcement.

FinCEN believes that a complete AML program is essential to an adequate, efficient SAR filing program. FinCEN refers to the “four pillars” of an AML program for a reason, as each one is critical to holding up the overall structure of the program. Without one, the others will fail. 30 It would be difficult to expect useful SAR reporting without the pillars of an AML program firmly in place. Moreover, it is in the best interest of everyone involved in a mortgage finance transaction to try to prevent the fraud before it occurs. Prevention is a core purpose behind FinCEN's regulatory requirements for AML programs.

FinCEN's regulations are structured to ensure that financial institutions are knowledgeable of risks and vigilant against criminal abuse. With all BSA AML regulations, businesses are required to implement risk-based programs that take into account the unique risks associated with that particular business' products and services, as well as the business' size, market, and other issues. Thus, each AML program would necessarily be different than those of businesses with different product, geographic, and other risks. FinCEN reports and other research underscore that mortgage fraud is one of the most significant operational risks facing RMLOs in the ordinary course of business.

Under a risk-based approach to implementation of the Final Rule, FinCEN expects fraud prevention, as well as money laundering prevention, to be key goals underlying the various policies and procedures in an effective AML program for an RMLO. Therefore, the proposed AML regulation is adopted in this Final Rule without change.

Section 1029.320 contains the rules setting forth the obligation of loan or finance companies to report suspicious transactions that are conducted or attempted by, at, or through a loan or finance company and involve or aggregate at least $5,000 in funds or other assets. It is important to recognize that transactions are reportable under this Final Rule and 31 U.S.C. 5318(g) regardless of whether they involve currency. The $5,000 minimum amount is consistent with existing SAR filing requirements for other financial institutions regulated by FinCEN.

Section 1029.320(a)(2) specifically describes the four categories of transactions that require reporting. A loan or finance company is required to report a transaction if it knows, suspects, or has reason to suspect that the transaction (or a pattern of transactions of which the transaction is a part): (i) Involves funds derived from illegal activity or is intended or conducted to hide or disguise funds or assets derived from illegal activity; (ii) is designed, whether through structuring or other means, to evade the requirements of the BSA; (iii) has no business or apparent lawful purpose, and the loan or finance company knows of no reasonable explanation for the transaction after examining the available facts; or (iv) involves the use of the loan or finance company to facilitate criminal activity. 31

Several comments requested guidance with regard to when a SAR would be required to be filed. A determination as to whether a SAR is required must be based on all the facts and circumstances relating to the transaction and customer of the loan or finance company in question. Different fact patterns will require different judgments. Some examples of red flags are referenced in previous FinCEN reports on mortgage fraud and money laundering in the residential and commercial real estate sectors. 32 However, the means of commerce and the techniques of money laundering and mortgage fraud are continually evolving, and there is no way to provide an exhaustive list of suspicious transactions. FinCEN will continue to pursue a regulatory approach that involves a combination of appropriate regulations, written guidance, support of industry training programs, and maintenance of a government-industry information exchange so that any new AML program and SAR reporting regulations can be implemented in as flexible and cost efficient way as possible, while protecting the sector and the financial system as a whole from fraud, money laundering, and other financial crimes.

Section 1029.320(b) sets forth the filing procedures to be followed by loan or finance companies making reports of suspicious transactions. Within 30 days after a loan or finance company becomes aware of a suspicious transaction, the business must report the transaction by completing a SAR and filing it with FinCEN. Two commenters addressed FinCEN's SAR reporting system. The first commenter suggested that there should be one centralized place for reporting to allow streamlined interaction with regulators. That is, in fact, the case, as all SARs are filed with FinCEN and made available to the appropriate agencies. The second commenter argued that a specific system for residential mortgage lenders needs to be developed that is separate from the current system for other financial industries. While FinCEN's new uniform filing system, discussed in II.D. above, will require the use of one form by all businesses subject to FinCEN SAR regulations, the uniform form has been designed to be used by a range of filer types, with required data fields for each type of filer reflecting the kinds of activities reported by those specific filer types, including RMLOs.

Section 1029.320(d)(1) reinforces the statutory prohibition against the disclosure by a financial institution of a SAR (regardless of whether the report is required by the Final Rule or is filed voluntarily). Thus, the section requires that a SAR and information that would reveal the existence of that SAR be kept confidential and not be disclosed except as authorized within the rules of construction. The Final Rule includes rules of construction that identify actions an institution may take that are not precluded by the confidentiality provision. These actions include the disclosure of SAR information to FinCEN, or Federal, state, or local law enforcement agencies, or a Federal regulatory authority that examines the loan or finance company for compliance with the BSA, or a state regulatory authority administering a State law that requires the loan or finance company to comply with the BSA or otherwise authorizes the State authority to ensure that the loan or finance company complies with the BSA. 33 This confidentiality provision also does not prohibit the disclosure of the underlying facts, transactions, and documents upon which a SAR is based (provided the existence of the SAR is not disclosed), or the sharing of SAR information within the loan or finance company's corporate organizational structure for purposes consistent with Title II of the BSA as determined by FinCEN in regulation or in guidance. 34

Section 1029.320(d)(2) incorporates the statutory prohibition against disclosure of a SAR or the fact that a SAR has been filed, other than in fulfillment of official duties consistent with the BSA, by government users of SAR data. The section also clarifies that official duties do not include the disclosure of SAR information in response to a request for non-public information  35 or for use in a private legal proceeding, including a request under 31 CFR 1.11. 36

Section 1029.320(e) provides protection from liability for making reports of suspicious transactions, and for failures to disclose the fact of such reporting, to the full extent provided by 31 U.S.C. 5318(g)(3). Two commenters requested the same protection from liability for RMLOs as that which exists for other financial institutions. This Final Rule, in section 1029.320(e), provides exactly the same “safe harbor” for RMLOs as is provided for other financial institutions. The provisions in the NPRM are adopted without change.

Section 1029.320(f) notes that compliance with the obligation to report suspicious transactions will be examined by FinCEN or its delegates, and provides that failure to comply with the Final Rule may constitute a violation of the BSA and the BSA regulations. One comment requested that FinCEN clearly define the consequences of failing to file a SAR. Section 1029.320(f) is intended to cover violations of SAR filing requirements, and FinCEN is authorized to impose a range of civil and criminal penalties, the severity of which depends on the specific circumstances. 37

Section 1029.320(g) provides that the new SAR requirement applies to transactions occurring after an AML program is required, which is [six months from the Final Rule's publication date]. As noted above, the delayed compliance date for SAR filings is also intended to allow time for implementation of the new SAR filing system.

Section 1029.500 states generally that loan or finance companies are subject to the special information procedures to detect money laundering and terrorist activity requirements set forth and cross referenced in sections 1029.520 (cross-referencing to 31 CFR 1010.520) and 1029.540 (cross-referencing to 31 CFR 1010.540). Sections 1010.520 and 101.540 implement sections 314(a) and 314(b) of the USA PATRIOT Act, respectively, and generally apply to any financial institution listed in 31 U.S.C. 5312(a)(2) and any such financial institution that is subject to an AML program requirement, respectively. Because loan or finance companies are specifically enumerated in section 5312(a)(2), and upon the effective date will be subject to the AML program requirement, they will be subject to the section 314 rules on that date. For the sake of clarity, the Final Rule adds subpart E to part 1029 to confirm that both of the section 314 rules will apply to loan or finance companies on that date.

