The Commission is revising 11 CFR parts 104 and 114 to implement the recent U.S. Supreme Court decision inFECv.Wisconsin Right to Life, Inc.,127 S. Ct. 2652 (June 25, 2007).

The Bipartisan Campaign Reform Act of 2002 (“BCRA”)1 amended the Federal Election Campaign Act of 1971, as amended (the “Act” or “FECA”),2 by adding a new category of political communications, “electioneering communications,” to those already governed by the Act.See2 U.S.C. 434(f)(3). Electioneering communications (“ECs”) are broadcast, cable or satellite communications that refer to a clearly identified candidate for Federal office, are publicly distributed within sixty days before a general election or thirty days before a primary election, and are targeted to the relevant electorate.See2 U.S.C. 434(f)(3)(A)(i). Individuals and entities that make ECs are subject to certain reporting obligations.See2 U.S.C. 434(f)(1) and (2). Corporations and labor organizations are prohibited from using general treasury funds to finance ECs, directly or indirectly.See2 U.S.C. 441b(b)(2). Finally, all ECs must include a disclaimer including the name of the individual or entity who paid for the EC and a statement as to whether or not the EC was authorized by a candidate.See2 U.S.C. 441d(a).

The Act exempts certain communications from the definition of “electioneering communication” found in 2 U.S.C. 434(f)(3)(B)(i) to (iii), and specifically authorizes the Commission to promulgate regulations exempting other communications as long as the exempted communications do not promote, support, attack or oppose (“PASO”) a candidate.See2 U.S.C. 434(f)(3)(B)(iv),citing2 U.S.C. 431(20)(A)(iii).

The Commission promulgated regulations to implement BCRA's EC provisions.Final Rules and Explanation and Justification for Regulations on Electioneering Communications,67 FR 65190 (Oct. 23, 2002) (“EC EJ”).3 See also11 CFR 100.29 (defining “electioneering communication”); 104.20 (implementing EC reporting requirements); 110.11(a) (requiring disclaimers in all ECs); 114.2 (prohibiting corporations and labor organizations from making ECs); 114.10 (allowing qualified non-profit corporations (“QNCs”) to make ECs); 114.14 (restricting indirect corporate and labor organization funding of ECs). Commission regulations exempt five types of communications from the definition of “electioneering communication.”See11 CFR 100.29(c).4

InMcConnellv.FEC,540 U.S. 93 (2003) (“McConnell”), the U.S. Supreme Court upheld all of BCRA's EC provisions against various constitutional challenges.Id.at 194, 201-02, 207-08. Specifically, the Supreme Court held that the prohibition on the use of general treasury funds by corporations and labor organizations to pay for ECs in 2 U.S.C. 441b(b)(2) was not facially overbroad. Id. at 204-06. InWisconsin Right to Life, Inc.v.FEC,546 U.S. 410 (2006) (“WRTL I”), the U.S. Supreme Court explained thatMcConnell'supholding of section 441b(b)(2) against a facial constitutional challenge did not preclude further as-applied challenges to the corporate and labor organization funding prohibitions.See WRTL I,546 U.S. at 411-12.

Subsequently, inFECv.Wisconsin Right to Life, Inc.,127 S. Ct. 2652 (2007) (“WRTL II”), the Supreme Court reviewed an as-applied challenge brought by a non-profit corporation seeking to use its own general treasury funds, which included donations it had received from other corporations, to pay for broadcast advertisements referring to Senator Feingold and Senator Kohl during the EC period before the 2004 general election, in which Senator Feingold, but not Senator Kohl, was on the ballot. The plaintiff argued that these communications were genuine issue advertisements run as part of a grassroots lobbying campaign on the issue of Senate filibusters of judicial nominations.WRTL II,127 S. Ct. at 2660-61. The Supreme Court held that section 441b(b)(2) was unconstitutional as applied to the plaintiff's advertisements because theadvertisements were not the “functional equivalent of express advocacy.”Id.at 2670, 2673. A communication is the “functional equivalent of express advocacy” only if it “is susceptible of no reasonable interpretation other than as an appeal to vote for or against a specific candidate.”Id.at 2667. Thus,WRTL IIlimited the reach of the EC funding prohibitions to communications that were the “functional equivalent of express advocacy” as determined under this newly articulated test.

The Commission published a Notice of Proposed Rulemaking in August 2007 seeking public comment on alternative proposed rules implementing the WRTL II decision.See Notice of Proposed Rulemaking on Electioneering Communications,72 FR 50261, 50262 (August 31, 2007) (“NPRM”). The Commission sought public comment generally regarding the effect of theWRTL IIdecision on the Commission's rules governing corporate and labor organization funding of ECs, the definition of “electioneering communication,” and the rules governing reporting of ECs, as well as comment on the specific requirements of the proposed rules. The Commission also requested public comment regarding specific examples of communications that should be covered by the proposed rules and those that should not be.Id.at 50267-69. Finally, the Commission sought public comment regarding the impact, if any, of theWRTL IIdecision on other parts of the Commission's regulations, such as the definition of “express advocacy” in 11 CFR 100.22.Id.at 50263. The comment period ended on October 1, 2007. The Commission received twenty-seven written comments on the proposed rules. The Commission held a public hearing to discuss the proposed rules on October 17 and 18, 2007 at which fifteen witnesses testified. All written comments and hearing transcripts are available athttp://www.fec.gov/law/law_rulemakings.shtmlunder the heading “Electioneering Communications (2007).” For purposes of this document, the terms “comment” and “commenter” apply to both written comments and oral testimony at the public hearing.

After consideration of the comments, the Commission has decided to implement theWRTL IIdecision by promulgating an exemption from the corporate and labor organization funding prohibitions in part 114 of the Commission's rules. Under the final rule, ECs that qualify for theWRTL IIexemption may be funded with corporate and/or labor organization funds, including general treasury funds, but are subject to EC reporting and disclaimer requirements. The EC reporting requirements in 11 CFR 104.20 are also being revised to accommodate both reporting by corporations and labor organizations for ECs permissible under the new exemption, and reporting the use of corporate and labor organization donations by individuals and unincorporated entities to pay for ECs permissible under the new exemption. The Commission has decided to leave open possible revisions to the definition of “express advocacy” in 11 CFR 100.22 and to address the issue at a later date.

The final rule is effective immediately upon publication under 5 U.S.C. 553(d)(1) and (d)(3). Typically, rules must be published not less than thirty days before their effective dates under the Administrative Procedure Act (“APA”).See5 U.S.C. 553(d). However, a rule that “grants or recognizes an exemption or relieves a restriction” is exempted from this requirement under 5 U.S.C. 553(d)(1). This final rule grants an exemption and relieves the funding restrictions for certain communications that meet the definition of “electioneering communications.” Therefore, this final rule meets this exception to the APA, is not required to be published thirty days prior to its effective date, and will therefore be effective immediately upon publication. In addition, 5 U.S.C. 553(d)(3) states that an agency may make a rule effective immediately “for good cause found and published with the rule.” The U.S. Supreme Court's decision inWRTL IIwas issued on June 25, 2007, less than six months before the first EC periods began (thirty days before various state Presidential caucuses and primaries in January 2008). The Commission has worked diligently to promulgate the final rule in time to provide guidance to organizations as to the permissible funding and required reporting for communications broadcast within the EC periods, which began in early December 2007 for certain states. The final rule implementing theWRTL IIdecision should apply to all EC periods for the 2008 election cycle and it would be contrary to the public interest to delay the effective date of the final rule until some time after the first EC periods start. Therefore, the Commission has “good cause” under section 553(d)(3) to make the final rule effective immediately.

Under the Congressional Review of Agency Rulemaking Act, 5 U.S.C. 801(a)(1), agencies must submit final rules to the Speaker of the House of Representatives and the President of the Senate before they take effect. The final rule that follows was transmitted to Congress on December 17, 2007.

The NPRM included two alternative proposals implementing theWRTL IIdecision in the rules governing ECs. Alternative 1 incorporated the new exemption into the rules prohibiting the use of corporate and labor organization funds for ECs in 11 CFR part 114.See NPRMat 50262. This alternative required corporations and labor organizations to comply with the reporting and disclaimer requirements for all ECs that qualify for the exemption. Alternative 2 incorporated the new exemption into the definition of “electioneering communication” in 11 CFR 100.29. This alternative removed all reporting and disclaimer requirements for these communications, whether run by corporations and labor organizations, or individuals and unincorporated entities not subject to the funding prohibitions in part 114.See NPRMat 50262-63.

The commenters were divided in their support for each alternative. Commenters supporting Alternative 1 pointed out that the plaintiffs inWRTL IIdid not challenge the EC reporting and disclaimer requirements, the Court did not address the issue of whether the EC reporting requirements were constitutional as applied to genuine issue advertisements, and the EC reporting requirements had been upheld against a facial challenge inMcConnell.These commenters also contended that disclosure requirements are held to a less rigorous constitutional standard than funding prohibitions, and that a broader exemption would violate the Commission's statutory authority. In contrast, commenters supporting Alternative 2 argued thatWRTL IIheld that the communications at issue were protected from any regulation (including disclosure), that the constitutionality of disclosure requirements is linked to the constitutionality of the funding restrictions on the communication, and that the costs of compliance with reporting obligations would chill speech by small nonprofit organizations. Some commenters stated their policy preference would be to adopt Alternative 2 and remove reportingrequirements for communications qualifying for theWRTL IIexemption, but argued that the Commission's authority was confined to creating an exemption from the funding restrictions on ECs unless the EC reporting and disclaimer provisions are successfully challenged in court.

After consideration of the comments, the Commission has decided to adopt a revised version of Alternative 1 and create an exemption solely from the prohibition on the use of corporate and labor organization funds to finance ECs. Accordingly, the revisions to 11 CFR 114.2 and new section 114.15 do not create (1) an exemption from the overall definition of “electioneering communication” in section 100.29, (2) an exemption from the EC reporting requirements in section 104.20, or (3) an exemption from the EC disclaimer requirements in section 110.11. Corporations and labor organizations are permitted to use general treasury funds for ECs that are permissible under section 114.15, but are also required to file EC disclosure reports once they spend more than $10,000 in a calendar year on such communications.Seerevised 11 CFR 104.20.

The plaintiff inWRTL IIchallenged only BCRA's corporate and labor organization funding restrictions in section 441b(b)(2) and did not contest either the separate statutory definition of “electioneering communication” in section 434(f)(3), the separate reporting requirement in section 434(f)(1), or the separate disclaimer requirement in section 441d.See WRTL II,127 S. Ct. at 2658-59;see alsoVerified Complaint for Declaratory and Injunctive Relief, ¶ 36 (July 28, 2004) inWisconsin Right to Life, Inc.v.FEC(No. 04-1260), available athttp://fecds005.fec.gov/law/litigation_related.shtml#wrtl_dc(“WRTL does not challenge the reporting and disclaimer requirements for electioneering communications, only the prohibition on using its corporate funds for its grass-roots lobbying advertisements.”). Nor did any of the four separate opinions issued by the Justices inWRTL IIdiscuss the EC reporting or disclaimer requirements. Accordingly, the Commission agrees with the commenters who argued thatWRTL II's holding that the Act's EC funding restrictions are unconstitutional as applied to certain advertisements does not extend to the EC reporting or disclaimer requirements.

BecauseWRTL IIdid not address the issue,McConnellcontinues to be the controlling constitutional holding regarding the EC reporting and disclaimer requirements.McConnellheld that the overall definition of “electioneering communication” in section 434(f)(3) is facially valid.McConnell,540 U.S. at 193-94. Moreover, eight Justices in McConnell voted to uphold the EC reporting requirements (including three Justices who separately voted to strike down the EC funding prohibitions).Id.,540 U.S. at 196 (Stevens, J.) and 321 (Kennedy, J.). The EC disclaimer requirements were similarly upheld as constitutional by a vote of 8-1.McConnell,540 U.S. at 230 (Rehnquist, C.J., joined by all Justices except Thomas, J.). Thus, becauseMcConnellhas upheld the definition of ECs, as well as the reporting and disclaimer requirements, as facially valid, and becauseWRTL IIdid not address these provisions, the Commission has no mandate to revise the underlying definition of “electioneering communication” or remove the reporting and disclaimer requirements.WRTL IIrequires that the Commission implement an as-applied exemption to the EC funding requirements and nothing more. By adopting a revised version of Alternative 1, the Commission is acting in accordance withWRTL II.

The Commission disagrees with the comments that contended that Alternative 2 is more consistent with the Congressional intent because they believed BCRA did not contemplate reporting by corporations and labor organizations. While it is true that under BCRA, corporations and labor organizations were prohibited from funding any ECs, the statute requires every “person” (which by definition includes corporations and labor organizations) funding ECs over the reporting threshold to report. 2 U.S.C. 431(11). Moreover, incorporating theWRTL IIexemption into the regulatory definition would remove certain ECs that are currently subject to reporting and disclaimer requirements when run by individuals, QNCs, or unincorporated entities from public disclosure entirely. While Congress provided for certain possible effects of judicial review of the definition of “electioneering communication” (see2 U.S.C. 434(f)(3)(A)(ii)), Congress did not expressly address the consequences for the reporting provisions in the event of a successful as applied challenge to the funding restrictions. Thus, the Commission cannot conclude that Congress has spoken directly to this issue.

Finally, while understanding that some nonprofit organizations and their donors have privacy interests and that some donors request to remain anonymous, the Commission disagrees with the commenters who argue the only constitutional way to protect those interests is to adopt Alternative 2, thereby allowing all ECs that qualify for theWRTL IIexemption to be run without any disclaimers or reporting. First, under revised section 104.20 described below, the reporting requirements for corporations and labor organizations funding ECs that qualify for theWRTL IIexemption are narrowly tailored to address many of the commenters' concerns regarding individual donor privacy.SeeSection D below. Second, as some commenters noted, there are other ways of protecting donor privacy. When upholding the EC reporting requirements,McConnellrecognized that these privacy interests are adequately protected on a case-by-case basis for certain organizations that espouse positions such that their donors or members might be subject to reprisal or harassment.See McConnell,540 U.S. at 198-99 (citingBrownv.Socialist Workers '74 Campaign Comm. (Ohio), 459 U.S. 87, 98-99 (1982)). Organizations with significant and serious threats of reprisal or harassment may seek as-applied exemptions to the disclosure requirements underSocialist Workersthrough advisory opinions and court filings.See, e.g., Advisory Opinion 2003-02 (Socialist Workers Party). Therefore, the Commission believes that the carefully designed reporting requirements detailed below do not create unreasonable burdens on the privacy rights of donors to nonprofit organizations.

The Commission notes that the final rule does not affect the coordinated communications rules in section 109.21, because ECs that are permissible under section 114.15 would still meet the “electioneering communication” content standard in 11 CFR 109.21(c)(1).5 Thus, an EC that may be paid for with corporation or labor organization funds under the new exemption in section 114.15 may nevertheless be a prohibited corporate or labor organization in-kind contribution to a candidate or political party if that EC is coordinated with a candidate or party under the coordinated communications rules. Inaddition, the revisions to section 114.14 clarify that individuals and unincorporated entities may receive and spend corporate or labor organization funds for ECs that are permissible under new section 114.15. However, individuals and unincorporated entities are still subject to the general prohibition on using such funds to pay for any EC that is not permissible under section 114.15.

Section 114.2(b)(2)(iii) implements the funding restrictions of 2 U.S.C. 441b(b)(2) by prohibiting corporations and labor organizations from “[m]aking payments for an electioneering communication to those outside the restricted class.” However, as explained in the NPRM, placing a detailed exemption based on theWRTL IIdecision within section 114.2(b) could be confusing and difficult for the reader to locate.See id. Therefore, in the NPRM, the Commission proposed to place the exemption in new section 114.15. None of the commenters opposed the placement of the exemption in new section 114.15.

The final rule follows the approach proposed in the NPRM by setting forth theWRTL IIexemption in new section 114.15, and amending section 114.2(b) to include a cross-reference to this new section. Revised section 114.2(b) states that corporations and labor organizations are prohibited from making ECs “unless permissible under 11 CFR 114.10 or 114.15.”Seerevised 11 CFR 114.2(b)(3) (adding the newWRTL IIexemption reference to the existing reference to the QNC exemption in section 114.10).6 The language of the final rule is slightly changed from the proposed rule to conform the cross-reference in section 114.2(b)(3) to similar revisions in other sections of part 114.See, e.g., revised 11 CFR 104.20(c)(7) and 114.14(a)(1) discussed below.

The exemption proposed in the NPRM was substantively the same under both Alternative 1 and 2.See NPRMat 50264. Under Alternative 1, proposed section 114.15(a) set forth the general standard for determining whether the use of corporate and labor organization funds for an EC is permissible underWRTL II. Proposed section 114.15(b) included safe harbor provisions for two common types of ECs: Grassroots lobbying communications and commercial and business advertisements. The NPRM explained that the safe harbors were intended to provide additional guidance as to which ECs would qualify for the general exemption and that an EC that did not qualify for the safe harbor could still come within the general exemption.See id.Finally, proposed section 114.15(c) addressed reporting obligations for corporations and labor organizations that choose to use general treasury funds to pay for ECs permissible under section 114.15.See id.

Some commenters favored the proposed rule's approach of including both a general exemption and one or more safe harbors. A few commenters suggested that the final rule should include not only safe harbors, but also “capture nets or red flags” that would indicate when an EC would generally be considered to be the functional equivalent of express advocacy and therefore not qualify for the general exemption. Other commenters were concerned that the safe harbors would become thede factorule and groups would feel chilled from making ECs that do not qualify for one of the safe harbors without additional guidance in the general rule. Some commenters thought that the safe harbor provisions were too narrow to be useful. Some commenters also suggested that the Commission include a list of those factors that the Commission would consider in determining whether an EC qualifies for the exemption.

After consideration of the comments, the Commission has decided to modify the NPRM's proposed approach by adopting a rule that both incorporates a safe harbor for certain types of EC and sets forth a multi-step analysis for determining whether ECs that do not qualify for the safe harbor nevertheless qualify for the general exemption. First, the final rule includes a revised articulation of the general exemption in new section 114.15(a). Second, the Commission is broadening the safe harbor to provide more detailed guidance as to which ECs qualify for the exemption under the safe harbor.See11 CFR 114.15(b). Third, the final rule contains a provision explaining the Commission's rules of interpretation for determining if an EC that does not qualify for the safe harbor in section 114.15(b) is nonetheless permissible under the general exemption in section 114.15(a).See11 CFR 114.15(c). The final rule also includes three additional paragraphs. First, new paragraph (d) explains what contextual information the Commission may consider in its analysis of ECs under the general exemption and safe harbor. Second, new paragraph (e) indicates that a list of examples of ECs analyzed under the general exemption and safe harbor will be placed on the Commission's Web site. Lastly, new paragraph (f) states that corporations and labor organizations funding ECs that are permissible under section 114.15(a) are subject to certain reporting requirements under 11 CFR 104.20.

In the NPRM, proposed section 114.15(a) provided that corporations and labor organizations may make an EC (as defined in 11 CFR 100.29) without violating the prohibition in section 114.2(b)(3), “if the communication is susceptible of a reasonable interpretation other than as an appeal to vote for or against a clearly identified Federal candidate.”See NPRMat 50264. Many commenters agreed with this proposed implementation of theWRTL IItest as a general exemption. However, some commenters urged the Commission to use the exact words used in theWRTL IIdecision and phrase the general exemption so that corporations or labor organizations may make an EC “unless the communication is susceptible of no reasonable interpretation other than as an appeal to vote for or against a clearly identified Federal candidate.” These commenters argued that the NPRM's formulation of the standard shifted the burden of proving whether an EC qualifies for the exemption from the Commission to the speaker making the EC.

While the Commission disagrees with those commenters who argued that the effect of the NPRM's language was to shift the burden of proof, it appears that the formulation proposed in the NPRM could be misunderstood. Therefore, in the final rule, paragraph (a) tracks theWRTL IIdecision's language: “Corporations or labor organizations may make an electioneering communication, as defined in 11 CFR 100.29, to those outside the restricted class unless the communication is susceptible of no reasonable interpretation other than as an appeal to vote for or against a clearly identified Federal candidate.”See11 CFR 114.15(a).

As proposed in the NPRM, the final rule supplements the general exemption in section 114.15(a) with a safe harbor provision in section 114.15(b). Satisfying the safe harbor provision demonstrates that the EC is susceptible of a reasonable interpretation other than as an appeal to vote for or against a Federal candidate. Accordingly, an EC that qualifies for the safe harbor would be deemed to be permissible under section 114.15(a) and may be paid for with corporate or labor organization funds. However, an EC that does not qualify for the safe harbor may still come within the general exemption under the analysis described below in section 114.15(c).

The NPRM's proposed safe harbor provisions for grassroots lobbying communications and commercial and business advertisements each contained four prongs, all of which would have had to be met for an EC to qualify for the proposed safe harbor. The first two prongs of both proposed safe harbors would have focused on the content of the communication, while the last two prongs of both safe harbors would have focused on the presence of “indicia of express advocacy” as described in theWRTL IIdecision.See NPRMat 50265, 50269.

In order to simplify the final rule, the Commission has adopted one safe harbor provision with three prongs. An EC qualifies for the safe harbor if it (1) does not mention “any election, candidacy, political party, opposing candidate, or voting by the general public;” (2) does not take a position on the candidate's “character, qualifications, or fitness for office;” and (3) either “focuses on a legislative, executive or judicial matter or issue” or “proposes a commercial transaction.”See11 CFR 114.15(b)(1)-(3). An EC will qualify for the safe harbor only if it satisfies all three prongs. The safe harbor provision in the final rule applies both to ECs that would have been considered “grassroots lobbying communications” and to ECs that would have been considered “commercial and business advertisements” under the rule proposed in the NPRM.

The Supreme Court determined that WRTL's advertisements were not the “functional equivalent of express advocacy” because the communications' content was “consistent with that of a genuine issue ad” and the communications lacked “indicia of express advocacy.”WRTL II, 127 S. Ct. at 2667. The Court found that WRTL's communications lacked “indicia of express advocacy” because they did not mention “an election, candidacy, political party, or challenger,” and the communications did not “take a position on a candidate's character, qualifications, or fitness for office.”Id.The first two prongs of the safe harbor in the final rule incorporate the factors the Court used to determine whether a communication lacks “indicia of express advocacy.” In order to satisfy the safe harbor's first prong, the EC must not “mention any election, candidacy, political party, opposing candidate, or voting by the general public.”See11 CFR 114.15(b)(1). To satisfy the safe harbor's second prong, the EC must not “take a position on any candidate or officeholder's character, qualifications, or fitness for office.”See11 CFR 114.15(b)(2).

The NPRM included these same provisions as the last two prongs of the proposed safe harbors for grassroots lobbying communications and commercial and business advertisements.See NPRMat 50266-67, 50270. Some commenters believed that these provisions adequately limited the scope of the proposed rule. A few commenters urged the Commission to refrain from adding anything to the list of references in theWRTL IIdecision, such as the reference to “voting by the general public” proposed in the NPRM. However, the final rule retains this addition, which applies to ECs that include tag lines that suggest voting by the general public in elections, such as “Vote. It's important to your future,” but does not apply to other references to voting such as “ask Congressman Smith to support the Voting Rights Bill.”

The NPRM sought public comment on whether certain examples constitute “mentioning” elections, candidacy, political parties, or opposing candidates, or take a position on a candidate's character, qualifications or fitness for office sufficient to transform an EC into the functional equivalent of express advocacy or to remove them from the proposed new safe harbors.See NPRMat 50266-67. Some commenters noted that many of the examples were actually references to officeholder status or to an officeholder's conduct of his or her official duties and should not be construed as mentioning a “candidacy” or taking a position on “character.” Other commenters believed that everything in the proposed list of references that would constitute indicia of express advocacy should be allowed in an EC so long as the EC focuses on issue advocacy. Some commenters argued that issue advocacy groups should be free to run ECs that comment on officeholders' character and fitness for office in order to hold those officeholders accountable. Other commenters argued that condemning the record or past actions of a candidate or officeholder should automatically disqualify an EC from the exemption.

The following is a non-exclusive list of examples that will be considered to “mention” an election, candidacy, political party, opposing candidate or voting by the general public under section 114.15(b)(1), thereby causing an EC to fail to satisfy the first prong of the safe harbor. The Commission notes that because these examples only apply to the safe harbor provisions and to one factor in the rules of interpretation for the general exemption, use of these words or phrases will not necessarily disqualify any EC from the general exemption in section 114.15(a).

• Specific references to an election date such as “Support gun rights this November 5” or references to election-related themes, such as pictures of a ballot or voting booth.

• General references to voting such as “Remember to vote to protect the environment.”

• Specific references to the named candidate's office or candidacy, such as “Bob Jones is running for Senate.”

• References to political parties by official names, such as “Democrats,” or by nicknames or proxy descriptions such as “GOP.”

• Comparative references to incumbent and opposing candidate, such as “Bob Smith supports our troops; Bill Jones cut veteran's benefits by 20%.”

• Implied references to incumbents such as “It's time to take out the trash, select real change with Bob Smith” or “This November, we can do better.”

The Commission agrees with the many commenters who argued that a reference to the past voting record of the officeholder or candidate on a particular issue does not by itself constitute taking a position on a candidate's or officeholder's character, qualifications, or fitness for office. Therefore, in determining whether an EC takes a position on the candidate's or officeholder's “character, qualifications, or fitness for office” under section 114.15(b)(2) the Commission will examine the entirety of the content of the EC. The Commission is providing examples of ECs below (seesection 114.15(e)) that illustrate this analysis.

The third prong of the final rule's safe harbor combines the first two prongs of the NPRM's proposed grassroots lobbying communications safe harbor and the commercial and business advertisements safe harbor. In order to satisfy the third prong, an EC must meet either section 114.15(b)(3)(i) describing certain lobbying communicationsorsection 114.15(b)(3)(ii) describing certain commercial advertisements.

In addition to finding an absence of “indicia of express advocacy,” theWRTL IIdecision concluded that WRTL's communications contained content “consistent with that of a genuine issue ad” because they “focus on a legislative issue, take a position on the issue, exhort the public to adopt the position, and urge the public to contact public officials with respect to the matter.”See WRTL, 127 S. Ct. at 2667. Based on the Court's analysis, the NPRM's proposed safe harbor for grassroots lobbying communications covered any EC that “exclusively discusses a pending legislative or executive matter or issue” and “urges an officeholder to take a particular position or action with respect to the matter or issue, or urges the public to adopt a particular position and to contact the officeholder with respect to the matter or issue.”See NPRMat 50265-66.

Many commenters argued that the first prong of the safe harbor would be too narrow in several respects, including: (1) It required that the EC discuss the issue “exclusively;” (2) it required that the issue be “pending;” and (3) it was limited to ECs discussing “legislative or executive” issues. Some commenters also argued that the second prong of the safe harbor would be too narrow because it would be limited to officeholders and would not cover ECs that urged the public to contact the candidate simply to ascertain the candidate's position on a particular issue. Other commenters supported the proposed safe harbor's prongs as written and urged the Commission to limit the scope of the safe harbor. These commenters noted that a safe harbor should be narrower than the general exemption.

