The Act at 7 U.S.C. 202(b) specifies that it is unlawful for any packer, swine contractor, or live poultry dealer to either make or give any undue or unreasonable preference or advantage to any particular person or locality in any respect. In administering this provision of the Act, the United States Secretary of Agriculture (Secretary) determines whether the conduct of regulated entities is considered a violation of the Act.

In the past, each determination was analyzed using general principles on a case-by-case basis, exercising the regulatory flexibility Congress provided when it passed the Act. Section 11006(1) of the 2008 Farm Bill (Pub. L. 110-234) requires the Secretary to promulgate regulations establishing criteria the Secretary will consider in determining whether an undue or unreasonable preference or advantage has occurred in violation of the Act. At that time, the Secretary delegated responsibility for establishing the required criteria to the Grain Inspection, Packers and Stockyards Administration (GIPSA). In 2017, GIPSA merged with the Agricultural Marketing Service (AMS). AMS now administers the regulations under the Act and undertook this rulemaking to meet the statutory requirement. This rule adds a new § 201.211 to 9 CFR part 201—Regulations Under the Packers and Stockyards Act (P&S regulations). This rule retains a flexible framework for the Secretary's determinations, while providing criteria to support transparency in the Secretary's determinations. Accordingly, the regulated industry and the public now have a reference to the general framework that AMS will use to determine whether there is an unlawful preference or advantage under section 202(b) of the Act.

Newly added § 201.211 requires the Secretary to consider four specified criteria when determining whether any undue or unreasonable preference or advantage has been given or made to any particular person or locality in any respect in violation of the Act. The Secretary is not limited to considering only these four criteria but can also take other factors into consideration as appropriate on a case-by-case basis. We discuss each of the four criteria later in this document.

AMS published a proposed rule regarding this matter in the Federal Register on January 13, 2020 (85 FR 1771). The proposed rule invited public comments on the addition of the proposed criteria to the P&S regulations. AMS allowed a 60-day public comment period for interested parties to submit comments. The comment period ended March 13, 2020. AMS received 2,351 comments on the proposed rule, of which 235 were unique. The remaining comments represented 48 groupings of similar comments, each group having at least 80 percent matching text. Commenters represented numerous segments of the livestock and poultry industry, from individual poultry growers and livestock producers to trade organizations representing producers, poultry companies, the meat packing industry, and state and national level agriculture groups. After considering the comments received, AMS determined to adopt the proposed criteria with two modifications. Analysis of the comments and AMS's responses are included later in this document.

As mentioned above, the 2008 Farm Bill directs the Secretary to establish criteria the Secretary will consider in determining whether an undue or unreasonable preference or advantage has occurred in violation of the Act. At the time the 2008 Farm Bill was enacted, what is now the Packers and Stockyards Division (PSD) of AMS's Fair Trade Practices Program operated within GIPSA. GIPSA undertook the responsibility for developing criteria for consideration. In June 2010, GIPSA published a proposed rule (75 FR 35338 (June 22, 2010)) that was never finalized, due to Congressional prohibitions included in the Consolidated Appropriations Acts for fiscal years 2012 through 2015, which disallowed any further work on the new criteria rulemaking. See Sec. 721, Public Law 112-55, November 18, 2011; Sec. 742, Public Law 113-6, March 26, 2013; Sec. 744, Public Law 113-76, January 17, 2014; and Sec. 731, Public Law 113-235, December 16, 2014. GIPSA resumed its efforts to promulgate the required criteria in December 2016 with publication of a second proposed rule (81 FR 92703 (December 20, 2016)), but decided to take no further action on that proposal (82 FR 48603 (October 18, 2017)). AMS accomplishes Congress's 2008 Farm Bill directive with the promulgation of this final rule that establishes the required criteria.

The PSD oversees day-to-day administration of the P&S regulations and is called upon to investigate alleged violations of section 202(b). Many of the alleged violations related to contractual dealings between regulated entities and the livestock producers, swine production contract growers, and poultry growers with whom they do business. Other entities, including retailers and the public, can also be harmed by violations of section 202(b). Difficulty lies in determining whether particular instances of preferences or advantages made or given to one or more persons or localities would be undue or unreasonable and violations of the Act.

Section 202(b) of the Act prohibits buyers to “make or give any undue or unreasonable preference or advantage to any particular person or locality in any respect, or subject any particular person or locality to any undue or unreasonable prejudice or disadvantage in any respect.” It is not unusual for buyers or sellers of livestock or poultry to receive advantages. For example, between two competing sellers, one may receive a better price from a buyer. The Act only prohibits those preferences or advantages that are undue or unreasonable. It follows that there are legitimate reasons for the existence of preferences or advantages that are not undue or unreasonable. Reasonable differences in contract terms may result from negotiations over particular interests between the parties. Some courts have gone so far as to say it is not the purpose of the Act to interfere with contract negotiations or to upset the traditional principles of freedom of contract. 1 The Act does not create an entitlement to obtain the same type of contract offered to other producers or growers. However, greater clarity on the terms associated with grower contracts may increase transparency in the marketplace and reduce the number of claims of undue or unreasonable preference.

Under new § 202.211, the Secretary will consider four specific criteria when determining whether a packer, swine contractor, or live poultry dealer has made or given any undue or unreasonable preference or advantage to any particular person or locality in any respect. Section 201.211 lists the criteria for consideration and provides that the Secretary is not limited to those four. Because § 202(b) of the P&S Act prohibits any undue or unreasonable preferences or advantages, in addition to considering the specified criteria in § 201.221, the Secretary may also consider other factors relevant to each situation on a case-by-case basis.

Under § 201.211(a), the Secretary will consider whether the preference or advantage in question cannot be justified on the basis of a cost savings related to dealing with different producers, sellers, or growers. Under § 201.211(b), the Secretary will consider whether the preference or advantage in question cannot be justified on the basis of meeting a competitor's prices. Under § 201.211(c), the Secretary will consider whether the preference or advantage in question cannot be justified on the basis of meeting other terms offered by a competitor. Under § 201.211(d), the Secretary will consider whether the preference or advantage in question cannot be justified as a reasonable business decision.

Historically, the Secretary has considered criteria similar to these when determining whether to commence disciplinary or judicial actions under the Act. PSD made these decisions on a case-by-case basis, examining the facts of each complaint separately. AMS chose these new criteria, and retained the flexibility to consider other criteria, based on this past experience. In doing so, AMS strikes a balance between the interests of all segments of the industry while carrying out its enforcement responsibilities. On the one hand, the law charges AMS with protecting producers, growers, retailers, and the public from potential harm resulting from undue or unreasonable preferences or advantages. On the other hand, AMS recognizes that among the numerous complaints the Secretary has examined in the past, many preferences or advantages given to individuals or groups have been determined to be lawful, while relatively few preferences or advantages were found undue or unreasonable.

Disparate contract terms are not undue or unreasonable just because the terms are not identical. Some disparities in contract terms can be attributed to reasonable business negotiations between contracting parties. For example, price differences offered to different sellers may reflect differences in transportation costs to a slaughter facility or may reflect one producer's ability and willingness to supply livestock in the early morning hours. In the case of a live poultry dealer that pays a premium to a poultry grower who agrees to use experimental vaccines, the grower has increased risk of financial loss if the vaccine proves to be unsuccessful. Based on the criteria in § 201.211, the apparent preference or advantage might be justified on the basis of the company saving the expense of testing the vaccines through other means. The premium paid to the grower for providing the extra service of testing vaccines and for accepting greater financial risk might not be considered undue or unreasonable. In another example, a livestock packer pays higher prices later in the day or week after competitors have raised the market price. Based on the criteria in § 201.211, the apparent preference or advantage might be justified as necessary to meet competitors' prices, and the higher price might not be considered undue or unreasonable. Finally, where a live poultry dealer's competitors have offered long term contracts to their growers, the poultry dealer finds that he must offer comparable terms to his growers in the same locality. Based on the criteria in § 201.211, the apparent preference given to growers in that locality might not be considered undue or unreasonable because the difference in contract terms might be justified by the need to meet a competitor's other contract terms in that locality.

Some preferences or advantages, however, might be considered undue or unreasonable if they are so unfair that they would tend to restrain trade, creating such excessively favorable conditions for one or more persons that the competitors would have reduced chances of business success. In such a case, a higher price, referred to as a premium, offered to one person or locality but not offered to other persons or localities similarly situated could constitute a violation of the Act. A livestock packer negotiating preferential live basis prices with only one favored livestock supplier and not with similarly situated suppliers, may be in violation of the Act. After considering the criteria in § 201.211, the Secretary may conclude that the packer cannot justify its actions on the basis of cost savings, meeting a competitor's prices, meeting other terms offered by a competitor, or making a reasonable business decision.

Under § 201.211(a) through (c), the Secretary will consider whether preferences or advantages given to one or more persons are based on cost savings related to dealing with different producers, sellers, or growers or on the need to meet a competitor's prices or other contract terms. For example, a live poultry dealer offering a higher base price to a favored grower, but not to other growers in the same complex with the same housing types, may be in violation of the Act. The Secretary will consider all of the specified criteria. Under criterion (a), there would be no cost savings in a higher base price. Under criteria (b) and (c), the Secretary will consider whether the higher base price meets a competitor's price or other terms. If the reason for giving the favored grower the higher price cannot be justified by meeting a competitor's price or other terms, and if consideration of other factors particular to the situation does not suggest otherwise, the higher base price may be an undue or unreasonable preference or advantage.

Under § 201.211(d), the Secretary will consider whether the preference or advantage in question cannot be justified as a reasonable business decision. A packer, swine contractor, or live poultry dealer may have a reasonable business reason for treating some persons or groups more favorably than others. For example, in the cattle industry a packer may pay producers a premium for delivering cattle that meet an established certified beef program, such as “Certified Angus Beef,” because the packer can realize a greater profit from the sale of meat branded under those programs. Based on the criterion in § 201.211(d), it is likely that the apparent preference or advantage to sellers of cattle meeting certain specifications in that situation would be justified as a reasonable business decision and not considered undue or unreasonable. In another example, a live poultry dealer may pay a premium to growers who raise test flocks utilizing a new breed of chicken, as this provides the live poultry dealer with data from which it can make future business decisions. Based on the criterion in § 201.211(d), the premium might be justified as a reasonable business decision, so the Secretary might not determine the preference or advantage to be undue or unreasonable.

Live poultry dealers, packers, and swine contractors should enter into contracts that do not discriminate, unless the differences are due to cost savings or meeting competitors' prices and terms or are legitimate business decisions. Preferences that are not grounded in ordinary business considerations may be based upon reasons of unjust advantage.

It should be noted that an alleged preference or advantage being seemingly justified under one criterion does not automatically confer immunity against all other criteria. For example, a preference or advantage may still be deemed undue or unreasonable, even though it is apparently given to meet a competitor's offer, if the Secretary determines the preference or advantage was unreasonable based on another criterion. Thus, the criteria specified in § 201.211 are not safe harbors, as suggested by some comments on the proposed rule.

The flexibility in § 201.211 to consider criteria other than the four specified in the rule allows the Secretary to determine whether other pertinent factors may have influenced the business decisions of contracting parties. For example, one comment submitted on the proposed rule recommended the Secretary consider whether an apparent preference or advantage could be ascribed to an emergency situation, such as a government requisition for food after a natural disaster or during a military crisis. While AMS did not add this particular criterion to the four specified in the rule, it is nevertheless a good example of the type of additional criteria the Secretary may consider. The discretion to consider other criteria, however, is not boundless.

In addition to the criteria enumerated in § 201.211, the Secretary may consider the overall competitive effects of any particular agreement. In doing so, the Secretary should apply the antitrust “rule of reason” analysis, as used by courts and antitrust agencies. Section 1 of the Sherman Act of 1890, 15 U.S.C. 1-38, prohibits agreements in “restraint of trade.” The Supreme Court interpreted this prohibition to be limited to unreasonable restraints. See Ohio v. American Express Co,, 138 S.Ct. 2274, 2283 (2018) (citing State Oil Co. v. Khan, 522 U.S. 3, 10 (1997)). Certain types of agreements (such as price fixing) are so likely to harm competition and to have no significant procompetitive benefit that they are challenged as per se unlawful. See FTC v. Superior Court Trial Lawyers Ass'n, 493 U.S. 411, 432-36 (1990). All other agreements are evaluated under the rule of reason, which involves a factual inquiry into an agreement's overall competitive effect. As the Supreme Court has explained, rule of reason analysis entails a flexible inquiry and varies in focus and detail depending on the nature of the agreement and market circumstances. See California Dental Ass'n v. FTC, 119 S. Ct. 1604, 1617-18 (1999); FTC v. Indiana Fed'n of Dentists, 476 U.S. 447, 459-61 (1986); National Collegiate Athletic Ass'n v. Board of Regents of the Univ. of Okla., 468 U.S. 85, 104-13 (1984). The Supreme Court first applied this framework to antitrust cases under the Sherman Act in United States v. Addyston Pipe & Steel Co., 85 F. 271, 282-283 (CA6 1898), aff'd, 175 U.S. 211 (1899). The rule of reason analysis focuses on the state of competition with, as compared to without, the relevant agreement. The central question is whether the relevant agreement likely harms competition by increasing the ability or incentive profitably to raise price above or reduce output, quality, service, or innovation below what likely would prevail in the absence of the relevant agreement. See “U.S. Department of Justice & Federal Trade Commission, Antitrust Guidelines for Collaborations among Competitors U.S. Department of Justice & Federal Trade Commission, Antitrust Guidelines for Collaborations among Competitors the Licensing of Competitors the Licensing of Intellectual Property” § 1.2 (April 2000). If the agreement raises competitive concerns, the analysis considers whether the agreement is necessary to achieve any procompetitive benefits that would offset competitive harm. Id. This rule provides the analytical framework for AMS to evaluate specific activity.

While the agency expects a short-term increase in the cost of review for livestock producers, poultry growers, and regulated entities in existing contracts, in the long-term, innovative contracts should be less costly to negotiate even when those contracts provide for preferences and advantages. Because this framework of criteria can be understood in the context of legitimate business decisions, regulated entities may more easily review contracts for compliance with the Act.

By following a framework of criteria that promote fair dealing based in rational decision-making, AMS promotes protection for producers and localities that might otherwise have been unable to obtain preferential contract terms or price advantages. Therefore, this rule is expected to improve the negotiating position of growers and producers.

AMS expects adding the criteria in § 201.211 to the P&S regulations to provide a framework in which the Secretary will consider potential violations of the Act, help the industry understand what the Secretary will consider when evaluating violation claims, and fulfill the Congressional mandate to establish criteria for making determinations regarding potentially unacceptable conduct under the Act.

As originally proposed, the regulation required the Secretary to consider one or more specific criteria listed in the regulation, and provided that the Secretary was not limited to considering those four criteria when determining whether an undue or unreasonable preference or advantage has been given in violation of the Act. One comment asked for clarification about whether the Secretary was required to consider at least one of the four specified criteria, in addition to being able to consider other criteria. The 2008 Farm Bill requires the Secretary to establish criteria that the Secretary will consider in determining whether an undue or unreasonable preference or advantage has occurred in violation of the Act. Therefore, based on its original understanding of the statute and on the comment, AMS revised the introductory paragraph of § 201.211 to make it clear that the Secretary must consider all four specified criteria, and that the Secretary may also consider additional criteria, in determining whether an undue preference or advantage has occurred in violation of the Act.

As originally proposed, criterion (d) would have required the Secretary to consider whether the alleged preference or advantage cannot be justified as a reasonable business decision that would be customary in the industry. Almost unanimously, public comments submitted in response to the proposal objected to the clause regarding whether a business decision is customary in the industry. Comments otherwise supporting the proposal said what is “customary in the industry” is ambiguous and could be open to broad interpretation. Comments opposed to the proposal generally opposed this clause specifically, asserting that illegal discrimination, retaliation, and use of unfair marketing practices have become customary in the industry and that the wording of the proposed provision would offer packers, swine contractors, and live poultry dealers a convenient justification for unacceptable actions. Based on the comments, AMS determined to remove the words “that would be customary in the industry” from the language of criterion (d). Thus, § 201.211(d) provides that the Secretary will consider among other criteria whether the preference or advantage under consideration cannot be justified as a reasonable business decision.

AMS received 2,351 comments on the proposed rule, some with multiple signatories. Comments are summarized by topic below and include AMS's responses.

Comment: AMS provided 60 days for public comment on the proposed rule. Twelve comments included requests that AMS extend the comment period by at least 90 days. Requesters said that the proposed rule and the issues it addressed are complex and important and that commenters needed more time to analyze their implications across the industry and provide meaningful comments. Requesters also noted the comment period overlapped with some states' legislative sessions and that commenters were dealing with ongoing stress created by continued low farm prices, both requiring commenters' focus at the time.

AMS response: AMS proposed this rule following litigation that concerned a prior proposed rule on this subject. In the course of that litigation, the USDA committed to initiate timely rulemaking on this subject. As part of the rulemaking, the agency chose a 60-day comment period as it believed this to be an adequate amount of time for interested persons to review the proposal and to provide comment that the agency should consider. Therefore, AMS decided against extending the comment period beyond the deadline of March 13, 2020.

AMS proposed four specific criteria the Secretary will consider when making determinations about whether an action could be considered a violation of the Act. Some comments addressed one or more criteria individually, while some addressed them generally. Here we address comments on the proposed criteria in general.

Comment: Several comments supported the proposed criteria generally, saying farmers and ranchers have long been at a disadvantage due to uncertainty about what actions violate the Act. Comments agreed that the proposed criteria would provide much needed clarity for the industry and should minimize or eliminate legal uncertainty in the marketplace.

On the other hand, numerous comments opposed the proposed criteria generally, saying they are inadequate, vague, ambiguous, and open to a wide variety of interpretations. These comments said the proposed criteria fail to address significant and harmful practices in the industry that are both anti-competitive and detrimental to farmer livelihoods. Comments also claimed that AMS had proposed specific conclusory criteria for determining when a violation has not occurred. These comments opposed the structure of the proposed regulation, saying that framing the criteria in negative terms ( e.g., “cannot be justified”) fails to articulate what would be considered an undue or unreasonable preference or advantage and a violation of the Act, thus failing to comply with Congress's mandate. Commenters claim that this is the reverse of Congress's directive and renders the Act's express prohibitions meaningless.

Comments also criticized the criteria for being too general. They argued that different adjudicators may come to different conclusions when considering the same facts.

For these reasons, comments asserted the criteria should establish standards on which to base decisions about whether a packer has violated the Act. Commenters asked for standards that state what conduct constitutes a violation. Comments urged USDA to develop clear, specific criteria, so that the violations would be unequivocal.

AMS response: AMS attempted to balance the interests of all segments of the livestock, meat, and poultry industries. Producers and growers must be protected from potential harm resulting from undue or unreasonable preferences or advantages. At the same time, regulated entities may give preferences or advantages to individuals or groups for lawful reasons. AMS believes that the proposed criteria will provide a framework from which both producers and processors can benefit, while not harming consumers.

Regarding the comments that suggest the rule should prohibit specific conduct—rather than providing criteria that can be applied across a wide range of behaviors—the 2008 Farm Bill directed the Secretary to establish criteria to consider when determining whether conduct gives an undue or unreasonable preference or advantage. AMS has chosen general criteria in this rule. Further, the criteria are not conclusory; just because an action may appear justified under one criterion does not mean that it cannot be determined to be undue or unreasonable.

The criteria comply with the promulgation requirement, whether they are written in positive or negative terms. The Farm Bill provides: “As soon as practicable, but not later than 2 years after the date of the enactment of this Act, the Secretary of Agriculture shall promulgate regulations with respect to the Packers and Stockyards Act, 1921 (7 U.S.C. 181 et seq. ) to establish criteria that the Secretary will consider in determining (1) whether an undue or unreasonable preference or advantage has occurred in violation of such Act;” Criteria are standards, rules, or tests on which a judgment or decision can be based. American Heritage Dictionary of the English Language (5th ed. 2020). Criteria are typically “reference point[s] against which other things can be evaluated; a characterizing mark or trait.” Black's Law Dictionary (11th ed. 2019). Nothing in the 2008 Farm Bill suggests that the Secretary was called upon to describe these criteria in a positive or negative form. All that is required is that the criteria provide traits and standards that the Secretary can use as a base for judgment. AMS considered drafting criteria in a positive form and determined that the negative form better represented Congressional intent. Criteria used to evaluate whether preferences or advantages “cannot be justified . . .” in some manner could establish that an undue preference or advantage has occurred. Conversely, if written in a positive form, the criteria would be presented as exceptions, for example, a criterion could state that a preference or advantage is undue or unreasonable, unless it “can be justified . . .” in some manner.

The Farm Bill does not require the Secretary to consider any specific factor or information in developing the criteria. AMS's criteria apply across a wide range of behaviors in multiple industries. This approach, rather than setting forth specific examples of unlawful conduct, provides the Secretary with the flexibility Congress intended when passing the Act. AMS made no changes to the rule as proposed based on these comments.

Comment: One comment asked AMS to clarify whether the Secretary would be required to consider at least one of the four criteria specified in the proposed regulation, in addition to considering any other criteria that may be relevant to the situation.

AMS response: AMS appreciates the comment requesting clarification of the proposed language. Our intention was to specify four criteria the Secretary is required to consider, and to provide flexibility for the consideration of additional criteria as appropriate for the situation. Accordingly, based on the comment, and to ensure that the meaning of the regulation is clear, we revised the introductory paragraph of proposed § 201.211 to clarify that the Secretary will consider each of the criteria specified in the regulation and may consider additional criteria.

The proposed rule provides that the Secretary will consider certain criteria when determining whether a violation of section 202(b) of the Act has occurred. The proposed rule specifies four criteria for consideration but provides that the Secretary is not limited to considering those four.

Comment: Many comments supported including flexibility to consider additional criteria on a case-by-case basis, explaining that there can be many other relevant factors to consider in different situations. Other comments argued that the provision is too ambiguous, and that its application is unclear. Some comments recommended the Secretary be required to consider only one of the listed criteria, or that consideration of other criteria be limited to certain situations.

Some comments insisted the criteria list be exhaustive and not broad, as proposed. According to comments, no segment of the supply chain would know which practices are prohibited or permissible under the proposed language, making compliance with the Act nearly impossible, and exposing the contacting parties to unforeseeable liability and associated litigation and the cost of protecting their respective marketing arrangements.

One comment opposed to the provision said that AMS's approach is inconsistent with Congress's directive in the 2008 Farm Bill to establish criteria and with the agency's stated desire to provide transparency to the process of determining whether a violation of the Act has occurred. The comment asserted that giving the Secretary flexibility to consider other criteria would give both the Secretary and other right of action plaintiffs who believe they have been wronged the opportunity to file complaints based on unspecified criteria.

One comment supported the proposal not foreclosing the possibility that other activities could be violations of the Act. According to the comment, the four listed criteria identify the most familiar indications of unfair practices, but other non-competitive conduct might escape the scope of the identified criteria, or other criteria might be found to better capture predatory practices.

Another comment suggested AMS clarify in the final rule that the four criteria specified in the proposed rule are broadly encompassing of all potential scenarios and that the Secretary will rarely, if ever, need to consider other criteria.

AMS response: The final rule retains the provision allowing the Secretary to consider criteria other than the four set forth in § 201.211. The U.S. Supreme Court noted in 1922 in the case of Stafford v. Wallace, 258 U.S. 495, 521, that the Packers and Stockyards Act is “remedial legislation.” A remedial measure “is to be construed liberally, and so as to effectuate the purpose of Congress and secure the relief which was designed” ( U.S. v. Southern Pacific R. Co., 184 U.S. 49, 56 (1902); Logan v. Davis, 233 U.S. 613, 628 (1914)). “It would be an `unnatural construction' of a remedial statute to require an administrative agency `to sit idly by and wink at practices' which are subversive of effective regulation.” (quoting American Trucking Assns. v. U.S., 344 U.S. 298, 311 (1953)).

AMS does not consider the criteria exhaustive; rather, the criteria provide notice to the industry of the types of conduct that may be found unlawful. It would be impossible to develop an exhaustive list of specific criteria that would remain relevant for very long in an evolving market environment. The criteria in this rule respond to a need for clarity among industry participants regarding practices that could be deemed unduly preferential. Although it is unlikely that all future litigation will be avoided, AMS believes contracting parties may be able to avoid some litigation by applying the criteria and the principles behind them when drafting—and contracting for—marketing arrangements.

Thus, this final rule allows the Secretary to consider other factors that may not be included among the four listed criteria, but are evidence of an undue preference or advantage, nonetheless. The rule gives the Secretary principles by which to analyze the conduct of regulated entities that may violate the Act, for the Secretary's investigations and administrative or judicial enforcement. The Secretary's analysis involves investigative methods currently in use, including examination of overall market conditions, competitors' pricing and practices, and individual entities' business records to substantiate and justify different pricing or other differing treatment of suppliers or territories.

These criteria are for the Secretary's determination of whether preferences are undue or unreasonable; the rule does not apply to private plaintiffs filing suits for damages under section 308 of the Act. Accordingly, no changes were made to the rule as proposed based on these comments.

The proposed rule requires the Secretary to consider certain criteria when determining whether a violation of the Act has occurred. The proposed rule lists four criteria for consideration but does not limit consideration to those four. The first of these, criterion (a), asks whether the preference or advantage under consideration cannot be justified on the basis of a cost savings related to dealing with different producers, sellers, or growers.

Comment: One comment said this criterion is subjective and does not incorporate clear standards for its application in relation to dealing with different producers, sellers, or growers. Another asserted that this criterion's vagueness could be interpreted to mean that if a packer, swine contractor, or live poultry dealer is using a business practice that saves themselves money, it can be justified under section 202(b) of the Act, no matter the impact on producers, sellers or growers.

AMS response: AMS intends this criterion to be broad and flexible for the Secretary to apply it across a wide range of conduct in the livestock, meat, and poultry industries. In applying the criteria generally, the Secretary will examine the facts of each case and apply those facts to the criteria. Costs are relevant to many preferential contracts. If a preference does not have a cost-based justification, then the absence of a cost-based justification could indicate an undue or unreasonable preference or advantage. Or the Secretary may find that cost savings justify a preference given to one producer over another. No changes were made to the rule as proposed based on the comments.

Comment: Several comments said that justifications under criterion (a) for costs savings based solely on volume should be prohibited to avoid discriminating against smaller livestock or poultry growers. Comments explained that an integrator can easily claim cost savings based on volume by contracting with a large-scale livestock or poultry grower over a smaller-scale livestock or poultry grower or an association of smaller growers. According to comments, this would result in small-to-medium sized growers routinely being unduly disadvantaged and undue preference being given to larger growers strictly based on size of operation. One comment said small farms are struggling to stay viable while larger farms are increasing in size. The comment argued that justifying a preference or advantage as a cost savings based solely on volume would only further contribute to the decline in sales and ultimately the viability of small and mid-sized poultry and livestock farms.

AMS response: The rule is not intended to set forth prohibitions but rather to establish criteria the Secretary will consider when determining whether a preference is undue or unreasonable. A packer's justification of a preference based solely on the size of the grower operation as the comment suggests does not automatically make the packer's conduct lawful. The criteria are broad and flexible for the Secretary to apply criteria across a wide range of conduct in the livestock, meat, and poultry industries. In applying these criteria, the Secretary will examine the facts of each case and apply those facts to each of the criteria. In the comment's example, resulting cost savings would need to be clearly demonstrated to the Secretary's satisfaction, and other criteria would have to be considered. AMS believes it is up to contracting parties to negotiate terms in marketing arrangements that make business sense for all. Accordingly, no changes were made to the rule as proposed based on these comments.

Comment: One comment said that criterion (a) should be revised to provide clear examples of when cost savings are or are not warranted. Other comments gave examples of when cost savings could be used as a justification for disparate treatment: When there are measurable and verifiable differences in carcass and meat quality, if those standards are applied to producers of all sizes; when there is a specified time of delivery or times of urgent need for delivery, if those criteria are offered to producers of all sizes; when there are volume-related savings that result from documented efficacies in the cost of procuring, transporting or handling livestock and conducting other transactions that occur outside of the plant.

AMS response: The purpose of the regulation is to provide criteria that are broad enough to cover a majority of the types of conduct that could be found in violation of the Act. AMS believes that narrow examples do not encompass all of the situations that might result in an undue or unreasonable preference or advantage. Therefore, it is not the intention of the agency to set forth a laundry list of examples, but rather to establish criteria the Secretary will consider when examining the facts of wide-ranging types of conduct within the livestock, meat, and poultry industries. The comment's proposed examples present the underlying factual situation that the agency would consider. For illustrative purposes, AMS suggests as one example where cost savings used as justification for disparate treatment could be unlawful, the use of consumer coupons for meat products. Where a packer offers a coupon discount on the price of bacon in a specific geographic region, for example, and the resulting price is below the packer's cost in order to undercut competition, the behavior could represent an undue preference in that geographic region. After consideration, no changes were made to the rule as proposed based on these comments.

Comment: Comments requested that the regulation specifically prohibit justifications under criterion (a) based on so-called efficiencies that occur within a processing plant or from operating the plant at full capacity. Comments explained for example that hog producers who pool their hogs and deliver a truckload that is the size commonly handled by a processing plant should be on the same footing as a larger single producer who provides the same size truckload to the plant.

AMS response: The rule is not intended to set forth prohibitions but rather to establish criteria the Secretary will consider when determining whether a preference is undue or unreasonable. One of the criteria the Secretary will consider is whether there is a cost savings in dealing with one producer or grower over another. Based on the limited facts in the example provided by the commenter, plant operating efficiencies alone would not necessarily justify paying a single supplier more for hogs than several suppliers who pool hogs to provide similar volume. The general criteria still apply to the comment's example, even if there is no explicit ban on a particular preference or advantage. No changes were made to the rule as proposed based on these comments.

Comments generally addressed jointly criteria (b) and (c). Under proposed criterion (b), the Secretary would consider whether the preference or advantage in question cannot be justified on the basis of meeting a competitor's prices. Under proposed criterion (c), the Secretary would consider whether the preference or advantage cannot be justified on the basis of meeting other terms offered by a competitor. In general, comments said the two criteria are vague, favor packers and integrators, invite collusion, and conflict with confidentiality laws.

Comment: Comments expressed concern that criteria (b) and (c) would disadvantage farmers and growers, who have no voice in negotiations between other farmers and competing packers and integrators. According to comments, packers and integrators could individually, or could conspire to, set low prices or otherwise impractical terms agreeable to one farmer and use criteria (b) and (c) to justify applying the same prices and terms to other farmers for whom those prices or terms would be unacceptable, unworkable, or—as the comment implies—fail to reflect the ordinary forces of supply and demand.

AMS response: The criteria are neither requirements nor prohibitions. Nor are they justifications for unlawful behavior. In applying these criteria, the Secretary will carefully examine the facts of each case. In the example provided by commenters, low prices and other impractical terms given to one farmer for the purpose of justifying low prices and terms offered to other farmers would likely violate one or more of sections 202(c) through 202(g) of the Act. Price manipulation, for example, violates other sections of the Act. No changes were made to the rule as proposed based on these comments.

Comment: Comments suggested that in a fully functioning competitive market with transparent price discovery, applying criterion (b) might be rational, but in the livestock and poultry sector, where commenters say price discovery and price transparency are broken at best, and in the case of poultry, completely nonexistent, criterion (b) is extremely dangerous to farmers. According to comments, criterion (b) invites competitors to collude on pricing because justification under this criterion would insulate them from scrutiny under section 202(b) of the Act.

AMS response: Collusion to fix prices among packers, swine contractors, and live poultry dealers is prohibited under the Packers and Stockyards Act. 2 When the Secretary considers a regulated entity's justification for granting a preference based on meeting either the prices or other terms offered by a competitor, the Secretary may also consider if this behavior resulted in other violations of the Act. The rule does not justify, require, promote, or encourage price fixing conduct. Regulated entities, however, legitimately receive information—in the form of market reports, open bids, and contract negotiations with sellers—that may result in granting legitimate price preferences to meet a competitor's price. No changes were made to the rule as proposed based on these comments.

Comment: Comments cited USDA policy that protects the confidentiality of prices and terms of sale that packers pay for livestock under the Livestock Mandatory Reporting Act of 1999 (Pub. L. 106-78, Title IX; October 22, 1999). According to comments, the proposed rule would establish a standard involving prices and other terms of sale as defense for a packer's alleged violation of the Act while the public is simultaneously precluded from knowing the prices and terms of sale offered by any particular packer. Thus, according to comments, the proposed rule appears to facilitate and promote collusion among packers to share confidential pricing and terms of sale information with each other to ensure that the prices and terms they offer are similar, if not identical, to the prices and terms offered by competitors.

AMS response: This rule provides the Secretary with broad and flexible criteria to consider when determining if a preference is undue or unreasonable. The rule does not require, promote, or encourage regulated entities to agree to share prices and other contract terms between themselves. Nothing within this rule is intended to limit or conflict with the Livestock Mandatory Reporting Act of 1999 or any other Federal law. No changes were made to the rule as proposed based on these comments.

Comment: Comments claimed criteria (b) and (c) encourage collusion and conspiracy between regulated entities and are in direct conflict with the overall intent of the statute, as well as the specific price manipulation and control prohibitions in sections 202(d) through 202(g) of the Act. One comment suggested criteria (b) and (c) seemingly incentivize collusion between competitors and could decrease competition in the livestock and poultry industries. The comment said proposed criterion (b) should be withdrawn, and criterion (c) should be modified to require packers, swine contractors, and live poultry dealers to provide verifiable proof that the decision to meet a competitor's terms results in performance of efficiency gains. The comment said that the regulations should make it clear that collusive behavior between competing firms is unacceptable.

AMS response: This rule provides the Secretary with broad and flexible criteria to consider when determining if a preference is undue or unreasonable. The rule does not require, promote, or encourage collusion between packers, swine contractors or live poultry dealers. Other subsections of section 202 of the Act make clear that such conduct is prohibited. Subject entities are required by other sections of the P&S Act and regulations to keep adequate records of their business operations. Such records should provide adequate information for the Secretary to consider in making determinations under § 201.211. Accordingly, no changes were made to the rule as proposed based on these comments.

Comment: Comments suggested regulated entities should be required to maintain and provide when challenged contemporaneous and detailed records to prove that costs, prices, and terms offered to one farmer are justified on the basis of meeting those given to other similarly situated farmers.

AMS response: Entities regulated under the Packers and Stockyards Act are required to keep adequate records of their business operations. 3 The regulations do not specify which records entities should keep. Regulated entities have the flexibility to determine what type of records best meet the needs of their individual businesses. AMS expects that these records would include those necessary to justify preferential terms offered to a producer on the basis of any of the criteria within this rule. No changes were made to the rule as proposed based on these comments.

The fourth proposed criterion for the Secretary to consider is criterion (d)—whether the preference or advantage cannot be justified as a reasonable business decision that would be customary in the industry. Many comments addressed this particular proposal.

Comment: Several comments supported the inclusion of criterion (d) with the other proposed criteria, saying in general that they appear all-encompassing. Those comments recommended no changes to proposed criterion (d). Other comments recommended clarifying criterion (d) to indicate what would be considered a reasonable business decision that would be customary in the industry. Many comments asked further that AMS list the marketing arrangements and other business practices commonly expected to constitute legitimate business justifications. Some comments further recommended developing different lists for different industry sectors. Other comments asked that such lists not be considered finite, giving the industry room to adopt new types of acceptable arrangements in the future.

One comment suggested the term “reasonable business decision” could change over time and vary from individual to individual and from one USDA administration to the next. The comment explained contracting parties might be uncertain about how a contract provision that appears reasonable today might be viewed at some point in the future. Thus, the comment recommended USDA define what it considers to be “reasonable” in making business decisions or simply limit any interpretation of what was a “reasonable business decision” to the relative positions, beliefs, and understandings of the contracting parties at the time and place the contract was entered into.

AMS response: AMS has not defined or standardized the meaning of “reasonable” in the regulation because the word “reasonable” assumes the commonly understood meaning of an objective standard. That is, a reasonable decision is a decision that a reasonable person would make under similar circumstances. Further, we do not agree that the regulation should attempt to identify every possible industry business decision or marketing arrangement that might be reasonable now and in the future. Rather, the Secretary can apply the timeless standard of reasonableness to examine an alleged preference or advantage. Accordingly, AMS made no changes to the rule as proposed based on these comments.

Comment: Several comments asked AMS to clarify that just because an unfair practice may have become common within the industry, that does not mean it would be justified under proposed criterion (d) and not a violation of section 202(b) of the Act. Others said that the proposed criteria protected regulated entities from legal challenges to practices that are customary in the industry when a practice that is “customary” may violate the Act. Many comments described practices they say are unfair but have become commonplace within the industry, such as retaliation, racial discrimination, favoritism, use of tournament systems in the poultry sector, poultry pay systems where buyers control most grower quality inputs, and giving “sweetheart deals” to certain ranchers or feeders in the cattle industry. Comments said that these practices, although they might be called “customary,” should not be justified under proposed criterion (d). Some comments recommended using examples from this list to develop other criteria for determining whether a preference or advantage is undue or unreasonable. Other comments asked that the qualifier “that would be customary in the industry” be decoupled from “reasonable business decision,” leaving the latter to stand on its own as a criterion. One comment suggested AMS could develop another criterion to incorporate “customary in the industry.”

AMS response: While the agency's intent is to establish a criterion that would allow preferences supported by reasonable business decisions, AMS does not intend to legitimize unlawfully discriminatory practices in the industry. As noted, some comments raised concerns that some “customary practices in the industry” may also be unlawful preferences or advantages. Thus, comments have raised concerns which, after careful consideration, justify modification of the rule. Accordingly, based on consideration of comments, AMS revised proposed criterion (d) by deleting the phrase, “customary in the industry,” and providing that criterion (d) read, “whether the preference or advantage cannot be justified as a reasonable business decision.”

Comment: Many comments advocated removing criterion (d) entirely from the proposed regulation, arguing that both “reasonable” and “customary” are subjective. Comments claimed application of criterion (d) would allow the Secretary to permit anticompetitive behavior of the type the Act was intended to prevent. Comments said AMS should instead adopt stronger rules that would fulfill Congress's intent to curb anticompetitive practices.

AMS response: As explained above, AMS believes reasonableness is an objective measure with timeless application to the determination of whether a preference or advantage might be undue or unreasonable and a violation of the Act. Under this objective standard, what is reasonable does not rely on the intent of the individual. An objective legal standard “is based on conduct and perceptions external to a particular person.”  4 Thus a “reasonable-person standard” is objective because it does not require a determination of what the regulated entity thinks. We removed the phrase “customary in the industry” from the language of criterion (d), and believe that change is sufficient to make the criterion a useful tool for the Secretary's determinations. Accordingly, we made no further changes to the rule as proposed based on these comments.

A few comments suggested additional criteria the Secretary should consider when determining whether certain actions are violations of section 202(b) of the Act.

Comment: One comment suggested the Secretary consider the relative bargaining power of the parties involved in a dispute about an alleged violation. The comment gave the example of a poultry grower with five-year-old chicken houses trying to negotiate a contract with a party who knows the grower has no other real options. The comment said this situation does not allow for true freedom of negotiation, and provisions should be developed to protect against the imbalance.

AMS response: The example the commenter provides appears to illustrate a possible undue or unreasonable disadvantage imposed on the poultry grower. That is, poultry growers lack the economic resources to demand higher value for their work, and they are at a disadvantage. When they negotiate, they may receive a lower price under their contract. The relative strength of their bargaining power is a distinct disadvantage, leading to unfavorable terms to the poultry grower. The relative strength of bargaining power may be an additional factor to consider for a given preference or advantage, but, as the commenter's example illustrates, preferences or advantages are unlikely to result from the bargaining disparities between poultry growers and live poultry dealers. This rule is limited in scope to addressing undue or unreasonable preferences or advantages. Accordingly, AMS is making no changes to the rule as proposed based on this comment.