When an agency issues a rulemaking, the Regulatory Flexibility Act (“RFA”) requires the agency to “prepare and make available for public comment a regulatory flexibility analysis” which will “describe the impact of the rule on small entities” (5 U.S.C. 603(a)). Section 605 of the RFA allows an agency to certify a rule, in lieu of preparing an analysis, if the rulemaking is not expected to have a significant economic impact on a substantial number of small entities.

Estimate of the number of small entities to which the Final Rule will apply:

For the purpose of arriving at an estimated number of RMLOs, FinCEN relied on information gathered from various public sources, including major trade associations and Federal and state government regulators. Estimates based on this data suggest that as of 2010 there were approximately 31,000 qualifying entities in the United States, down from approximately 42,000 in 2009. FinCEN also referred to information gathered from the North American Industry Classification System codes, which lists loan or finance companies as codes 522292 (Real Estate Credit) and 522310 (Mortgage and Nonmortgage Loan Brokers). 38 The U.S. Census Bureau estimated there were about 36,275 entities in these classifications in 2002. However, these classifications include services that are broader than those provided by loan or finance companies, so the number of loan or finance companies to which this Final Rule is applicable is significantly less. Within this classification, those entities that have less than seven million dollars in annual gross revenue are considered small. FinCEN estimates that 95% of the affected industry is considered a small business, and that the Final Rule will affect most RMLO compliance programs in a limited manner.

Description of the reporting and recordkeeping requirements of the Final Rule:

The Final Rule requires loan or finance companies to maintain AML programs and file reports on suspicious transactions. By requiring this, FinCEN is addressing vulnerabilities in the U.S. financial system and is leveling the playing field between bank and non-bank lenders. FinCEN does not foresee a significant impact on the regulated industry from these requirements. Loan or finance companies, as a usual and customary part of their business for each transaction, conduct a significant amount of due diligence on both the property securing the loan and the borrower. This process of due diligence involves the types of inquiry and collecting the types of information that would be expected in any program to prevent money laundering and fraud and to detect and report suspicious transactions. 39

The Final Rule does not impose significant burden on loan or finance companies. These companies may build on their existing risk management procedures and prudential business practices to ensure compliance with this Final Rule. FinCEN and other agencies have issued substantial guidance on the development of AML programs and SAR reporting requirements. 40 Most loan or finance companies subject to the Final Rule likely will not need to obtain more sophisticated legal or accounting advice than that already required to run their businesses. Residential mortgage lenders and originators undertake due diligence of borrowers and collateral to assess the credit risk associated with a particular loan. The information gathered by these businesses generally is the same as, or very similar to, the information that is expected in any programs to prevent money laundering and detect and report suspicious transactions.

In the NPRM, FinCEN sought comment on the extent to which AML programs or SAR reporting requirements would require affected businesses to conduct a degree of due diligence, or collect an amount of information, beyond that presently conducted to assess credit worthiness and minimize losses due to fraud. Of the three responses on this issue, two (one from a mortgage company and one from a trade association representing mortgage related businesses) argued that AML program and SAR reporting requirements could be integrated into existing compliance and anti-fraud infrastructure without considerable difficulty. One commenter suggested that such integration could be done efficiently and effectively if accompanied by guidance, training, and feedback from FinCEN. Only one commenter questioned FinCEN's assumptions regarding integration of the proposed rules into existing procedures and systems of affected businesses. The commenter stated that FinCEN had not offered evidence that AML programs could be efficiently and cost-effectively integrated into businesses' existing anti-fraud programs, and that businesses would need to establish new, separate programs to satisfy FinCEN's AML program requirements. Based on the comments that responded positively to FinCEN's assumptions and analysis regarding this issue, and FinCEN's experience over two decades with other businesses that have been required to adopt AML programs—including businesses which all have the same or more extensive requirements than are required by this Final Rule and have gone through this same process of building on existing compliance policies and procedures—FinCEN believes that loan and finance companies will be able to build on their existing compliance policies and procedures and prudential business practices to ensure compliance with this Final Rule with relatively minimal cost and effort. As FinCEN has done with the other industries subject to the requirements of the BSA, FinCEN will actively engage with loan and finance companies, provide guidance and feedback, and endeavor to make compliance with the regulations as cost effective and efficient as possible for all affected businesses.

A few commenters opposed the NPRM, arguing that the regulations would be too burdensome and costly, particularly for small businesses. One commenter stated that the burden falls on the owner of a small business to be the compliance officer and do training, which takes away from time developing business. The costs and burdens of developing risk management and AML compliance procedures, complying with a range of consumer protection regulations, and generally establishing safe and sound business practices, however, generally are borne by businesses of all sizes, and the exceptions available to small businesses with respect to some specific requirements may minimize—but not entirely eliminate—general compliance costs and burdens. FinCEN believes that the minimal, incremental increase in compliance costs and burdens that may potentially be borne by affected businesses in complying with the Final Rule will not disproportionately burden small businesses; thus, the Final Rule does not establish any blanket exception for any businesses, regardless of size or other criteria or characteristics.

One commenter suggested that loan and finance companies should have AML programs commensurate with their risk profile, as is the case with banks subject to AML and SAR regulations. FinCEN believes that the flexibility incorporated into the Final Rule permits each loan and finance company to tailor its AML program to fit its own size, needs, and operational risks. In this regard, FinCEN believes that expenditures associated with establishing and implementing an AML program will be commensurate with the size and risk profile of a loan or finance company. Based on inherent risks, some businesses may deem it appropriate to implement more comprehensive policies, procedures, and internal controls than others. FinCEN does not intend for each RMLO to have identical policies and procedures for their AML programs. This flexibility to tailor programs to the risk profile of the loan or finance company is exactly what one trade association commenter noted. As with other financial institutions subject to the requirements of the BSA, if a loan or finance company is small or does not engage in high-risk transactions the burden to comply with the Final Rule likely will be negligible. One commenter disagreed with the estimated burden hours listed in the NPRM, for both AML program and SAR filing requirements, but did not provide any specific estimates or data for FinCEN to consider in the alternative. The estimated hours for the establishment of a new AML program and SAR filing requirements are based on FinCEN's experience with other industries newly required to comply with the same or more extensive BSA obligations, and these estimates are the same as those used in other such rulemakings for businesses that, as yet, have had no AML program or SAR filing requirement.

FinCEN understands that commenters are concerned about the potential impact that compliance regulations—BSA-related or otherwise—may have on small firms and solo practitioners. Nonetheless, the Final Rule requires the establishment of a complete AML program. An AML program is essential to an effective SAR reporting program. The AML regulations are risk-based, as are all FinCEN AML regulations. Accordingly, company management has broad discretion to design and implement programs that reflect and respond to the company's unique fraud and money laundering risks. Small businesses will not be expected to invest in elaborate or expensive systems to comply with the Final Rule, nor will they be required to hire consulting firms or outside professionals to assess risks. FinCEN estimates that the impact of the AML program requirement and the assessment of risks associated with it will not be significant for covered loan and finance companies.

The Final Rule requires loan or finance companies to report on transactions of $5,000 or more that they determine to be suspicious. Loan or finance companies have not previously been required to comply with such a regulation. However, as noted above, most loan or finance companies, in order to remain viable, have in place policies and procedures to prevent and detect fraud, insider abuse, and other crimes. Established anti-fraud measures should assist loan or finance companies in reporting suspicious transactions. Many loan or finance companies already voluntarily report suspicious transactions and fraud through entities such as the Loan Modification Scam Prevention Network. 41 Additionally, loan or finance companies, as part of the application process for loans, already gather the information necessary to fill out SAR forms as a usual and customary part of their business. It is likely that the software packages most of these companies already use will, after this regulation, incorporate the ability to automatically fill out all but the narrative field in a SAR based on information already input for the loan application. Therefore, FinCEN estimates that the burden of the SAR filing requirements for loan or finance companies will be low.