In response to some of these comments, the final rule incorporates certain modifications in the third prong of the safe harbor. Section 114.15(b)(3)(i) covers any EC that “focuses on a legislative, executive or judicial matter or issue” and either “urges a candidate to take a particular position or action with respect to the matter or issue” or “urges the public to adopt a particular position and to contact the candidate with respect to the matter or issue.”See11 CFR 114.15(b)(3)(i)(A)-(B). This formulation adopts theWRTL IIdecision's language that describes issue advertisements as ECs that “focus” on an issue rather than the NPRM's more narrow language that limits the safe harbor to ECs that “exclusively discuss” the issue. Thus, under this prong, an EC may qualify for the safe harbor even if it mentions other issues in addition to focusing on matters or issues listed in the safe harbor. In addition, the Commission agrees with the commenters that the safe harbor should cover not only legislative and executive issues as proposed in the NPRM, but also judicial matters. Furthermore, the final rule does not, as did the proposed rule, limit the subject matter of the EC to “pending” issues or matters. Instead, the new rule covers ECs that focus on any legislative, executive or judicial issue regardless of whether it is pending before one or more branches of government. This revision allows organizations to address, for example, issues that they believe should be placed on the legislative, executive, or judicial agenda in the future.

Finally, the Commission agrees with those commenters who pointed out that issue advocacy groups may urge a candidate who is not a sitting officeholder to take a certain position on a legislative, executive, or judicial issue, not because they want to advocate the candidate's election or defeat, but because they want the candidate to commit to taking action on a certain issue if the candidate is elected. Therefore, unlike the rule proposed in the NPRM, the final rule includes not only references to sitting officeholders but also references to any Federal candidates. However, in order to qualify for the safe harbor, the EC must either urge the candidates themselves to take a position, or urge the public to take a position and contact the candidates. General appeals to the public to “educate themselves” or to contact an organization to learn more about the issue will not satisfy this prong of the safe harbor. Appeals to the public to donate to the organization to help spread the word about the issue will not alone satisfy this prong of the safe harbor. However, such appeals to learn more or contribute will not disqualify from the safe harbor a communication which also includes exhortations to candidates or to the public to contact candidates. In addition, an appeal to learn about issues or to raise awareness (such as asking for donations to “help spread the word”) may qualify as a “call to action or other appeal” under 11 CFR 114.15(c)(2)(iii) (see below).

The second part of the safe harbor's third prong in section 114.15(b)(3)(ii) is also based upon the safe harbor for commercial and business advertisements proposed in the NPRM, but includes slightly revised language. The NPRM proposed a safe harbor for any EC that “exclusively advertises a Federal candidate's or officeholder's business or professional practice or any other product or service” and that “is made in the ordinary course of business of the entity paying for the communication.”See NPRMat 50270. Many commenters supported the creation of a commercial and business advertisements safe harbor as consistent with theWRTL IIdecision. However, some commenters supporting the safe harbor argued that the proposed provision was too narrow to be useful to the business community. Specifically, a few commenters argued that the Commission should remove the “ordinary course of business” prong in the proposed rule. Another commenter criticized the proposed safe harbor as too ambiguous and difficult for advertisers to apply when deciding whether a particular EC may be run.

Other commenters urged the Commission not to adopt any additional safe harbors besides one for grassroots lobbying communications as specifically addressed in theWRTL IIdecision. However, the language of the Supreme Court's general test for determining whether an EC is exempt from the EC funding restrictions is not limited just to grassroots lobbying advertisements but covers any EC that is susceptible of a reasonable interpretation other than as an appeal to vote. As explained in the NPRM, many ECs could reasonably be interpreted as having a non-electoral, business or commercial purpose. Therefore, the Commission believes that explaining how theWRTL IIexemption applies to commercial and business advertisements is helpful to provide adequate guidance to those seeking to comply with the EC provisions.

Accordingly, the last part of the safe harbor's third prong applies to an EC that “proposes a commercial transaction, such as purchase of a book, video or other product or service, or such as attendance (for a fee) at a film exhibition or other event.”See11 CFR 114.15(b)(3)(ii). The final rule substitutes “proposes a commercial transaction” for the “in the ordinary course of business” requirement proposed in the NPRM. As severalcommenters pointed out, determining whether an EC is made in the ordinary course of business would require the Commission to look beyond the four corners of the EC and probe into the outside business affairs of the speaker. By contrast, the new “proposes a commercial transaction” language appropriately focuses the Commission's inquiry on the objective meaning of the content of the EC.

This prong of the safe harbor will be satisfied regardless of whether the product or service is provided by a business owned or operated by, or employing, the candidate referred to in the EC.7 Both ECs advertising a Federal candidate's appearance to promote a business or other commercial product or service, and ECs in which the Federal candidate is referred to as the subject of a book, video, or movie will be eligible for the safe harbor. The final rule clarifies that an advertisement urging the public to attend a film exhibition or other commercial event for a fee is also eligible for the safe harbor. By contrast, advertisements for non-commercial events, such as for charities or political events, do not meet this prong and do not qualify for the safe harbor, although they may qualify for the general exemption.

The Commission is providing examples of ECs that illustrate the analysis of this third prong of the safe harbor provision below (seesection 114.15(e)).

The Commission has added new section 114.15(c) to explain how the Commission will analyze ECs that do not qualify for the safe harbor, given that the safe harbor does not include every EC that is permissible under section 114.15(a). Specifically, paragraph (c) of the final rule states that if an EC does not qualify for the safe harbor in section 114.15(b), the Commission will consider: “whether the communication includes any indicia of express advocacy and whether the communication has an interpretation other than as an appeal to vote for or against a clearly identified Federal candidate in order to determine whether, on balance, the communication is susceptible of no reasonable interpretation other than as an appeal to vote for or against a clearly identified Federal candidate.” As with the three prongs of the safe harbor, this analysis is drawn from theWRTL IIdecision's analysis of “indicia of express advocacy” and the content of WRTL's communications.

Sections 114.15(c)(1) and (c)(2) describe in more detail the two factors that the Commission will consider in determining whether an EC qualifies for the general exemption in section 114.15(a). The Commission will consider both factors in all cases and will balance the findings under both parts of the test to determine whether an EC has no reasonable interpretation other than as an appeal to vote and is therefore not permissible under section 114.15(a).

For example, even if the Commission found that an EC includes no “indicia of express advocacy,” it could still determine that the EC does not have content that would support a determination the EC has an interpretation other than as an appeal to vote, and conclude overall that the EC is not permissible under section 114.15(a) because, on balance, the EC has no reasonable interpretation other than as an appeal to vote. Conversely, even if the Commission found that an EC does include “indicia of express advocacy,” it could determine that the EC nevertheless has content that would support a determination that a EC has an interpretation other than a call to electoral action, and conclude overall that the EC is permissible under section 114.15(a) because, on balance, that interpretation is reasonable despite the presence of indicia of express advocacy. The Commission could also find no indicia of express advocacy in an EC, decide that there is content in the EC to support an interpretation of the EC as something other than a call to electoral action, but conclude overall that the EC is not permissible under section 114.15(a) because, on balance, that interpretation is not reasonable.

Section 114.15(c)(1) states that under the first factor of this analysis, an EC “includes indicia of express advocacy” if it “mentions any election, candidacy, political party, opposing candidate, or voting by the general public” or “takes a position on any candidate's or officeholder's character, qualifications, or fitness for office.”See11 CFR 114.15(c)(1)(i)-(ii). This list is taken from theWRTL IIdecision, and is a combination of the two lists contained in the first two prongs of the safe harbor in section 114.15(b).

The Commission agrees with the many commenters who argued that mentioning an election or opposing candidate, referring to a candidate's qualifications, or commenting on a sitting officeholder's character should not by itself disqualify an EC from the general exemption in section 114.15(a). Thus, although an EC that includes any one of the references on the list is automatically disqualified from the safe harbor, such an EC may still qualify for the general exemption under the analysis in section 114.15(c).

The second factor in paragraph (c)(2) states: “Content that would support a determination that a communication has an interpretation other than as an appeal to vote for or against a clearly identified Federal candidate includes” three types of content.See11 CFR 114.15(c)(2). This list of the three types of content is non-exhaustive and the Commission may also consider other types of content to determine whether an EC has some other interpretation besides urging electoral action.

The first type of content that supports a determination that an EC has an interpretation other than as an appeal to vote is content that “focuses on a public policy issue and either urges a candidate to take a position on the issue or urges the public to contact the candidate about the issue.”See11 CFR 114.15(c)(2)(i). This provision is broader than the issue advocacy provision of the safe harbor in section 114.15(b) in two ways. First, it considers whether the EC focuses on a “public policy issue” rather than, as required by the safe harbor, a “legislative, executive, or judicial matter.” Thus, an EC's content may support a determination that it has an interpretation other than as an appeal to vote if it discusses any matter of public importance even if the matter is not a “legislative, executive, or judicial matter,” but is instead, for example, a State action or an international event. Second, this provision considers whether an EC urges viewers to contact the candidate about the issue, rather than, as required by the safe harbor, urge viewers “to adopt a particular position” and contact the candidate about the issue.

Paragraph (c)(2)(ii) sets out the second type of content that supports a determination that an EC has an interpretation other than as an appeal to vote. This consists of content that “proposes a commercial transaction, such as purchase of a book, video or other product or service, or such as attendance (for a fee) at a film exhibitionor other event.” This provision is identical to the commercial transaction provision of the safe harbor in section 114.15(b)(3)(ii). However, the Commission might have to analyze an EC that satisfies the commercial transaction provision of the safe harbor under the rules of interpretation in section 114.15(c), because the EC included references to candidacies or elections that preclude qualification for the safe harbor. For example, a commercial advertisement for a book with the title “50 Reasons Not to Vote for Congressman Smith” would not satisfy the first prong of the safe harbor in section 114.15(b)(1). Therefore, the Commission would analyze such an advertisement under section 114.15(c)(2)(ii).

Section 114.15(c)(2)(iii) is a more general provision intended to apply to other types of ECs not covered by the public policy issue and commercial transaction provisions. The final rule states that an EC has content supporting a determination of an interpretation other than as an appeal to vote if it “includes a call to action or other appeal that interpreted in conjunction with the rest of the communication as urging action other than voting for or against or contributing to a clearly identified Federal candidate or political party.”See11 CFR 114.15(c)(2)(iii). The Commission will look at the entire content of the EC to determine whether an EC includes such a “call to action.”

This third provision was added, in part, to respond to commenters who urged the Commission to create a safe harbor provision for other categories of ECs, such as public service announcements.See NPRMat 50270-71. These commenters argued that public service announcements and charity advertisements can easily be interpreted as something other than an appeal to vote even though they simply provide information to the public without any specific “call to action.” For example, an EC that urges the public to sign up for a preventative screening for a particular type of cancer and includes a Federal candidate endorsing the organization's work on cancer research, would likely be deemed to have content that supports a determination that the EC has an interpretation other than as an appeal to vote.8 Another common example is an EC that urges viewers to “find out more” or visit a Web site for “more information.” In analyzing this type of EC, the Commission will look to the actual content of the EC itself to determine whether the “find out more” call to action can be interpreted as something other than a call to vote for or against a Federal candidate. Other possible “calls to action” under this provision are requests to donate money to a particular charitable organization or disaster relief fund. However, the final rule excludes from this provision requests to make contributions to any clearly identified Federal candidate or political party. Finally, as discussed above, the Commission will analyze ECs promoting charity events under this provision.

Several commenters argued that in analyzing whether an EC qualifies for the WRTL exemption, the Commission should be guided by the principle, articulated by the Supreme Court inWRTL II, that “[w]here the First Amendment is implicated, the tie goes to the speaker.”See WRTL II, 127 S. Ct. at 2669. New section 114.15(c)(3) incorporates the principle that “the tie goes to the speaker” by providing that “in interpreting a communication under paragraph (a), any doubt will be resolved in favor of permitting the communication.”See11 CFR 114.15(c)(3). The Commission intends to follow this principle in determining whether, on balance, the EC is susceptible of a reasonable interpretation other than as an appeal to vote and therefore is permissible under section 114.15(a).

As the NPRM explained, the exemption in section 114.15(a) is objective, focusing on the substance of the EC rather than “amorphous considerations of intent and effect.”WRTL II, 127 S. Ct. at 2666. In determining whether a particular EC is susceptible of a reasonable interpretation other than as an appeal to vote for or against a clearly identified Federal candidate, the Commission may consider “basic background information that may be necessary to put an ad in context.” Id. at 2669.9 According to theWRTL IIdecision, this information could include whether a communication “describes a legislative issue that is either currently the subject of legislative scrutiny or likely to be the subject of such scrutiny in the near future.”Id.(internal citation omitted).See also NPRMat 50264. However, the Court cautioned that inquiry into such relevant background should not require burdensome or broad inquiries with extensive discovery.See WRTL II, 127 S. Ct. at 2669.

Many commenters urged the Commission to clarify in the rule the extent to which the Commission would consider contextual information outside the actual text and visuals of the EC itself when applying theWRTL IIexemption. The final rule in new section 114.15 includes a new paragraph (d), which limits the contextual information the Commission will consider when analyzing ECs under theWRTL IIexemption. Some commenters urged the Commission to include in the rule text a list of the types of information that the Commission would consider in evaluating ECs, such as legislative calendars and news stories, and a list of the types of contextual information that the Commission would not consider in its analysis, such as timing of the EC, prior communications or outside activities of the speaker, and the EC's actual effect on elections. Instead of attempting to create exhaustive lists that would fit every circumstance, the final rule sets forth general principles that will guide the Commission's consideration of “external facts” beyond the four corners of the EC.

Specifically, section 114.15(d) states that when evaluating an EC under the general exemption or the safe harbor, the Commission may consider only the EC itself and “basic background information that may be necessary to put the communication in context and which can be established with minimal, if any, discovery.”See11 CFR 114.15(d). The rule provides the following examples of such basic background information: Whether a named individual is a candidate or whether an EC describes a public policy issue. The Commission will also consider similar background facts about the public policy issue, commercial product or service, or other topics discussed in the EC, so long as these facts may be established with minimal discovery.

In the NPRM, the Commission included a number of examples of communications that would, and would not, qualify for the proposed grassrootslobbying communications safe harbor.See NPRMat 50267-69. The Commission sought public comment on whether the final rule should include such examples in the EJ or the rule text itself.See NPRMat 50267. The Commission also asked whether there were additional examples of communications that should be included in the list. The commenters that discussed the question of where examples of communications should be published all favored inclusion of those examples in the EJ instead of the rule text.

After consideration of the comments, the Commission has decided to include examples of communications in the EJ instead of the rule. In addition, section 114.15(e) includes a statement to direct readers of the regulation to the Commission's web site on which the Commission will place the examples discussed in this EJ. The Commission intends to update this web page to include examples from court cases, advisory opinions and enforcement matters that apply theWRTL IIexemption in the future.

The following examples are illustrative only and are not intended to create a requirement for any particular words or phrases to be included before an EC will be permissible under theWRTL IIexemption. These examples are drawn from past court cases and Commission advisory opinions and enforcement matters.

All commenters that discussed the examples agreed with the NPRM's assessment that this example would qualify for the proposed grassroots lobbying communications safe harbor.See NPRMat 50267. This example also qualifies for the final rule's safe harbor. First, the communication does not mention any election, candidacy, political party, opposing candidate, or voting by the general public (section 114.15(b)(1)). Second, the communication does not take a position on the character, qualifications, or fitness for office of either Senator Feingold or Senator Kohl (section 114.15(b)(2)), or any other candidate. Third, this communication satisfies section 114.15(b)(3)(i) because it focuses on the legislative matter of Senate filibuster votes on judicial nominees, and urges the public to oppose the filibuster and to contact Senators Feingold and Kohl to take a position with respect to the filibuster issue. Therefore, this example qualifies for the safe harbor and is permissible under section 114.15(a).

All commenters that discussed the examples agreed with the NPRM's statement that this example would qualify for the proposed grassroots lobbying communications safe harbor.See NPRMat 50268. This example also qualifies for the final rule's safe harbor. First, the communication does not mention any election, candidacy, political party, opposing candidate, or voting by the general public under the first prong in section 114.15(b)(1). The communication also satisfies the second prong in section 114.15(b)(2) because it criticizes the Senators' past voting records only as part of a broader discussion of particular legislation, not as an attack on their personal character, qualifications, or fitness for office. Finally, this example satisfies the third prong of the safe harbor in section 114.15(b)(3)(i) because it focuses on the legislative issue of the legal definition of marriage, and urges the public to support a constitutional amendment, and to contact Senators Snowe and Collins to urge them to support the upcoming vote on the Marriage Protection Amendment. Therefore, this example satisfies all three prongs of the safe harbor and is an EC permissible under section 114.15(a).

The NPRM provided this communication as an example that would qualify for the proposed commercial and business advertisements safe harbor. The few commenters who addressed this example agreed that it would qualify forthe proposed safe harbor. Assuming that Joe Smith is a Federal candidate, this example also qualifies for the final rule's safe harbor. First, the communication does not mention any election, candidacy, political party, opposing candidate, or voting by the general public (section 114.15(b)(1)). Second, this communication does not take a position on the character, qualifications, or fitness for office of the candidate, Joe Smith (section 114.15(b)(2)). Third, the communication “proposes a commercial transaction” by advertising the car dealership owned by candidate Joe Smith and inviting viewers to purchase cars at that business (section 114.15(b)(3)(ii)). The external facts that Joe Smith is a candidate and that he owns this business are permissible background facts that the Commission may consider in its analysis of this communication pursuant to section 114.15(d). These facts may be established with minimal, if any, discovery. Thus, this example qualifies for the safe harbor and is permissible under section 114.15(a).13

The NPRM asked for public comment as to whether this example should qualify for the proposed grassroots lobbying safe harbor or the general exemption.See NPRMat 50268. Most commenters generally agreed that this example does not qualify for the proposed safe harbor because it does not discuss a pending legislative issue (proposed first prong) and criticizes Representative Ganske's character and fitness for office (proposed fourth prong).15 However, the commenters disagreed as to whether this example nonetheless qualifies for the general exemption proposed in the NPRM. Some commenters argued that because the communication focuses on the issue of air pollution and related legislative matters, it can reasonably be interpreted as seeking support for certain environmental issues. These commenters thought that the example should qualify for the general exemption as a “genuine issue advertisement,” even though it criticizes the Representative Ganske's past position on environmental issues. Other commenters contended that there was no reasonable interpretation of this communication other than as an appeal to vote against Representative Ganske because it includes a personal attack on Representative Ganske's character.

The Commission has determined that this example does not qualify for the safe harbor in section 114.15(b), but is permissible under the general exemption in section 114.15(a). The example satisfies the first prong of the safe harbor because it does not mention any election, candidacy, political party, opposing candidate, or voting by the general public (section 114.15(b)(1)). Under the second prong, the communication's criticism of Representative Ganske's past voting record in the context of a broader discussion of the issue of environmental protection does not constitute taking a position on Representative Ganske's character, qualifications, or fitness for office (section 114.15(b)(2)). However, the communication's statement that Representative Ganske voted for particular environmental bills supported by corporations who gave contributions to Representative Ganske is an attack on his character and fitness for office because, without reference to any external facts, the statement suggests that his past votes are a sign of corruption. Therefore, the example fails the second prong in section 114.15(b)(2) and does not qualify for the safe harbor.

The example must then be analyzed under the general exemption in section 114.15(a), using the two-factor approach described in section 114.15(c). As discussed above, this communication takes a position on Representative Ganske's character and fitness for office. Therefore, the communication includes “indicia of express advocacy” under the second provision in the first factor (section 114.15(c)(1)(ii)). Under section 114.15(c)(2)(i), the communication includes content that would support a determination that the communication has an interpretation other than as an appeal to vote against Representative Ganske because its content focuses on the public policy matter of environmental regulation of air pollutants and urges the public to call Representative Ganske about the issue and tell him to take action on the issue in the future. Finally, the Commission must balance both the presence of indicia of express advocacy under the first factor and the finding of content supporting another interpretation under the second factor to determine whether the communication is susceptible of no reasonable interpretation other than as an appeal to vote against Representative Ganske. Keeping in mind that any doubt is to be resolved in favor of finding the communication permissible under section 114.15(c)(3), the Commission determines that this communication is permissible under section 114.15(a) because it is susceptible of a reasonable interpretation other than as an appeal to vote for or against a Federal candidate, despite the presence of indicia of express advocacy.

This example was not included in the NPRM for public comment. Assuming that Sally Smith is a Federal candidate, the Commission concludes that this example does not qualify for the safe harbor in section 114.15(b), but is permissible under the general exemption in section 114.15(a). The example satisfies the first two prongs of the safe harbor because it does not mention any election, candidacy, political party, opposing candidate, or voting by the general public (section 114.15(b)(1)) and it does not take a position on Sally Smith's character, qualifications, or fitness for office (section 114.15(b)(2)). However, thecommunication does not satisfy the third prong of the safe harbor because it does not focus on a “legislative, executive or judicial matter” (section 114.15(b)(3)(i)) or “propose[] a commercial transaction” (section 114.15(b)(3)(ii)). Thus, this example does not qualify for the safe harbor.

Nonetheless, this communication is permissible under the two-factor analysis for the general exemption in section 114.15(a). First, the communication does not include indicia of express advocacy because it does not mention any election, candidacy, political party, opposing candidate, or voting by the general public (section 114.15(c)(1)(i)), or take a position on Sally Smith's character, qualifications, or fitness for office, (section 114.15(c)(1)(ii)). Nor does the example include any other content that would constitute indicia of express advocacy. Second, this example contains content that would support a determination that the communication has an interpretation other than as an appeal to vote for or against Sally Smith under the third provision in section 114.15(c)(2)(iii). The communication's “call to action” is an appeal to viewers to lower their cholesterol, participate in daily exercise, and visit their doctors regularly. The rest of the communication is focused on heart disease and the risk of heart disease for women. In conjunction with the rest of the communication, the call to action can be interpreted as urging action separate from electoral activity. Balancing both factors, this communication is permissible under section 114.15(a) because it is susceptible of a reasonable interpretation other than as an appeal to vote for or against a Federal candidate.

All commenters that discussed the examples agreed with the NPRM's statement that this example would not qualify for the proposed grassroots lobbying communications safe harbor.See NPRMat 50268. The commenters were also in agreement that this example has “no reasonable interpretation other than as an appeal to vote for or against a specific candidate” and should not qualify for the general exemption. Some commenters noted that the Supreme Court inMcConnellheld that this advertisement was the functional equivalent of express advocacy and that it should serve as a model for the types of character attacks that will not be permissible under the final rule.

The Commission has determined that this example does not qualify for the safe harbor and is not permissible under the final rule's general exemption. Although the example meets the first prong of the safe harbor because it does not mention any election, candidacy, political party, opposing candidate, or voting by the general public (section 114.15(b)(1), this communication attacks Bill Yellowtail's character by referring to alleged actions he took against his spouse, as well as his supposed delinquent child-support payments, and his past felony conviction. Such statements clearly constitute taking a position on the candidate's character, qualifications, or fitness for office under the second prong (section 114.15(b)(2)). Therefore, the example does not qualify for the safe harbor.

Nor is the example permissible under the two-factor analysis for the general exemption in section 114.15(a). Under the first factor, the communication includes indicia of express advocacy because it attacks the candidate's character (section 114.15(c)(1)(ii)). This example also does not have any of the types of content supporting a determination that the communication has an interpretation other than as an appeal to vote against Bill Yellowtail. First, although a past vote “against child support enforcement” is mentioned, the communication does not focus on any public policy issue under section 114.15(c)(2)(i). Instead, the communication focuses on the candidate's own personal and legal history. The communication does not propose any commercial transaction under section 114.15(c)(2)(ii). Finally, the communication appears to include a “call to action”: “Call Bill Yellowtail. Tell him to support family values.” However, when examined in conjunction with the rest of the communication that focuses on personal character attacks against Bill Yellowtail, this vague appeal does not provide an interpretation other than urging the public to vote against the candidate.

Balancing both the presence of indicia of express advocacy and the lack of content supporting another interpretation, this communication is not permissible under section 114.15(a) because it is susceptible of no reasonable interpretation other than as an appeal to vote for or against a Federal candidate.

The NPRM requested public comment as to whether this example should qualify for the proposed grassroots lobbying safe harbor or the general exemption.See NPRMat 50269. The commenters generally agreed that this example did not qualify for the proposed safe harbor because it mentioned the Representative Bass candidacy and his opposing candidate in the election, Arnie Arnesen (proposed third prong). However, the commenters disagreed as to whether this example qualified for the proposed general exemption. Some commenters argued that this communication was an issue advertisement focusing on pension protection and merely contrasted the candidates' different positions on that issue. These commenters argued that the example can be reasonably interpreted as providing information about the pensions issue and the candidates' positions on that issue. In contrast, most commenters thought that this example is the “functional equivalent of express advocacy” and does not qualify for the general exemption. These commenters noted that the discussion of candidacies in the communication made it unreasonable to interpret the communication in any way other than as urging the viewer to vote for one candidate over the other.

The Commission has determined that this example does not qualify for the safe harbor and is not permissible under the final rule's general exemption. The example fails the first prong of the safe harbor in section 114.15(b)(1) because it specifically discusses “the candidates,” including Representative Bass and hisopponent, Arnie Arnesen. The fact that Arnie Arnesen is running against Representative Bass is the type of external background fact that the Commission may consider in its analysis under section 114.15(d) because it requires minimal, if any, discovery. Therefore, the communication does not qualify for the safe harbor.

The Commission then applies the two-factor analysis in section 114.15(c) to determine if the communication is permissible under the general example in section 114.15(a). Under the first factor, the communication includes indicia of express advocacy because, as discussed above, it mentions a candidacy and an opposing candidate (section 114.15(c)(1)(i)). Moreover, this example does not have any of the types of content listed in the second factor that support an interpretation other than as an appeal to vote against Representative Bass. Although the communication discusses the public policy issue of pension funds generally, and the “Golden Trust Fund” legislation specifically, it does not urge the candidate(s) to take a particular position on that issue or urge the public to contact the candidate(s) about that issue (section 114.15(c)(2)(i)). Instead, the communication urges the public to “Call or visit our Web site to find out more.” This type of call to action is analyzed under the third provision in section 114.15(c)(2)(iii).19 The Commission may not consider the content of the external Web site referenced in the communication, but must examine the communication's appeal to the public to “find out more” in conjunction with the rest of the communication.See11 CFR 114.15(d). The communication characterizes Representative Bass's position on the issue negatively and Arnie Arnesen's position on the issue positively. Moreover, it describes these two positions as “where thecandidatesstand” (emphasis added) rather than as where anofficeholderstands. Thus, in conjunction with the rest of the communication, the call to action here does not constitute content that supports an interpretation other than as an appeal to vote. Considering both factors, this communication is not permissible under section 114.15(a) because it is susceptible of no reasonable interpretation other than as an appeal to vote for or against a Federal candidate.