Comment: Another comment recommended addition of a fifth criterion (e) and proposed the Secretary consider whether an apparent preference or advantage “cannot be justified as needed to address a natural disaster or military necessity, such as but not limited to an emergency for which the Federal government has invoked its authority in relation to food supplies under the Stafford Act or the Defense Production Act.” The comment explained that packers, swine contractors, and live poultry dealers might be required to award preferential contracts to certain farmers or localities to address emergencies such as natural disasters or military necessities. The comment suggested that without the recommended language, entities might hesitate to forge such contracts, despite the proposed rule's provision that other factors besides the four listed criteria could be considered.

AMS response: The commenter's suggestion of a fifth criterion (e) is appreciated and provides an example of a situation in which the Secretary's consideration of criteria should not be limited only to the four criteria set forth in the rule. Natural disasters and other emergencies would likely create situations in which a packer, swine contractor, or live poultry dealer may give a lawful preference or advantage to one producer as compared to another. A preference given in response to an Executive Order may also apply in these situations. While these are instances in which the Secretary would carefully examine the facts to determine whether a preference is undue or unreasonable, it is not necessary to explicitly include a criterion for this conduct. Accordingly, AMS is making no changes to the rule as proposed based on the comment.

Comment: Some comments encouraged AMS to include as criteria for the Secretary's consideration whether the alleged preference or advantage given to certain farmers reflects retaliation or racial discrimination against others; reflects unreasonable reductions in payments based on tournament incentive systems or other payment arrangements where the company, rather than the farmer, controls inputs that factor into the farmer's pay; or reflects unreasonable “sweetheart” deals given by companies to some farmers and ranchers to the disadvantage of others.

AMS response: Existing law prohibits retaliation and racial discrimination. 5 Issues of retaliation and racial discrimination typically would arise in complaints of undue or unreasonable prejudices or disadvantages. This rule is limited in scope to addressing undue or unreasonable preferences or advantages. AMS acknowledges, however, that retaliation and racial discrimination can be factors in cases of preferential treatment. Such conduct would also be considered by the Secretary under the broad authority granted by the Act when determining whether a preference is undue or unreasonable but need not be explicitly set forth in the rule. Accordingly, AMS is making no changes to the rule as proposed based on these comments.

Comment: Several comments stated that there are important differences between the marketing arrangements and structures of the cattle, swine, and poultry industries and that, where appropriate, separate criteria should be developed to account for these differences.

AMS response: The prohibitions of section 202 of the P&S Act apply to packers, swine contractors and live poultry dealers. The law does not specify prohibitions that apply only to cattle, or swine, or poultry. AMS proposed broad criteria that can apply across all segments of the livestock and poultry industries. If a behavior specific to only one segment of the livestock or poultry industry is unlawful, it will likely fit within one of the criteria set forth in this final rule. Criteria describing specific behaviors were not proposed as they could be viewed as limiting the Secretary's ability to enforce this regulation. Maintaining broadly written criteria also provides sufficient flexibility to easily adapt to changing technology and business practices used across the industry. Accordingly, no changes were made to the proposed rule based on the comments.

A number of comments recommended modifications to the proposed rule. Many comments referred to USDA's previous rulemaking efforts to establish the mandated criteria for considering alleged violations of § 202(b) of the Act and recommended proposed provisions from earlier attempts be reintroduced. Several comments addressed perceived inadequacies in the current regulations and enforcement of the Act.

Comment: Numerous comments called for the addition of specific protections for farmers, including ranchers and growers, and provided examples of the types of protection they sought. Comments asked for protection that would allow farmers to file complaints, identify wrongdoing, speak with the media and elected officials, and form and join farmer associations without the threat of retaliation. Comments asked for protection against discrimination of any kind, including national origin, sex, race, religion, disability, political beliefs, marital or family status, or any other protected category. Comments said the proposed rule does not provide that protection, despite there being several documented cases of discrimination in the industry. Several comments asked that the rule include detailed, specific protections for contract poultry and livestock producers that apply to all forms of poultry and livestock, that are suitable for the future of the industry, are enforceable, and provide for real consequences for violations of section 202(b) of the Act.

AMS response: Congress directed the Secretary in the 2008 Farm Bill to establish criteria to guide the Secretary's consideration of facts in determining whether an apparent preference or advantage is undue or unreasonable and a violation of the Act. Protection against some of the unfair and discriminatory practices described by commenters is afforded under existing laws and under other provisions of the P&S regulations. 6 Farmers have the right to file complaints regarding wrongdoing, speak with media and elected officials, and form and join farmer associations. If retaliation occurs, there is likely discrimination, which may be unlawful under the P&S Act or other laws. While this rule cannot specify protections for every grievance suggested by comments, AMS believes the establishment of the criteria in this rule serves broadly as protection for industry members and others who may be subjected to undue or unreasonable preferences in violation of the Act. Accordingly, no changes were made to the proposed rule based on these comments.

Comment: Comments asked that the rule require contract prices to be based on clear, transparent, and predictable standards. Comments said prices should not be based on inputs the packing or processing company provides that may dictate the health of animals or the quality of feed. Comments also called for enforcement of fair pricing systems that don't involve price fixing or collusion. Other comments said that poultry integrators should be required to communicate clearly to all their contracted growers about actions that appear to be, but are not, undue preferences, such as the examples provided in the proposed rule's preamble. Comments further recommended that this communication be required at the time of signing contracts between growers and integrators and in routinely updated communications from the integrator to all the growers under contract with that integrator.

AMS response: Comments appear to suggest that live poultry dealers should be required to discuss with poultry growers information about the business of other poultry growers. This rule does not require that confidential business information of some poultry growers be shared with other poultry growers. P&S regulations currently require that live poultry dealers furnish growers with a copy of their contract and all applicable terms. 7 Live poultry dealers must also provide settlement sheets and all information and supporting documents needed to compute payment. This rule does not change these existing disclosure requirements. Accordingly, no changes were made to the rule as proposed based on these comments.

Comment: Some comments suggested the proposed rule could be improved by the addition of implementation and enforcement methods. One comment suggested that the proposed rule include a methodology for the determination process the Secretary would employ prior to considering whether the allegedly undue or unreasonable preference or advantage meets the proposed criteria. According to the commenter, establishing such a methodology would provide a more standardized structure and make the process less subjective. Other comments asked AMS to establish methods to continuously review and monitor industry practices to ensure new practices are not evolving that would circumvent the purposes of the Act.

AMS response: The suggestions to establish implementation and enforcement methods have merit, but do not address the establishment of criteria for the determination of whether and are therefore outside the scope of this rule. The Act sets forth the Secretary's investigative and enforcement authority over packers, swine contractors, and live poultry dealers. These powers and procedures establish the methodology to be followed in applying the criteria. Accordingly, no changes were made to the proposed rule based on these comments.

Comment: One comment suggested the rule could be improved by codifying the need to show competitive harm, and the comment provided regulatory applicability language for such a provision. The comment's recommended language would require the Secretary to find that the challenged conduct or action lacks a legitimate business justification and harms—or is likely to harm—competition to bring a claim under sections 202(a) and (b) of the Act.

AMS response: Several, but not all, U.S. Circuit Courts of Appeal have established case precedent requiring a showing of harm to competition. 8 For that reason, USDA previously withdrew the December 2016 interim final rule that would have codified that harm to competition is not required to prove a violation. Given the history and conflicting opinions on this topic, AMS does not believe that this rulemaking is the appropriate avenue for interpreting the statute's intent. Accordingly, AMS is making no changes to the rule as proposed based on this comment.

Comment: Another comment suggested the proposed rule could be improved by first distinguishing between preferences, advantages, prejudices, and disadvantages; and second by defining what would be considered undue or unreasonable versions of each.

AMS response: The terms “preferences” and “advantages” have already been defined by the Judicial Officer. Giving an advantage to any person and not to other similarly situated persons is making or giving a preference. Conferring a benefit on any person and not on all similarly situated persons is making or giving an advantage. (See In Re: IBP, Inc., 57 Agric. Dec. 1353 (July 31, 1998)). Thus, AMS finds it unnecessary to codify those definitions in the rule. Accordingly, AMS is making no changes to the rule as proposed based on the comments.

Comment: Several comments said that AMS should not finalize this rule but should instead adopt provisions from prior rules. This included two rules GIPSA published in December 2016 (81 FR 92703 and 81 FR 92723, December 20, 2016). One comment characterized the 2016 rules as making progress toward an antitrust framework that would protect farmers. One comment recommended restoring provisions from the June 2010 proposed rule. Comments preferred provisions from all those rules that would have formally established that proof of actual or likely competitive harm is not needed for violations of section 202(b); created lists of “per se” and likely violations of the Act (such as attempted delays of payment and “hold-up” scenarios, respectively); established that any conduct which harms or likely harms competition is a violation of the Act; and provided more specific, grounded criteria for evaluating violations of section 202(b), including whether a grower is treated fairly as compared to other similarly situated growers who have engaged in lawful assertion of their rights, or is treated differently due to arbitrary reasons unrelated to the grower's livestock or poultry operation. Comments claim that the provisions of those rules would better address the current competitive imbalance in the market.

Comments asked that many different provisions of the prior rules be incorporated into this rule. Comments asked for explicit prohibition against the use of tournament incentive system. Some comments also urged a ban on packer ownership of livestock, which is currently permitted. Comments also said that certain cattle procurement agreements, when offered selectively to some cattle sellers and not others, should be identified as per se violations of section 202(b) of the Act. Other comments listed specific conduct that commenters believe should be considered per se violations of the Act and recommended they be added to the regulations.

One comment recommended USDA republish for public comment a petition submitted to GIPSA in 1996 calling for rules to restrict certain procurement practices in the meat packing industry. 9 According to the comment, the petition's proposal would better define undue preference in live cattle markets, facilitate reestablishing price discovery for domestic and import markets, and lessen the pending threat of beef plant closures and the corresponding loss of good paying jobs.

AMS response: The prior rulemakings referenced in these comments contained greater breadth of rulemaking and proposed a number of prohibited acts. This rule does not have the same breadth as those previous rules. Nor does this rule expand on earlier rulemaking. As explained in the proposed rule, this rule represents a fresh start at fulfilling the 2008 Farm Bill mandate to establish criteria to consider when determining whether conduct makes or gives an undue or unreasonable preference or advantage. The criteria established in this rule can be applied across a wide range of behaviors and meets the 2008 Farm Bill mandate.

Further, some of the examples of prohibited behaviors comments cited from abandoned rulemaking would be examples of undue or unreasonable prejudices or disadvantages, rather than preferences or advantages, and are therefore outside the scope of this rule. Accordingly, AMS is making no changes to the rule as proposed based on these comments.

Comment: Some comments recommended that the examples of potentially undue or unreasonable preferences or advantages given in the proposed rule's preamble be codified as explicit violations of section 202(b). Comments explained that doing so would help bring the proposed criteria into line with the purpose of the Act and the 2008 Farm Bill mandate from Congress. Comments cited examples of premiums offered to one person or locality but not offered to similarly situated other persons or localities, livestock packers negotiating preferential live basis prices with only one favored livestock supplier and not with similarly situated suppliers, and live poultry dealers offering a higher base price to a favored grower but not to other growers in the same complex with the same housing types.

AMS response: As explained in an earlier comment response, AMS has chosen not to codify a list of per se violations because we believe that narrow examples cannot possibly encompass all of the situations that might result in an undue or unreasonable preference or advantage. The purpose of the regulation is to provide criteria that are broad enough to cover a majority of the types of conduct that could be violations of the Act. Further, AMS believes the criteria established in this rule are aligned with the purposes of the Act and the 2008 Farm Bill mandate because they provide the framework the Secretary will use when examining the facts of wide-ranging types of conduct within the livestock, meat, and poultry industries. Accordingly, no changes were made to the proposed rule based on these comments.

Many comments addressed the notion of competitive harm and whether proof of such harm or likelihood of such harm is required to bring claims of violation of section 202(b) of the Act. Past findings in the Fifth, Sixth, Tenth, and Eleventh Circuits have held that under the Act plaintiffs must show competition, and not just an individual, is or is likely to be injured through preferences or advantages given to certain individuals or localities. 10 Other Circuits that are often cited for the proposition—in the Fourth, Seventh, Eighth, and Ninth Circuits—did not go so far. For example, courts in those circuits have agreed with USDA that certain violations of the Packers and Stockyards Act are “unfair practices” because those practices harm competition, or courts have opined on whether a specific practice would require harm to competition. 11 In past rulemaking efforts to establish the mandated criteria, USDA reiterated its position that harm to competition is not required in all cases under the Packers and Stockyards Act. AMS explained in the preamble of the current proposed rule that this rulemaking is independent of previous rulemaking efforts to establish the mandated criteria to guide determinations about undue and unreasonable preferences and advantages under the Act and did not make a policy statement about competitive harm.

Comments: Comments from the meat production, livestock production, and poultry segments of the industry expressed concern that AMS did not take a position on competitive harm in the proposed rule. Comments representing the interests of some livestock producers and poultry growers advocated clarifying that plaintiffs do not have to prove competitive harm to the entire industry to bring a case claiming undue and unreasonable practices. Comments said the burden of proof against large companies is too high for most farmers and that companies should not be allowed to continue unlawful practices just because a farmer cannot show harm to the entire industry.

One comment said it seems false to state in the proposed rule that AMS does not intend to create criteria that conflict with case precedent, when case precedent is mixed on the issue of the need to show competitive harm. The comment suggests AMS is apparently siding with the approach that requires demonstration of competitive harm to the entire industry. The comment perceived the proposed rule to be an unprecedented failure because it did not address the issue of competitive harm.

Comments asserted USDA has the authority and responsibility to issue rules for enforcing the Act that may conflict with court precedent under the Supreme Court doctrine of Chevron deference. According to comments, by not affirming in the proposed rule its historic position that a violation of section 202(b) may occur in some circumstances without a showing of competitive injury or likelihood of competitive injury, USDA could set a precedent that undermines its own policymaking power and codifies what commenters called judicial overreach and novel interpretation of the Act that contradicts the will of Congress. Thus, according to comments, the proposed rule leaves the Act largely unenforceable for individual farmers and ranchers.

One comment questioned AMS's refusal to adhere to its historic position on competitive harm and cited the October 2017 withdrawal of the December 2016 interim final rule on the Scope of Sections 202(a) and (b) of the Packers and Stockyards Act, which said: “Contrary to comments that GIPSA failed to show that USDA's interpretation was longstanding, USDA has adhered to this interpretation of the P&S Act for decades. DOJ has filed amicus briefs with several federal appellate courts arguing against the need to show the likelihood of competitive harm for all violations of 7 U.S.C. 192(a) and (b).” One comment said Congress has not amended section 202(b), so there is no apparent justification for USDA's refusal to assert its longstanding interpretation regarding the statute. Another said by not affirming its historic policy on competitive harm AMS is dismissing the possibility of industry reform and violating the intent of the Act.

Comments representing packers, swine contractors, and live poultry dealers disagreed with farmer comments and said the proposed rule must clarify that plaintiffs should be required to prove competitive injury across the industry to bring a claim of undue or unreasonable preference or advantage and violation under the Act. Comments argued that failure to recognize case precedent on competitive harm, in conjunction with the “plus other criteria” approach in the proposed rule, could create uncertainty about whether certain preferences or advantages are justifiable under the law and subject the industry to needless, costly lawsuits.

Comments argued that while Congress intended with the Act to combat restraints on trade and promote healthy competition in the livestock industry, it did not intend to discourage what comments called regular, healthy business competition. Comments referenced findings under other antitrust laws to assert that under the Act, alleged violations of sections 202(a) and (b) must show antitrust injury, which requires proof that competition as a whole was harmed by the defendant's conduct. Comments urged AMS to interpret sections 202(a) and (b) as requiring proof of actual or likely harm to competition to reinforce the Act's purpose, which according to comments is to protect competition in the industry.

One comment recommended AMS address both sections 202 (a) and (b) when discussing injury to competition because, according to the comment, both are rooted in antitrust jurisprudence and both require injury to competition as a prerequisite to establishing a violation. According to the comment, addressing injury to competition in the context of only section 202(b) risks creating unnecessary confusion about the interpretation of section 202(a).

AMS response: Given the history and conflicting opinions on this topic, AMS does not believe this rulemaking on preferences and advantages is the appropriate avenue for interpreting the statute's intent with respect to all portions of sections 202(a) and (b) of the Act.

The 2008 Farm Bill requires the Secretary to establish criteria to consider when determining if conduct is an undue or unreasonable preference or advantage. The criteria the Secretary establishes through the rulemaking are not exclusive, and pertain only to part of section 202(b) of the Act, which also prohibits undue or unreasonable prejudices and disadvantages. Whether competitive injury is required to establish a violation of the Act is a broader question applicable to the full provisions of sections 202(a) and 202(b) and is therefore outside the narrow scope of this rule. Accordingly, AMS is making no changes to the rule as proposed based on these comments.

Comment: Several comments urged AMS to abandon the proposed rule and start the rulemaking process all over. Comments claimed the proposed rule is inadequate and fails to meet the Congressional mandate to provide clear criteria for determining whether certain conduct or actions would be violations of section 202(b) of the Act. Other comments said the proposed rule failed to incorporate recommendations submitted in a June 2019 letter to AMS by associations representing farmers' interests and recommendations in a July 2019 letter to USDA from 17 members of Congress, both of which advocated stronger protections for farmers. Still other comments said the proposed rule does nothing more than fulfil a congressional mandate, while maintaining the status quo.

Some comments said AMS should start over because the proposed rule reduces and eliminates competition, facilitates corporate abuse of concentrated and predatory market power, invites collusion, and allows manipulation of live cattle prices.

One comment said the proposed rule was well intentioned, but does not accurately reflect needed modernization changes and improvements within the packers and stockyards industry. The comment urged USDA to withdraw the proposed rule and convene a livestock industry stakeholder summit to outline a course of action.

AMS response: The purpose of the rule is to provide criteria that are broad enough to cover a majority of the types of conduct that could be found in violation of the Act. It is not the intention of the agency to set forth a laundry list of examples, as many of the commenters suggest, but rather to establish criteria the Secretary will consider when examining the facts of wide-ranging types of conduct within the livestock, meat, and poultry industries. AMS is committed to finalizing the rule as required by the 2008 Farm Bill mandate to establish such criteria and fulfilling USDA's commitment to the Court to complete the rulemaking expeditiously. Therefore, AMS is neither withdrawing nor making changes to the rule as proposed based on these comments.

Comment: Numerous comments expressed doubt that the proposed rule would remedy what they identified as serious problems in the livestock and poultry industry. Comments said farmers have little market power in dealings with large meat packing and poultry processing companies. Comments described what they called systematic discrimination and unchecked abusive treatment of farmers. Comments provided data demonstrating declines in farm prices that are not reflected in consumer prices, and they warned that the demise of small and family farms threatens U.S. food security, the economic health of rural communities, and the environment. Comments claimed finally that USDA does not act in the interest of small farmers.

AMS response: AMS appreciates the comments that expressed these concerns. Moreover, AMS understands the struggles farmers face across the U.S. Some of the concerns raised could be the result of preferences or advantages given by packers, swine contractors or live poultry dealers. Whether those preferences or advantages are undue or unreasonable is for the Secretary to determine utilizing the criteria set forth in this rule. The criteria are written broadly to cover wide ranging behaviors in the industry, including some of those identified by commenters, rather than narrowly addressing specific conduct. Some other concerns raised by the commenters are outside the scope of the Packers and Stockyards Act. AMS encourages commenters to continue the dialogue with USDA on these important issues so that together we can make improvements.

Comment: Several comments addressed the regulatory impact analysis included (RIA) in the proposed rule. Most of those comments concerned statements in the analysis that some found contradictory. Comments asserted the RIA's cost-benefit analysis shows that the rule will have no meaningful impact on the anti-competitive and improper practices that are already in place. According to comments, the statement that AMS does not expect the proposed rule to result in a decrease in the use of alternative marketing agreements (AMAs), poultry tournament systems, or other incentive payment systems; or decreased economic efficiencies in the cattle, hog, and poultry industries shows that the proposed rule is essentially toothless. Comments argued that the Act was not intended to maximize economic efficiencies, but to provide for a fair, competitive marketplace by preventing abuses by large, supposedly “efficient” entities. One comment asserted that if AMS does not expect the proposed rule to change anything about the current state of the market nor give farmers any more protection than they currently have, the total cost to industry of this rule is effectively zero and the cost-benefit analysis in the final rule should reflect this.

AMS response: AMS believes the rule will have a meaningful impact on anti-competitive practices that may exist in the industry. Although the cost benefit analysis in the proposed rule did not quantify projected benefits, it provided qualitative descriptions of the types of benefits expected from establishment of the proposed rule, such as improved parity of negotiating power between contracting parties with a clearer understand of what constitutes an undue or unreasonable preference or advantage under the Act.

The rule is not intended to dictate to industry the types of marketing arrangements employed. Understanding how the Secretary will evaluate allegations of violations of section 202(b) of the Act should induce packers, live poultry dealers, and swine contractors to reevaluate—and adjust if necessary—marketing agreements to make sure they comply with the law.

Even though the number and type of marketing agreements may not change because of the rule, this rule, like most rules, is expected to generate some costs. As explained in the RIA, most of the estimated costs for the final rule are associated with reviewing and, if necessary, adjusting contracts to make certain they comply with the rule.

Finally, AMS would like to distinguish operational efficiency of a firm from market efficiency. The operational efficiency of a firm improves when it can produce a good or service at a lower cost. A characteristic of market efficiency, on the other hand, is that the prices of goods or services represent unbiased indicators of their value to consumers and society, and contribute to the public benefit. The most efficient firm operations do not always lead to the most efficient markets. For example, industries in which unit costs continually decline with increased scale, such as water and electric utilities are considered natural monopolies. The firm that emerges as the monopolist in those industries will be the most operationally efficient, but if left unregulated, would be able to exploit its market power, for example by restricting output and charging a higher price. AMS believes this rule does not impede operational efficiency of the regulated firms, but does inhibit practices that could reduce market efficiency. Market efficiency, therefore, should be considered when evaluating the costs and benefits of this regulation.

AMS is making no changes to the rule or the RIA as proposed based on these comments.

Comment: One comment expressed concern with two statements in the regulatory impact analysis. The first projects that the proposed rule may lead to increased litigation costs to test case precedents regarding violations of the Act. The second states that AMS does not intend to create criteria that conflict with case precedent. The comment asked why, if the latter is true, did AMS not reduce confusion and the need for further litigation and affirmatively state the need to prove competitive harm in the regulation. Comments suggested that reinforcing the need to demonstrate injury or likely injury to competition would eliminate much of the precedent-confirming litigation that AMS anticipates flowing from the final rule, which in turn would significantly reduce the anticipated costs of the rule.

AMS response: This rule is intended to establish criteria the Secretary will consider when determining whether conduct is an undue or unreasonable preference or advantage. Whether competitive injury is required for a violation of sections 202(a) or 202(b) of the Act is beyond the narrow scope of this rule. Additionally, as explained earlier, the criteria in this rule pertain to the Secretary's evaluations of alleged misconduct and not to those of the courts. Even if AMS were to state a position on the need to show competitive harm, it would do little to limit litigation, as those opposing that position would likely challenge it in the courts. Thus, it is anticipated that litigation costs will increase initially as market participants—who choose to do so—test the provisions of the new regulation in court. Accordingly, AMS is making no changes to the rule as proposed based on the comment.

Comment: One comment questioned the claim in the RIA that the proposed rule would “increase the amount of relevant information available to market participants and offset any potential abuse of buyer-side market power by clearly stating to all contracting parties” the criteria for violations. The comment says it is not clear what basis AMS has to make this claim if all potential violations can be justified by cost savings, and no current customary practices across the industry will be considered a violation.

AMS response: AMS believes that establishment of the criteria in this rule will provide clearer information to market participants about how the Secretary will evaluate allegations of misconduct under section 202(b) of the Act. AMS anticipates that as producers and growers become aware of this information, they will be better able to negotiate fair contract terms with packers, contractors, and integrators considered to wield greater market power. AMS disagrees with the comment's conclusion that all potential violations can be justified by cost savings and that no currently customary practices will be considered violations. In fact, this rule gives the Secretary flexibility to consider multiple factors other than cost savings to determine whether a preference or advantage is undue or unreasonable. Removal of the “customary in the industry” clause from proposed criterion (d) also clarifies that the Secretary can make determinations about industry decisions and practices based on their reasonableness and not on whether they are widely adopted. AMS is making no changes to the rule as proposed based on this comment.

Comment: One comment argued that the Secretary of Agriculture and those appointed by the Secretary should not act as judges in matters of law and that allegations of violations of the Act should only be tried in courts of law.

AMS response: The Act clearly establishes that the Secretary has authority to enforce administratively violations of section 202(b) against packers and swine contractors. Congress granted the Secretary authority to investigate persons subject to the Act and provided for administrative enforcement of violations. Changing these authorities is beyond the scope of this rule. Accordingly, AMS is making no changes to the rule as proposed based on the comment.

Comment: Once comment interpreted the RIA's statement that it is not the purpose of the Act to interfere with contract negotiations or to upset the traditional principles of freedom of contract to mean that the proposed rule is not expected to decrease the use of differing contracting structures, such as the incentive-based contracting arrangements often used in the poultry industry. The comment said it is crucial that the proposed rule not disrupt the existing contracting structures commonly used by the industry, and that any preferences or advantages arising from the use of these types of arrangements be evaluated first on whether they cause injury or likely injury to competition, and second based on the four criteria in the proposed rule.

AMS response: As explained in earlier comment responses, AMS does not intend the rule to promote or prohibit any particular types of contracting arrangements. This rule is intended only to establish criteria the Secretary will consider when determining if a preference or advantage is undue or unreasonable. Whether competitive injury is required to prove a violation is a concept broader than the narrow focus of this rule. Accordingly, AMS is making no changes to the rule as proposed based on the comment.

AMS is issuing this rule in conformance with Executive Orders 12866 and 13563, which direct agencies to assess all costs and benefits of available regulatory alternatives and, if regulation is necessary, to select regulatory approaches that maximize net benefits, including potential economic, environmental, public health and safety effects, distributive impacts, and equity. Executive Order 13563 emphasizes the importance of quantifying both costs and benefits, reducing costs, harmonizing rules, and promoting flexibility.

In the development of this rule, AMS determined to take a different approach to developing the necessary criteria than had been taken in previous rulemaking efforts. AMS determined that including the criteria as part of the framework for consideration of preferences and advantages in buyer-seller contracts would best serve the needs of the industry and fulfill the 2008 Farm Bill mandate. AMS expects the new regulation to bring transparency to considerations of potential violations of sections 202(b) of the Act and certainty to industry members forging contracts related to the buying and selling of poultry and livestock. The rule is not expected to provide any environmental, public health, or safety benefits.

This rule has been determined to be significant for the purposes of Executive Order 12866 and therefore has been reviewed by OMB. This rule has also been determined to be an Executive Order 13771 regulatory action. Details on the estimated costs of this final rule can be found in the rule's economic analysis.

AMS is adding a new § 201.211, which provides four criteria in response to requirements of the 2008 Farm Bill for the Secretary of Agriculture to consider in determining whether a packer, swine contractor, or live poultry dealer has engaged in conduct resulting in an undue preference or advantage to any particular person or locality in any respect in violation of section 202(b) of the Act. Based on its familiarity with the industry, PSD prepared an economic analysis of new § 201.211 as part of the regulatory process. The economic analysis presents the cost-benefit analysis of implementing § 201.211. PSD then discusses the impact on small businesses.

This rule is independent of previous rulemaking. PSD reviewed certain cost projections developed in conjunction with previous rulemaking in analyzing the regulatory impact of this final rule. All costs and benefits described in this economic analysis pertain to the language in this final rule.

The 2008 Farm Bill requires the Secretary of Agriculture to promulgate a regulation establishing criteria that the Secretary will consider in determining whether an undue or unreasonable preference or advantage has occurred in violation of section 202(b) of the Act. This rulemaking fulfills that requirement.

Responsibility for establishing the required criteria was originally delegated to the Grain Inspection, Packers and Stockyards Administration (GIPSA), which subsequently merged with AMS. AMS now administers the regulations under the Act and has undertaken this rulemaking.

For this economic analysis, PSD considered the impact of three alternatives for this rule. PSD considered the impact of maintaining the status quo, the impact of adopting regulatory language that had been proposed in 2016, and the impact of adopting the language in this final rule.

PSD considered the impact of taking no further action on a previous version of § 201.211 GIPSA  12 had proposed on December 20, 2016. 13 GIPSA subsequently provided notice in the Federal Register on October 18, 2017, 14 that it would take no further action on the 2016 proposed rule. Taking no further action would result in no additional out-of-pocket costs to businesses in the livestock and poultry industries but that action would not fulfill the requirements of the 2008 Farm Bill.

AMS could have proposed the same regulatory language as in the 2016 proposed rule. The 2016 proposed rule contained six criteria the Secretary would consider in determining whether conduct or action constitutes an undue or unreasonable preference or advantage and a violation of section 202(b) of the Act. To determine the impact of adopting the 2016 proposed rule, PSD looked to the estimated costs of the 2016 rule as described in that rule's economic analysis, which was provided in the 2016 notice of proposed rulemaking. The total first year costs of the 2016 proposed rule were projected to be $15.37 million.

This current rulemaking represents a different approach than used in previous rulemakings and establishes an analytical framework for considering whether a violation of section 202(b) of the Act has occurred. The final rule includes new criteria to bring transparency to the determination process for the industry. PSD estimates that the total first year costs of this rule are $9.67 million.

As required by the 2008 Farm Bill, § 201.211 specifies criteria the Secretary will consider when determining whether an undue or unreasonable preference or advantage has occurred in violation of section 202(b) of the Act. The criteria provide a framework to analyze whether a particular person or locality receives an undue or unreasonable preference or advantage as compared to other similarly situated persons or localities. AMS expects the four criteria to clarify the legal standard for the public, promote honest competition and fair dealing, and improve the negotiating position of growers and producers.

PSD estimated the costs and benefits of the final rule assuming its publication and effectuation in May 2020. The costs and benefits of the final rule are discussed in order below.

PSD believes that the costs of § 201.211 would mostly consist of the direct costs of reviewing and, if necessary, re-writing marketing and production contracts to ensure that packers, swine contractors, and live poultry dealers are not providing an undue or unreasonable preference or advantage to any livestock producer, swine production contract grower, or poultry grower compared to other similarly situated person or localities. PSD believes some in the industry may initiate litigation to test the new regulations, resulting in additional costs.

Section 201.211 does not impose any new requirements on regulated entities, but it serves as guidance for their compliance with section 202(b) of the Act. Since the rule clarifies the Secretary's consideration of unlawful undue or unreasonable preferences or advantages, regulated entities should face less risk of violating the Act. The rule does not prohibit the use of alternative marketing agreements  15 (AMAs), poultry tournament systems, or other incentive payment systems, and is not expected to decrease economic efficiencies in the cattle, hog, and poultry industries. Additionally, PSD does not expect this rule to inhibit the ability of regulated entities and producers and growers to develop and enter into mutually advantageous contracts.

To estimate costs, PSD divided costs into two major categories, direct and indirect costs. In addition, PSD expects there are two direct costs: administrative costs and litigation costs.

With respect to direct costs, administrative costs for regulated entities would include items such as review of marketing and production contracts, additional record keeping, 16 and all other associated administrative office work to demonstrate that they do not provide an undue or unreasonable preference or advantage to any livestock producer, swine production contract grower, or poultry grower compared to other similarly situated person or localities.

Litigation costs for the livestock and poultry industries will initially increase until there is a body of case law interpreting the regulations. Once the courts establish precedent, PSD expects additional litigation to decline.

With respect to indirect costs, those costs include costs caused by changes in supply and/or demand and any resulting efficiency losses in the national markets for beef, pork, and chicken and the related input markets for cattle, hogs, and poultry resulting from the direct costs of the rule.

To estimate administrative costs of the rule, PSD relied on its experience reviewing contracts and other business records commonly maintained in the livestock and poultry industries for compliance with the Act and regulations. PSD has data on the number of production contracts between swine production contract growers and swine contractors and poultry growers and live poultry dealers. PSD estimated the number of cattle marketing contracts between producers and packers based on the number of feedlots and the percentage of livestock procured under AMAs. PSD then multiplied hourly estimates of the administrative functions of reviewing and revising contracts by average hourly labor costs for administrative, management, and legal personnel to arrive at the total estimated administrative costs. PSD measured all costs in constant 2016 dollars in accordance with guidance on complying with E.O. 13771. 17

Since packers, swine contractors, and live poultry dealers will likely choose to review their contracts as a precautionary measure to ensure that they are not engaging in conduct or action that in any way gives an undue or unreasonable preference or advantage to any livestock producer, swine production contract grower, or poultry grower, PSD estimates that the regulated entities will review each contract or each contract type once and will renegotiate any contracts that contain language that could be considered a violation of section 202(b) of the Act.

One may view this estimate as an upper bound to the direct cost of the rule, as not every packer, swine contractor, or live poultry dealer will choose to conduct such a review. Some may choose to “wait and see” what effect, if any, the rule has on the industry, and whether courts rule on it in any way that would warrant such a review of their contracts.

Based on PSD's experience, it developed estimates for regulated entities of the number of hours for attorneys and company managers to review and revise marketing and production contracts and for administrative staff to make changes, copy, and obtain signed copies of the contracts. For poultry contracts, PSD estimates that each unique contract type would require one hour of attorney time to review and rewrite a contract, two hours of company management time, and for each individual contract, one hour of administrative time, and one hour of additional record keeping time. 18 PSD estimates that each of the 93 live poultry dealers who report to PSD rely on 10 unique contract types on average. PSD data indicates that there are 24,101 individual poultry growing contracts. PSD estimates that each of the 237 hog packers has 10 marketing agreements. The 2017 Census of Agriculture (Ag. Census)  19 indicates that the universe of swine production contracts in the U.S. is 8,557. For hog production and marketing contracts, PSD estimates that each production contract and marketing agreement would require one-half hour of attorney time to review and rewrite a contract, one hour of company management time, one hour of administrative time, and one hour of additional record keeping time. For cattle processors, PSD estimates that each of the estimated 1,099 marketing agreements would require one hour of attorney time to review and rewrite a contract, two hours of company management time, one hour of administrative time, and one hour of additional record keeping time. 20

PSD multiplied estimated hours to conduct these administrative tasks by the average hourly wages for managers at $62/hour, attorneys at $84/hour, and administrative assistants at $36/hour as reported by the U.S. Bureau of Labor Statistics in its Occupational Employment Statistics to arrive at its estimate of contract review costs for regulated entities. 21

PSD recognizes that contract review costs will also be borne by livestock producers, swine production contract growers, and poultry growers. PSD estimates that each livestock producer, swine production contract grower, and poultry grower will, in its due course of business, spend one hour of time reviewing a contract or marketing agreement and will spend one-half hour of its attorney's time to review the contract. As with the regulated entities, one may view this estimate as an upper bound to the direct cost of the rule, as not every producer or grower will choose to conduct such a review. Some may choose to “wait and see” what effect, if any, the rule has on the industry, and whether courts rule on it in any way that would warrant such a review of their contracts.

The Energy Policy and Conservation Act (“EPCA” or “the Act”), 1 Public Law 94-163 (42 U.S.C. 6291-6317) authorizes the United States Department of Energy (DOE or, in context, the Department) to regulate the energy efficiency of a number of consumer products and industrial equipment types. Title III, Part B  2 of EPCA established the Energy Conservation Program for Consumer Products Other Than Automobiles. Title III, Part C  3 of EPCA established the Energy Conservation Program for Certain Industrial Equipment. Under EPCA, DOE's energy conservation program consists essentially of four parts: (1) Testing, (2) labeling, (3) Federal energy conservation standards, and (4) certification and enforcement procedures.

The Federal testing requirements consist of test procedures that manufacturers of covered products and equipment must use as the basis for: (1) Certifying to DOE that their products or equipment complies with the applicable energy conservation standards adopted pursuant to EPCA (42 U.S.C. 6295(s); 42 U.S.C. 6316(a)), and (2) making representations about the efficiency of those products or equipment (42 U.S.C. 6293(c); 42 U.S.C. 6314(d)). Similarly, DOE must use these test procedures to determine whether the product or equipment complies with relevant standards promulgated under EPCA. (42 U.S.C. 6295(s); 42 U.S.C. 6316 (a))

Under 42 U.S.C. 6293 and 42 U.S.C. 6314, EPCA sets forth the criteria and procedures DOE is required to follow when prescribing or amending test procedures for covered products and equipment. Specifically, test procedures must be reasonably designed to produce test results that reflect energy efficiency, energy use or estimated annual operating cost of a covered product or covered equipment during a representative average use cycle or period of use, and must not be unduly burdensome to conduct (42 U.S.C. 6293(b)(3); 42 U.S.C. 6314(a)(2)). As a waiver is the issuance of a test procedure applicable to certain products, these same requirements are applicable to any alternate test procedure that DOE may specify in an interim waiver or waiver. Subsequent to issuance of an interim waiver or waiver, DOE conducts a rulemaking to amend the generally applicable test procedure to address the issue that gave rise to the creation of a new test procedure for the requesting party.

DOE's regulations provide that upon receipt of a petition, DOE will grant a waiver from the test procedure requirements if DOE determines either that the basic model for which the waiver was requested contains a design characteristic that prevents testing of the basic model according to the prescribed test procedures, or that the prescribed test procedure evaluates the basic model in a manner so unrepresentative of its true energy consumption characteristics as to provide materially inaccurate comparative data. 10 CFR 430.27(a)(1) and 10 CFR 431.401(f)(2). DOE may grant the waiver subject to conditions, including adherence to alternate test procedures. DOE regulations also provide that in addition to the full waiver (“decision and order”) described previously, the waiver process permits parties to also file an application for interim waiver from the applicable test procedure requirements. 10 CFR 430.27(a) and 10 CFR 431.401(a). DOE will grant an interim waiver if it appears likely that the petition for waiver will be granted or if DOE determines that it would be desirable for public policy reasons to grant immediate relief pending a decision on the petition for waiver. 10 CFR 430.27(e)(2) and 10 CFR 431.401(e)(2).

In May of 2019, DOE proposed to streamline its existing interim waiver process by amending its regulations to require that the Department would make a determination on an interim waiver request within 30 business days of receipt. Under that proposal, should DOE fail to notify the applicant in writing of the determination within 30 business days, the request for interim waiver would be granted based on the criteria set forth in DOE regulations. 84 FR 18414 (May 1, 2019). The petitioner would be authorized to use the alternate test procedure specified in the request for interim waiver. Id.

DOE specified in the 2019 notice of proposed rulemaking (“NOPR”) that an interim waiver would remain in effect until a waiver decision is published or until DOE publishes a new or amended test procedure that addresses the issues presented in the application, whichever is earlier. If the alternate test procedure ultimately required by DOE differed from what was specified in the interim waiver, manufacturers would then have a 180-day grace period to begin using the alternate test procedure specified in the decision and order. If DOE denied the waiver request, the 180-day grace period would apply to the use of the test procedure specified in DOE's regulations. The proposal was intended to address delays in DOE's current process for considering requests for interim waivers from the DOE test method that ultimately imposed costs on manufacturers because they could not certify and distribute their products while awaiting a response to their petitions. 84 FR 18414 (May 1, 2019). The NOPR provided for the submissions of comments by July 1, 2019.