The additional burden under the Final Rule is a requirement to maintain an AML program and a SAR filing requirement. As discussed above, FinCEN estimates that the impact from these requirements will not be significant. Accordingly, FinCEN certifies that the Final Rule will not have a significant impact on a substantial number of small entities.

The collection of information contained in this Final Rule is being submitted to OMB for review in accordance with the Paperwork Reduction Act of 1995 (“PRA”). 42 The information collections in this proposal are contained in 31 CFR 1029.210 and 31 CFR 1010.320.

AML programs for loan or finance companies (31 CFR 1020.210). This information is required to be retained pursuant to 31 U.S.C. 5318(h) and 31 CFR 1029.210. The collection of information would be mandatory. The information is collected pursuant to 103.142 and is used by examiners to determine whether loan or finance companies comply with the BSA.

Description of Recordkeepers: Loan or finance companies as defined in 31 CFR 1010.100(lll).

Estimated Number of Recordkeepers: 31,000.

Estimated Average Annual Burden Hours per Recordkeeper: The estimated average annual burden associated with the recordkeeping requirement in 31 CFR 1029.210 is three hours.

Estimated Total Annual Recordkeeping Burden: FinCEN estimates that the annual recordkeeping burden is 93,000 hours.

In order to manage our estimated burden hours related to implementation of new AML program regulations most efficiently, the burden hours associated with this Final Rule will be included (added to) the existing burden listed under OMB Control Number 1506-0035 currently titled AML Programs for insurance companies. The new title for this control number will become AML Programs for insurance companies and loan or finance companies. The new total burden will be 94,200 hours.

SARs for loan and finance companies (31 CFR 1029.320). This information is required to be provided pursuant to 31 U.S.C. 5318(g) and 31 CFR 1029.320. This information is used by law enforcement agencies in the enforcement of criminal and regulatory laws and to prevent loan and finance companies from engaging in illegal activities. The collection of information is mandatory. The Final Rule increases the number of recordkeepers by 31,000.

Description of Recordkeepers: Loan or finance companies as defined in 31 CFR 1010.100(kkk).

Estimated Number of Recordkeepers: 31,000.

Estimated Average Annual Burden Hours per Recordkeeper: The estimated average annual burden associated with the recordkeeping requirement in 31 CFR 1029.320 is 2 hours per report, and FinCEN estimates that, on average, one report per filer will be filed per year.

Estimated Total Annual Recordkeeping Burden: The Final Rule increases the estimated annual burden by 62,000 consisting of one hour for report completion and one hour for required recordkeeping. The reporting and recordkeeping burden for this requirement is reflected under OMB Control Number 1506-0065, the BSA Suspicious Activity Report, which is increased by 62,000 hours.

An agency may not conduct or sponsor, and a person is not required to respond to, a collection of information unless the collection of information displays a valid OMB control number. Records required to be retained under the BSA must be retained for five years.

It has been determined that this Final Rule is a significant regulatory action for purposes of Executive Orders 13563 and 12866.

Section 202 of the Unfunded Mandates Reform Act of 1995 (“Unfunded Mandates Act”), Public Law 104-4 (March 22, 1995), requires that an agency prepare a budgetary impact statement before promulgating a rule that may result in expenditure by the state, local, and tribal governments, in the aggregate, or by the private sector, of $100 million or more in any one year. If a budgetary impact statement is required, section 202 of the Unfunded Mandates Act also requires an agency to identify and consider a reasonable number of regulatory alternatives before promulgating a rule. Taking into account the factors noted above and using conservative estimates of average labor costs in evaluating the cost of the burden imposed by the Final Rule, FinCEN has determined that it is not required to prepare a written statement under section 202.

For the reasons set forth in the preamble, Chapter X of title 31 of the Code of Federal Regulations is amended as follows:

Table of Contents I. General Information A. Why is the EPA using a direct final rule? B. Does this action apply to me? C. Where can I obtain a copy of this action? D. Judicial Review II. This Action III. Statutory and Executive Order Reviews A. Executive Order 12866: Regulatory Planning and Review and Executive Order 13563: Improving Regulation and Regulatory Review B. Paperwork Reduction Act C. Regulatory Flexibility Act D. Unfunded Mandates Reform Act E. Executive Order 13132: Federalism F. Executive Order 13175: Consultation and Coordination with Indian Tribal Governments G. Executive Order 13045: Protection of Children from Environmental Health Risks and Safety Risks H. Executive Order 13211: Actions Concerning Regulations that Significantly Affect Energy Supply, Distribution, or Use I. National Technology Transfer and Advancement Act J. Executive Order 12898: Federal Actions To Address Environmental Justice in Minority Populations and Low-Income Populations K. Congressional Review Act I. General Information A. Why is the EPA using a direct final rule?

The EPA is publishing this rule without a prior proposed rule because we view this as a non-controversial action and anticipate no adverse comment. This action establishes QA/QC procedures for continuous opacity monitoring systems used to demonstrate continuous compliance with opacity standards in federally enforceable regulations. We believe that these QA/QC procedures are reasonable and that they can be met by any well-maintained and operated COMS. Furthermore, the procedures were developed based on input provided by the affected parties. On May 8, 2003, we published a proposed rule to codify QA/QC procedures for COMS (i.e., Procedure 3). Due to other priorities, we did not finalize Procedure 3, but public comments received on the proposal have been considered in this action. This rule also takes into account changes in technology since 2003.

In the “Proposed Rules” section of this Federal Register , we are publishing a separate document that will serve as the proposed rule if relevant adverse comments are received on this direct final rule. We will not institute a second comment period on this action. Any parties interested in commenting, must do so at this time. For further information about commenting on this rule, see the ADDRESSES section of this document. If the EPA receives adverse comment, we will publish a timely withdrawal in the Federal Register informing the public that this direct final rule will not take effect. We would address all public comments in any subsequent final rule based on the proposed rule.

Procedure 3 applies to COMS used to demonstrate continuous compliance with opacity standards in federally enforceable regulations.

In addition to being available in the docket, an electronic copy of this rule will also be available on the Worldwide Web (www) through the Technology Transfer Network (TTN). Following the Administrator's signature, a copy of the final rule will be placed on the TTN's policy and guidance page for newly proposed or promulgated rules at http://www.epa.gov/ttn/oarpg. The TTN provides information and technology exchange in various areas of air pollution control. A redline strikeout document that compares this final rule to the proposed rule has also been added to the docket.

Under section 307(b)(1) of the Clean Air Act (CAA), judicial review of this direct final rule is available by filing a petition for review in the United States Court of Appeals for the District of Columbia Circuit by April 16, 2012. Under section 307(d)(7)(B) of the CAA, only an objection to this direct final rule that was raised with reasonable specificity during the period for public comment can be raised during judicial review. Moreover, under section 307(b)(2) of the CAA, the requirements that are the subject of this direct final rule may not be challenged later in civil or criminal proceedings brought by the EPA to enforce these requirements.

This direct final rule codifies Procedure 3 in 40 CFR part 60, Appendix F. Procedure 3 establishes quality assurance and quality control procedures for continuous opacity monitoring systems used to demonstrate continuous compliance with opacity standards in federally enforceable regulations. More specifically, Procedure 3 provides requirements for daily instrument zero and upscale drift checks, daily status indicator checks, quarterly performance audits, annual zero alignment audits, and corrective action for malfunctioning COMS. On May 8, 2003, we published a proposed rule to codify Procedure 3. However, due to other priorities, we did not finalize Procedure 3 after the comment period ended July 7, 2003. Public comments received on the May 8, 2003, proposal have been considered in this action.