New section 114.15(f) states that corporations and labor organizations that make electioneering communications permissible under section 114.15(a) aggregating in excess of $10,000 in a calendar year must file statements according to the EC reporting requirements in 11 CFR 104.20. The final rule adopts the NPRM's proposed language, which was not discussed by any of the commenters. Details regarding the reporting obligations for these entities are discussed below.20

The Act and current Commission regulations require any person that has made ECs aggregating in excess of $10,000 in a calendar year to file a disclosure statement.See2 U.S.C. 434(f)(1); 11 CFR 104.20(b). Generally, these statements must disclose the identities of the persons making the EC, the cost of the EC, the clearly identified candidate appearing in the EC and the election in which he or she is a candidate, and the disclosure date.See2 U.S.C. 434(f)(2)(A)-(D); 11 CFR 104.20(c)(1)-(6). Persons making ECs must also disclose the names and addresses of each person who donated an amount aggregating $1,000 or more during the period beginning on the first day of the preceding calendar year and ending on the disclosure date.See2 U.S.C. 434(f)(2)(F); 11 CFR 104.20(c)(8). However, the Act and Commission regulations provide the option that persons making ECs may create a segregated bank account for funding ECs in order to limit reporting to the donors to that account.See2 U.S.C. 434(f)(2)(E); 11 CFR 104.20(c)(7). The segregated bank account may only include funds contributed by individuals who are U.S. citizens or nationals, or permanent residents. Id. If a person does not create a segregated bank account and funds ECs from its general account, that person must disclose all donors of over $1,000 to the entity during the current and preceding calendar year.See2 U.S.C. 434(f)(2)(F); 11 CFR 104.20(c)(8). Moreover, persons that do not use a segregated bank account must be able to demonstrate through a reasonable accounting method that no corporate or labor organization's funds were used to pay any portion of an EC.See11 CFR 114.14(d)(1).

Alternative 1, proposed in the NPRM, would have required corporations and labor organizations making ECs that are permissible under proposed section 114.15 to comply with the same reporting requirements as other entities making ECs. Thus, under Alternative 1, corporations and labor organizations would have been required to disclose the names and addresses of each person, including corporations and labor organizations, who donated an amount aggregating $1,000 or more during the period beginning on the first day of the preceding calendar year and ending on the disclosure date. In addition, the proposed regulations would have allowed any person making an EC permissible under section 114.15, including corporations and labor organizations, to establish a segregated bank account to accept funds for that purpose.

All commenters who addressed disclosure of ECs stated that corporations and labor organizations should not be required to report the sources of funds that made up their general treasury funds. However, commenters disagreed on what specific EC reporting requirements should apply to corporations and labor organizations.

Some commenters proposed that disclosure by corporations and labor organizations should be limited to funds that are either designated for ECs or received in response to solicitations that specifically request donations for making ECs. Another commenter suggested that the current reporting rules for individuals, unincorporated entities, and qualified nonprofit corporations making ECs also be applied to corporations making ECs. This commenter's proposal would allow a corporation or labor organization to establish an account pursuant to 11 CFR 114.14(d)(2)(i) and report the identities of only those persons who contributed to that account. Without such an account, however, a corporation or labor organization would have to report the identities of everyone who donated $1,000 or more to that corporation or labor organization. If a corporation or labor organization receives no donations, and it paid for an EC out ofits general treasury funds, it would only have to report that fact.

One commenter argued that the concepts of “donor” and “donate” should exclude membership dues, investment income, or other commercial or business income. This commenter also suggested that use of general treasury money by a labor organization,i.e.funds derived from union dues, should not require a labor organization to report individual union members as donors, and that labor organizations should only have to report the source of funds as general treasury funds. The same commenter further asserted that segregated bank accounts are not a meaningful alternative for labor organizations, and argued that disclosing the sources of their general treasury funds would impose a heavy burden on labor organizations.

Finally, one commenter argued that disclosure by nonprofit corporations should be limited to those amounts listed on line 1 of the corporation's IRS Form 990, which includes “[c]ontributions, gifts, grants, and similar amounts received” by an organization exempt from income tax, because nonprofit corporations have a wide variety of sources of income, and unlimited disclosure would create a heavy burden for them. This commenter also argued that more extensive reporting requirements would far exceed all other reporting requirements that currently apply to nonprofit organizations, such as reporting to the Internal Revenue Service. This commenter also suggested that corporations and labor organizations should be required to report only grants and donations that are designated to support ECs.

As discussed in detail below, after consideration of the comments, the Commission has decided to depart from the rules proposed in the NPRM and instead to require corporations and labor organizations to disclose only the identities of those persons who made a donation aggregating $1,000 or more specifically for the purpose of furthering ECs made by that corporation or labor organization pursuant to 11 CFR 114.15. The Commission emphasizes that all the other reporting requirements that apply to any person making ECs, which are set forth at 2 U.S.C. 434(f)(2)(A)-(E) and 11 CFR 104.20(c)(1)-(6), apply also to corporations and labor organizations making ECs permissible under section 114.15. Thus, like all persons making ECs that cost, in aggregate, more than $10,000, corporations and labor organizations must also disclose their identities as the persons making the ECs, the costs of the ECs, the clearly identified candidates appearing in the communications and the elections in which the candidates are participating, and the disclosure dates.

A corporation's general treasury funds are often largely comprised of funds received from investors such as shareholders who have acquired stock in the corporation and customers who have purchased the corporation's products or services, or in the case of a non-profit corporation, donations from persons who support the corporation's mission. These investors, customers, and donors do not necessarily support the corporation's electioneering communications. Likewise, the general treasury funds of labor organizations and incorporated membership organizations are composed of member dues obtained from individuals and other members who may not necessarily support the organization's electioneering communications.

Furthermore, witnesses at the Commission's hearing testified that the effort necessary to identify those persons who provided funds totaling $1,000 or more to a corporation or labor organization would be very costly and require an inordinate amount of effort. Indeed, one witness noted that labor organizations would have to disclose more persons to the Commission under the ECs rules than they would disclose to the Department of Labor under the Labor Management Report and Disclosure Act.

For these reasons, the Commission has determined that the policy underlying the disclosure provisions of BCRA is properly met by requiring corporations and labor organizations to disclose and report only those persons who made donations for the purpose of funding ECs. Thus, new section 104.20(c)(9) does not require corporations and labor organizations making electioneering communications permissible under 11 CFR 114.15 to report the identities of everyone who provides them with funds for any reason.21 Instead, new section 104.20(c)(9) requires a labor organization or a corporation to disclose the identities only of those persons who made a donation aggregating $1,000 or more specifically for the purpose of furthering ECs pursuant to 11 CFR 114.15, during the reporting period. This period begins on the first day of the preceding calendar year and runs through the disclosure date. Donations made for the purpose of furthering an EC include funds received in response to solicitations specifically requesting funds to pay for ECs as well as funds specifically designated for ECs by the donor.22

In the Commission's judgment, requiring disclosure of funds received only from those persons who donated specifically for the purpose of furthering ECs appropriately provides the public with information about those persons who actually support the message conveyed by the ECs without imposing on corporations and labor organizations the significant burden of disclosing the identities of the vast numbers of customers, investors, or members, who have provided funds for purposes entirely unrelated to the making of ECs.

The Commission is also making a conforming amendment to 11 CFR 104.20(c)(8), which sets forth reporting requirements for ECs that were not paid for exclusively from a segregated bank account, by inserting the phrase “and were not made by a corporation or labor organization pursuant to 11 CFR 114.15,” after the phrase “described in paragraph (c)(7) of this section.” This modification clarifies that the pre-existing reporting requirements that apply to individuals, QNCs, and unincorporated organizations making ECs do not apply to corporations and organizations making ECs permissible under new section 114.15.

Previously, section 104.20(c)(7) only addressed segregated bank accounts containing funds solely from individuals who are “United States citizens, United States nationals, or who are lawfully admitted for permanent residence under 8 U.S.C. 1101(a)(20).” Following the approach proposed in the NPRM, the Commission has decided to divide section 104.20(c)(7) into paragraphs (c)(7)(i) and (c)(7)(ii). New paragraph (c)(7)(i) is substantially the same as former paragraph (c)(7) and sets forth the reporting requirements that apply to a segregated bank account used by individuals, unincorporatedassociations, and QNCs to pay for any ECs that do not come under new section 114.15. Corporations and labor organizations continue to be prohibited from donating to such an account.

In contrast, new paragraph (c)(7)(ii) sets forth the reporting requirements for a segregated bank account to be used to pay for ECs that are permissible under 11 CFR 114.15. Because this second type of account is used exclusively to pay for ECs permissible under new section 114.15, paragraph (c)(7)(ii) provides that such an account may contain corporate and labor organization funds. The reporting requirements that apply to a person setting up a segregated bank account to pay for ECs that are permissible under section 114.15 are the same as they are under previous paragraph (c)(7) and new paragraph (c)(7)(i), that is, such a person must report the identity of every person who donates an amount aggregating $1,000 or more to the person making the disbursement during the preceding calendar year.

Additionally, as proposed in the NPRM, the Commission is making conforming changes to 11 CFR 114.14(d)(2), which applies to the use of segregated bank accounts by persons that receive funds from corporations or labor organizations. Specifically, consistent with the changes to section 104.20(c)(7), the Commission is dividing section 114.14(d)(2) into two paragraphs. Paragraph (d)(2)(i) allows any person, other than corporations and labor organizations, wishing to make ECs permissible under 11 CFR 114.15 to establish a segregated bank account for that exclusive purpose. Such an account would report only donations made to the account for the purpose of making ECs, pursuant to 11 CFR 104.20(c)(7)(ii). Consistent with new section 104.20(c)(7)(ii), an account set up under section 114.14(d)(2)(i) may contain corporate and labor organization funds. The Commission notes that QNCs, like all corporations, are excluded from setting up a segregated account under paragraph (d)(2)(i) because they are, by definition, prohibited from accepting any corporate or labor organization funds.

Revised paragraph (d)(2)(ii) is substantially the same as former paragraph (d)(2) and continues to allow persons other than corporations (except for QNCs) and labor organizations to establish a segregated bank account to be used exclusively to pay for ECs that do not come under the new exception in section 114.15.

The Commission believes that if organizations that are not corporations or labor organizations intend to use corporate or labor organization funds to make some ECs that comply with the newWRTL IIexemption, and intend to make other ECs that do not, or might not, come within the exemption, they would be well-advised to establish two separate bank accounts to ensure that corporate and labor organization funds are only accepted and used to fund exempt ECs. Please note, however, that separate bank accounts are not mandatory because organizations need only show that they used a reasonable accounting method to separate corporate and labor organization funds under 11 CFR 114.14(d)(1).

Paragraph 114.4(c) sets out the types of communications that corporations and labor organizations may make either to the general public or to all employees and members. Such communications include registration and voting communications, official registration and voting information, voting records, and voting guides. The Commission is adding new paragraph (c)(8) to state that any corporation or labor organization may make ECs to the general public that fall within the new exemption in section 11 CFR 114.15. Paragraph (c)(8) also makes clear that QNCs may make ECs regardless of whether they are permissible under 11 CFR 114.15. In addition, the Commission is making a conforming change to section 114.4(c)(1), which lists the paragraphs that describe communications that corporations and labor organizations may make to the general public, by adding a reference to paragraph (c)(8).

Former section 114.14 prohibited corporations and labor organizations from providing general treasury funds to pay for any ECs whatsoever. The Commission's revisions to this section limit this prohibition to ECs that do not come within the newWRTL IIexemption in section 114.15, consistent with the proposed changes to the general prohibition on the use of corporate and labor organization funds in section 114.2.

Former paragraphs (a)(1) and (a)(2) of this section contained a general ban on corporations and labor organizations providing funds to any other person for the purpose of financing an EC. Likewise, former paragraphs (b)(1) and (b)(2) of this section prohibited persons that accept funds from corporations and labor organizations from using those funds to pay for ECs, or from providing those same funds to any other person for the purpose of paying for an EC. Former paragraph (d)(1) of this section requires any person that receives funds from corporations and labor organizations, and that makes ECs, to demonstrate by a reasonable accounting method that no corporate or labor organization funds were used to pay for the EC.

Paragraphs (a)(1), (b)(1) and (2), and (d)(1) are being modified by adding the phrase “that is not permissible under 11 CFR 114.15” after the word “communication” in each paragraph. Paragraph (a)(2) is being modified by adding the word “such” after the phrase “pay for.” These changes implementWRTL IIby limiting the prohibition on the use of corporate and labor organization funds to those ECs that are the functional equivalent of express advocacy, and therefore are not permissible under new 11 CFR 114.15. Paragraph (d)(1) is being further revised by adding the phrase “other than corporations and labor organizations” after the word “Persons.” The Commission is making this change to avoid any suggestion that corporations or labor organizations may make ECs that do not come within the new exception articulated inWRTL II.

The NPRM sought public comment on whetherWRTL IIalso provided guidance as to the scope of other provisions in the Act, such as the definition of “express advocacy” in 11 CFR 100.22.See NPRMat 50263. Specifically, the NPRM asked whetherWRTL IIrequired the Commission to revise or repeal any portion of the two-part definition in section 100.22. The commenters were divided as to what, if any, guidanceWRTL IIdecision provided the Commission with respect to the proper scope of the “express advocacy” definition in section 100.22. The Commission has decided to leave open the issue of the impact, if any, ofWRTL IIon the definition of “express advocacy” and to address the question at a later time.

The Commission certifies that the attached final rule does not have a significant economic impact on a substantial number of small entities. The basis for this certification is thatany small entities affected should not feel a significant economic impact from the final rule. Overall, the final rule relieves a funding restriction that the prior rules placed on corporations and labor organizations and therefore has a positive economic impact for any affected small entities. The final rule allows small entities to engage in activity they were previously prohibited from funding with corporation or labor organization funding. Moreover, this activity (making and funding ECs) is entirely voluntary, and any reporting obligations are only triggered based on entities choosing to engage in this activity above a threshold of $10,000 per calendar year. The reporting obligations are also limited to donations made for the purpose of furthering electioneering communications and should not have a significant economic impact on any reporting entity.

In addition, there may be few “small entities” that are affected by this final rule. The Commission's revisions affect for-profit corporations, labor organizations, individuals and some non-profit organizations. Individuals and labor organizations are not “small entities” under 5 U.S.C. 601(6). Most, if not all, for-profit corporations that are affected by the final rule are not “small businesses” under 5 U.S.C. 601(3). Large national and state-wide non-profit organizations that might produce electioneering communications are not “small organizations” under 5 U.S.C. 601(4) because they are not independently owned and operated and they are dominant in their field.

In Title 14 of the Code of Federal Regulations, Parts 1 to 59, revised as of January 1, 2007, on page 227, in § 23.561, remove the five paragraphs beginning with the second paragraph (d)(1)(i) through paragraph (d)(1)(v).

The FAA proposed to amend 14 CFR part 39 by superseding AD 2002-09-08, Amendment 39-12741 (67 FR 31113, May 9, 2002) with a proposed AD. The proposed AD applies to Hartzell Propeller Inc. models ()HC-()()Y()-()()() compact series, constant speed or feathering propellers with Hartzell manufactured “Y” shank aluminum blades. We published the proposed AD in theFederal Registeron August 14, 2006 (71 FR 46413). That action proposed to require the same actions as AD 2002-09-08, but would clarify certain areas of the compliance and would update a certain SB reference to the most recent SB.

You may examine the AD docket on the Internet athttp://www.regulations.gov; or in person at the Docket Operations office between 9 a.m. and 5 p.m., Monday through Friday, except Federal holidays. The AD docket contains this AD, the regulatory evaluation, any comments received, and other information. The street address for the Docket Operations office (telephone (800) 647-5527) is provided in theADDRESSESsection. Comments will be available in the AD docket shortly after receipt.

We provided the public the opportunity to participate in the development of this AD. We have considered the comment received.

The Modification and Replacement Parts Association requests that all service documents deemed essential to the accomplishment of the AD be incorporated by reference into the regulatory instrument, and published in the Docket Management System. We partially agree. We have incorporated pertinent service material into the regulatory section of this AD. However, at this time, the FAA does not post service material on the Federal Docket Management System. We are in the process of reviewing issues surrounding the posting of service bulletins on the Federal Docket Management System as part of an AD docket. Once we have thoroughly examined all aspects of this issue and have made a final determination, we will consider whether our current practice needs to be revised.

We changed the propeller blade shank cold rolling information from being a note, to paragraphs. We also added paragraphs to the alternative methods of compliance, to make the information more readable.

We have carefully reviewed the available data, including the comment received, and determined that air safety and the public interest require adopting the AD with the changes described previously.

We estimate that this AD will affect 35,750 propellers installed on airplanes of U.S. registry. We expect this AD will cost about $700 per propeller. Total cost to U.S. operators for this AD would be about $25.025 million. However, we also expect that all of the affected propellers should have already been inspected to comply with the existing AD's requirements to inspect, andrework or replace the aluminum blades. Therefore, we expect that this AD will have no additional cost.

We are transferring the docket for this AD to the Federal Docket Management System as part of our on-going docket management consolidation efforts. The new Docket No. is FAA-2007-28876. The old Docket No. became the Directorate Identifier, which is 2000-NE-08-AD.

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

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

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

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

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

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

(3) Will not have a significant economic impact, positive or negative, on a substantial number of small entities under the criteria of the Regulatory Flexibility Act.

We prepared a summary of the costs to comply with this AD and placed it in the AD Docket. You may get a copy of this summary at the address listed underADDRESSES.

In the September 21, 2007,Federal Register, 72 FR 53970-53973, BEA published a notice of proposed rulemaking setting forth revised reporting requirements for the BE-12, Benchmark Survey of Foreign Direct Investment in the United States. No comments on the proposed rule were received. Thus, the proposed rule is adopted without change. This final rule amends 15 CFR 806.17 to set forth the reporting requirements for the BE-12, 2007 Benchmark Survey of Foreign Direct Investment in the United States, and 15 CFR 806.18 to list the OMB control number for this survey.

The BE-12 benchmark survey is a mandatory survey and is conducted once every five years by BEA under the authority of the International Investment and Trade in Services Survey Act (22 U.S.C. 3101-3108), hereinafter, “the Act.” BEA will send the survey to potential respondents in March 2008; responses will be due by May 31, 2008. This final rule (1) increases the exemption level for reporting on the BE-12(LF) (Long Form) from $125 million to $175 million; (2) increases the exemption level for reporting on the BE-12(SF) (Short Form) from $10 million to $40 million; and (3) increases the exemption level for reporting on the BE-12 Bank form from $10 million to $15 million. In addition, it amends Form BE-12(X) by: (1) Re-naming it the Form BE-12 Claim for Not Filing; and (2) deleting several questions, which have been moved to a new Form BE-12 Mini. The Claim for Not Filing will be completed only by persons that are not subject to the reporting requirements of the BE-12 survey but have been contacted by BEA concerning their reporting status. The BE-12 Mini is a new abbreviated form for reporting U.S. affiliates with total assets, sales or gross operating revenues, and net income (loss) less than or equal to $40 million. U.S. affiliates with assets, sales, and net income (loss) less than or equal to $15 million are required to report only selected items on the BE-12 Mini.

In addition to these changes in the reporting criteria, this final rule adds questions to the BE-12(LF) (Long Form), BE-12(SF) (Short Form), and BE-12 Bank form to: (1) Collect detail on the broad occupational structure of employment; (2) identify companies that engage in cross-border services transactions; and (3) identify the financial reporting standards used to compile and report the survey. For the BE-12(LF) (Long Form), this rule adds questions to collect additional detail on the composition of external finances, trade, and research and development. For the BE-12(SF) (Short Form), this rule adds questions to collect sales of goods, sales of services, and investment income for majority-owned U.S. affiliates, including sales of services to U.S. persons and to foreign persons. For the BE-12 Bank form, this rule adds questions to make it easer to integrate data collected for banks with data collected for nonbank U.S affiliates. The items to be collected on this form include those needed to calculate value added as well as expenditures for property, plant, and equipment; sales of goods; and sales of services to the foreign parent group(s), to foreign affiliates owned by the U.S. affiliate, and to other foreign persons.

To offset the burden imposed by these additional questions, this final rule amends the BE-12 survey to discontinue collecting information on U.S. trade in goods by product, which had been collected on previous versions of the BE-12(LF) (Long Form), and to reduce the amount of detail collected for minority-owned U.S. affiliates on the BE-12(SF) (Short Form) and BE-12 Bank form. In addition, questions on services transactions between U.S. affiliates and their foreign parent group(s) are dropped from the BE-12 survey because collection of this information has been shifted to BEA's surveys of cross-border transactions in services and intangible assets (the BE-120, BE-125, and BE-185).

The Bureau of Economic Analysis (BEA), U.S. Department of Commerce, conducts the BE-12 survey under the authority of the International Investment and Trade in Services Survey Act (22 U.S.C. 3101-3108), hereinafter, “the Act.” Section 4(b) of the Act provides that with respect to foreign direct investment in the United States, the President shall conduct a benchmark survey covering year 1980, a benchmark survey covering year 1987, and benchmark surveys covering every fifth year thereafter. In conducting surveys pursuant to this subsection, the President shall, among other things and to the extent he determines necessary and feasible—

(1) Identify the location, nature, and magnitude of, and changes in the total investment by any parent in each of its affiliates and the financial transactions between any parent and each of its affiliates;

(2) Obtain (A) information on the balance sheet of parents and affiliates and related financial data, (B) income statements, including the gross sales by primary line of business (with as much product line detail as is necessary and feasible) of parents and affiliates in each country in which they have significant operations, and (C) related information regarding trade, including trade in both goods and services, between a parent and each of its affiliates and between each parent or affiliate and any other person;

(3) Collect employment data showing both the number of United States and foreign employees of each parent and affiliate and the levels of compensation, by country, industry, and skill level;

(4) Obtain information on tax payments by parents and affiliates by country; and

(5) Determine, by industry and country, the total dollar amount of research and development expenditures by each parent and affiliate, payments or other compensation for the transfer of technology between parents and their affiliates, and payments or other compensation received by parents or affiliates from the transfer of technology to other persons.

In Section 3 of Executive Order 11961, as amended by Executive Orders 12318 and 12518, the President delegated the responsibility for performing functions under the Act concerning direct investment to the Secretary of Commerce, who has redelegated it to BEA.

The benchmark surveys are BEA's censuses, intended to cover the universe of foreign direct investment in the United States in terms of value, and are BEA's most comprehensive surveys of such investment in terms of subject matter. Foreign direct investment in theUnited States is defined as the ownership or control, directly or indirectly, by one foreign person (foreign parent) of 10 percent or more of the voting securities of an incorporated U.S. business enterprise or an equivalent interest in an unincorporated U.S. business enterprise, including a branch.

The purpose of the benchmark survey is to obtain universe data on the financial and operating characteristics of U.S. affiliates, and on positions and transactions between U.S. affiliates and their foreign parent groups (which are defined to include all foreign parents and foreign affiliates of foreign parents). These data are needed to measure the size and economic significance of foreign direct investment in the United States, measure changes in such investment, and assess its impact on the U.S. economy. Such data are generally found in enterprise-level accounting records of respondent companies. These data are used to derive current universe estimates of direct investment from sample data collected in other BEA surveys in nonbenchmark years. In particular, they would serve as benchmarks for the quarterly direct investment estimates included in the U.S. international transactions and national income and product accounts, and for annual estimates of the foreign direct investment position in the United States and of the operations of the U.S. affiliates of foreign companies.

The survey consists of a number of report forms and a claim for not filing. The amount and type of data required to be reported will vary according to the size of the U.S. affiliate, whether it is a bank or a nonbank, and whether or not it is majority-owned by foreign direct investors. The report forms to be used in the survey consist of the following:

1. Form BE-12(LF) (Long Form)—Report for a majority-owned nonbank U.S. affiliate (a majority-owned U.S. affiliate is one in which the combined direct and indirect ownership interest of all foreign parents of the U.S. affiliate exceeds 50 percent) with total assets, sales or gross operating revenues, or net income greater than $175 million (positive or negative);

2. Form BE-12(SF) (Short Form)—Report for (1) a majority-owned nonbank U.S. affiliate with total assets, sales or gross operating revenues, or net income greater than $40 million (positive or negative), but not greater than $175 million (positive or negative), and (2) a minority-owned nonbank U.S. affiliate (owned 50 percent or less) with total assets, sales or gross operating revenues, or net income greater than $40 million (positive or negative);

3. Form BE-12 Bank—Report for a U.S. affiliate that is a bank; and

4. Form BE-12 Mini—Report for a nonbank U.S. affiliate with total assets, sales or gross operating revenues, and net income (positive or negative) less than or equal to $40 million.

The Form BE-12 Claim for Not Filing will be provided for response by persons that are not subject to the reporting requirements of the BE-12 survey but have been contacted by BEA concerning their reporting status.

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

This final rule does not contain policies with Federalism implications sufficient to warrant preparation of a Federalism assessment under E.O. 13132.

The collection-of-information in this final rule has been approved by the Office of Management and Budget (OMB) under the Paperwork Reduction Act (PRA).

Not withstanding any other provisions of the law, no person is required to respond to, nor shall any person be subject to a penalty for failure to comply with, a collection-of-information subject to the requirements of the Paperwork Reduction Act unless that collection displays a currently valid OMB control number. The OMB number for the BE-12 is 0608-0042; the collection will display this control number.

The BE-12 survey is expected to result in the filing of reports from approximately 18,550 respondents. The respondent burden for this collection of information is estimated to vary from 20 minutes to 715 hours per response, with an average of 11.3 hours per response, including time for reviewing instructions, searching existing data sources, gathering and maintaining the data needed, and completing and reviewing the collection of information. Thus, the total respondent burden for the survey is estimated at 209,650 hours (18,550 times 11.3 hours average burden).

Comments regarding the burden estimate or any other aspect of this collection of information should be addressed to: Director, Bureau of Economic Analysis (BE-1), U.S. Department of Commerce, Washington, DC 20230; Fax: 202-606-5311; and to the Office of Management and Budget, O.I.R.A., Paperwork Reduction Project 0608-0042, Attention PRA Desk Officer for BEA, via e-mail atpbugg@omb.eop.gov,or by Fax at 202-395-7245.

The Chief Counsel for Regulation, Department of Commerce, has certified to the Chief Counsel for Advocacy, Small Business Administration, under the provisions of the Regulatory Flexibility Act (5 U.S.C. 605(b)), that this rule will 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 the economic impact of the rule. As a result, no final regulatory flexibility analysis was prepared.

Altana, Inc., 60 Baylis Rd., Melville, NY 11747, has informed FDA that it has changed its name to Nycomed US, Inc. Accordingly, the agency is amending the regulations in 21 CFR 510.600(c) to reflect these changes.

This rule does not meet the definition of “rule” in 5 U.S.C. 804(3)(A) because it is a rule of “particular applicability.” Therefore, it is not subject to the congressional review requirements in 5 U.S.C. 801-808.

The Controlled Substances Export Reform Act of 2005 (Pub. L. 109-57) was enacted on August 2, 2005. The Act amends the Controlled Substances Import and Export Act (CSIEA) to provide authority for the Attorney General (and DEA, by delegation)1 to authorize the export of controlled substances in schedules I and II, and narcotic controlled substances in schedules III and IV, from the United States to another country for subsequent export from that country to a second country, if certain conditions and safeguards are satisfied.

Previously under the CSIEA (prior to the 2005 legislation), there were no circumstances in which it was permissible to export a controlled substance in schedules I and II, or a narcotic controlled substance in schedules III and IV, for the purpose of reexport to another country. Such controlled substances could lawfully be exported only to the immediate country where they would be consumed.