During the comment period, DOE received several requests to hold a public meeting and to extend the NOPR's comment period after the meeting so that the public could engage in the rulemaking process. 84 FR 30047, 30047 (June 26, 2019). To address these requests, the Department held a webinar on July 11, 2019, and extended the comment period until July 15, 2019. 4

DOE held the webinar to discuss the proposal and answer questions regarding the changes proposed to the existing process. (July 2019 Webinar, No. 31 at p. 5) DOE explained that the proposal was intended to improve public participation and decrease uncertainty in a long standing process, which provided manufactures of new and innovative products an alternative means of testing those products while the Department made a final adjudication on the waiver petition. ( Id. at pp. 5-8) DOE continued that the proposal would streamline this process by removing the language “if administratively feasible” from the Department's regulations and thereby require the Department to issue decisions on interim waiver applications within 30-business days that would remain in effect until the waiver decision and order was published, or until DOE published a new or amended test procedure. ( Id. at pp. 9-10) If a petition was ultimately denied or granted with a different alternative test procedure than specified in the interim waiver, then the manufacturer would have 180-days to begin using that new test procedure. DOE stated that its intent in issuing the proposal was to improve the waiver process for regulated entities by making it more transparent and participatory as well as addressing the financial burden manufacturers have experienced in the past. The proposal was intended to shift the burden of any delays in the review process onto the Department, rather than the requester. ( Id. at p. 11; 23) Following the webinar, DOE received additional requests to extend the comment period, which DOE granted and extended the comment period until August 6, 2019. 84 FR 35040 (July 22, 2019).

In this final rule, DOE is amending its regulations to address stakeholder concerns regarding lengthy waiting times following submission of interim waiver and waiver applications, and the burden that lengthy processing time imposes on manufacturers, who are unable sell their products or equipment absent an interim waiver or waiver from DOE. 5 Specifically, this rule amends Parts 430 and 431 of Chapter II, Subchapter D, of Title 10 of the Code of Federal Regulations as set forth at the end of this document in a way that is intended to provide the public and industry with greater clarity and transparency to the existing waiver process, and to address specific administrative delays that have prevented innovative and new products from reaching the market.

In this final rule, DOE has amended the current regulations to require that the Department make a determination on an interim waiver request within 45 business days of receiving a complete petition. DOE extended this time period from the 30 business days specified in the NOPR in response to comments suggesting that the Department may need additional time to review the interim waiver prior to issuing its decision. The Department believes that 45 business days provides the Department sufficient time to review an interim waiver request and make a determination on the interim waiver based on the regulatory criteria applicable at that step of the process, i.e., that the petition for waiver is likely to be granted, or it is desirable for public policy to grant immediate relief pending a decision on the waiver petition. 10 CFR 430.27(e)(2) and 10 CFR 431.401(e)(2). Extending the Department's review time will still reduce manufacturers' burdens relative to the baseline and retains the certainty for manufacturers that DOE will reach a decision on the interim waiver within a specified time period. DOE emphasizes that the grant or denial of an interim waiver is an intermediate step in DOE's consideration of the waiver petition, and that DOE will continue to provide, as it does now under the current regulations, opportunity for public input and further consideration by the Department prior to issuance of a decision and order on the waiver petition.

10 CFR 430.27 and 10 CFR 431.401 are amended by revising paragraph (e), which now requires the Department to post online a petition for an interim waiver within five business days of receiving an application and, as discussed in the preceding paragraph, will provide a decision on that petition for an interim waiver within 45 business days of receipt. 10 CFR 430.27(e)(1) and 10 CFR 431.401(e)(1). DOE added the requirement for posting the interim waiver in response to comments expressing concern that interested parties will be unaware that the Department received a petition for interim waiver. While DOE currently posts waiver and interim waiver requests on its website at https://www.energy.gov/eere/buildings/current-test-procedure-waivers, posting upon receipt is now specified in DOE's regulations to enhance public awareness of when DOE receives a request for interim waiver for processing pursuant to these amended regulations.

The Department may reach a decision on the petition at any point during the 45 business day window. The regulations also specify that the Department will post on its website a notice of the determination regarding a petition for interim waiver within five business days and will publish a notice of the decision in the Federal Register as soon as possible thereafter. 10 CFR 430.27(e)(1)(ii) and 10 CFR 431.401(e)(1)(ii). The Department updated these notification provisions from the NOPR for the same reasons of increased transparency and notice that it added the posting requirement for receipt of an interim waiver.

For purposes of determining the start of the 45 business day window, DOE considers a waiver and interim test procedure waiver petition received when the application request is accepted in the email box for receipt of waiver petition or if delivered by mail, on the date the petition is stamped as received by the Department. 10 CFR 430.27(e)(1)(iii) and 10 CFR 431.401(e)(1)(iii). DOE updated the NOPR to specify that failure to satisfy the criteria set forth in 10 CFR 430.27(b)(2) and 10 CFR 431.401(b)(2) would result in denial of the interim waiver. ( See 10 CFR 430.27(e)(1)(ii) and 10 CFR 430.401(e)(1)(ii) of this final rule.) This change is consistent with the current regulatory requirements for submission of an interim waiver (identification of related petition and basic models, as well as information on the likely success of the petition and information on the economic hardship or competitive disadvantage that is likely to result absent a favorable determination and an authorized signature). This change is also consistent with the criteria for grant of an interim waiver, which require the applicant to show that the petition for waiver will likely be granted and/or that it is desirable for public policy reasons to grant immediate relief pending a decision on the petition for waiver. 10 CFR 430.27(e)(2) and 10 CFR 430.401(e)(2). DOE also considers this change consistent with the provision in its regulations, which remains unchanged by these amendments, specifying that a petitioner must submit an alternative test procedure to the extent that one is known with the waiver petition. 10 CFR 430.27(b)(1)(iii) and 10 CFR 431.401(b)(1)(iii). While DOE will not grant an interim waiver absent an alternate test procedure specified by the petitioner, and the information required by 10 CFR 430.27(b)(2) and 10 CFR 431.401(b)(2), DOE will continue to process the waiver request and work with the petitioner to develop an appropriate alternate test procedure and provide additional information as necessary to process the waiver.

Revised paragraph (h) clarifies the duration of interim waivers by stating that an interim waiver remains in effect until the Department publishes a decision and order on the petition for waiver in the Federal Register or, publishes in the Federal Register a new or amended test procedure that addresses the issue(s) covered in the waiver, whichever is earlier. 10 CFR 430.27(h)(1) and 10 CFR 431.401(h)(1). In response to comments on the NOPR, DOE retains the requirement that DOE will complete either of these actions within one year of the issuance of an interim waiver. 10 CFR 430.27(h)(2) and 10 CFR 431.401(h)(2). DOE did not amend the current regulatory requirement that a waiver or interim waiver will automatically terminate on the date by which use of an amended test procedure that addresses the issue presented in the waiver is required to demonstrate compliance. 10 CFR 430.27(h)(3) and 10 CFR 431.401(h)(3).

The Department also revised 10 CFR 430.27(i)(1) and 10 CFR 431.401(i)(1) to provide manufacturers with a 180-day grace period for compliance with a specified test procedure in this final rule. In the event DOE ultimately denies the petition for waiver or the alternate test procedure specified in the interim waiver differs from the alternate test procedure specified by DOE in a subsequent decision and order granting the petition, the affected manufacturers will have 180-days to come into compliance. The duration of this grace period mirrors the amount of time the Department provides manufactures to come into compliance when a new test procedure is prescribed under 42 U.S.C. 6293(e). This provision was specified in the 2019 NOPR regulatory text as 10 CFR 430.27(e)(1)(iii) and 10 CFR 431.401(e)(1)(iii), but has been relocated to 10 CFR 430.27(i)(1) and 10 CFR 431.401(i)(1) in response to comments that 10 CFR 430.27(i) and 10 CFR 431.401(i) already specified the outcome if DOE denies a waiver petition after granting an interim waiver, or specifies an alternate test procedure in the waiver decision than in the interim waiver, and so the addition of the originally included 10 CFR 430.27(e)(1)(iii) and 10 CFR 431.401(e)(1)(iii) in the NOPR was confusing.

Section 19(b)(2) of the Act (12 U.S.C. 461(b)(2)) requires each depository institution to maintain reserves against its transaction accounts and nonpersonal time deposits, as prescribed by Board regulations, for the purpose of implementing monetary policy. Section 11(a)(2) of the Act (12 U.S.C. 248(a)(2)) authorizes the Board to require reports of liabilities and assets from depository institutions to enable the Board to conduct monetary policy. The Board's actions with respect to each of these provisions are discussed in turn below.

Section 19(b) of the Act authorizes different ranges of reserve requirement ratios depending on the amount of transaction account balances at a depository institution. Section 19(b)(11)(A) of the Act (12 U.S.C. 461(b)(11)(A)) provides that a zero percent reserve requirement ratio shall apply at each depository institution to total reservable liabilities that do not exceed a certain amount, known as the reserve requirement exemption amount. Section 19(b)(11)(B) provides that, before December 31 of each year, the Board shall issue a regulation adjusting the reserve requirement exemption amount for the next calendar year if total reservable liabilities held at all depository institutions increase from one year to the next. No adjustment is made to the reserve requirement exemption amount if total reservable liabilities held at all depository institutions should decrease during the applicable time period. The Act requires the percentage increase in the reserve requirement exemption amount to be 80 percent of the increase in total reservable liabilities of all depository institutions over the one-year period that ends on the June 30 prior to the adjustment.

Total reservable liabilities of all depository institutions increased by 31.0 percent, from $8,321 billion to $10,902 billion, between June 30, 2019, and June 30, 2020. Accordingly, the Board is amending Regulation D (12 CFR part 204) to set the reserve requirement exemption amount for 2021 at $21.1 million, an increase of $4.2 million from its level in 2020. 1

Pursuant to Section 19(b)(2) of the Act (12 U.S.C. 461(b)(2)), transaction account balances maintained at each depository institution over the reserve requirement exemption amount and up to a certain amount, known as the low reserve tranche, may be subject to a reserve requirement ratio of not more than 3 percent (and which may be zero). Transaction account balances over the low reserve tranche may be subject to a reserve requirement ratio of not more than 14 percent (and which may be zero). Section 19(b)(2) also provides that, before December 31 of each year, the Board shall issue a regulation adjusting the low reserve tranche for the next calendar year. The Act requires the adjustment in the low reserve tranche to be 80 percent of the percentage increase or decrease in total transaction accounts of all depository institutions over the one-year period that ends on the June 30 prior to the adjustment.

Net transaction accounts of all depository institutions increased 54.3 percent, from $2,505 billion to $3,866 billion, between June 30, 2019, and June 30, 2020. Accordingly, the Board is amending Regulation D to set the low reserve tranche for net transaction accounts for 2021 at $182.9 million, an increase of $55.4 million from 2020.

The new low reserve tranche and reserve requirement exemption amount will be effective for all depository institutions for the fourteen-day reserve maintenance period beginning January 14, 2021. For depository institutions that report deposit data weekly, this maintenance period corresponds to the fourteen-day computation period that begins December 15, 2020. For depository institutions that report deposit data quarterly, this maintenance period corresponds to the seven-day computation period that begins December 15, 2020.

Effective March 26, 2020, the Board reduced reserve requirement ratios on all net transaction accounts to zero percent, eliminating reserve requirements for all depository institutions. The annual indexation of the reserve requirement exemption amount and the low reserve tranche for 2021 is required by statute but will not affect depository institutions' reserve requirements, which will remain zero.

Section 11(b)(2) of the Act authorizes the Board to require depository institutions to file reports of their liabilities and assets as the Board may determine to be necessary or desirable to enable it to discharge its responsibility to monitor and control the monetary and credit aggregates. The Board screens depository institutions each year and assigns them to one of four deposit reporting panels (weekly reporters, quarterly reporters, annual reporters, or nonreporters). The panel assignment for annual reporters is effective in June of the screening year; the panel assignment for weekly and quarterly reporters is effective in September of the screening year.

In order to ease reporting burden, the Board permits smaller depository institutions to submit deposit reports less frequently than larger depository institutions. The Board permits depository institutions with net transaction accounts above the reserve requirement exemption amount but total transaction accounts, savings deposits, and small time deposits below a specified level (the “nonexempt deposit cutoff”) to report deposit data quarterly. Depository institutions with net transaction accounts above the reserve requirement exemption amount and with total transaction accounts, savings deposits, and small time deposits greater than or equal to the nonexempt deposit cutoff are required to report deposit data weekly. The Board requires certain large depository institutions to report weekly regardless of the level of their net transaction accounts if the depository institution's total transaction accounts, savings deposits, and small time deposits exceeds or is equal to a specified level (the “reduced reporting limit”). The nonexempt deposit cutoff level and the reduced reporting limit are adjusted annually, by an amount equal to 80 percent of the increase, if any, in total transaction accounts, savings deposits, and small time deposits of all depository institutions over the one-year period that ends on the June 30 prior to the adjustment.

From June 30, 2019, to June 30, 2020, total transaction accounts, savings deposits, and small time deposits at all depository institutions increased 24.0 percent, from $13,053 billion to $16,191 billion. Accordingly, the Board is increasing the nonexempt deposit cutoff level by $203.5 million to $1.262 billion for 2021 (up from $1.058 billion in 2020). The Board is also increasing the reduced reporting limit by $424.6 million to $2.633 billion for 2021 (up from $2.208 billion in 2020). 2

Beginning in 2021, the boundaries of the four deposit reporting panels will be defined as follows. Those depository institutions with net transaction accounts over $21.1 million (the reserve requirement exemption amount) or with total transaction accounts, savings deposits, and small time deposits greater than or equal to $2.633 billion (the reduced reporting limit) are subject to detailed reporting, and must file a Report of Transaction Accounts, Other Deposits and Vault Cash (FR 2900 report) either weekly or quarterly. Of this group, those with total transaction accounts, savings deposits, and small time deposits greater than or equal to $1.262 billion (the nonexempt deposit cutoff level) are required to file the FR 2900 report each week, while those with total transaction accounts, savings deposits, and small time deposits less than $1.262 billion are required to file the FR 2900 report each quarter. Those depository institutions with net transaction accounts less than or equal to $21.1 million (the reserve requirement exemption amount) and with total transaction accounts, savings deposits, and small time deposits less than $2.633 billion (the reduced reporting limit) are eligible for reduced reporting, and must either file a deposit report annually or not at all. Of this group, those with total deposits greater than $21.1 million (but with total transaction accounts, savings deposits, and small time deposits less than $2.633 billion) are required to file the Annual Report of Deposits and Reservable Liabilities (FR 2910a) report annually, while those with total deposits less than or equal to $21.1 million are not required to file a deposit report. A depository institution that adjusts reported values on its FR 2910a report in order to qualify for reduced reporting will be shifted to an FR 2900 reporting panel.

The provisions of 5 U.S.C. 553(b) relating to notice of proposed rulemaking have not been followed in connection with the adoption of these amendments. The amendments involve expected, ministerial adjustments prescribed by statute and by the Board's policy concerning reporting practices. The adjustments in the reserve requirement exemption amount, the low reserve tranche, the nonexempt deposit cutoff level, and the reduced reporting limit serve to reduce regulatory burdens on depository institutions. Accordingly, the Board finds good cause for determining, and so determines, that notice in accordance with 5 U.S.C. 553(b) is unnecessary.

The Regulatory Flexibility Act (RFA) does not apply to a rulemaking where a general notice of proposed rulemaking is not required. 3 As noted previously, the Board has determined that it is unnecessary to publish a general notice of proposed rulemaking for this final rule. Accordingly, the RFA's requirements relating to an initial and final regulatory flexibility analysis do not apply.

In accordance with the Paperwork Reduction Act of 1995, 4 the Board reviewed this final rule. No collections of information pursuant to the Paperwork Reduction Act are contained in the final rule.

For the reasons set forth in the preamble, the Board is amending 12 CFR part 204 as follows:

The FAA Modernization and Reform Act of 2012, Public Law 112-95 (February 14, 2012) (FMRA) included a number of provisions related to unmanned aircraft systems (UAS) operating in the National Airspace System (NAS). Section 336 of the Act, titled “Special Rule for Model Aircraft,” defined “model aircraft” and specifically prohibited FAA from promulgating a rule or regulation regarding model aircraft that were operated under certain circumstances. That prohibition notwithstanding, section 336 preserved the right of FAA to pursue enforcement action against operators of model aircraft that endanger the NAS. On June 28, 2016, FAA issued a final rule to allow the operation of small unmanned aircraft systems (UAS) in the National Airspace System (NAS), Operation and Certification of Small Unmanned Aircraft Systems, 81 FR 42064. That rule also included a new subpart E to 14 CFR part 101, implementing section 336.

On October 5, 2018, the President signed into law the FAA Reauthorization Act of 2018 (Pub. L. 115-254) (FAARA 2018). Section 349 of that act repealed the “Special Rule for Model Aircraft” in section 336 of FMRA, and replaced it with the “Exception for limited recreational operations of unmanned aircraft,” creating a new framework for allowing certain small unmanned aircraft operations. As a result, 14 CFR part 101, subpart E, no longer reflects current statutory law.

This final rule removes 14 CFR part 101, subpart E, to remove the inconsistency between FAA's regulations and current statutory law. It also makes conforming amendments to remove references to part 101, subpart E, in both 14 CFR 61.8 (Inapplicability of unmanned aircraft operations) and 14 CFR 107.1(b)(2) (Applicability of part 107). Lastly, the final rule removes the obsolete definition of “model aircraft” from 14 CFR part 1.

Section 553(b)(3)(B) of the Administrative Procedure Act (APA) (5 U.S.C.) authorizes agencies to dispense with notice and comment procedures for rules when the agency for “good cause” finds that those procedures are “impracticable, unnecessary, or contrary to the public interest.” Under this section, an agency, upon finding good cause, may issue a final rule without seeking comment prior to the rulemaking. Section 553(d) also authorizes agencies to forgo the delay in the effective date of the final rule for good cause found and published with the rule.

In this instance, FAA finds good cause to forgo notice and comment. Section 349 of FAARA 2018 repealed the statutory basis for Subpart E of part 101, putting the regulation into conflict with statutory law. Furthermore, FAA has no discretion to keep subpart E, irrespective of notice and comment. For these reasons, and the potential for public confusion resulting from regulations that are inconsistent with existing statutory law, notice and comment is unnecessary and contrary to the public interest.

In addition, FAA finds good cause to make the rule effective upon publication. FAARA 2018 superseded subpart E when the President signed the Act into law on October 5, 2018, repealing FMRA section 336. Subpart E has been ineffective since that date, eliminating any justification to delay the effective date of this final rule.

FAA's authority to issue rules on aviation safety is found in Title 49 of the United States Code. 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.

This rulemaking is promulgated pursuant to 49 U.S.C. 44809, which repealed section 336 of Public Law 112-95.

Changes to Federal regulations must undergo several economic analyses. First, Executive Order 12866 and Executive Order 13563 direct that each Federal agency shall propose or adopt a regulation only upon a reasoned determination that the benefits of the intended regulation justify its costs. Second, the Regulatory Flexibility Act of 1980 (Pub. L. 96-354) requires agencies to analyze the economic impact of regulatory changes on small entities. Third, the Trade Agreements Act (Pub. L. 96-39) prohibits agencies from setting standards that create unnecessary obstacles to the foreign commerce of the United States. In developing U.S. standards, this statute requires agencies to consider international standards and, where appropriate, that they be the basis of U.S. standards. Fourth, the Unfunded Mandates Reform Act of 1995 (Pub. L. 104-4) requires agencies to prepare a written assessment of the costs, benefits, and other effects of proposed or final rules that include a Federal mandate likely to result in the expenditure by State, local, or tribal governments, in the aggregate, or by the private sector, of $100 million or more annually (adjusted for inflation with base year of 1995). This portion of the preamble summarizes FAA's analysis of the impacts of this rule.

In conducting these analyses, FAA has determined that this rule is not a significant regulatory action, as defined in section 3(f) of Executive Order 12866. As notice and comment under 5 U.S.C. 553 are not required for this final rule, the regulatory flexibility analyses described in 5 U.S.C. 603 and 604 regarding impacts on small entities are not required. This rule will not create unnecessary obstacles to the foreign commerce of the United States. This rule will not impose an unfunded mandate on State, local, or tribal governments, or on the private sector, by exceeding the threshold identified previously.

As previously discussed, Section 349 of Public Law 115-254 repealed section 336 of Public Law 112-95 and thus subpart E of part 101 titled, Special Rule for Model Aircraft is no longer consistent with statutory law. As a result, this rule removes subpart E of part 101 and revises certain other provisions in 14 CFR to conform them to the removal of subpart E. This action will eliminate a conflict between FAA regulations and applicable statutory authority and reduce confusion for regulated entities. This rule does not convey additional regulations and does not result in additional regulatory costs.

Furthermore, in the 2016 final rule that added regulations to allow the operation of small UAS in the National Airspace System, 81 FR 42064, FAA found subpart E of part 101 would not result in any costs or benefits since it would simply codify FAA's enforcement authority. Therefore, the removal of subpart E of part 101 will not result in a revision of the previous regulatory analysis of its implementing rule.

Section 603 of the Regulatory Flexibility Act (RFA) requires an agency to prepare an initial regulatory flexibility analysis describing impacts on small entities whenever an agency is required by 5 U.S.C. 553 to publish a general notice of proposed rulemaking for any proposed rule. Similarly, section 604 of the RFA requires an agency to prepare a final regulatory flexibility analysis when an agency issues a final rule under 5 U.S.C. 553 after being required to publish a general notice of proposed rulemaking. RFA analysis requirements are limited to rulemakings for which the agency “is required by section 553 or any other law, to publish a general notice of proposed rulemaking for any proposed rule.” 5 U.S.C. 603(a). FAA has found good cause for implementing an immediate effective date in this case. As prior notice and comment under 5 U.S.C. 553 are not required to be provided in this situation, the analyses in 5 U.S.C. 603 and 604 likewise are similarly not required.

The Trade Agreements Act of 1979 (Pub. L. 96-39), as amended by the Uruguay Round Agreements Act (Pub. L. 103-465), prohibits Federal agencies from establishing standards or engaging in related activities that create unnecessary obstacles to the foreign commerce of the United States. Pursuant to these Acts, the establishment of standards is not considered an unnecessary obstacle to the foreign commerce of the United States, so long as the standard has a legitimate domestic objective, such as the protection of safety, and does not operate in a manner that excludes imports that meet this objective. The statute also requires consideration of international standards and, where appropriate, that they be the basis for U.S. standards. FAA has assessed the potential effect of this final rule and determined that it relates to domestic operation of certain unmanned aircraft systems and is not considered an unnecessary obstacle to trade.

Title II of the Unfunded Mandates Reform Act of 1995 (Pub. L. 104-4) requires each Federal agency to prepare a written statement assessing the effects of any Federal mandate in a proposed or final agency rule that may result in an expenditure of $100 million or more (in 1995 dollars) in any one year by State, local, and tribal governments, in the aggregate, or by the private sector; such a mandate is deemed to be a “significant regulatory action.” FAA currently uses an inflation-adjusted value of $155 million in lieu of $100 million. This rule does not contain such a mandate; therefore, the requirements of Title II of the Act do not apply.

The Paperwork Reduction Act of 1995 (44 U.S.C. 3507(d)) requires that FAA consider the impact of paperwork and other information collection burdens imposed on the public. According to the 1995 amendments to the Paperwork Reduction Act (5 CFR 1320.8(b)(2)(vi)), an agency may not collect or sponsor the collection of information, nor may it impose an information collection requirement unless it displays a currently valid Office of Management and Budget (OMB) control number. FAA has determined that there are no information collections associated with this rule.

In keeping with U.S. obligations under the Convention on International Civil Aviation, it is FAA policy to conform to International Civil Aviation Organization (ICAO) Standards and Recommended Practices to the maximum extent practicable. FAA has determined that there are no ICAO Standards and Recommended Practices that correspond to this rule.

FAA Order 1050.1F identifies FAA actions that are categorically excluded from preparation of an environmental assessment or environmental impact statement under the National Environmental Policy Act in the absence of extraordinary circumstances. FAA has determined this rulemaking action qualifies for the categorical exclusion identified in paragraph 5-6.6 of this Order and involves no extraordinary circumstances.

FAA has analyzed this immediately adopted final rule under the principles and criteria of Executive Order 13132, Federalism. The Agency has determined that this action would not have a substantial direct effect on the States, or the relationship between the Federal Government and the States, or on the distribution of power and responsibilities among the various levels of government, and, therefore, would not have federalism implications.

FAA analyzed this final rule under Executive Order 13211, Actions Concerning Regulations that Significantly Affect Energy Supply, Distribution, or Use (May 18, 2001). The agency has determined that it would not be a “significant energy action” under the executive order and would not be likely to have a significant adverse effect on the supply, distribution, or use of energy.

Executive Order 13609, Promoting International Regulatory Cooperation, promotes international regulatory cooperation to meet shared challenges involving health, safety, labor, security, environmental, and other issues and to reduce, eliminate, or prevent unnecessary differences in regulatory requirements. FAA has analyzed this action under the policies and agency responsibilities of Executive Order 13609, and has determined that this action would have no effect on international regulatory cooperation.

This rule is not an Executive Order 13771 regulatory action because this rule is not significant under Executive Order 12866.

In consideration of the foregoing, the Federal Aviation Administration amends chapter I of title 14, Code of Federal Regulations as follows:

The FAA has determined, in accordance with 5 U.S.C. 553(b)(3)(B) and 553(d)(3), that notice and opportunity for prior public comment hereon are unnecessary because substantially identical special conditions have been previously subject to the public comment process in several prior instances such that the FAA is satisfied that new comments are unlikely. For the same reason, the FAA finds that good cause exists for adopting these special conditions upon issuance. The FAA is requesting comments to allow interested persons to submit views that may not have been submitted in response to the prior opportunities for comment.

The FAA invites interested people to take part in this rulemaking by sending written comments, data, or views. The most helpful comments reference a specific portion of the special conditions, explain the reason for any recommended change, and include supporting data.

The FAA will consider all comments received by the closing date for comments. The FAA may change these special conditions based on the comments received.

On December 18, 2019, Garmin applied for a supplemental type certificate (STC) to install an AP/SAS in the BTCL Model 505 helicopter. The BTCL Model 505 helicopter is a 14 CFR part 27 normal category, single turbine engine, conventional helicopter designed for civil operation. This helicopter model can carry up to four passengers with one pilot and has a maximum gross weight (MGW) of up to 4,475 pounds, depending on the model configuration. The major design features include a two-blade main rotor, an anti-torque tail rotor system, skid landing gear, and a visual flight rule (VFR) basic avionics configuration. Garmin proposes to modify this model helicopter by installing an AP/SAS.

The AP/SAS provides attitude stabilization in two or three axes (pitch and roll with optional yaw) and higher-level AP functions such as altitude hold, heading command, and navigation tracking. However, the possible failure conditions for this system, and their effect on the continued safe flight and landing of the helicopter, are more severe than those envisioned by the present rules.

The effect on safety is not adequately covered under 14 CFR 27.1309 for the application of new technology and the new application of standard technology. Specifically, the present provisions of § 27.1309(c) do not adequately address the safety requirements for systems whose failures could result in catastrophic or hazardous/severe-major failure conditions or complex systems whose failures could result in major failure conditions in VFR rotorcraft. The current regulations are inadequate because when § 27.1309(c) was promulgated, it was not envisioned that this type of VFR rotorcraft would use systems that are complex or whose failure could result in “catastrophic” or “hazardous/severe-major” effects on the rotorcraft. This inadequacy is particularly true with the application of new technology, a new application of standard technology, or other applications not envisioned by the rule that affect safety.

Under 14 CFR 21.101, Garmin must show that the BTCL Model 505 helicopter, as changed, continues to meet the applicable regulations listed in Type Certificate Number R00008RD or the applicable regulation in effect on the date of application for the change. The regulations listed in the type certificate are commonly referred to as the “original type certification basis.” The regulations listed in Type Certificate Number R00008RD are as follows:

For approved MGW configuration of 1670 kg (3680 lb.) internal loading and 2030 kg (4475 lbs.) external loading:

Equivalent Level of Safety Findings issued against:

The Administrator has determined that the applicable airworthiness regulations ( e.g., 14 CFR part 27) do not contain adequate or appropriate safety standards for the BTCL Model 505 helicopter type certificate number R00008RD because of a novel or unusual design feature. Therefore, special conditions are prescribed under the provisions of § 21.16.

Special conditions are initially applicable to the model for which they are issued. Should Garmin apply for an STC to modify any other model included on the same type certificate to incorporate the same novel or unusual design feature, these special conditions would also apply to the other model under § 21.101.

In addition to the applicable airworthiness regulations and special conditions, the BTCL Model 505 helicopter must comply with the noise certification requirements of 14 CFR part 36.

The FAA issues special conditions, as defined in 14 CFR 11.19, in accordance with § 11.38, and they become part of the type certification basis under § 21.101.

The BTCL Model 505 helicopter will incorporate the following novel or unusual design features: An AP/SAS. An AP system is a system used to control an aircraft trajectory without constant input from the pilot. This system allows the pilot to focus on other aspects of the operation, such as weather and other flight associated systems. SAS is another type of automatic flight control system; however, instead of maintaining the aircraft on a predetermined attitude or flight path, the SAS will reduce pilot workload by dampening the rotorcraft's buffeting regardless of the attitude or flight path.

The BTCL Model 505 helicopter's type certification basis as modified by Garmin does not contain adequate airworthiness standards for the AP/SAS. The FAA requires these special conditions to comply with airworthiness standards. The FAA requires that Garmin provide the FAA with a systems safety assessment (SSA) for the final AP/SAS installation configuration to adequately address the safety objectives established by a functional hazard assessment (FHA). This assessment will ensure that all failure conditions and their effects are adequately addressed for the installed AP/SAS. The SSA process is part of the overall safety assessment process discussed in FAA Advisory Circular 27-1B, Certification of Normal Category Rotorcraft, and Society of Automotive Engineers document Aerospace Recommended Practice 4761, Guidelines and Methods for Conducting the Safety Assessment Process on Civil Airborne Systems and Equipment.

These special conditions require that the AP/SAS installed on the BTCL Model 505 helicopter meet the requirements to adequately address the failure effects identified by the FHA, and subsequently verified by the SSA, within the defined design integrity requirements.

Failure conditions are classified according to the severity of their effects on the rotorcraft. Radio Technical Commission for Aeronautics, Inc. (RTCA) Document DO-178C, Software Considerations in Airborne Systems and Equipment Certification, provides software design assurance levels most commonly used for the major, hazardous/severe-major, and catastrophic failure condition categories. The AP/SAS equipment must be qualified for the expected installation environment. The test procedures prescribed in RTCA Document DO-160G, Environmental Conditions and Test Procedures for Airborne Equipment, are recognized by the FAA as acceptable methodologies for finding compliance with the environmental requirements. Equivalent environment test standards may also be acceptable.

The environmental qualification provides data to show that the AP/SAS can perform its intended function under the expected operating condition. Some considerations for environmental concerns are installation locations and the resulting exposure to environmental conditions for the AP/SAS equipment, including considerations for other equipment that may be environmentally affected by the AP/SAS equipment installation. The level of environmental qualification must be related to the severity of the considered failure conditions and effects on the rotorcraft.

These special conditions contain the additional safety standards that the Administrator considers necessary to establish a level of safety equivalent to that established by the existing airworthiness standards.

As discussed above, these special conditions are applicable to the BTCL Model 505 helicopter. Should Garmin apply at a later date for a STC to modify any other model included on Type Certificate Number R00008RD to incorporate the same novel or unusual design feature, these special conditions would apply to that model as well.

This action affects only a certain novel or unusual design feature on the BTCL Model 505 helicopter. It is not a rule of general applicability and affects only the applicant who applied to the FAA for approval of this feature on the helicopter.

The authority citation for these special conditions is as follows:

Accordingly, pursuant to the authority delegated to me by the Administrator, the following special conditions are issued as part of the supplemental type certification basis for Bell Textron Canada Limited (BTCL) Model 505 helicopters, as modified by Garmin International, Inc.

Instead of the requirements of 14 CFR § 27.1309(b) and (c), the following must be met for certification of the autopilot and stability augmentation system installed on BTCL Model 505 helicopters:

(a) The equipment and systems must be designed and installed so that any equipment and systems do not adversely affect the safety of the rotorcraft or its occupants.

(b) The rotorcraft systems and associated components considered separately and in relation to other systems must be designed and installed so that:

(1) The occurrence of any catastrophic failure condition is extremely improbable;

(2) The occurrence of any hazardous failure condition is extremely remote; and

(3) The occurrence of any major failure condition is remote.

(c) Information concerning an unsafe system operating condition must be provided in a timely manner to the crew to enable them to take appropriate corrective action. An appropriate alert must be provided if immediate pilot awareness and immediate or subsequent corrective action is required. Systems and controls, including indications and annunciations, must be designed to minimize crew errors that could create additional hazards.

The FAA issued a notice of proposed rulemaking (NPRM) to amend 14 CFR part 39 by adding an AD that would apply to all SAP Model IO-360-series and O-360-series reciprocating engines and certain Lycoming Model AEIO-360-, IO-360-, and O-360-series reciprocating engines with a certain SAP crankshaft assembly installed. The NPRM published in the Federal Register on January 29, 2020 (85 FR 5173). The NPRM was prompted by three crankshaft assembly failures that resulted in the loss of engine power and immediate or emergency landings. The FAA determined that the crankshaft assembly failures resulted from the manufacturing process at SAP's crankshaft vendor during 2012 and 2014 causing excessive residual white layer of iron nitride forming on the assemblies. This white layer is brittle and can lead to spalling or fatigue cracking of the crankshaft assembly as a result of the normal mechanical loads during engine operation. The FAA's analysis concluded that all three SAP crankshaft assembly failures were the result of this fatigue cracking. In the NPRM, the FAA proposed to require the removal from service of all affected crankshaft assemblies. The unsafe condition, if not addressed, could result in failure of the engine, in-flight shutdown, and loss of the airplane.

The FAA received comments from seven commenters. The commenters were SAP, the Aircraft Owners and Pilots Association (AOPA), and five individual commenters. Three commenters requested that the FAA extend the comment period. One commenter requested the withdrawal of the AD. Two commenters asked the FAA to release more information. One commenter asked for the status of the AD and if the crankshaft assembly is safe to fly. The following presents the comments received on the NPRM and the FAA's response to each comment.

SAP stated that data from an independent laboratory test does not support the statement in the NPRM that the crankshaft failures were a result of residual white layer formation, also known as a compound layer, on certain crankshaft assemblies as a result of improper manufacturing by a third-party vendor. SAP stated that the fractured crankshafts were all within specifications. SAP found both the material and the heat treatment to be within all engineering requirements and consistent with other crankshafts in general aviation piston aircraft engines. SAP noted that these requirements were consistent with the engineering testing conducted by SAP in pursuit of FAA PMA certification. Additionally, SAP stated the fractures were not consistent with fatigue fractures due to excessive white layer, and that no manufacturing or material defect was found in independent metallurgical laboratory analysis. The FAA infers from this comment that SAP is requesting that the FAA withdraw the NPRM.

The FAA disagrees with SAP's analysis. BakerRisk Project No. 01-05929-003-17, dated August 15, 2017, for SAP crankshaft assembly S/N SP14-0202, which failed on March 6, 2017, found that there was a continuous white layer at the surface of the radius, extending up to the location of the fracture, and that the white layer may have contributed to early crack initiation.  1 The continuous white layer at the origin was 0.0007 inch. BakerRisk Project No. 01-05929-006-17, Rev. 1, dated May 8, 2018, for SAP crankshaft assembly S/N SP14-0194, which failed on August 3, 2017, found that the continuous white layer at the surface of the forward journal radius, extending up to the location of the fracture, was 0.0006 inch. According to the report, this indicates that the process being used to remove the white layer was not removing the entire white layer. Because it found that the presence of the white layer can lower fatigue resistance and result in premature fatigue crack initiation, the report included recommendations to review the material and the processes that define the crankshaft journals, especially the nitride case hardening and white layer removal process.  2

SAP's comment cited Hurst Metallurgical Research Laboratory, Inc., (Hurst) Report No. 73900, dated February 22, 2019, for SAP crankshaft assembly S/N SP13-0150, which failed on October 31, 2018. This Hurst report found that the continuous white layer of iron nitride at the surface of the forward journal radius was 0.0001 inch. The FAA, however, disagrees with the reported thickness of the white layer. The report includes two scaled photographs (photographs No. 11 and 12), magnified 100 times and 500 times, respectively. Using the scaling bar provided in the photographs, the FAA determined that the white layer is 0.0009 inch. Although SAP stated a white layer of up to 0.001 inch is allowed, SAP based this figure on an SAE Aerospace Material specification and not on the original equipment manufacturer's (OEM) specifications. A white layer of 0.0009 inch exceeds the amount allowed by the OEM.

As supported by the reports, the FAA finds that white layer contributed to the early crack initiation and, on all failed crankshaft assemblies, exceeded OEM specifications. Based on the foregoing, the FAA finds no basis to withdraw the NPRM.

SAP stated that the presence of a white layer does not reduce the fatigue resistance of material at the surface, but rather increases the fatigue resistance of that same material. SAP cited a study by Major, Jakl, and Hubálovský for the observation that the application of plasma carburizing can lead to about a 25% increase in fatigue resistance. 3 SAP stated a study by Hiraoka and Ishida  4 shows a marked increase in fatigue limit in a specimen with a 10 μm thick white layer as opposed to a specimen without a white layer, with a slight increase in the fatigue limit in a specimen with a 20 μm thick white layer as compared to the specimen with a 10 μm thick white layer. The FAA infers from this comment that SAP is requesting that the FAA withdraw the NPRM.

The FAA disagrees with the applicability of these studies to the unsafe condition identified in this AD. Although the application of plasma carburizing can lead to an increase in the fatigue resistance, the affected crankshaft assemblies were not plasma carburized. Therefore, the Major, Jakl, and Hubálovský study is not relevant here. Although the Hiraoka and Ishida study did reveal an increase in fatigue limit of gas nitrided steel with a white layer over one without a white layer, the study's test environment did not replicate the conditions applicable to an engine crankshaft as identified in Advisory Circular No. 33.19-1, “Guidance Material for 14 CFR § 33.19, Durability, for Reciprocating Engine Redesigned Parts,” dated September 27, 2004 (AC 33.19-1). A crankshaft is a part whose primary fatigue mechanism is a forced vibratory response in combination with a resonant vibratory response that occurs at any engine speed at which the natural frequency of the part (or assembly that includes the part) coincides with the frequency of a combustion or inertia harmonic. AC 33.19-1 recommends 300 hours of engine tests, including a vibration test at peak torsional resonance conditions, to test the fatigue strength of the crankshaft.

The white layer is well-established to be problematic in that it is brittle. The OEM removes the white layer during the manufacturing process. As a PMA holder, 14 CFR 21.303 requires that SAP produce a part that is equivalent to the OEM part. Based on the foregoing, the FAA finds no basis to withdraw the NPRM.

SAP stated the fractures of the crankshaft assemblies cited in the NPRM were due to misuse, abuse, or lack of lubrication. In support, SAP cited Hurst Report No. 73614, Rev. 1, dated December 7, 2018, for SAP crankshaft assembly S/N SP14-0202 and Hurst Report No. 73617, Rev. 1, dated December 7, 2018, for SAP crankshaft assembly S/N SP14-0194, which indicate that the fractures were likely initiated by abnormal service conditions, such as a propeller strike and a start-up of the engine in a low-temperature (below optimal performing temperature) environment. SAP also cited Hurst Report No. 73900 for SAP crankshaft assembly S/N SP13-0150, which indicates that likely contributors of the failure include rod sliding bearing failure due to insufficient lubrication, misalignment of the crankshaft, and improper engine performance from inadequate operation procedure resulting in high bending moment at the radius locations from excessive force from the piston assembly. SAP stated that all three of these crankshafts were operated in a flight school environment. The FAA infers from this comment that SAP is requesting that the FAA withdraw the NPRM.