Most of the comments on the 2003 proposal required us to provide clarifications and updates. For example, several commenters were confused by the wording of the applicability statement in the 2003 proposal. We revised the applicability statement in the direct final rule to remove the ambiguity. The direct final rule references the 1998, 2003, and 2007 versions of the American Society of Testing and Materials' Standard Practice for Opacity Monitor Manufacturers to Certify Conformance with Design and Performance Specifications, whereas the 2003 proposal referenced the 1998 version only.

This action is not a “significant regulatory action” under the terms of Executive Order 12866 (58 FR 51735, October 4, 1993) and is therefore not subject to review under Executive Orders 12866 and 13563 (76 FR 3821, January 21, 2011).

This action does not impose an information collection burden under the provisions of the Paperwork Reduction Act, 44 U.S.C. 3501 et seq. Burden is defined at 5 CFR 1320.3(b). These quality assurance procedures do not add information collection requirements beyond those currently required under the applicable regulations.

The Regulatory Flexibility Act (RFA) generally requires an agency to prepare a regulatory flexibility analysis of any rule subject to notice and comment rulemaking requirements under the Administrative Procedure Act or any other statute unless the agency certifies that the rule will not have a significant economic impact on a substantial number of small entities. Small entities include small businesses, small organizations, and small governmental jurisdictions.

For purposes of accessing the impacts of this rule on small entities, small entity is defined as: (1) A small business as defined by the Small Business Administration's (SBA) regulations at 13 CFR 121.201; (2) a small governmental jurisdiction that is a government of a city, county, town, school district or special district with a population of less than 50,000; and (3) a small organization that is any not-for-profit enterprise which is independently owned and operated and is not dominant in its field.

After considering the economic impacts of this rule on small entities, I certify that this action will not have a significant economic impact on a substantial number of small entities. This final rule will not impose any requirements on small entities. This action establishes quality assurance procedures for continuous opacity monitoring systems used to demonstrate continuous compliance with opacity standards as specified in federally enforceable regulations and does not impose additional regulatory requirements on sources.

This rule does not contain a federal mandate that may result in expenditures of $100 million or more for State, local, and tribal governments, in the aggregate, or the private sector in any one year. Rules establishing quality assurance requirements impose no costs independent from national emission standards which require their use, and such costs are fully reflected in the regulatory impact assessment for those emission standards. Thus, this rule is not subject to the requirements of sections 202 or 205 of UMRA.

This rule is also not subject to the requirements of section 203 of UMRA because it contains no regulatory requirements that might significantly or uniquely affect small governments. This action simply establishes quality assurance procedures for continuous opacity monitoring systems used to demonstrate continuous compliance with opacity standards as specified in federally enforceable regulations.

This action does not have federalism implications. It will not have substantial direct effects on the States, on the relationship between the national government and the States, or on the distribution of power and responsibilities among the various levels of government, as specified in Executive Order 13132. This action establishes quality assurance procedures for continuous opacity monitoring systems used to demonstrate continuous compliance with opacity standards as specified in federally enforceable regulations. Thus, Executive Order 13132 does not apply to this action.

This action does not have tribal implications, as specified in Executive Order 13175 (65 FR 67249, November 9, 2000). This action establishes quality assurance procedures for continuous opacity monitoring systems used to demonstrate continuous compliance with opacity standards as specified in federally enforceable regulations. It does not add any emission limits and does not affect pollutant emissions or air quality. Thus, Executive Order 13175 does not apply to this action.

The EPA interprets EO 13045 (62 FR 19885, April 23, 1997) as applying only to those regulatory actions that concern health or safety risks, such that the analysis required under section 5-501 of the EO has the potential to influence the regulation. This action is not subject to EO 13045 because it does not establish an environmental standard intended to mitigate health or safety risks.

This action is not subject to Executive Order 13211 (66 FR 28355 (May 22, 2001)) because it is not a significant regulatory action under Executive Order 12866.

Section 12(d) of the National Technology Transfer and Advancement Act of 1995 (“NTTAA”), Public Law 104-113, 12(d) (15 U.S.C. 272 note) directs the EPA to use voluntary consensus standards in its regulatory activities unless to do so would be inconsistent with applicable law or otherwise impractical. Voluntary consensus standards are technical standards (e.g., materials specifications, test methods, sampling procedures, and business practices) that are developed or adopted by voluntary consensus standards bodies. NTTAA directs the EPA to provide Congress, through OMB, explanations when the Agency decides not to use available and applicable voluntary consensus standards.

This action does not involve technical standards. Therefore, the EPA did not consider the use of any voluntary consensus standards.

Executive Order (EO) 12898 (59 FR 7629 (Feb. 16, 1994)) establishes federal executive policy on environmental justice. Its main provision directs federal agencies, to the greatest extent practicable and permitted by law, to make environmental justice part of their mission by identifying and addressing, as appropriate, disproportionately high and adverse human health or environmental effects of their programs, policies, and activities on minority populations and low-income populations in the United States.

The EPA has determined that this direct final rule will not have disproportionately high and adverse human health or environmental effects on minority or low-income populations because it does not affect the level of protection provided to human health or the environment. This rule does not relax the control measures on sources regulated by the rule and, therefore, will not cause emissions increases from these sources.

The Congressional Review Act, 5 U.S.C. 801 et seq., as added by the Small Business Regulatory Enforcement Fairness Act of 1996, generally provides that before a rule may take effect, the agency promulgating the rule must submit a rule report, which includes a copy of the rule, to each House of the Congress and to the Comptroller General of the United States. The EPA will submit a report containing this rule and other required information to the U.S. Senate, the U.S. House of Representatives, and the Comptroller General of the United States prior to publication of the rule in the Federal Register . A major rule cannot take effect until 60 days after it is published in the Federal Register . This action is not a “major rule” as defined by 5 U.S.C. 804(2). This rule will be effective April 16, 2012.

For the reasons stated in the preamble, title 40, chapter I of the Code of Federal Regulations is amended as follows:

USAID's final rule exempting portions of the Partner Vetting System (PVS) from provisions of the Privacy Act of 1974 went into effect on August 4, 2009 after several extensions, the most recent of which was published on May 6, 2009 (74 FR 20871). Although USAID did not further extend the effective date, the agency did not implement PVS at that time in order to allow additional input from interested parties and to allow PVS to be applied to both assistance and acquisitions. Before the agency determines whether to implement PVS on a world-wide basis, USAID is launching a PVS pilot program to determine the costs and benefits of implementing PVS more broadly. At the conclusion of the pilot program, State and USAID will determine whether it is necessary to implement PVS more broadly, and/or make changes to the risk-based model it employs. In order to apply PVS to USAID acquisitions, USAID is amending 48 CFR Chapter 7, which is USAID's procurement regulation. USAID published a Notice of Proposed Rulemaking (NPRM) in the Federal Register on June 26, 2009 (74 FR 30494) with a public comment period of 60 days, closing on August 25, 2009. During the 60-day comment period, USAID received comments from five separate respondents. All respondents expressed concerns about USAID's intent to implement PVS and reiterated objections raised during and after the public comment period when USAID established the PVS as a new system of records (72 FR 39042) and exempted portions of PVS from one or more provisions of the Privacy Act (74 FR 9). However, since comments of this nature are outside the scope of the Proposed Rule, we are not addressing them in this Final Rule. Only those comments directly addressing the proposed amendments to the AIDAR and our responses are discussed below.