The Controlled Substances Export Reform Act requires the following:

To address the provisions of the Controlled Substances Export Reform Act of 2005, DEA published a Notice of Proposed Rulemaking (NPRM) (71 FR 61436, October 18, 2006). This rulemaking proposed amending DEA regulations to implement this new legislation. Most of the proposed amendments to the regulations either reiterated the new statutory provisions added by the 2005 Act or specified the procedural details for complying with the new statutory provisions. In three respects, however, the proposed rule contained substantive requirements not contained in the statute. The first additional proposed requirement was that the exporter notify DEA when the shipment for reexport has left the United States. The second additional proposed requirement was that the reexport from the first country to the second country take place within 90 days after the shipment leaves the United States. The third additional proposed requirement was that bulk materials undergo further manufacturing in the first country prior to being shipped to the second country. This was the same requirement contained in existing DEA regulations for reexports of nonnarcotic controlled substances in schedules III and IV and schedule V controlled substances (21 CFR 1312.27(b)(5)).

DEA received nine comments on the Notice of Proposed Rulemaking. Commenters included one pharmaceutical research and manufacturing association, seven manufacturers (including one represented by a law firm), and one member of the public. Most of the commenters generally supported the rulemaking, but had a variety of comments regarding certain aspects of the proposed rule. DEA has made certain modifications to the proposed rule in view of the comments. The comments, and DEA's responses, are discussed below.

Authority of DEA to issue substantive requirements not contained in the statute:One commenter asserted that DEA is without authority under the Controlled Substances Export Reform Act of 2005 “to create new criteria” and thus that this final rule should be limited to those substantive requirements mandated by Congress under the 2005 Act. In support of this contention, this commenter asserted that “Congress was extraordinary [sic] specific in the Act on the conditions and criteria under which schedule I and II controlled substances may be exported for reexport.”

DEA Response:Under the CSIEA, Congress granted the Attorney General express authority to “promulgate and enforce any rules, regulations, and procedures which he may deem necessary and appropriate for the efficient execution of his functions under [the CSIEA].” (21 U.S.C. 871(b) (incorporated into the CSIEA by 21 U.S.C. 965)). This authority has been delegated to the DEA Administrator (28 CFR 0.100(b)). Thus, DEA has such rulemaking authority with respect to all provisions of the CSIEA, including amendments thereto, such as those made by the Controlled Substances Export Reform Act of 2005. Indeed, if DEA were without such general rulemaking authority, the agency would have no ability to issue any regulations implementing the Controlled Substances Export Reform Act of 2005, as the 2005 legislation itself contains no express delegation of regulatory authority. Accordingly, this final rule is being issued pursuant to DEA's general authority granted by Congress to promulgate regulations necessary and appropriate for the efficient enforcement of the CSIEA.

That Congress included in the 2005 legislation very specific criteria under which certain controlled substances may be reexported in no way precludes or limits DEA's general rulemaking authority under the CSIEA. This is illustrated by, among other things, reviewing the longstanding import and export provisions of the CSIEA (21 U.S.C. 952 and 953), which also contain great specificity. Notwithstanding this specificity in the statutes, DEA has promulgated a variety of regulations (21 CFR part 1312) that impose restrictions beyond those mandated by Congress.

Time for reexportation:In its NPRM, DEA proposed requiring that the reexport from the first country to the second country take place within 90 days after the shipment leaves the United States. Eight commenters disagreed with this proposed requirement, citing a variety of concerns.

Commenters who disagreed with the 90-day timeframe asserted that, in some cases, it can take longer than 90 days to complete the additional manufacturing and testing in the first country and to obtain the permit from the second country. Further, these commenters asserted that other controls required by the Controlled Substances Export Reform Act are sufficient to ensure proper reexportation of controlled substances.

One commenter asked that DEA, when evaluating time considerations, bear in mind the system of estimates imposed under the treaties and implement the reexport allowance in a manner that will “prevent an accumulation of raw materials and distortion of estimates.”

DEA Response:DEA has considered the commenters' concerns and their explanations for those concerns. In addressing these comments, it is useful to begin with a reiteration of some important general principles. First, it should be noted that the United States has always been a world leader in promoting international and domestic control of narcotics and other controlled substances. As our nation is the world's largest producer of pharmaceutical controlled substances, the controls implemented by the United States play a crucial role in preventing diversion worldwide. Moreover, taking steps to prevent the United States from being a source of worldwide diversion directly benefits our country since a portion of the controlled substances diverted into illicit channels abroad can end up being sent back to the United States through illicit channels.

Another key principle is that, as one of the commenters suggested, reducing the accumulation of stocks of controlled substances tends to decrease the opportunity for, and likelihood of, diversion. It has long been recognized that the longer large supplies of controlled substances remain idly stockpiled, the greater the possibility of diversion. Consistent with these considerations, it should be noted that Congress, in enacting the 2005 legislation allowing for reexports, contemplated that “[a]ll subsequent transfers of controlled substances would still be subject to strict oversight by the DEA and will require a permit from the Attorney General to prevent any potential abuse.” 151 Cong. Rec. H6671 (July 27, 2005).

Given these principles, DEA strongly believes that, from an international drug control perspective, it is essential that the export from the first country to the second country occur in a finite period of time. The reexport allowance was not intended, and should not be construed, to allow the United States to become a source of stockpiling of controlled substances abroad for indefinite time periods. Moreover, without some limitation on the time controlled substances may remain in the firstcountry, a scenario could arise in which DEA has issued a permit authorizing a reexport, yet be without sufficient documentation to determine whether the shipment (i) has remained for many months in the first country without being reexported, (ii) has been improperly reexported to a different second country than that indicated on the reexport application, or (iii) was properly reexported to the second country but the reexporter failed to notify DEA within 30 days as required by the statute. As DEA noted in the NPRM, it can be inferred that one purpose of Congress' inclusion of the requirement that the United States exporter notify DEA within 30 days of the exportation from the first country to the second country is to provide a means for DEA to maintain an awareness of the status of shipments leaving the United States for reexport and thereby enhance the agency's ability to monitor and prevent diversion of such shipments. Requiring that there be a finite time within which the exportation from the first country to the second country must occur eliminates the possibility that DEA would be unable to ascertain the status of an approved reexport for an indefinite period of time.

Nonetheless, based on the comments received, DEA has decided to amend the regulation to double the time limit originally proposed. Under this Final Rule, the exportation from the first country to the second country may take place up to 180 days after the controlled substance was exported from the United States.

Use of National Drug Codes:Proposed § 1312.22(a) would require that applicants for export permits include the National Drug Code (NDC) number. One commenter suggested that the NDC number should only be required if the drug or product exported is listed with the U.S. Food and Drug Administration (FDA), because, this commenter asserted, some research compounds, reference standards, and samples are not required by the FDA to have an NDC number. Another commenter expressed its opinion that, based on FDA regulations, NDC numbers are not assigned to products for export, and countries outside the United States do not require NDC numbers, so the requirement to provide an NDC number on the DEA reexport permit application should be removed.

DEA Response:Requirements relating to NDC numbers are set forth in regulations issued by FDA. The NDC number consists of three parts: The labeler code, the product code, and the package code. Currently, FDA assigns the labeler code, and the product and package codes are assigned by the regulated industry within certain FDA parameters. On August 29, 2006, FDA published a Notice of Proposed Rulemaking [“Requirements for Foreign and Domestic Establishment Registration and Listing for Human Drugs, Including Drugs that are Regulated Under a Biologics License Application, and Animal Drugs” (Docket No. 2005N-0403, RIN 0910-AA49) (71 FR 51276)] proposing, among other things, requirements regarding NDC numbers.

In view of the comments, DEA is modifying the proposed rule to indicate that persons applying for a reexport permit must supply to DEA the NDC number of a drug in accordance with FDA regulations. DEA anticipates that the overwhelming majority of controlled substances that will be reexported under this Final Rule will have NDC numbers. However, the Final Rule has been modified so that, if no NDC number is required under FDA regulations for a drug being exported from the United States, the applicant for reexport will not be required to supply an NDC number.

System of controls of imports:Consistent with the 2005 legislation, proposed § 1312.22(c)(1) and (c)(2) would require the countries to which the controlled substance is exported to be parties to certain international conventions and to maintain, in conformity with such conventions, a system of controls that DEA deems adequate. In the text accompanying the proposed rule, DEA stated that DEA must be able to make the foregoing determinations based on the information contained in the permit application (DEA Form 161R). With respect to these aspects of the proposed rule, one commenter stated: “[I]t will be extremely difficult for U.S. exporters to determine in advance of applying for an export permit (to reexport) which countries the DEA has determined maintain a system of controls that the agency ‘deems adequate.’ ” Another commenter requested “that the permit application not require the applicant to certify that the country maintains a system of control of imports consistent with the requirements of the treaties.” However, a third commenter stated that “the export permit applicant should be able to state that to the best of their knowledge and belief, the country of ultimate consumption maintains a system of control of imports consistent with the requirements of the treaties.”

DEA Response:The requirements to which these comments pertain were specifically included in the Controlled Substances Export Reform Act, as codified in 21 U.S.C. 953(f)(1) and (2). These statutory requirements are repeated essentially verbatim in the text of the Proposed and Final rule (§ 1312.22(c)(1) and (c)(2)). However, in view of the comments, DEA wishes to clarify the following points. First, it was not DEA's intent to require the reexport permit applicant to certify that the first and second countries maintain systems of control which DEA deems adequate. Rather, as the statute indicates,DEAmust make the determination—as a prerequisite to issuing the permit—that both the first and second countries are parties to the Single Convention and Psychotropic Convention and maintain, in conformity with such conventions, a system of controls of imports of controlled substances which DEA deems adequate. The applicant will be required to certify, on the DEA Form 161R, to the best of his/her belief, that “the first and second countries have each instituted and maintain a system for the control of these substances.” This is the same certification that traditional exporters have always been required to make under the DEA Form 161.

Responsible official:Proposed § 1312.22(c)(7) would require the documentation to DEA to be signed by “the responsible company official.” One commenter pointed out that large companies might have several persons who meet these requirements and recommended that the provision be changed to “a responsible official.”

DEA Response:DEA agrees that there are circumstances in which companies might have more than one official authorized or permitted to sign documents providing the required information of DEA. Therefore, DEA is amending 21 CFR 1312.22(c)(7) and 1312.22(d)(6) to permit a responsible company official to sign the documents in question.

Further manufacture of bulk materials:Proposed § 1312.22(d)(1) would prohibit bulk substances from being reexported in the same form as they were exported from the United States,i.e., the material must undergo further manufacturing processes. Two commenters requested definitions or clarifications of the terms “further manufacturing” and “bulk materials.” One commenter suggested that further manufacturing should include processing, packaging, or relabeling and that bulk materials should include bulk product, such as tablets, capsules, solutions, suspensions, etc. That commenter also requested clarification in the Final Rule that bulk dosage formsmay be reexported for labeling and packaging in the second country.

DEA Response:The Controlled Substances Act (CSA) defines “manufacture” as: “the production, preparation, propagation, compounding, or processing of a drug or other substance, either directly or indirectly or by extraction from substances of natural origin, or independently by means of chemical synthesis or by a combination of extraction and chemical synthesis, and includes any packaging or repackaging of such substance or labeling or relabeling of its container” (21 U.S.C. 802(15)). DEA believes that this definition established by Congress is broad enough to encompass all controlled substance manufacturing activities. The requirement in the Final Rule that further manufacturing of bulk material take place in the first country will be satisfied by any bona fide manufacturing activity that fits within the broad CSA definition of “manufacture.” As mentioned in the NPRM, this further manufacturing requirement is the same requirement that exists in the current regulations for the reexportation of nonnarcotic controlled substances in schedules III and IV, and of controlled substances in schedule V. Those regulations have been in place for many years, and are well-understood by the regulated industry. DEA believes that the intent of this regulation, and the definition of remanufacture, is clear; there is nothing in the export regulations to supersede or otherwise interpret the definition of “manufacture” and DEA does not believe that further clarification is warranted here.

Similarly, DEA believes that the concept of bulk substances is well-understood within the regulated industry and does not require further clarification. Congress used the term “bulk manufacture” in the CSIEA without defining that term, see 21 U.S.C. 958(i), and DEA has never attempted to define this term by regulation. DEA does not believe that the issuance of this rule necessitates such a definition. One example of how the term “bulk manufacture” has long been used by registrants without difficulty is that all persons who seek to become registered to manufacture schedule I and II controlled substances are required to specify on their applications for registration (DEA Form 225) whether they are seeking to engage in “bulk” manufacturing or some other type of manufacturing, such as dosage form manufacturing.

Reports of reexport to the second country:Proposed § 1312.22(d)(4) and (d)(5) would require the United States exporter to identify the second countries and quantities at the time of shipment. One commenter asserted that shifts in demand may occur after the product has been exported to the first country, so a list of second countries and potential quantities should be a permissible option. Another commenter believed that DEA should recognize that because of manufacturing processes in the first country, the amounts of reexports to the second country may vary from the original estimates. Thus, this commenter asserted that the Final Rule should allow the United States exporter to amend the 30-day export reports to keep DEA informed of changes.

DEA Response:While DEA recognizes that international demand for controlled substances may shift over time, the statute plainly contemplates that both the first and second country must be identified to DEA before the shipment leaves the United States in order for the agency to make the assessments required by the statute. Among other things, for DEA to meet its statutory and international treaty obligations, DEA cannot issue a permit for the exportation, or reexportation, of any controlled substance to any country when DEA has information to show that the estimates or assessments submitted with respect to that country for the current period, under the Single Convention on Narcotic Drugs, 1961, or the Convention on Psychotropic Substances, 1971, have been, or, considering the quantity proposed to be imported, will be exceeded. Thus, the permit issued by DEA authorizing the reexport must specify both the first and second countries and may not be modified to change the second country after the shipment leaves the United States.

Regarding variances in reexports to second countries due to manufacturing in the first country, it should be noted that the statute requires the applicant for reexport to provide DEA with substantial evidence, prior to the shipment leaving the United States, that a permit to import the controlled substance is to be issued by the second country and that the proposed amount of controlled substance to be reexported to the second country is needed for a medical, scientific, or other legitimate use in that country. Also, as indicated above and in the NPRM, the quantity of controlled substances must be such that the importing country will not exceed its estimates or assessments provided to the International Narcotics Control Board (INCB) of the United Nations. Thus, before any shipment leaves the United States for reexport, considerable planning and preparation should go into determining the quantity of controlled substances that is ultimately destined for the second country. Accordingly, there should be minimal variance between the quantity set forth in the export permit and that which is actually shipped to the second country. (DEA recognizes that there may be some slight wastage of controlled substances in manufacturing processes in the first country.)

Section 1312.22(c)(7) requires the United States exporter, within 30 days of exportation from the first country to the second country, to report to DEA on company letterhead the actual quantity shipped. Those who submit such reports will be reporting on quantifiable transactions that have already occurred and have a responsibility to provide accurate information in doing so. Therefore, amendments to this report should not be necessary.

Time to report reexportation:One commenter requested that DEA extend beyond 30 days the time required for the United States exporter to provide notification of reexports from the first country to the second country, because of the need to obtain information from other parties.

DEA Response:This requirement was set by Congress (21 U.S.C. 953(f)(6)) and DEA is without authority to modify it by regulation.

Return of the product to the United States:Proposed § 1312.22(d)(8) would provide for the reexporter to seek authorization from DEA to return a shipment to the United States if such shipment has been refused by the second country. One commenter urged DEA to allow the reexporter to seek the same return authorization where the shipment has been refused by the first country. This same commenter further asked that, if the shipment is refused by the second country, the reexporter be permitted to return the shipment to the first country. Two other commenters requested clarification as to whether the United States itself can serve as the second country.

DEA Response:As DEA discussed in the proposed rule, there are circumstances in which a shipment has been exported from the United States, but is refused by the consignee in the second country, or is otherwise unacceptable or undeliverable. In these circumstances, the exporter may seek permission from DEA, in appropriate circumstances, to return the shipment to the registered exporter in the United States. The language DEA proposed regarding this provision parallels the same language as is currently in place for reexportation of nonnarcotic controlled substances in schedules IIIand IV, and controlled substances in schedule V. Under this provision, DEA will assess each situation on a case-by-case basis in determining whether it is appropriate to authorize the return of the shipment to the United States. DEA is adopting the first suggestion of the commenter to modify the rule to state expressly that if either the first or second country refuses the shipment, the reexporter may seek authorization from DEA to return the shipment to the United States. It should be noted, however, that DEA's experiences with reexportation of nonnarcotic controlled substances in schedules III and IV, and controlled substances in schedule V, indicate that such returns are expected to be very infrequent.

However, DEA cannot adopt the commenter's second suggestion—that DEA allow shipments which have been rejected by the second country to be returned to the first country. To do so would be the equivalent of allowing an export to the first country without having obtained proper approval before the shipment left the United States. Traditional exports of narcotic drugs in schedule I, II, III, or IV, and nonnarcotic controlled substances in schedule I or II are governed by 21 U.S.C. 953(a) and (c). Among the requirements of these provisions are: That DEA determine, before the shipment leaves the United States, that substantial evidence has been furnished that the controlled substance is to be applied exclusively to medical, scientific, or other legitimate uses within the country of import; that there is an actual need for the controlled substance for medical, scientific, or other legitimate uses within the country; and that DEA has issued a permit to export the controlled substance for consumption in the country of import. In order for DEA to make these determinations, the applicant for the export permit must supply certain information and make certain certifications on DEA Form 161. None of the foregoing requirements would be satisfied if DEA allowed a shipment that it authorized for reexport to be returned from the second country to the first country. In addition, allowing such returns from the second country to the first country could potentially disrupt the system of estimates and assessments and statistical returns maintained by the INCB, which is crucial to international drug control.

Regarding whether the United States may serve as the second country, to allow controlled substances to be re-imported into the United States by interpreting the term “second country” to include the United States would be contrary to the intent of Congress in enacting the legislation. As stated in House Report 109-115, part 1, at 2 (2005): “The purpose of this legislation is to amend Section 1003 of the Controlled Substances Import and Export Act [21 U.S.C. 953] by allowing a controlled substance that has been exported from the United States to be subsequently exported to athirdcountry under certain conditions and pending a permit from the Attorney General.” (Emphasis added.) Similarly, part 2 of the same House Report stated (at 2) that the legislation “will allow pharmaceutical companies to export controlled substances to distribution centers for export to oneadditionalcountry.” (Emphasis added.) Along the same lines, in remarks made on the House floor upon moving to pass the Senate version of the bill (S. 1395), Congressman Deal stated:

Thus, the scenario that Congress sought to address through the legislation entails the exportation of controlled substance drug products manufactured (initially) in the United States for ultimate consumption abroad (i.e., in a “third country”).

In addition, even if Congress had expressed no intent as to whether the “second country” referred to in 21 U.S.C. 953(f) could be the United States (which was not the case), re-importation into the United States would be impermissible unless the re-importer were able to demonstrate that it met the requirements of 21 U.S.C. 952(a)(2). Section 952(a)(2) governs importation of “any controlled substance in schedule I or II or any narcotic drug in schedule III, IV, or V,” which encompasses all the controlled substances subject to 21 U.S.C. 953(f), the Controlled Substances Export Reform Act. The requirements of § 952(a)(2) are highly restrictive and unlikely to be demonstrated where the applicant seeks to export a controlled substance from the United States for re-importation into the United States.

Estimated times per response for filing DEA Form 161 and 161R:As discussed in the preamble to the NPRM, DEA Form 161 is currently used to report the exportation of controlled substances in schedules I and II and narcotic controlled substances in schedules III and IV. DEA proposed the establishment of new Form 161R for the reporting of reexportations. The discussion of the Paperwork Reduction Act in the preamble to the proposed rule included a table of the estimated number of respondents and the amount of time estimated for an average respondent to respond regarding the completion of these forms. One commenter believed that the time estimates for completion of the required forms were too low because they apparently did not consider the time required to obtain the information needed to complete the forms. The commenter did not provide its own estimates regarding the time needed to complete the forms.

DEA Response:DEA estimates that it takes 30 minutes for a respondent to complete DEA Form 161 for exportation of controlled substances. DEA estimates that it takes a respondent 45 minutes to complete DEA Form 161R for reexportation of controlled substances. DEA recognizes that a variety of factors contribute to the time required to complete these forms including, but not limited to, the number and variety of controlled substances being exported or reexported, the number of countries to which controlled substances are exported or reexported, and the respondent's familiarity with the form. DEA notes that these estimates are average estimates; it may take some persons more time to complete these forms and it may take some less time. Therefore, as the time burdens are estimates of the time an average respondent takes to respond, and based on the varying factors associated with each exportation or reexportation of controlled substances, DEA believes that these estimates are accurate, on average, and is not adjusting the time burdens associated with this collection.

As discussed in the NPRM, the first two subsections of the Controlled Substances Export Reform Act of 2005 pertain to the Single Convention on Narcotic Drugs, 1961 (Single Convention), and the Convention on Psychotropic Substances, 1971 (Psychotropic Convention). Under these provisions, a reexport may take place only if both the first and second country are parties to both treaties and only if the Attorney General (DEA by delegation) determines that both the first country and the second country maintain an adequate system of controls in conformity with the treaties.

Thus, Congress expressly intended that reexports take place in accordance with the treaties. The control measures imposed under the Controlled Substances Export Reform Act of 2005, along with the regulations being finalized here, are intended to work in tandem with the international control regimes under the treaties. The ultimate goal of the 2005 Act and this Final Rule is to permit exportation of controlled substances in schedules I and II and narcotic controlled substances in schedules III and IV from the United States to a first country for subsequent exportation to one or more second countries while preventing international diversion resulting from reexports. Whenever considering safeguards against diversion of international shipments, one must bear in mind the backdrop of the treaties. Toward this end, the following treaty principles are noted.

Under the Single Convention, each country that is a party to the treaty is required to furnish the International Narcotics Control Board (INCB) with annual estimates of, among other things, the quantities of narcotic drugs on hand, the anticipated amounts that will be consumed by the party for legitimate purposes, and the anticipated production quantities. The Single Convention also requires parties to furnish the INCB with statistical returns for the prior year, indicating the amounts of drugs produced, utilized, consumed, imported, exported, seized, disposed of, and in stock. The Psychotropic Convention requires the parties to provide the INCB with statistical reports and assessments containing similar information with respect to psychotropic substances. Through the collection of this information, the INCB provides exporting countries with information on the legitimate requirements of the importing countries and can take steps to reduce the likelihood of international diversion. For example, the INCB may notify parties if the quantity of drugs exported to a particular country exceeded the estimates for that country. Parties that receive such notification from the INCB are prohibited from authorizing further exports of the drug concerned to that country.

Under the 2005 Act, before a controlled substance can be exported for subsequent reexport, the exporter must obtain from DEA a permit that authorizes the export for this purpose. Consistent with the 2005 Act, DEA may issue such a permit only if each of the conditions specified in the Act is met. Each of these conditions is restated in this Final Rule. Although most of these conditions are self-explanatory, some additional explanation is warranted.

DEA will be issuing a new application form, DEA Form 161R, for a permit to export controlled substances for subsequent reexport in accordance with the 2005 Act. The statute requires the reexporter (as a condition of obtaining an export permit from DEA) to specify both the first and the second countries, and to provide substantial evidence that, with respect to the second country, the controlled substance is to be consigned to a holder of such permits or licenses as may be required under the laws of such country, and a permit or license to import the controlled substance is to be issued by the country. In its NPRM, DEA discussed what would constitute “substantial evidence” for purposes of subsection (4) of the 2005 Act. Specifically, if on the completed DEA Form 161R, the applicant has identified an appropriately licensed or permitted consignee in the second country and certified that the second country is a party to the Conventions and maintains a system of controls of imports consistent with the requirements of the treaties, and so affirmed in the affidavit section of the application, DEA will consider this substantial evidence that a permit or license to import the controlled substance will be issued by the second country.

Failure to comply with the CSIEA and its implementing regulations, including those set forth in this rulemaking, may result in the imposition of penalties and/or administrative remedies as provided in the CSIEA. As with all statutory and regulatory provisions that DEA administers, the agency will evaluate any transgressions involving this Final Rule on a case-by-case basis, taking into account the totality of the circumstances, in determining the appropriate course of action.

DEA believes it is consistent with the text, structure, and purpose of the 2005 Act to allow a shipment of controlled substances to be exported from the United States to a “first country” for reexport to more than one “second country” (but not further export from any second country to a third country), provided the exporter notifies DEA of this intent in the application for export permit, and provided further that the statute is fully complied with in all other respects. DEA received one comment discussing this issue. The commenter supported DEA's position, agreeing that such an interpretation was contemplated in the Controlled Substances Export Reform Act. Therefore, this provision is being finalized without change. This Final Rule expressly provides for reexport to more than one second country, and the new Form 161R is structured accordingly.

As discussed previously, there are circumstances in which a shipment has been exported from the United States, but is refused by the consignee in the second country, or is otherwise unacceptable or undeliverable. In these circumstances, the exporter may seek permission from DEA, in appropriate circumstances, to return the shipment to the registered exporter in the United States. DEA proposed applying the same procedures to address this circumstance as already exist for the reexportation of nonnarcotic controlled substances in schedule III and IV, and controlled substances in schedule V (21 CFR 1312.27(b)(5)(iv)). DEA did not receive any comments seeking revision of this proposed language. Therefore, it is adopted as proposed.

The Deputy Assistant Administrator hereby certifies that this rulemaking has been drafted in accordance with the Regulatory Flexibility Act (5 U.S.C. 601-612), has reviewed this regulation, and by approving it certifies that this regulation will not have a significant economic impact on a substantial number of small entities. This rulemaking permits schedule I and II controlled substances, and narcotic controlled substances in schedules III and IV, to be exported from the United States to the first country for subsequent reexport to second countries for consumption. Previously such reexportation was not permitted within DEA law and regulations.

The Deputy Assistant Administrator further certifies that this rulemaking has been drafted in accordance with the principles in Executive Order 12866 § 1(b). It has been determined that this is a significant regulatory action. Therefore, this action has been reviewed by the Office of Management and Budget.

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

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

This rule will not result in the expenditure by State, local, and tribal governments, in the aggregate, or by the private sector, of $120,000,000 or more (adjusted for inflation) in any one year, and will not significantly or uniquely affect small governments. Therefore, no actions were deemed necessary under the provisions of the Unfunded Mandates Reform Act of 1995.

The Department of Justice, Drug Enforcement Administration, is revising the information collection entitled “Application for Permit to Export Controlled Substances”, by adding a new DEA Form 161R to be used by persons applying for a permit to reexport controlled substances in schedules I and II, and narcotic controlled substances in schedules III and IV. DEA has submitted the new DEA Form 161R and the information collection request to the Office of Management and Budget for review and clearance in accordance with review procedures of the Paperwork Reduction Act of 1995.

(1)Type of Information Collection:Revision of an existing collection.

(2)Title of the Form/Collection:Application for Permit to Export Controlled Substances.

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

Form Number:DEA Form 161, Application for Permit to Export Controlled Substances; DEA Form 161R, Application for Permit to Export Controlled Substances for Subsequent Reexport.