The FAA disagrees that the fracture was initiated by the operation of the engines outside of “normal” conditions or parameters. With respect to Hurst Report No. 73614 for SAP crankshaft assembly S/N SP14-0202 and Hurst Report No. 73617 for SAP crankshaft assembly S/N SP14-0194, none of the engines exhibited evidence of propeller strikes, and none were started below optimal performance temperature. According to Lycoming, 5 cold weather requiring the use of pre-heat to avoid a cold engine start-up is 10 degrees Fahrenheit or below. Two of the incidents occurred in August (Canada) and October (Florida), making cold engine start-up unlikely. The third incident occurred in March (Massachusetts), which had a low of 16 degrees Fahrenheit at 6 a.m. and proceeded to a high of 41 degrees Fahrenheit in the afternoon.

With respect to Hurst Report No. 73900 for SAP crankshaft assembly S/N SP13-0150, the pilot and mechanic separately reported the engine had good oil pressure, indicating that the engine did not suffer from a lack of proper lubrication at the time of the crankshaft assembly failure. The report identifies possible contributors of single origin fatigue failure, including the misalignment of the crankshaft assembly or improper engine performance from inadequate operation procedure resulting in high bending moment at the radius locations from excessive force from the piston assembly. However, the report does not provide evidence to support these contributors. Based on the foregoing, the FAA declines to withdraw the NPRM.

An individual commenter requested to review the NTSB reports on the accidents mentioned in the NPRM. The commenter was unable to locate anything in the NTSB database concerning engine stoppage in aircraft powered by Lycoming or SAP O-360 or IO-360 engines.

The NTSB did not generate reports for the three incidents that resulted from the crankshaft failures discussed in the NPRM. Therefore, the FAA did not rely on NTSB reports and is not in possession of any report generated as a result of the three incidents.

An individual commenter requested that the FAA add its metallurgical analyses to the docket. The commenter stated that it was his understanding from discussions with the FAA that the FAA has shared its metallurgical analyses with SAP.

The FAA agrees and has uploaded the BakerRisk and Hurst metallurgical reports provided by SAP to the AD docket, as SAP has agreed to release these reports to the public. The FAA, however, did not perform its own metallurgical testing. The FAA instead relied on metallurgical testing performed by BakerRisk and Hurst for SAP.

An individual commenter requested that the FAA release information it has on this issue, including the circumstances of the crankshaft assembly failures, the cost of crankshaft assembly replacement, and the scope of the proposed action.

The FAA agrees to provide additional information about the circumstances of the failures. In each incident, the crankshaft assembly broke into two pieces. The March 6, 2017, incident resulted in the crankshaft separating at journal #2 while the August 3, 2017, and October 31, 2018, incidents both resulted in a separation of the crankshaft at journal #4. All of the incidents involved flight-training aircraft. Additionally, as discussed previously, the FAA has uploaded the metallurgical reports to the AD docket.

Both the NPRM and this final rule adequately explain the scope of the AD and contain a detailed estimate of the costs of compliance within this AD, including the cost of the crankshaft assembly replacement, labor cost, and total estimated cost to U.S. operators. This final rule also discusses the net benefit of this AD.

An individual commenter requested that the FAA consider the financial costs and unintended consequences of this AD, such as decreased aircraft value. The commenter estimates that the value of his aircraft has been reduced by at least $15,000 since the publication of the NPRM.

The FAA disagrees. The cost analysis in AD rulemaking actions typically includes only the costs associated with complying with the AD and does not include indirect costs such as loss of aircraft value. The FAA acknowledges that the general obligation of the operator to maintain its aircraft in an airworthy condition is sometimes expensive. However, and as discussed in more detail in the Benefits section, the FAA estimates that the benefits of this AD greatly exceed its cost.

An individual commenter asked if SAP crankshaft assemblies earlier than 2012 are affected by this AD.

The first affected SAP crankshaft assembly was shipped on July 31, 2012. SAP crankshaft assemblies assembled before July 31, 2012, are not affected by this AD.

SAP and AOPA requested that the FAA extend the comment period by 60 days to enable SAP to gather more information. SAP asked for more time to research, gather, and respond appropriately to the NPRM. AOPA similarly requested an extension to review the costs and overall scope, and to gather information to respond to the NPRM. SAP, AOPA, and an individual commenter requested the FAA extend the comment period because of delays due to the COVID-19 pandemic, such as the closure of laboratories for further testing and the reduction in aircraft operations.

The FAA disagrees. At SAP's request, the FAA met with SAP and AOPA in April 2020 to discuss the NPRM. During that meeting, the participants discussed certain aspects of the NPRM, including the white layer and metallurgical reports, the three failed crankshaft assemblies, and SAP's request for a 60-day extension to the comment period. A summary of the meeting is available in the AD docket. None of the information provided by SAP or AOPA justifies an extension of the comment period. If investigations by SAP or others reveal information that changes the FAA's determination regarding the unsafe condition, the FAA will consider future rulemaking.

An individual commenter requested information regarding the FAA's progress on issuing this AD. The commenter stated that based on feedback from SAP, the crankshaft assembly is safe and that a metallurgy company inspected one of the affected crankshaft assemblies and did not find any issues.

The FAA disagrees with the assessment from SAP. The FAA reviewed the metallurgical reports from the incidents of failed crankshaft assemblies and determined that an unsafe condition exists in other crankshaft assemblies of the same type design. In each incident, the crankshaft assembly broke into two pieces, leading to loss of engine power. The crankshaft assemblies involved in the three incidents were found to have excessive white layer. As a result, this AD requires removing all affected crankshaft assemblies from service within 25 engine operating hours after the effective date of this AD.

The FAA reviewed the relevant data, considered the comments received, and determined that air safety requires adopting the AD as proposed. Accordingly, the FAA is issuing this AD to address the unsafe condition on these products.

The Regulatory Flexibility Act of 1980 (Pub. L. 96-354, codified as amended at 5 U.S.C. 601-612) (RFA) establishes “as a principle of regulatory issuance that agencies shall endeavor, consistent with the objectives of the rule and of applicable statutes, to fit regulatory and informational requirements to the scale of the businesses, organizations, and governmental jurisdictions subject to regulation. To achieve this principle, agencies are required to solicit and consider flexible regulatory proposals and to explain the rationale for their actions to assure that such proposals are given serious consideration.” Public Law 96-354, 2(b), September 19, 1980. The RFA covers a wide-range of small entities, including small businesses, not-for-profit organizations, and small governmental jurisdictions. Agencies must perform a review to determine whether a rule will have a significant economic impact on a substantial number of small entities. If the agency determines that it will, the agency must prepare a regulatory flexibility analysis as described in the RFA.

The FAA published an Initial Regulatory Flexibility Analysis (IRFA) in the proposed rule to aid the public in commenting on the potential impacts to small entities. The FAA considered the public comments in developing the final rule and this Final Regulatory Flexibility Analysis (FRFA).

The FAA found that SAP, the manufacturer of the crankshaft assemblies, sold 192 SAP crankshaft assemblies to date: 115 of these crankshaft assemblies are estimated to be installed on type certificated airplanes and the remaining 77 crankshaft assemblies are estimated to be installed on experimental aircraft. The FAA's risk analysis indicates that 100 percent of crankshaft assembly failures will destroy the engine. Using the historical incident data (2000-2014), the FAA assumes that 24.4 percent of crankshaft assembly failures will result in aircraft hull loss while 22 percent of crankshaft assembly failures will result in fatalities. There would be an average of 2.1 fatalities per each crankshaft assembly accident. Applying these probabilities to the estimated 115 crankshaft assemblies installed on type certificated airplanes, the FAA estimates that if these crankshaft assemblies are not replaced and continue to be used in these airplanes, this will result in 53 fatalities (2.1 fatalities per crankshaft accident × 22 percent probability of a crankshaft assembly failure resulting in fatalities × 115 crankshaft assemblies) and 28 aircraft losses (24.4 percent probability of a crankshaft assembly failure destroying the airplane). This AD will prevent all 53 fatalities and 28 aircraft losses.

Using an average price of $50,000 for a small single engine airplane, an average price of $30,000 for a 360-series engine and the Department of Transportation's $9.6 million estimate for the Value of Statistical Life (VSL) from the “Revised Departmental Guidance on Valuation of a Statistical Life in Economic Analysis,”  6 the FAA estimated this AD final rule will result in monetized benefits of $512.8 million.  7

The costs of compliance with this AD consist of the cost to remove and replace a crankshaft assembly. The FAA estimates that this AD will affect 115 crankshaft assemblies installed on airplanes of U.S. registry. This cost estimate does not include 77 SAP crankshaft assemblies installed on experimental engines since this AD does not apply to these engines. The estimated compliance cost per crankshaft assembly is identified below.

Labor cost = 61 hours per crankshaft assembly replacement × $85 Hourly Wage = $5,185.

Equipment costs per crankshaft assembly replacement = $9,636 (Source: Average of the two vendors).

$5,185 labor per crankshaft assembly + $9,636 equipment costs per crankshaft assembly replacement = $14,821 compliance cost per engine.

The total costs to U.S. operators is $1,704,415 ($14,821 × 115), or $119,309 in annualized costs in perpetuity using a 7 percent discount rate. There are no additional costs after removing and replacing the crankshaft assembly.

Therefore, the FAA estimates that the net benefit of this final rule will be $511.1 million ($512.8 million benefits −$1.7 million costs), or $35.77 million in annualized net benefits using a 7 percent discount rate in perpetuity.

Under § 604(a) of the RFA, the final analysis must contain the following:

(1) A statement of the need for, and objectives of, the rule;

(2) A statement of the significant issues raised by the public comments in response to the IRFA, a statement of the assessment of the agency of such issues, and a statement of any changes made in the proposed rule as a result of such comments;

(3) The response of the agency to any comments filed by the Chief Counsel for Advocacy of the Small Business Administration (SBA) in response to the proposed rule, and a detailed statement of any change made to the proposed rule in the final rule as a result of the comments;

(4) A description of and an estimate of the number of small entities to which the rule will apply or an explanation of why no such estimate is available;

(5) A description of the projected reporting, record-keeping, and other compliance requirements of the proposed rule, including an estimate of the classes of small entities which will be subject to the requirement and the type of professional skills necessary for the preparation of the report or record;

(6) A description of the steps the agency has taken to minimize the significant economic impact on small entities consistent with the stated objectives of applicable statutes, including a statement of the factual, policy, and legal reasons for selecting the alternative adopted in the final rule and why each of the other significant alternatives to the rule considered by the agency which affect the impact on small entities was rejected.

This final rule AD was prompted by three crankshaft assembly failures that resulted in the loss of engine power and immediate or emergency landings. The FAA is issuing this AD to prevent failure of the crankshaft assembly by requiring the removal of all affected crankshaft assemblies from service. Failure of a crankshaft assembly, if not addressed, could result in failure of the engine, in-flight shutdown, and loss of the airplane.

An individual commenter noted that some owners of affected aircraft may not be in a position to absorb the $15,000 cost of the crankshaft assembly replacement. The commenter proposed that the financial costs of this AD would exceed the FAA estimates in some cases and, therefore, the unintended consequences of this AD would destroy value out of proportion to the preservation of the safety of the national airspace system and the general public.

The FAA estimates the cost of replacing a single crankshaft assembly at $14,821. The risk of not replacing the crankshaft is not insignificant, and the crankshaft failure could cause engine loss, airplane loss, or fatality valued at $30,000, $50,000, and $9.6 million, respectively. When these potentially substantial losses and risks of fatality to each airplane owner and operator are considered, the $14,821 compliance cost per airplane is minimal. Further, the FAA estimates the benefits of this AD to be $512.8 million, which greatly exceeds its cost of $1.7 million, justifying this final rule.

Based on the risk and benefits analysis above, the FAA determined that no changes are necessary to the final rule as a result of this individual comment.

The Chief Counsel for Advocacy of the SBA did not file any comments in response to the proposed rule.

This AD applies to all SAP Model IO-360-series and O-360-series reciprocating engines and certain Lycoming Model AEIO-360-, IO-360-, and O-360-series reciprocating engines with a certain SAP crankshaft assembly installed. This SAP crankshaft assembly is installed as original equipment on the affected SAP engines and as a replacement part under PMA on the affected Lycoming engines. These engines are installed on airplanes performing various activities including, but not limited to, flight training, charter flights, and agriculture.

Under the RFA, the FAA must determine whether a final rule significantly affects a substantial number of small entities. The FAA uses the SBA criteria for determining whether an affected entity is small. For aircraft and engine manufacturers, aviation operators, and any business using an aircraft, the SBA criterion is 1,500 or fewer employees. The FAA estimates that this AD affects 115 crankshaft assemblies installed on airplanes of U.S. registry. The FAA does not have any information or data on whether these entities are small businesses according to the definition established by the SBA. Although in the NPRM the FAA requested comments and data that would allow the agency to more accurately assess the number of employees and sales revenues of the affected entities, no such comments or data was received. Accordingly, the FAA assumes for purposes of this final rule that some of the affected entities are small businesses. 8 The FAA determines that the estimated $14,821 compliance cost per aircraft due to this rule will have a significant impact on a substantial number of small entities.

There are no record-keeping costs or other compliance costs associated with this final rule.

As part of the FRFA, the FAA is required to consider regulatory alternatives that may be less burdensome. The FAA considered the following alternatives:

Do nothing: This option is not acceptable because the risk of additional failures of these crankshaft assemblies constitutes a known unsafe condition. The FAA estimates that this AD will prevent 53 fatalities and 28 aircraft losses, and monetized benefits of $512.8 million.

Periodic inspections: This option is not possible as the crankshaft assembly cannot be inspected without destroying it.

There is no direct safety alternative to the replacement of the crankshaft assembly. The replacement addresses a safety issue aimed at preventing the failure of the crankshaft assembly.

Therefore, the FAA rejected these two regulatory alternatives and determined that this rulemaking may have a significant economic impact on a substantial number of small entities.

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.

The FAA is 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.

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, and

(2) Will not affect intrastate aviation in Alaska.

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

The FAA's authority to issue rules regarding aviation safety is found in Title 49 of the United States Code. 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. This rulemaking is promulgated under the authority described in Subtitle VII, Part A, Subpart I, Section 40103. Under that section, the FAA is charged with prescribing regulations to assign the use of airspace necessary to ensure the safety of aircraft and the efficient use of airspace. This regulation is within the scope of that authority as it amends Class E airspace at Cairo Regional Airport, Cairo, IL, to support instrument flight rules operations in the area.

The FAA published a notice of prosed rulemaking in the Federal Register (85 FR 64422, October 13, 2020) for Docket No. FAA-2020-0726 to amend Class E airspace extending upward from 700 feet above the surface to within a 6.5-mile (reduced from a 7-mile) radius of Cairo Regional Airport, Cairo, IL; adding an extension 2.5 miles each side of the 330° bearing from the Cairo Non-Directional Beacon (NDB) extending from the 6.5-mile radius of the Cairo Regional Airport to 7 miles northwest of the Cairo NDB; and updating the name (previously Cairo Airport) and geographic coordinates of the airport to coincide with the FAA's aeronautical database.

This action is the result of an airspace review caused by the decommissioning of the Cape Girardeau VOR, which provided navigation information for the instrument procedures at this airport, as part of the VOR MON Program.

Interested parties were invited to participate in this rulemaking effort by submitting written comments on the proposal to the FAA. No comments were received.

Class E airspace designations are published in Paragraph 6005, of FAA Order 7400.11E, dated July 21, 2020, and effective September 15, 2020, which is incorporated by reference in 14 CFR 71.1. The Class E airspace designations listed in this document will be published subsequently in the Order.

This document amends FAA Order 7400.11E, Airspace Designations and Reporting Points, dated July 21, 2020, and effective September 15, 2020. FAA Order 7400.11E is publicly available as listed in the ADDRESSES section of this document. FAA Order 7400.11E lists Class A, B, C, D, and E airspace areas, air traffic routes, and reporting points.

This amendment to Title 14 Code of Federal Regulations (14 CFR) part 71 amends Class E airspace extending upward from 700 feet above the surface to within a 6.5-mile (reduced from a 7-mile) radius of Cairo Regional Airport, Cairo, IL; adding an extension 2.5 miles each side of the 330° bearing from the Cairo NDB extending from the 6.5-mile radius of the Cairo Regional Airport to 7 miles northwest of the Cairo NDB; and updating the name (previously Cairo Airport) and geographic coordinates of the airport to coincide with the FAA's aeronautical database.

FAA Order 7400.11, Airspace Designations and Reporting Points, is published yearly and effective on September 15.

The FAA has determined that this regulation only involves an established body of technical regulations for which frequent and routine amendments are necessary to keep them operationally current. It therefore: (1) Is not a “significant regulatory action” under Executive Order 12866; (2) is not a “significant rule” under DOT Regulatory Policies and Procedures (44 FR 11034; February 26, 1979); and (3) does not warrant preparation of a regulatory evaluation as the anticipated impact is so minimal. Since this is a routine matter that only affects air traffic procedures and air navigation, it is certified that this rule, when promulgated, does not have a significant economic impact on a substantial number of small entities under the criteria of the Regulatory Flexibility Act.

The FAA has determined that this action qualifies for categorical exclusion under the National Environmental Policy Act in accordance with FAA Order 1050.1F, “Environmental Impacts: Policies and Procedures,” paragraph 5-6.5a. This airspace action is not expected to cause any potentially significant environmental impacts, and no extraordinary circumstances exist that warrant preparation of an environmental assessment.

In consideration of the foregoing, the Federal Aviation Administration amends 14 CFR part 71 as follows:

The FAA's authority to issue rules regarding aviation safety is found in Title 49 of the United States Code. 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. This rulemaking is promulgated under the authority described in Subtitle VII, Part A, Subpart I, Section 40103. Under that section, the FAA is charged with prescribing regulations to assign the use of airspace necessary to ensure the safety of aircraft and the efficient use of airspace. This regulation is within the scope of that authority as it amends Class E airspace in Dubois, PA, to support IFR operations in the area.

The FAA published a notice of prosed rulemaking in the Federal Register (85 FR 59465, September 22, 2020) for Docket No. FAA-2020-0826 to amend Class E surface airspace from a 4-mile radius to a 4.8-mile radius, and remove all extensions. Also, the FAA proposed the amendment of Class E airspace extending upward from 700 feet above the surface in Dubois, PA, from a 8.5-mile radius to a 9.2-mile radius. In addition, the FAA proposed to update the geographic coordinates and name of the airport, as well as Penn Highland Healthcare-Dubois Heliport to coincide with the FAA's aeronautical database.

Subsequent to publication, the FAA found the names of DuBois Regional Airport and Penn Highland Healthcare-DuBois Heliport required updating. The correct names are Dubois Regional Airport and Penn Highlands Healthcare-Dubois Heliport. This action makes the update.

Interested parties were invited to participate in this rulemaking effort by submitting written comments on the proposal to the FAA. One comment supporting this action was received.

Class E airspace designations are published in Paragraph 6005 of FAA Order 7400.11E, dated July 21, 2020, and effective September 15, 2020, which is incorporated by reference in 14 CFR 71.1. The Class E airspace designations listed in this document will be published subsequently in the Order.

This document amends FAA Order 7400.11E, Airspace Designations and Reporting Points, dated July 21, 2020, and effective September 15, 2020. FAA Order 7400.11E is publicly available as listed in the ADDRESSES section of this document. FAA Order 7400.11E lists Class A, B, C, D, and E airspace areas, air traffic routes, and reporting points.

This amendment to Title 14 Code of Federal Regulations (14 CFR) part 71 amends Class E surface airspace and Class E airspace extending upward from 700 feet above the surface at Dubois Regional Airport, (previously Du Bois-Jefferson County Airport), Dubois, PA, due to the decommissioning of the Clarion VORTAC and cancellation of the associated approach. In addition, the FAA updates the airport's name and the name and geographic coordinates of Penn Highlands Healthcare-Dubois Heliport, (previously Du Bois Regional Medical Center) to coincide with the FAA's aeronautical database.

Class E airspace designations are published in Paragraphs 6002 and 6005, respectively, of FAA Order 7400.11E, dated July 21, 2020, and effective September 15, 2020, which is incorporated by reference in 14 CFR 71.1. The Class E airspace designations listed in this document will be published subsequently in the Order.

FAA Order 7400.11, Airspace Designations and Reporting Points, is published yearly and effective on September 15.

The FAA has determined that this regulation only involves an established body of technical regulations for which frequent and routine amendments are necessary to keep them operationally current. It, therefore: (1) Is not a “significant regulatory action” under Executive Order 12866; (2) is not a “significant rule” under DOT Regulatory Policies and Procedures (44 FR 11034; February 26, 1979); and (3) does not warrant preparation of a regulatory evaluation as the anticipated impact is so minimal. Since this is a routine matter that only affects air traffic procedures an air navigation, it is certified that this rule, when promulgated, does not have a significant economic impact on a substantial number of small entities under the criteria of the Regulatory Flexibility Act.

The FAA has determined that this action qualifies for categorical exclusion under the National Environmental Policy Act in accordance with FAA Order 1050.1F, “Environmental Impacts: Policies and Procedures,” paragraph 5-6.5a. This airspace action is not expected to cause any potentially significant environmental impacts, and no extraordinary circumstances exist that warrant preparation of an environmental assessment.

In consideration of the foregoing, the Federal Aviation Administration amends 14 CFR part 71 as follows:

In March 2020, the President declared a national emergency as a result of the COVID-19 pandemic. On May 1, 2020, the Department of State (the Department) published in the Federal Register a notification of certain temporary suspensions, modifications, and exceptions to the ITAR, necessary in order to ensure continuity of operations within the Directorate of Defense Trade Controls (DDTC) and among entities registered with DDTC pursuant to part 122 of the ITAR (85 FR 25287). These actions were taken pursuant to ITAR § 126.2, which allows for the temporary suspension or modification of provisions of the ITAR, and ITAR § 126.3, which allows for exceptions to provisions of the ITAR. These actions were taken in the interest of the security and foreign policy of the United States and warranted as a result of the exceptional and undue hardships and risks to safety caused by the public health emergency related to the SARS-COV2 pandemic.

Subsequently, on June 10, 2020, the Department published in the Federal Register a request for comment from the regulated community regarding the efficacy and termination dates of the temporary suspensions, modifications, and exceptions provided in 85 FR 25287, and requesting comment as to whether additional measures should be considered in response to the public health crisis. Of the four temporary suspensions, modifications, and exceptions to the ITAR announced in the May 1 notification referenced above, DDTC reviewed the public comments and decided to extend two measures until December 31, 2020: (1) ITAR § 120.39(a)(2) allowance for remote work; and (2) authorization to allow remote work under technical assistance agreement, manufacturing agreement, or exemption.

Based upon continued public health recommendations and as informed by responses to request for public comment in June 2020, it is apparent to DDTC that regulated entities will continue to engage in social distancing measures for the foreseeable future. Many commenters, one industry association, and several individual entities endorsed the telework provisions and requested that these measures be effective until the end of the year, if not extended indefinitely. DDTC agreed and extended the two measures until the end of 2020. DDTC is now extending these measures again until June 30, 2021 because DDTC believes that a failure to extend these temporary suspensions, modifications, and exceptions would have a negative impact on regulated entities' ability to safely engage in continued operations in the midst of the ongoing global public health emergency.

This second extension beyond December 31, 2020 is also necessary to provide time for DDTC to consider a permanent revision to the ITAR provisions relating to remote work. Although the Department is of the opinion that the notice and comment requirements of the Administrative Procedure Act are not applicable, in the coming months the Department intends to provide notice of and solicit comment related to proposed revisions to the ITAR provisions related to remote work. The notice and comment process will require additional time, including to allow DDTC to address any potential revisions through the interagency process.

Pursuant to ITAR §§ 126.2 and 126.3, in the interest of the security and foreign policy of the United States and as warranted by the exceptional and undue hardships and risks to safety caused by the public health emergency related to the SARS-COV2 pandemic, notice is provided that the following temporary suspensions, modifications, and exceptions are being extended as follows:

The final regulations that are the subject of this correction are issued under section 951A of the Code.

As published, the final regulations contain errors that need to be corrected.

Accordingly, the final regulations (TD 9902) that are the subject of FR Doc. 2020-15351, beginning on page 44620 in the issue of July 23, 2020, are corrected as follows:

On page 44629, in the first column, the text of footnote 6 is corrected to read:

“Under currently applicable § 1.951A-1(e)(2), a domestic partnership can be a controlling domestic shareholder—for example, for purposes of determining which party elects the GILTI high-tax exclusion under § 1.951A-2(c)(7)(viii)(A), including potentially for taxable years beginning after December 31, 2017, under § 1.951A-7(b), as discussed in part VIII of this Summary of Comments and Explanation of Revisions.”

Background

The Tax Cuts and Jobs Act, Public Law 115-97, 131 Stat. 2054, 2208 (2017) (the “Act”), enacted on December 22, 2017, amended section 863(b) of the Internal Revenue Code (“Code”). On December 30, 2019, the Department of the Treasury (“Treasury Department”) and the IRS published proposed regulations (REG-100956-19) under sections 863, 864, 865, 937, and 1502 in the Federal Register (84 FR 71836) (the “proposed regulations”). A public hearing on the proposed regulations was held on June 3, 2020. All written comments received in response to the proposed regulations are available at https://www.regulations.gov or upon request. Terms used but not defined in this preamble have the meaning provided in these final regulations.

The final regulations retain the overall approach of the proposed regulations, with certain revisions. This Summary of Comments and Explanation of Revisions section discusses those revisions as well as comments received in response to the solicitation of comments in the notice of proposed rulemaking. Comments outside the scope of this rulemaking are generally not addressed but may be considered in connection with future guidance projects.

The Act amended section 863 of the Code, which provides special sourcing rules for determining the source of income, including income partly from within and partly from without the United States. Specifically, the Act amended section 863(b) to allocate or apportion income from the sale or exchange of inventory property produced (in whole or in part) by a taxpayer within the United States and sold or exchanged without the United States or produced (in whole or in part) by the taxpayer without the United States and sold or exchanged within the United States (collectively, “Section 863(b)(2) Sales”) solely on the basis of production activities with respect to that inventory. Before the Act, section 863(b) provided that income from Section 863(b)(2) Sales would be treated as derived partly from sources within and partly from sources without the United States without providing the basis for such allocation or apportionment. Consistent with the Act's changes to section 863(b), the proposed regulations amended § 1.863-3 in order to properly allocate or apportion gross income from Section 863(b)(2) Sales based solely on production activity.

Under § 1.863-3(c)(1)(ii)(A) (which has been redesignated in the final regulations as § 1.863-3(c)(2)(i)), where the taxpayer's production assets are located both within and without the United States, the amount of income from sources without the United States is determined by multiplying all the income attributable to the taxpayer's production activities by a fraction, the numerator of which is the average adjusted basis of production assets that are located without the United States and the denominator of which is the average adjusted basis of all the production assets located within and without the United States.

For purposes of applying this formula, the adjusted basis of production assets is determined under section 1011, which is adjusted under section 1016 for depreciation deductions allowed. The Act also amended section 168(k) to allow an additional first-year depreciation deduction of 100 percent of the basis of certain property placed in service after September 27, 2017, and before January 1, 2023. Therefore, certain new and used production assets placed in service and used predominantly within the United States during this period may have an adjusted basis of zero. However, production assets either placed in service or used predominantly without the United States, or both, do not qualify for this accelerated depreciation and must be depreciated using the straight-line method under the alternative depreciation system (“ADS”) of section 168(g)(2). In light of the Act's change to section 168(k) to allow accelerated depreciation in some circumstances, the proposed regulations provided a new rule for computing the adjusted basis of production assets for purposes of applying the allocation formula in § 1.863-3.

Section 1.863-3, as in effect before this Treasury Decision, provided rules and corresponding methods for allocating or apportioning gross income from Section 863(b)(2) Sales between production activity and sales activity. To implement the changes to section 863(b) under the Act, the proposed regulations proposed removing § 1.863-3(c)(2) which allocates and apportions income attributable to sales activity.

One comment argued that removing § 1.863-3(c)(2) could lead to double taxation when a foreign jurisdiction imposes taxation on the sales activity. The Act amended section 863(b) to source income from the sale by a taxpayer of inventory produced by that taxpayer based only on production activity. Under the Code, sales activity is no longer a relevant factor for allocating and apportioning such income. Therefore, the final regulations remove § 1.863-3(c)(2). But see part V of this Summary of Comments and Explanation of Revisions section for a discussion of the interaction with income tax treaties.

Another comment suggested that two aspects of § 1.863-3(c)(2) have continued relevance even after the Act's changes to section 863(b)(2). First, § 1.863-3(c)(2) has a special rule modifying the rule in § 1.861-7(c) that generally sources income from the sale of personal property based on the place of sale. Under § 1.861-7(c), a sale is generally treated as consummated in the place where the rights, title, and interest of the seller in the property are transferred to the buyer. However, if a taxpayer wholly produces inventory in the United States and sells it for use, consumption, or disposition in the United States, § 1.863-3(c)(2) presumes that the place of sale is in the United States, even if title passes outside the United States. The comment recommended the final regulations include a similar rule and expand it to inventory wholly or partly produced in the United States that is acquired by a related party and resold for use, consumption, or disposition in the United States with title passing outside the United States. The comment observed that in the absence of such a rule, the sale by the related party would generate foreign source income, notwithstanding the fact that the inventory was produced wholly or partly in the United States and ultimately sold for use, consumption, or disposition in the United States.

The final regulations do not adopt this comment. The place of sale rule of § 1.861-7(c) already contains a broad anti-abuse rule that would apply to any sales transactions “arranged in a particular manner for the primary purpose of tax avoidance,” which may cover certain related party arrangements about which the comment is concerned. Section 482 also applies to require that compensation paid between related parties is consistent with the arm's length standard and will take into account the business functions and assets of, and risks assumed by, the related party intermediary. The Treasury Department and the IRS continue to study issues related to the distribution among related entities of the business functions, assets, and risks that generate business income, including sales income, and may address these issues in future guidance, particularly with respect to the sourcing of income from certain digital transactions.

Second, the comment observed that § 1.863-3(c)(2) treats inventory as wholly produced in the United States for purposes of determining whether the place of sale is presumed to be in the United States if only minor assembly, packaging, repackaging, or labeling occurs outside the United States. The comment recommended including this rule as part of proposed § 1.863-3(c)(1)(i). The final regulations adopt this comment in § 1.863-3(c)(1)(i) by incorporating the “principles of § 1.954-3(a)(4)” (other than § 1.954-3(a)(4)(iv)). Section 1.954-3(a)(4) provides rules for determining when a corporation has manufactured, produced, or constructed personal property. Under § 1.954-3(a)(4)(iii), packaging, repackaging, labeling, or minor assembly operations do not constitute the manufacture, production, or construction of property. Accordingly, under the final regulations, these principles apply for purposes of determining whether a taxpayer's activities constitute production activity under § 1.863-3(c)(1)(i) as well. See part II.B. of this Summary of Comments and Explanation of Revisions section.

Proposed § 1.863-1(b)(2) provided the rule for sourcing gross receipts from the sale of natural resources where the taxpayer performs production activities in addition to its ownership of a farm, mine, oil or gas well, other natural deposit, or uncut timber. Section 1.863-1(b)(3)(ii) defines such “additional production activities” by reference to the “principles of § 1.954-3(a)(4).”

Under section 951(a)(1)(A), a United States shareholder of a controlled foreign corporation (“CFC”) includes in gross income its pro rata share of the CFC's subpart F income for the CFC's taxable year which ends with or within the taxable year of the shareholder. Section 952(a)(2) defines the term subpart F income to include foreign base company income. Section 954(a)(2) defines foreign base company income to include foreign base company sales income (“FBCSI”) for the taxable year. Section 954(d)(1) defines FBCSI to mean income derived by a CFC in connection with certain related party transactions. Section 1.954-3(a)(4) provides an exception to FBCSI when a CFC manufactures property that it sells. One comment supported defining “additional production activities” by reference to “the principles of § 1.954-3(a)(4),” as described in § 1.863-1(b)(3)(ii), and requested that §§ 1.863-3 and 1.865-3 include a similar cross reference.

The final regulations adopt this recommendation, in part. Specifically, under the final regulations, §§ 1.863-3 and 1.865-3 incorporate the principles of § 1.954-3(a)(4), with the exception of the rules regarding a “substantial contribution to the manufacturing of personal property” under § 1.954-3(a)(4)(iv). See §§ 1.863-3(c)(1)(i) and 1.865-3(d)(2). The final regulations also modify § 1.863-1(b)(3)(ii) to incorporate the principles of § 1.954-3(a)(4), other than the “substantial contribution to the manufacturing of personal property” under § 1.954-3(a)(4)(iv). The substantial contribution rules were added to § 1.954-3(a)(4) in T.D. 9438 (December 29, 2008) after the adoption of § 1.863-1(b)(3)(ii) in T.D. 8687 (November 27, 1996). While the Treasury Department and the IRS agree with the comment that the principles of § 1.954-3(a)(4) may generally be helpful in determining the location of production activity for sourcing purposes, the substantial contribution rules of § 1.954-3(a)(4)(iv) are concerned with whether there is production activity and do not address the geographic location of that production activity, which is relevant for sourcing under sections 861, 863, and 865. Additionally, the substantial contribution rules are premised on treating a corporation as engaged in production activities even if it is not engaged in the direct use of production assets (other than oversight assets), while § 1.863-3 focuses on sourcing income based on the location of a corporation's production assets that are used for production activities. See § 1.863-3(c)(1)(ii) (which has been redesignated in the final regulations as § 1.863-3(c)(2)). In this regard, there is not a clear metric for quantifying production arising from substantial contribution activities, even if such activities are properly identified, in order to assign production activities to a particular geographic location for purposes of determining the place of production under sections 861, 863, and 865. Therefore, the final regulations provide that the principles of § 1.954-3(a)(4), other than the substantial contribution rules in § 1.954-3(a)(4)(iv), apply in determining whether production activities exist.

For inventory produced both within and without the United States, the proposed regulations continued to allocate or apportion the gross income between U.S. and foreign sources based on the formula in § 1.863-3(c)(1)(ii)(A) (redesignated as proposed § 1.863-3(c)(2)(i)). This formula determined the amount of foreign source income by multiplying the total gross income by a fraction, the numerator of which is the average adjusted basis of production assets located outside the United States and the denominator of which is the average adjusted basis of all production assets within and without the United States. The remaining gross income is from U.S. sources.

In light of the Act's changes to section 168(k), proposed § 1.863-3(c)(2)(ii) measured the adjusted basis of the U.S. production assets for purposes of this formula based on the alternative depreciation system (“ADS”) of section 168(g)(2). The preamble to the proposed regulations observed that such rule allows the basis of both U.S. and non-U.S. production assets to be measured consistently on a straight-line method over the same recovery period, and requested comments on using ADS for this purpose or alternatives for measuring relative U.S. and non-U.S. production assets.

One comment suggested that some taxpayers such as partnerships and S corporations would face administrative burdens if they had to maintain separate ADS books that they may not otherwise maintain if section 951A(d)(3) or 250(b)(2)(B) do not apply to them. The comment observed that the Act, in contrast to those other sections, does not mandate the use of ADS in the section 863(b) context. The comment requested that the final regulations maintain the existing rule of § 1.863-3(c)(1)(ii)(B) measuring the basis under section 1011 (as adjusted by section 1016), either as the principal rule or, alternatively, at the election of the taxpayer.

The final regulations do not adopt this comment. The Treasury Department and the IRS have determined that the use of ADS for this purpose will prevent the Act's modifications to section 168(k) (resulting in accelerated depreciation) from inappropriately skewing the apportionment formula under § 1.863-3(c)(2)(i) in favor of foreign source income. While the Act does not mandate the use of ADS for this purpose, the Treasury Department and the IRS have authority to mandate the use of ADS under sections 863(a) and 7805 and have determined that the use of ADS is necessary to accurately measure the place of production using adjusted basis, as other basis measurements might inappropriately inflate foreign production activities.

Section 865 provides rules for sourcing income from sales of personal property. Section 865(e)(2) applies with respect to all sales of personal property (including inventory) by a nonresident, as that term is defined in section 865(g)(1)(B), attributable to an office or other fixed place of business in the United States. Section 865(e)(2)(A) generally provides that income from any sale of personal property attributable to such an office or other fixed place of business is sourced in the United States. An exception is provided in section 865(e)(2)(B) for a sale of inventory for use, disposition, or consumption outside the United States if a foreign office of the nonresident “materially participated” in the sale. Section 865(e)(3) provides that the “principles of section 864(c)(5) shall apply” to determine whether a nonresident has an office or other fixed place of business and whether a sale is attributable to such office or other fixed place of business. Where applicable, section 865(e)(2) applies “[n]otwithstanding any other provisions” of subchapter N, part I, including sections 863(b), 861(a)(6), and 862(a)(6). The proposed regulations under § 1.865-3 clarified the application of the principles of section 864(c)(5) in the context of section 865(e)(2) and provided that sales of inventory property produced outside the United States and sold through an office maintained by the nonresident in the United States must be sourced in the United States in part.

Proposed § 1.865-3(e) also included a cross-reference to the rules for allocating and apportioning expenses to gross income effectively connected with the conduct of a trade or business in the United States in §§ 1.882-4 and 1.882-5. Since those regulations apply only to foreign corporations, one comment requested that the final regulations also refer to § 1.873-1 to cover nonresident alien taxpayers subject to proposed § 1.865-3. In response to this comment, the final regulations broaden the cross-references to include sections 882(c)(1) and 873(a) for purposes of allocating and apportioning expenses. See § 1.865-3(e).

The final regulations also reorder and revise parts of § 1.865-3 in a non-substantive manner solely for purposes of improving clarity and ease of application. The revision also helps to clarify that § 1.865-3 applies only if a nonresident maintains an office or other fixed place of business in the United States to which a sale of personal property is attributable. Otherwise, the source of the income, gain, or loss from the sale will be determined under other applicable provisions of section 865, such as section 865(b) through (d).

The final regulations also retain, with certain modifications, the rules for determining the portion of gross income from sales and production activities under § 1.865-3(d). Under the proposed regulations, the “50/50 method,” described in § 1.865-3(d)(2)(i), was the default method because it was “an appropriate and administrable way” to apply section 865(e)(2), but the proposed regulations also allowed nonresidents to elect a books and records method that would “more precisely” reflect their gross income from both sales and production activities, if any, in the United States, provided the nonresidents met certain requirements for maintaining their books of account under proposed § 1.865-3(d)(2)(ii)(B)( 1 ) through ( 3 ). See 84 FR 71836, 71843. Under the final regulations, the 50/50 method continues to be the default method and taxpayers continue to be permitted to elect the books and records method. However, the Treasury Department and the IRS have determined that, where taxpayers have demonstrated the ability to use their books of account to determine their U.S. source gross income under the books and records method, a limitation is appropriate to prevent a nonresident from returning to the less precise 50/50 method solely to obtain a better tax result. In addition, the Treasury Department and the IRS have determined that revising the election to provide that it remains in effect until revoked would reduce the risk to taxpayers of inadvertently failing to include the election with their Federal income tax return. Accordingly, under the final regulations, an election to apply the books and records method continues until revoked and may not be revoked, without the consent of the Commissioner, for any taxable year beginning within 48 months of the end of the taxable year in which the election was made.

The final regulations also revise § 1.864-5 to clarify the interaction with section 865(e)(2) and (3) and the promulgation of § 1.865-3. Gross income, gain, or loss from the sale of personal property treated as from sources within the United States under § 1.865-3 will generally be effectively connected with the conduct of a trade or business in the United States to the extent provided in section 864(c), other than section 864(c)(4) or (5). Gross income, gain, or loss from the sale of personal property treated as from sources without the United States under § 1.865-3 is not described in § 1.864-5(b) and thus will generally not be effectively connected with the conduct of a trade or business in the United States.

The rules of §§ 1.864-5, 1.864-6, and 1.864-7 continue to apply, however, in determining whether foreign source income of nonresident aliens and foreign corporations that does not arise from the sale of personal property described in § 1.865-3(c) is effectively connected with the conduct of a trade or business in the United States. The rules of §§ 1.864-5, 1.864-6, and 1.864-7 also continue to apply in determining whether foreign source income from the sale of inventory by nonresident aliens, who would be residents under section 865(g)(1)(A), is effectively connected with the conduct of a trade or business in the United States.