USAID is issuing a final rule amending 48 CFR Chapter 7, as described in the proposed rule with some modifications in response to the public comments received. This final rule implements the partner vetting system for USAID acquisitions by adding a new subpart 704.70 to (48 CFR) AIDAR, with an associated solicitation provision and contract clause in (48 CFR) AIDAR Part 752. Additionally, this final rule amends (48 CFR) AIDAR Parts 713, 714, and 715, 716, and adds a new Part 744 to include reference to the requirements at (48 CFR) AIDAR Subpart 704.70.

USAID received comments and suggestions from five organizations on its proposed rule to amend 48 CFR Chapter 7, which would enable USAID to apply the Partner Vetting System to USAID acquisitions. While some of the comments and suggestions received did address the proposed amendments, many of the comments and suggestions focused instead on the Partner Vetting System itself. Most, if not all, of those comments and suggestions previously were responded to when USAID published in the Federal Register its Privacy Act final rule for the Partner Vetting System. See 74 FR 9 (January 2, 2009). Although that final rule exempted from release under the Privacy Act only information from other government agencies and related to investigations, USAID's discussion of all comments and suggestions received, beginning at 74 FR 10, addresses these general comments.

While not required to respond to comments and suggestions which did not expressly address the proposed amendment to 48 CFR Chapter 7, USAID nevertheless would like to dispel one major misconception that was reiterated in many of those comments and suggestions. Some organizations that submitted comments and suggestions erroneously referred to the Privacy Act final rule as a rule applicable only to “non-profit, non-governmental applicants to USAID.” That is not an accurate description of either the Privacy Act final rule or of any other Partner Vetting System notices published by USAID in the Federal Register . With the exception of the NPRM for 48 CFR Chapter 7, which is specific to acquisition, USAID's notices pertaining to the Partner Vetting System were all applicable to all non-governmental organizations (NGOs), both for-profit and non-profit, whether they are applying for assistance awards or submitting offers/bids for acquisition instruments. The term “NGO” as used in the following notices was comprehensive, covering all organizations that were non-governmental organizations. These notices established a system of records for the Partner Vetting System (72 FR 39042), proposed to exempt portions of this system of records from one or more provisions of the Privacy Act (72 FR 39768), proposed information collection procedures for the Partner Vetting System (72 FR 40110), and included a Partner Information Form for information collection purposes (72 FR 56041). While USAID initially determined that it was not necessary to amend its regulation on assistance (22 CFR 226) to implement the Partner Vetting System, we did determine, as reflected in the proposed rule to amend 48 CFR Chapter 7, that it is necessary to amend the AIDAR. We have subsequently determined that rulemaking is appropriate for our assistance regulation, 22 CFR Part 226, and will publish separate Notices for that purpose.

The following responses address comments that were specific to the proposed rule for Partner vetting in USAID Acquisitions:

Comment 1: “USAID declares that `regardless of the point at which vetting begins, source selection proceeds separately from vetting' and the contracting officer only confirms with the vetting official whether an offeror has `passed' the vetting process. We strongly concur and recommend that the declarative statement that `source selection proceeds separately from vetting' be included in both the prescriptive provisions in Subpart 704.70 as well as in the clauses.”

Response: USAID concurs with this recommendation. Although the proposed rule already stated in sections 704.7004-1(d) and 752.704-70(c) that the two processes are separate, we agree that the recommended declarative statements would strengthen the requirement. We have added the recommended statements. USAID also intends to provide its contracting officers and negotiators with detailed implementing procedures in the Agency's Automated Directives System (ADS) that will emphasize the importance of keeping the two processes separate.

Comment 2: The Professional Services Council (PSC) provided extensive discussion on the timing of vetting. It recommended that USAID establish an “open season” on submissions of the Form to the USAID Office of Security (SEC). It also encouraged potential offerors to collect their information early and suggested that USAID should encourage early submission of the Form to SEC in order to allow for the maximum amount of time for vetting to occur. The PSC also suggested that untimely vetting could result in a constructive adverse ”responsibility” determination.

Response: USAID appreciates the concern expressed in these comments about the need to carefully time vetting and would like to reassure all prospective offerors that we share this concern. As stated in the NPRM, for FAR Part 15 competitive negotiations, we determined that vetting should typically be done at the competitive range stage (see 48 CFR 15.306(c)), after we carefully weighed the need to allow as much time as possible for vetting against the burden to offerors and USAID staff, especially SEC, of collecting information from offerors who may have no chance of receiving an award. Discussions would therefore occur concurrently with vetting. The Rule does allow for contracting officers to still have the discretion to request offerors to submit the Form at a different stage. And, for procurements using other procedures, including IQC task orders, contracting officers will have full discretion to decide the most appropriate time, and the Rule allows for this flexibility. We considered an “open season” approach of allowing prospective offerors to decide for themselves when to submit the vetting form, but because of the possible impact on the SEC's workload and the burden on offerors, we determined that early submission may not be practical.

We also recognize that for many contractors, the key individuals who are part of the company's management team are unlikely to change from one procurement to another, so most likely these key individuals' passing initial vetting will expedite subsequent vetting. For this reason, submitting the Vetting Form for key management individuals is unlikely to make much difference to the overall amount of time needed for vetting. Offerors and contractors may collect the vetting information at the time they consider more practical, but USAID will request submission at the time the contracting officer considers most appropriate, as stated in the solicitation.

Regarding the comment that should the Office of Security workload affect timing and potentially lead to a “constructive adverse `responsibility' determination outside the acquisition process,” we disagree with any characterization of a vetting determination as a responsibility determination, constructively or otherwise. USAID views vetting as an eligibility requirement.

Finally, USAID is formalizing plans for a joint pilot conducted with the Department of State. This pilot will implement PVS in 5 countries with varying levels of risk. The pilot will help the Agency determine the resource requirements for both the vetting officials and the Office of Security, as well as testing our assumptions about vetting and its impact on our programs. If the results of the pilot indicate that adjustments to improve timing will improve the vetting process, then we will certainly make those adjustments, including through rule-making if appropriate.

Comment 3: “USAID differentiates between `key individuals' and `key personnel,' noting that `the terms are not synonymous; all key personnel will be key individuals but not all key individuals will be key personnel.' Both the Background information accompanying the rule, the definition section in Part 704.7002 and the 752.204-71 clause define the terms `key individuals' and `key personnel.' All key personnel, whether or not they are employees of the offeror, are considered key individuals and must be vetted * * * As a technical matter, we believe the phrase `key individuals, including all key personnel' should be modified to read `all key individuals' since the term `key individual' is specifically defined in the clause and incorporates all `key personnel.'”

Response: USAID agrees with this comment and has revised the final rule accordingly.

Comment 4: “This subpart imposes both a new annual vetting submission, as well as a continuous vetting submission if there are changes in (1) any key individual, including all key personnel, and (2) subcontractors for which vetting is required. Neither of these factors has been addressed in the Agency's prior paperwork clearance forms or in the discussion of the PVS program. Nevertheless, while we can appreciate the importance of vetting new key individuals who were not part of any prior vetting to achieving the objectives of the PVS program, we see little value to USAID, and considerable burden to both USAID and its implementing partners, in requiring an annual re-submission of the PVS Form from those that have already `passed' the vetting process. If USAID determines that new issues arise that should trigger another review, or if USAID determines to randomly sample recipients, we recommend that the regulations reserve for USAID, through the contracting officer, the right to require key individuals of a specific contractor and/or its covered subcontractors to submit the PVS Form for one-time vetting.”