Office of Diversion Control, Drug Enforcement Administration, U.S. Department of Justice.

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

Primary:Business or other for-profit.

Other:None.

Abstract:Title 21 CFR 1312.21 and 1312.22 require persons who export controlled substances in schedules I and II and who reexport controlled substances in schedules I and II and narcotic controlled substances in schedules III and IV to obtain a permit from DEA. Information is used to issue export permits, exercise control over exportation of controlled substances, and compile data for submission to the United Nations to comply with treaty requirements.

(5)An estimate of the total number of respondents and the amount of time estimated for an average respondent to respond:It is estimated that 90 respondents will respond, with submissions as follows:

(6)An estimate of the total public burden (in hours) associated with the collection:The total public burden (in hours) for this collection is estimated to be 1,800 hours.

This rule is not a major rule as defined by § 804 of the Small Business Regulatory Enforcement Fairness Act of 1996 (Congressional Review Act). This rule will not result in an annual effect on the economy of $100,000,000 or more; a major increase in costs or prices; or significant adverse effects on competition, employment, investment, productivity, innovation, or on the ability of United States-based companies to compete with foreign-based companies in domestic and export markets.

Section 1561(a) of the Internal Revenue Code (Code) provides that thecomponent membersof acontrolled group of corporations(as those terms are defined in section 1563) are limited for their taxable years which include the same December 31st date to an amount of each of the tax-benefit items listed therein to which a corporation that is not a component member of a controlled group is entitled. Two of those items are the section 11(b)(1) tax-bracket amounts and the section 55(d)(2) exemption from the alternative minimum tax (the “exemption amount”). See section 1561(a)(1) and (a)(3). Each of these two Code provisions requires reductions in calculating the amounts of each of these two tax-benefit items after the taxpayer has passed certain thresholds. The “additional taxes” under section 11(b)(1) serve to reduce a corporation's use of the lower tax brackets after certain specified threshold levels of income are reached. Section 55(d)(3) requires reductions to the amount exempted from the alternative minimum tax.

In general, section 11(b)(1) provides for a graduated income tax rate structure for taxing the income of a corporation. The income tax rates imposed on a corporation's income increase with each higher bracketed range of taxable income. The following chart shows the various tax rates imposed on acorporation and the ranges of taxable income that are subject to each of these tax rates:

Section 11(b)(1) also imposes additional tax on the corporation's taxable income where its income exceeds two designated income thresholds. This additional tax is designed to reduce the tax benefit that a corporation derives from having some of its income taxed at a lower rate.

For example, if a corporation's taxable income exceeds $100,000 (but is not greater than $15 million), the total amount of the additional tax is the lesser of (1) the amount of 5 percent of the excess over $100,000 or (2) $11,750. This $11,750 amount represents the maximum tax benefit available to a corporation from having all of the first $75,000 of its taxable income taxed at the 15 and 25 percent tax rates rather than at a 34 percent tax rate. Similarly, if a corporation's taxable income exceeds $15 million, there is a further additional tax equal to the lesser of (1) the amount of 3 percent of the excess over $15 million, or (2) $100,000. This $100,000 amount represents the maximum tax benefit available to a corporation from having all of the first $10 million of its taxable income taxed at the 34 percent tax rate rather than at a 35 percent tax rate.

Section 55(d)(3) provides that a taxpayer's exemption amount shall be phased out (but not below zero) as the taxpayer's alternative minimum taxable income increases.

Under section 1561(a), the component members of a controlled group, with regard to taxable years containing a particular December 31st “testing date,” are collectively limited to using one full amount of certain tax-benefit items. As noted above, one of the tax benefits so limited is the benefit of the lower tax brackets. Another is the $40,000 amount for exemption from the alternative minimum tax. Section 1561(a) generally provides that the lower tax brackets and the $40,000 exemption from alternative minimum tax are divided equally among the component members of the controlled group unless the group adopts an apportionment plan that provides for an unequal allocation.

Section 1563(a) defines the four types of controlled groups. The two most common are parent-subsidiary (defined in section 1563(a)(1)) and brother-sister (defined in section 1563(a)(2)).

Under section 1563(b), a corporation is a component member of a controlled group for a given taxable year if it was a member of such group on the December 31st date of its taxable year for at least one-half the number of days of its taxable year that precedes that December 31st date. In addition, pursuant to section 1563(b)(3), a corporation is treated as a component member of a controlled group if it was a member of such group during a calendar year, although not on December 31st, but was a member of such group for at least one-half the number of days of its taxable year that precede that December 31st date (referred to as an “additional member”). Conversely, pursuant to section 1563(b)(2), a corporation which is a member of a controlled group of corporations on December 31st of any taxable year is treated as an excluded member of the controlled group (with regard to that December 31st testing date), if such corporation is a member of such group for less than one-half the number of days in its taxable year which precede such December 31st. The December 31st date of a specified calendar year will be referred to as the group's testing date. The December 31st testing date is used for determining which taxable years of which members will be subject to the limitation rules imposed by, for example, section 1561(a). Furthermore, the total number of days of a member's taxable year that precede a specified December 31st testing date will be referred to as that member's “testing period.”

Section 1561(a) provides that in computing the amount of additional tax imposed by section 11(b)(1), and the phase-out of the exemption amount under section 55(d)(3), the component members shall, as a first step, combine their taxable incomes. Most controlled groups will easily be able to compute the total of their members' taxable incomes and determine whether this sum exceeds the applicable income thresholds. Therefore, it is unnecessary to provide any regulatory guidance with regard to such determination. However, the IRS and the Treasury Department recognize that various situations exist where a component member may encounter difficulties with obtaining the information needed to calculate its entitlement to the benefit of a lower bracket or its obligation to pay additional taxes. For the benefit of taxpayers that confront such problems, several such situations are discussed below and illustrated in the examples of the regulation, although they are not addressed in the text of these temporary regulations.

Section 1561(a) provides that the taxable income of all of the component members of a controlled group of corporations for the taxable years which are subjected to the same December 31st testing date shall be taken into account, that is, added together, for the purpose of determining whether any member owes the additional tax imposed by section 11(b)(1) as well as for determining what portion of that additional tax is to be allocated to each member. As in the case of the additional tax, section 1561(a) provides that the alternative minimum taxable income of all of the component members of a controlled group of corporations for the taxable years that include the same December 31st date shall be taken into account, that is, added together, for the purpose of determining the reduction (under section 55(d)(3)) to the exemption amount as set forth in section 55(d)(2). Section 1561(a) further provides that the additional taxes, as well as the reduction to the exemption amount, shall each be apportioned among those members in the same manner that the corresponding tax-benefit item is apportioned. However, the current regulations do not provide any guidance on how to calculate and apportion these reductions to these two tax-benefit items.

Given that the additional taxes must be apportioned among the component members in the same manner as the tax-bracket amounts, these temporary regulations provide two methods for apportioning the amount of those additional taxes among the component members: the “proportionate method” and the first-in-first-out (“FIFO”) method. Under the proportionate method, the additional tax is allocated to any component member to whom a tax-bracket amount was apportioned in the same proportion as the portion of the tax benefit from that tax bracket which was allocated to that member bears to the total tax-benefit amount provided to all members from the use of that tax bracket. These tax benefits are attributable to the tax savings to the members of the group resulting from having ranges of income (tax-bracket amounts) being taxed at lower rates,instead of the higher tax rates to which income of the group is subject. The text of the regulations sets out the steps for applying this method. Under the FIFO method, the first dollars of the additional tax are to be allocated proportionately to each member to whom a tax-bracket amount was apportioned, starting with the lowest tax bracket and continuing on successively to each next higher tax bracket until the entire amount of the additional tax has been fully apportioned among the members. For example, under the FIFO method of apportionment, the first $9,500 of additional tax liability of a controlled group would be apportioned entirely to the member(s) that were apportioned the 15 percent tax bracket. Unless the component members of a controlled group elect to use the FIFO method, they are required to use the proportionate method in apportioning the additional taxes among the component members.

These temporary regulations also provide guidance in calculating and apportioning the reduction to the exemption amount. Specifically, they provide that any reduction to the exemption amount shall be apportioned to the component members in the same manner as the exemption amount.

Section 1561(b) provides that where a corporation has a short taxable year which does not include a December 31st date, but is a component member of a controlled group of corporations for such year (a “short-year member”), then, for purposes of subtitle A of the Code, the tax-benefit items described in section 1561(b) (the “section 1561(b) tax-benefit items”) of such corporation for such year shall be the amount specified in section 1561(a) for that item, divided by the number of corporations which are component members of such group on the last day of that member's short taxable year. Thus, a short-year member is not permitted to be apportioned a different amount.

Section 1561(b) further provides that the rules of section 1563(b) shall be applied as if the last day of the short-year member's short taxable year were substituted for December 31st. Thus, the determination of whether a short-year member qualifies as a member of the group is determined by looking to its testing period, which begins on the first day of its taxable year and ends on the day before the last day of such short taxable year. See the discussion of testing date and testing period in the following section of this preamble. Section 1.1561-2(e) interprets this provision.

These temporary regulations update and clarify the rules of current § 1.1561-2(e). It is not intended that any such updating and clarification constitute a substantive change.

Section 1.1563-1T(b) defines component members and excluded members of controlled groups. These definitions depend upon whether a corporation was a member of a group on the December 31st of its taxable year (its “testing date”) and was a member for at least one-half the number of days of its taxable year beginning on the first day of its taxable year and ending on December 30th of its taxable year (its “testing period”).

These temporary regulations amend § 1.1563-1T(b) to provide explanations of the concepts: Testing date and testing period.

A testing date is defined as the date that a controlled group is required to use in determining which of its members and which of their taxable years will be subject to the controlled group rules. Generally, a group's testing date is the December 31st date included within all the members' taxable years, whether such corporations are on a calendar or fiscal taxable year. However, if a component member of a controlled group has a short taxable year that does not include a December 31st date, then the last day of its short taxable year serves as the member's testing date.

A testing period is defined as the period of time that a member of a controlled group uses to determine its status as either a component member or an excluded member. The testing period begins on the first day of a member's taxable year and ends on the day before its testing date. Thus, in the case of a member on a fiscal taxable year, the portion of its taxable year beginning after December 31st and ending on the last day of its taxable year is not taken into account in determining its status as a component member or an excluded member.

The IRS and the Treasury Department wish to note certain circumstances in which corporations may experience complications in applying the controlled group rules generally or with respect to tax brackets and the alternative minimum tax exemption amount in particular. As noted above, no new rules are provided with respect to these situations, although they are illustrated in several examples in these temporary regulations. Because the controlled group rules apply to multiple corporations each filing its own return, the corporations must have access to sufficient information regarding the other members or potential members to comply with the rules. Taxpayers are alerted to their responsibilities to obtain this information. In certain situations, such information may have to be obtained from corporations that are no longer owned by related parties and taxpayers will need to make arrangements to ensure that they will have access to information that will enable them to meet their compliance obligations. Ideally, the corporations and their shareholders will take these issues into account when contemplating transfers of interests in the corporations to provide access to adequate information sharing afterwards.

For example, if a corporation in a group changes hands during or shortly after the end of a taxable year, the formerly related corporations in the selling group will need information from the sold corporation about its income levels under the regular and alternative minimum tax systems, and the sold corporation will need information about the formerly related selling group members.

In addition, if a corporation changes hands during a calendar year in a transaction that does not close the corporation's taxable year, events later in the year after the corporation is no longer related could affect the corporation's status as a member of the controlled group. For example, if the corporation changes hands early in the calendar year, the selling group might assume that the bulk of the testing period will fall after the sale and the corporation will not be a member for the year. However, if the corporation is liquidated by its new owners during the calendar year, the testing period for the year will be truncated and the corporation may be included for the taxable year in the selling controlled group because it was there for more than one-half of the now shorter testing period. The selling group will need to know that the sold corporation will now be treated as included in its group and the relevant data about its income for the taxable year.

Furthermore, events after the close of the taxable year, such as amended returns, audit adjustments or loss carrybacks, could affect the entitlement of other group members to tax benefits such as the lower brackets or the alternative minimum tax exemptionamount, as well as other issues that might affect whether the group members will be under the regular or alternative minimum tax. In this case, again, the various members of the controlled group in the earlier year will need to have adequate information sharing to comply with their responsibilities.

Section 1.1502-47 provides rules for a life-nonlife consolidated group to calculate its consolidated taxable income. Paragraph (s) of § 1.1502-47 previously required a consolidated group to clearly indicate “by notation” on the face of its return that it is a life-nonlife consolidated return. This requirement presented an impediment to e-filing. Accordingly, as part of TD 9304, the IRS and the Treasury Department amended § 1.1502-47(s) and published § 1.1502-47T(s) to remove this impediment by deleting the requirement that it indicate this “by notation.” However, § 1.1502-47T(s) was inadvertently removed from the Code of Federal Regulations by TD 9342 when other portions of § 1.1502-47T were published as final regulations. These temporary regulations republish § 1.1502-47T(s).

It has been determined that this Treasury decision is not a significant regulatory action as defined in Executive Order 12866. Therefore, a regulatory assessment is not required. It has also been determined that section 553(b) of the Administrative Procedure Act (5 U.S.C. chapter 5) does not apply to this regulation. For the applicability of the Regulatory Flexibility Act (5 U.S.C. chapter 6) refer to the Special Analyses section of the preamble to the cross-reference notice of proposed rulemaking published in the Proposed Rules section in this issue of theFederal Register. Pursuant to section 7805(f) of the Internal Revenue Code, this regulation will be submitted to the Chief Counsel for Advocacy of the Small Business Administration for comment on its impact on small business.

The principal author of this regulation is Grid Glyer, Office of Associate Chief Counsel (Corporate). The other author of and principal reviewer for this regulation is Steven J. Hankin, Office of Associate Chief Counsel (Corporate). Other personnel from the IRS and the Treasury Department, however, participated in its development.

Background

The Arms Export Control Act of 1976 (“AECA”), 22 U.S.C. 2778, gives the President of the United States the authority to control the import and export of defense articles and defense services. The Bureau of Alcohol, Tobacco, Firearms, and Explosives (“ATF”) is responsible for administering the import provisions of the AECA. Importation regulations issued under this law are in 27 CFR Part 447.

Executive Order (“E.O.”) 11958 of January 18, 1977 (42 FR 4311, Jan. 24, 1977), as amended by E.O. 13284 of January 23, 2003 (68 FR 4075, Jan. 28, 2003), delegated authority to control exports of defense articles and defense services to the Secretary of State. The Executive Order also delegated to the Attorney General the authority to control the import of such articles and services. However, as stated in 27 CFR 447.55, ATF is guided by the views of the Secretaries of State and Defense on matters affecting world peace and the external security and foreign policy of the United States. After consulting the Department of State, ATF is revising the provisions of 27 CFR Part 447 to conform to the International Traffic in Arms Regulations (22 CFR Parts 120-130).

On March 17, 2005, the Department of State informed ATF that on August 27, 1994, the Department of State rescinded the sanctions on trade in defense articles and services from South Africa and technical data relating to defense articles from South Africa as set forth in Category XXII of the U.S. Munitions Import List, 27 CFR 447.21. In an open letter, dated July 11, 2005, ATF advised federally licensed firearms importers and registered importers of this change and that it planned to revise § 447.21. Accordingly, this rule amends § 447.21 by removing Category XXII and the reference to Category XXII in the definition of “Defense articles” in § 447.11.

On March 28, 2003, the Department of State advised ATF of the publication of a final rule on March 29, 2002 (67 FR 15101), formally removing Armenia and Azerbaijan from the list of proscribed destinations for the exports and imports of defense articles and defense services. ATF is therefore amending 27 CFR Part 447 to conform to this change.

The Department of State also advised ATF of the publication of a final rule on January 9, 2002 (67 FR 1074), formally removing Tajikistan, Serbia and Montenegro (formerly known as the Federal Republic of Yugoslavia) from the arms embargo with the United States. Accordingly, the list of proscribed countries in part 447 is being amended to reflect this change in foreign policy.

On November 20, 2005, the Department of State advised ATF of the publication of a final rule on June 27, 1996 (61 FR 33313), formally adding Afghanistan to the list of proscribed countries for the exports and imports of defense articles and defense services. ATF is therefore amending 27 CFR Part 447 to conform to this change.

The Department is also taking this opportunity to clarify an outdated reference contained in § 447.52(a). “Zaire” is currently listed as a country to which the United States maintains an arms embargo and this listing is amended to read “the Democratic Republic of the Congo.”

The Department also is making a technical amendment to § 447.52 to indicate the current phone number for ATF's Firearms and Explosives Imports Branch.

Because the amendments to 27 CFR Part 447 involve a foreign affairs function of the United States, Executive Order 12866 does not apply.

This regulation will not have substantial direct effects on the States, on the relationship between the National Government and the States, or on the distribution of power and responsibilities among the various levels of government. Therefore, in accordance with section 6 of Executive Order 13132, the Attorney General has determined that this regulation does not have sufficient federalism implications to warrant the preparation of a federalism summary impact statement.

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

As reflected in 27 CFR 447.54, amendments made to 27 CFR Part 447 are excluded from the rulemaking provisions of 5 U.S.C. 553 because this part involves a foreign affairs function of the United States. Accordingly, it is not necessary to issue this rule using the notice and public procedure set forth in 5 U.S.C. 553(b), and the requirement of a delayed effective date in 5 U.S.C. 553(d) does not apply.

The provisions of the Regulatory Flexibility Act relating to an initial and final regulatory flexibility analysis are not applicable to this rule because the agency was not required to publish a general notice of proposed rulemaking under 5 U.S.C. 553 or any other law.

This rule is not a “major rule,” as defined by section 251 of the Small Business Regulatory Enforcement Fairness Act of 1996, 5 U.S.C. 804. This rule will not result in an annual effect on the economy of $100 million or more; a major increase in costs or prices; or significant adverse effects on competition, employment, investment, productivity, innovation, or on the ability of United States-based companies to compete with foreign-based companies in domestic and export markets.

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

The provisions of the Paperwork Reduction Act of 1995, Public Law 104-13, 44 U.S.C. Chapter 35, and its implementing regulations, 5 CFR Part 1320, do not apply to this rule because there are no reporting or recordkeeping requirements.

The author of this document is Elizabeth Gillis; Enforcement Programs and Services; Bureau of Alcohol, Tobacco, Firearms, and Explosives.

Employer-sponsored retiree health benefits provide a much-needed source of health coverage for older Americans at a time when their health care needs are greatest. Without employer-sponsored retiree health benefits, many retirees are forced to go without health benefits between the time they retire and the time they become eligible for Medicare. Older retirees also rely on employer-sponsored retiree health benefits to cover medical costs that are not covered by Medicare.

Employers are not legally obligated to provide retiree health benefits, and many do not. Moreover, over the past several years, the number of employers who offer such benefits has begun to decline. According to an independent study by the United States General Accounting Office (GAO), about one-third of large employers and less than 10% of small employers offered their retirees health benefits in 2000, compared to about 70% of employers in the 1980s.2 Of those employers that do offer coverage, many “have reduced the terms of coverage by tightening eligibility requirements, increasing the share of premiums retirees pay for health benefits, or increasing copayments and deductibles—thus contributing to a gradual erosion of benefits.”3

Rising health care costs, larger numbers of workers nearing retirement age, and mandated changes in the way employers must account for the long-term costs of providing retiree health coverage have been substantial factors contributing to the erosion of this valuable employment benefit. However, the Equal Employment Opportunity Commission (Commission or EEOC) believes that concern about the potential application of the Age Discrimination in Employment Act of 1967, 29 U.S.C. 621et seq.(ADEA or Act) to employer-sponsored retiree health benefits also has adversely affected the availability of this benefit. A wide range of stakeholders, including labor organizations, benefits consultants, state and local governments, and private employers, agree that ADEA concerns have created an additional incentive to reduce or eliminate employer-sponsored retiree health benefits.

In August 2000, the United States Court of Appeals for the Third Circuit became the first federal court of appeals to examine the relationship between the ADEA and employer-provided retiree health benefits. The Third Circuit held that an employer violated the ADEA if it reduced or eliminated retiree health benefits when retirees became eligible for Medicare, unless the employer could show either that the benefits available to Medicare-eligible retirees were equivalent to the benefits provided to retirees not yet eligible for Medicare or that it was expending the same costs for both groups of retirees.4 The Commission subsequently adopted this ruling as its national enforcement policy.5 Before the Third Circuit's decision, many employers had relied on legislative history to the Older Workers Benefit Protection Act of 1990, Public Law No. 101-433, 104 Stat. 978 (1990) (OWBPA), that states that the practice of eliminating, reducing, or altering employer-sponsored retiree health benefits with Medicare eligibility is lawful under the ADEA.6

After the Commission implemented the Third Circuit's rule, labor organizations, benefits experts, state and municipal governments, and employers informed us that our actions were further eroding employer-sponsored retiree health benefits by creating an additional incentive for employers to reduce, or eliminate altogether, health benefits for retirees. Under the Commission policy in effect prior to August 2001 (see nn. 2 3), employers that chose to provide retiree health benefits had to prove either (1) that the benefits available to Medicare-eligible retirees were the same as the benefits provided to retirees not yet eligible for Medicare or (2) that they were expending the same costs for both groups of retirees. Making such a showing requires complex comparisons of multiple objective and subjective variables, including types of plans, levels and types of coverage, deductibles, geographical areas covered, and level of provider choice offered by each plan. Employers could avoid the problem by simply eliminating retiree health benefits entirely, since no law requires that employers provide retiree health benefits. Alternatively, employers could reduce the coverage they provided to those retirees who were not yet eligible for Medicare, leaving these retirees with fewer benefits. Unions, in particular, argued that the Commission's prior policy made it increasingly difficult to negotiate for the future provision of employer-sponsored retiree health benefits. The prior policy also had a particularly harsh impact on public school employees, who often retire early and rely on employer-provided retiree health benefits until they become eligible for Medicare.

These comments prompted the Commission to study the relationship between the ADEA and employer-sponsored retiree health benefits. On July 14, 2003, EEOC published a Notice of Proposed Rulemaking (NPRM) in theFederal Registerto address these concerns.7 In its NPRM, the Commission proposed to create a narrow exemption from the prohibitions of the ADEA for the practice of coordinating retiree health benefits with eligibility for Medicare or a comparable State health benefits program. The Commission now responds to public comments submitted in response to its NPRM and issues a final rule, adopting the NPRM exemption as modified.

The final rule permits employers and labor organizations to offer retirees a wide range of health plan designs that incorporate Medicare or comparable State health benefit programs without violating the ADEA. For example, in order to ensure that all retirees have access to some health care coverage, the ADEA will not prohibit employers and unions from providing retiree health coverage only to those retirees who are not yet eligible for Medicare. They also may supplement a retiree's Medicare coverage without having to demonstrate that the coverage is identical to that of non-Medicare eligible retirees. Thus, for example, employers providing prescription drug benefits to Medicare-eligible retirees under the Medicare Prescription Drug, Improvement, and Modernization Act of 2003, Pub. L. No. 108-173, 117 Stat. 2066 (2003), need not be concerned about whether the drug benefits provided to Medicare-eligible retirees differ from those provided to retirees not yet eligible for Medicare.

The final rule concerns only the ADEA. It does not affect any non-ADEA obligation that employers may have to provide health benefits under Medicare or any other law. For example, this rule does not affect employers' obligation to use Medicare as a secondary payer, when required by Medicare law.

In promulgating this rule, the Commission recognizes that the issues surrounding health care coverage, especially for retirees, are complex and that retiree health benefits are highly valued by older Americans. Although employers are under no legal obligation to offer retiree health benefits, some employers choose to do so and thereby provide retired workers with access to affordable health coverage at a time when private health insurance coverage might be otherwise cost prohibitive. Because the Commission has determined that its prior policy created an incentive for employers to reduce or eliminate retiree health benefits, the agency has concluded the public interest is best served by an ADEA policy that permits employers greater flexibility to offer these valuable benefits. The final rule is not intended to encourage employers to eliminate any retiree health benefits they may currently provide.

The Commission received forty-four organizational comments in response to the NPRM. Twenty-seven commenters expressed support for the proposed exemption, including sixteen organizations that requested no revisions to the proposed rule. The Commission also received approximately 30,000 letters from individual citizens. Most of these individual comments were a form letter expressing concern that if the practice of coordinating retiree health benefits with eligibility for Medicare or comparable State health benefits programs is exempted from ADEA coverage, employers might reduce or eveneliminate the health benefits of Medicare-eligible retirees.

Two organizational commenters questioned whether the language in Section 1625.32(b) clearly defined the scope of the proposed exemption. One of these two commenters requested that the Commission clearly state that, under the rule, an employer-sponsored health plan that alters, reduces, or eliminates health care benefits based upon the receipt of health benefits under Medicare or a comparable State health benefits program is entirely exempt from coverage under the ADEA, even if a challenged practice is unrelated to the plan's interaction with Medicare (or comparable State health benefits program). The Commission declines to adopt this suggestion because it is wholly inconsistent with the intended scope of the rule. The rule only exempts the narrow practice of coordinating employer-sponsored retiree health benefits with eligibility for Medicare or a comparable State health benefits program. A comparable state health benefits program refers to plans that were created to provide primary health benefits for state and local government employees who were not covered by Medicare and that, like Medicare, base eligibility on age.

ADEA coverage of any other aspect of an employer-sponsored retiree health plan, or of any other employer act, practice, or benefit of employment, including employer-sponsored health plans for current employees, is not affected by the rule. Additionally, as discussed below, the Commission will apply the exemption to the practice of coordinating employer-sponsored retiree health benefits with eligibility for Medicare or a comparable State health benefits program regardless of whether an individual participant actually receives such benefits.

Another organization argued that the phrase “eligible for” in Section 1625.32(b) was vague because it was unclear whether the rule requires that an individual retiree actually enroll in, rather than merely be eligible for, Medicare or a comparable State health benefits program before the exemption would apply. The effect and intent of the proposed rule was that the exemption would apply whether or not a particular retiree actually enrolls in Medicare or a comparable State health benefits program, as long as the retiree was eligible for such benefits. While we believe the phrase “eligible for” is plain on its face, we have added the phrase “whether or not the participant actually enrolls in the other benefit program” to Section 1625.32(b) to further clarify our intent.

This same commenter also questioned whether “Medicaid offsets” would be covered by the exemption, but did not further explain the type of employer-sponsored plan contemplated. Medicaid is the joint Federal-state program which provides primarily medical care to low-income Americans pursuant to Title XIX of the Social Security Act, 42 U.S.C. 1396et seq.Section 1396a(a)(25)(G) of that Title requires that each State Medicaid plan prohibit any health insurer, including an employer-sponsored group health plan, “from taking into account that [an] individual is eligible for or is provided medical assistance” under a State Medicaid plan when making enrollment or benefit payment decisions. In light of this specific prohibition under the Medicaid law, the Commission declines to apply its exemption to employer-sponsored group health plans that coordinate benefits with an individual's eligibility for or receipt of Medicaid.

While expressing overall support for the proposed rule, two organizations requested that the Commission provide a definition of the term “retiree health benefits” in Section 1625.32(a) of the rule. Both commenters also requested that the Commission make clear that no inference is intended as to how the ADEA might apply to non-health retiree benefits, such as life insurance or disability programs.