The proposed regulations did not modify the rules in § 1.863-3 for determining the location or existence of production activity for purposes of determining the sourcing of income derived from the sale of inventory. Section 1.863-3(c)(1)(i)(A) (which has been redesignated in the final regulations as § 1.863-3(c)(1)(i)) provides the rule for sourcing of income where production occurs only within the United States or only within foreign countries. That paragraph generally limits the scope of “production activities” to only “those conducted directly by the taxpayer.” Similarly, § 1.863-3(c)(1)(i)(B) (which has been redesignated in the final regulations as § 1.863-3(c)(1)(ii)) provides that production assets are those “owned directly by the taxpayer that are directly used by the taxpayer to produce inventory.” Section 1.863-3(c)(1)(ii) (which has been redesignated in the final regulations as § 1.863-3(c)(2)) provides the rule for the sourcing of income where production occurs both within and without the United States, and, as discussed in part II.C of this Summary of Comments and Explanation of Revisions section, allocates gross income based on the relative adjusted basis of production assets located within and without the United States, respectively.

The final regulations clarify the determination of the adjusted basis of production assets under § 1.863- 3(c)(1)(ii)(B) (which has been redesignated in the final regulations as § 1.863-3(c)(2)(ii)(A)). Under the final regulations, the adjusted basis of production assets for a taxable year is determined by averaging the basis of the assets at the beginning and end of the year, except in the event that a change during the year would cause the average to “materially distort” the calculation for sourcing of income attributable to production activity under § 1.863-3(c)(1)(ii)(A) (which has been redesignated in the final regulations as § 1.863-3(c)(2)(i)). This clarification uses certain concepts from § 1.861-9(g)(2)(i)(A) to further explain when a change might “materially distort” the calculation. For example, the rule applies when an event such as a late-year disposition of substantially all the U.S. production assets of a corporation would cause a material distortion in the corporation's calculation of the split between U.S. and foreign production activities.

One comment provided a range of suggestions to modify the rules of proposed §§ 1.863-3(c) and 1.865-3(d). This comment suggested that the rules of proposed §§ 1.863-3(c) and 1.865-3(d) were adequate, in general, where a taxpayer independently manufactured its own inventory, but inadequate with respect to other business models that rely on limited risk contract manufacturers or where multiple members of a group each perform only limited manufacturing functions in various jurisdictions. The comment observed that apportionment of gross income using the relative adjusted basis of production assets may not reflect high value-adding core production and risk management functions and ownership of production assets by unrelated contract manufacturers.

The comment suggested expanding the scope of covered production activities and ownership of production assets to include activities conducted and assets owned by related parties and unrelated agents of the taxpayer. The comment also recommended that these rules include any activities that constitute a “substantial contribution” within the meaning of § 1.954-3(a)(4)(iv) to better conform to the rules under subpart F. See part II.B of this Summary of Comments and Explanation of Revisions section. In addition, the comment suggested that § 1.863-3 should not allocate and apportion gross income using only the relative adjusted basis of production assets located within and without the United States, and recommended allocation and apportionment based on other metrics, such as the location of personnel involved in the production activities or personnel costs. The comment suggested that these modifications could, alternatively, be rebuttable presumptions that a taxpayer could overcome by showing that allocating and apportioning gross income based on adjusted basis or some other approach provides a more appropriate result under the taxpayer's facts.

Another comment suggested that the existing allocation and apportionment rules that rely on the relative adjusted basis of production assets encourage businesses to move (or locate additional) production assets outside the United States. Specifically, the comment expressed concern that treating income from the sale of inventory produced, in whole or in part, in the United States as U.S. source income might result in double taxation if the income is also subject to tax in a foreign jurisdiction, since the U.S. source income would be excluded from the numerator of the section 904 limitation, reducing the section 904 limitation, and potentially limiting the U.S. taxpayer's ability to use its foreign tax credits. The comment requested replacing these rules with a more comprehensive formula, preferably one that minimizes the risk of double taxation. The comment did not suggest an alternative formula and observed that further legislation may be necessary in this regard.

The Treasury Department and the IRS appreciate the various concerns presented by these comments and suggested revisions. The final regulations do not adopt these comments, but the Treasury Department and the IRS may consider these recommendations as part of a more comprehensive review of the sourcing rules for production activity (for purposes of both § 1.863-3 and § 1.865-3) in a future notice of proposed rulemaking. Additionally, the anti-abuse rule in § 1.863-3(c)(1)(iii) (which has been redesignated in the final regulations as § 1.863-3(c)(3)) already applies to make appropriate adjustments where taxpayers enter into or structure certain transactions with a principal purpose of reducing U.S. tax liability under § 1.863-3, including by using production assets owned by a related party. To clarify the application of this rule, the final regulations provide that the anti-abuse rule applies to transactions inconsistent with the purpose of § 1.863-3(b) or (c), and adds as an example that the anti-abuse rule may cover acquisitions of domestic production assets by related partnerships (or subsidiaries thereof) with a principal purpose of reducing the transferor's U.S. tax liability by treating income from the sale of inventory property as subject to section 862(a)(6) rather than section 863(b). The Treasury Department and the IRS continue to request comments regarding potential approaches to determine the location or existence of production activity or other modifications to § 1.863-3 that may be appropriate.

The preamble to the proposed regulations included a statement about how proposed § 1.865-3 interacted with U.S. income tax treaties under which the business profits of foreign treaty residents may be taxable in the United States only if the profits are attributable to a permanent establishment in the United States. The preamble to the proposed regulations stated, “[w]ith respect to taxpayers entitled to the benefits of an income tax treaty, the amount of profits attributable to a U.S. permanent establishment will not be affected by these regulations.” See 84 FR 71836, 71844.

One comment supported the preamble's statement and requested that, consistent with the statement in the preamble, the final regulations not apply to Section 863(b)(2) Sales in a manner that results in double taxation to U.S. taxpayers engaged in business operations through a permanent establishment in a treaty jurisdiction, notwithstanding the Act's change to section 863(b). The comment also requested that competent authority relief be provided in this regard. These regulations do not affect the ability of a taxpayer to rely on treaty provisions to mitigate or relieve double taxation, including treaty provisions that permit a taxpayer to make a request to the competent authority for assistance pursuant to a mutual agreement procedure article of an applicable income tax treaty.

The proposed regulations were proposed to apply to taxable years ending on or after December 23, 2019, although taxpayers and their related parties could generally apply the rules in their entirety for taxable years beginning after December 31, 2017, and ending before December 23, 2019. One comment requested that the final regulations apply to taxable years ending after December 31, 2019, because some taxpayers have consistently relied on the existing methods of § 1.863-3(b) for many years. The final regulations do not adopt this comment. Under section 7805(b)(1)(B), a final regulation can apply to any taxable period ending on or after the date on which the proposed regulation to which such final regulation relates was filed with the Federal Register , which for these final regulations was December 23, 2019. The final regulations implement the Act's statutory change to section 863(b), which was effective for taxable years beginning after December 31, 2017. To provide certainty to taxpayers and avoid a multiplicity of different interpretations of the statute, the Treasury Department and the IRS have determined that it is appropriate for the final regulations to apply as closely as possible to the effective date of the statutory change.

The final regulations generally apply to taxable years ending on or after December 23, 2019. Taxpayers may choose to apply the final regulations for any taxable year beginning after December 31, 2017, and ending before December 23, 2019, provided that the taxpayer and all persons that are related to the taxpayer (within the meaning of section 267 or 707) apply the final regulations in their entirety and, once applied, the taxpayer and all persons related to the taxpayer (within the meaning of section 267 or 707) continue to apply the final regulations in their entirety for all subsequent taxable years. See section 7805(b)(7). Alternatively, taxpayers may rely on the proposed regulations for any taxable year beginning after December 31, 2017, and ending on or before September 29, 2020, provided that the taxpayer and all persons that are related to the taxpayer (within the meaning of section 267 or 707) rely on the proposed regulations in their entirety and provided that the taxpayer and all persons that are related to the taxpayer (within the meaning of section 267 or 707) have not applied the final regulations to any preceding year.

These regulations are not subject to review under section 6(b) of Executive Order 12866 pursuant to the Memorandum of Agreement (April 11, 2018) between the Treasury Department and the Office of Management and Budget regarding review of tax regulations.

The Paperwork Reduction Act of 1995 (44 U.S.C. 3501-3520) (“PRA”) generally requires that a federal agency obtain the approval of OMB before collecting information from the public, whether such collection of information is mandatory, voluntary, or required to obtain or retain a benefit.

The final regulations include a collection of information in § 1.865-3(d)(2)(ii)(B). Section 1.865-3(d)(2)(ii)(B) allows a nonresident, as defined in section 865(g)(1)(B), whose inventory sales are described in § 1.865-3(d)(2) (relating to inventory produced by the nonresident) to elect to allocate the profit from such sales to its U.S. office using a books and records method under § 1.865-3(d)(2)(ii), rather than using a default “50/50 method” under § 1.865-3(d)(2)(i). If the collection of information in § 1.865-3(d)(2)(ii)(B) applies to a nonresident, the nonresident must maintain detailed records of its receipts and expenditures attributable to its sales and production activities to support the allocation of its income, gain, or loss to its sales activities in the United States under the principles of section 482. See § 1.865-3(d)(2)(ii)(B)( 2 ). The nonresident must also prepare an explanation of how the allocation was determined. See § 1.865-3(d)(2)(ii)(B)( 3 ). The nonresident must make an election to apply the books and records method under § 1.865-3(d)(2)(ii) by attaching a statement to its original timely filed Federal income tax return (including extensions) that it elects to apply the books and records method under § 1.865-3(d)(2)(ii)(A) and has prepared the records described in § 1.865-3(d)(2)(ii)(B)( 2 ) and ( 3 ). The nonresident must make available the explanation and records upon request of the Commissioner, within 30 days or some other time period as agreed between the Commissioner and the nonresident. See § 1.865-3(d)(2)(ii)(B)( 3 ).

The reporting burdens associated with the collection of information in § 1.865-3(d)(2)(ii)(B) will be reflected in the Form 14029, Paperwork Reduction Act Submission, that the Treasury Department and the IRS will submit to OMB for tax returns in the Forms 1120-F, U.S. Income Tax Return of a Foreign Corporation, and Forms 1040-NR, U.S. Nonresident Alien Income Tax Return. In particular, the reporting burden associated with the information collection in § 1.865-3(d)(2)(ii)(B) will be included in the burden estimate for OMB control numbers 1545-0123 and 1545-0074. OMB control number 1545-0123 represents a total estimated burden time for all forms and schedules for corporations of 3.344 billion hours and total estimated monetized costs of $61.558 billion ($2019). OMB control number 1545-0074 represents a total estimated burden time, including all other related forms and schedules for individuals, of 1.717 billion hours and total estimated monetized costs of $33.267 billion ($2019). Table 1 summarizes the status of the PRA submissions of the Treasury Department and the IRS related to Forms 1120-F and 1040-NR.

The overall burden estimate provided by the Treasury Department and the IRS to OMB in the PRA submissions for OMB control numbers 1545-0123 and 1545-0074 are aggregate amounts related to the U.S. Business Income Tax Return and the U.S. Individual Income Tax Return, along with any associated forms. The burden estimates in these PRA submissions, however, do not account for any burden imposed by § 1.865-3(d)(2)(ii)(B). The Treasury Department and the IRS have not identified the estimated burden for the collections of information in § 1.865-3(d)(2)(ii)(B) because there are no burden estimates specific to § 1.865-3(d)(2)(ii)(B) currently available. The burden estimates in the PRA submissions that the Treasury Department and the IRS will submit to OMB will in the future include, but not isolate, the estimated burden related to the collection of information in § 1.865-3(d)(2)(ii)(B).

The Treasury Department and the IRS have included the burdens related to the PRA submissions for OMB control numbers 1545-0123 and 1545-0074 in the PRA analysis for other regulations issued by the Treasury Department and the IRS related to the taxation of cross-border income. The Treasury Department and the IRS encourage users of this information to take measures to avoid overestimating the burden that the collection of information in § 1.865-3(d)(2)(ii)(B), together with other international tax provisions, imposes. Moreover, the Treasury Department and the IRS also note that the Treasury Department and the IRS estimate PRA burdens on a taxpayer-type basis rather than a provision-specific basis because an estimate based on the taxpayer-type most accurately reflects taxpayers' interactions with the forms.

The Treasury Department and the IRS request comments on the forms that reflect the information collection burdens related to the final regulations, including estimates for how much time it would take to comply with the paperwork burden described above for each relevant form and ways for the IRS to minimize the paperwork burden. Proposed revisions (if any) to these forms that reflect the information collection contained in § 1.865-3(d)(2)(ii)(B) will be made available for public comment at https://apps.irs.gov/app/picklist/list/draftTaxForms.html and will not be finalized until after these forms have been approved by OMB under the PRA.

Pursuant to the Regulatory Flexibility Act (5 U.S.C. chapter 6), it is hereby certified that these final regulations will not have a significant economic impact on a substantial number of small entities. Although data are not readily available to assess the number of small entities potentially affected, any economic impact of these regulations is unlikely to be significant. Specifically, the regulations in §§ 1.863-1 and 1.863-3 (with conforming changes in cross-referencing regulations) implement the statutory change made to section 863(b) by the Act. This change affects sales of inventory property by any taxpayer where the taxpayer produces the inventory (in whole or in part) within the United States and sells that inventory without the United States, or vice versa. The change in sourcing for those entities is attributable to the change in section 863(b) made by the Act. Sections 1.863-1 and 1.863-3 merely implement the statutory change with limited additional guidance. The Treasury Department and the IRS do not anticipate that any differences between the changes in section 863(b) made by the Act and the changes in §§ 1.863-1 and 1.863-3 made by these regulations will have a significant economic impact on a substantial number of small entities.

The other regulations in this publication (other than changes to ensure consistency with section 863(b)) are the final regulations in §§ 1.864-5, 1.864-6, and 1.865-3. These regulations solely affect non-U.S. taxpayers, which are not subject to the Regulatory Flexibility Act.

Pursuant to section 7805(f) of the Code, the proposed regulations preceding these final regulations were submitted to the Chief Counsel for Advocacy of the Small Business Administration for comment on their impact on small businesses. No comments were received.

Section 202 of the Unfunded Mandates Reform Act of 1995 requires that agencies assess anticipated costs and benefits and take certain other actions before issuing a final rule that includes any Federal mandate that may result in expenditures in any one year by a state, local, or tribal government, in the aggregate, or by the private sector, of $100 million in 1995 dollars, updated annually for inflation. These regulations do not include any Federal mandate that may result in expenditures by state, local, or tribal governments, or by the private sector in excess of that threshold.

Executive Order 13132 (entitled “Federalism”) prohibits an agency from publishing any rule that has federalism implications if the rule either imposes substantial, direct compliance costs on state and local governments, and is not required by statute, or preempts state law, unless the agency meets the consultation and funding requirements of section 6 of the Executive Order. These regulations do not have federalism implications and do not impose substantial direct compliance costs on state and local governments or preempt state law within the meaning of the Executive Order.

The principal author of the regulations is Brad McCormack of the Office of Associate Chief Counsel (International). However, other personnel from the Treasury Department and the IRS participated in the development of the regulations.

Accordingly, 26 CFR part 1 is amended as follows:

The final regulations (TD 9902) that are the subject of this correction are issued under section 951A of the Code.

As published on July 23, 2020 (85 FR 44620) the final regulations (TD 9902) contain errors that need to be corrected.

Accordingly, 26 CFR part 1 is corrected by making the following correcting amendments:

The Coast Guard is issuing this temporary rule without prior notice and opportunity to comment pursuant to authority under section 4(a) of the Administrative Procedure Act (APA) (5 U.S.C. 553(b)). This provision authorizes an agency to issue a rule without prior notice and opportunity to comment when the agency for good cause finds that those procedures are “impracticable, unnecessary, or contrary to the public interest.” Under 5 U.S.C. 553(b)(B), the Coast Guard finds that good cause exists for not publishing a notice of proposed rulemaking (NPRM) with respect to this rule because it is impracticable. We must establish this safety zone by December 31, 2020, and lack sufficient time to provide a reasonable comment period and then consider those comments before issuing this rule. The NPRM process would delay the establishment of the safety zone until after the date of the event and compromise public safety

Under 5 U.S.C. 553(d)(3), the Coast Guard finds that good cause exists for making this rule effective less than 30 days after publication in the Federal Register . Delaying the effective date of this rule would be impracticable because immediate action is necessary to protect persons and property from the potential hazards associated with the fireworks display.

The Coast Guard is issuing this rule under authority in 46 U.S.C. 70034 (previously 33 U.S.C. 1231). The Captain of the Port Sector Lower Mississippi River (COTP) has determined that potential hazards associated with the fireworks display located at mile marker (MM) 365.0 on the Lower Mississippi River and scheduled for 4 p.m. on December 31, 2020, would be a safety concern for all persons and vessels on the Lower Mississippi River between MM 364.5 and MM 365.5 from 4 p.m. through 7 p.m. on December 31, 2020. Hazards associated with the firework displays include accidental discharge of fireworks, dangerous projectiles, and falling hot embers or other debris. This rule is necessary to ensure the safety of persons, vessels, and the marine environment on these navigable waters before, during, and after the fireworks.

This rule establishes a temporary safety zone from 4 p.m. through 7 p.m. on December 31, 2020. The safety zone will cover all navigable waters of the Lower Mississippi River from MM 364.5 to MM 365.5. The duration of this safety zone is intended to ensure the safety of waterway users on these navigable waters before, during, and after the scheduled fireworks display.

Entry of persons or vessels into this safety zone is prohibited unless authorized by the COTP or a designated representative. A designated representative is a commissioned, warrant, or petty officer of the U.S. Coast Guard assigned to units under the operational control of USCG Sector Lower Mississippi River. Persons or vessels seeking to enter the safety zones must request permission from the COTP or a designated representative on VHF-FM channel 16 or by telephone at 901-521-4822. If permission is granted, all persons and vessels shall comply with the instructions of the COTP or designated representative. The COTP or a designated representative will inform the public of the enforcement times and date for this safety zone through Broadcast Notices to Mariners (BNMs), Local Notices to Mariners (LNMs), and/or Marine Safety Information Bulletins (MSIBs) as appropriate.

We developed this rule after considering numerous statutes and Executive orders related to rulemaking. Below we summarize our analyses based on a number of these statutes and Executive orders, and we discuss First Amendment rights of protestors.

Executive Orders 12866 and 13563 direct agencies to assess the costs and benefits of available regulatory alternatives and, if regulation is necessary, to select regulatory approaches that maximize net benefits. Executive Order 13771 directs agencies to control regulatory costs through a budgeting process. This rule has not been designated a “significant regulatory action,” under Executive Order 12866. Accordingly, this rule has not been reviewed by the Office of Management and Budget (OMB), and pursuant to OMB guidance it is exempt from the requirements of Executive Order 13771.

This regulatory action determination is based on the size, location, and duration of the safety zone. Vessel traffic will be prohibited from entering this safety zone, which will impact a one-mile stretch of Lower Mississippi River for three hours on one evening. Moreover, the Coast Guard will issue a Broadcast Notice to Mariners via VHF-FM marine channel 16 about the safety zone, and the rule allows vessels to seek permission to enter the zone.

The Regulatory Flexibility Act of 1980, 5 U.S.C. 601-612, as amended, requires Federal agencies to consider the potential impact of regulations on small entities during rulemaking. The term “small entities” comprises small businesses, not-for-profit organizations that are independently owned and operated and are not dominant in their fields, and governmental jurisdictions with populations of less than 50,000. The Coast Guard certifies under 5 U.S.C. 605(b) that this rule will not have a significant economic impact on a substantial number of small entities.

While some owners or operators of vessels intending to transit the safety zone may be small entities, for the reasons stated in section V.A above, this rule will not have a significant economic impact on any vessel owner or operator.

Under section 213(a) of the Small Business Regulatory Enforcement Fairness Act of 1996 (Pub. L. 104-121), we want to assist small entities in understanding this rule. If the rule would affect your small business, organization, or governmental jurisdiction and you have questions concerning its provisions or options for compliance, please call or email the person listed in the FOR FURTHER INFORMATION CONTACT section.

Small businesses may send comments on the actions of Federal employees who enforce, or otherwise determine compliance with, Federal regulations to the Small Business and Agriculture Regulatory Enforcement Ombudsman and the Regional Small Business Regulatory Fairness Boards. The Ombudsman evaluates these actions annually and rates each agency's responsiveness to small business. If you wish to comment on actions by employees of the Coast Guard, call 1-888-REG-FAIR (1-888-734-3247). The Coast Guard will not retaliate against small entities that question or complain about this rule or any policy or action of the Coast Guard.

This rule will not call for a new collection of information under the Paperwork Reduction Act of 1995 (44 U.S.C. 3501-3520).

A rule has implications for federalism under Executive Order 13132, Federalism, if it has a substantial direct effect on 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. We have analyzed this rule under that Order and have determined that it is consistent with the fundamental federalism principles and preemption requirements described in Executive Order 13132.

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

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

We have analyzed this rule under Department of Homeland Security Directive 023-01, Rev. 1, associated implementing instructions, and Environmental Planning COMDTINST 5090.1 (series), which guide the Coast Guard in complying with the National Environmental Policy Act of 1969 (42 U.S.C. 4321-4370f), and have determined that this action is one of a category of actions that do not individually or cumulatively have a significant effect on the human environment. This rule involves a safety zone that will prohibit entry on a one-mile stretch of the Lower Mississippi River for three hours on one evening. It is categorically excluded from further review under paragraph L60(a) of Appendix A, Table 1 of UDHS Instruction Manual 023-01-001-01, Rev. 1. A Record of Environmental Consideration supporting this determination is available in the docket. For instructions on locating the docket, see the ADDRESSES section of this preamble.

The Coast Guard respects the First Amendment rights of protesters. Protesters are asked to call or email the person listed in the FOR FURTHER INFORMATION CONTACT section to coordinate protest activities so that your message can be received without jeopardizing the safety or security of people, places or vessels.

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

The Secretary is issuing these waivers and modifications under the authority of the HEROES Act, as codified at 20 U.S.C. 1098bb(a)(2), which authorizes the Secretary to waive or modify any statutory or regulatory provision applicable to the Federal student financial assistance programs under title IV of the HEA, 20 U.S.C. 1070 et seq., as the Secretary deems necessary in connection with a war or other military operation or national emergency to affected individuals who are recipients of Federal student financial assistance under title IV of the HEA, institutions of higher education (IHEs), eligible lenders, guaranty agencies, and other entities participating in the Federal student assistance programs under title IV of the HEA that are located in areas that are declared disaster areas by any Federal, State, or local official in connection with a national emergency, or whose operations are significantly affected by such a disaster. These entities may be granted temporary relief from requirements that are rendered infeasible or unreasonable by a national emergency, including due diligence requirements and reporting deadlines.

In 20 U.S.C. 1098bb(b)(1), the HEROES Act further provides that section 437 of the General Education Provisions Act (20 U.S.C. 1232) and section 553 of the Administrative Procedure Act (5 U.S.C. 553) do not apply to the contents of this document.

The terms “institution of higher education” and “institution of higher education for purposes of title IV programs” (IHE) used in this document are defined in sections 101 and 102 of the HEA.

In 20 U.S.C. 1098ee, the HEROES Act provides definitions critical to determining whether a person is an “affected individual” under the Act and, if so, which waivers and modifications apply to the affected individual. However, because these definitions do not include the specific circumstances under which these waivers and modifications are provided under the HEROES Act, we provide these definitions below.

For purposes of this document, “affected individual” means a student enrolled in a postsecondary institution. An “affected borrower” is one whose Federal student loans provided under title IV are in repayment. These definitions are in keeping with 20 U.S.C. 1098bb(a)(2) that establishes that statutory and regulatory provisions can be waived or modified “as necessary to ensure that recipients of student financial assistance under title IV of the [HEA} who are affected individuals are not placed in a worse position financially in relation to that financial assistance because of their status as affected individuals”. The statute also provides that administrative requirements placed on affected individuals who are recipients of student financial assistance are minimized, to the extent possible without impairing the integrity of the student financial assistance programs, to ease the burden on such students and avoid inadvertent, technical violations, or defaults.

In accordance with the HEROES Act, the Secretary is providing the following waivers and modifications of statutory and regulatory provisions applicable to the student assistance general provisions and student financial assistance programs under title IV of the HEA that the Secretary believes are necessary to ensure that, during and in response to the COVID-19 pandemic—

• Accrediting agencies and associations are permitted to conduct virtual site visits of institutions or programs currently under review, scheduled for initial or renewal of accreditation, or in a show-cause or probationary status;

• IHEs may ensure continuity of instruction and learning by employing distance education to protect the health of their students, faculty, and staff;

• IHEs that are undergoing a change of ownership are provided additional time to gather the records, data, financial information, and approvals necessary to support their change of ownership application, and their temporary program participation agreements are extended while the application is pending;

• Foreign graduate medical schools that participate in the Federal Direct Loan Program are not required to obtain and report test results from the Medical College Admission Test (MCAT) from applicants during admission years in which the COVID-19 national emergency is in effect;

• Entities not submitting single audits in accordance with the audit requirements of 2 CFR 200, subpart F, are provided an additional six months to submit their annual compliance and financial statement audits;

• IHEs that resume offering educational programs after temporarily closing or suspending their educational programs due to COVID-19 are not considered to have ended their participation in the title IV, HEA programs;

• IHEs that offer existing short-term programs that qualify for Federal Direct Loans, or began offering a short-term program prior to the COVID emergency, are given some flexibility for programs affected by COVID-19;

• IHEs are provided additional flexibility to approve leaves of absence for students whose coursework is suspended due to the COVID-19 pandemic;

• IHEs are provided additional time to comply with deadlines for campus security, fire safety, and equity in athletics disclosures;

• IHEs are permitted to waive the requirement for a parental signature in the event that it cannot be obtained, or accept a document signed and photographed and sent by email or text message attachment, on any verification documentation required to validate a student's title IV eligibility;

• IHEs that participate in the Federal student financial aid programs under the heightened cash monitoring one (HCM1) status are provided flexibility to pay student credit balances after drawing down title IV funds;

• IHEs are provided alternative methods for disbursing title IV, HEA credit balance funds to students;

• IHEs that were experiencing challenges accessing data and preparing their cohort default rate (CDR) appeals during the national emergency were permitted to submit appeals to the draft fiscal year (FY) 2017 CDRs on or before June 30, 2020;

• IHEs are provided additional time to complete and submit their Fiscal Operations Report and Application to Participate (FISAP);

• IHEs that participate in the Federal Work-Study (FWS) programs are not subject to the FWS community service requirements during the national emergency;

• Perkins Loan and HEAL borrowers whose loans are held by the Department of Education (Department) are afforded the same benefits extended to Direct Loan borrowers in the Coronavirus Aid, Relief, and Economic Security (CARES) Act;  1

• Borrowers with loans under the Federal Family Education Loan (FFEL), Federal Perkins Loan, HEAL, and Direct Loan programs that are held by the Department, did not accrue interest on those loans from March 13, 2020 to March 27, 2020. Borrowers were also permitted to suspend payment on their loans without any penalties during this period. The automatic suspension of payment and the application of a zero percent interest rate on loans held by the Department was extended to October 1, 2020, under the CARES Act. Those benefits were further extended through December 31, 2020, by the President through the Presidential Memorandum issued on August 8, 2020;  2

• Borrowers who, prior to July 1, 2020, submitted an application for borrower defense to repayment (BD) relief that included a FFEL or Perkins loan and who would need to consolidate those loans into a Direct Consolidation Loan (DCL) to receive BD relief will have their eligibility for relief be adjudicated under the standards for Direct Loans disbursed between July 1, 2017, and July 1, 2020.

• Borrowers participating in income-driven repayment plans are not required to recertify their income or family size until after the administrative forbearance period extended by the August 8, 2020, Presidential Memorandum expires, and will be notified of a new certification deadline thereafter;

• Borrowers participating in income-contingent repayment plans who do not make payments during the COVID-19 emergency will generally not have any interest capitalized upon the conclusion of the COVID-19-related administrative forbearance period; and

• IHEs are provided academic calendar flexibility to address scheduling complications that have arisen as a result of the COVID-19 national emergency.

Prior waivers granted by the Secretary under this Act remain in effect for affected individuals, as defined in those waivers.

HEA § 496(c)(1) (20 U.S.C. 1099b(c)(1)) provides that a recognized accrediting agency or association must perform, at regularly established intervals, on-site inspections and reviews of IHEs (which may include unannounced site visits) with particular focus on educational quality and program effectiveness, and ensures that accreditation team members are well-trained and knowledgeable with respect to their responsibilities, including those regarding distance education.

HEA § 496(c)(1) (20 U.S.C. 1099b(c)(5)) provides that an accrediting agency or association must agree to conduct, as soon as practicable, but within a period of not more than six months of the establishment of a new branch campus or a change of ownership of an IHE, an on-site visit of that branch campus or of the institution after a change of ownership.

The Secretary is waiving these requirements, for the duration of the national emergency declaration and 180 days following the date on which the COVID-19 national emergency declaration is rescinded, to provide accrediting agencies and associations the flexibility to develop, adopt, modify, and implement temporary virtual site visit policies. Virtual site visits should rely on an engaged, interactive format ( e.g., telephonic meetings, video conference calls), rather than solely relying upon document reviews or exchanges of emails.

However, if a site visit within six months after a change of ownership is conducted virtually, a follow up in-person visit must be conducted within 90 days following the date on which the COVID-19 national emergency declaration is rescinded.

Section 600.9(c) requires IHEs to obtain State authorization to provide postsecondary educational programs through distance education. The Secretary is waiving this requirement for payment periods that overlap March 5, 2020, or begin after March 5, 2020, through the end of the payment period that begins after the date on which the Federally-declared national emergency related to COVID-19 is rescinded.

This waiver applies only to the Department's requirements; IHEs will need to determine whether the distance education being provided meets the applicable State requirements.

The Secretary is providing this waiver so that IHEs may provide programs using distance education to accommodate students without requiring such institutions to obtain Department approval to provide the program through distance education. If an IHE chooses to continue offering a program or use distance education in a manner requiring the Department's approval after the waiver period ends, it must obtain approval under the Department's normal process.

Section 602.16 provides that an accrediting agency or association that has within its scope of recognition the evaluation of the quality of institutions or programs offering distance education, correspondence courses, or direct assessment education, must have standards that effectively address the quality of an institution's distance education, correspondence courses, or direct assessment education. The Secretary is waiving, for the duration of the national emergency declaration and 180 days following the date on which the COVID-19 national emergency declaration is rescinded, this requirement so that accreditors may waive their distance education review requirements for institutions working to accommodate students whose enrollment is otherwise interrupted as a result of COVID-19. This waiver is limited to distance learning opportunities developed specifically for the purpose of serving students who were already in attendance, and whose attendance was interrupted by COVID-19.

Section 602.16(a)(2)(ii) limits to five years the duration of preaccreditation status that can be granted by an accrediting agency before a final determination can be made. The Secretary is waiving, for the duration of the national emergency declaration and 180 days following the date on which the COVID-19 national emergency declaration is rescinded, this requirement to enable accrediting agencies sufficient opportunity to complete their assessment of a preaccredited institution for a final accreditation determination.

Section 602.19(a) requires accrediting agencies to reevaluate, at regularly established intervals, the institutions or programs it has accredited or preaccredited. The Secretary is waiving this requirement, for the duration of the national emergency declaration and 180 days following the date on which the COVID-19 national emergency declaration is rescinded, to provide accrediting agencies the flexibility to develop, adopt, modify, and implement temporary virtual site visit policies. With the approval of the accrediting agency's board, or other decision-making body, during a telephonic or video conference meeting, accrediting agencies may adopt or modify temporary virtual site visit policies without a public comment period. Because these policies would be temporary and arise from the unique set of circumstances and challenges presented by the COVID-19 pandemic, this approval would not require a vote of the full membership of the accrediting agency. Should an accrediting agency desire to make a temporary virtual site visit policy or policy modification permanent after the COVID-19 national emergency declaration is rescinded, it must adhere to applicable statutory and regulatory requirements.

The Secretary is also waiving the requirements under § 602.21(c), for the duration of the national emergency declaration and 180 days following the date on which the COVID-19 national emergency declaration is rescinded, to enable accrediting agencies to expedite the development of temporary standards to approve distance learning programs or courses, including agencies that did not previously have distance learning in their scope and for institutions that did not previously offer distance learning opportunities. However, in accrediting clock-hour programs for which licensure boards approved the use of distance learning to meet the “clock-hour of instruction” requirements, agencies must continue to meet the requirements under § 602.21(c).

On September 2, 2020, the Secretary amended the Department's regulations to permanently permit the use of synchronous and asynchronous distance learning in the delivery of clock-hour programs by distance learning if the relevant licensure body will accept distance learning hours to meet licensure requirements. Institutions are permitted to implement this new regulation immediately; otherwise, the new regulation goes into effect on July 1, 2021.

The Secretary is also waiving the requirement in § 602.27(a)(4) that an accrediting agency must expand its scope of recognition by notifying the Secretary prior to accrediting programs and institutions that provide education through distance learning. During the COVID-19 national emergency, an accrediting agency need not expand its scope of recognition to include distance learning in order to approve its member programs or institutions to offer distance learning.

Section 600.20(h)(3)(iii) provides that the Secretary will extend an institution's provisional Program Participation Agreement (PPA) on a month-to-month basis after the expiration date if, prior to that expiration date, the institution provides the Secretary with approval of the change of ownership from the institution's accrediting agency.

In keeping with the waivers provided in § 600.31, the Secretary is waiving, through the end of the payment period that begins after the date on which the Federally-declared national emergency related to COVID-19 is rescinded, the requirement to provide approval of the change of ownership from the institution's accrediting agency within the time period set forth in 600.20(h)(3)(iii).

The Secretary is waiving § 600.31(a)(2) and providing an additional six months for IHEs to provide the approvals from the institution's accrediting agency and State, and the same-day balance sheet or statement of financial position prepared under required financial standards pursuant to § 600.20(h)(3), that is ordinarily due by the end of the month following the change of ownership. The Secretary will accept unaudited financial statements for the IHE's and new owner's most recently completed fiscal year within the time frame established under § 600.20(g)(1), provided that the submission includes the engagement letters for the audited financial statements under § 600.20(g)(2) to be completed for submission to the Department the earlier of six months after the change in ownership or 30 days after the date of the auditor's report with the financial statements. This waiver is in effect for the duration of the national emergency declaration and 180 days following the date on which the COVID-19 national emergency declaration is rescinded.

Section 600.55(c) requires a foreign graduate medical school having a post-baccalaureate or equivalent medical program that participates in the Federal Direct Loan program to require students accepted for admission who are U.S. citizens, nationals, or permanent residents to have taken the MCAT and to have reported their scores to the foreign graduate medical school.

The Secretary is waiving, for the duration of admissions years in which the COVID-19 national emergency declaration is in effect, the requirement that to participate in the Federal Direct Loan program, a foreign medical school must require students to take the MCAT.

As a result of travel restrictions, State-mandated campus closures, and administrative decisions to move instruction to distance learning, accrediting agencies may need to perform required site visits virtually. Therefore, beginning on March 13, 2020, for the duration of the national emergency declaration and 180 days following the date on which the COVID-19 national emergency declaration is rescinded, the Secretary is waiving the provisions of § 602.17(c) that require accrediting agencies to conduct at least one on-site review of the institution or program during which it obtains sufficient information to determine if the institution or program complies with the agency's standards. Accrediting agencies may conduct required site visits for monitoring performance virtually at regularly scheduled intervals or renewal of accreditation.

The Secretary continues to require that in the case such a site visit is associated with making an award of accreditation or preaccreditation, the agency must perform a limited in-person site visit as soon as practicable. This limited in-person site visit need not replicate the virtual visit, or elements thereof, and need not include the full team that participated in the virtual site visit, but could be conducted through a limited visit performed by agency staff or a single site visitor.

Virtual site visits should rely on an engaged, interactive format ( e.g., telephonic meetings, video conference calls), rather than solely relying upon document reviews or exchanges of emails.

Section 602.22(d) requires accrediting agencies to have an effective mechanism for conducting, at reasonable intervals, visits to a representative sample of additional locations they have approved.

Section 602.22(f)(1) requires an accrediting agency to conduct a site visit, within six months, to each additional location an institution establishes (when the total number of additional locations, where at least 50 percent of an educational program is offered, is three or fewer and the locations are not considered to be branch campuses).

Section 602.22(f)(2) requires an accrediting agency to have a mechanism for conducting, at reasonable intervals, visits to a representative sample of additional locations an institution establishes (when the total number of additional locations, where at least 50 percent of an educational program is offered, is more than three and the locations are not considered to be branch campuses).

The Secretary is waiving these requirements for the duration of the national emergency declaration and 180 days following the date on which the COVID-19 national emergency declaration is rescinded and permitting accrediting agencies to conduct these visits virtually. Virtual site visits should rely on an engaged, interactive format ( e.g., telephonic meetings, video conference calls), rather than solely relying upon document reviews or exchanges of emails.

Section 602.24(b) provides that an accrediting agency must undertake a site visit to a new branch campus, or following a change of ownership or control, as soon as practicable, but no later than six months, after the establishment of that campus or the change of ownership or control.

The Secretary is waiving these requirements, for the duration of the national emergency declaration and 180 days following the date on which the COVID-19 national emergency declaration is rescinded, to permit accrediting agencies to conduct these visits virtually. Virtual site visits should rely on an engaged, interactive format ( e.g., telephonic meetings, video conference calls), rather than solely relying upon document reviews or exchanges of emails.

However, if a site visit within six months after a change of ownership is conducted virtually, a follow up in-person visit must be conducted within 90 days following the date on which the COVID-19 national emergency declaration is rescinded.

Sections 668.8(d)(3) and (e) provide that proprietary IHEs and postsecondary vocational institutions that offer short-term programs must demonstrate in their annual compliance audits that students enrolled in the programs had completion and job placement rates of at least 70 percent before those programs qualify, or continue to qualify, as eligible programs for Federal Direct Loans (the “70/70 qualifying requirements”).

The Secretary waives the 70/70 qualifying requirements for any award year in which the COVID-19 national emergency declaration was in place for at least one day during the award year. Institutions must continue to report completion and placement rates for short-term programs for such award years in compliance audits, but the programs will remain eligible even if they do not meet the 70/70 requirements. Short-term programs will once again be required to meet the 70/70 qualifying requirements for any future award year in which the COVID-19 national emergency declaration is not in effect.

Section 668.8(m) provides that an otherwise eligible program that is offered in whole or in part through telecommunications is eligible for title IV, HEA program purposes if the program is offered by an institution, other than a foreign institution, that has been evaluated and is accredited for its effective delivery of distance education programs by an accrediting agency or association that is recognized by the Secretary under subpart 2 of part H of the HEA, and has accreditation of distance education within the scope of its recognition.

In recognition that many postsecondary institutions needed to implement distance learning solutions to continue educating students in response to campus interruptions or the unexpected return of students from travel abroad experiences, the Secretary is waiving, through the end of the payment period that begins after the date on which the Federally-declared national emergency related to COVID-19 is rescinded, the requirement that these IHEs must have obtained accreditation to offer distance education programs.

Under § 668.22(d), an IHE is not permitted to place students on a leave of absence during the suspension of coursework, including clinicals or internships/externships. However, if the coursework suspension results from a COVID-19 related circumstance, IHEs may grant an approved leave of absence to affected students. Approved leaves of absence granted due to COVID-19-related concerns or limitations are considered to fall under the exception provided in § 668.22(d)(3)(iii)(B) permitting, in the case of unforeseen circumstances, an IHE to grant such leave prior to the student's request. A written request for leave of absence for that period must subsequently be obtained from the student. These flexibilities apply to all leaves of absence granted through the end of the payment period that begins after the date on which the Federally-declared national emergency related to COVID-19 is rescinded.