Response: USAID agrees with this comment and we have revised the rule to remove annual submittal of the Form. Contractors will still be required to submit the Form any time key individuals change and before issuance of covered subcontractors, but will not be required to resubmit the form annually if no information has changed. Instead, USAID will conduct post-award vetting based on the latest submittal.

Comment 5: Subpart 704.7004-2 “provides that vetting is required for all subcontracts for which consent to subcontract is required under FAR 52.244-2 and the contracting officer may not consent until the subcontractor has `passed' vetting. The Background information accompanying the rule makes it clear that `the contracting officer will not consent to a subcontract until the subcontractor's key individuals have passed vetting' (emphasis added), but the rule itself is silent on the vetting of subcontractors. We have assumed, and strongly recommend that the rule explicitly state, that subcontractors are required to vet only `key individuals' as that term is defined in the proposed rule.”

Response: USAID agrees with this comment and revised the final rule accordingly, in sections 704.7004-2(b), 704.7004-3(a), and 704.7004-3(c).

Comment 6: “However, subsection (c) of subpart 7004-3 also authorizes vetting for subcontracts at any tier (for subcontractors not otherwise subject to consent) for `certain classes of items (supplies and services)' that the contracting officer identifies in the solicitation. While we recognize the flexibility the Agency must have to require vetting of any additional `classes of items' based on the Agency's internal risk-based assessment, it is also important that any of these selected classes of items are described with specificity and, if they remain appropriate for vetting at the time of award, that these designated `classes of items' are also carried over into the resulting contracts—because only if these additional classes of items are included in the resulting contract will there be a post-award requirement for vetting.

Response: USAID agrees that a contract must specifically identify the classes of items subject to sub-tier vetting and considers Alternate I to the clause at 752.204-71 to adequately address this. Further, we will emphasize in the separate internal guidance in the ADS to contracting officers the need to be specific about the class of subcontracts that are subject to vetting at any tier.

Comment 7: “In addition, there is no coverage for subcontractors under the definition of the term `key individual' in 704.7002 or in the 204-71 clause. The `policy' statement in Subpart 704.7003 notes that USAID will require vetting of first tier subcontractors only, although the coverage for subcontractors in Subpart 704.7004-3(c) provides that vetting may be required at any tier for certain classes of items identified in the solicitation; yet neither of the clauses address the scope of coverage for subcontractors except in terms of submissions to the vetting official and through the requirement in 204-71(i) that the prime contractor flow down certain provisions of the 204-71 clause to `all subcontracts under this contract.' Furthermore, there is no provision in the clauses for the contracting officer to designate any additional `classes of items' as authorized in 704.7003. The gaps create considerable confusion between the policy and the clause and the actions that prime contractors should take during the solicitation process and after source selection.”

Response: USAID agrees in part and disagrees in part. We revised the policy statement in section 704.7003 to apply vetting to subcontracts for specified classes of items if these subcontracts are not subject to contracting officer consent. We did not revise the definition of key individual in section 704.7002 since it is not specific to the prime offeror, contractor or first tier subcontractor; it uses the term “organization” which applies to the prime offeror, contractor and any subcontractors when vetting applies to such subcontractors through subsection (h) of the base clause 752.704-71 and its Alternate I. In fact, regarding the comments that neither clause addresses the “scope of coverage for subcontractors” or that there is no provision for the contracting officer to designate any classes of items, we disagree since subsection (h) in the base and Alt. I specifically applies vetting to subcontracts, and Alt. I provides for the contracting officer to designate classes of items subject to vetting at any subcontract tier.

Comment 8: “While the rule addresses the PVS treatment for contracts awarded under AIDAR Parts 713 (Simplified Acquisition Procedures), 714 (Sealed Bidding), and 715 (Contracting by Negotiation), there is no coverage in the proposed rule for contracts awarded under Schedules purchases under FAR Part 8.4. While there is no current coverage in the AIDAR regarding Schedules purchases, and while we cannot foresee that any such awards might be subject to the PVS requirements, we believe it easier to address this contract type and not use it than to need this contract type and not have the appropriate coverage.”

Response: USAID does not envision applying PVS to GSA Schedule Orders as the basic contract would not include the vetting clause and the contractors would not have been made aware of the requirement to vet prior to award. Should GSA and USAID determine that vetting is appropriate for purchases made under FAR Part 8.4, appropriate action will be taken at that time.

Comment 9: “While the rule addresses the PVS treatment for contracts awarded under AIDAR Parts 713 (Simplified Acquisition Procedures), 714 (Sealed Bidding), and 715 (Contracting by Negotiation), there is no coverage in the proposed rule for contracts awarded for commercial items under FAR Part 12 (Commercial Items), even though there is no current coverage in the AIDAR regarding commercial items. In our view, given the policy approach USAID recommends—that `key personnel' of the prime contractor and for all subcontracts for which consent to subcontract is required under FAR 52.244-2 (but see our comments above), we believe it appropriate and consistent with USAID's policy to exempt from the PVS requirements solicitations and resulting awards entered into pursuant to FAR Part 12 and subcontracts for commercial items regardless of the method of procurement of the prime contract. Again, while we cannot foresee that any such awards might be subject to the PVS requirements, we believe it easier to address this contract type and not use it than to need this contract type and not have the appropriate coverage.”

Response: In preparing the Proposed Rule, USAID considered the need to address commercial item procurements but determined that such coverage was unnecessary since commercial purchases are made through either FAR Part 13, Part 14, Part 15, or Part 16.5 (indefinite delivery contracts, see Comment 10) procedures. There is no contracting process that is unique to commercial items, so we do not consider it necessary to address vetting in AIDAR Part 712.

Comment 10: “While the rule addresses the PVS treatment for contracts awarded under AIDAR Parts 713 (Simplified Acquisition Procedures), 714 (Sealed Bidding), and 715 (Contracting by Negotiation), there is no coverage for contracts awarded under Part 716 (relating to IQCs). While the background information recognizes that PVS could apply to task orders under IQCs, there are no special procedures called out for contracting officers or IQC holders to follow when PVS is required after the award of the underlying IQC but during the competitive solicitation, evaluation and subsequent award of a task order under an IQC. This type of contract still dominates USAID contracting and should be specifically addressed.”

Response: USAID agrees with this comment and has revised AIDAR Subpart 716.5 and added a contract clause at 752.216-70 to address the procedures for vetting indefinite-delivery contracts and orders placed against them. This revised subpart may appear to be a substantial addition to the rule but since it merely clarifies procedures we intended under the proposed rule and is consistent with the overall approach we are taking with PVS, we consider the added coverage to be within the scope of the proposed rule. As noted in the comment, the proposed rule was clear about applying vetting to IQCs, so this added coverage addresses the concern expressed in the comment.

Comment 11: “Task order competitions under Indefinite Quantity Contracts (IQC) always come `post-award' of the underlying contracts but are more likely to trigger a new vetting requirement. Subpart 7004-1(c) is the only other place in the proposed rule where IQCs are addressed, but it covers only `potential awardee(s)' and does not address competition for task orders under awarded contracts or modifications to existing contracts. We strongly recommend that the treatment of task orders under IQCs be addressed in this post-award requirements section. Here, too, we strongly support an `open season' for submission of the Form to USAID's Office of Security to minimize the risk that vetting will not be completed in a timely manner to meet the timeliness requirements of the acquisition process.”