Section 1625.32(c) of the rule provides that the exemption shall be narrowly construed. The only practice exempted by the rule is the coordination of employer-sponsored retiree health benefits with eligibility for Medicare or a comparable State health benefits program. No other aspects of ADEA coverage or benefits other than retiree health benefits are affected by the exemption. In order to further clarify the scope of the exemption, the Commission has added an additional statement to the rule explaining that the exemption only applies to retiree health benefits and not other non-health retiree benefits. The Commission also revised question and answer five in the Appendix to better reflect the scope of the exemption.

In light of these revisions, the Commission concludes that adding a definition of retiree health benefits is unnecessary. Section 1625.32 and the accompanying Appendix set forth the types of employer-sponsored health benefits that may be permissibly coordinated with eligibility for Medicare or a comparable State health benefits program pursuant to the exemption. Under Paragraph (b) of Section 1625.32, the exemption applies to any employee benefit plan that provides health benefits for retired workers that are coordinated with eligibility for Medicare or a comparable State health benefits program. The Appendix further makes clear that the exemption applies to employer-sponsored health benefits that are provided to a retired worker's spouse or dependents. The Commission does not believe that further clarification of the types of employer-sponsored retiree health benefits covered by the rule is needed.

Several commenters, although generally supportive of the proposed rule, expressed concern about the statement in the Appendix that the ADEA continues to apply to retirees to the same extent that it did prior to the issuance of the exemption. These commenters argued that the ADEA, as amended by OWBPA, only protects older workers, not retirees. It is the Commission's position, however, that all of the anti-discrimination statutes also protect former employees when they are subjected to discrimination arising from the former employment relationship.8

Several commenters requested that EEOC clarify how the rule would apply to existing employer-sponsored retiree health benefit plans. Until the Third Circuit's ruling inErie County,many employers designed coordinating retiree health benefit plans in reliance on statements in the legislative history to OWBPA that the practice of eliminating, reducing, or altering employer-sponsored retiree health benefits with Medicare eligibility is lawful under the ADEA. It is the Commission's intent to allow employers to continue the practice of coordinating retiree health benefits with Medicare eligibility with as little disruption as possible. The Commission does not believe that additional changes to the rule are required in order to achieve this result. The Appendix to the rule states that the Commission will apply the exemption to all retiree health benefits that coordinate with Medicare (or acomparable State health benefits plan), whether or not those benefits are provided for in an existing or newly created employee benefit plan.

The Commission received seventeen comments from advocacy organizations and other groups representing retirees that did not support the Commission's proposal. These commenters questioned the Commission's authority to issue an exemption for the practice of coordinating employer-sponsored retiree health benefits with Medicare eligibility. Many of these commenters also argued that an exemption is inconsistent with the primary purposes of the ADEA. Three of these organizational commenters also asserted that the Commission did not sufficiently support the need for an exemption to the Act. In addition, the Commission received approximately 30,000 letters from individual citizens (the majority of which were a form letter) expressing concern that employers might reduce or even eliminate the health benefits of Medicare-eligible retirees in response to the EEOC's proposal.

Section 9 of the ADEA provides that EEOC “may establish such reasonable exemptions to and from any or all provisions of [the Act] as it may find necessary and proper in the public interest.” Implicit in this authority is the recognition that the application of the ADEA could, in certain circumstances, foster unintended consequences that are not consistent with the purposes of the law and are not in the public interest. Such circumstances are rare. However, after carefully studying the issue and reviewing the public comments received in response to the NPRM, the Commission concludes that the practice of coordinating employer-sponsored retiree health benefits with Medicare eligibility presents a circumstance that warrants Commission exercise of its authority under Section 9.

The Commission does not agree that EEOC lacks the authority to enact such a rule. Section 9 confers broad discretion on the Commission to issue rules and regulations interpreting the ADEA and to establish reasonable exemptions from any or all prohibitions of the Act.9 Nor is the Commission persuaded that the rule is inconsistent with the primary purposes of the ADEA. Given the continuing decline in the availability of employer-provided retiree health benefits, and the disincentive to provide such benefits created by the Third Circuit's ruling and the Commission's prior policy, this final rule reasonably addresses a problem confronting older Americans. The Commission is persuaded that, in order to comply with the Commission's prior policy, many employers would reduce the overall level of health benefits they offer to retirees or cease providing such benefits altogether, leaving many retirees without access to affordable health coverage. Indeed, the Commission has been presented with evidence that some public school districts already have reduced the health benefits they provide to retirees in response to the Commission's prior policy. Clearly, this result is inconsistent with the Act's primary purpose of protecting older workers.

Finally, the Commission believes it has provided the strong and affirmative showing required to justify an exemption from the Act. The Commission conducted a comprehensive study of the relationship between the ADEA and retiree health benefits before it published its NPRM. As part of that study, the Commission met with a wide range of interested parties, including employers, employee and retiree groups, labor unions, human resource consultants, benefits consultants, actuaries, and state and local government representatives. Labor unions, benefits experts, and public and private sector employers all agreed that the Commission's prior policy would have a deleterious effect on the provision of employer-sponsored retiree health benefits, especially given the numerous other factors negatively impacting the availability of such benefits.

Public comments filed in response to the Commission's NPRM only buttress this conclusion. Several organizations representing public school districts and employees noted that many school districts responded to the Commission's prior policy by reducing the overall level of retiree health coverage they were providing or by eliminating the benefit altogether. Moreover, this is what ultimately happened inErie County.After the county made changes to its retiree health benefit plans to comply with the court's ruling, the net effect was a decrease in health benefits for retirees generally; older retirees received no better health benefits, while younger retirees were required to pay more for health benefits that offered fewer choices.

Various other proposals considered by the Commission did not adequately protect and preserve the important employer practice of providing health coverage for retirees. Many of the alternative proposals considered would have required complex calculations regarding the costs of retiree health care.10 Given the number of variables involved in these calculations, including numerous subjective factors that are difficult to quantify, the Commission concludes that none of the alternatives considered would adequately address the incentive created by the Commission's prior policy to eliminate employer-sponsored retiree health coverage. It is the Commission's view that the ADEA should not present a barrier for employers and labor unions to provide the broadest possible health coverage for retirees. Accordingly, after reviewing all data, views, and arguments presented, EEOC is persuaded that a narrow exemption from the prohibitions of the ADEA for the practice of coordinating employer-sponsored retiree health benefits with Medicare eligibility is necessary and proper in the public interest.

AARP filed suit to enjoin publication and implementation of the exemption on Feb. 4, 2005, alleging,inter alia,that the exemption violated the ADEA and the Administrative Procedure Act. AARP argued that the rule was age discriminatory because it would allow employers to reduce the benefits of older retirees.11

The EEOC agreed not to publish the exemption rule until the district court ruled on AARP's challenges. Although the court initially ruled in favor of AARP on March 30, 2005, it subsequently reversed itself and entered summary judgment in favor of the EEOC on September 27, 2005, finding that the Commission did not exceed its authority in issuing this exemption, that the exemption was not arbitrary or capricious, and that theErie Countycase did not render the exemption invalid. However, the court did continue its injunction prohibiting publication of the exemption until the Third Circuit could resolve AARP's promised appeal.

The Third Circuit resolved AARP's appeal on June 4, 2007, holding that the EEOC properly exercised its exemption power under Section 9 of the ADEA,thereby affirming the district court's decision and lifting the injunction that prohibited publication of the final rule.12 The court, noting the Commission's evidence that (1) health care costs continue to rise, (2) employers are not required to provide any retiree health care benefits, and (3) some employers chose to avoid ADEA discrimination by reducing retiree health benefits, specifically rejected AARP's argument that the EEOC exceeded its authority under the ADEA as follows:

AARP asked the Third Circuit to rehear the caseen banc, but that request was denied on August 21, 2007. AARP then petitioned the Supreme Court for a stay of the Third Circuit's mandate pending AARP's writ of certiorari, but that request was denied on September 19, 2007. AARP filed its writ of certiorari asking the Supreme Court to review the Third Circuit's decision on November 20, 2007.

The Commission made a minor editorial change to Section 1625.32(a)(3) by changing the word “are” to “is.” The change is not intended to alter the definition of a comparable State health benefit plan for purposes of the exemption. The Commission also simplified the language in question and answer three in the Appendix.

This final rule has been drafted and reviewed in accordance with Executive Order 12866, Section 1(b), Principles of Regulation. This rule is considered a significant regulatory action, but not economically significant, under section 3(f)(4) of that Order and therefore was reviewed by the Office of Management and Budget (OMB). As discussed below, the rule exempts certain practices from the prohibitions of the ADEA in order to ensure that employers may offer retirees a wide range of health plan designs that coordinate with Medicare without violating the Act.

Labor organizations, employees, and employers favor coordinating retiree health plans with Medicare benefits as a way to provide affordable health coverage for older Americans.14 The final rule benefits employers by allowing them to continue to coordinate retiree health benefits with Medicare. It will decrease, not increase, costs to covered employers by reducing the risks of liability for noncompliance with the statute.15 Further, this rule also will benefit retirees by eliminating the incentive for employers to reduce or eliminate retiree health coverage in order to comply with the equal benefit/equal cost defense.16 Thus, the rule should not adversely affect in a material way the economy, a sector of the economy, productivity, competition, jobs, the environment, public health or safety, or State and local tribal governments or communities.

The ADEA applies to all employers with at least 20 employees. 29 U.S.C. § 630(b). The Act prohibits covered employers from discriminating against an employee or job applicant who is at least 40 years of age. 29 U.S.C. 623, 631. According to Census Bureau information, approximately 1,976,216 establishments employed 20 or more employees in 2000.17

The exemption would apply to all covered employers who provide health benefits to their retirees. In 2001, the GAO concluded that about one-third of large employers and less than 10% of small employers provided such benefits to current retirees.18 According to the GAO, in 1999, such employer-sponsored health plans were relied on by 10 million retired individuals aged 55 and over as either their primary source of health coverage or as a supplement to Medicare coverage.19

After the Commission took the position that the practice of coordinating retiree health benefits with Medicare eligibility was unlawful unless an employer could meet the equal benefit/equal cost test set forth in Section 4(f)(2)(B)(i) of the ADEA, labor unions and employers expressed concern that the easiest way for an employer-sponsored retiree health plan to comply with the Commission's policy was to reduce or eliminate already existing retiree health benefit coverage. This result has become increasingly likely given the myriad other factors impacting the availability of employer-sponsored retiree health benefits.

In recent years, the cost of employee health care has consistently increased, making it difficult for employers to continue to provide retiree health benefits.20 As explained in the NPRM, two widely-cited surveys of employer-sponsored health plans—(1) the Health Research and Educational Trust survey sponsored by The Henry J. Kaiser Family Foundation (Kaiser/HRET) and (2) the William M. Mercer, Incorporated survey (formerly produced by Foster Higgins) (Mercer/Foster Higgins)—estimate that premiums for employer-sponsored health insurance increased an average of about 11% in 2001.21 These studies also identify how cost increases were expected to continue and how such ongoing premium increases are particularly difficult for small employers to cover and continue offering retiree health benefits.22

Pursuant to the authority granted in 33 U.S.C. 1605, the Department of the Navy amends 32 CFR part 706. This amendment provides notice that the Deputy Assistant Judge Advocate General (Admiralty and Maritime Law), under authority delegated by the Secretary of the Navy, has certified that USS FREEDOM(LCS 1) is a vessel of the Navy which, due to its special construction and purpose, cannot fully comply with the following specific provisions of 72 COLREGS without interfering with its special function as a naval ship: Annex I, paragraph 2(a)(i), pertaining to the location of the forward masthead light at a height not less than 12 meters above the hull; Annex I, paragraph 3 (a), pertaining to the location of the forward masthead light in the forward quarter of the ship and the horizontal distance between the masthead lights shall not be less than one-half of the length of the vessel; Annex I, paragraph 2(i)iii, pertaining to the three lights in the task light array being equally spaced; Rule 27, paragraph (b) ii, pertaining to the three all-round lights in a vertical line where they can best be seen. The Deputy Assistant Judge Advocate General (Admiralty and Maritime Law) has also certified that the lights involved are located in closest possible compliance with the applicable 72 COLREGS requirements.

Moreover, it has been determined, in accordance with 32 CFR Parts 296 and 701, that publication of this amendment for public comment prior to adoption is impracticable, unnecessary, and contrary to public interest since it is based on technical findings that the placement of lights on this vessel in a manner differently from that prescribed herein will adversely affect the vessel's ability to perform its military functions.

In a notice published in theFederal Registeron December 12, 2003 (68 FR 69312), the Secretary exercised the authority granted to her by the HEROES Act of 2003 and announced the waivers and modifications of statutory or regulatory provisions that were appropriate to assist individuals who are applicants and recipients of student financial assistance under Title IV of the Higher Education Act of 1965, as amended (HEA), and who—

• Are serving on active military duty during a war or other military operation or national emergency;

• Are performing qualifying National Guard duty during a war or other military operation or national emergency;

• Reside or are employed in an area that is declared a disaster area by any Federal, State, or local official in connection with a national emergency; or

• Suffered direct economic hardship as a direct result of a war or other military operation or national emergency, as determined by the Secretary.

Under the terms of the HEROES Act of 2003, the Secretary's authority to provide the waivers and modifications would expire on September 30, 2005. On September 30, 2005, Pub. L. 109-78 extended the expiration date of the Secretary's authority to September 30, 2007. Accordingly, the Secretary extended the expiration of the waivers and modifications published on December 12, 2003, in a notice in theFederal Registerpublished on October 20, 2005 (70 FR 61037).

On September 30, 2007, the President signed into law Public Law 110-93, which eliminated the September 30, 2007, expiration date of the HEROES Act of 2003, thereby making permanent the Secretary's authority to issue waivers and modifications of statutory and regulatory provisions under the HEROES Act of 2003. As a result, we are extending the waivers and modifications announced by the Secretary in the notice published in theFederal Registeron December 12, 2003. The actions will remain in effect until September 30, 2012, unless the Secretary issues a notice in theFederal Registerterminating or changing those actions before September 30, 2012.

The Secretary intends to review the waivers and modifications published on December 12, 2003, in light of recent statutory and regulatory changes. After completing that review, the Secretary will consider whether to change some or all of the published waivers and modifications. Any changes to these waivers and modifications will be published in a notice in theFederal Registeras required by the HEROES Act of 2003.

You can view this document, as well as other documents of this Department published in theFederal Register, in text or Adobe Portable Document Format (PDF) on the Internet at thefollowing site:http://www.ed.gov/news/fedregister.

To use PDF you must have Adobe Acrobat Reader, which is available free at this site. If you have questions about using PDF, call the U.S. Government Printing Office (GPO), toll free, at 1-888-293-6498; or in the Washington, DC, area at (202) 512-1530.

Table of Contents I. What Is the Background for the Actions? II. What Actions Is EPA Taking? III. Why Is EPA Taking These Actions? IV. What Are the Effects of These Actions? V. Final Action VI. When Is This Action Effective? VII. Statutory and Executive Order Reviews I. What Is the Background for the Actions?

On June 7, 2007, North Carolina, through NCDENR, submitted a request to redesignate the Triangle Area to attainment for the 8-hour ozone standard, and for EPA approval of the North Carolina SIP revision containing a maintenance plan for the Triangle Area. In an action published on October 3, 2007 (72 FR 56312), EPA proposed to approve the redesignation of the Triangle Area to attainment. EPA also proposed approval of North Carolina's SIP revision including a plan for maintaining the 8-hour NAAQS as a SIP revision, and proposed to approve the new subarea1 2008 and 2017 NOXMVEBs, and the VOC insignificance determination for the Triangle Area that were contained in the maintenance plan. In the October 3, 2007, proposed action, EPA also provided information on the status of its transportation conformity adequacy determination for the Triangle Area subarea NOXMVEBs and VOC insignificance determination. EPA received no comments on theOctober 3, 2007, proposal. This rule is EPA's final action following the October 3, 2007, proposal.

In this action, EPA is also announcing its finding that the new subarea NOXMVEBs for the Triangle Area and the VOC insignificance determination are adequate for transportation conformity purposes. The new subarea NOXMVEBs included in the maintenance plan are as follows:

EPA's adequacy public comment period on the subarea NOXMVEBs and the VOC insignificance determination began on March 21, 2007, and closed on April 20, 2007. No comments were received during EPA's adequacy public comment period. Through thisFederal Registerdocument, EPA is finding the new subarea 2008 and 2017 NOXMVEBs, as contained in North Carolina's submittal, adequate. These subarea NOXMVEBs meet the adequacy criteria contained in the transportation conformity rule. The new subarea NOXMVEBs must be used for future transportation conformity determinations. EPA is also finding adequate North Carolina's demonstration that the VOC emissions from motor vehicles are insignificant, and therefore no MVEBs are necessary for VOC. As a result of this finding (and approval which is discussed later in this rulemaking), the transportation partners are not required to complete a regional emissions analysis for VOC as a precursor for the 8-hour ozone standard for transportation conformity, but all of the other transportation conformity requirements must be met.

As was discussed in greater detail in the October 3, 2007, proposal, this redesignation is for the Triangle Area's 8-hour ozone designation finalized in 2004 (69 FR 23857, April 30, 2007). Various aspects of EPA's Phase 1 8-hour ozone implementation rule were challenged in court and on December 22, 2006, the U.S. Court of Appeals for the District of Columbia Circuit (D.C. Circuit Court) vacated EPA's Phase 1 Implementation Rule for the 8-hour Ozone Standard. (69 FR 23951, April 30, 2004).South Coast Air Quality Management Dist. (SCAQMD)v.EPA,472 F.3d 882 (DC.Cir. 2006). On June 8, 2007, in response to several petitions for rehearing, the DC Circuit Court clarified that the Phase 1 Rule was vacated only with regard to those parts of the rule that had been successfully challenged. Therefore, the Phase 1 Rule provisions related to classifications for areas currently classified under subpart 2 of title I, part D of the CAA as 8-hour nonattainment areas, the 8-hour attainment dates and the timing for emissions reductions needed for attainment of the 8-hour ozone NAAQS remain effective. The June 8th decision left intact the Court's rejection of EPA's reasons for implementing the 8-hour standard in certain nonattainment areas under subpart 1 in lieu of subpart 2. By limiting the vacatur, the Court let stand EPA's revocation of the 1-hour standard and those anti-backsliding provisions of the Phase 1 Rule that had not been successfully challenged. The June 8th decision affirmed the December 22, 2006, decision that EPA had improperly failed to retain measures required for 1-hour nonattainment areas under the anti-backsliding provisions of the regulations: (1) Nonattainment area New Source Review (NSR) requirements based on an area's 1-hour nonattainment classification; (2) Section 185 penalty fees for 1-hour severe or extreme nonattainment areas; and (3) measures to be implemented pursuant to section 172(c)(9) or 182(c)(9) of the CAA, on the contingency of an area not making reasonable further progress toward attainment of the 1-hour NAAQS, or for failure to attain that NAAQS. The June 8th decision clarified that the Court's reference to conformity requirements for anti-backsliding purposes was limited to requiring the continued use of 1-hour MVEBs until 8-hour budgets were available for 8-hour conformity determinations, which is already required under EPA's conformity regulations. The Court thus clarified that 1-hour conformity determinations are not required for anti-backsliding purposes.

With respect to the requirement for transportation conformity under the 1-hour standard, the Court in its June 8th decision clarified that for those areas with 1-hour MVEBs in their 1-hour maintenance plans, anti-backsliding requires only that those 1-hour budgets must be used for 8-hour conformity determinations until replaced by 8-hour budgets. To meet this requirement, conformity determinations in such areas must continue to comply with the applicable requirements of EPA's conformity regulations at 40 CFR Part 93. A portion of the Triangle Area was previously designated nonattainment for the 1-hour ozone standard and thus has 1-hour MVEBs which are currently being used in that area to demonstrate transportation conformity.

For the above reasons, and those set forth in the October 3, 2007, proposal for the redesignation of the Triangle Area, EPA does not believe that the Court's rulings alter any requirements relevant to this redesignation action so as to preclude redesignation, and do not prevent EPA from finalizing this redesignation. EPA believes that the Court's December 22, 2006, and June 8, 2007, decisions impose no impediment to moving forward with redesignation of the Triangle Area to attainment. Even in light of the Court's decisions, redesignation is appropriate under the relevant redesignation provisions of the CAA and longstanding policies regarding redesignation requests.

EPA is taking final action to approve North Carolina's redesignation request and to change the legal designation of the Triangle Area from nonattainment to attainment for the 8-hour ozone NAAQS. EPA is also approving North Carolina's 8-hour ozone maintenance plan for the Triangle Area (such approval being one of the CAA criteria for redesignation to attainment status). The maintenance plan is designed to help keep the Triangle Area in attainment for the 8-hour ozone NAAQS through 2017. These approval actions are based on EPA's determination that North Carolina has demonstrated that the Triangle Area has met the criteria for redesignation to attainment specified in the CAA, including a demonstration that the Triangle Area has attained the 8-hour ozone standard. EPA's analyses of North Carolina's 8-hour ozone redesignation request and maintenance plan are described in detail in the proposed rule published October 3, 2007 (72 FR 56312).

Consistent with the CAA, the maintenance plan that EPA is approving also includes new subarea 2008 and 2017 MVEBs for NOX; and a VOC insignificance determination for the Triangle Area. In this action, EPA is approving these new subarea 2008 and 2017 NOXMVEBs, and the VOC insignificance determination for the Triangle Area. For regional emission analysis years that involve years prior to 2017, the applicable budgets (for the purpose of conducting transportation conformity analyses) are the new subarea 2008 NOXMVEBs. For regional emission analysis years that involve the year 2017 and beyond, the applicablebudgets, for the purpose of conducting transportation conformity analyses, are the new subarea 2017 NOXMVEBs. In this action, EPA is also finding adequate and approving the Triangle Area's new subarea MVEBs for NOX. Further, EPA is finding adequate and approving the VOC insignificance determination for motor vehicles' contribution to the 8-hour ozone pollution for the Triangle Area.

EPA is also making corrections to inadvertent errors made to Table 1. “TRIANGLE SUBAREA NOXMVEBS,” Table 6. “TRIANGLE SUBAREA NOXMVEBs,” and Table 7. “NOXSAFETY MARGIN ALLOCATION” in the proposed rulemaking published on October 3, 2007 (72 FR 56312). The error was the misspelling of Granville County as “Graham County.” See the corrected tables below:

EPA has determined that the Triangle Area has attained the 8-hour ozone standard and has also determined that North Carolina has demonstrated that all other criteria for the redesignation of the Triangle Area from nonattainment to attainment of the 8-hour ozone NAAQS have been met. See, section 107(d)(3)(E) of the CAA. EPA is also taking final action to approve the maintenance plan for the Triangle Area as meeting the requirements of sections 175A and 107(d) of the CAA. Furthermore, EPA is finding adequate and approving the new subarea 2008 and 2017 NOXMVEBs, and the VOC insignificance determination contained in North Carolina's maintenance plan because these MVEBs and the insignificance determination are consistent with maintenance for the Triangle Area. In the October 3, 2007, proposal to redesignate the Triangle Area, EPA described the applicable criteria for redesignation to attainment and its analysis of how those criteria have been met. The rationale for EPA's findings and actions is set forth in the proposed rulemaking and summarized in this rulemaking.

Approval of the redesignation request changes the legal designation of the Triangle Area for the 8-hour ozone NAAQS, found at 40 CFR Part 81. The approval also incorporates into the North Carolina SIP a plan for maintaining the 8-hour ozone NAAQS in the Triangle Area through 2017. The maintenance plan includes contingency measures to remedy future violations of the 8-hour ozone NAAQS, and a VOC insignificance determination under 40 CFR 93.109(k) for regional motor vehicle emissions contribution to the 8-hour ozone pollution in the Triangle Area. Additionally, the maintenance plan establishes new subarea NOXMVEBs for the years 2008 and 2017 for each county in the Triangle Area. These subarea budgets are established for each metropolitan planning organization (MPO), and in some instances, counties that are “donut areas.” The conformity rule defines a donut area as the portion of a metropolitan nonattainment or maintenance area that is located outside an MPO's planning boundary (40 CFR 93.101). Donut areas are not considered isolated rural nonattainment and maintenance areas under the transportation conformity rule.

Sections 93.124(c) and (d) of the transportation conformity rule provide the regulatory mechanism for establishing and implementing subarea SIP budgets. In July 2004, EPA released a guidance document that provided additional details for implementing conformity in multi-jurisdictional areas, including establishing subarea SIP budgets in areas with multiple MPOs, entitled “Companion Guidance for the July 1, 2004 Final Transportation Conformity Rule Conformity Implementation in Multi-Jurisdictional Nonattainment and Maintenance Areas for Existing and New Air Quality Standards,” EPA 420-B-04-012. While that guidance did not address the case where subarea budgets are established for a donut area, such budgets can be established in a manner consistent with the requirements of the CAA that ensures that conformity determinations in the Triangle Area will continue to meet federal conformity requirements.

EPA believes that statutory and regulatory requirements can be met for the entire nonattainment or maintenance area if conformity is determined for every subarea SIP budget at least every four years. Only by meeting all subarea SIP budgets can the SIP's overall purpose be met. As described on page 21 of the 2004 guidance, CAA section 176(c) states that the federal government and MPOs cannot approve transportation activities unless they conform to the SIP and its budgets. In a nonattainment or maintenance area with more than one MPO, all MPOs must conform even if the SIP has established subarea budgets. EPA believes that this same legal standard applies in the case where the SIP establishes a subarea budget for a donut area.

In the case of the Triangle Area 8-hour ozone SIP, subarea budgets have been established for the Area's MPOs and donut areas. Conformity determinations must be completed for all subarea budgets according to the statutory requirement to determine conformity at least every four years in areas with MPOs, transportation plans, and Transportation Improvement Programs (TIPs). MPOs must determine conformity to their respective transportation plans and TIPs every four years, and the interagency consultation process for the Triangle Area should ensure that conformity is demonstrated to any subarea budget for a donut area at least every four years as well. In theevent that an MPO or donut area cannot demonstrate conformity on a four-year cycle, the other subareas cannot complete a conformity determination until all subareas conform. See, EPA's 2004 guidance (pages 20-21) for further information regarding the conformity implications of not meeting subarea budgets.

After evaluating North Carolina's redesignation request, EPA is taking final action to approve the redesignation and change the legal designation of the Triangle Area from nonattainment to attainment for the 8-hour ozone NAAQS. Through this action, EPA is also approving into the North Carolina SIP the 8-hour ozone maintenance plan for the Triangle Area, which includes the subarea 2008 and 2017 MVEBs for NOX, and VOC insignificance determination for the entire Triangle Area. Within 24 months from the publication date for this final rule, the North Carolina transportation partners will need to demonstrate conformity to these new subarea NOXMVEBs pursuant 172(c)(2)(E) of the CAA as added by the Safe, Accountable, Flexible, Efficient Transportation Equity Act—A Legacy for Users (SAFETEA-LU), which was signed into law on August 10, 2005. Additionally, the Triangle Area transportation partners should note EPA's finding of adequacy and approval for the VOC insignificance determination in future transportation conformity determinations.