Section 668.22(d)(1)(vi) provides that the maximum number of days in an approved leave of absence, when added to the number of days in all other approved leaves of absence, may not exceed 180 in any 12-month period. The Secretary modifies this requirement and extends the maximum number of days from 180 (in any 12-month period) to allow a leave of absence to be extended to December 31, 2020.

The Secretary is waiving the requirement in § 668.21(a)(2)(ii) that an institution notify the Direct Loan Servicer when a borrower who has received a credit balance payment composed of Federal Direct Loan funds will not or has not begun attendance, so that the servicer will issue a final demand letter. Under this waiver, in such circumstances, the institution should not notify the servicer. The amount of the Direct Loan credit balance will be the borrower's responsibility to repay under the terms of the promissory note. This waiver expires at the end of the payment period that begins after the date on which the Federally-declared national emergency related to COVID-19 is rescinded.

For IHEs and other entities subject to the Single Audit Act and the implementing regulations at 2 CFR Subpart F that submit an audit under the Single Audit Act, the Department will consider the audit submission of the IHE or other entity timely if it is submitted to the Department through eZ-Audit or as directed by the Department at the same time it is timely submitted to the Federal Audit Clearing House under Office of Management and Budget guidance M 20-26 for COVID-19 audit submissions and any future extensions provided by the Office of Management and Budget.

IHEs and other entities that do not submit audits under the Single Audit Act are required under § 668.23 to submit their annual compliance audit and financial statements no later than six months after the last day of their fiscal year. For any such audits that are due to be submitted to the Department no later than March 1, 2020, through December 31, 2020, or other periods specified by the Secretary, the Secretary is extending the submission deadline up to an additional six months t and other entities to provide more time for the IHE auditors to complete those audits. For IHEs and other entities choosing to submit their audits after the normal due date, the Department will consider the audits to be submitted timely if they are submitted to eZ-audit or as directed by the Department no later than 30 calendar days after the date of the audit report. If date of the audit report is prior to the date of this notice, IHEs and other entities have 30 calendar days from the date of this notice to submit their required audits.

Section 668.26 provides that an IHE's participation in a title IV, HEA program ends on the date that the IHE closes or stops providing educational programs for a reason other than a normal vacation period or a natural disaster that directly affects the IHE or the IHE's students, or on the date it loses its institutional eligibility under part 600. The Secretary is waiving this requirement in recognition that some IHEs are unable to convert their programs to an alternative instructional modality during the COVID-19 pandemic. IHEs that have interrupted their on-campus instruction without converting to an alternative instructional modality, either on-ground or online, must resume instruction by the start of the institution's scheduled payment period, as published in the institution's academic calendar, one payment period after the payment period in which the COVID-19 national emergency is lifted to continue their participation in the title IV, HEA programs.

The Department retains the discretion to determine that an institution has closed based on its assessment of the institution's capacity to reopen at the end of the COVID-19 national emergency.

The Secretary extends the October 1 deadline in § 668.41(e)(1) for IHEs to distribute their Annual Security Reports and Annual Fire Safety Reports (required under § 668.46(b) and § 668.49(b), respectively) to required recipients to December 31, 2020. Likewise, the October 15 deadline established in § 668.41(g)(1) for IHEs to distribute their annual Equity in Athletics Disclosure Act (EADA) disclosures (required under § 668.47(c)) to required recipients is extended to December 31, 2020.

Sections 668.57(b) and (c) require a statement signed by both the applicant and one of the applicant's parents if the applicant is a dependent student, or only the applicant if the applicant is an independent student, to verify the number of family members in the household and the number of family members enrolled in IHEs. Pursuant to § 668.57(d), an applicant may also be required to verify other information specified in the annual Federal Register document that announces the Free Application for Federal Student Aid (FAFSA) information as well as the acceptable documentation for verifying that FAFSA information. IHEs are permitted to waive the requirement for a parental signature in the event that it cannot be obtained, or accept a document signed and photographed and sent by email or text message attachment, on any verification documentation required to validate a student's title IV eligibility;. This waiver expires at the end of the payment period that begins after the date on which the Federally-declared national emergency related to COVID-19 is rescinded.

Under § 668.161(a)(2)(iv), an IHE may disburse title IV, HEA program funds by electronic funds transfer (EFT) if the EFT is an automated clearing house transaction, meaning that the EFT must be a direct deposit transaction. The Secretary waives the requirement that the EFT be a direct deposit transaction to allow IHEs and third-party servicers to use any type of EFT under the Treasury Department regulations in 31 CFR 208.2, including person-to-person payment methods such as Zelle and PayPal, or to enable an IHE to use a student's debit card number to transfer a title IV credit balance to the student's checking account using an original credit transaction. This waiver expires at the end of the payment period that begins after the date on which the Federally-declared national emergency related to COVID-19 is rescinded.

An IHE or third-party servicer must ensure that any payment method used complies with the disbursement requirements in the Cash Management regulations, and that the institution notifies its auditor of the alternative method used as part of its annual compliance audit for any fiscal year that alternative is used. We note that regardless of whether any audit deficiencies are identified, the IHE or servicer must disclose in the compliance audit the alternative method used and how it was used to make title IV disbursements.

For IHEs that are on HCM1 under § 668.162(d)(1), the Secretary is temporarily modifying the cash management requirements to permit those institutions to submit a request for funds without first paying the credit balances due to the students for whom those funds were requested. For requests submitted between March 2020 and the end of the payment period that begins after the date on which the Federally-declared national emergency related to COVID-19 is rescinded, IHEs must pay the credit balances no later than three calendar days after receiving the funds for those students.

Section 668.204(b) provides that an IHE may challenge the accuracy of the data included on the loan record detail report by sending a challenge to the relevant data manager, or data managers, within 45 days after receiving the data.

On February 24, 2020, the Department posted an Electronic Announcement that draft CDRs for FY 2017 had been distributed to institutions and that included information about the process for appealing those draft rates.

In recognition that IHEs have encountered many difficulties and interruptions in day-to-day operations during the COVID-19 pandemic, the Secretary extended to June 30, 2020, the deadline for IHEs to appeal the draft CDRs that were distributed on or about February 24, 2020.

The Secretary extended until November 1, 2020, the October 1, 2020, deadline established in the Federal Register on January 3, 2020 (85 FR 303) for submission of the 2020-2021 Fiscal Operations Report and Application to Participate (FISAP).

The Secretary is waiving the Federal Work-Study (FWS) community service requirements in § 675.18(g) for all FWS-participating schools for at least the 2019-20 and 2020-21 award years. Schools do not need to apply for the waiver for either award year. The Department will administratively grant waivers to all schools. This waiver expires at the end of the award year that begins after the date on which the Federally-declared national emergency related to COVID-19 is rescinded.

Under sections 428F(b) and 464(h)(2) of the HEA and under the definition of “satisfactory repayment arrangement”, a defaulted Perkins Loan borrower may make six consecutive, on-time, voluntary, full, monthly payments to reestablish eligibility for title IV Federal student financial assistance. To assist Perkins Loan borrowers who are affected by the COVID-19 pandemic, the Secretary is waiving, through December 31, 2020, the statutory and regulatory provisions that require the borrower to make consecutive payments to reestablish eligibility. Loan holders are encouraged not to treat any payment missed during the time that a borrower is an affected individual in this category as an interruption in the six consecutive, on-time, voluntary, full, monthly payments required for reestablishing title IV eligibility. If there is an arrangement or agreement in place between the borrower and loan holder and the borrower makes a payment during this period, the loan holder must treat the payment as an eligible payment in the required series of payments even if the borrower did not make additional payments during this period. At the conclusion of this waiver period, the required sequence of qualifying payments may resume at the point they were discontinued because of the borrower's status as an affected individual. The Secretary will apply the waivers described in this paragraph to loans held by the Department.

Federal Perkins Loan borrowers must make nine consecutive, on-time monthly payments to rehabilitate a defaulted Federal Perkins Loan in accordance with § 464(h)(1)(A) of the HEA and § 674.39. To assist title IV borrowers who are affected by the COVID-19 pandemic, the Secretary is waiving, through December 31, 2020, the statutory and regulatory loan rehabilitation requirements that eligible payments must be made over no more than 10 consecutive months, as follows. Loan holders other than the Department are encouraged to treat any payment missed during the time that a borrower is an affected individual in this category as a payment that counts toward a rehabilitation agreement. If there is an arrangement or agreement in place between the borrower and loan holder and the borrower makes a payment or payments during this period, the loan holder must treat the payment as an eligible payment in the required series of payments. When the borrower is no longer an affected individual in this category, the required sequence of qualifying payments may resume at the point they were discontinued because of the borrower's status as an affected individual to successfully rehabilitate a Perkins Loan. The Department will apply the waivers described in this paragraph to loans held by the Department.

Section 682.209 provides that interest accrues on an FFEL loan during the interval between scheduled payments. On March 13, 2020, the President announced  3 that the interest on all FFEL loans held by the Department and on all Direct Loans would be waived amid the coronavirus outbreak. On March 20, 2020, the Secretary announced  4 that interest rates for such loans would be set to zero percent (0%) for a period of at least 60 days, during which time borrowers would have the option to suspend their monthly loan payments. On March 27th, 2020, the CARES Act was signed into law and provided that interest would not be charged on Perkins, HEAL, FFEL, or Direct Loans held by the Department through September 30, 2020. Following the President's Memorandum of August 8, 2020, the Secretary is further extending until December 31, 2020, in accordance with the prior announcement, the waivers of the regulatory provisions in §§ 682.202 and 682.209 that require that interest be charged on FFEL loans held by the Department from March 13, 2020, through March 27, 2020, and from October 1, 2020 through December 31, 2020. The affected loans include FFEL Program Loans that the Department acquired pursuant to the Ensuring Continued Access to Student Loans Act of 2008 (ECASLA), through the assignment of defaulted loans under § 682.409, and rehabilitated loans for which a guaranty agency could not secure a purchaser and assigned to the Department under § 682.405(a)(2)(ii). This does not apply to defaulted FFEL Program Loans for which a guaranty agency has paid a claim to the FFEL Program lender and on which the guaranty agency is pursuing the borrower for collection. However, the guaranty agencies may voluntarily provide interest or payment waivers, for the duration of the COVID-19 national emergency, to borrowers of loans on which collection activity continues.

Section 685.207 provides that a borrower is required to pay any interest not subsidized by the Secretary unless the borrower is relieved of the obligation to repay. On March 13, 2020, the President announced that the interest on all student loans held by the Department would be waived amid the coronavirus outbreak. On March 20, 2020, the Secretary announced that interest rates for such loans would be set to zero percent for a period of at least 60 days, during which time borrowers would have the option to suspend their monthly loan payments. On March 27th, 2020, the CARES Act was signed into law and extended this same benefit through September 30, 2020. The period of this benefit was further extended to December 31, 2020 by the President's Memorandum of August 8, 2020. Accordingly, Direct Loans are automatically placed in an administrative forbearance status that is currently scheduled to be in effect from March 13, 2020, through December 31, 2020.

When the Department expanded the utilization of the Borrower Defense to Repayment (BD) provision to provide potential loan forgiveness to borrowers who had enrolled in certain programs, during certain periods of time, it offered to review BD applications submitted by students who had FFEL or Perkins loans, and other loans that were not Direct Loans (non-Direct Loans), and notify the borrower of their eligibility for full or partial loan relief in the event that such students elected to consolidate those loans into a Direct Consolidation Loan. If the Department determined that the borrower had successfully established a defense to repayment, the borrower could apply for a Direct Consolidation Loan to receive the discharge. On July 1, 2020, new regulations regarding BD went into effect. In the months prior to July 1, 2020, BD applicants were not specifically notified that they would need to take action to consolidate the non-Direct loans included in their borrower defense applications into a Direct Consolidation Loan prior to July 1, 2020, to ensure that the Direct Consolidation Loan would be adjudicated under the 2016 BD regulations, which includes the standards under which the Department would make the determination of eligibility for BD relief on FFEL or Perkins loans, or other non-Direct Loans, in the event that the borrower chose to consolidate his or her eligible loans into a Direct Consolidation Loan. Applications for relief on Direct Consolidation Loans that include FFEL or Perkins loans originally included in BD applications received by the Department prior to July 1, 2020, will therefore be adjudicated under the standards for Direct Loans, including Direct Consolidation loans, disbursed between July 1, 2017, and July 1, 2020.

Sections 685.209 and 685.221 provide that a borrower participating in an income-driven repayment plan is required to provide documentation, acceptable to the Secretary, that enables the annual calculation of the borrower's payment amount for each year that the borrower remains on the plan. The Secretary is waiving §§ 685.209(a)(5)(i) and 685.221(e)(1) for one calendar year from the date on which a borrower would have been required to provide recertification documentation in 2020. Borrowers will be notified by their loan servicer of their new recertification date, in advance of the deadline on which such documentation is required.

Section 685.209(a)(2)(iv)(A) provides that interest is capitalized on a borrower's loans that are being repaid under the income-contingent repayment plan when a borrower is determined to no longer have a partial financial hardship or at the time a borrower chooses to leave the Pay As You Earn repayment plan. As noted above, all Direct Loans in repayment or default have been placed in an administrative forbearance status and interest has been suspended. If the borrower's loan payments were current before the administrative forbearance period began, interest accrued prior to March 13, 2020, will not capitalize at the end of the coronavirus-related administrative forbearance period.

However, if the borrower's loans were in the type of deferment or forbearance in which interest would normally capitalize before the coronavirus-related administrative forbearance period began, interest accrued prior to March 13, 2020, will capitalize when the borrower's original deferment or forbearance ends, or on January 1, 2021, whichever is later.

For borrowers whose loans were in a grace period before the coronavirus-related administrative forbearance period began, any outstanding or unpaid interest on a borrower's account will capitalize as it usually does when the loan(s) enter repayment.

This waiver expires on December 31, 2020.

Section 690.63(a)(3) requires, as a condition of calculating Pell grant eligibility under Formula 1, 5 that students not be allowed “to be enrolled simultaneously in overlapping terms . . .”. The Secretary is waiving this requirement for academic years that include the latter of December 31, 2020, or the last date of the COVID-19 national emergency. All standard terms will be permitted to overlap with an adjacent term without the program being considered non-term. Additionally, a standard semester or trimester may consist of as few as 13 weeks of instructional time and a standard quarter as few as nine weeks of instructional time without the program being considered a non-standard term program.

The Secretary is waiving the provisions of § 690.63(a)(1)(ii)(B)(3) and permitting IHEs to treat as standard term any academic calendar comprised of semesters, trimesters, or quarters that overlap. For all academic years that include the later of December 31, 2020, or the end date for the COVID-19 Federally declared emergency, the existence of overlapping standard terms will not result in a program being considered non-term.

Section 3513 of the CARES Act directs the Secretary to: (1) Suspend all payments due, (2) cease interest accrual, and (3) suspend involuntary collections for loans made under part D and part B (that are held by the Department) of title IV of the HEA through September 30, 2020. The section also directs the Secretary to deem each month for which a loan payment was suspended as if the borrower of the loan had made a payment for the purpose of any loan forgiveness program or loan rehabilitation program authorized under part D or B for which the borrower would have otherwise qualified. Lastly, this section directs the Secretary to ensure that, for the purpose of reporting information about the loan to a consumer reporting agency, any payment that has been suspended is treated as if it were a regularly scheduled payment made by a borrower.

On August 8, 2020, the President issued a memorandum directing the Secretary to continue to waive interest and payments on such loans until December 31, 2020. Therefore, in accordance with the prior announcement, the Secretary is using her authority under the HEROES Act to modify the terms of the benefits provided under section 3513 of the CARES Act such that they will continue to be provided to borrowers until December 31, 2020.

Accessible Format: On request to Mr. Jean-Didier Gaina, by telephone: (202) 502-7526 or by email: Jean-Didier.Gaina@ed.gov, individuals with disabilities can obtain this document in an accessible format (such as braille, large print, audiotape, or compact disc), to the extent reasonably practicable.

Electronic Access to This Document: The official version of this document is the document published in the Federal Register . You may access the official edition of the Federal Register and the Code of Federal Regulations at www.govinfo.gov. At this site you can view this document, as well as all other documents of this Department published in the Federal Register , in text or Portable Document Format (PDF). To use PDF, you must have Adobe Acrobat Reader, which is available free at the site.

You may also access documents of the Department published in the Federal Register by using the article search feature at: www.federalregister.gov. Specifically, through the advanced search feature at this site, you can limit your search to documents published by the Department.

This action is listing as acceptable additional substitutes for use in the refrigeration and air conditioning, foam blowing, and fire suppression sectors. This action presents EPA's most recent decision to list as acceptable several substitutes in different SNAP end-uses. New substitutes are:

• Hydrochlorofluoroolefin (HCFO)-1233zd(E) in industrial process refrigeration (new and retrofit equipment);

• R-515B in centrifugal and positive displacement chillers and industrial process air conditioning (new equipment);

• Blends of 10 to 99 percent by weight hydrofluoroolefin (HFO)-1336mzz(Z) and the remainder hydrofluorocarbon (HFC)-152a in polystyrene: Extruded boardstock and billet;

• HFO-1336mzz(E) in a number of foam blowing end-uses;

• Methylal in rigid polyurethane (PU) spray foam (high-pressure two-component, low-pressure two-component, and one-component foam sealants); and

• HCFO-1233zd(E)/C6-perfluoroketone blend in total flooding fire suppression (normally occupied and unoccupied spaces).

EPA's review of certain substitutes listed in this document is pending for other uses. Listing decisions in the end-uses and applications in this document do not prejudge EPA's listings of these substitutes for other end-uses. The substitutes being added through this action to the acceptable lists for specific end-uses have a similar or lower risk than other substitutes already listed as acceptable in those end-uses. However, certain substitutes may have a higher overall risk than certain other substitutes already listed as acceptable or acceptable subject to restrictions. In such cases, those already-listed alternatives have not yet proved feasible in those specific end-uses to date.

For additional information on SNAP, visit the SNAP portion of EPA's Ozone Layer Protection website at: www.epa.gov/snap. Copies of the full lists of acceptable substitutes for ozone-depleting substances (ODS) in all industrial sectors are available at www.epa.gov/snap/substitutes-sector. For more information on the Agency's process for administering the SNAP program or criteria for evaluation of substitutes, refer to the initial SNAP rulemaking published March 18, 1994 (59 FR 13044), and the regulations codified at 40 CFR part 82, subpart G. SNAP decisions and the appropriate Federal Register citations are found at: www.epa.gov/snap/snap-regulations. Substitutes listed as unacceptable; acceptable, subject to narrowed use limits; or acceptable, subject to use conditions are also listed in the appendices to 40 CFR part 82, subpart G.

The sections below discuss each substitute listing in detail. Appendix A contains tables summarizing each listing decision in this action. The statements in the “Further Information” column in the tables provide additional information but these are not legally binding under section 612 of the Clean Air Act (CAA). Although you are not required to follow recommendations in the “Further Information” column of the table to use a substitute consistent with section 612 of the CAA, some of these statements may refer to obligations that are enforceable or binding under federal or state programs other than the SNAP program. The identification of other enforceable or binding requirements should not be construed as a comprehensive list of such obligations. In many instances, the information simply refers to standard operating practices in existing industry standards and/or building codes. When using these substitutes in the identified end-use, EPA strongly encourages you to apply the information in the “Further Information” column. Many of these recommendations, if adopted, would not require significant changes to existing operating practices.

You can find submissions to EPA for the substitutes listed in this document, as well as other materials supporting the decisions in this action, in Docket EPA-HQ-OAR-2003-0118 at www.regulations.gov.

EPA's decision: EPA finds HCFO-1233zd(E) acceptable as a substitute for use in:

HCFO-1233zd(E), marketed under the trade name Solstice TM N12 Refrigerant, is also known as trans -1-chloro-3,3,3-trifluoroprop-1-ene (Chemical Abstracts Service Registry Number [CAS Reg. No.] 102687-65-0).

You may find a copy of the applicant's submission, with CBI redacted, providing the required health and environmental information for this substitute in this end-use in Docket EPA-HQ-OAR-2003-0118 at www.regulations.gov under the name, “Supporting Materials for Notice 36 Listing of HCFO-1233zd(E) in Refrigeration and Air Conditioning. SNAP Submission Received June 6, 2019.” EPA performed an assessment to examine the health and environmental risks of this substitute. This assessment is available in Docket EPA-HQ-OAR-2003-0118: “Risk Screen on Substitutes in Industrial Process Refrigeration. Substitute: HCFO-1233zd(E).”

EPA previously listed HCFO-1233zd(E) as acceptable for use in several refrigeration and air conditioning and foam blowing end-uses (August 10, 2012, 77 FR 47768; October 21, 2014, 79 FR 62863).

Environmental information: HCFO-1233zd(E) has an ozone depletion potential (ODP) of less than 0.0004 and a global warming potential (GWP) of 3.7. 1 HCFO-1233zd(E) is excluded from the definition of volatile organic compounds (VOC) under CAA regulations (see 40 CFR 51.100(s)) addressing the development of state implementation plans (SIPs) to attain and maintain the National Ambient Air Quality Standards (NAAQS). Knowingly venting or releasing this refrigerant blend is limited by the venting prohibition under section 608(c)(2) of the CAA, codified at 40 CFR 82.154(a)(1).

Flammability information: HCFO-1233zd(E) is not flammable.

Toxicity and exposure data: Potential health effects of exposure to this substitute include drowsiness or dizziness. The substitute may also irritate the skin or eyes or cause frostbite. The substitute could cause asphyxiation if air is displaced by vapors in a confined space. These potential health effects are common to many refrigerants.

The American Industrial Hygiene Association (AIHA) has established a Workplace Environmental Exposure Limit (WEEL) of 800 ppm on an eight-hour time-weighted average (8-hr TWA) for HCFO-1233zd(E). EPA anticipates that users will be able to meet the WEEL and address potential health risks by following requirements and recommendations in the manufacturer's safety data sheet (SDS), American Society of Heating, Refrigerating, and Air-Conditioning Engineers (ASHRAE) Standard 15, and other safety precautions common to the refrigeration and air conditioning industry.

Comparison to other substitutes in these end-uses: HCFO-1233zd(E) has an ODP of less than 0.0004, comparable to or less than other listed substitutes in this end-use with ODPs ranging from zero to 0.098.

For industrial process refrigeration, HCFO-1233zd(E)'s GWP of about 3.7 is comparable to or lower than that of other acceptable substitutes such as ammonia absorption for new equipment and carbon dioxide (CO 2 ), R-450A, R-513A and hydrofluorocarbon (HFC)-23 for new and retrofit equipment, with GWPs  2 ranging from zero to 14,800.

Flammability and toxicity risks are comparable to or lower than flammability and toxicity risks of other available substitutes in the same end-use. Toxicity risks can be minimized by use consistent with the AIHA WEEL, ASHRAE 15, and other industry standards, recommendations in the manufacturer's SDS, and other safety precautions common in the refrigeration and air conditioning industry.

EPA finds HCFO-1233zd(E) acceptable in the industrial process refrigeration (new and retrofit equipment) end-use because it does not pose greater overall environmental and human health risk than other available substitutes in the same end-use.

EPA's decision: EPA finds R-515B acceptable as a substitute for use in:

R-515B is a weighted blend of 91.1 percent HFO-1234ze(E), which is also known as trans -1,3,3,3-tetrafluoroprop-1-ene (CAS Reg. No. 29118-24-9) and 8.9 percent HFC-227ea, also known as 1,1,1,2,3,3,3-heptafluoropropane (CAS Reg. No. 431-89-0).

You may find a copy of the applicant's submission, with CBI redacted, providing the required health and environmental information for this substitute in these end-uses in Docket EPA-HQ-OAR-2003-0118 at www.regulations.gov under the name, “Supporting Materials for Notice 36 Listing of R-515B in Refrigeration and Air Conditioning. SNAP Submission Received September 6, 2019.” EPA performed an assessment to examine the health and environmental risks of this substitute. This assessment is available in Docket EPA-HQ-OAR-2003-0118: “Risk Screen on Substitutes in Centrifugal and Positive Displacement Chillers and Industrial Process Air Conditioning. Substitute: R-515B.”

Environmental information: R-515B has an ODP of zero. Its components, HFO-1234ze(E) and HFC-227ea, have a GWP of less than one  3 and 3,220, respectively. If these values are weighted by mass percentage, then R-515B has a GWP of about 287. The components of R-515B are excluded from the definition of VOC under CAA regulations (see 40 CFR 51.100(s)) addressing the development of SIPs to attain and maintain the NAAQS. Knowingly venting or releasing this refrigerant blend is limited by the venting prohibition under section 608(c)(2) of the CAA, codified at 40 CFR 82.154(a)(1).

Flammability information: R-515B is not flammable.

Toxicity and exposure data: Potential health effects of exposure to this substitute include drowsiness or dizziness. The substitute may also irritate the skin or eyes or cause frostbite. The substitute could cause asphyxiation if air is displaced by vapors in a confined space. These potential health effects are common to many refrigerants.

For the components of R-515B, the AIHA has established WEELs of 800 ppm and 1000 ppm as an 8-hr TWA for HFO-1234ze(E) and HFC-227ea, respectively. The manufacturer of R-515B recommends an acceptable exposure limit (AEL) for the blend of 810 ppm as an 8-hr TWA. EPA anticipates that users will be able to meet each of the WEELs, the manufacturer's AEL, and address potential health risks by following requirements and recommendations in the manufacturer's SDS, in ASHRAE Standard 15, and other safety precautions common to the refrigeration and air conditioning industry.

Comparison to other substitutes in these end-uses: R-515B has an ODP of zero, comparable to or less than other listed substitutes in these end-uses, with ODPs ranging from zero to 0.055.

For centrifugal and positive displacement chillers, R-515B's GWP of about 287 is comparable to or lower than that of other acceptable substitutes for new equipment, such as ammonia absorption, CO 2 , HFO-1336mzz(Z), and R-513A, with GWPs ranging from zero to 630.

For industrial process air conditioning, R-515B's GWP of about 287 is comparable to or lower than that of other acceptable substitutes for new equipment, such as ammonia absorption, CO 2 , HFO-1336mzz(Z), R-134a, and R-507A, with GWPs ranging from zero to 3,985.

Flammability and toxicity risks are comparable to or lower than flammability and toxicity risks of other available substitutes in the same end-uses. Toxicity risks can be minimized by use consistent with the AIHA WEEL, manufacturer's AEL, ASHRAE 15, and other industry standards, recommendations in the manufacturer's SDS, and other safety precautions common in the refrigeration and air conditioning industry.

EPA finds R-515B acceptable in the centrifugal chillers, positive displacement chillers, and industrial process air conditioning end-uses because it does not pose greater overall environmental and human health risk than other available substitutes in the same end-uses.

EPA's decision: EPA finds blends of 10 to 99 percent by weight HFO-1336mzz(Z) andthe remainder HFC-152a (“HFO-1336mzz(Z)/HFC-152a blends”) acceptable as a substitute for use as a blowing agent in:

These blends range in composition from 10 percent HFO-1336mzz(Z) and 90 percent HFC-152a to 99 percent HFO-1336mzz(Z) and 1 percent HFC-152a. Accordingly, these blends are also referred to as blends of 10 to 99 percent by weight HFO-1336mzz(Z) and the remainder HFC-152a in this action. HFO-1336mzz(Z) is an HFO and is also called (Z)-1,1,1,4,4,4-hexafluorobut-2-ene or cis -1,1,1,4,4,4-hexafluorobut-2-ene (CAS Reg. No. 692-49-9); it also goes by the trade names of FEA-1100 or Formacel® 1100. HFC-152a is an HFC and is also called ethane, 1,1-difluoro (CAS Reg. No. 75-37-6).

You may find a copy of the applicant's submission, with CBI redacted, providing the required health and environmental information for this substitute in this end-use in Docket EPA-HQ-OAR-2003-0118 at www.regulations.gov under the name, “SNAP Information Notice for Blends of 10 to 99 percent by Weight HFO-1336mzz(Z) and the Remainder HFC-152a as a Foam Blowing Agent. SNAP Submission Received October 10, 2019.” EPA has performed an assessment to examine the health and environmental risks of this substitute. This assessment is available in docket EPA-HQ-OAR-2003-0118 under the name “Risk Screen on Substitutes for Use in Extruded Polystyrene Boardstock and Billet Foam Substitute: HFO-1336mzz(Z) and HFC-152a Blends .”

Environmental information: These HFO-1336mzz(Z)/HFC-152a blends have an ODP of zero. Their components, HFO-1336mzz(Z) and HFC-152a, have GWPs of about two  4 and 124, respectively. If these values are weighted by mass percentage, then the blends range in GWP from about three to about 110. Both components of the blends are excluded from the definition of VOC under CAA regulations (see 40 CFR 51.100(s)) addressing the development of SIPs to attain and maintain the NAAQS.

Flammability information: The component HFC-152a is moderately flammable. HFO-1336mzz(Z) is not flammable at standard temperature and pressure using the standard test method ASTM E681. Certain of these HFO-1336mzz(Z)/HFC-152a blends are flammable, depending on the specific composition. For example, blends containing less than 91.5 percent HFO-1336mzz(Z) and more than 8.5 percent HFC-152a by weight are flammable.

Toxicity and exposure data: Potential health effects of this substitute include skin or eye irritation or frostbite. At sufficiently high concentrations, the substitute may cause irregular heartbeat. The substitute could cause asphyxiation if air is displaced by vapors in a confined space. These potential health effects are common to many foam blowing agents. The EPA anticipates that these HFO-1336mzz(Z)/HFC-152a blends will be used consistent with the recommendations specified in the SDS.

The AIHA has established a WEEL of 1,000 ppm as an 8-hr TWA for HFC-152a, and the WEEL committee of the Occupational Alliance for Risk Science (OARS) has established a WEEL of 500 ppm for HFO-1336mzz(Z). EPA anticipates that users will be able to meet the AIHA and OARS WEELs and will address potential health risks by following requirements and recommendations in the manufacturer's SDSs and other safety precautions common to the foam blowing industry.

Comparison to other foam blowing agents: These HFO-1336mzz(Z)/HFC-152a blends have an ODP of zero, comparable to all other acceptable substitutes in this end-use, such as HFC-152a, HFO-1234ze(E), methyl formate, and CO 2. These HFO-1336mzz(Z)/HFC-152a blends' GWPs from about three to 110 is lower than or comparable to those of other acceptable substitutes in the same end-use for which we are finding it acceptable, such as HFC-152a, HFO-1234ze(E), light saturated hydrocarbons C3-C6 and methyl formate, with respective GWPs of 124, one, 5 less than one, 6 and 11. 7 Flammability and toxicity risks are comparable to or lower than flammability and toxicity risks of other available substitutes in the same end-use. Toxicity risks can be minimized by use consistent with the AIHA's and OARS's WEELs, recommendations in the SDS, and other safety precautions common in the foam blowing industry.

EPA finds blends of 10 to 99 percent by weight HFO-1336mzz(Z) and the remainder HFC-152a acceptable in the polystyrene: extruded boardstock and billet end-use because they do not pose greater overall environmental and human health risk than other available substitutes in the same end-use.

EPA's decision: EPA finds HFO-1336mzz(E) acceptable as a substitute for use in:

HFO-1336mzz(E) is also known as (2E)-1,1,1,4,4,4-hexafluoro-2-butene and trans -1,1,1,4,4,4-hexafluoro-2-butene (CAS Reg. No. 66711-86-2). It is marketed under the trade names Opteon TM 1150 and Formacel TM 1150.

You may find a copy of the applicant's submission, with CBI redacted, providing the required health and environmental information for this substitute in these end-uses in Docket EPA-HQ-OAR-2003-0118 at www.regulations.gov under the name, “Supporting Documentation for Notice 36 Listing of HFO-1336mzz(E) in Foam Blowing. SNAP Submission Received December 5, 2018.” EPA performed assessments to examine the health and environmental risks of this substitute. These assessments are available in Docket EPA-HQ-OAR-2003-0118 under the following names:

Environmental information: HFO-1336mzz(E) has an ODP of zero. It has a GWP of about 16. 8 Under CAA regulations (see 40 CFR 51.100(s)) defining VOC for the purpose of addressing the development of SIPs to attain and maintain the NAAQS, HFO-1336mzz(E) would be considered a VOC. That definition provides that “any compound of carbon” which “participates in atmospheric photochemical reactions” is considered a VOC unless expressly excluded in that provision based on a determination of “negligible photochemical reactivity.” The manufacturer has petitioned the EPA to exclude HFO-1336mzz(E) from the definition of VOC under those regulations based on its claim that the chemical exhibits low photochemical reactivity. EPA has not yet taken action on that petition. EPA notes for informational purposes that this substitute is subject to a Toxic Substances Control Act (TSCA) section 5(e) Consent Order and a TSCA section 5(a)(2) Significant New Use Rule (SNUR).

EPA anticipates that HFO-1336mzz(E) will be used consistent with the recommendations specified in the SDS. The OARS WEEL committee recommends a WEEL for the workplace of 400 ppm on an 8-hour TWA. EPA anticipates that users will be able to meet the WEEL and address potential health risks by following requirements and recommendations in the SDS and other safety precautions common to the foam blowing industry.

Comparison to other substitutes in these end-uses: HFO-1336mzz(E) has an ODP of zero, comparable to or lower than that for other listed substitutes in these end-uses, with ODPs ranging from zero to 0.02.

HFO-1336mzz(E)'s GWP of about 16 is lower than that of other acceptable substitutes in the listed end-uses, such as HFC-152a with a GWP of 124. HFO-1336mzz(E)'s GWP is higher than or comparable to the GWPs of other acceptable substitutes for these end-uses, such as HFO-1336mzz(Z), methyl formate, saturated light hydrocarbons C3-C6, 9 and trans -1-chloro-3,3,3-trifluoroprop-1-ene with GWPs ranging from less than one to approximately 11.

Flammability and toxicity risks are comparable to or lower than flammability and toxicity risks of other available substitutes in the same end-use. Toxicity risks can be minimized by use consistent with the OARS WEEL, recommendations in the manufacturer's SDS, and other safety precautions common in the foam blowing industry; moreover, those risks are common to many foam blowing agents, including many of those already listed as acceptable under SNAP for these end-uses.

EPA anticipates that HFO-1336mzz(E) will be used consistent with the recommendations specified in the SDS. The OARS WEEL committee recommends a WEEL for the workplace of 400 ppm on an 8-hour TWA. EPA anticipates that users will be able to meet the WEEL and address potential health risks by following requirements and recommendations in the SDS and other safety precautions common to the foam blowing industry.

Comparison to other substitutes in these end-uses: HFO-1336mzz(E) has an ODP of zero, comparable to or lower than that for other listed substitutes in these end-uses, with ODPs ranging from zero to 0.02.

HFO-1336mzz(E)'s GWP of about 16 is lower than that of other acceptable substitutes in the listed end-uses, such as HFC-152a with a GWP of 124. HFO-1336mzz(E)'s GWP is higher than or comparable to the GWPs of other acceptable substitutes for these end-uses, such as HFO-1336mzz(Z), methyl formate, saturated light hydrocarbons C3-C6, 9 and trans -1-chloro-3,3,3-trifluoroprop-1-ene with GWPs ranging from less than one to approximately 11.

Flammability and toxicity risks are comparable to or lower than flammability and toxicity risks of other available substitutes in the same end-use. Toxicity risks can be minimized by use consistent with the OARS WEEL, recommendations in the manufacturer's SDS, and other safety precautions common in the foam blowing industry; moreover, those risks are common to many foam blowing agents, including many of those already listed as acceptable under SNAP for these end-uses.

EPA finds HFO-1336mzz(E) acceptable in the end-uses listed above in section 1.B.2 because it does not pose greater overall environmental and human health risk than other available substitutes in the same end-uses.

EPA's decision: EPA finds methylal acceptable as a substitute for use in:

• Rigid PU: Spray—high-pressure two-component

• Rigid PU: Spray—low-pressure two-component

• Rigid PU: Spray—one-component foam sealants

Methylal is also called dimethoxymethane (CAS Reg. No. 109-87-5) and belongs to a class of chemicals referred to as acetals; it also goes by the trade name Novicell TM .

You may find a copy of the applicant's submission, with CBI redacted, providing the required health and environmental information for this substitute in these end-uses in Docket EPA-HQ-OAR-2003-0118 at www.regulations.gov under the name, “Supporting Materials for Notice 36 Listing of Methylal in Foam Blowing. SNAP Submission Received April 18, 2014.” EPA performed an assessment to examine the health and environmental risks of this substitute. This assessment is available in Docket EPA-HQ-OAR-2003-0118 under the following name: “Risk Screen on Substitutes for Use in Rigid Polyurethane Spray Foam Substitute: Methylal.”

EPA previously listed methylal as acceptable for use as a foam-blowing agent in a variety of foam blowing end-uses (October 21, 2014; 79 FR 62863).

Environmental information: Methylal has an ODP of zero and a GWP less than one. 10 Under CAA regulations (see 40 CFR 51.100(s)) defining VOC for the purpose of addressing the development of SIPs to attain and maintain the NAAQS, methylal would be considered a VOC. That definition provides that “any compound of carbon” which “participates in atmospheric photochemical reactions” is considered a VOC unless expressly excluded in that provision based on a determination of “negligible photochemical reactivity.”

Flammability information: Methylal is flammable. Under the Globally Harmonized System of Classification and Labelling of Chemicals, it is classified as a Class II flammable liquid and under the Occupational Safety and Health Administration's (OSHA's) regulations at 29 CFR 1910.106, it is classified as a Class IB flammable liquid. Some specific blends of methylal with other blowing agents are flammable as formulated and should be handled with proper precautions, as specified by the manufacturer. EPA recommends that users follow all requirements and recommendations specified in the SDS and other safety precautions for use of flammable blowing agents used in the foam blowing industry. Use of methylal will require safe handling and shipping as prescribed by OSHA and the Department of Transportation (for example, using personal protective equipment (PPE) and following requirements for shipping hazardous materials at 49 CFR parts 170 through 173).

Toxicity and exposure data: Potential health effects of exposure to this substitute include drowsiness or dizziness. Higher concentrations may cause central nervous system depression and loss of consciousness. The substitute may also irritate the skin or eyes. The substitute could cause asphyxiation if air is displaced by vapors in a confined space. These potential health effects are common to many foam-blowing agents.

For methylal, the American Conference of Governmental Industrial Hygienists (ACGIH) has established a threshold limit value (TLV) of 1,000 ppm on an 8-hr TWA. The National Institute of Occupational Safety and Health (NIOSH) has established a recommended exposure limit (REL) of 1,000 ppm for methylal on a 10-hour TWA. EPA anticipates that users will be able to meet workplace exposure limits (TLV and REL) and address potential health risks by following requirements and recommendations in the manufacturer's SDS and other safety precautions common to the foam-blowing industry.

Comparison to other substitutes in these end-uses: Methylal has an ODP of zero, comparable to other listed substitutes in these end-uses, with ODPs ranging from zero to 0.012.

Methylal's GWP of less than one is less than or comparable to the GWPs of other acceptable substitutes in the listed end-uses, including CO 2 , Exxsol TM blowing agents, HFC-152a, HFO-1336mzz(Z), methyl formate, 11 and trans -1-chloro-3,3,3-trifluoroprop-1-ene, with GWPs ranging from less than 1 to approximately 124. 12

Methylal's flammability risks are comparable to or lower than flammability risks of other available substitutes in the same end-uses, including Exxsol TM blowing agents and methyl formate. Other acceptable substitutes in these end-uses are nonflammable ( e.g., CO 2, HFO-1336mzz(Z), and trans -1-chloro-3,3,3-trifluoroprop-1-ene.

Toxicity risks are comparable to or lower than toxicity risks of other available substitutes in the same end-use. Toxicity risks can be minimized by use consistent with the ACGIH TLV, recommendations in the manufacturer's SDS, and other safety precautions common in the foam-blowing industry.