Response: Regarding the timing of vetting for IQC task orders, we stand by our position discussed above (Comment 2) and will allow the task order contracting officer to determine the appropriate stage to vet. However, USAID agrees that the rule must more clearly address how partner vetting will apply to IQC task orders. Task orders are placed after the basic IQC has been awarded, but the task orders themselves are “awards” in their own right and for that reason we included them in the pre-award section. The process for vetting task orders is more similar to pre-award vetting for contracts rather than to post-award vetting, since the key individuals for each task order must pass vetting before the contracting officer may place the order. However, in acknowledgement of the “post-award” nature of task orders, we have added a contract clause at 752.216-70 which includes the standard post award vetting requirements and also addresses the procedures for vetting orders against Indefinite Delivery contracts.

Under Executive Orders (E.O.) 13563 and 12866, USAID must determine whether a regulatory action is “significant” and therefore subject to the requirements of the E.O. and subject to review by the Office of Management and Budget (OMB).

USAID has determined that this Rule is not an “economically significant regulatory action” under Section 3(f)(1) of E.O.12866. The application of the Partner Vetting System to USAID acquisitions will not have an economic impact of $100 million or more. The regulation will not adversely affect the economy or any sector thereof, productivity, competition, jobs, the environment, nor public health or safety in a material way. However, as this rule is a “significant regulatory action” under Section 3(f)(4) of the E.O., USAID submitted it to OMB for review.

Pursuant to requirements set forth in the Regulatory Flexibility Act (RFA) (5 U.S.C. 601 et seq.), USAID has considered the economic impact of the rule and has certified that its provisions would not have a significant economic impact on a substantial number of small entities.

The changes to the (48 CFR) AIDAR use information collected via USAID Partner Information Form, USAID Form 500-13, which was approved in accordance with 44 U.S.C. 3501 by the Office of Management and Budget on August 19, 2015 (OMB Control Number 0412-0577).

For the reasons set forth in the preamble, the U. S. Agency for International Development amends 48 CFR chapter 7 as follows:

Entities potentially affected by this action include firms that are performing or will perform under contract for the EPA. This includes firms in all industry groups.

Recent contract file review activities revealed better guidance is needed for EPA Contracting Officers (COs) on the work plan and work assignment processes with regard to when a CO should provide the expected level of service needed to the contractor.

As a result, clarifying policy is being added to the prescription for 1511.011-74. Accordingly, the revised language incorporated into EPAAR prescription 1511.011-74 provides the EPA contracting officer with further instructions on the use of EPAAR clause 1552.211-74, when administering work assignments under Cost Reimbursable type term form contracts.

One comment was received on June 6, 2011. The comment appears to be misplaced; it appears the commenter may have been attempting to address a different notice. The comment in reference to physician owned physical therapy practices is not relevant to this requirement. This rule focuses on the administration of work assignments under Cost Reimbursable contracts and not physical therapy practices. As a result, after in-depth review of this public comment, no changes will be made to this final rule.

This rule amends the EPAAR to add policy to prescription 1511.011-74 for work assignments under clause 1552.211-74. The original prescription language generally states that the work assignment clause, 1552.211-74, shall be used when a Cost Reimbursable type term form contract with work assignments will be issued. This policy revision only adds additional instructive language. The new policy language contained under 1511.011-74, Work Assignments (Deviation), will serve to provide contracting officers with better guidance on issuing a work assignment. Therefore a revision will not be required to the related EPAAR clause, 1552.211-74 Work Assignments; as this change does not affect the meaning of the clause. The revised language communicates to contract personnel and program staff that government cost-related estimates should not be provided to contractors prior to receiving the contractor's work plan (proposal); and how to address exceptions. The exceptions addressed in the policy involve circumstances where a contracting officer may need to be able to provide some of the expected level of service needed to the contractor prior to receipt of the work plan (proposal) due to the nature of the work.

This action is not a “significant regulatory action” under the terms of Executive Order (EO) 12866 (58 FR 51735, October 4, 1993) and EO 13563 (76 FR 3821, January 21, 2011). Therefore, no review is required by the Office of Information and Regulatory Affairs within the Office of Management and Budget (OMB).

This action does not impose an information collection burden under the provisions of the Paperwork Reduction Act, 44 U.S.C. 3501 et seq. No information is collected under this action.

The Regulatory Flexibility Act generally requires an agency to prepare a regulatory flexibility analysis of any rule subject to notice and comment rulemaking requirements under the Administrative Procedure Act or any other statute; unless the agency certifies that the rule will not have a significant economic impact on a substantial number of small entities. Small entities include small businesses, small organizations, and small governmental jurisdictions.

For purposes of assessing the impact of today's final rule on small entities, “small entity” is defined as: (1) A small business that meets the definition of a small business found in the Small Business Act and codified at 13 CFR 121.201; (2) a small governmental jurisdiction that is a government of a city, county, town, school district or special district with a population of less than 50,000; and (3) a small organization that is any not-for-profit enterprise which is independently owned and operated and is not dominant in its field.

After considering the economic impacts of this rule on small entities, I certify that this action will not have a significant economic impact on a substantial number of small entities. This action revises a current EPAAR provision and does not impose requirements involving capital investment, implementing procedures, or record keeping. This rule will not have a significant economic impact on small entities.

Title II of the Unfunded Mandates Reform Act of 1995 (UMRA), Public Law 104-4, establishes requirements for Federal agencies to assess the effects of their regulatory actions on State, Local, and Tribal governments and the private sector.

This rule contains no Federal mandates (under the regulatory provisions of the Title II of the UMRA) for State, Local, and Tribal governments or the private sector. The rule imposes no enforceable duty on any State, Local or Tribal governments or the private sector. Thus, the rule is not subject to the requirements of Sections 202 and 205 of the UMRA.

Executive Order 13132, entitled “Federalism” (64 FR 43255, August 10, 1999), requires EPA to develop an accountable process to ensure “meaningful and timely input by State and Local officials in the development of regulatory policies that have federalism implications.” “Policies that have federalism implications” is defined in the Executive Order to include regulations that have “substantial direct effects on the States, on the relationship between the national government and the States, or on the distribution of power and responsibilities among the various levels of government.”

This rule does not have federalism implications. It will not have substantial direct effects on the States, on the relationship between the national government and the States, or on the distribution of power and responsibilities among the various levels of government, as specified in Executive Order 13132. Rather, this rule on work assignments only provides clarification to Contracting Officers when issuing level of effort estimates in a work assignment. Thus, Executive Order 13132 does not apply to this rule. In the spirit of Executive Order 13132, and consistent with EPA policy to promote communications between EPA and State and local governments, EPA specifically solicited comments from State and local officials on this rule and no comments were received from State and local officials.

Executive Order 13175, entitled “Consultation and Coordination with Indian Tribal Governments” (65 FR 67249, November 9, 2000), requires EPA to develop an accountable process to ensure “meaningful and timely input by tribal officials in the development of regulatory policies that have tribal implications.” This rule does not have tribal implications, as specified in Executive Order 13175. Rather, this rule on work assignments only provides clarification to Contracting Officers when issuing level of effort estimates in a work assignment. Thus, Executive Order 13175 does not apply to this action. EPA specifically solicited additional comment from tribal officials on this rule and no comments were received from tribal officials.

Executive Order 13045, entitled “Protection of Children from Environmental Health and Safety Risks” (62 FR 19885, April 23, 1997), applies to any rule that: (1) Is determined to be economically significant as defined under Executive Order 12886, and (2) concerns an environmental health or safety risk that may have a proportionate effect on children. This rule is not subject to Executive Order 13045 because it is not an economically significant rule as defined by Executive Order 12866, and because it does not involve decisions on environmental health or safety risks.