EPA finds that there is good cause for these determinations (approval of redesignation and 10-year maintenance plan, including the 2017 MVEBs) to become effective on December 26, 2007, because a delayed effective date is unnecessary due to the nature of these determinations, which relieves the Triangle Area from certain CAA requirements that otherwise would apply to it. The expedited effective date for this action is authorized under both 5 U.S.C. 553(d)(1), which provides that rule actions may become effective less than 30 days after publication if the rule “grants or recognizes an exemption or relieves a restriction” and section 5 U.S.C. 553(d)(3), which allows an effective date less than 30 days after publication “as otherwise provided by the agency for good cause found and published with the rule.”

A redesignation to attainment relieves the Triangle Area from certain CAA requirements that otherwise would apply to it. North Carolina's relief from these obligations is sufficient reason to allow an expedited effective date of this rule under 5 U.S.C. 553(d)(1) and provides good cause to make this rule effective December 26, 2007, pursuant to 5 U.S.C. 553(d)(3). The purpose of the 30-day waiting period prescribed in 5 U.S.C. 553(d) is to give affected parties a reasonable time to adjust their behavior and prepare before the final rule takes effect. Whereas here, the final rule relieves obligations associated with nonattainment designations rather than imposing these obligations on affected parties, such as the State of North Carolina. Therefore, there is no need for time to adjust and prepare before the rule takes effect.

Under Executive Order 12866 (58 FR 51735, October 4, 1993), this action is not a “significant regulatory action” and therefore is not subject to review by the Office of Management and Budget. For this reason, this action is also not subject to Executive Order 13211, “Actions Concerning Regulations That Significantly Affect Energy Supply, Distribution, or Use” (66 FR 28355, May 22, 2001). This action merely approves state law as meeting Federal requirements and imposes no additional requirements beyond those imposed by state law. Accordingly, the Administrator certifies that this rule will not have a significant economic impact on a substantial number of small entities under the Regulatory Flexibility Act (5 U.S.C. 601,et seq.). Because this rule approves 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 (Pub. L.104-4).

This rule also does not have tribal implications because it will 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, as specified by Executive Order 13175 (65 FR 67249, November 9, 2000). This action also does not have Federalism implications because it does 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). This action merely affects the status of a geographical area, does not impose any new requirements on sources or allow a state to avoid adopting or implementing other requirements, and does not alter the relationship or the distribution of power and responsibilities established in the CAA. This rule also is not subject to Executive Order 13045, “Protection of Children from Environmental Health Risks and Safety Risks” (62 FR 19885, April 23, 1997), because it is not economically significant and because the Agency does not have reason to believe that the rule concerns an environmental health risk or safety risk that may disproportionately affect children.

In reviewing SIP submissions, EPA's role is to approve state choices, provided that they meet the criteria of the CAA. In this context, in the absence of a prior existing requirement for the State to use voluntary consensus standards (VCS), EPA has no authority to disapprove a SIP submission for failure to use VCS. It would thus be inconsistent with applicable law for EPA, when it reviews a SIP submission, to use VCS in place of a SIP submission that otherwise satisfies the provisions of the CAA. 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. 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.).

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

Under section 307(b)(1) of the CAA, petitions for judicial review of this action must be filed in the United States Court of Appeals for the appropriate circuit byFebruary 25, 2008. Filing a petition for reconsideration by the Administrator of this final rule does not affect the finality of this rule for the purposes of judicial review nor does it extend the time within which a petitionfor judicial review may be filed, and shall not postpone the effectiveness of such rule or action. This action may not be challenged later in proceedings to enforce its requirements. (See, section 307(b)(2) of the CAA).

EPA is taking final action to approve Iowa's State Plan, submitted on August 15, 2006, and the incorporation by reference date changes submitted on April 26, 2007. In its State Plan, Iowa has met CAMR by requiring certain coal-fired EGUs to participate in the EPA-administered cap-and-trade program addressing Hg emissions. EPA proposed to approve Iowa's request to amend the State's Plan on September 5, 2007 (72 FR 50913). No comments were received. EPA is finalizing the approval as proposed based on the rationale stated in the proposal and in this final action.

CAMR was published by EPA on May 18, 2005 (70 FR 28606, “Standards of Performance for New and Existing Stationary Sources: Electric Utility Steam Generating Units; Final Rule”). In this rule, acting pursuant to its authority under section 111(d) of the Clean Air Act (CAA), 42 U.S.C. 7411(d), EPA required that all States and the District of Columbia (all of which are referred to herein as States) meet Statewide annual budgets limiting Hg emissions from coal-fired EGUs (as defined in 40 CFR 60.24(h)(8)) under CAA section 111(d). EPA required all States to submit State Plans with control measures that ensure that total, annual Hg emissions from the coal-fired EGUs located in the respective States do not exceed the applicable statewide annual EGU mercury budget. Under CAMR, States may implement and enforce these reduction requirements by participating in the EPA-administered cap-and-trade program or by adopting any other effective and enforceable control measures.

CAA section 111(d) requires States, and along with CAA section 301(d) and the Tribal Air Rule (40 CFR part 49) allows Tribes granted treatment as States (TAS), to submit State Plans to EPA that implement and enforce the standards of performance. CAMR explains what must be included in State Plans to address the requirements of CAA section 111(d). The State Plans were due to EPA by November 17, 2006. Under 40 CFR 60.27(b), the EPA proposes, and subsequently approves or disapproves, the State Plans.

CAMR establishes Statewide annual EGU Hg emission budgets and is to be implemented in two phases. The first phase of reductions starts in 2010 and continues through 2017. The second phase of reductions starts in 2018 and continues thereafter. CAMR requires States to implement the budgets by either: (1) Requiring coal-fired EGUs to participate in the EPA-administered cap-and-trade program; or (2) adopting other coal-fired EGU control measures of the respective State's choosing and demonstrating that such control measures will result in compliance with the applicable State annual EGU Hg budget.

Each State Plan must require coal-fired EGUs to comply with the monitoring, recordkeeping, and reporting provisions of 40 CFR part 75 concerning Hg mass emissions. Each State Plan must also show that the State has the legal authority to adopt emission standards and compliance schedules necessary for attainment and maintenance of the State's annual EGU Hg budget and to require the owners and operators of coal-fired EGUs in the State to meet the monitoring, recordkeeping, and reporting requirements of 40 CFR part 75.

Each State Plan must impose control requirements that the State demonstrates will limit Statewide annual Hg emissions from new and existing coal-fired EGUs to the amount of the State's applicable annual EGU Hg budget. States have the flexibility to choose the type of EGU control measures they will use to meet the requirements of CAMR. EPA anticipates that many States will choose to meet the CAMR requirements by selecting an option that requires EGUs to participate in the EPA-administered CAMR cap-and-trade program. EPA also anticipatesthat many States may choose to control Statewide annual Hg emissions for new and existing coal-fired EGUs through an alternative mechanism other than the EPA-administered CAMR cap-and-trade program. Each State that chooses an alternative mechanism must include with its plan a demonstration that the State Plan will ensure that the State will meet its assigned State annual EGU Hg emission budget.

A State submitting a State Plan that requires coal-fired EGUs to participate in the EPA-administered CAMR cap-and-trade program may either adopt regulations that are substantively identical to the EPA model Hg trading rule (40 CFR part 60, subpart HHHH) or incorporate by reference the model rule. CAMR provides that States may only make limited changes from the model rule if the States want to participate in the EPA-administered trading program. A State Plan may deviate from the model rule only by altering the allowance allocation provisions to provide for State-specific allocation of Hg allowances using a methodology chosen by the State. A State's alternative allowance allocation provisions must meet certain allocation timing requirements and must ensure that total allocations for each calendar year will not exceed the State's annual EGU Hg budget for that year.

In this action, EPA is taking final action to approve Iowa's State Plan that adopts the annual EGU Hg budgets established for the State in CAMR, i.e., 0.727 tons for EGU Hg emissions in 2010-2017 and 0.287 tons for EGU Hg emissions in 2018 and thereafter. Iowa's State Plan sets these budgets as the total amount of allowances available for allocation for each year under the EPA-administered CAMR cap-and-trade program.

The Iowa State Plan requires coal-fired EGUs to participate in the EPA-administered CAMR cap-and-trade program. The State Plan incorporates by reference the EPA model Hg trading rule but has adopted an alternative allowance allocation methodology. States may establish in their State Plan submissions a different Hg allowance allocation methodology that will be used to allocate allowances to sources in the States if certain requirements are met concerning the timing of submission of units' allocations to the Administrator for recordation and the total amount of allowances allocated for each control period. In adopting alternative Hg allowance allocation methodologies, States have flexibility with regard to:

1. The cost to recipients of the allowances, which may be distributed for free or auctioned;

2. The frequency of allocations;

3. The basis for allocating allowances, which may be distributed, for example, based on historical heat input or electric and thermal output; and

4. The use of allowance set-asides and, if used, their size.

In Iowa's alternative allowance methodology, as authorized by the CAMR, Iowa has deviated from the portion of the model rule, described above, relating to the basis for allocating allowances to new units commencing operation on or after January 1, 2001. In Iowa's rule 567-34.304, the State has limited the timeframe within which a unit can meet the requirements to apply for allowances under the new unit set-aside to units that commence operation on or after January 1, 2001, and commence construction before January 1, 2006. As a result, one facility meets this criterion and is provided the full allocation under the new source set-aside for both phases amounting to 5 percent of the State's budget for phase I and 3 percent for phase II. Also in the section relating to new units, in the event a generator is served by two or more units, the nameplate capacity will be attributed to each unit in equal fraction of the total nameplate capacity multiplied by 7900 British Thermal Units per Kilowatt Hour for the determination of heat input for each unit.

Iowa's State Plan requires coal-fired EGUs to comply with the monitoring, recordkeeping, and reporting provisions of 40 CFR part 75 concerning Hg mass emissions. Iowa's State Plan also demonstrates that the State has the legal authority to adopt emission standards and compliance schedules necessary for attainment and maintenance of the State's annual EGU Hg budget and to require the owners and operators of coal-fired EGUs in the State to meet the monitoring, recordkeeping, and reporting requirements of 40 CFR part 75. Iowa cites Section 455B.133 of the Iowa Code, which contains the broad enabling authority for Iowa's air pollution control regulations, as containing the legal authority for the Iowa Environmental Protection Commission to adopt the State's rule that allows for Iowa's participation in the nationwide cap and trade program for mercury.

Iowa has addressed the issue related to the definition of “permit authority” discussed in the proposal of September 5, 2007 (72 FR 50913). As discussed in more detail in that notice, on February 17, 2007, EPA provided a letter to Iowa that requested and outlined necessary definition revisions for all rules intended to meet the Clean Air Interstate Rule (CAIR) and CAMR. The EPA requested revisions were adopted by the Iowa Environmental Protection Commission on October 1, 2007, and were published in the Iowa Administrative Code on October 24, 2007. The revisions became State effective on November 28, 2007. Once submitted to EPA, and through separate rulemaking, EPA will act on the State's revisions to its 111(d) plan for CAMR and its SIP for CAIR.

EPA's review of Iowa's State Plan has found that it meets the requirements of CAMR. As a result, EPA is taking final action to approve Iowa's State Plan.

Under Executive Order 12866 (58 FR 51735, October 4, 1993), this action is not a “significant regulatory action” and therefore is not subject to review by the Office of Management and Budget. For this reason, this action is also not subject to Executive Order 13211, “Actions Concerning Regulations That Significantly Affect Energy Supply, Distribution, or Use” (66 FR 28355, May 22, 2001). This action merely approves State law as meeting Federal requirements and imposes no additional requirements beyond those imposed by State law. Accordingly, the Administrator certifies that this rule would 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 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 (Pub. L. 104-4).

This action also does not have Tribal implications because it would not have a substantial direct effect on one or more Indian tribes, on the relationship between the Federal Government and Indian tribes, or on the distribution of power and responsibilities between the Federal Government and Indian tribes, as specified by Executive Order 13175 (65 FR 67249, November 9, 2000).

This action also does not have Federalism implications because it doesnot 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). This action merely approves a State rule implementing a Federal standard. It does not alter the relationship or the distribution of power and responsibilities established in the CAA. This action also is not subject to Executive Order 13045 “Protection of Children from Environmental Health Risks and Safety Risks” (62 FR 19885, April 23, 1997), because it approves a State rule implementing a Federal standard.

Executive Order 12898, “Federal Actions to Address Environmental Justice in Minority Populations and Low-Income Populations,” requires Federal agencies to consider the impact of programs, policies, and activities on minority populations and low-income populations. EPA guidance1 states that EPA is to assess whether minority or low-income populations face risk or a rate of exposure to hazards that is significant and that “appreciably exceed[s] or is likely to appreciably exceed the risk or rate to the general population or to the appropriate comparison group.” (EPA, 1998) Because this rule merely approves a state rule implementing the Federal standard established by CAMR, EPA lacks the discretionary authority to modify today's regulatory decision on the basis of environmental justice considerations. However, EPA has already considered the impact of CAMR, including this Federal standard, on minority and low-income populations. In the context of EPA's CAMR published in theFederal Registeron May 18, 2005, in accordance with Executive Order 12898, the Agency has considered whether CAMR may have disproportionate negative impacts on minority or low income populations and determined it would not.

In reviewing State Plan submissions, EPA's role is to approve State choices, provided that they meet the criteria of the CAA. In this context, in the absence of a prior existing requirement for the State to use voluntary consensus standards (VCS), EPA has no authority to disapprove a State Plan for failure to use VCS. It would thus be inconsistent with applicable law for EPA, when it reviews a State Plan submission, to use VCS in place of a State Plan submission that otherwise satisfies the provisions of the CAA. 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. 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.).

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

Under section 307(b)(1) of the CAA, petitions for judicial review of this action must be filed in the United States Court of Appeals for the appropriate circuit byFebruary 25, 2008.Filing a petition for reconsideration by the Administrator of this final rule does not affect the finality of this rule for the purposes of judicial review nor does it extend the time within which a petition for judicial review may be filed, and shall not postpone the effectiveness of such rule or action. This action may not be challenged later in proceedings to enforce its requirements. (See section 307(b)(2).)

On September 18, 2007 EPA published a direct final rule for “Nonroad Diesel Technical Amendments and Tier 3 Technical Relief Provision” (72 FR53118). We stated in that direct final rule that if we received adverse comment by October 18, 2007, we would publish a timely withdrawal in theFederal Register. EPA subsequently received adverse comments to Tier 3 technical relief provision in 40 CFR 89.102(i) through (m). Although we were not able to accomplish this action prior to the effective date of the direct final rule, we are now, in light of the adverse comment, withdrawing the direct final rule's revisions to 40 CFR 89.102 paragraphs (i) through (m). The other provisions of the the direct final rule are not affected by this partial withdrawal and are incorporated into theFederal Registeras of the effective date of November 18, 2007 direct final action.

Concurrent with the direct final rule, we published a separate notice of proposed rulemaking, to provide for the contingency of adverse comments on the DFR. (72 FR 53294). We are now issuing a final rule based on the notice of proposed rulemaking and on comments received. Notice and an opportunity for additional comment on the withdrawal of the direct final rule is unnecessary, within the meaning of 5 U.S.C. 553(b)(B). EPA has a legal obligation to withdraw those portions of the direct final rule that were subject to adverse comments[j1]. In addition, by its terms, the direct final rule would become effective only in the absence of adverse comment.

[j2]In today's final rule, EPA is adopting the technical relief provisions originally proposed as 40 CFR 89.102 paragraphs (i) through (m), including a variety of modifications to address the comments received. The main comment EPA received was to correct an inappropriate cross-reference in the rule language, and this final rule corrects this inadvertent drafting error as the commenter properly suggested. We made the changes the commenter properly suggested. The provision on technical relief is now found in paragraph (i) exclusively.

We responded to comments that did not require changes to the rule in a memo to the docket. One concern of the commenter was that manufacturers may ask for more relief than is needed. The rule is clear that the Agency is not obligated to provide any amount of technical relief if the Agency is not convinced of the need for it. The other concern of the commenter was that manufacturers that use the Tier 3 technical relief may request additional relief for Tier 4 equipment. Manufacturers are aware of this provision in advance of Tier 4 so manufacturers should be able to reconcile their Tier 3 and Tier 4 relief needs.

You may be potentially affected by this action if you are an agricultural producer, food manufacturer, or pesticide manufacturer. Potentially affected entities may include, but arenot limited to those engaged in the following activities:

•Crop production (NAICS code 111), e.g., agricultural workers; greenhouse, nursery, and floriculture workers; farmers.

•Animal production (NAICS code 112), e.g., cattle ranchers and farmers, dairy cattle farmers, livestock farmers.

•Food manufacturing (NAICS code 311), e.g., agricultural workers; farmers; greenhouse, nursery, and floriculture workers; ranchers; pesticide applicators.

•Pesticide manufacturing (NAICS code 32532), e.g., agricultural workers; commercial applicators; farmers; greenhouse, nursery, and floriculture workers; residential users.

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

In addition to accessing an electronic copy of thisFederal Registerdocument through the electronic docket athttp://www.regulations.gov, you may access thisFederal Registerdocument electronically through the EPA Internet under the “Federal Register” listings athttp://www.epa.gov/fedrgstr. You may also access a frequently updated electronic version of EPA's tolerance regulations at 40 CFR part 180 through the Government Printing Office's pilot e-CFR site athttp://www.gpoaccess.gov/ecfr.

Under section 408(g) of FFDCA, any person may file an objection to any aspect of this regulation and may also request a hearing on those objections. You must file your objection or request a hearing on this regulation in accordance with the instructions provided in 40 CFR part 178. To ensure proper receipt by EPA, you must identify docket ID number EPA-HQ-OPP-2007-0309 in the subject line on the first page of your submission. All requests must be in writing, and must be mailed or delivered to the Hearing Clerk as required by 40 CFR part 178 on or before February 25, 2008.

In addition to filing an objection or hearing request with the Hearing Clerk as described in 40 CFR part 178, please submit a copy of the filing that does not contain any CBI for inclusion in the public docket that is described inADDRESSES. Information not marked confidential pursuant to 40 CFR part 2 may be disclosed publicly by EPA without prior notice. Submit this copy, identified by docket ID number EPA-HQ-OPP-2007- 0309, by one of the following methods:

•Federal eRulemaking Portal:http://www.regulations.gov. Follow the on-line instructions for submitting comments.

•Mail: Office of Pesticide Programs (OPP) Regulatory Public Docket (7502P), Environmental Protection Agency, 1200 Pennsylvania Ave., NW., Washington, DC 20460-0001.

•Delivery: OPP Regulatory Public Docket (7502P), Environmental Protection Agency, Rm. S-4400, One Potomac Yard (South Bldg.), 2777 S. Crystal Dr., Arlington, VA. Deliveries are only accepted during the Docket's normal hours of operation (8:30 a.m. to 4 p.m., Monday through Friday, excluding legal holidays). Special arrangements should be made for deliveries of boxed information. The Docket Facility telephone number is (703) 305-5805.

In theFederal Registerof June 27, 2007 (72 FR 35237) (FRL-8133-4), EPA issued a notice pursuant to section 408(d)(3) of FFDCA, 21 U.S.C. 346a(d)(3), announcing the filing of a pesticide petition (PP 6E7150) by the IR-4, 500 College Road East, Suite 201 W, Princeton, NJ 08540. The petition requested that 40 CFR 180.593 be amended by establishing a tolerance for residues of the insecticide etoxazole, 2-(2,6-difluorophenyl)-4-[4-(1,1-dimethylethyl)-2-ethoxyphenyl]-4,5-dihydrooxazole, in or on cherry at 0.70 parts per million (ppm), hops, dried cones, at 7.0 ppm, and melon subgroup 9A at 0.15 ppm. That notice referenced a summary of the petition prepared by Valent U.S.A. Corporation, the registrant, which is available to the public in the docket,http://www.regulations.gov. There were no comments received in response to the notice of filing.

Based upon current data supporting the petition, EPA has corrected the commodity definition and revised proposed tolerance levels as follows:

1. For commodity cherry, a revised tolerance at 1.0 ppm from 0.70 ppm; and

2. For the melon subgroup, the crop definition has been changed from “melon subgroup 9A” to “vegetable, cucurbit subgroup 9A” and the tolerance revised from 0.15 to 0.20 ppm.

Section 408(b)(2)(A)(i) of FFDCA allows EPA to establish a tolerance (the legal limit for a pesticide chemical residue in or on a food) only if EPA determines that the tolerance is “safe.” Section 408(b)(2)(A)(ii) of FFDCA defines “safe” to mean that “there is a reasonable certainty that no harm will result from aggregate exposure to the pesticide chemical residue, including all anticipated dietary exposures and all other exposures for which there is reliable information.” This includes exposure through drinking water and in residential settings, but does not include occupational exposure. Section 408(b)(2)(C) of FFDCA requires EPA to give special consideration to exposure of infants and children to the pesticide chemical residue in establishing a tolerance and to “ensure that there is a reasonable certainty that no harm will result to infants and children from aggregate exposure to the pesticide chemical residue....” These provisions were added to FFDCA by the Food Quality Protection Act (FQPA) of 1996.

Consistent with FFDCA section 408(b)(2)(D), and the factors specified in FFDCA section 408(b)(2)(D), EPA has reviewed the available scientific data and other relevant information in support of this action. EPA has sufficient data to assess the hazards of and to make a determination on aggregate exposure for the petitioned-for tolerance for residues of in or on cherry, sweet at 0.60 ppm, cherry, tart at 0.20 ppm, hop, dried cones, at 5.0 ppm, and vegetable, cucurbit subgroup 9A at 0.15 ppm. EPA's assessment of exposures and risks associated with establishing the tolerance follows.

EPA has evaluated the available toxicity data and considered their validity, completeness, and reliability as well as the relationship of the results of the studies to human risk. EPA has also considered available information concerning the variability of the sensitivities of major identifiable subgroups of consumers, including infants and children. Specific information on the studies received and the nature of the adverse effects caused by etoxazole as well as the no-observed-adverse-effect-level (NOAEL) and the lowest-observed-adverse-effect-level (LOAEL) from the toxicity studies canbe found athttp://www.regulations.gov. The referenced document is available in the docket established by this action, which is described under Docket #: EPA-HQ-OPP-2007-0309 and is identified in that docket as PP 6E7150; Revised: Etoxazole in/on Cherries, Hops, and Melon Subgroup 9A; Health Effects Division (HED) Risk Assessment.

For hazards that have a threshold below which there is no appreciable risk, the toxicological level of concern (LOC) is derived from the highest dose at which no adverse effects are observed (the NOAEL) in the toxicology study identified as appropriate for use in risk assessment. However, if a NOAEL cannot be determined, the lowest dose at which adverse effects of concern are identified (the LOAEL) is sometimes used for risk assessment. Uncertainty/safety factors (UFs) are used in conjunction with the LOC to take into account uncertainties inherent in the extrapolation from laboratory animal data to humans and in the variations in sensitivity among members of the human population as well as other unknowns. Safety is assessed for acute and chronic risks by comparing aggregate exposure to the pesticide to the acute population adjusted dose (aPAD) and chronic population adjusted dose (cPAD). The aPAD and cPAD are calculated by dividing the LOC by all applicable UFs. Short-term, intermediate-term, and long-term risks are evaluated by comparing aggregate exposure to the LOC to ensure that the margin of exposure (MOE) called for by the product of all applicable UFs is not exceeded.

For non-threshold risks, the Agency assumes that any amount of exposure will lead to some degree of risk and estimates risk in terms of the probability of occurrence of additional adverse cases. Generally, cancer risks are considered non-threshold. For more information on the general principles EPA uses in risk characterization and a complete description of the risk assessment process, seehttp://www.epa.gov/fedrgstr/EPA-PEST/1997/November/Day-26/p30948.htm.

A summary of the toxicological endpoints for etoxazole used for human risk assessment can be found athttp://www.regulations.govin document PP#: 6E7150. Revised: Etoxazole in/on Cherries, Hops, and Melon Subgrou 9A. Health Effects Division (HED) Risk Assessment in docket ID number EPA-HQ-OPP-2007-0309.

Dietary exposure from food and feed uses. In evaluating dietary exposure to etoxazole, EPA considered exposure under the petitioned-for tolerances as well as all existing etoxazole tolerances in (40 CFR 180.593 EPA assessed dietary exposures from etoxazole in food as follows:

i.Acute exposure. Quantitative acute dietary exposure and risk assessments are performed for a food-use pesticide, if a toxicological study has indicated the possibility of an effect of concern occurring as a result of a 1-day or single exposure.

An endpoint of concern attributable to a single oral dose was not selected for either the general U.S. population (including infants and children) or the females 13-50 years old population subgroup for etoxazole. The EPA evaluated the suitability of the developmental toxicity study in rabbits in which the developmental NOAEL of 200 mg/kg/day is based upon increased incidences of 27 presacral vertebrae and 27 presacral vertebrae with 13th ribs (skeletal variations) in the fetuses at the LOAEL of 1,000 mg/kg/day (limit dose). Although these developmental effects may be attributed to a single dose, the EPA concluded that etoxazole is unlikely to pose an acute risk because these effects are minor in magnitude and were observed only at the limit dose (1000 mg/kg/day). Therefore, an acute dietary exposure assessment was not performed.

ii.Chronic exposure. In conducting the chronic dietary exposure assessment EPA used DEEM-FCID, Version 2.03), which incorporates consumption data from United States Department of Agriculture's (USDA's) Continuing Surveys of Food Intakes by Individuals (CSFII), 1994-1996 and 1998. The 1994-96, 1998 data are based on the reported consumption of more than 20,000 individuals over two non-consecutive survey days. Foods “as consumed” (e.g., apple pie) are linked to EPA-defined food commodities (e.g. apples, peeled fruit - cooked; fresh or N/S; baked; or wheat flour - cooked; fresh or N/S, baked) using publicly available recipe translation files developed jointly by USDA/ARS and EPA. Consumption data are averaged for the entire U.S. population and within population subgroups for chronic exposure assessment.

An unrefined, chronic dietary exposure assessment was conducted for the general U.S. population and various population subgroups using EPA-calculated residues of concern (parent and metabolites) for livestock commodities and tolerance-level residues for all other commodities. For all registered and proposed uses, 100% crop treated (CT) information was used, as well as DEEM 7.81 default processing factors for all commodities other than apple and grape (apple and grape residue data showed that there was no concentration in processed commodities; therefore; these default values were set to 1).

iii.Cancer. EPA classified etoxazole as “not likely to be carcinogenic to humans”. This decision was based on the lack of carcinogenicity in two studies in mice, lack of carcinogenicity in one study in rats, and the lack of hormonal and reproductive effects in special studies. Etoxozole is not a mutagen. Therefore, an exposure assessment related to cancer risk was not performed.

2.Dietary exposure from drinking water. The Agency lacks sufficient monitoring data to complete a comprehensive dietary exposure analysis and risk assessment for etoxazole in drinking water. Because the Agency does not have comprehensive monitoring data, drinking water concentration estimates are made by reliance on simulation or modeling taking into account data on the environmental fate characteristics of etoxazole. Further information regarding EPA drinking water models used in pesticide exposure assessment can be found athttp://www.epa.gov/oppefed1/models/water/index.htm.

The Agency conducted Tier 1 estimated drinking water concentrations (EDWCs) for etoxazole in assessing water exposure. Environmental fate data indicate that parent (etoxazole) has low mobility and relatively low persistence in soil. The major route of degradation based on the label use pattern will likely be aerobic soil degradation. Based on the aerobic soil metabolism study, Metabolite R-8 was found as a major degradate in 4 out of 5 soils tested, with a maximum of 38% of the applied dose. Metabolite R-8 is mobile and relatively persistent and could be available for runoff and leaching for periods of up to months. Metabolite R-13 was also found as a major degradate in 3 out of 5 soils tested, with a maximum of 30.0% (at 62 days) in an aerobic soil metabolism study. Based on submitted mobility data, Metabolite R-13 appears to be immobile. The Agency believes that metabolites R-8 and R-13 are likely to have similar toxicity to the parent; and, therefore, should be included in the drinking water assessment. Metabolites R-4 and R-7 were also found in aerobic soil dissipation studies, but less frequently. EPA concluded that theinclusion of Metabolite R-8 should cover the exposure from R-4 and R-7. In summary, the Agency finds that for drinking water risk assessment, the residues of concern are parent, Metabolite R-8, and Metabolite R-13.

FQPA Index Reservoir Screening Tool (FIRST) and Screening Concentrations In Ground Water (SCI-GROW) models were used to calculate the chronic surface water and groundwater EDWCs (parent and metabolites), respectively. Drinking water was incorporated directly in the dietary assessment using the acute concentration for surface water generated by the FIRST model. Tier 1 EDWCs results for etoxazole and metabolites R-8 and R-13 show annual average surface water concentrations of 0.332 parts per billion (ppb), 0.913 ppb and 0.0285 ppb, respectively. Tier 1 EDWCs results for etoxazole and metabolites R-8 and R-13 show ground water concentrations of 0.00173ppb, 0.316 ppb and 0.000322 ppb, respectively.

Modeled estimates of drinking water concentrations were directly entered into the dietary exposure model. For chronic dietary risk assessment, the total sum of the annual average surface water concentrations for etoxazole and metabolites R-8 and R-13 of 1.27 ppb was used to assess the contribution to drinking water.

3.From non-dietary exposure. The term “residential exposure” is used in this document to refer to non-occupational, non-dietary exposure (e.g., for lawn and garden pest control, indoor pest control, termiticides, and flea and tick control on pets).

Etoxazole is not registered for use in or on any sites that would result in residential exposure.

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

Unlike other pesticides for which EPA has followed a cumulative risk approach based on a common mechanism of toxicity, EPA has not made a common mechanism of toxicity finding as to etoxazole and any other substances and etoxazole does not appear to produce a toxic metabolite produced by other substances. For the purposes of this tolerance action, therefore, EPA has not assumed that etoxazole has a common mechanism of toxicity with other substances. For information regarding EPA's efforts to determine which chemicals have a common mechanism of toxicity and to evaluate the cumulative effects of such chemicals, see EPA's website athttp://www.epa.gov/pesticides/cumulative.

1.In general. Section 408 of FFDCA provides that EPA shall apply an additional (“10X”) tenfold margin of safety for infants and children in the case of threshold effects to account for prenatal and postnatal toxicity and the completeness of the database on toxicity and exposure unless EPA determines based on reliable data that a different margin of safety will be safe for infants and children. This additional margin of safety is commonly referred to as the FQPA safety factor. In applying this provision, EPA either retains the default value of 10X when reliable data do not support the choice of a different factor, or, if reliable data are available, EPA uses a different additional FQPA safety factor value based on the use of traditional UFs and/or special FQPA safety factors, as appropriate.

2.Prenatal and postnatal sensitivity. No quantitative or qualitative evidence of increased susceptibility was seen followingin uteroexposure to rats or rabbits in developmental studies. Offspring toxicity was more severe (pup mortality) than maternal toxicity (increased liver and adrenal weights) at the same dose in the rat reproduction study.

Since there is qualitative evidence of increased susceptibility following exposure to etoxazole in the rat reproduction study, the EPA performed a Degree-of-Concern Analysis to:

i. Determine the LOC for the effects observed when considered in the context of all available toxicity data; and

ii. Identify any residual uncertainties after establishing toxicity endpoints and traditional uncertainty factors to be used in the risk assessment of this chemical. There is evidence of increased qualitative susceptibility in the rat reproduction study, but the concern is low since:

a. The effects in pups are well-characterized with a clear NOAEL;

b. The pup effects occur at the same dose as maternal toxicity; and,

c. The doses selected for various risk assessment scenarios are lower than the doses that caused off spring toxicity.

Therefore, there are no residual uncertainties for pre-/post-natal toxicity in this study.

3.Conclusion. EPA has determined that reliable data show that it would be safe for infants and children to reduce the FQPA safety factor to 1X. That decision is based on the following findings:

i. The toxicity database for etoxazole is complete for FQPA assessment.

ii. There is no indication that etoxazole is a neurotoxic chemical and there is no need for a developmental neurotoxicity study or additional UFs to account for neurotoxicity.

iii. No quantitative or qualitative evidence of increased susceptibility was seen followingin uteroexposure to rats or rabbits in developmental studies. Although there is qualitative evidence of increased susceptibility in the rat reproduction study, the Agency did not identify any residual uncertainties after establishing toxicity endpoints and traditional UFs to be used in the risk assessment of etoxazole. The degree of concern for prenatal and/or postnatal toxicity is low.

iv. There are no residual uncertainties identified in the exposure databases. The chronic dietary food exposure assessment utilizes EPA-calculated residues of concern (parent and metabolites) for livestock commodities; tolerance-level residues for other commodities; and 100% crop treated (CT) information for all proposed uses. By using these screening-level assumptions, actual exposures/risks will not be underestimated. The dietary drinking water assessment utilized modeling results which included conservative assumptions for the parent and all degradates of concern. Conservative assumptions were used in the water models. Therefore, the water exposure assessment will not underestimate the potential risks for infant and children.

v. There are no registered or proposed residential uses for etoxazole.

Safety is assessed for acute and chronic risks by comparing aggregate exposure to the pesticide to the aPAD and cPAD. The aPAD and cPAD are calculated by dividing the LOC by all applicable UFs. For linear cancer risks, EPA calculates the probability of additional cancer cases given aggregate exposure. Short-term, intermediate-term, and long-term risks are evaluated by comparing aggregate exposure to the LOC to ensure that the MOE called for by the product of all applicable UFs is not exceeded.

1.Acute risk. An acute aggregate risk assessment was not performed because an endpoint of concern attributable to a single oral dose was not selected for any population subgroup (including infantsand children). No acute risk is expected from exposure to etoxazole.

2.Chronic risk. Using the exposure assumptions described in this unit for chronic exposure, EPA has concluded that exposure to etoxazole from food and water will utilize 8.3% of the cPAD for children 1-2 years old, the most highly exposed population subgroup. There are no residential uses for etoxazole that result in chronic residential exposure to etoxazole. Therefore, EPA does not expect the aggregate exposure to exceed 100% of the cPAD.

3.Short-term and intermediate-term risk. Short-term and intermediate-term aggregate exposure takes into account residential exposure plus chronic exposure to food and water (considered to be a background exposure level).

Etoxazole is not registered or proposed for use on any sites that would result in residential exposure. Therefore, the aggregate risk is the sum of the risk from food and water, which do not exceed the Agency's LOC.

4.Aggregate cancer risk for U.S. population. A cancer aggregate risk assessment was not performed because etoxazole is not carcinogenic. Etoxazole is not expected to pose a cancer risk to humans.

5.Determination of safety. Based on these risk assessments, EPA concludes that there is a reasonable certainty that no harm will result to the general population, or to infants and children from aggregate exposure to etoxazole residues.

Adequate enforcement methodology is available to enforce the tolerance expression.

The following analytical enforcement methods have been validated: The gas chromatography/mass-selective detector (GC/MSD) method used to determine etoxazole residues in/on cherry matrices is a slightly modified version of a previously-validated method (Method RM-37HM). The validated limit of quantitation (LOQ) was 0.0037 ppm and the limit of detection (LOD) was 0.0012 ppm for etoxazole in/on cherries. The GC with nitrogen-phosphorus detector (NPD) method used to determine etoxazole residues in/on hop matrices is a modified version of a previously-validated method (Method RM-37). The validated LOQ was 0.2 ppm and the LOD was 0.1 ppm for etoxazole in/on dried hop cones.The nitrogen-phosphorus specific flame-ionization detector (NPD) method used to determine etoxazole residues in/on cantaloupe matrices is a slightly modified version of a previously-validated method (Method RM-37). The validated LOQ was 0.0046 ppm and the LOD was 0.0015 ppm for etoxazole in/on cantaloupe.

The methods may be requested from: Chief, Analytical Chemistry Branch, Environmental Science Center, 701 Mapes Road, Fort Meade, MD 20755-5350; telephone number: (410) 305-2905; e-mail address:residuemethods@epa.gov.

There are no established or proposed Codex, Canadian or Mexican maximum residue limits (MRLs) for etoxazole.

Therefore, tolerances are established for residues of the insecticide etoxazole, 2-(2,6-difluorophenyl)-4-[4-(1,1-dimethylethyl)-2-ethoxyphenyl]-4,5-dihydrooxazole, in or on cherry at 1.0 ppm, hop, dried cones at 7.0 ppm, and vegetable, cucurbit subgroup 9A at 0.20 ppm.

This final rule establishes a tolerance under section 408(d) of FFDCA in response to a petition submitted to the Agency. The Office of Management and Budget (OMB) has exempted these types of actions from review under Executive Order 12866, entitledRegulatory Planning and Review(58 FR 51735, October 4, 1993). Because this rule has been exempted from review under Executive Order 12866, 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) or Executive Order 13045, entitledProtection of Children from Environmental Health Risks and Safety Risks(62 FR 19885, April 23, 1997). This final rule does not contain any information collections subject to OMB approval under the Paperwork Reduction Act (PRA), 44 U.S.C. 3501et seq., nor does it require any special considerations under Executive Order 12898, entitledFederal Actions to Address Environmental Justice in Minority Populations and Low-Income Populations(59 FR 7629, February 16, 1994).

Since tolerances and exemptions that are established on the basis of a petition under section 408(d) of FFDCA, such as the tolerance in this final rule, do not require the issuance of a proposed rule, the requirements of the Regulatory Flexibility Act (RFA) (5 U.S.C. 601et seq.) do not apply.

This final rule directly regulates growers, food processors, food handlers, and food retailers, not States or tribes, nor does this action alter the relationships or distribution of power and responsibilities established by Congress in the preemption provisions of section 408(n)(4) of FFDCA. As such, the Agency has determined that this action will not have a substantial direct effect on States or tribal governments, on the relationship between the national government and the States or tribal governments, or on the distribution of power and responsibilities among the various levels of government or between the Federal Government and Indian tribes. Thus, the Agency has determined that Executive Order 13132, entitledFederalism(64 FR 43255, August 10, 1999) and Executive Order 13175, entitledConsultation and Coordination with Indian Tribal Governments(65 FR 67249, November 6, 2000) do not apply to this rule. In addition, This rule does not impose any enforceable duty or contain any unfunded mandate as described under Title II of the Unfunded Mandates Reform Act of 1995 (UMRA) (Public Law 104-4).

This action does not involve any technical standards that would require Agency consideration of voluntary consensus standards pursuant to section 12(d) of the National Technology Transfer and Advancement Act of 1995 (NTTAA), Public Law 104-113, section 12(d) (15 U.S.C. 272 note).

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

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

• Crop production (NAICS code 111).

• Animal production (NAICS code 112).

• Food manufacturing (NAICS code 311).

• Pesticide manufacturing (NAICS code 32532).

This listing is not intended to be exhaustive, but rather provides a guide for readers regarding entities likely to be affected by this action. Other types of entities not listed in this unit could also be affected. The North American Industrial Classification System (NAICS) codes have been provided to assist you and others in determining whether this action might apply to certain entities. To determine whether you or your business may be affected by this action, you should carefully examine the applicability provisions in section 5 of Federal Insecticide, Fungicide, and Rodenticide Act (FIFRA) and the regulations promulgated to carry out that provision of FIFRA (40 CFR part 172). If you have any questions regarding the applicability of this action to a particular entity, consult the person listed underFOR FURTHER INFORMATION CONTACT.

In addition to accessing an electronic copy of thisFederal Registerdocument through the electronic docket athttp://www.regulations.gov, you may access this “Federal Register” document electronically through the EPA Internet under the “Federal Register” listings athttp://www.epa.gov/fedrgstr. You may also access a frequently updated electronic version of 40 CFR part 180 through the Government Printing Office's pilot e-CFR site athttp://www.gpoaccess.gov/ecfr.

Under section 408(g) of FFDCA, as amended by FQPA, any person may file an objection to any aspect of this regulation and may also request a hearing on those objections. The EPA procedural regulations which govern the submission of objections and requests for hearings appear in 40 CFR part 178. You must file your objection or request a hearing on this regulation in accordance with the instructions provided in 40 CFR part 178. To ensure proper receipt by EPA, you must identify docket ID number EPA-HQ-OPP-2007-0545 in the subject line on the first page of your submission. All requests must be in writing, and must be mailed or delivered to the Hearing Clerk on or before February 25, 2008.

In addition to filing an objection or hearing request with the Hearing Clerk as described in 40 CFR part 178, please submit a copy of the filing that does not contain any CBI for inclusion in the public docket that is described inADDRESSES. Information not marked confidential pursuant to 40 CFR part 2 may be disclosed publicly by EPA without prior notice. Submit your copies, identified by docket ID number EPA-HQ-OPP-2007-0545, by one of the following methods.

•Federal eRulemaking Portal: http://www.regulations.gov. Follow the on-line instructions for submitting comments.

•Mail: Office of Pesticide Programs (OPP) Regulatory Public Docket (7502P), Environmental Protection Agency, 1200 Pennsylvania Ave., NW., Washington, DC 20460-0001.

•Delivery: OPP Regulatory Public Docket (7502P), Environmental Protection Agency, Rm. S-4400, One Potomac Yard (South Bldg.), 2777 S. Crystal Dr., Arlington, VA. Deliveries are only accepted during the Docket's normal hours of operation (8:30 a.m. to 4 p.m., Monday through Friday, excluding legal holidays). Special arrangements should be made for deliveries of boxed information. The Docket Facility telephone number is (703) 305-5805.

In theFederal Registerof August 8, 2007 (72 FR 44521) (FRL-8139-7), EPA issued a notice pursuant to section 408(d)(3) of FFDCA, 21 U.S.C. 346a(d)(3), announcing the filing of a pesticide tolerance petition (PP 7E7205) by Interregional Research Project Number 4 (IR-4), Rutgers University, 500 College Road East, Suite 201W, Princeton, NJ 08540 on behalf of the Arizona Cotton Research and Protection Council, 3721 E. Wier Ave., Phoenix, AZ 85040. The petition requested that 40 CFR 180.1206 be amended by establishing a temporary exemption from the requirement of a tolerance for residues ofAspergillus flavusAF36. This notice included a summary of the petition prepared by the petitioner IR-4, on behalf of the Arizona Cotton Research and Protection Council. There were no comments received in response to the notice of filing.

Section 408(c)(2)(A)(i) of FFDCA allows EPA to establish an exemption from the requirement for a tolerance (the legal limit for a pesticide chemical residue in or on a food) only if EPA determines that the exemption is “safe.” Section 408(c)(2)(A)(ii) of FFDCA defines “safe ” to mean that “there is a reasonable certainty that no harm will result from aggregate exposure to the pesticide chemical residue, including all anticipated dietary exposures and all other exposures for which there is reliable information.” This includes exposure through drinking water and in residential settings, but does not include occupational exposure. Pursuant to section 408(c)(2)(B) of FFDCA, in establishing or maintaining in effect an exemption from the requirement of a tolerance, EPA must take into account the factors set forth in section 408(b)(2)(C) of FFDCA, which require EPA to give special consideration to exposure of infants and children to the pesticide chemical residue in establishing a tolerance and to “ensure that there is a reasonable certainty that no harm will result to infants and children from aggregate exposure to the pesticide chemical residue....” Additionally, section 408(b)(2)(D) of FFDCA requires that the Agency consider “available information concerning the cumulative effects of a particular pesticide's residues” and “other substances that have a common mechanism of toxicity.”

EPA performs a number of analyses to determine the risks from aggregate exposure to pesticide residues. First, EPA determines the toxicity of pesticides. Second, EPA examines exposure to the pesticide through food, drinking water, and through other exposures that occur as a result of pesticide use in residential settings.

Consistent with section 408(b)(2)(D) of FFDCA, EPA has reviewed the available scientific data and other relevant information in support of this action and considered its validity, completeness, and reliability and the relationship of this information to human risk. EPA has also considered available information concerning the variability of the sensitivities of major identifiable subgroups of consumers, including infants and children.

The toxicological profile of the unconditionally registered microbial pesticideAspergillus flavusAF36 for use on cotton has been previously described in the final rule of theFederal Registerof July 14, 2003 (68 FR 41535). Those health effects data were the basis for establishing the exemption from tolerance ofAspergillus flavusAF36, a non-aflatoxin-producing strain ofAspergillus flavus, on cotton in 40 CFR 180.1206. This exemption from tolerance was amended to include a temporary exemption from tolerance for use ofAspergillus flavusAF36 on pistachio on May 23, 2007 (72 FR 28868) (FRL-8129-4). The database supporting the current exemption from tolerance also supports the proposed temporary exemption of this active ingredient on corn.

The pesticide is neither toxic nor infective via the oral and pulmonary routes. It was placed in Toxicity Category IV for acute oral effects. The Toxicity Category III designation for acute inhalation effects is based on the granular nature of the pesticide and the submitted pulmonary studies. This pesticide has been used for more than a decade in experimental laboratory and field trials and in agricultural practice on cotton in Arizona, California, and Texas without any reports of adverse dermal irritation or hypersensitivity effects.

The petitioner, Arizona Cotton Research and Protection Council, now seeks to amend that exemption from tolerance ofAspergillus flavusAF36 on cotton, to include a temporary exemption from tolerance for residues of the fungal active ingredient on corn. An Experimental Use Permit (EUP), EPA Registration Number 71693-EUP-E, is proposed for three years to treat corn fields by ground or aerial application before corn tasseling occurs. The applicant also submitted additional data to support the EUP. This data included information from the public literature and from small field trials which indicate that there will not be any incremental harm from the use of the pesticide during the EUP. No further toxicological data are required for this temporary exemption from the requirement of a tolerance forAspergillus flavusAF36 on corn.

In examining aggregate exposure, section 408 of FFDCA directs EPA to consider available information concerning exposures from the pesticide residue in food and all other non-occupational exposures, including drinking water from ground water or surface water and exposure through pesticide use in gardens, lawns, or buildings (residential and other indoor uses).

1.Food. The aforesaid final rule for the exemption from tolerance for residues ofAspergillus flavusAF 36 on cotton considered all studies submitted by the applicant and found them to be acceptable. Peeling or shucking of corn, washing, cooking, and processing of treated commodities will mitigate against potential dietary exposure.

2.Drinking water exposure. Those data are also acceptable to demonstrate that the proposed use ofAspergillus flavusAF36 on corn will not harm the U.S adult, infant, and children population from dietary exposure, including food and drinking water. Percolation through the soil and municipal treatment of drinking water are expected to preclude exposure of the U.S. population, infants, and children to residues of the pesticide.

1.Dermal exposure. Dermal non-occupational exposure is expected to be minimal to non-existent for the proposed use ofAspergillus flavusAF36 on corn. The pesticide is to be applied to agricultural sites not in the proximityof residential areas, schools, nursing homes, or daycares.

2.Inhalation exposure. For the same reasons non-occupational inhalation exposure to AF36 is expected to be minimal to non-existent.

Another non-aflatoxin-producing strain ofAspergillus flavus, NRRL 21882, is undergoing research trials on corn in Texas, but not in the same areas to be treated during this EUP for AF36. Cumulative effects of these strains are not expected to exceed the risk cup for the registeredAspergillus flavusstrains, AF36 and NRRL 21882. Furthermore, these strains are expected to decrease the presence of aflatoxin-producing colonies of the fungus on treated commodities and, thus, decrease the risks posed by the potent liver carcinogen, aflatoxin.

Based on the previously evaluated data, it is not necessary to use a safety factor to determine safety to children (seeFederal Registerof July 14, 2003 (68 FR 41535), as cited in Unit III.).

SeeFederal Registerof July 14, 2003 (68 FR 41535), as cited in Unit III.

SeeFederal Registerof July 14, 2003 (68 FR 41535), as cited in Unit III.

There is no Codex Maximum Residue Level (MRL) for residues ofAspergillus flavusAF36 on corn.

This final rule establishes a tolerance under section 408(d) of FFDCA in response to a petition submitted to the Agency. The Office of Management and Budget (OMB) has exempted these types of actions from review under Executive Order 12866, entitledRegulatory Planning and Review(58 FR 51735, October 4, 1993). Because this rule has been exempted from review under Executive Order 12866, 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) or Executive Order 13045, entitledProtection of Children from Environmental Health Risks and Safety Risks(62 FR 19885, April 23, 1997). This final rule does not contain any information collections subject to OMB approval under the Paperwork Reduction Act (PRA), 44 U.S.C. 3501et seq., nor does it require any special considerations under Executive Order 12898, entitledFederal Actions to Address Environmental Justice in Minority Populations and Low-Income Populations(59 FR 7629, February 16, 1994).

Since tolerances and exemptions that are established on the basis of a petition under section 408(d) of FFDCA, such as the tolerance in this final rule, do not require the issuance of a proposed rule, the requirements of the Regulatory Flexibility Act (RFA) (5 U.S.C. 601et seq.) do not apply.

This final rule directly regulates growers, food processors, food handlers, and food retailers, not States or tribes, nor does this action alter the relationships or distribution of power and responsibilities established by Congress in the preemption provisions of section 408(n)(4) of FFDCA. As such, the Agency has determined that this action will not have a substantial direct effect on States or tribal governments, on the relationship between the national government and the States or tribal governments, or on the distribution of power and responsibilities among the various levels of government or between the Federal Government and Indian tribes. Thus, the Agency has determined that Executive Order 13132, entitledFederalism(64 FR 43255, August 10, 1999) and Executive Order 13175, entitledConsultation and Coordination with Indian Tribal Governments(65 FR 67249, November 6, 2000) do not apply to this rule. In addition, this rule does not impose any enforceable duty or contain any unfunded mandate as described under Title II of the Unfunded Mandates Reform Act of 1995 (UMRA) (Public Law 104-4).

This action does not involve any technical standards that would require Agency consideration of voluntary consensus standards pursuant to section 12(d) of the National Technology Transfer and Advancement Act of 1995 (NTTAA), Public Law 104-113, section 12(d) (15 U.S.C. 272 note).

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

On June 21, 2007, the Council approved a motion to recommend that the Regional Administrator approve gear performance standards for additional gear types in the Eastern U.S./Canada Haddock SAP, or additional trawl gear in the Regular B DAS Program.

On October 15, 2007, NMFS published a proposed rule in theFederal Register(72 FR 58280) to amend the regulations on procedures and requirements to approve additional gear types for use in these two programs. Public comment was accepted through November 14, 2007, and two comments were received, as summarized below. The NE multispecies DAS effort control system and the history of these two programs were outlined in the proposed rule and are not repeated here.

This final rule also corrects an inadvertent omission by reinserting relevant regulatory text specific to the U.S./Canada Management Area gear requirements that was inadvertently removed through the final rule implementing Framework Adjustment 42 to the Northeast Multispecies Fishery Management Plan. Additional details were provided in the proposed rule and are not repeated here.

NMFS received two comments during the comment period for the proposed rule. These comments were submitted by the Council and by the Cape Cod Commercial Hook Fisherman's Association (CCCHFA). The specific issues raised in these two comments are addressed below.

Comment 1: The Council noted that the term “stock of concern” is only defined in the regulations as regulated groundfish stocks that are overfished or subject to overfishing and would not be applicable for non-regulated groundfish species.

Response: The proposed rule language specific to “other stocks of concern” was based upon the language in the original Council motion. To avoid any uncertainty about the phrase “other stocks of concern,” the regulatory language has been further modified to define such other stocks as other non-groundfish stocks that are overfished or subject to overfishing identified by the Council.

Comment 2: The Council commented that the proposed rule was unclear on whether the required reductions in catch were for all regulated groundfish or just stocks of concern. From Council discussions it is clear the intent was to limit the reductions to stocks that are overfished or are experiencing overfishing.

Response: The regulatory language has been modified to clarify that reductions are specific to stocks that are overfished or experiencing overfishing.

Comment 3: The CCCHFA commented that the NMFS Regional Administrator should have greater flexibility to add or remove gear from these programs based on how that gear is used in the fishery, and not solely on its performance in a controlled research setting.

Response: To be consistent with the Council's request for gear standards, and the purpose of allowing certain types of gear in areas where bycatch of groundfish stocks of concern may occur, rigorous experimental comparison is necessary to thoroughly demonstrate that a new proposed gear is comparable to those currently approved. The potential for bycatch, and the impacts of environmental conditions, vessel size, or crew behavior are difficult to properly account for when monitoring the performance of gear in the commercial fishery. However, the performance of gear in the fishery will continue to be monitored and the use of inappropriate modification or misuse of gear to negate the required catch reduction may result in removal of gear from these programs.

Comment 4: The CCCHFA stated that allowing the Council to specify which stocks are subject to the standard and which are not would reduce flexibility in these programs.

Response: This provision was included in the regulatory text specifically to increase the flexibility for both the Council and the NMFS Regional Administrator. If the regulations specified which stocks had to show reduced catch and which could sustain increased mortality, it would require a regulatory change to modify the regulations if rebuilt stocks, or stocks in relatively good condition, for example, declined in the future.

Comment 5: The CCCHFA expressed concern that experimental results may not translate well into gear performance in the fishery. Gear could be misused and either result in reduced harvest of the intended target species, or increased catch of bycatch species.

Response: The proper use of any approved gear is a legitimate concern. To the extent practical, important aspects of approved gear will be specified in the regulations. As noted in the response to Comment 3, the performance of gear in the fishery will continue to be monitored and possession limits, for example, could be adjusted to encourage the proper use of specific gear. If it becomes evident that a gear is not working effectively in the field, it may be removed from these programs.

NMFS has made changes to the proposed rule. In § 648.85, paragraphs (b)(6)(iv)(J)(2)(i) and (ii) have been revised, in response to comment and in order to be consistent with Council intent, by specifying that required catch reductions apply to regulated species stocks of concern and non-groundfish stocks that are overfished or subject to overfishing.

The Administrator, Northeast Region, NMFS, determined that the final rule is necessary for the conservation and management of the NE multispecies fishery and that it is consistent with the Magnuson-Stevens Fishery Conservation and Management Act and other applicable laws.

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

The Regional Administrator has determined that this final rule is a minor technical addition, correction, or change to a management plan and is therefore categorically excluded from the requirement to prepare an Environmental Impact Statement or equivalent document under the National Environmental Policy Act.

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 theproposed rule and is not repeated here. No comments were received regarding this certification or on the economic impacts of the proposed rule. As a result, a regulatory flexibility analysis was not required and none was prepared.

Fisheries, Fishing, Reporting and recordkeeping requirements.