EPA finds methylal acceptable in the end-uses listed above in section I.B.3 because it does not pose greater overall environmental and human health risk than other available substitutes in the same end-use.

EPA's decision: EPA finds HCFO-1233zd(E)/C6-perfluoroketone blend acceptable as a substitute for:

HCFO-1233zd(E)/C6-perfluoroketone blend is a weighted blend of 50 percent (E)-1-chloro-3,3,3-trifluoroprop-1-ene or HCFO-1233zd(E) (CAS Reg. No. 102687-65-0) and 50 percent C6-perfluoroketone (CAS Reg. No. 756-13-8), also known as 1,1,1,2,2,4,5,5,5-nonafluoro-4-(trifluoromethyl)-3-pentanone or FK-5-1-12. Both components are currently listed as acceptable under SNAP for use in this end-use. The blend is sold under the trade name Solstice TM Quench 55.

You may find a copy of the applicant's submission, with CBI redacted, providing the required health and environmental information for this substitute in this end-use in Docket EPA-HQ-OAR-2003-0118 at www.regulations.gov under the name, “Supporting Documentation for Notice 36 Listing of HCFO-1233zd(E)/C6-perfluoroketone blend in Fire Suppression. SNAP Submission Received August 1, 2018.” EPA performed an assessment to examine the health and environmental risks of this substitute. This assessment is available in Docket EPA-HQ-OAR-2003-0118: “Risk Screen on Substitutes for Total Flooding Systems in Normally Occupied and Unoccupied Spaces. Substitute: HCFO-1233zd(E)/C6-perfluoroketone blend (Solstice TM Quench 55).”

Environmental information: The HCFO-1233zd(E) component of the blend has an ODP less than 0.0004 and a GWP of 3.7. 13 The C6-perfluoroketone component has no ODP and a GWP of less than one. 14 The blend has an average ODP of less than 0.0002 and an average GWP of less than two. The HCFO-1233zd(E) component is excluded from the definition of VOC under CAA regulations (see 40 CFR 51.100(s)) addressing the development of SIPs to attain and maintain the NAAQS; the C6-perfluoroketone component falls within the definition of VOC in those regulations.

Flammability information: HCFO-1233zd(E)/C6-perfluoroketone blend is not flammable.

Toxicity and exposure data: Potential health effects of this substitute include serious eye and skin irritation. If eye or skin contact occurs, end users should flush the affected area with large amounts of water. If inhaled, end users should be removed and exposed to fresh air. The potential health effects of HCFO-1233zd(E)/C6-perfluoroketone blend are unlikely to occur when following good industrial hygiene practices and the PPE and engineering control ( e.g., ventilation) recommendations outlined in the SDSs for HCFO-1233zd(E)/C6-perfluoroketone blend.

The OARS has established a WEEL as an 8-hr TWA of 800 ppm for HCFO-1233zd(E). The manufacturer of C6-perfluoroketone recommends an AEL of 150 ppm on an 8-hr TWA. During installation or servicing of HCFO-1233zd(E)/C6-perfluoroketone blend total flooding systems, exposure to the substitute is not likely if the instructions on system installation and servicing are adhered to; these instructions are included in manuals for the HCFO- 1233zd(E)/C6-perfluoroketone blend systems and the relevant industry standards ( i.e., latest edition of the National Fire Protection Association [NFPA] 2001 Standard for Clean Agent Fire Extinguishing Systems and Underwriters' Laboratories [UL] 2166 Standard for Halocarbon Clean Agent Extinguishing System Units). In the event of an accidental release of the substitute from the total flooding system, potential acute exposures may be of concern. The design concentration is less than the cardiotoxic No Observed Adverse Effect Level of 8.66 percent (86,600 ppm) for the blend. Appropriate protective measures should be taken, and proper training administered for the manufacture, clean-up and disposal of this product and for the installation and maintenance of the total flooding systems using this product.

NFPA 2001 provides that in the case of accidental release in normally occupied spaces, required engineering controls as specified in NFPA 2001 should be employed to limit personnel exposure to clean agent discharges. Specifically, audible and visual pre-discharge alarms and a 30-60 second time delay should be employed within the protected space to indicate the operation of the system and pending discharge to ensure egress for all personnel prior to activation. EPA's evaluation indicates that the use of HCFO-1233zd(E)/C6-perfluoroketone blend is not expected to pose a significant toxicity risk to personnel or the general population. In addition, the risks it may pose after exposure are common to many total flooding agents, including those already listed as acceptable under SNAP for this same end-use. EPA's review of the human health impacts of HCFO-1233zd(E)/C6-perfluoroketone blend, including the summary of available toxicity studies, is in the risk screen mentioned above in the docket for this action (EPA-HQ-OAR-2003-0118).

Protective gloves and tightly sealed goggles should be worn for installation and servicing activities to protect workers in any event of potential discharge of the substitute, accidental or otherwise. Filling or servicing operations should be performed in well-ventilated areas. Toxicity risks can be minimized by use consistent with NFPA 2001 standard, recommendations in the SDS, and other safety precautions common in the fire suppression industry. EPA provides additional information on safe use of this substitute in the “Further Information” column of the table summarizing this listing for total flooding agents (see Appendix A).

Comparison to other substitutes in this end-use: HCFO-1233zd(E)/C6-perfluoroketone blend has an average ODP of less than 0.0002, comparable to or less than that for other listed substitutes in this end-use, with ODPs ranging from zero to 0.048.

For total flooding agents, HCFO-1233zd(E)/C6-perfluoroketone blend's average GWP of less than two is lower than that of other acceptable substitutes, such as HFC-227ea and other HFCs, with GWPs which range from about 1,430 to 14,800. Other acceptable substitutes in this end-use, such as water, inert gases, and a number of powdered aerosol fire suppressants, have lower or comparable GWPs ranging from zero to seven.

Toxicity risks can be minimized by use consistent with the NFPA 2001 standard, recommendations in the SDS, and other safety precautions common in the fire suppression industry. The potential toxicity risks due to inhalation exposure are common to many total flooding agents, including those already listed as acceptable under SNAP for this same end-use. HCFO-1233zd(E)/C6-perfluoroketone blend is nonflammable, as are all other available total flooding agents.

EPA finds HCFO-1233zd(E)/C6-perfluoroketone blend acceptable in the total flooding end-use because it does not pose greater overall environmental and human health risk than other available substitutes in this end-use.

States that have received final approval from the EPA under RCRA section 9004(b) of RCRA, 42 U.S.C. 6991c(b), must maintain an underground storage tank program that is equivalent to, consistent with, and no less stringent than the Federal UST program. Either EPA or the approved state may initiate program revision. When EPA makes revisions to the regulations that govern the UST program, states must revise their programs to comply with the updated regulations and submit these revisions to the EPA for approval. Program revision may be necessary when the controlling Federal or state statutory or regulatory authority is modified or when responsibility for the state program is shifted to a new agency or agencies.

On February 4, 2020, in accordance with 40 CFR 281.51(a), Rhode Island submitted a complete program revision application seeking the EPA approval for its UST program revisions (State Application). Rhode Island's revisions correspond to the EPA final rule published on July 15, 2015 (80 FR 41566), which revised the 1988 UST regulations and the 1988 State program approval (SPA) regulations (2015 Federal Revisions). As required by 40 CFR 281.20, the State Application contains the following: A transmittal letter requesting approval, a description of the program and operating procedures, a demonstration of the State's procedures to ensure adequate enforcement, a Memorandum of Agreement outlining the roles and responsibilities of the EPA and the implementing agency, a statement of certification from the Attorney General, and copies of all relevant State statutes and regulations. We have reviewed the State Application and determined that the revisions to Rhode Island's UST program are equivalent to, consistent with, and no less stringent than the corresponding Federal requirements in subpart C of 40 CFR part 281, and that the Rhode Island program provides for adequate enforcement of compliance (40 CFR 281.11(b)). Therefore, the EPA grants Rhode Island final approval to operate its UST program with the changes described in the program revision application, and as outlined below in section I.G. of this document.

This action does not impose additional requirements on the regulated community because the regulations being approved by this rule are already effective in Rhode Island, and they are not changed by this action. This action merely approves the existing State regulations as meeting the Federal requirements and renders them federally enforceable.

EPA is publishing this direct final rule concurrent with a proposed rule because we view this as a noncontroversial action and anticipate no adverse comment. EPA is providing an opportunity for public comment now.

Along with this direct final rule, the EPA is publishing a separate document in the “Proposed Rules” Section of this issue of the Federal Register that serves as the proposal to approve the State's UST program revisions, providing opportunity for public comment. If EPA receives comments that oppose this approval, EPA will withdraw the direct final rule by publishing a document in the Federal Register before the rule becomes effective. The EPA will base any further decision on the approval of the State program changes after considering all comments received during the comment period. EPA will then address all public comments in a later final rule. You may not have another opportunity to comment. If you want to comment on this approval, you must do so at this time.

On February 3, 1993, the EPA finalized a rule approving the UST program, effective March 5, 1993, to operate in lieu of the Federal program. On February 20, 1996, effective April 22, 1996, the EPA codified the approved Rhode Island program, incorporating by reference the State statutes and regulatory provisions that are subject to EPA's inspection and enforcement authorities under RCRA sections 9005 and 9006, 42 U.S.C. 6991d and 6991e, and other applicable statutory and regulatory provisions.

On February 4, 2020, in accordance with 40 CFR 281.51(a), Rhode Island submitted a complete application for final approval of its UST program revisions adopted on November 20, 2018. The EPA now makes an immediate final decision, subject to receipt of written comments that oppose this action, that Rhode Island's UST program revisions satisfy all of the requirements necessary to qualify for final approval. Therefore, EPA grants Rhode Island final approval for the following program changes:

The State also demonstrates that its program provides adequate enforcement of compliance as described in 40 CFR 281.11(b) and part 281, subpart D. The RI DEM has broad statutory authority with respect to USTs to regulate installation, operation, maintenance, closure, and UST releases, and to the issuance of orders. These statutory authorities are found in: Rhode Island General Laws, Title 38: Public Records, Chapters 38-1, 2, and 3; Rhode Island General Laws, Title 42: State Affairs and Government, Chapter 42-17.1-2(20), Department of Environmental Management; and Rhode Island General Laws, Title 46: Waters and Navigation, Chapter 46-12: Water Pollution, Section 12-3, Sections 12-9 and 10, 12-13 through 15, and Section 46-12-22.

The following statutory and regulatory provisions are considered broader in scope than the Federal program, and are therefore not enforceable as a matter of Federal law:

The State of Rhode Island regulates heating oil of all grades at non-residential locations and partially regulates residential tanks storing heating oil at one, two, or three-unit dwellings; farm tanks storing heating oil for non-commercial purposes, and holding tanks.

All owners and operators of USTs must comply with registration requirements, with the exception of those exempted under 250-RICR-140-25 section 1.4(D). Registration applies to all farm and residential tanks containing heating or fuel oils consumed on-site and containing motor fuels for on-site use.

The Rhode Island Underground Storage Tank Financial Responsibility Fund (RI UST FR Fund) was established to provide a mechanism to comply with financial responsibility requirements and to ensure that the environmental and public health impacts of leaks from USTs are addressed in an effective and timely manner.

Owners/operators must ensure that their facilities comply with Rhode Island's UST regulations by conducting their own inspections and certifying their compliance by completing and submitting the Environmental Results Program Certification (ERP) Booklet. At least every three years the RI DEM will issue an ERP Certification Booklet to all operating UST facilities.

With the exception of UST systems that store fuel oil of any grade consumed on-site for heating, all single-walled tanks and/or piping installed before May 8, 1985 were required to be permanently closed by December 22, 2017. All single-walled tanks and/or piping installed between May 8, 1985 and July 20, 1992, shall be permanently closed within thirty-two (32) years of the date of installation. If the installation date is not known, then any single-walled tank and/or piping shall be permanently closed immediately.

All USTs containing heating oil of any grade at commercial or industrial facilities are required to be tested for tightness beginning in 2021.

Remote pumping systems, including dispensers, shall be equipped with an emergency shut-off valve designed to close automatically in the event that a dispensing unit is significantly impacted or exposed to fire.

New USTs are prohibited from being installed in wellhead protection areas for community water systems. However, USTs registered before November 20, 2018 that were not abandoned or removed for more than 180 days are permitted to be replaced with tanks of equivalent size, or less, and substance stored.

The installation of an UST within 200 feet of a public drilled (rock), driven, or dug well or within 400 feet of a gravel-packed or gravel-developed well is prohibited.

USTs are to be installed as far away as possible from private wells.

Construction of a new tank system or replacement tank system, and modification (including product piping replacement) to any UST facility for which an application for a certificate of registration is required, is prohibited without prior written notification to, and approval by, the Director.

Before installing or replacing any USTs or product piping, the owner is required to submit a completed UST Registration Form; a completed Equipment List Addendum; a completed UST Installation/Modification/Upgrade Supplemental Information form; a site plan, including all of the information listed in 250-RICR-140-25 section 1.7(D)(1)(a)(3) which must be reviewed and stamped by a registered Professional Engineer; specifications or a diagram indicating depth of excavation, bedding, and backfill, supports and anchorage used, distance between tanks, and dimensions (including thickness) of traffic pad; and the appropriate registration fees.

All new and replacement tanks and piping (primary and secondary) shall be tightness tested after all paving over the tanks and piping has been completed and before commencing regular UST operation.

USTs storing heating oil used onsite for heating purposes only with aboveground fill pipes do not require spill containment as long as the ground around the fill pipe is covered with a positive-limiting barrier constructed of material impervious to the substance stored and can contain spills less than three gallons; the fill pipe extends a minimum of six inches above the finished grade; and aboveground fill pipes in high traffic areas are protected by concrete-filled bollards.

When permanently closing any UST system and/or product pipeline, a $75.00 per UST fee must be submitted at least 10 days prior to the removal date.

No person can conduct tightness or interstitial testing on USTs or tank components in Rhode Island unless they are in compliance with the licensing and other provisions of these regulations. Any individual wishing to be licensed must submit a completed application with the required documentation and application fee. Any business who employs or subcontracts licensed testers to conduct tank and/or piping tests are required to submit a completed application for a tank testing business license to the RI DEM.

Any owner/operator of a facility, or person subject to these regulations may submit a written request to the Director for a variance from some or all provisions of these regulations.

Facilities subject to leak detection requirements must post or provide, in a location readily accessible to the facility staff, emergency response procedures, including instructions on responding to alarms, releases, spills, and other abnormal events, and include current contact information for the Class A and B operator or a 24-hour call center or spill response hotline.

All USTs and product piping installed after 1992 are required to have liquid-tight secondary containment and be equipped with continuous monitoring of the interstitial space.

Double-walled USTs with a dry interstice (except those for heating fuels for on-site use, emergency generators, and waste or motor oil) must have a tightness test of the interstitial space completed every two years once the tanks have been installed for 20 years. If the test fails, the primary wall must be tested within 48 hours. Any product remaining in the tank can be consumed for up to 30 days if the primary tank tests tight. If the primary wall is unable to be tested or fails, the tank must be taken out of service, the contents removed within 24 hours, and the tank tester must notify DEM immediately. Within 30 days and before adding product to the repaired tank, an additional interstitial tightness test must be done to confirm the repair. All failed USTs must be repaired or replaced within 60 days or be temporarily closed. Test results are to be maintained on-site at all times as permanent records.

If a piping interstitial space tightness test fails, and there is no evidence of a release, the primary product pipeline wall must be tested for tightness within 48 hours. If it is tight, any product remaining in the failed product pipeline and all USTs directly connected to that pipeline may be consumed for no longer than 30 days. No additional product may be added to any UST connected to the failed product pipeline until it has been repaired or replaced and passes a final tightness test. The repaired pipeline must be re-tested within 30 days and before placing it back into regular service. Test results are to be maintained on-site at all times as permanent records.

If the primary wall of the piping is unable to be tested or fails, the failed line must be taken out of service immediately, the contents removed, and the tank tester must notify the RI DEM immediately. No product may be added to an UST that services the failed pipeline until it has been repaired or replaced and passed a final tightness test to confirm the repair. All failed USTs must be repaired or replaced within 60 days or be temporarily closed. Test results are to be maintained on-site at all times as permanent records.

All single-walled USTs and all single-walled product pipelines, including pressurized, U.S. suction, and European suction, must be tested for tightness by a third-party licensed tester on an annual basis, regardless of age or installation date.

Statistical inventory reconciliation, groundwater, and vapor monitoring are not accepted as leak detection methods.

Owners/Operators of single-walled USTs are required to operate an approved automatic tank gauging system that tests for loss or gain of the contents stored, perform a leak test capable of detecting a leak rate of 0.2 gal/hour or less at least once per month, perform daily and monthly inventory recordkeeping, and perform a tank tightness test annually.

Interior lining is no longer accepted as a method of corrosion protection. USTs lined prior to November 20, 2018, must be inspected within 10 years after lining, and every five years thereafter. Any pitting, tearing, discoloration, failure to adhere to the tank structure, or other damage will be considered a lining failure. The USTs must be removed from service and permanently closed within 90 days. Failed lining inspections must be reported to the RI DEM by the inspector within 24 hours and the final report/results are to be submitted within 30 calendar days. Records of all tank lining inspections are required to be permanently kept.

Impressed current cathodic protection systems are required to be tested every 2 years.

All facilities are required to have a trained and certified Class A and Class B operator registered with RI DEM who are required to perform monthly walk-through inspections and complete the Department's monthly inspection checklist. Class A and B operator certification is valid for five years from the date of passing provided the facility remains in compliance with these regulations. Class C operators must be trained every two years, by a Class A or B operator.

Written approval is needed to operate as an unmanned facility before operating without a Class C operator being present during all operating hours. Certified Class A and Class B operators must be designated to the facility and registered with the RI DEM. A sign must be posted with the names and telephone numbers of the Class A and B operators, facility owner/operator, 911, local emergency responders, and must include a statement advising persons to call these numbers to report a spill or other emergency. This sign must be visible for the person fueling the vehicle or the USTs to read. A designated person(s) must be available to respond to emergencies immediately when the owner or operator is contacted.

Airport hydrant fuel distribution systems and UST systems with field-constructed tanks shall meet release detection requirements for tanks and piping systems. Piping associated with airport hydrant distribution systems and field constructed UST systems shall have secondary containment.

All new and replacement spill containment basins must be capable of holding a minimum of three gallons, be double-walled and capable of periodic interstitial monitoring. Single-walled spill containment basins are prohibited from being installed as of November 20, 2018.

USTs and/or their associated piping can be modified or repaired only once.

Owners and operators of all UST facilities must maintain the following records for three years beyond the facility's operational life: Data used in the certificate of registration application; modifications or repairs to pipes, fittings, or other UST system components; storage of regulated substances greater than 10% ethanol and 20% biodiesel, and the UST system compatibility of those substances; annual test results of leak detection equipment and systems; records of closure activities; tank and line tightness test results; corrosion protection methods documentation; records of leaks, spills, releases, overfill, site investigations, and remedial response activities; equipment warranties and manufacturers' checklists; monitoring, testing, and/or inspections for single-walled and double-walled spill prevention equipment, containment sumps, and overfill prevention equipment.

All confirmed and suspected leaks or releases from USTs must be immediately reported.

A temporary closure application must be submitted to the RI DEM for approval at least 15 days prior to the requested closure date. Class A, Class B, or Class A/B operator must be registered with RI DEM for the entire duration of the temporary closure, must visit the site biannually to ensure the facility and the UST components are in good condition, there are no missing components, and no unsafe situations exist on the property. The operator must complete the monthly inspection checklist and at least once per year measure the product and water level in the tanks. The RI DEM must be notified within 24 hours if there is any change in the product or water level, and corrective action may be required. The facility owner/operator must notify RI DEM 30 days before re-opening the UST system and must receive written approval before adding or dispensing any regulated substances or hazardous materials.

Prior approval and oversight from the RI DEM is required for the permanent closure of any UST, UST system, or an UST and product pipeline.

Codification is the process of placing a state's statutes and regulations that comprise the state's approved UST program into the CFR. Section 9004(b) of RCRA, as amended, allows the EPA to approve State UST programs to operate in lieu of the Federal program. The EPA codifies its authorization of state programs in 40 CFR part 282 and incorporates by reference state statutes and regulations that the EPA will enforce under sections 9005 and 9006 of RCRA and any other applicable state provisions. The incorporation by reference of state authorized programs in the CFR should substantially enhance the public's ability to discern the current status of the approved state program and state requirements that can be federally enforced. This effort provides clear notice to the public of the scope of the approved program in each state.

EPA incorporated by reference the Rhode Island DEM approved UST program effective April 22, 1996 (61 FR 6320; February 20, 1996). In this document, EPA is revising 40 CFR 282.89 to include the approved revisions.

Incorporation by reference: In this rule, we are finalizing regulatory text that includes incorporation by reference. In accordance with the requirements of 1 CFR 51.5, we are finalizing the incorporation by reference of the federally approved Rhode Island UST program described in the amendments to 40 CFR part 282 set forth below. The EPA has made, and will continue to make, this document generally available through www.regulations.gov and at the EPA Region 1 office (see the ADDRESSES Section of this preamble for more information).

The purpose of this Federal Register document is to codify Rhode Island's approved UST program. The codification reflects the State program that would be in effect at the time EPA's approved revisions to the Rhode Island UST program addressed in this direct final rule become final. The document incorporates by reference Rhode Island's UST statutes and regulations and clarifies which of these provisions are included in the approved and federally enforceable program. By codifying the approved Rhode Island program and by amending the CFR, the public will more easily be able to discern the status of the federally-approved requirements of the Rhode Island program.

EPA is incorporating by reference the Rhode Island approved UST program in 40 CFR 282.89. Section 282.89(d)(1)(i)(A) incorporates by reference for enforcement purposes the State's statutes and regulations.

Section 282.89 also references the Attorney General's Statement, Demonstration of Adequate Enforcement Procedures, the Program Description, and the Memorandum of Agreement, which are approved as part of the UST program under Subtitle I of RCRA. These documents are not incorporated by reference.

The EPA retains the authority under sections 9005 and 9006 of Subtitle I of RCRA, 42 U.S.C. 6991d and 6991e, and other applicable statutory and regulatory provisions to undertake inspections and enforcement actions and to issue orders in approved States. With respect to these actions, EPA will rely on Federal sanctions, Federal inspection authorities, and Federal procedures rather than the state authorized analogues to these provisions. Therefore, the EPA is not incorporating by reference such particular, approved Rhode Island procedural and enforcement authorities. Section 282.89(d)(1)(ii) of 40 CFR lists those approved Rhode Island authorities that would fall into this category.

The public also needs to be aware that some provisions of the State's UST program are not part of the federally approved State program. Such provisions are not part of the RCRA Subtitle I program because they are “broader in scope” than Subtitle I of RCRA. Section 281.12(a)(3)(ii) of 40 CFR states that where an approved state program has provisions that are broader in scope than the Federal program, those provisions are not a part of the federally approved program. As a result, State provisions which are broader in scope than the Federal program are not incorporated by reference for purposes of enforcement in Part 282. Section 282.89(d)(1)(iii) lists for reference and clarity the Rhode Island statutory and regulatory provisions which are broader in scope than the Federal program and which are not, therefore, part of the approved program being codified in this document. Provisions that are broader in scope cannot be enforced by EPA; the State, however, will continue to implement and enforce such provisions under State law.

This action only applies to Rhode Island's UST Program requirements pursuant to RCRA section 9004 and imposes no requirements other than those imposed by State law. It complies with applicable Executive orders (EOs) and statutory provisions as follows:

The Office of Management and Budget (OMB) has exempted this action from the requirements of Executive Orders 12866 (58 FR 51735, October 4, 1993) and 13563 (76 FR 3821, January 21, 2011). This action approves and codifies State requirements for the purpose of RCRA section 9004 and imposes no additional requirements beyond those imposed by State law. Therefore, this action is not subject to review by OMB.

This action is not a regulatory action subject to Executive Order 13771 (82 FR 9339, February 3, 2017) because actions such as this final approval of Rhode Island's revised underground storage tank program under RCRA are exempted under Executive Order 12866. Accordingly, I certify that this action 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. ).

Because this action approves and codifies pre-existing requirements under State law and does not impose any additional enforceable duty beyond that required by State law, it does not contain any unfunded mandate or significantly or uniquely affect small governments, as described in the Unfunded Mandates Reform Act of 1995 (2 U.S.C. 1531-1538). As discussed above, EPA is not acting on approval to operate the State's UST program as it applies to Tribal lands in the State. Therefore, this action also does not significantly or uniquely affect the communities of Tribal governments, as specified by Executive Order 13175 (65 FR 67249, November 9, 2000).

This action 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 (64 FR 43255, August 10, 1999), because it merely approves and codifies State requirements as part of the State RCRA underground storage tank program without altering the relationship or the distribution of power and responsibilities established by RCRA.

This action also is not subject to Executive Order 13045 (62 FR 19885, April 23, 1997), because it is not economically significant, and it does not make decisions based on environmental health or safety risks.

This rule is not subject to Executive Order 13211, “Actions Concerning Regulations that Significantly Affect Energy Supply, Distribution, or Use” (66 FR 28355, May 22, 2001) because it is not a “significant regulatory action” as defined under Executive Order 12866.

Under RCRA section 9004(b), EPA grants a State's application for approval as long as the State meets the criteria required by RCRA. It would thus be inconsistent with applicable law for EPA, when it reviews a State approval application, to require the use of any particular voluntary consensus standard in place of another standard that otherwise satisfies the requirements of RCRA. Thus, the requirements of Section 12(d) of the National Technology Transfer and Advancement Act of 1995 (15 U.S.C. 272 note) do not apply.

As required by Section 3 of Executive Order 12988 (61 FR 4729, February 7, 1996), in issuing this rule, EPA has taken the necessary steps to eliminate drafting errors and ambiguity, minimize potential litigation, and provide a clear legal standard for affected conduct.

EPA has complied with Executive Order 12630 (53 FR 8859, March 15, 1988) by examining the takings implications of the rule in accordance with the “Attorney General's Supplemental Guidelines for the Evaluation of Risk and Avoidance of Unanticipated Takings” issued under the Executive order.

This rule does not impose an information collection burden under the provisions of the Paperwork Reduction Act of 1995 (44 U.S.C. 3501 et seq. ). “Burden” is defined at 5 CFR 1320.3(b).

Executive Order 12898 (59 FR 7629, February 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. Because this rule approves pre-existing State rules which are at least equivalent to, and no less stringent than existing Federal requirements, and imposes no additional requirements beyond those imposed by State law, and there are no anticipated significant adverse human health or environmental effects, the rule is not subject to Executive Order 12898.

The Congressional Review Act, 5 U.S.C. 801-808, generally provides that before a rule may take effect, the agency promulgating the rule must submit a rule report, which includes a copy of the rule, to each House of the Congress and to the Comptroller General of the United States. EPA will submit a report containing this document 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 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). However, this action will be effective February 9, 2021 because it is a direct final rule.

For the reasons set forth in the preamble, EPA is amending 40 CFR part 282 as follows:

I. Harvest Specifications

This final rule sets 2021-22 harvest specifications and management measures for 127 of the 128 groundfish stocks which currently have annual catch limits (ACLs) or ACL contributions to stock complexes managed under the PCGFMP, except for Pacific whiting. Pacific whiting harvest specifications are established annually through a separate bilateral process with Canada. Under Amendment 29, shortbelly rockfish, which was managed with harvest specifications in the most recent biennium (2019-20), will no longer be managed with harvest specifications and will be instead designated as an ecosystem component species.

The overfishing limits (OFLs), acceptable biological catch (ABCs), and ACLs are based on the best available biological and socioeconomic data, including projected biomass trends, information on assumed distribution of stock biomass, and revised technical methods used to calculate stock biomass. See Tables 1a and 2a to Part 660, Subpart C in the regulatory text supporting this rule for the 2021-22 OFLs, ABCs, and ACLs for each stock or stock complex.

A detailed description of each stock and stock complex for which the Council establishes harvest specifications set through this rule can be found in the 2020 SAFE document posted on the Council's website at http://www.pcouncil.org/groundfish/safe-documents/. A summary of how the 2021-22 harvest specifications were developed, including a description of off-the-top deductions for tribal, research, incidental, and experimental fisheries, was provided in the proposed rule and is not repeated here. Additional information on the development of these harvest specifications is also provided in the Analysis.

For most stocks, the Council recommended harvest specifications based on the default harvest control rule used in the prior biennium. The Council recommended deviating from the default harvest control rule for four stocks in 2021-2022. Table 1 presents a summary of the changes to the harvest control rules for these four stocks for the 2021-22 biennium. Each of these changes was discussed in the proposed rule and that discussion is not repeated here.

This section describes management measures ( i.e., biennial fishery harvest guidelines and set-asides) used to further allocate the ACLs to the various sectors of the fishery and to manage the fishery. Management measures for the commercial fishery modify fishing behavior during the fishing year to ensure that catch does not exceed the ACL, and include trip and cumulative landing limits, time/area closures, size limits, and gear restrictions. Management measures for the recreational fisheries include bag limits, size limits, gear restrictions, fish dressing requirements, and time/area closures. Each of these changes was discussed in the proposed rule and that discussion is not repeated here.

Before making allocations to the primary commercial and recreational components of groundfish fisheries, the Council recommends “off-the-top deductions,” or deductions from the ACLs to account for anticipated mortality for certain types of activities: Harvest in Pacific Coast treaty Indian tribal fisheries; harvest in scientific research activities; harvest in non-groundfish fisheries (incidental catch); and harvest that occurs under exempted fishing permits (EFPs). These off-the-top deductions are for individual stocks or stock complexes and can be found in the footnotes to Tables 1a and 2a to part 660, subpart C.

The Quileute Tribe, Quinault Indian Nation, Makah Indian Tribe, and Hoh Indian Tribe (collectively, “the Pacific Coast Tribes”) implement management measures for Tribal fisheries both independently as sovereign governments and cooperatively with the management measures in the Federal regulations. The Pacific Coast Tribes may adjust their Tribal fishery management measures inseason to stay within the Tribal harvest targets and estimated impacts to overfished stocks. Table 2 provides the Tribal harvest targets for the 2021-22 biennium.

The Council recommends two-year trawl and nontrawl allocations during the biennial specifications process for all stocks without formal allocations (as defined in Section 6.3.2 of the PCGFMP) or stocks where the long-term allocation is suspended because the stock is declared overfished. As part of the 2021-22 biennium, the Council also decided to revise the trawl and nontrawl allocations for canary rockfish, as well as Petrale sole, widow rockfish, lingcod south of 40°10′ N lat., and the slope rockfish complex south of 40°10′ N. lat., which were established through Amendment 21 to the PCGFMP (75 FR 32993, June 10, 2010), to better align these allocations with current harvest trends. The changes to these allocations are part of Amendment 29 and were discussed in the Notice of Availability for that amendment (85 FR 54529, September 2, 2020).

The trawl and nontrawl allocations, with the exception of sablefish north of 36° N lat., are based on the fishery harvest guideline. The fishery harvest guideline is the tonnage that remains after subtracting the off-the-top deductions described in Section II, A, entitled “Deductions from the ACLs,” in this preamble. The trawl and nontrawl allocations are designed to accommodate anticipated mortality in each sector as well as variability and uncertainty in those mortality estimates. Additional information on the Council's allocation framework and formal allocations can be found in Section 6.3 of the PCGFMP and § 660.55 of the Federal regulations. Trawl and nontrawl allocations are detailed in Tables 1b and 2b in the regulatory text for this rule.

Rockfish Conservation Areas (RCAs) are large groundfish area closures intended to reduce the catch of a stock or stock complex by restricting fishing activity at specific depths. The boundaries for RCAs are defined by straight lines connecting a series of latitude and longitude coordinates that approximate depth contours. These sets of coordinates, or lines, are not gear or fishery specific, but can be used in combination to define an area. NMFS then implements fishing restrictions for a specific gear and/or fishery within each defined area. Table 3 below shows the RCA boundaries by gear type in place starting in 2021.

For the 2021-22 biennium, the Council recommended and NMFS is implementing minor adjustments to the 40 fathom (fm) depth contour offshore of San Mateo in Central California, and the 100 fm depth contours off of California to more accurately refine the depth contours, as well as the addition of coordinates to define the 100 fm line around the Channel Islands (Table 3).

The limited entry trawl fishery is made up of the Shorebased IFQ Program, which includes both whiting and non-whiting targets, and the at-sea whiting sectors. For some stocks and stock complexes with a trawl allocation, an amount is first set-aside for the at-sea whiting sector with the remainder of the trawl allocation going to the Shorebased IFQ Program. Set-asides are not actively managed by NMFS or the Council except in the case of a risk to the ACL.

For several species, the trawl allocation is reduced by an amount set-aside for the at-sea whiting sector. This amount is designed to accommodate catch by the at-sea whiting sector when they are targeting Pacific whiting. The Council recommended and NMFS is implementing the set-asides in Table 4 for the 2021-22 biennium.

For vessels fishing in the Shorebased IFQ Program, with either groundfish trawl gear or nontrawl gears, the following incidentally-caught stocks are managed with trip limits: Minor Nearshore Rockfish north and south, black rockfish, cabezon (46°16′ to 40°10′ N lat. and south of 40°10′ N lat.), spiny dogfish, shortbelly rockfish, big skate, Pacific whiting, and the Other Fish complex. For all these stocks, except big skate, this rule is implementing the same IFQ fishery trip limits for these stocks for the 2021-22 biennium as those in place in 2020. For big skate, the Council recommended, and NMFS is implementing, an unlimited trip limit at the start of 2021. Additionally, the Council recommended and NMFS is implementing a trip limit for blackgill rockfish within the southern slope rockfish complex. The trip limit is unlimited to start the 2021 fishing year. The purpose of the blackgill trip limit is to allow the Council to reduce targeting of blackgill rockfish inseason, if needed. Trip limits for the IFQ fishery can be found in Table 1 North and Table 1 South to part 660, subpart D in the regulatory text of this rule. Changes to trip limits for the IFQ fishery are considered a routine measure under § 660.60(c), and may be implemented or adjusted, if determined necessary, through inseason action.

Management measures for the Limited Entry Fixed Gear (LEFG) and Open Access (OA) nontrawl fisheries tend to be similar because the majority of participants in both fisheries use hook-and-line gear. Management measures, including area restrictions ( e.g., nontrawl RCA) and trip limits in these nontrawl fisheries, are generally designed to allow harvest of target stocks while keeping catch of overfished stocks low. For the 2021-22 biennium, the Council recommended, and NMFS is implementing, increased trip limits for almost all LEFG and OA fisheries, many of which were first implemented decades ago and do not reflect stocks that rebuilt in previous biennium or other management changes ( e.g., stock complex reorganizations). LEFG and OA trip limits are specified in Table 2 (North), Table 2 (South) to subpart E for LEFG and in Table 3 (North) and Table 3 (South) to subpart F for OA in the regulatory text of this rule.

Sablefish are managed separately north and south of 36°N lat. For the portion of the stock north of 36°N lat., the Council recommended and NMFS is implementing higher trip limits for the LEFG and OA fisheries in 2021. For the portion south of 36°N lat., the Council recommended, and NMFS is implementing, removing the daily trip limit for the OA fishery but maintaining the same weekly and bimonthly trip limits as were in place in the start of 2020. The sablefish trip limits for 2021-22 are shown in Table 5.

The Council recommended, and NMFS is implementing, higher trip limits for LEFG and OA fisheries in 2021, including trip limits for shortspine thornyhead, longspine thornyhead, widow rockfish, shelf rockfish, shortbelly rockfish, canary rockfish, Pacific ocean perch, yellowtail rockfish, slope rockfish, darkblotched rockfish, Lingcod, nearshore rockfish, black rockfish, Other Flatfish, bocaccio south of 40°10′ N lat., and chilipepper rockfish.

As discussed in the proposed rule for this action (85 FR 62492; October 2, 2020), the Council recommended establishing an OA trip limit for shortspine and longspine thornyheads in the area between 40°10′ N lat. and 34°27′ N lat. Therefore, NMFS is implementing a 50 lb (22.7 kg) per month limit for OA fisheries targeting shortspine and longspine thornyheads in the area between 40°10′ N lat. and 34°27′ N lat.

Some limited entry fixed gear permits are endorsed to receive annual sablefish quota, or tier limits. Vessels registered with one, two, or up to three of these permits may participate in the primary sablefish fishery. The tier limits are as follows: In 2021, Tier 1 at 58,649 lb (26,602 kg), Tier 2 at 26,659 lb (12,092 kg), and Tier 3 at 15,234 lb (6,910 kg). For 2022 the limits are: Tier 1 at 55,858 lb (25,337 kg), Tier 2 at 25,390 lb (11,517 kg), and Tier 3 at 14,509 lb (6,581 kg).

The Council recommended and NMFS is implementing an increase to the yellowtail rockfish limit in the salmon troll fishery north of 40°10′ N lat. from 200 lbs (91 kg) to 500 lbs (227 kg) and removing the ratio for yellowtail to salmon.

The Council also recommended, and NMFS is implementing, a yellowtail rockfish trip limit in the salmon troll fishery south of 40°10′ N lat. of 1 lb (0.45 kg) of yellowtail rockfish for every 2 lbs (0.9 kg) of Chinook salmon landed, with a cumulative limit of 200 lb (91 kg) per month, both within and outside of the RCA. This second change was included in the regulatory text of the proposed rule. However, the description of this change was inadvertently left out of the preamble. This was highlighted by a commenter during the public comment period. See Comment 4 in Section III, entitled “Response to Comments.”

The Council recommended and NMFS is removing the gear restrictions for the LEFG and OA fisheries targeting stocks in the Other Flatfish complex inside the nontrawl RCA south of 42° N lat.

In addition to increasing the LEFG and OA trip limits, the Council recommended and NMFS is implementing the following changes to the Nontrawl RCA off Oregon and Washington:

• Between 40°10′ N lat. and 46°16′ N lat. (the Oregon-Washington border): Open the area between the 30- and 40-fm management lines to hook-and-line gear except bottom longline and dinglebar, as defined in the “general definitions” section of the Federal regulations at 50 CFR 660.11;

• Between 38°57.5′ N lat. and 34°27′ N lat., (Point Arena to Point Conception): Open the area between 40 fm and 50 fm; and

• South of 34°27′ N lat.: Open the area between 75 fm and 100 fm.

These changes, along with the changes to recreational conservation areas (discussed in Section II, H., Recreational Fisheries) will provide much needed access to these areas for the LEFG and OA fisheries to better attain their trip limits. Nontrawl RCA closures can be found in the LEFG and OA trip limits in Table 2 (North), Table 2 (South) to subpart E for LEFG and in Table 3 (North) and Table 3 (South) to subpart F for OA in the regulatory text of this rule.

In order to make some of the changes to the Nontrawl RCA, the Council also recommended and NMFS is implementing a new management line at 38°57.5′ N lat., which is Point Arena, California. Point Arena is already defined in Federal regulations under the definition for North-South Management Areas, as a commonly used geographic coordinate.

This section outlines the recreational fisheries management measures for 2021-22. Washington, Oregon, and California each proposed, the Council recommended, and NMFS is implementing different combinations of seasons, bag limits, area closures, and size limits for stocks targeted in recreational fisheries.

This rule implements the following season structure in Table 6.

The aggregate groundfish bag limits in waters adjacent to Washington will continue to be nine fish in all areas with a sub-bag limit for cabezon (one per day), rockfish (seven per day), and lingcod (two per day). The flatfish limit will be five fish, and is not counted towards the groundfish bag limit of nine but is in addition to it.

Consistent with the 2019-20 biennium, the Council recommended and NMFS is implementing to continue to prohibit recreational fishing for groundfish and Pacific halibut inside the North Coast Recreational Yelloweye Rockfish Conservation Area (YRCA), a C-shaped closed area off the northern Washington coast. However, the Council recommended and NMFS is implementing opening the South Coast Recreational YRCA and the Westport Offshore YRCA to recreational fishing for the 2021-22 biennium. Coordinates for YRCAs are defined at § 660.70.