This rule is not subject to Executive Order 13211, “Actions Concerning Regulations That Significantly Affect Energy Supply, Distribution of Use” (66 FR 28335 (May 22, 2001), because it is not a significant regulatory action under Executive Order 12866.

Section 12(d) (15 U.S.C 272 note) of NTTA, Public Law 104-113, directs EPA to use voluntary consensus standards in it regulatory activities, unless to do so would be inconsistent with applicable law, or otherwise impractical. Voluntary consensus standards are technical standards (e.g. materials specifications, test methods, sampling procedures and business practices) that are developed or adopted by voluntary consensus standards bodies. The NTTA directs EPA to provide Congress, through OMB, explanations when the Agency decides not to use available and applicable voluntary consensus standards.

Executive Order (EO) 12898 (59 FR 7629 (Feb. 16, 1994) establishes federal executive policy on environmental justice. Its main provision directs federal agencies, to the greatest extent practicable and permitted by law, to make environmental justice part of their mission by identifying and addressing, as appropriate, disproportionately high and adverse human health or environmental effects of their programs, policies, and activities on minority populations and low-income populations in the United States.

EPA has determined that this rule will not have disproportionately high and adverse human health or environmental effects on minority or low-income populations because it does not affect the level of protection provided to human health or the environment. This rulemaking does not involve human health or environmental affects.

The Congressional Review Act, 5 U.S.C. 801 et seq., as added by the Small Business Regulatory Enforcement Fairness Act of 1996, does not apply because this action is not a rule, for purposes of 5 U.S.C. 804(3).

This rulemaking does not involve technical standards. Therefore, EPA is not considering the use of any voluntary consensus standards.

Therefore, 48 CFR chapter 15 is amended as set forth below:

NMFS manages the groundfish fishery in the Bering Sea and Aleutian Islands (BSAI) according to the Fishery Management Plan for Groundfish of the Bering Sea and Aleutian Islands Management Area (FMP) prepared by the North Pacific Fishery Management Council under authority of the Magnuson-Stevens Fishery Conservation and Management Act. Regulations governing fishing by U.S. vessels in accordance with the FMP appear at subpart H of 50 CFR part 600 and 50 CFR part 679.

The A season apportionment of the 2012 Pacific cod total allowable catch (TAC) specified for vessels using jig gear in the BSAI is 1,958 metric tons (mt) for the period 2400 hrs, A.l.t., January 1, 2012, through 1200 hrs, A.l.t., April 30, 2012, as established by the final 2011 and 2012 harvest specifications for groundfish in the BSAI (76 FR 11139, March 1, 2011) and inseason adjustment (76 FR 81875, December 29, 2011).

The Administrator, Alaska Region, NMFS, (Regional Administrator) has determined that jig vessels will not be able to harvest 1,800 mt of the A season apportionment of the 2012 Pacific cod TAC allocated to those vessels under § 679.20(a)(7)(ii)(A)( 1 ). Therefore, in accordance with § 679.20(a)(7)(iii)(A), NMFS apportions from 1,800 mt of Pacific cod from the A season jig gear apportionment to catcher vessels less than 60 feet (18.3 meters(m)) length overall (LOA) using hook-and-line or pot gear.

The harvest specifications for Pacific cod included in the final 2012 harvest specifications for groundfish in the BSAI (76 FR 11139, March 1, 2011) and inseason adjustment (76 FR 81875, December 29, 2011) are revised as follows: 158 mt for vessels using jig gear to the A season apportionments and 6,445 mt to catcher vessels less than 60 feet (18.3 m) LOA using hook-and-line or pot gear.

This action responds to the best available information recently obtained from the fishery. The Assistant Administrator for Fisheries, NOAA (AA), finds good cause to waive the requirement to provide prior notice and opportunity for public comment pursuant to the authority set forth at 5 U.S.C. 553(b)(B) as such requirement is impracticable and contrary to the public interest. This requirement is impracticable and contrary to the public interest as it would prevent NMFS from responding to the most recent fisheries data in a timely fashion and would delay the reallocation of Pacific cod specified from jig vessels to catcher vessels less than 60 feet (18.3 m) LOA using hook-and-line or pot gear. Since the fishery is currently open, it is important to immediately inform the industry as to the revised allocations. Immediate notification is necessary to allow for the orderly conduct and efficient operation of this fishery, to allow the industry to plan for the fishing season, and to avoid potential disruption to the fishing fleet as well as processors. NMFS was unable to publish a notice providing time for public comment because the most recent, relevant data only became available as of February 8, 2012.

The AA also finds good cause to waive the 30-day delay in the effective date of this action under 5 U.S.C. 553(d)(3). This finding is based upon the reasons provided above for waiver of prior notice and opportunity for public comment.

This action is required by § 679.20 and is exempt from review under Executive Order 12866.

NMFS manages the groundfish fishery in the GOA exclusive economic zone according to the Fishery Management Plan for Groundfish of the Gulf of Alaska (FMP) prepared by the North Pacific Fishery Management Council under authority of the Magnuson-Stevens Fishery Conservation and Management Act. Regulations governing fishing by U.S. vessels in accordance with the FMP appear at subpart H of 50 CFR part 600 and 50 CFR part 679. Regulations governing sideboard protections for GOA groundfish fisheries appear at subpart B of 50 CFR part 680.

The A season allowance of the 2012 Pacific cod total allowable catch (TAC) apportioned to vessels using pot gear in the Central Regulatory Area of the GOA is 7,538 metric tons (mt), as established by the final 2011 and 2012 harvest specifications for groundfish of the GOA (76 FR 11111, March 1, 2011), revision to the final 2012 harvest specifications for Pacific cod (76 FR 81860, December 29, 2011), and inseason adjustment to the final 2012 harvest specifications for Pacific cod (77 FR 438, January 5, 2012).

In accordance with § 679.20(d)(1)(i), the Administrator, Alaska Region, NMFS (Regional Administrator) has determined that the A season allowance of the 2012 Pacific cod TAC apportioned to vessels using pot gear in the Central Regulatory Area of the GOA will soon be reached. Therefore, the Regional Administrator is establishing a directed fishing allowance of 7,528 mt and is setting aside the remaining 10 mt as bycatch to support other anticipated groundfish fisheries. In accordance with § 679.20(d)(1)(iii), the Regional Administrator finds that this directed fishing allowance has been reached. Consequently, NMFS is prohibiting directed fishing for Pacific cod by vessels using pot gear in the Central Regulatory Area of the GOA. After the effective date of this closure the maximum retainable amounts at § 679.20(e) and (f) apply at any time during a trip.

This action responds to the best available information recently obtained from the fishery. The Assistant Administrator for Fisheries, NOAA (AA), finds good cause to waive the requirement to provide prior notice and opportunity for public comment pursuant to the authority set forth at 5 U.S.C. 553(b)(B) as such requirement is impracticable and contrary to the public interest. This requirement is impracticable and contrary to the public interest as it would prevent NMFS from responding to the most recent fisheries data in a timely fashion and would delay the directed fishing closure of Pacific cod for vessels using pot gear in the Central Regulatory Area of the GOA. NMFS was unable to publish a notice providing time for public comment because the most recent, relevant data only became available as of February 8, 2012.

The AA also finds good cause to waive the 30-day delay in the effective date of this action under 5 U.S.C. 553(d)(3). This finding is based upon the reasons provided above for waiver of prior notice and opportunity for public comment.

This action is required by § 679.20 and is exempt from review under Executive Order 12866.