The Council recommended, and NMFS is implementing, an all months all depths season structure for the Oregon recreational fishery to start the 2021 fishing year. The Council recommended, and NMFS is implementing, the following aggregate bag and size limits: Three lingcod per day, with a minimum size of 22 in (56 cm); 25 flatfish per day, excluding Pacific halibut; and a marine fish aggregate bag limit of 10 fish per day, where cabezon have a minimum size of 16 in (41 cm).

As part of the 2021-22 biennium, the ODFW also requested that the Council consider allowing longleader gear fishing and “all-depth” Pacific halibut fishing on the same trip, which is currently prohibited. Therefore, the Council recommended, and NMFS is removing the prohibition on combining Oregon longleader trips with all depths halibut trips.

Table 7 shows the season structure and depth limits by California management area for 2021 and 2022.

The Council recommended, and NMS is implementing, size limits that are the same in 2021 as they were for 2020 for all stocks. However, the Council recommended and NMFS is eliminating the sub-bag limits for black rockfish, canary rockfish, and cabezon, and NMFS is implementing a sub-bag limit for vermillion rockfish of five fish.

NMFS received nine unique comment letters during the public comment period on the proposed rule (October 2, 2020 through November 2, 2020). Two state agencies submitted comments, the California Department of Fish and Wildlife (CDFW) and the Oregon Department of Fish and Wildlife (ODFW). The letters from the state agencies included requests for clarifications on information included in the preamble to the proposed rule, noted several small errors and inconsistencies in the regulatory text of the proposed rule, and also provided more substantive comments. The Northwest Fisheries Science Center (NWFSC) also submitted a comment noting an error. NMFS has addressed those small errors and inconsistencies in Section IV, “Corrections to the Proposed Rule.” The more substantive comments are addressed below.

The seven other comment letters were from private citizens and non-governmental organizations (NGOs). Two of those letters made comments that were outside the scope of this action and are not addressed here. Four letters were received from members of industry and made substantially similar comments. The responses to these comments have been grouped together and addressed below. The remaining comment letter contained substantive comments. NMFS addresses all substantive comments below. Changes from the proposed rule as a result of substantive comments received during the comment period are addressed in Section V, “Changes to the Proposed Rule.”

Comment 1: Two commenters stated their support for the at-sea set-aside values.

NMFS Response: We agree and appreciate the collaborative work undertaken by the members of different sectors of the Pacific whiting fishery to come together to develop a proposal for the at-sea set-aside values for the 2021-22 biennium. Collaborative work always delivers a better product, and we hope this type of collaboration will continue into future harvest specification cycles.

Comment 2: Three commenters stated their support for Amendment 29 and the designation of shortbelly rockfish as an ecosystem component species based on extensive discussion over several meetings at the Council and based on the best available science.

NMFS Response: We agree that the Council has spent significant time over the past two years in order to develop the best approach to managing shortbelly rockfish based on the best available science and in a way in which it will not significantly impact industry or the resource.

Comment 3: One commenter stated their support for the changes in Amendment 29 to the trawl and nontrawl allocations for blackgill rockfish south of 40°10 N lat., petrale sole, lingcod south of 40°10 N lat., and widow rockfish, and for keeping blackgill rockfish in the slope rockfish complex south of 40°10 N lat.

NMFS Response: We agree with the changes in Amendment 29 to the trawl and nontrawl allocations for these species. These changes better reflect the current distribution of catch and will likely allow more of the ACLs for these stocks and the stock complex to be caught, resulting in more economic benefit to the fishing communities without significantly impacting the resources.

Comment 4: One commenter stated that the discussion in the proposed rule for yellowtail trip limits in the salmon troll fishery north of 40°10″ N lat. neglected to include any discussion on the change for the salmon troll fishery south of 40°10′ N lat.

NMFS response: We agree. The commenter is correct that the discussion of the yellowtail trip limits in the salmon troll fishery south of 40°10′ N lat. was inadvertently left out of the preamble of the proposed rule. Therefore, in this final rule, we updated the heading and added a discussion of the rationale for the regulatory change, as now found above, under the subheading “Yellowtail Trip Limits in the Salmon Troll Fishery North and South of 40°10′ N lat.” in Section II, “Management Measures,” paragraph “F. Limited Entry Fixed Gear and Open Access Nontrawl Fishery”.

Comment 5: One commenter stated that the regulatory text of the proposed rule for the removal of the gear restriction for other flatfish gear in the open access fishery correctly reflected the changes in the trip limit tables for south of 40°10′ N lat., but neglected to include this change in Table 1 for the open access fishery between 40°10′ and 42° N lat. The Council intended to remove this restriction for the entire state of California (south of 42° N lat.). Therefore, the change should also be, made in both Tables 2 North and South for the open access fishery.

NMFS response: We agree. The proposed rule inadvertently left in the gear restrictions for other flatfish gear for the open access fishery for the area between 40°10′ and 42° N lat. in Table 2 North. Therefore, Table 2 North in the regulatory text of this final rule has been corrected to reflect that this change was made for the entire state of California (south of 42° N lat.).

Comment 6: One commenter stated their concern with allowing vessels to fish with hook and line gears, except dinglebar and longline, in the RCA between 42° N lat. and 40°10′ N lat. and 30 fm to 40 fm. The commenter is concerned that having differential gear allowances within the nontrawl RCA will complicate enforcement in these areas, particularly without the addition of a new declaration to clarify if a vessel was fishing with hook and line gear, but not fishing with longline or dinglebar gear. Additionally, because the Council is also removing the limitation on the number and size of hooks allowed by the open access fishery when fishing for other flatfish inside the RCAs off California, the commenter is concerned about the compounded impacts by removing these two provisions at once.

NMFS response: We disagree that the change to allow vessels using hook and line gears, except dinglebar and bottom longline gear, to fish between 30 fm and 40 fms in this area will cause confusion and complication amongst members of law enforcement. The Council's Groundfish Management Team (GMT) has worked with the Council's Enforcement Committee and NMFS' Office of Law Enforcement (OLE) to ensure that there are no enforcement issues associated with this action. Although the Council did not recommend and NMFS is not implementing changes to the declarations so that vessels can declare hook and line gear that is not dinglebar or longline, this does not appear to be an issue. In recent years, vessels have been notifying NMFS OLE when making declarations of the type of hook and line gear used when making their declaration for hook and line gears. Additionally, in recent years, the total number of vessels that have used bottom longline or dinglebar gear versus other types of hook-and-line gear have been a small proportion of the total landings, because other gears are more efficient for the types of species targeted. For example, for vessels targeting lingcod between 2017 and 2019, 20.7 percent of landings by commercial non-trawl gear were taken by bottom longline and 78.6 percent were taken by other hook-and-line gears. For midwater shelf rockfishes ( i.e., yellowtail, canary, widow, vermillion and other rockfishes that occur on the shelf), 37.3 percent was taken by bottom longline compared to 62.7 percent taken by other hook-and-line gears. In addition, based on conversations with NMFS OLE, of the other hook-and-line gears being used, only about five vessels use dinglebar gear annually. Therefore, NMFS also does not have concerns over the allowing the use of hook and line gear, except bottom longline or dinglebar, in the nontrawl RCA between 42° N lat. and 40°10′ N lat.

Comment 7: Two commenters stated their opposition to the Council's recommendation and NMFS's proposal to designate shortbelly rockfish as an ecosystem component species beginning with the 2021-22 biennium. In stating their opposition, the commenters raised multiple issues, and we provide a response for each stated issue below.

Shortbelly Rockfish Issue 1: Shortbelly rockfish must remain in the fishery because the species is in need of conservation and management.

NMFS Response: We disagree. Section 302(h)(1) of the Magnuson-Stevens Act requires a Council to prepare an FMP for each fishery under its authority that is in need of conservation and management. “Conservation and management” is defined in section 3(5) of the Magnuson-Stevens Act. The National Standard guidelines at § 600.305(c) provide direction for determining which stocks will require conservation and management and provide direction to regional councils and NMFS for how to consider these factors in making this determination. First, NMFS must consider whether the stocks are “predominately caught in Federal waters and are overfished or subject to overfishing, or likely to become overfished or subject to overfishing.” 50 CFR 600.305(c). Such stocks require conservation and management. If a stock is not likely to become overfished or be subject to overfishing, Councils may still decide that it is appropriate for conservation and management. The guidelines direct regional fishery management councils and NMFS to consider a non-exhaustive list of ten factors when deciding whether stocks require conservation and management. After considering the 10 factors, based on the best available science, the Council recommended and NMFS is implementing designating shortbelly rockfish as an ecosystem component species.

Conservation and management, as defined under the MSA and the National Standard guidelines, is needed when a stock must be rebuilt, restored, or to maintain the status of a stock. Shortbelly rockfish is not under a rebuilding status, and it is not overfished, subject to overfishing or likely to become overfished or subject to overfishing. Stock status was estimated during the last stock assessment to be above 73 percent of the unfished biomass, and less than 20 percent of the ABC has been taken annually in the past several years; these metrics indicate the stock does not need to be rebuilt or restored. Over the past 10 years the population has remained constant and likely has even increased in abundance, with new information suggesting that the population could be booming. As was discussed in the Analysis, based on multiple strong incoming year-classes and as supported by current scientific literature, the shortbelly rockfish stock is expected to thrive for at least the next decade or so.

We agree with the commenter that shortbelly rockfish are an important forage species and are increasingly caught in federally managed fisheries. However, these factors are not determinative that a stock is in need of conservation and management as defined under the MSA. Nor do these factors disqualify a stock from being designated an ecosystem component species. Because there is no directed fishing and incidental fishing-related mortality has been low in comparison to the ABC, it is very unlikely that catch would exceed the overfishing limit for shortbelly rockfish, resulting in shortbelly rockfish becoming overfished and in need of rebuilding. There are no known conservation concerns for shortbelly rockfish, since they are not targeted (shortbelly are primarily caught as bycatch in the Pacific whiting fishery), are not profitable, and future uses of shortbelly rockfish remain unavailable. Therefore, maintaining shortbelly rockfish as a target species in the PCGFMP is not likely to change stock condition. As discussed in the Council meetings, Council reports, and the Analysis, after reviewing each of the ten factors, the Council recommended and NMFS agrees that shortbelly rockfish are not in need of conservation and management, as defined by the MSA.

Finally, we disagree with the requester that designating shortbelly rockfish as an ecosystem component species would prevent NMFS from addressing bycatch in the future, should that become an issue. As stated in the scope of the action in the Analysis, the Council has the ability to change the designation of a stock or stock complex every biennium based on new information. While we agree that we are unable to predict whether or not this fishery will become a target in the future, designating shortbelly rockfish as an ecosystem component species does not mean that NMFS will not monitor the stock or be unable to revisit that designation. Catch of shortbelly rockfish will continue to be reported on fish tickets and that catch data is available to the public on a daily basis through the Pacific Fisheries Information Network (PacFIN) database. 1 Additionally, the Council has already tasked the Council's GMT with providing updates at each Council meeting on the current catch of shortbelly rockfish. If bycatch of the stock starts to increase or a fishery for the stock were to begin to develop, the Council would have the ability to take action to reevaluate the designation of shortbelly rockfish. In the event that the stock becomes in need of conservation and management, the Council would have the obligation to include it in the PCGFMP.

Shortbelly Rockfish Issue 2: Shortbelly rockfish play a vital role in the California current ecosystem.

NMFS Response: We agree. As discussed in the Analysis, shortbelly rockfish is a vital species in the California Current Ecosystem. However, while importance in the marine ecosystem is one of the factors we consider, it alone is not determinative of whether a stock is in need of conservation and management as defined under the MSA. In recommending Amendment 29, the Council relied on the best available science, which indicated increased stock abundance in recent years, to determine that there was a lack of a need for conservation and management of this stock in the 2021-22 biennium. Recent scientific literature indicates that the increased abundance due to high recruitment in 2013 (51 times higher than in 2014) and 2014 (1,750 times higher than 2005) and the extension of the stock's range into more northern waters where Pacific whiting is targeted likely resulted in the higher bycatch in 2018 and 2019 (Agenda Item H.6.a, GMT Report 2, November 2019). Even with the higher bycatch of shortbelly rockfish in recent years, total shortbelly rockfish catch has stayed below 50 percent of the stock's OFL and less than 75 percent of the stock's ABC since 2011. There is no evidence to demonstrate that these catch trends would increase exponentially under an ecosystem component species designation.

The commenters also stated their specific concerns for the marbled murrelet in California, Oregon, and Washington, as the species is listed as threatened under the Endangered Species Act (ESA), and for the California least tern, which is listed as endangered. On May 2, 2017, the U.S. Fish and Wildlife Service (FWS) issued a biological opinion (2017 biological opinion) concurring with NMFS that the fishery is not likely to adversely affect the marbled murrelet or California least tern, among other species, because adverse interactions with vessels and forage depletion are extremely unlikely to occur. Notably, the FWS concluded that small pelagic rockfish, including shortbelly rockfish, are expected to increase in abundance during the continued operation of the groundfish fishery. This action is not expected to change the conclusions from the 2017 biological opinion, because it does not modify the action analyzed in that opinion in a manner or to an extent that would cause an effect to listed species or critical habitat that was not previously considered =.

Shortbelly Rockfish Issue 3: NMFS has not shown that reclassifying shortbelly rockfish as an ecosystem component species would prevent overfishing.

NMFS Response: We disagree. National Standard 9 provides that “[c]onservation and management measures shall, to the extent practicable: (1) Minimize bycatch; and (2) To the extent bycatch cannot be avoided, minimize the mortality of such bycatch.” Designating shortbelly rockfish does not impair the PCGFMP's ability to meet this requirement. All of the PCGFMP's bycatch reduction components are unaffected by this action. Furthermore, there is no evidence to suggest that bycatch of shortbelly rockfish will increase due to this action.

There is no evidence to suggest that designating shortbelly rockfish as an ecosystem component species would result in a significant increase in catch. As has been discussed by members of industry at every Council meeting since November 2018, and as was also stated in the Analysis, the proposed rule, and the NOA for this action, industry has significant incentives not to catch shortbelly rockfish. Currently, shortbelly rockfish prices for processing are extremely low and often don't cover the cost of the vessel to catch and deliver the shortbelly rockfish. Shortbelly rockfish can also clog nets and may spoil Pacific whiting catch. There are no known conservation concerns for shortbelly rockfish since they are not targeted, are not profitable, and future uses of shortbelly rockfish remain unavailable. Therefore, the incentives exist to avoid shortbelly rockfish, and there is no indication that changing the designation of this stock will alter these incentives.

In the future, if there were indications of bycatch of shortbelly rockfish at significantly higher levels than what has been caught in recent years, the Council would be able to revisit the ecosystem component species designation. The Council has previously done exactly this for big skate. The Council designated big skate as an ecosystem component species in the 2017-18 biennium, but after catch of big skate began to increase, the Council re-designated big skate as a stock that is in need of conservation and management in the 2019-20 biennium. As discussed above and below, designation of shortbelly rockfish as an ecosystem component species does not preclude NMFS or the Council from monitoring the stock or taking action to minimize bycatch, if necessary. Catch of shortbelly rockfish will continue to be reported, and that catch data is available publicly through the PacFIN database.

Shortbelly Rockfish Issue 4: Removing all management measures to constrain or reduce shortbelly rockfish bycatch ignores NMFS' ongoing mandate to reduce bycatch.

NMFS Response: We disagree. Designating shortbelly rockfish as an ecosystem component species does not preclude the Council from monitoring catch of shortbelly rockfish or developing management measures to reduce bycatch, if necessary. As stated in the 2020 SAFE document and at § 600.305(c)(5), consistent with National Standard 9, MSA section 303(b)(12), and other applicable MSA sections, management measures can be adopted in order to, for example, collect data on the ecosystem component species, minimize bycatch or bycatch mortality of ecosystem component species, protect the associated role of ecosystem component species in the ecosystem, and/or to address other ecosystem issues. Further, the PCGFMP clarifies that ecosystem component species should be monitored to the extent that any new pertinent scientific information becomes available ( e.g., catch trends, vulnerability, etc.) to determine changes in their status or their vulnerability to the fishery. In making its decision in June 2020 to recommend designating shortbelly rockfish as an ecosystem component species, the Council specifically noted that catch of shortbelly rockfish would continue to be monitored by the Council's GMT, and inseason catches will be reported out to the Council at each meeting using the species scorecard. Therefore, in the event that bycatch of shortbelly rockfish does increase significantly in the future, the Council will be notified and will have the ability to adopt management measures in order to minimize bycatch of shortbelly rockfish while it is an ecosystem component species. In designating shortbelly rockfish as an ecosystem component species, the Council still has the ability to recommend, and NMFS can still implement, management measures for shortbelly rockfish to address high bycatch in the future.

The most recent scientific literature indicates that population abundance has increased, accompanied by a northern range expansion. These changes are the most likely explanation for the increased bycatch levels since 2018. Following the ACL (the ACL is a harvest specification) overages in 2018 and 2019, the Council considered this issue extensively and was unable to conclude that any specific management measure would prevent the ACL overages, largely because the stock is not directly targeted and industry already has significant incentives to avoid the stock. However, even without effective management measures, bycatch of shortbelly rockfish has remained less than 50 percent of the stock's OFL. Because of the increasing abundance of the stock and the lack of apparent management measures which will maintain or improve stock status, the Council recommended, and NMFS is implementing, designating shortbelly rockfishas an ecosystem component species.

Shortbelly Rockfish Issue 5: Designating shortbelly rockfish as an ecosystem component species ignores the best available science.

NMFS Response: We disagree. The Council recommended and NMFS is implementing designation of shortbelly rockfish as an ecosystem component species based on the best available peer-reviewed scientific information. The Council and NMFS relied on the most recent and best information available to make determinations on the management of shortbelly rockfish. This information is extensively documented throughout the record of Council meetings discussing shortbelly rockfish since 2018, including Council discussions, advisory body reports and meeting briefing books, and in the Analysis for this rule.

Shortbelly Rockfish Issue 6: As applied to shortbelly rockfish, the regulations authorizing NMFS to designate ecosystem component species violate the Magnuson-Stevens Act.

NMFS Response: We disagree. After extensive analysis and consideration of the best available scientific information and public comment, the Council recommended, and NMFS is implementing, designation of shortbelly rockfish as an ecosystem component species for the 2021-22 biennium. Since 2018, the Council and its advisory bodies have considered this issue extensively, as documented in Council discussion, briefing books and advisory body reports. Both the Council and NMFS have extensively discussed and analyzed the best way to conserve and manage shortbelly rockfish. The most recent information on stock abundance, the likely extension of the stock into northern waters, the lack of a targeted fishery, and the existing disincentives for industry to catch shortbelly rockfish all support the designation of shortbelly rockfish as an ecosystem component species. As discussed above, designation as an ecosystem species does not preclude the Council from monitoring catch of the stock, adopting management measures to reduce bycatch, or revisiting the designation.

Shortbelly Rockfish Issue 7: NMFS must consult on the designation of shortbelly rockfish as an ecosystem component species as it may affect ESA-listed species.

NMFS Response: We disagree that additional consultation is needed due to the designation of shortbelly rockfish as an ecosystem component species for the 2021-22 biennium. As discussed above, the USFWS issued the 2017 biological opinion regarding the effects of the continued operation of the Pacific Coast groundfish fishery (which includes shortbelly rockfish) on California least tern, southern sea otter, bull trout, marbled murrelet, and short-tailed albatross. This action is not expected to change the conclusions of the 2017 biological opinion because it does not modify the action analyzed in that opinion in a manner or to an extent that would cause an effect to listed species or critical habitat that was not previously considered . On December 11, 2017, NMFS issued a biological opinion finding that the effects of the continued operation of the Pacific Coast groundfish fishery is likely to adversely affect, but is not likely to jeopardize, the continued existence of the following listed salmon evolutionarily significant units: Puget Sound Chinook, Snake River Fall Chinook, Lower Columbia River Chinook, Upper Willamette River Chinook, Snake River spring/summer Chinook, California Coastal Chinook, Lower Columbia River Coho, Oregon Coast Coho, Southern Oregon/Northern California coho, and Central California Coast coho. This action does not modify the action analyzed in the December 2017 biological opinion in a manner that may affect listed species in a manner or to an extent not previously considered.

Shortbelly Rockfish Issue 8: Designating shortbelly rockfish as an ecosystem component species could result in the deprioritization of it as a stock to be assessed as part of the 2023-24 biennium.

NMFS Response: We neither agree nor disagree. The Council has adopted a list of candidate stocks for assessment in 2023 for which shortbelly rockfish is included. The Council will make a final decision on this candidate list in June 2022. While we do not know what decision the Council will ultimately make, we have no indication that the Council will remove shortbelly rockfish from this list based on designation as an ecosystem component species. There is no requirement that the Council prioritize only those stocks that are in need of conservation and management for stock assessments. We anticipate that the Council will continue to weigh all options and needs when finalizing their prioritized list of stocks to be assessed for the 2023-24 biennium.

NMFS received comment letters from the NWFSC, the CDFW, and the ODFW noting inaccuracies in information presented in the preamble to the proposed rule. NMFS offers the following corrections in this final rule. These clarifications and corrections to the information described in the preamble to the proposed rule do not change the substance or intent of this action. Where necessary, corrections to harvest specifications numbers in the preamble have been carried through to the regulatory text of this final rule.

Table 1 in the preamble of the proposed rule was not labeled correctly. Instead of being labeled as the “Old and New σ Values for Category 1-3 Stocks Over a 10-Year Period” the table should have been labeled, “A Comparison of the Old and New Scientific Uncertainty Reductions for P*=0.45”. These percentages represent the buffer between the OFL, given a P* value of 0.45, and the ABC.

Table 2 in the preamble, and subsequent discussion thereafter, provided incorrect values for the ACLs for sablefish north and south of 36° N lat. and the coastwide apportionment of the ABC for sablefish south of 36° N lat. It was determined during review of the Analysis that these errors were the result of typographical errors in the Council's background material. The errors were not carried through to the calculations for allocations made below the ACLs. The Council recommended these technical changes be made at their September 2020 meeting. Therefore, this final rule corrects the Sablefish ACLs and the Sablefish apportionment, as follows:

On page 62495 of the proposed rule, the section header, entitled “C. Proposed ACLs for 2019 and 2020”, used the incorrect years; the title should have used the correct years, 2021 and 2022.

On page 62498 of the proposed rule, the section header entitled “D. Summary of ACL Changes from 2019 to 2021-22”, used the incorrect year. The year 2019 was incorrect and should have read 2020.

Table 5—ACLs for Major Stocks for 2020, and 2021-22, on page 62499 of the proposed rule, included incorrect values for the ACL for Nearshore Rockfish North. These number should be 79 mt and 77 mt for 2021 and 2022, respectively.

In the proposed rule, there were two tables labeled as “Table 9”: Table 9—2021 and 2022 Allocations of Canary Rockfish on page 62502, and Table 9—2021 and 2022 Trawl/NonTrawl Allocations of Cowcod on page 62503. The second Table 9 for cowcod should have been numbered as Table 10.

In the proposed rule's Table 9—2021 and 2022 Trawl/NonTrawl Allocations of Cowcod on page 62502, the nontrawl and trawl allocation values were transposed. They should have been 32 mt for the non-trawl fishery and 18 mt for the trawl fishery in both 2021 and 2022. In Table 10 of this final rule, these values have been updated to reflect the correct allocations.

In the proposed rule's Table 10—2021 and 2022 Trawl/Nontrawl Allocations of Lingcod south of 40°10′ N lat. on page 62503, the allocations for trawl and non-trawl were transposed. The nontrawl allocation should be 653.4 mt for 2021 and 695.4 mt for 2022. The trawl allocation should be 435.6 mt in 2021 and 463.6 mt in 2022. The correct allocations can be found in Table 11 of this final rule.

In the proposed rule's Table 19—Proposed Season Structure and Depth Limits by Management Area for 2021 and 2022 on page 62509, for the southern management area, the depth limit was incorrectly listed as <50 fm which was the same depth for the two areas north of the southern management area (San Francisco and Central management areas). This depth was inadvertently carried through to the southern management area. However, the depth limit should be <100 fm, as recommended by the Council. The correct value is included in Table 20 of this final rule.

The CDFW and the ODFW also highlighted several technical errors in the regulatory text of the proposed rule. These technical errors are discussed below, and are corrected in the regulatory text of this final rule, but do not change the substance of this final rule.

In Table 1a, Subpart C—2021 Specifications of OFL, ABC, ACL, ACT, and Fishery HG in the regulatory text, in footnote “h” for bocaccio on page 62515, the nearshore and non-nearshore allocation listed was the allocation for 2022 (315.7 mt) instead of for 2021 (320.2 mt). In this final rule, the same table contains the corrected allocation, 320.2 mt for 2021.

In Table 1a, Subpart C—2021 Specifications of OFL, ABC, ACL, ACT, and Fishery HG in the regulatory text of the proposed rule, in footnote “aa” for sablefish south of 36° N. lat. on page 62517, the percentage of the coastwide catch was shown as 21.5 percent. This number has been corrected in this final rule to be shown as 21.6 percent, which accurately reflects the Council's recommended allocation percentage of sablefish south of 36° N. lat..

In Table 1b, Subpart C—2021 Allocations by Species or Species Group of the regulatory text of the proposed rule on page 62519, the trawl allocation for English sole had a comma in the wrong place. In this final rule, the value is correctly listed as 8,478.2 mt.

In Table 2a, Subpart C—2022 Specifications of OFL, ABC, ACL, ACT and Fishery Harvest Guidelines in the regulatory text of the proposed rule, in footnote “h” for bocaccio on page 62523, there was no listed amount for the combined nearshore and non-nearshore fishery. In this final rule, footnote “h” of this table states that the 2022 combined allocation to the nearshore and non-nearshore fishery is 315.7 mt.

In Table 2a, Subpart C—2022 Specifications of OFL, ABC, ACL, ACT and Fishery Harvest Guidelines in the regulatory text of the proposed rule, in footnote “u” for longspine thornyhead on page 52523, the value was incorrectly listed as 77771.8 mt. In this final rule, the value has been corrected so that it is 771.8 mt.

In Table 2a, Subpart C—2022 Specifications of OFL, ABC, ACL, ACT and Fishery Harvest Guidelines in the regulatory text of the proposed rule, in footnote “w” on page 62524, the harvest guideline value for Pacific ocean perch was incorrectly listed as 3,829.3 mt. In this final rule, the value has been corrected to 3,686.2 mt.

In Table 2a, Subpart C—2022 Specifications of OFL, ABC, ACL, ACT and Fishery Harvest Guidelines in the regulatory text of the proposed rule, in footnote “mm” for Nearshore Rockfish north of 40°10′ N lat. on page 62525, the last sentence in the footnote referred to the harvest guidelines as recreational harvest guidelines. However, these guideline apply to more than just recreational fisheries. Therefore, in this final rule this text has been corrected by changing “Recreational HGs are” to “State-specific HGs are”.

In Table 2b, Subpart C—2022 and Beyond, Allocations by Species or Species Group, in the regulatory text of the proposed rule on page 62526, the fishery harvest guideline for yellowtail rockfish was incorrectly listed in the proposed rule as 4,793.5 mt. This value has been corrected to 4,783.5 mt in this final rule.

In Table 1 to paragraph (d)(1)(ii)(D) in § 660.140 “Shorebased IFQ Program” in the regulatory text of the proposed rule on page 62528, the 2021 and 2022 shorebased trawl allocations for Sablefish south of 36° N lat. were incorrectly listed as 782.3 mt and 744.9 mt, respectively. These values have been corrected to 786 mt and 748 mt, respectively, in this final rule.

In Table 1 to paragraph (d)(1)(ii)(D) in § 660.140 “Shorebased IFQ Program” in the regulatory text of the proposed rule on page 62528, the 2022 shorebased trawl allocations for Yellowtail Rockfish were incorrectly listed as 3,889.4 mt. This value has been corrected to 3,898.24 mt, in this final rule.

In Table 3 (North), Subpart F—Non-Trawl Rockfish Conservation Areas and Trip Limits for Open Access Gears North of 40°10′ N lat., in the regulatory text of the proposed rule on page 62534, the text describing the salmon troll limit in the north was been cut off. In this final rule, the table cell has been resized so that all the text is shown.

In Table 3 (South), Subpart F—Non-Trawl Rockfish Conservation Areas and Trip Limits for Open Access Gears South of 40°10′ N lat., in the regulatory text of the proposed rule on page 62535, the text of the salmon troll trip limit incorrectly stated the area of the limit as “This limit is within the 4,000 lbs per 2 month limit for minor shelf rockfish between 40°10′ N lat. and 24°27′ N lat.” In this final rule, the text has been corrected to state that “This limit is within the 4,000 lbs per 2 month limit for minor shelf rockfish between 40°10′ N lat. and 34°27′ N lat.”.

In Table 3 (South), Subpart F—Non-Trawl Rockfish Conservation Areas and Trip Limits for Open Access Gears South of 40°10′ N lat., in the regulatory text of the proposed rule on page 62535, the text describing the Pink shrimp Nongroundfish Trawl fishery (Line 49) was been cut off. In this final rule, the table cell has been resized so that all the text is shown.

In § 660.360(c)(3)(i)(A) in the regulatory text of the proposed rule on page 62537, the text inadvertently referenced the coordinates approximating the boundary lines at 10-fm (18 m) through 40-fm (73 m) depth contours at § 660.71. However, because the recreational fisheries extend from 50-fm to 100-fm, the referenced coordinates should be at §§ 660.72 and 660.73. In this final rule, this text has been amended to include reference to the correct sections.

In § 660.360(c)(3)(ii)(B) in the regulatory text of the proposed rule on page 62537, the text states “In times and areas when the recreational season for the RCG Complex is open, there is a limit of 2 hooks and 1 line when fishing for the RCG complex and lingcod.” Lingcod does not need to be listed here, as it is address in § 660.360(c)(3)(iii); therefore, the reference has been removed from the regulatory text in this final rule.

As a result of comments received on the proposed rule, NMFS is making the following changes to the proposed rule. In addition, one set of minor changes is being made to the proposed rule in accordance with a November 2020 Council recommendation based on newly updated catch data that was not available before the proposed rule was published.

In § 660.230(d)(10)(i), current regulations include reference to the other flatfish gear prohibition on the number and size of hooks allowed for the open access fishery. This text was not suggested to be deleted in the proposed rule. However, because the Council recommended, and NMFS is implementing, changes to this prohibition, conforming amendments to this text should also have been proposed to reflect this change. Because the text at § 660.230(d)(10)(i) is no longer necessary, this final rule removes pargraph § 660.230(d)(10)(i).

The regulatory text in the proposed rule removed the recreational season structure text in § 660.360(c)(3)(i)(A)(1)-(5), and replaced it with a table. The CDFW commented that it had concerns with the change and felt that it omitted text that was critical for state enforcement and which was referenced in state regulations. Based on this concern, in this final rule, NMFS has removed Table 2 in this section and replaced it with the paragraph structure used in the 2019-20 biennium. All Council recommendations are reflected in the new paragraph structure.

In § 660.360(c)(3)(i)(A)(1) of the regulatory text in the proposed rule, there is only reference to the depth contour (“prohibited seaward of the 30 fm (55 m) depth contour along the mainland coast and along islands and offshore seamounts”), without any reference to the boundary line. To remain consistent with other sections of the regulatory text that describe the boundary lines for the recreational fisheries, this final rule is corrected to to read, “prohibited seaward of the boundary line approximating the 30 fm (55 m) depth contour along the mainland coast and along islands and offshore seamounts”.

In § 660.360(c)(3)(i)(A)(2) of the regulatory text in the proposed rule, there is only reference to the depth contour, without any reference to the boundary line. To remain consistent with other section of the regulatory text that describe the boundary lines for the recreational fisheries, in this final rule, this text has been updated from “is prohibited seaward of the 20 fm (37 m) depth contour along the mainland coast and along islands and offshore seamounts” to read, “is prohibited seaward of the boundary line approximating the 20 fm (37 m) depth contour along the mainland coast and along islands and offshore seamounts”.

Finally, at its November 2020 meeting, the Council recommended changes to the trip limits for the limited entry and open access fisheries north and south of 36° N lat. for sablefish and lingcod south of 40°10′ N lat., and the open access trip limit for shortspine and longspine thornyhead south of 34°27′ N lat. All changes are to increase trip limits as a result of updated catch data that show lower than projected attainment for these stocks in the most recent fishing season. As a result, trip limits can be raised to allow for full attainment of the HG for both of these stocks in 2021. These changes were recommended by the Council to NMFS through the inseason action process and are incorporated into this final rule for implementation for the 2021 fisheries. Because these trip limits are within the range of what was previously analyzed, they constitute a minor, routine adjustment to the management measures for the 2021 groundfish fisheries.

Pursuant to section 304 (b)(3) of the Magnuson-Stevens Act, the NMFS Assistant Administrator has determined that this final rule is consistent with the PCGFMP, other provisions of the Magnuson-Stevens Act, and other applicable law.

NMFS finds good cause to waive the 30-day delay in effectiveness pursuant to 5 U.S.C. 553(d)(3), so that this final rule may become effective on January 1, 2021. This action establishes the final specifications ( i.e., annual catch limits) for the Pacific Coast groundfish fisheries for the 2021 fishing year, which begins on January 1, 2021. If this final rule is not effective on January 1, 2021, then the fishing year begins using the catch limits and management measures from 2020.

Because this final rule increases the catch limits for several species for 2021, leaving 2020 harvest specifications in place could unnecessarily delay fishing opportunities until later in the year, potentially reducing the total catch for these species in 2021. Thus, a delay in effectiveness could ultimately cause economic harm to the fishing industry and associated fishing communities or result in harvest levels inconsistent with the best available scientific information.

This final rule is not unexpected or controversial. The groundfish harvest specifications are published biennially and are intended to be effective on January 1 of odd numbered years. Additionally, the subject of this final rule has been developed over a series of six public meetings of the Council from June 2019 to June 2020. The public is given notice of these meetings, and the public is provided opportunity to comment on actions through that venue as well as through the rulemaking process.

Because of the potential harm to fishing communities that could be caused by delaying the effectiveness of this final rule, and because of the previous notification to the regulated public of these changes through the Council process, NMFS finds there is good cause to waive the 30-day delay in effectiveness.

Pursuant to Executive Order 13175, this rule was developed after meaningful consultation and collaboration with tribal officials from the area covered by the PCGFMP. Under the Magnuson-Stevens Act at 16 U.S.C. 1852(b)(5), one of the voting members of the Pacific Council must be a representative of an Indian tribe with federally recognized fishing rights from the area of the Council's jurisdiction. In addition, regulations implementing the PCGFMP establish a procedure by which the tribes with treaty fishing rights in the area covered by the PCGFMP request new allocations or regulations specific to the tribes, in writing, before the first of the two meetings at which the Council considers groundfish management measures. The regulations at 50 CFR 660.324(d) further direct NMFS to develop tribal allocations and regulations in consultation with the affected tribes. The tribal management measures in this proposed rule have been developed following these procedures. The tribal representative on the Council made a motion to adopt the non-whiting tribal management measures, which was passed by the Council. Those management measures, which were developed and proposed by the tribes, are included in this final rule.

The Council prepared an environmental assessment for Amendment 29 to the PCGFMP and the 2021-22 harvest specifications and management measures, and concluded that there will be no significant impact on the human environment as a result of this rule. A copy of the integrated analysis is available from NMFS (see ADDRESSES ).

This final rule has been determined to be not significant for purposes of Executive Order 12866.

This final rule is not an Executive Order 13771 regulatory action because this action is not significant under Executive Order 12866.

The Chief Counsel for Regulation of the Department of Commerce certified to the Chief Counsel for Advocacy of the Small Business Administration during the proposed rule stage that this action would not have a significant economic impact on a substantial number of small entities. The factual basis for the certification was published in the proposed rule, and is not repeated here. No comments were received regarding this certification. As a result, a final regulatory flexibility analysis was not required and none was prepared.

This final rule contains no information collection requirements under the Paperwork Reduction Act of 1995.

For the reasons set out in the preamble, 50 CFR part 660 is amended as follows:

NMFS is implementing an ACL of 30,802 lb (13,972 kg) and an ACT of 25,491 lb (11,563 kg) of Hawaii Kona crab for each of the 2020-2023 fishing years, as recommended by the Council. The fishing year is the calendar year, and catch from State and Federal waters will count toward the ACL and ACT.

NMFS is also implementing both an in-season and post-season AM. Under the in-season AM, when NMFS projects that the catch of Kona crab will reach the ACT, we will close the commercial and non-commercial fisheries for Kona crab in Federal waters for the remainder of the year. For the post-season AM, if NMFS and the Council determine, after the end of each fishing year, that the catch exceeded the ACL, NMFS will reduce the ACL and ACT in the subsequent fishing year by the amount of the overage. In the event that the catch exceeds the ACT, but is below the ACL, we will not apply a post-season correction.

This final rule will make a housekeeping change in the regulations for Hawaii Kona crab and deepwater shrimp ACLs and AMs. Specifically, this rule adds a separate paragraph for each stock in 50 CFR 665.253 to distinguish between the ACLs for Hawaii Kona crab and deepwater shrimp.

Additional background information on this action is found in the preamble to the proposed specifications; we do not repeat it here.

On October 15, 2020, NMFS published a proposed rule and request for comments (85 FR 65336). The comment period for the proposed specification ended on November 5, 2020. NMFS received comments from four individuals that generally supported the action and responds below.

Comment 1: This rule is necessary to ensure the sustainability of the main Hawaiian Islands (MHI) Kona crab populations and the proposed ACL and ACT are very reasonable.

Response: NMFS agrees. This action is based upon the best available scientific information and support the long-term sustainability of the Hawaii Kona crab fishery.

Comment 2: The sustainability of MHI Kona crab populations helps to maintain a healthy marine ecosystem, including Kona crab prey or predators.

Response: NMFS agrees that a sustainably managed Kona crab fishery contributes to a healthy marine ecosystem.

Comment 3: A short term ACL is preferred since it will allow NMFS and the Council to review and adjust the ACL and ACT as needed in the future.

Response: NMFS concurs; a 4-year ACL provides stability to fishermen, businesses, and Kona crab populations.

Comment 4: It is beneficial that fishermen cannot retain female Kona crabs, per State of Hawaii regulations. There is a high survivability rate for released crabs.

Response: NMFS acknowledges that the State of Hawaii prohibits the retention of female Kona crabs.

Comment 5: It is important to include accountability measures and provide timely notification to fishermen if the ACT or ACL is exceeded.

Response: NMFS agrees. This final rule includes an accountability measure that would require NMFS to close the fishery in Federal waters when the ACT is projected to be reached to prevent the fishery from exceeding the ACL. The final rule also requires NMFS to provide fishermen timely notification of any fishery closure at least 7 days before the effective date of the closure.

This final rule contains no changes from the proposed rule.

Pursuant to section 304(b)(3) of the Magnuson-Stevens Act, the NMFS Assistant Administrator has determined that this final rule is consistent with the Hawaii FEP, other provisions of the Magnuson-Stevens Act, and other applicable law.

The Chief Counsel for Regulation of the Department of Commerce certified to the Chief Counsel for Advocacy of the Small Business Administration during the proposed rule stage that this action would not have a significant economic impact on a substantial number of small entities. The factual basis for the certification was published in the proposed rule and is not repeated here. No comments were received regarding this certification. As a result, a regulatory flexibility analysis was not required and none was prepared.

This final rule has been determined to be not significant for purposes of Executive Order 12866. This rule is not an Executive Order 13771 regulatory action because this rule is not significant under Executive Order 12866.

This final rule contains no information collection requirements under the Paperwork Reduction Act of 1995.

For the reasons set out in the preamble, NMFS amends 50 CFR part 665 as follows: